Contracts Chapter on Repudiation

SITUATIONS & CONTRACTS
Chapter 14: Repudiation & Cancellation
This chapter considers a few effects of performance and non-performance of contracts.

The repudiation of a contract before the date set for performance is a form of prospective
non-performance. This possibility hovers over any contract in which the date set for
performance follows the date of contract formation. The first part of this chapter presents
cases that explore how the law should deal with prospective non-performance of contracts.
This chapter also deals with the actual non-performance of contracts, presenting cases that
focus on the breach of sales contracts by tender of non-conforming goods. As you have seen
in prior chapters, a breach of a contract may give rise to a remedy for damages or specific
performance. However, it is also worth considering whether and to what extent a breach of a
contract gives the breaching party a second chance—or a right to cure—a breach. Lastly,
following the performance of a contract, a party who has accepted performance may discover
a breach. What ability does the party who has accepted delivery of a good have to unwind
the contract following delivery? A plaintiff may far prefer to unwind a contract rather than to
accept a defective product and be limited to a damage remedy.
As you think about prospective non-performance as a form of breach, consider the
situations in which parties use contracts. Contracts provide a way for parties to manage the
future. Consider a few common situations that reflect planning for the future. If a buyer
wants to make sure she will have widgets to use in her assembly plant in three months, she
can contract with seller for the future delivery of widgets from seller's factory. This may be
easier for buyer from a planning perspective than attempting to purchase widgets in the
“spot” market three months from now when widgets might be scarce. The advance purchase
not only allows buyer to plan a production schedule for the assembly plant with more
confidence, but it also allows buyer to lock in a price for the widgets which may facilitate her
budgeting. Similarly, the seller may prefer advance contracting to making sales in the spot
market because it allows him to better manage factory production if some widgets have been
pre-sold. Seller too may prefer to lock in a price today rather than take his chances in the
market down the road after he has made the widgets.
Another common advance contracting situation is the vacation. Most of you will have
had the experience of planning for trips in which today you agree with a hotel to rent a room
at some future date. Advance planning of this sort is preferable to showing up in London
first, and then trying to find a hotel room after arrival. You make the advance reservation
because you do not want to take the risk of arriving in London without being able to find
acceptable accommodations after you arrive.
These situations exhibit a common schema: contract formation at time T1, the passage of
time, and then contract performance later at time T2. The structure of the schema presented
the following problem for the common law. What if, in the gap from T1 to T2, one of the
parties repudiates the contract by stating “I do not intend to perform. I repudiate our
contract!”? On the one hand, this scenario feels like it should constitute a breach of the
14-1
CHAPTER 14: REPUDIATION & CANCELLATION
contract. On the other hand, one might worry about how the contract can be breached prior to
the time fixed for performance. After all, the party who repudiates the contract may later
have a change of heart and decide to perform at time T2.
As you will see from the first case selection in this chapter, the common law answers the
question of breach in the affirmative by allowing the plaintiff to sue. However, this
“solution” to the problem leaves a number of questions unanswered. Recall that contract law
includes a doctrine of mitigation of damages. Must the injured party sue for performance and
immediately try to “cover” or can the injured party nevertheless await performance despite
the repudiation? If the repudiating party does have a change of heart, can the repudiating
party “reinstate” the contract by telling the injured party that he intends to perform after all,
and that he rescinds his prior repudiation?
The case of repudiation complicates the calculation of damages in any event. Recall that
the ordinary case of damage calculation in a sale of goods transaction requires a comparison
of the contract price for the goods with (i) the market price for the goods at the time and place
for tender (in the case of a breach by the buyer—§ 2-708) and (ii) the market price for the
goods at time that buyer learned of the breach (in the case of a breach by the seller—§ 2-713).
Note that the language used in the UCC is not symmetrical. The seller damage remedy is
computed at two fixed points: the contract price and the market price at the time and place for
tender. The anticipatory repudiation does not change these two points. The buyer damage
remedy is not fixed in this way because, though it uses the fixed point of the contract price,
the second point is measured by market price at the time that the buyer learned of the breach.
Though this “learned of” time may be the time and place fixed for tender if the seller simply
fails to deliver the goods, it need not be at this time. Indeed, in the case of an anticipatory
repudiation, the buyer learns of the breach in the gap period between time T1 and time T2.
Use of the “learned of” time to compute the buyer's damages creates several problems.
To see that this is so, consider the situation of an anticipatory repudiation by the seller during
a time of rising widget prices. Suppose the seller notifies the buyer of an anticipatory
repudiation late in the day on a Monday for a contract to purchase widgets for $7 each. It
may take the buyer some time to cover, even if the buyer decides to cover right away. If the
Monday widget price is $10 and the Tuesday widget price is $12, can the buyer seek the $2
differential in price for a total of $5 per widget or is the buyer limited to $3 per widget? Most
courts would, I believe, give the buyer the benefit of the doubt and allow the full $5
differential even though, as a technical matter, the price was lower when the buyer “learned
of the breach.” This result follows directly from § 2-712 which allows a buyer to seek as
damages the difference between the contract price and the cost of cover if the buyer makes
the covering purchase in good faith and without unreasonable delay. Remember, under § 2-
711 the buyer may chose to compute damages based on a variety of sections.
The problem is further complicated, however, by the fact that the UCC gives the buyer
the option in the case of an anticipatory repudiation to await performance for a commercially
reasonable time (i.e. the buyer need not seek an immediate cover—see § 2-610). In a market
of rising prices, suppose the buyer waits a week before trying to cover and during that week
the price of widgets has risen to $15. Is the buyer stuck with a $10 or $12 widget price to
14-2
compute damages or may the buyer seek to recover the full $5 price increase that has
occurred since the buyer learned of the breach?
Though a court should allow the buyer who actually tries to effect immediate cover to use
the actual cover price of $12 in computing damages, what should a court do with the buyer
who never tries to cover? Is that buyer stuck using the $10 price at the time he learned of the
breach or can the buyer nevertheless use the higher price of $12 (the applicable price for an
immediate cover) or $15 dollars—i.e. the prevailing market price a reasonable amount of
time following the time that the buyer learned of the breach? This is the problem confronted
by a court in Cosden Oil—the second case in this chapter.
Note that the problems in this schema do not end with difficulties in the damage
calculation. What if, in the gap period between time T1 and time T2, the buyer becomes
worried about the seller's performance? This concern might arise either because the seller
alerts the buyer to potential problems with his performance or because the buyer learns from
a third party source that the seller is experiencing performance problems. In the first case, the
law needs to distinguish between language of the seller that amounts to an actual repudiation
and language that merely expresses doubt or caution on the part of the seller. In the case of
the third party source, the law must distinguish between a reasonable concern over
performance and some lesser information that the law does not recognize as a legitimate
concern. Concern from a third party source might rise to the level of a repudiation, it might
not constitute a repudiation yet still be significant enough that the law offers some protection
or it may not be significant in any way that the law recognizes. You previously have
considered similar problems with the doctrine of offer and acceptance. What language
amounts to a counteroffer as distinguished from a mere inquiry? What kind of knowledge
from a third party source amounts to a retraction of an offer?
Note that the UCC gives a party the right to demand adequate assurance of future
performance in § 2-609 and allows a repudiating party the right, in certain circumstances, to
retract an anticipatory repudiation in § 2-611. The options available to a party confronted
with an anticipatory repudiation appear in § 2-610. As you review these sections, pay
particular attention to any identified time frames and any writing requirements and other
conditions associated with demands for adequate assurance of future performance, retraction
of a repudiation and similar matters.
Cancellation is, first and foremost, a remedy available to both a buyer and a seller for
breach of a sales contract under the UCC. A seller may cancel a contract in response to a
buyer's breach under § 2-703 (f) and a buyer may cancel a contract in response to a seller's
breach under § 2-711 (1). The UCC expressly states that the buyer may cancel and pursue
other remedies, such as seeking recovery of any purchase price paid as well as damages
computed in various ways. In the case of a seller, the ability to cancel is listed as a remedy
but, unlike in the case of a buyer, the UCC does not so clearly indicate that cancellation is a
cumulative remedy; however, the better reading is that cancellation for a seller also is a
cumulative remedy.
14-3
One key question for cancellation is when it can be invoked—particularly by a buyer.

General common law contract doctrine includes the “doctrine of substantial performance.”
According to this doctrine, a party is not in total breach of contract if the party substantially
performs the contract. Perfection is not required. Of course, even though a party may not be
in total breach based on the substantial performance of the contract, a court may make an
allowance to an “injured” party to reflect the failure of the other party to fully perform the
contract.
The classic situation that raises the issue of substantial performance is the construction
contract. The builder will assert a right to payment upon completing a job. The customer
will counter that the job has not been completed (or has not been completed according to the
specifications). The builder will assert the right to payment based on substantial performance
of the contract. The customer may counter that the uncured breach is material. If the builder
has substantially performed the contract, he will be entitled to payment of the purchase price,
though the customer has a claim for damages based on the shortfall in performance. If the
uncured breach amounts to a failure of substantial performance, the customer need not pay
the builder according to the contract, though the builder may then have a claim in restitution.
However, as an historical matter, the doctrine of substantial performance never found its
way into the common law of contracts for the sale of goods. In contrast, the common law of
sales developed the “perfect tender rule.” Under the perfect tender rule, a purchaser of goods
was free to reject the tender of nonconforming goods by a seller even if the nonconformity
was minor. The UCC has carried forward the perfect tender rule, see § 2-601; however, the
impact of this rule is softened to some extent by giving the seller the ability to cure a
defective tender under certain circumstances, see § 2-508.
A buyer may find herself in two different situations following the physical delivery of
goods. First, the buyer may decline to make a legal “acceptance” of the goods by rejecting
them. Significantly, a rejection of the goods need not be made immediately after the goods
are taken off the truck and transferred to the buyer's warehouse. Rejection of the goods may
be made within a reasonable time after their delivery or tender. See § 2-602. The buyer is in
the strongest position if she rejects the goods because rejection can be made for any non-
conformity. However, a second possibility presents itself. The buyer may make a legal
acceptance of the goods and thereafter revoke the acceptance. See § 2-608. Revocation of
acceptance is possible, however, only where the nonconformity substantially impairs the
value of the goods to the buyer. Thus, one area of dispute that can arise is a dispute over
whether the buyer rejected the goods or, instead, accepted the goods and thereafter attempted
to revoke the acceptance. Read the UCC sections that address these issues carefully before
you read the cases that interpret them.
HOCHSTER v. DE LA TOUR
(1853) 118 Eng. Rep. 922 (Q.B.)
[*923] On the trial before Erle, J., at the London sittings in last Easter Term, it appeared
that plaintiff was a courier, who in April, 1852, was engaged by defendant to accompany him
on a tour, to commence on 1st June, 1852, on the terms mentioned in the declaration. On the
14-4
11th May, 1852, defendant wrote to plaintiff that he had changed his mind, and declined his
services. He refused to make him any compensation. The action was commenced on 22d
May. The plaintiff, between the commencement of the action and the 1st of June, obtained an
engagement with Lord Ashburton, on equally good terms, but not commencing till July 4th.
The defendant’s counsel objected that there could be no breach of the contract before the 1st
of June. The learned judge was of a contrary opinion, but reserved leave to enter a nonsuit on
this objection. The other questions were left to the jury, who found for the plaintiff.
Hugh Hill, in the same term, obtained a rule nisi to enter a nonsuit or arrest the judgment.
[Arguments of counsel omitted].
LORD CAMPBELL, C.J.:

[*925] On this motion in arrest of judgment, the question arises, Whether, if there be an
agreement between A and B, whereby B engages to employ A on and from a future day for a
given period of time, to travel with him into a foreign country as a courier, and to start with
him in that capacity on that day, A being to receive a monthly salary during the continuance
of such service, B may, before the day, refuse to perform the agreement and break and
renounce it, so as to entitle A before the day to commence an action against B to recover
damages for breach of the agreement; A having been ready and willing to perform it, til it was
broken and renounced by B. The defendant’s counsel very powerfully contended that, if the
plaintiff was not contented to dissolve the contract and to abandon all remedy upon it, he was
bound [*926] to remain ready and willing to perform it till the day when the actual
employment as courier in the service of the defendant was to begin; and that there could be
no breach of the agreement before that day to give a right of action. But it cannot be laid
down as a universal rule that, whereby agreement an act is to be done on a future day, no
action can be brought for a breach of the agreement till the day for doing the act has arrived.
If a man promises to marry a woman on a future day, and before that day marries another
woman, he is instantly liable to an action for breach of promise of marriage; Short v. Stone (8
Q. B. 358). If a man contracts to execute a lease on and from a future day for a certain term,
and before that day executes a lease to another for the same term, he may be immediately
sued for breaking the contract; Ford v. Tiley (6 B. & C. 325). So, if a man contracts to sell and
deliver specific goods on a future day, and before the day he sells and delivers them to
another, he is immediately liable to an action at the suit of the person with whom he first
contracted to sell and deliver them; Bowdell v. Parsons (10 East, 359). One reason alleged in
support of such an action is, that the defendant has, before the day, rendered it impossible for
him to perform the contract at the day, but this does not necessarily follow; for prior to the
day fixed for doing the act, the first wife may have died, a surrender of the lease executed
might be obtained, and the defendant might have repurchased the goods so as to be in a
situation to sell and deliver them to the plaintiff. Another reason may be that, where there is a
contract to do an act on a future day, there is a relation constituted between the parties in the
meantime by the contract, and that they impliedly promise that in the meantime neither will
do anything to the prejudice of the other inconsistent with that relation. As for example, a
man and woman engaged to marry are affianced to one another during the period between the
time of engagement and the celebration of marriage. In this very case of traveller and courier,
14-5
from the day of hiring till the day when the employment was to begin, they were engaged to
each other; and it seems to be a breach of an implied contract if either of them renounces the
engagement. This reasoning seems in accordance with the unanimous decision of the
Exchequer Chamber in Elderton v. Emmens, 6 Com. B. 160, which we have followed in
subsequent cases in this court. The declaration in the present case, in alleging a breach, states
a great deal more than a passing intention on the part of the defendant which he may repent
of, and could only be proved by evidence that he had utterly renounced the contract, or done
some act which rendered it impossible for him to perform it. If the plaintiff has no remedy for
breach of the contract unless he treats the contract as in force, and acts upon it down to June
1st, 1852, it follows that, till then, he must enter into no employment which will interfere
with his promise “to start with the defendant on such travels on the day and year,” and that he
must then be properly equipped in all respects as a courier for a three months’ tour on the
continent of Europe. But it is surely much more rational, and more for the benefit of both
parties, that, after the renunciation of the agreement by the defendant, the plaintiff should be
at liberty to consider himself absolved from any future performance of it, retaining his right
to sue for any damage he has suffered from the breach of it. Thus, instead of remaining idle
and laying out money in preparations which must be useless, he is at liberty to seek service
under another employer, which would go in mitigation of the damages to which he would
otherwise be entitled for a breach of the contract. It seems strange that the defendant, after
renouncing the contract, and absolutely declaring that he will never act under it, should be
permitted to object that faith is given to his assertion, and that an opportunity is not left to
him of changing his mind. If the plaintiff is barred of any remedy by entering into an
engagement inconsistent with starting as a courier with the defendant on the 1st June, he is
prejudiced by putting faith in the defendant’s assertion; and it would be more consistent with
principle, if the defendant were precluded from saying that he had not broken the contract
when he declared that he entirely renounced it. Suppose that the defendant, at the time of his
renunciation, had embarked on a voyage for Australia, so as to render it physically impossible
for him to employ the plaintiff as a courier on the continent of Europe in the months of June,
July and August, 1852; according to decided cases, the action might have been brought before
the 1st June; but the renunciation may have been founded on other facts, to be given in
evidence, which would equally have rendered the defendant’s performance of the [*927]
contract impossible. The man who wrongfully renounces a contract into which he has
deliberately entered cannot justly complain if he is immediately sued for a compensation in
damages by the man whom he has injured; and it seems reasonable to allow an option to the
injured party, either to sue immediately, or to wait till the time when the act was to be done,
still holding it as prospectively binding for the exercise of this option, which may be
advantageous to the innocent party, and cannot be prejudicial to the wrong-doer. An argument
against the action before the 1st of June is urged from the difficulty of calculating the
damages; but this argument is equally strong against an action before the 1st of September,
when the three months would expire. In either case, the jury in assessing the damages would
be justified in looking to all that happened, or was likely to happen, to increase or mitigate the
loss of the plaintiff down to the day of trial. We do not find any decision contrary to the view
we are taking of this case. Leigh v. Patterson (8 Taunt. 540) only shews that, upon a sale of
goods to be delivered at a certain time, if the vendor before the time gives information to the
14-6
vendee that he cannot deliver them, having sold them, the vendee may calculate the damages
according to the state of the market when they ought to have been delivered. If this was a sale
of specific goods, the action, according to Bowdell v. Parsons )10 East, 359), might have
been brought before that time, as soon as the vendor has sold and delivered them to another.
Phillpotts v. Evans (5 M. & W. 475) was a similar case: and the only question there was as to
the mode of calculating the damages on a breach of contract for the sale and delivery of
wheat; the Court very properly holding that the plaintiff was entitled to damages according to
the state of the market when the wheat was to be delivered; the Court professing to proceed
upon the rule laid down in Startup v. Cortazzi (2 C. M. & R. 165), where no question arose as
to the right to bring an action before the stipulated day of delivery on a renunciation of the
contract. Parke B,. whose dicta are entitled to very great weight, certainly does say in
Phillpotts v. Evans (5 M. & W. 477), with reference to the notice by the defendants that they
would not accept the corn: “I think no action would then have lain for the breach of the
contract, but that the plaintiffs were bound to wait until the time arrived for delivery of the
wheat, to see whether the defendant would then receive it.” But the learned Judge might
suppose that the notice did not amount to a renunciation of the contract; and, if he thought
that, after such a renunciation, the plaintiffs were bound to proceed with the performance of
the contract on their part, and to incur expense and loss in tendering the wheat before they
could have any remedy on the contract, we cannot agree with him. In Ripley v. M’Clure (4
Exch. 345) it is said that, under a contract for the sale and delivery of goods, a refusal to
receive them at any time before they ought to be delivered was not necessarily a breach of the
contract: but that the Court intimated no opinion upon the question whether, there being a
contract to do an act at a future day, if one party before the day renounces the contract, the
other thereupon has a remedy for breach of the contract. And they held that a refusal by one
party before the day when the act is to be done, if unretracted, would be evidence of a
continual refusal down to, and inclusive of, the time when the act was to be done. The only
other case cited in the argument which we think it necessary to notice is Planchè v. Colburn
(8 Bing. 14), which appears to be an authority for the plaintiff. There the defendants had
engaged the plaintiff to write a treatise for a periodical publication. The plaintiff commenced
the composition of the treatise; but, before he had completed it, and before the time when in
the course of conducting the publication it would have appeared in print, the publication was
abandoned. The plaintiff thereupon, without completing the treatise, brought an action for
breach of contract. Objection was made that the plaintiff could not recover on the special
contract for want of having completed, tendered, and delivered the treatise, according to the
contract. Tindal, C.J., said: “The fact was, that the defendants not only suspended, but
actually put an end to, ‘The Juvenile Library’; they had broken their contract with the
plaintiff.” The declaration contained counts for work and labour: but the plaintiff appears to
have retained his verdict on the count framed on the special contract, thus showing that, in the
opinion of the court, the plaintiff might treat the renunciation of the contract by the
defendants as a breach, and maintain an action for that breach, without considering that it
remained in force so as to bind him to perform his part of it before bringing an action for the
breach of it. If it should be held that, upon a contract to do an act on a future day, a
renunciation of the contract [*928] by one party dispenses with a condition to be performed
in the meantime by the other, there seems no reason for requiring that other to wait till the
14-7
day arrives before seeking his remedy by action: and the only ground on which the condition
can be dispensed with seems to be that the renunciation may be treated as a breach of the
contract.
Upon the whole, we think that the declaration in this case is sufficient. It gives us great
satisfaction to reflect that, the question being on the record, our opinion may be reviewed in a
Court of Error. In the meantime we must give judgment for the plaintiff.
Judgment for plaintiff.
COSDEN OIL & CHEMICAL CO. v. KARL O. HELM

AKTIENGESELLSCHAFT
736 F.2d 1064 (5th Cir. 1984)
REAVLEY, J.:
We must address one of the most difficult interpretive problems of the Uniform
Commercial Code—the appropriate time to measure buyer’s damages where the seller
anticipatorily repudiates a contract and the buyer does not cover. The district court applied the
Texas version of Article 21 and [*1067] measured buyer’s damages at a commercially
reasonable time after seller’s repudiation. We affirm, but remand for modification of damages
on another point.
I. CASE HISTORY
This contractual dispute arose out of events and transactions occurring in the first three
months of 1979, when the market in polystyrene, a petroleum derivative used to make
molded products, was steadily rising. During this time Iran, a major petroleum producer, was
undergoing political turmoil. Karl O. Helm Aktiengesellschaft (Helm or Helm Hamburg), an
international trading company based in Hamburg, West Germany, anticipated a tightening in
the world petrochemical supply and decided to purchase a large amount of polystyrene.
Acting on orders from Helm Hamburg, Helm Houston, a wholly-owned subsidiary, initiated
negotiations with Cosden Oil & Chemical Company (Cosden), a Texas-based producer of
chemical products, including polystyrene.
Rudi Scholtyssek, general manager of Helm Houston, contacted Ken Smith, Cosden’s
national sales coordinator, to inquire about the possibility of purchasing quantities of
polystyrene. Negotiating over the telephone and by telex, the parties agreed to the purchase
and sale of 1250 metric tons2 of high impact polystyrene at $.2825 per pound and 250 metric
tons of general purpose polystyrene at $.265 per pound. The parties also discussed options on
1 The Uniform Commercial Code is codified as Title 1 of the Business and Commerce Code, Tex.Bus. &
Com.Code Ann. (Vernon 1968 & Supp.1984). All mention or citation within this opinion to “the Code” and to
individual Code sections and comments are intended to refer to the Texas Business and Commerce Code,
unless designated otherwise.
2 One metric ton equals approximately 2,204.5 pounds.
14-8
each polystyrene type. On January 18, 1979, Scholtyssek met with Smith in Dallas, leaving
behind two purchase confirmations. Purchase confirmation 04 contained the terms for high
impact and 05 contained the terms for general purpose. Both confirmations contained the
price and quantity terms listed above, and specified the same delivery and payment terms.
The polystyrene was to be delivered during January and February in one or more lots, to be
called for at Helm’s instance. Confirmation 04 specified that Helm had an option for an
additional 1000 metric tons of high impact, and confirmation 05 expressed a similar option
for 500 metric tons of general purpose. The option amounts were subject to the same terms,
except that delivery was to be during February and March. The options were to be declared,
at the latest, by January 31, 1979.
On January 22, Helm called for the first shipment of high impact under order 04, to be
delivered FAS at a New Jersey port to make a January 29 shipping date for a trans-Atlantic
voyage. On January 23, Helm telexed Cosden to declare the options on purchase orders 04
and 05, designating the high impact option quantity as order 06 and the general purpose
option quantity as order 07. After exercising the options, Helm sent purchase confirmations
06 and 07, which Cosden received on January 29. That same day Helm Houston received
confirmations 04 and 05, which Smith had signed.
Cosden shipped 90,000 pounds of high impact polystyrene to Helm on or about January
26. Cosden then sent an invoice for that quantity to Helm Houston on or about January 31.
The front of the invoice stated, “This order is subject to the terms and conditions shown on
the reverse hereof.” Among the “Conditions of Sale” listed on the back of the invoice was a
force majeure provision.3 Helm paid for the first [*1068] shipment in accordance with the
agreement.
As Helm had expected, polystyrene prices began to rise in late January, and continued
upward during February and March. Cosden also experienced problems at two of its plants in
late January. Normally, Cosden supplied its Calumet City, Illinois, production plant with
styrene monomer, the “feed stock” or main ingredient of polystyrene,4 by barges that traveled
from Louisiana up the Mississippi and Illinois Rivers to a canal that extended to Cosden’s
plant. Due to the extremely cold winter of 1978–79, however, the Illinois River and the canal
froze, suspending barge traffic for a few weeks. A different problem beset Cosden’s Windsor,
New Jersey, production plant. A new reactor, used in the polystyrene manufacturing process,
had recently been installed at the Windsor plant. A manufacturing defect soon became
apparent, however, and Cosden returned the reactor to the manufacturer for repair, which took
several weeks. At the time of the reactor breakdown, Cosden was manufacturing only general
3 No liability hereunder shall result to either party from delay in performance or nonperformance caused by
circumstances beyond the control of the party affected including, but not limited to: Acts of God, fire, flood,
war, governmental regulation, direction or request, accident, strike, labor trouble, shortage of or inability to
obtain material, equipment or transportation. The affected party may omit purchases or deliveries during the
period of continuance of such circumstances and the contract quantities shall be reduced by the quantities so
omitted.
4 Styrene monomer comprises approximately 90% of high impact polystyrene and a larger percentage of general
purpose polystyrene.
14-9
purpose at the Windsor plant. Cosden had planned on supplying Helm’s high impact orders
from the Calumet City plant.
Late in January Cosden notified Helm that it was experiencing problems at its production
facilities and that the delivery under 04 might be delayed. On February 6, Smith telephoned
Scholtyssek and informed him that Cosden was cancelling orders 05, 06, and 07 because two
plants were “down” and it did not have sufficient product to fill the orders. Cosden, however,
would continue to honor order 04. Smith confirmed the cancellation in a letter dated February
8, which Scholtyssek received on or about February 12. After Helm Hamburg learned of
Cosden’s cancellation, Wolfgang Gordian, a member of Helm’s executive board, sent an
internal memorandum to Helm Houston outlining a strategy. Helm would urge that Cosden
continue to perform under 04 and, after receiving the high impact polystyrene, would offset
amounts owing under 04 against Helm’s damages for nondelivery of the balance of
polystyrene. Gordian also instructed Helm Houston to send a telex to Cosden. Following
instructions, Scholtyssek then requested from Cosden “the relevant force majeure certificate”
to pass on to Helm Hamburg. Helm also urged Cosden to deliver immediately several
hundred metric tons of high impact to meet two February shipping dates for which Helm had
booked shipping space.
In mid-February Cosden shipped approximately 1,260,000 pounds of high impact to
Helm under order 04. This shipment’s invoice, which also included the force majeure
provision on the reverse side, specified that Helm owed $355,950, due by March 15 or 16.
After this delivery Helm requested that Cosden deliver the balance under order 04 for
shipment on a vessel departing March 16. Cosden informed Helm that a March 16 delivery
was not possible. On March 15, citing production problems with the 04 balance, Cosden
offered to sell 1000 metric tons of styrene monomer at $.41 per pound. Although Cosden later
lowered the price on the styrene monomer, Helm refused the offer, insisting on delivery of the
balance of 04 polystyrene by March 31 at the latest. Around the end of March, Cosden
informed Scholtyssek by telephone that it was cancelling the balance of order 04.
Cosden sued Helm, seeking damages for Helm’s failure to pay for delivered polystyrene.
Helm counterclaimed for Cosden’s failure to deliver polystyrene as agreed. The jury found on
special verdict that Cosden had agreed to sell polystyrene to Helm under all four orders. The
jury also found that Cosden anticipatorily repudiated orders 05, 06, and 07 and that Cosden
cancelled order 04 before Helm’s failure to pay for the second 04 delivery constituted a
repudiation. The jury fixed the per pound market prices for polystyrene under [*1069] each of
the four orders at three different times: when Helm learned of the cancellation, at a
commercially reasonable time thereafter, and at the time for delivery.
The district court, viewing the four orders as representing one agreement, determined that
Helm was entitled to recover $628,676 in damages representing the difference between the
contract price and the market price at a commercially reasonable time after Cosden
repudiated its polystyrene delivery obligations and that Cosden was entitled to an offset of
$355,950 against those damages for polystyrene delivered, but not paid for, under order 04.
II. TIME FOR MEASURING BUYER’S DAMAGES
14-10
Both parties find fault with the time at which the district court measured Helm’s damages
for Cosden’s anticipatory repudiation of orders 05, 06, and 07. 5 Cosden argues that damages
should be measured when Helm learned of the repudiation. Helm contends that market price
as of the last day for delivery—or the time of performance—should be used to compute its
damages under the contract-market differential. We reject both views, and hold that the
district court correctly measured damages at a commercially reasonable point after Cosden
informed Helm that it was cancelling the three orders.
Article 2 of the Code has generally been hailed as a success for its comprehensiveness, its
deference to mercantile reality, and its clarity. Nevertheless, certain aspects of the Code’s
overall scheme have proved troublesome in application. The interplay among sections 2.610,
2.711, 2.712, 2.713, and 2.723, Tex.Bus. & Com.Code Ann. (Vernon 1968), represents one of
those areas, and has been described as “an impossible legal thicket.” J. White & R. Summers, Uniform Com
Code § 6–7 at 242 (2d ed. 1980). The aggrieved buyer seeking damages for seller’s
anticipatory repudiation presents the most difficult interpretive problem.6 Section 2.713
describes the buyer’s damages remedy:
Buyer’s Damages for Non-Delivery or Repudiation
(a) Subject to the provisions of this chapter with respect to proof of market price
(Section 2.723), the measure of damages for non-delivery or repudiation by the seller
is the difference between the market price at the time when the buyer learned of the
breach and the contract price together with any incidental and consequential damages
provided in this chapter (Section 2.715), but less expenses saved in consequence of
the seller’s breach.
(emphasis added).
Courts and commentators have identified three possible interpretations of the phrase
“learned of the breach.” If seller anticipatorily repudiates, buyer learns of the breach:
(1) When he learns of the repudiation;
(2) When he learns of the repudiation plus a commercially reasonable time; or
(3) When performance is due under the contract.
See, e.g., First National Bank of Chicago v. Jefferson Mortgage Co., 576 F.2d 479 (3d
Cir.1978); Cargill, Inc. v. Stafford, 553 F.2d 1222 (10th Cir.1977); J. White & R. Summers §
6–7 at 240–52; Note, U.C.C. § 2–713: Anticipatory Repudiation and the Measurement of an
Aggrieved Buyer’s Damages, 19 Wm. & Mary L.Rev. 253 (1977).
We would not be free to decide the question if there were a Texas case on point, bound as
we are by Erie to follow state law in diversity cases. We find, however, [*1070] that no Texas
5 The damages measurement problem does not apply to Cosden’s breach of order 04, which was not
anticipatorily repudiated. The time Helm learned of Cosden’s intent to deliver no more polystyrene under 04
was the same time as the last date of performance, which had been extended to the end of March.
6 The only area of unanimous agreement among those that have studied the Code provisions relevant to this
problem is that they are not consistent, present problems in interpretation, and invite amendment.
14-11
case has addressed the Code question of buyer’s damages in an anticipatory repudiation
context. Texas, alone in this circuit, does not allow us to certify questions of state law for
resolution by its courts. See United Services Life Insurance Co. v. Delaney, 396 S.W.2d 855
(Tex.1965).
Fredonia Broadcasting Corp. v. RCA Corp., 481 F.2d 781 (5th Cir.1973) ( Fredonia I ),
contains dicta on this question. The court merely quoted the language of the section and noted
that the time for measuring market price—when buyer learns of the breach—was the only
difference from pre-Code Texas law.7 Id. at 800. See Anderson, Learning of Breaches under
Section 2–713 of the Code, 40 Tex.B.J. 317, 320 (1977). We have found no Texas case
quoting or citing Fredonia I for its dicta on damages under section 2.713. Although Fredonia
I correctly stated the statutory language, it simply did not address or recognize the
interpretive problems peculiar to seller’s anticipatory repudiation.8
Since Fredonia I, four Texas courts have applied section 2.713 to measure buyer’s
damages at the time he learned of the breach. Hargrove v. Powell, 648 S.W.2d 372 (Tex.App.
—San Antonio 1983, no writ); Jon-T Farms, Inc. v. Goodpasture, Inc., 554 S.W.2d 743
(Tex.Civ.App.—Amarillo 1977, writ ref’d n.r.e.); Tennell v. Esteve Cotton Co., 546 S.W.2d
346 (Tex.Civ.App.—Amarillo 1976, writ ref’d n.r.e.); Wilson v. Hays, 544 S.W.2d 833
(Tex.Civ.App.—Waco 1976, writ ref’d n.r.e.). In all of these cases the aggrieved buyer
learned of the breach at or after the time of performance. 9
7 Before Texas adopted the Code, its courts applied the traditional time-of-performance measure of damages in
repudiation cases. See, e.g., Henderson v. Otto Goedecke, Inc., 430 S.W.2d 120, 123–24 (Tex.Civ.App.—Tyler
1968, writ ref’d n.r.e.); Anderson, Learning of Breaches Under Section 2–713 of the Code, 40 Tex.B.J. 317,
318 & n. 7 (1977). By interpreting the time buyer learns of the breach to mean a commercially reasonable time
after buyer learns of the repudiation, we depart from pre-Code law, although in a different manner than
suggested by the dicta of Fredonia I. This panel, however, is not bound by dicta of a previous panel. Curacao
Drydock Co. v. M/V AKRITAS, 710 F.2d 204 (5th Cir.1983).
8 In Fredonia I, the buyer, a television station, brought contract claims against the seller of broadcasting
equipment. Fredonia claimed that delays in delivery and delivery of defective equipment by RCA caused
Fredonia to miss its initial broadcast date and to suffer interruptions in broadcasting service. The jury found
that RCA repudiated the contract by several acts or omissions—the same acts that supported other jury
findings that RCA breached the contract. Compare id. at 791 & 809 (Interrogatory No. 9) with id. at 793 &
809–10 (Interrogatory No. 11). The Fredonia I court reversed the judgment on both the breach and repudiation
claims. On remand, since Fredonia’s contract claims were precluded by terms of the contract, the case was
tried on a fraud theory. Fredonia Broadcasting Corp. v. RCA Corp., 569 F.2d 251, 254 & n. 2 (5th Cir.), cert.
denied, 439 U.S. 859, 99 S.Ct. 177, 58 L.Ed.2d 167 (1978) ( Fredonia II ).
9 In Hargrove, seller failed to deliver approximately 230 lambs as agreed, and buyer sued for damages under
section 2.713. The court awarded the buyer market-contract damages measured at the time seller breached.
Although the parties had not fixed an exact delivery date, the Hargrove court stated that a reasonable time for
performance was applicable. “Both the breach and when appellee learned of it occurred ... when the time for
performance expired or, if he had done so, when appellant repudiated the contract.” 648 S.W.2d at 377. The
court noted the alternatives because buyer at trial had failed to submit the issue of when he learned of the
breach.
The dispute in Jon-T Farms involved a grain-supply contract with a final delivery date of November 30.
Only one fifth of the sorghum had been shipped by that time, due to a shortage of rail cars. The parties
extended the contract until December 10, the date that seller notified buyer by letter that the contract had
expired. The jury found that this communication constituted a breach and/or a repudiation. Although the Jon-T
Farms court characterized the letter as a repudiation, the facts of the case indicate that it occurred
simultaneously with the end of the performance period. The court described the delivery of six carloads of
14-12
[*1071] Two recent Texas cases indicate that appropriate measure for buyer’s damages in
the anticipatory repudiation context has not been definitively decided. In Aquamarine
Associates v. Burton Shipyard, 645 S.W.2d 477 (Tex.App.—Beaumont 1982), aff’d, 659
S.W.2d 820 (Tex.1983), seller anticipatorily repudiated its obligation to construct and deliver
ships. After seller learned of the repudiation, it covered by contracting with another party to
complete the vessels. Since buyer covered under section 2.712, the jury’s answer to the
section 2.713 damages issue was properly disregarded. Referring to comment 5 of section
2.713, however, the Texas Court of Civil Appeals cited two cases that measured buyer’s
damages for anticipatory repudiation at different times. Id. at 479 & n. 8. Cargill, Inc. v.
Stafford, 553 F.2d 1222 (10th Cir.1977), held that buyer’s damages for anticipatory
repudiation should be measured at a commercially reasonable time after he learned of the
repudiation if he should have covered, and at the time of performance if buyer had a valid
reason for failure or refusal to cover. Id. at 1226–27. In Ralston Purina Co. v. McFarland,
550 F.2d 967 (4th Cir.1977), the court measured buyer’s damages at the market price
prevailing on the day seller anticipatorily repudiated. Id. at 971. The two citations in
Aquamarine reveal uncertainty concerning the applicable time for measuring damages.
Hargrove v. Powell, 648 S.W.2d 372 (Tex.App.—San Antonio 1983, no writ), also
indicates that the interpretation of section 2.713 in an anticipatory repudiation case has not
been settled in Texas. In referring to the hypothetical case of seller’s repudiation, the
Hargrove court cited Cargill and Professor Anderson’s article, which presents the argument
that “time when the buyer learned of the breach” means the time for performance or later. Id.
at 377; see Anderson, supra.
We do not doubt, and Texas law is clear, that market price at the time buyer learns of the
breach is the appropriate measure of section 2.713 damages in cases where buyer learns of
the breach at or after the time for performance. This will be the common case, for which
section 2.713 was designed. See Peters, Remedies for Breach of Contracts Relating to the
Sale of Goods Under the Uniform Commercial Code: A Roadmap for Article Two, 73 Yale
L.J. 199, 264 (1963). In the relatively rare case where seller anticipatorily repudiates and
buyer does not cover, see Anderson, supra, at 318, the specific provision for anticipatory
repudiation cases, section 2.610, authorizes the aggrieved party to await performance for a
commercially reasonable time before resorting to his remedies of cover or damages.10
grain between December 10 and 21 as “late performance.” Jon-T Farms, 554 S.W.2d at 747.
In Tennell, the court fixed buyer’s damages at the time he learned that seller would deliver no more
cotton, a point contemporaneous with or later than the time for delivery. The contract was for one season’s
production of cotton. The opinion does not express an exact delivery time, but apparently the time for
performance was after harvest and baling. After the entire cotton production had been harvested and baled,
seller delivered less than one-third due under the contract and refused to deliver more cotton at the contract
price. At this point, when the market price had risen substantially, buyer learned that seller would deliver no
more.
The seller in Wilson delivered 200,000 bricks short of the quantity due under the contract. Buyer
recovered the difference between the contract price and market price, which was five times the contract price
at the time for performance.
10 Section 2.610 provides:
Anticipatory Repudiation
14-13
In the anticipatory repudiation context, the buyer’s specific right to wait for a
commercially reasonable time before choosing his remedy must be read together with the
general damages provision of section 2.713 to extend the time for measurement beyond when
buyer learns of the breach. Comment 1 to section 2.610 states that if an aggrieved party
“awaits performance [*1072] beyond a commercially reasonable time he cannot recover
resulting damages which he should have avoided.” This suggests that an aggrieved buyer can
recover damages where the market rises during the commercially reasonable time he awaits
performance. To interpret 2.713’s “learned of the breach” language to mean the time at which
seller first communicates his anticipatory repudiation would undercut the time that 2.610
gives the aggrieved buyer to await performance.
The buyer’s option to wait a commercially reasonable time also interacts with section
2.611, which allows the seller an opportunity to retract his repudiation. Thus, an aggrieved
buyer “learns of the breach” a commercially reasonable time after he learns of the seller’s
anticipatory repudiation. The weight of scholarly commentary supports this interpretation.
See J. Calamari & J. Perillo, Contracts § 14–20 (2d ed. 1977); Sebert, Remedies Under
Article Two of the Uniform Commercial Code: An Agenda for Review, 130 U.Pa.L.Rev. 360,
372–80 (1981); Wallach, Anticipatory Repudiation and the UCC, 13 U.C.C.L.J. 48 (1980);
Peters, supra, at 263–68.
Typically, our question will arise where parties to an executory contract are in the midst
of a rising market. To the extent that market decisions are influenced by a damages rule,
measuring market price at the time of seller’s repudiation gives seller the ability to fix buyer’s
damages and may induce seller to repudiate, rather than abide by the contract. By contrast,
measuring buyer’s damages at the time of performance will tend to dissuade the buyer from
covering, in hopes that market price will continue upward until performance time.
Allowing the aggrieved buyer a commercially reasonable time, however, provides him
with an opportunity to investigate his cover possibilities in a rising market without fear that,
if he is unsuccessful in obtaining cover, he will be relegated to a market-contract damage
remedy measured at the time of repudiation. The Code supports this view. While cover is the
preferred remedy, the Code clearly provides the option to seek damages. See § 2.712(c) &
comment 3. If “[t]he buyer is always free to choose between cover and damages for non-
delivery,” and if 2.712 “is not intended to limit the time necessary for [buyer] to look around
and decide as to how he may best effect cover,” it would be anomalous, if the buyer chooses
to seek damages, to fix his damages at a time before he investigated cover possibilities and
before he elected his remedy. See id. comment 2 & 3; Dura-Wood Treating Co. v. Century
Forest Industries, Inc., 675 F.2d 745, 754 (5th Cir.), cert. denied, 459 U.S. 865, 103 S.Ct.
When either party repudiates the contract with respect to a performance not yet due the loss of which
will substantially impair the value of the contract to the other, the aggrieved party may
(1) for a commercially reasonable time await performance by the repudiating party; or
(2) resort to any remedy for breach (Section 2.703 or Section 2.711), even though he has notified the
repudiating party that he would await the latter’s performance and has urged retraction; and
(3) in either case suspend his own performance or proceed in accordance with the provisions of this
chapter on the seller’s right to identify goods to the contract notwithstanding breach or to salvage unfinished goods
(Section 2.704).
14-14
144, 74 L.Ed.2d 122 (1982) (“buyer has some time in which to evaluate the situation”).
Moreover, comment 1 to section 2.713 states, “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.” See § 2.610 comment 1. When a buyer chooses not to cover, but to seek damages,
the market is measured at the time he could have covered—a reasonable time after
repudiation. See §§ 2.711 & 2.713.
Persuasive arguments exist for interpreting “learned of the breach” to mean “time of
performance,” consistent with the pre-Code rule. See J. White & R. Summers, supra, § 6–7;
Anderson, supra. If this was the intention of the Code’s drafters, however, phrases in section
2.610 and 2.712 lose their meaning. If buyer is entitled to market-contract damages measured
at the time of performance, it is difficult to explain why the anticipatory repudiation section
limits him to a commercially reasonable time to await performance. See § 2.610 comment 1.
Similarly, in a rising market, no reason would exist for requiring the buyer to act “without
unreasonable delay” when he seeks to cover following an anticipatory repudiation. See §
2.712(a).
The interplay among the relevant Code sections does not permit, in this context, an
interpretation that harmonizes all and leaves no loose ends. We therefore acknowledge that
our interpretation fails to explain the language of section 2.723(a) [*1073] insofar as it relates
to aggrieved buyers. We note, however, that the section has limited applicability—cases that
come to trial before the time of performance will be rare. Moreover, the comment to section
2.723 states that the “section is not intended to exclude the use of any other reasonable
method of determining market price or of measuring damages....” In light of the Code’s
persistent theme of commercial reasonableness, the prominence of cover as a remedy, and the
time given an aggrieved buyer to await performance and to investigate cover before selecting
his remedy, we agree with the district court that “learned of the breach” incorporates section
2.610’s commercially reasonable time.11
11 We note that two circuits arrived at a similar conclusion by different routes. In Cargill, Inc. v. Stafford, 553
F.2d 1222 (10th Cir.1977), the court began its discussion of damages by embracing the “time of performance”
interpretation urged by Professors White and Summers. Id. at 1226. Indeed, the court stated that “damages
normally should be measured from the time when performance is due and not from the time when the buyer
learns of repudiation.” Id. Nevertheless, the court
conclude[d] that under § 4–2–713 a buyer may urge continued performance for a reasonable time. At the
end of a reasonable period he should cover if substitute goods are readily available. If substitution is
readily available and buyer does not cover within a reasonable time, damages should be based on the price
at the end of that reasonable time rather than on the price when performance is due.
Id. at 1227. The Cargill court would employ the time of performance measure only if buyer had a valid reason
for not covering.
In First Nat’l Bank of Chicago v. Jefferson Mortgage Co., 576 F.2d 479 (3d Cir.1978), the court initially
quoted with approval legislative history that supports a literal or “plain meaning” interpretation of New
Jersey’s section 2–713. Nevertheless, the court hedged by interpreting that section “to measure damages
within a commercially reasonable time after learning of the repudiation.” Id. at 492. In light of the unequivocal
repudiation and because cover was “easily and immediately . . . available . . . in the well-organized and easily
accessible market,” id. at 493 (quoting Oloffson v. Coomer, 11 Ill.App.3d 918, 296 N.E.2d 871 (1973)), a
commercially reasonable time did not extend beyond the date of repudiation.
We agree with the First National court that “the circumstances of the particular market involved should
determine the duration of a ‘commercially reasonable time.’” 576 F.2d at 492; see Tex.Bus. & Com.Code §
14-15
III. THE JURY’S SUBSTANTIAL-IMPAIRMENT FINDING

Cosden claims that the district court erred by refusing to give effect to the jury’s finding
that “Helm’s failure to pay for polystyrene delivered under order 1004 on the date such
payment was due substantially impaired the value to Cosden of any agreement with respect to
such order.” Arguing that order 04 was one of four distinct contracts, Cosden states that the
substantial impairment finding is equivalent to finding that Helm breached the whole 04
“contract.” See § 2.612(c). Cosden claims that it was entitled to suspend its performance
under section 2.610(3) and that it is not liable for any undelivered amounts of polystyrene
under 04.
The district judge correctly ignored the jury’s finding of substantial impairment. In light
of the bulk of the jury’s findings and the evidence, the district court was required to give no
legal effect to the finding in order to achieve harmony among the other answers. See, e.g.,
Griffin v. Matherne, 471 F.2d 911 (5th Cir.1973); Stockton v. Altman, 432 F.2d 946 (5th
Cir.1970), cert. denied, 401 U.S. 994, 91 S.Ct. 1232, 28 L.Ed.2d 532 (1971). Immediately
following the substantial-impairment finding was a special issue on the repudiation or
cancellation of order 04, coupled with written instructions. [*1074] The jury found that Helm
did not repudiate its payment obligations for the second 04 delivery before Cosden cancelled
order 04.12 By finding that Cosden cancelled 04, the jury effectively found that the four orders
comprised one contract, under which Helm was entitled to offset damages. See § 2.717. Any
other view would have dictated the finding that Helm’s attempt to offset constituted a breach
or repudiation of its payment obligations under 04. In light of the stipulation that Cosden did
not breach 04 before March 19, a few days after the due date, the jury effectively found that
missing the payment date did not constitute a breach or repudiation by Helm.
1.204(b). In this case, however, there was no showing that cover was easily and immediately available in an
organized and accessible market and that a commercially reasonable time expired on the day of Cosden’s
cancellation. We recognize that § 2.610’s “commercially reasonable time” and § 2.712’s “without
unreasonable delay” are distinct concepts. Often, however, the two time periods will overlap, since the buyer
can investigate cover possibilities while he awaits performance. See Sebert, supra, at 376–77 & n. 80.
Although the jury in the present case did not fix the exact duration of a commercially reasonable time,
we assume that the jury determined market price at a time commercially reasonable under all the
circumstances, in light of the absence of objection to the form of the special issue.
12 The jury made this finding in light of the following instructions, which we paraphrase:
1. Cosden argued that it had performed in compliance with 04 until Helm breached or repudiated its
payment obligations, which entitled Cosden to suspend deliveries.
2. Helm argued that Cosden cancelled 04 before Helm breached or repudiated.
3. Cosden and Helm stipulated that Cosden was not in breach prior to March 19.
4. Cancellation occurs when either party puts an end to the contract.
5. The buyer may set off alleged damages under a contract against amounts owed by the buyer under
that contract provided the buyer gives notice of his intention to deduct all or part of the amount due.
6. A buyer may not set off alleged damages under one contract against amounts owed by the buyer under
another contract with the same seller. If the buyer attempts to do so his actions constitute a breach or repudiation
of his obligations under the contract.
7. Whether the four purchase orders represent one contract or more than one contract is to be determined
from all the circumstances found from the evidence.
8. If a buyer sets off alleged damages under one contract against amounts owed to the same seller under
another contract, the seller can justifiably withhold any further delivery of goods.
14-16
This interpretation is also consistent with the jury’s answer to another issue, which was
given along with the text of (a) and (b) of section 2.609. The jury found that Cosden did not
request adequate assurance of payment from Helm after Helm failed to make payments that
were due under order 04. Thus, the jury could have found that Helm’s failure to pay
substantially impaired the value of that order to Cosden to the extent that it created reasonable
grounds for insecurity with respect to Helm’s performance. Without requesting adequate
assurance from Helm, however, Cosden was not entitled to suspend its deliveries under 04.
See § 2.609; Tennell v. Esteve Cotton Co., 546 S.W.2d 346, 354 n. 4 (Tex.Civ.App.—Amarillo
1976, writ ref’d n.r.e.). The record shows that Cosden did not regard Helm’s failure to pay
when due as significant or alarming. See Laredo Hides Co. v. H & H Meat Products Co., 513
S.W.2d 210, 217, 220 (Tex.Civ.App.—Corpus Christi 1974, writ ref’d n.r.e.). Indeed, Cosden
manifested a willingness to proceed with a substitute styrene monomer transaction,
negotiating with Helm for up to a week and a half after the middle of March.
Since the four orders were components of one contract, Helm was entitled to withhold
payment under section 2.717. The record contains evidence that Helm notified Cosden of the
reason for withholding payment. The jury’s finding of substantial impairment had no legal
effect, and the district court properly disregarded it.
IV. THE FORCE MAJEURE PROVISION
Cosden claims that the district court erred by failing to submit to the jury the question
whether the force majeure provision on the reverse of Cosden’s invoices became part of the
Cosden-Helm agreement. Since the requested special issue did not cover a material factual
issue, the district court did not err by declining to submit the issue. See Simien v. S.S. Kresge
Co., 566 F.2d 551, 555 (5th Cir.1978).
Cosden appears to argue that, since it had informed Helm that all sales were conditioned
upon acceptance of terms printed on the reverse of the invoice, signed purchase confirmations
04 and 05 did not constitute an acceptance under section 2–207(a). Cosden then argues that
Helm accepted [*1075] Cosden’s “counter-offer” by failing to object to the terms and by
making payment on the first polystyrene delivery. Cosden misplaces reliance on Construction
Aggregates Corp. v. Hewitt-Robins, Inc., 404 F.2d 505 (7th Cir.1968), cert. denied, 395 U.S.
921, 89 S.Ct. 1774, 23 L.Ed.2d 238 (1969). In that factually dissimilar case, the parties
exchanged forms and letters with varying terms during the negotiation process, prior to the
commencement of performance.13
13 In Construction Aggregates, CAC, which was constructing dikes, subcontracted to H–R responsibility for
designing and furnishing a conveyor system. Responding to CAC’s letter setting forth the “final agreement,”
H–R informed CAC that the order would not be accepted until H–R’s corporate officers approved all
conditions. H–R then returned the executed purchase order, but stated in a letter that acceptance was
conditioned on modifications, including a substitute warranty clause. The court regarded the letter as saying,
in effect, “I don’t accept unless you agree to my changes.” Construction Aggregates, 404 F.2d at 509 n. 3.
CAC responded by requesting a change in payment terms, but did not object to the other modifications. H–R
then accepted CAC’s changes in a letter that also referred to H–R’s earlier modifications. CAC made no
objections. Under this set of facts, it was proper to treat H–R’s letter accompanying the executed purchase
order as a counter-offer and CAC’s failure to object as an acceptance of H–R’s modifications.
14-17
Cosden insists that it informed Helm during the negotiation process that sales were
conditioned upon acceptance of its invoice terms. The record indicates, however, that Smith
spoke at the meeting only in generalities, perhaps referring to Cosden’s “normal” terms
without discussing particular invoice terms. Smith specifically referred only to payment
terms. After obtaining credit approval Smith signed and returned Helm’s purchase
confirmation, which contained all essential terms of the contract, including payment, without
expressly stating that Cosden’s acceptance was conditional upon Helm’s assent to other
terms. Smith testified that he was not aware that Scholtyssek had any opportunity to see the
terms and conditions of sale prior to the first shipment and receipt of the invoice.
Section 2.207(a) “was intended to apply only to an acceptance which clearly reveals that
the offeree is unwilling to proceed with the transaction unless he is assured of the offeror’s
assent to the additional or different terms therein.” Dorton v. Collins & Aikman Corp., 453
F.2d 1161, 1168 (6th Cir.1972). Cosden expressed no such intent when it returned the signed
purchase confirmation or shipped the initial amount of polystyrene. Smith’s signature on the
purchase confirmations operated as an acceptance under section 2.207(a). See Luria Brothers
& Co. v. Pielet Brothers Scrap Iron & Metal, Inc., 600 F.2d 103, 113 (7th Cir.1979); Dorton,
453 F.2d at 1168-69.
Cosden next argues that the invoice terms could have become part of the contract as
additional terms under section 2.207(b). The district court was on firm ground when it
effectively ruled as a matter of law that the force majeure provision could not have modified
the Cosden-Helm contract. The Texas Supreme Court has held that “the process of acceptance
and confirmation to which section 2.207 is addressed stops short of a monthly statement sent
after the goods have been shipped. Consequently, the mere failure to object within a
reasonable time, without more, would not ... establish an agreement.” Preston Farm & Ranch
Supply Inc. v. Bio-Zyme Enterprises, 625 S.W.2d 295, 299–300 (Tex.1981).14 See Triton Oil
& Gas Corp. v. Marine Contractors & Supply, Inc., 644 S.W.2d 443 (Tex.1982).
The district court did not err by declining to submit to the jury the question whether
[*1076] Cosden’s invoice terms, sent after the first shipment of goods, became part of the
contract by virtue of Helm’s failure to object. As a matter of law the invoice terms did not
modify the contract under section 2.207. Moreover, under the evidence, a reasonable man
could not determine that the conduct or course of dealing of the parties manifested an
agreement to incorporate the invoice terms.
V. TRADE USAGE
The district court submitted to the jury the special issue of whether, during the relevant
period, a custom or trade usage relating to force majeure existed in the polystyrene industry
whereby Cosden would be excused from delivering polystyrene to Helm. The jury answered
14 In Preston Farm, the court found that the parties reached an agreement, by conduct and over a long course of
dealing, regarding the payment of service charges on stock-feed sales. The seller made over 20 separate sales
over more than a year. Each month the seller received a statement containing the service charge provision.
Many statements expressly stated that service charges had been imposed. The buyer continued to make
purchases and paid the service charges without objection. At trial buyer testified that he had agreed to payment
of the service charges until, after some time, he discovered that the interest charged was excessive.
14-18
in the affirmative with respect to general purpose polystyrene. Cosden argues that this finding
frees it from liability for the undelivered amounts of polystyrene under orders 05 and 07. We
disagree.
For the time in question, Cosden had planned to produce general purpose solely at its
Windsor plant. The problems that Cosden experienced at Windsor stemmed from a newly-
installed, defective reactor. There is no evidence, however, that established a trade usage
under which polystyrene producers would be excused from making deliveries if defects
surfaced in their production equipment. Evidence was introduced at trial to show that sellers
and producers of polystyrene included force majeure provisions in various documents. But
merely showing that polystyrene merchants attempted to include such provisions within
contractual terms is insufficient to excuse Cosden’s failure to perform orders 05 and 07.
The Code employs “trade usage” to clarify or amplify the contracting parties intent in
light of regular or established practices in an industry or location. See § 1.205 and comment
4. Employing “trade usage” aids in discerning the commercial sense or intent of an agreement
and helps place parties’ expectations in a relevant context. Without a more substantial
evidentiary basis, however, trade usage cannot be used to add a term to the parties’ contract in
this case. See Tennell v. Esteve Cotton Co., 546 S.W.2d 346, 355 (Tex.Civ.App.—Amarillo
1976, writ ref’d n.r.e.).
VI. “COVER” AS A CEILING
At trial Cosden argued that Helm’s purchases of polystyrene from other sources in early
February constituted cover. Helm argued that those purchases were not intended to substitute
for polystyrene sales cancelled by Cosden. Helm, however, contended that it did cover by
purchasing large amounts of high impact polystyrene from other sources late in February and
around the first of March. Cosden claimed that these purchases were not made reasonably and
that they should not qualify as cover. The jury found that none of Helm’s purchases of
polystyrene from other sources were cover purchases.
Now Cosden argues that the prices of polystyrene for the purchases that Helm claimed
were cover should act as a ceiling for fixing market price under section 2.713. We refuse to
accept this novel argument. Although a buyer who has truly covered may not be allowed to
seek higher damages under section 2.713 than he is granted by section 2.712, see § 2.713
comment 5; J. White & R. Summers, supra, § 6—4 at 233—34, in this case the jury found
that Helm did not cover. We cannot isolate a reason to explain the jury’s finding: it might
have concluded that Helm would have made the purchases regardless of Cosden’s
nonperformance or that the transactions did not qualify as cover for other reasons. Because of
the jury’s finding, we cannot use those other transactions to determine Helm’s damages.
VII. REFRESHING RECOLLECTION
While Gordian was testifying at trial, counsel for Cosden became aware of some notes at
the witness stand. Gordian admitted that he had used the notes, along with a summary of his
deposition, to refresh his recollection while preparing to testify. Cosden claims that the
district court erroneously withheld access to the documents, under Rule 612, Fed.R.Evid.,
14-19
[*1077] thereby denying Cosden the opportunity to inspect the writings and to cross-examine
based on the writings.15
Cosden suggests that the district court was not aware of occasions when Gordian referred
to the notes. The judge, however, agreed with Gordian, who testified that he had not looked at
the notes. The trial judge stated that she had observed Gordian throughout his testimony
without seeing him refer to the notes at any time. Because Gordian used the summary and
notes to refresh his recollection prior to testifying, it was within the trial court’s discretion to
allow Cosden access to the writings. The court determined that the interests of justice did not
require production of the writings for purposes of inspection or cross examination. We find
no error in the trial court’s decision.
VIII. HELM’S CROSS APPEAL
A. Reasonable Allocation
On cross appeal,16 Helm contends that the district court erred by limiting damages under
orders 05 and 07 to amounts of polystyrene that Cosden should have allocated to Helm.
Instead, Helm argues that it should receive market-contract damages for all the general
purpose polystyrene that Cosden contracted to deliver under 05 and 07. We agree.
The jury found that Cosden was excused under section 2.615(1) from delivering general
purpose polystyrene (orders 05 and 07) due to the failure of presupposed conditions.17 See
15 Rule 612 provides in part:

[I]f a witness uses a writing to refresh his memory for the purpose of testifying, either—
(1) while testifying, or
(2) before testifying, if the court in its discretion determines it is necessary in the interests of justice,
an adverse party is entitled to have the writing produced at the hearing, to inspect it, to cross-examine the
witness thereon, and to introduce in evidence those portions which relate to the testimony of the witness.
16 We deny Cosden’s motion to dismiss Helm’s cross appeal, which was carried with the case. After the district
court issued an order in response to motions for judgment, Cosden moved the court to clarify its order. The
court then entered judgment, after which the parties timely filed their notices of appeal and cross appeal.
Several days later the court denied Cosden’s motion to clarify, after which Cosden again filed notice of appeal.
Cosden claims that Rule 4(a)(4), Fed.R.App.P., rendered Helm’s notice of appeal ineffective because it was
filed prior to the district court’s denial of Cosden’s motion to clarify and Helm did not thereafter timely file
notice of cross appeal.
Helm was not required to file another notice of appeal. Rule 4(a)(4) applies only to four types of
motions, each of which calls into question the correctness of the district court’s decision. We refuse to rewrite
the rule to encompass motions to clarify orders that precede judgment.
17 Section 2.615 provides:
Except so far as a seller may have assumed a greater obligation and subject to the preceding section on
substituted performance:
(1) Delay in delivery or non-delivery in whole or in part by a seller who complies with Subdivisions (2)
and (3) is not a breach of his duty under a contract for sale if performance as agreed has been made
impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on
which the contract was made or by compliance in good faith with any applicable foreign or domestic
governmental regulation or order whether or not it later proves to be invalid.
(2) Where the causes mentioned in Subdivision (1) affect only a part of the seller’s capacity to perform,
he must allocate production and deliveries among his customers but may at his option include regular
customers not then under contract as well as his own requirements for further manufacture. He may so allocate
in any manner which is fair and reasonable.
14-20
generally Robberson Steel, Inc. v. J.D. Abrams, Inc., 582 S.W.2d 558 (Tex.Civ.App.—El Paso
1979, no writ). Any impracticability caused by the failure of presupposed conditions only
affected part of Cosden’s ability to perform. Therefore, Cosden was required to allocate its
product in a fair and reasonable manner. See § 2.615(2) & comment 11; Roth Steel Products
v. Sharon Steel Corp., 705 F.2d 134, 151 & n. 38 (6th Cir.1983). The jury, however, found
that Cosden did not make a fair and reasonable allocation under the [*1078] circumstances.
By failing to allocate, fairly and reasonably, general purpose polystyrene to Helm, Cosden
lost its ability to invoke the benefits of section 2.615(1). See J. White & R. Summers, supra, §
3–9 at 134; Wallach, The Excuse Defense in the Law of Contracts: Judicial Frustration of the
U.C.C. Attempt to Liberalize the Law of Commercial Impracticability, 55 Notre Dame Law.
203, 224–25 (1979); Note, Uniform Commercial Code § 2–615(b); Duty to Allocate in a
Shortage Economy, 14 Suffolk U.L.Rev. 1136, 1146–48 (1980). The district court erred by
requiring the jury to determine the amount of polystyrene that Cosden should have allocated
and by not granting Helm damages for the entire amount of general purpose due under orders
05 and 07. The record shows that Cosden sold general purpose polystyrene to other customers
during the period in dispute and that, despite the difficulties that Cosden was experiencing, it
had inventory and the production capability with which it could have provided Helm with an
allocation of polystyrene.
We decline to accept Cosden’s argument that its liability for undelivered polystyrene
should not extend beyond the quantity that it should have fairly and reasonably allocated.
Otherwise, sellers whose partial performance has been rendered impracticable would have no
incentive to treat all of its customers equitably. Were we to adopt Cosden’s suggested rule, a
seller encountering unexpected problems could favor certain buyers at the expense of other
customers, confident that any liability it incurred would be limited by the reasonable amount
it should have allocated.
B. Prejudgment Interest
Helm asserts on cross-appeal that the trial court erred by failing to award prejudgment
interest under article 5069-1.03, Tex.Rev.Civ.Stat.Ann. (Vernon Supp.1984). We disagree.
Helm is not entitled to recover prejudgment interest because the amount of its damages was
not definitely determinable prior to judgment. Exxon Corp. v. Middleton, 613 S.W.2d 240,
252 (Tex.1981) (uncertain standard for measuring market value).
The cause is remanded to the district court to modify Helm’s damages under orders 05
and 07 and to decide the matter of appellate attorneys’ fees.
AFFIRMED, but, in part, REVERSED and REMANDED.
(3) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when
allocation is required under Subdivision (2), of the estimated quota thus made available for the buyer.
14-21
RAMIREZ v. AUTOSPORT
440 A.2d 1345 (N.J. 1982)
POLLOCK, J.:
[*1347] This case raises several issues under the Uniform Commercial Code (“the Code”
and “UCC”) concerning whether a buyer may reject a tender of goods with minor defects and
whether a seller may cure the defects. We consider also the remedies available to the buyer,
including cancellation of the contract. The main issue is whether plaintiffs, Mr. and Mrs.
Ramirez, could reject the tender by defendant, Autosport, of a camper van with minor defects
and cancel the contract for the purchase of the van.
The trial court ruled that Mr. and Mrs. Ramirez rightfully rejected the van and awarded
them the fair market value of their trade-in van. The Appellate Division affirmed in a brief
per curiam decision which, like the trial court opinion, was unreported. We affirm the
judgment of the Appellate Division.
I
Following a mobile home show at the Meadowlands Sports Complex, Mr. and Mrs.
Ramirez visited Autosport’s showroom in Somerville. On July 20, 1978 the Ramirezes and
Donald Graff, a salesman for Autosport, agreed on the sale of a new camper and the trade-in
of the van owned by Mr. and Mrs. Ramirez. Autosport and the Ramirezes signed a simple
contract reflecting a $14,100 purchase price for the new van with a $4,700 trade-in allowance
for the Ramirez van, which Mr. and Mrs. Ramirez left with Autosport. After further
allowance for taxes, title and documentary fees, the net price was $9,902. Because Autosport
needed two weeks to prepare the new van, the contract provided for delivery on or about
August 3, 1978.
On that date, Mr. and Mrs. Ramirez returned with their checks to Autosport to pick up the
new van. Graff was not there so Mr. White, another salesman, met them. Inspection disclosed
several defects in the van. The paint was scratched, both the electric and sewer hookups were
missing, and the hubcaps were not installed. White advised the Ramirezes not to accept the
camper because it was not ready.
Mr. and Mrs. Ramirez wanted the van for a summer vacation and called Graff several
times. Each time Graff told them it was not ready for delivery. Finally, Graff called to notify
them that the camper was ready. On August 14 Mr. and Mrs. Ramirez went to Autosport to
accept delivery, but [*1348] workers were still touching up the outside paint. Also, the
camper windows were open, and the dining area cushions were soaking wet. Mr. and Mrs.
Ramirez could not use the camper in that condition, but Mr. Leis, Autosport’s manager,
suggested that they take the van and that Autosport would replace the cushions later. Mrs.
Ramirez counteroffered to accept the van if they could withhold $2,000, but Leis agreed to no
more than $250, which she refused. Leis then agreed to replace the cushions and to call them
when the van was ready.
14-22
On August 15, 1978 Autosport transferred title to the van to Mr. and Mrs. Ramirez, a fact
unknown to them until the summer of 1979. Between August 15 and September 1, 1978 Mrs.
Ramirez called Graff several times urging him to complete the preparation of the van, but
Graff constantly advised her that the van was not ready. He finally informed her that they
could pick it up on September 1.
When Mr. and Mrs. Ramirez went to the showroom on September 1, Graff asked them to
wait. And wait they did—for one and a half hours. No one from Autosport came forward to
talk with them, and the Ramirezes left in disgust.
On October 5, 1978 Mr. and Mrs. Ramirez went to Autosport with an attorney friend.
Although the parties disagreed on what occurred, the general topic was whether they should
proceed with the deal or Autosport should return to the Ramirezes their trade-in van. Mrs.
Ramirez claimed they rejected the new van and requested the return of their trade-in. Mr.
Lustig, the owner of Autosport, thought, however, that the deal could be salvaged if the
parties could agree on the dollar amount of a credit for the Ramirezes. Mr. and Mrs. Ramirez
never took possession of the new van and repeated their request for the return of their trade-
in. Later in October, however, Autosport sold the trade-in to an innocent third party for
$4,995. Autosport claimed that the Ramirez’ van had a book value of $3,200 and claimed
further that it spent $1,159.62 to repair their van. By subtracting the total of those two figures,
$4,159.62, from the $4,995.00 sale price, Autosport claimed a $ 600–700 profit on the sale.
On November 20, 1978 the Ramirezes sued Autosport seeking, among other things,
rescission of the contract. Autosport counterclaimed for breach of contract.
II
Our initial inquiry is whether a consumer may reject defective goods that do not conform
to the contract of sale. The basic issue is whether under the UCC, adopted in New Jersey as
N.J.S.A. 12A:1–101 et seq., a seller has the duty to deliver goods that conform precisely to
the contract. We conclude that the seller is under such a duty to make a “perfect tender” and
that a buyer has the right to reject goods that do not conform to the contract. That conclusion,
however, does not resolve the entire dispute between buyer and seller. A more complete
answer requires a brief statement of the history of the mutual obligations of buyers and sellers
of commercial goods.
In the nineteenth century, sellers were required to deliver goods that complied exactly
with the sales agreement. See Filley v. Pope, 115 U.S. 213, 220, 6 S.Ct. 19, 21, 29 L.Ed. 372,
373 (1885) (buyer not obliged to accept otherwise conforming scrap iron shipped to New
Orleans from Leith, rather than Glasgow, Scotland, as required by contract); Columbian Iron
Works & Dry-Dock Co. v. Douglas, 84 Md. 44, 47, 34 A. 1118, 1120–1121 (1896) (buyer who
agreed to purchase steel scrap from United States cruisers not obliged to take any other kind
of scrap). That rule, known as the “perfect tender” rule, remained part of the law of sales well
into the twentieth century. By the 1920’s the doctrine was so entrenched in the law that Judge
Learned Hand declared “[t]here is no room in commercial contracts for the doctrine of
substantial performance.” Mitsubishi Goshi Kaisha v. J. Aron & Co., Inc., 16 F.2d 185, 186 (2
Cir. 1926).
14-23
[*1349] The harshness of the rule led courts to seek to ameliorate its effect and to bring
the law of sales in closer harmony with the law of contracts, which allows rescission only for
material breaches. LeRoy Dyal Co. v. Allen, 161 F.2d 152, 155 (4 Cir.1947). See 5 Corbin,
Contracts § 1104 at 464 (1951); 12 Williston, Contracts § 1455 at 14 (3 ed. 1970).
Nevertheless, a variation of the perfect tender rule appeared in the Uniform Sales Act.
N.J.S.A. 46:30–75 (purchasers permitted to reject goods or rescind contracts for any breach of
warranty); N.J.S.A. 46:30–18 to –21 (warranties extended to include all the seller’s
obligations to the goods). See Honnold, “Buyer’s Right of Rejection, A Study in the Impact of
Codification Upon a Commercial Problem”, 97 U.Pa.L.Rev. 457, 460 (1949). The chief
objection to the continuation of the perfect tender rule was that buyers in a declining market
would reject goods for minor nonconformities and force the loss on surprised sellers. See
Hawkland, Sales and Bulk Sales Under the Uniform Commercial Code, 120–122 (1958),
cited in N.J.S.A. 12A:2–508, New Jersey Study Comment 3.
To the extent that a buyer can reject goods for any nonconformity, the UCC retains the
perfect tender rule. Section 2–106 states that goods conform to a contract “when they are in
accordance with the obligations under the contract”. N.J.S.A. 12A:2–106. Section 2–601
authorizes a buyer to reject goods if they “or the tender of delivery fail in any respect to
conform to the contract”. N.J.S.A. 12A:2–601. The Code, however, mitigates the harshness of
the perfect tender rule and balances the interests of buyer and seller. See Restatement
(Second), Contracts, § 241 comment (b) (1981). The Code achieves that result through its
provisions for revocation of acceptance and cure. N.J.S.A. 12A:2–608, 2–508.
Initially, the rights of the parties vary depending on whether the rejection occurs before or
after acceptance of the goods. Before acceptance, the buyer may reject goods for any
nonconformity. N.J.S.A. 12A:2–601. Because of the seller’s right to cure, however, the
buyer’s rejection does not necessarily discharge the contract. N.J.S.A. 12A:2–508. Within the
time set for performance in the contract, the seller’s right to cure is unconditional. Id., subsec.
(1); see id., Official Comment 1. Some authorities recommend granting a breaching party a
right to cure in all contracts, not merely those for the sale of goods. Restatement (Second),
Contracts, ch. 10, especially §§ 237 and 241. Underlying the right to cure in both kinds of
contracts is the recognition that parties should be encouraged to communicate with each other
and to resolve their own problems. Id., Introduction p. 193.
The rights of the parties also vary if rejection occurs after the time set for performance.
After expiration of that time, the seller has a further reasonable time to cure if he believed
reasonably that the goods would be acceptable with or without a money allowance. N.J.S.A.
12A:2–508(2). The determination of what constitutes a further reasonable time depends on
the surrounding circumstances, which include the change of position by and the amount of
inconvenience to the buyer. N.J.S.A. 12A:2–508, Official Comment 3. Those circumstances
also include the length of time needed by the seller to correct the nonconformity and his
ability to salvage the goods by resale to others. See Restatement (Second), Contracts, § 241
comment (d). Thus, the Code balances the buyer’s right to reject nonconforming goods with a
“second chance” for the seller to conform the goods to the contract under certain limited
circumstances. N.J.S.A. 12A:2–508, New Jersey Study Comment 1.
14-24
After acceptance, the Code strikes a different balance: the buyer may revoke acceptance
only if the nonconformity substantially impairs the value of the goods to him. N.J.S.A.
12A:2–608. See Herbstman v. Eastman Kodak Co., 68 N.J. 1, 9 (1975). See generally, Priest,
“Breach [*1350] and Remedy for the Tender of Non-Conforming Goods under the Uniform
Commercial Code: An Economic Approach,” 91 Harv.L.Rev. 960, 971–973 (1978). This
provision protects the seller from revocation for trivial defects. Herbstman, supra, 68 N.J. at
9. It also prevents the buyer from taking undue advantage of the seller by allowing goods to
depreciate and then returning them because of asserted minor defects. See White & Summers,
Uniform Commercial Code, § 8–3 at 391 (2 ed. 1980). Because this case involves rejection of
goods, we need not decide whether a seller has a right to cure substantial defects that justify
revocation of acceptance. See Pavesi v. Ford Motor Co., 155 N.J. Super. 373, 378
(App.Div.1978) (right to cure after acceptance limited to trivial defects) and White &
Summers, supra, § 8–4 at 319 n.76 (open question as to the relationship between §§ 2–608
and 2–508).
Other courts agree that the buyer has a right of rejection for any nonconformity, but that
the seller has a countervailing right to cure within a reasonable time. Marine Mart Inc. v.
Pearce, 252 Ark. 601, 480 S.W.2d 133, 137 (1972). See Intermeat, Inc. v. American Poultry,
Inc., 575 F.2d 1017, 1024 (2 Cir. 1978); Moulton Cavity & Mold., Inc. v. Lyn-Flex Industries,
396 A.2d 1024, 1027 n.6 (Me.1979); Uchitel v. F. R. Tripler & Co., 107 Misc.2d 310, 316,
434 N.Y.S.2d 77, 81 (App.Term 1980); Rutland Music Services, Inc. v. Ford Motor Co., 422
A.2d 248, 249 (Vt.1980). But see McKenzie v. Alla-Ohio Coals, Inc., 29 U.C.C.Rep. 852,
856-857 (D.D.C.1979).
One New Jersey case, Gindy Mfg. Corp. v. Cardinale Trucking Corp., suggests that,
because some defects can be cured, they do not justify rejection. 111 N.J. Super. 383, 387 n.1
(Law Div.1970). Accord, Adams v. Tremontin, 42 N.J. Super. 313, 325 (App.Div.1956)
(Uniform Sales Act). But see Sudol v. Rudy Papa Motors, 175 N.J. Super. 238, 240-241
(D.Ct.1980) (§ 2–601 contains perfect tender rule). Nonetheless, we conclude that the perfect
tender rule is preserved to the extent of permitting a buyer to reject goods for any defects.
Because of the seller’s right to cure, rejection does not terminate the contract. Accordingly,
we disapprove the suggestion in Gindy that curable defects do not justify rejection.
A further problem, however, is identifying the remedy available to a buyer who rejects
goods with insubstantial defects that the seller fails to cure within a reasonable time. The
Code provides expressly that when “the buyer rightfully rejects, then with respect to the
goods involved, the buyer may cancel.” N.J.S.A. 12A:2–711. “Cancellation” occurs when
either party puts an end to the contract for breach by the other. N.J.S.A. 12A:2–106(4).
Nonetheless, some confusion exists whether the equitable remedy of rescission survives
under the Code. Compare Ventura v. Ford Motor Corp., 173 N.J. Super. 501, 503
(Ch.Div.1980), aff’d 180 N.J. Super. 45 (App.Div.1981) (rescission under UCC) and Pavesi
v. Ford Motor Corp., supra, 155 N.J. Super. at 377 (equitable remedies still available since
not specifically superceded, § 1–103) with Edelstein v. Toyota Motors Dist., 176 N.J. Super.
57, 63–64 (App.Div.1980) (under UCC rescission is revocation of acceptance) and Sudol v.
14-25
Rudy Papa Motors, supra, 175 N.J. Super. at 241–242 (under UCC, rescission no longer
exists as such).
The Code eschews the word “rescission” and substitutes the terms “cancellation”,
“revocation of acceptance”, and “rightful rejection”. N.J.S.A. 12A:2–106(4); 2–608; and 2–
711 & Official Comment 1. Although neither “rejection” nor “revocation of acceptance” is
defined in the Code, rejection includes both the buyer’s refusal to accept or keep delivered
goods and his notification to the seller that he will not keep them. White & Summers, supra,
§ 8–1 at 293. Revocation of acceptance is like rejection, but occurs after the buyer [*1351]
has accepted the goods. Nonetheless, revocation of acceptance is intended to provide the
same relief as rescission of a contract of sale of goods. N.J.S.A. 12A:2–608 Official Comment
1; N.J. Study Comment 2. In brief, revocation is tantamount to rescission. See Herbstman v.
Eastman Kodak Co., supra, 68 N.J. at 9; accord, Peckham v. Larsen Chevrolet-Buick-
Oldsmobile, Inc., 99 Idaho 675, 677, 587 P.2d 816, 818 (1978) (rescission and revocation of
acceptance amount to the same thing). Similarly, subject to the seller’s right to cure, a buyer
who rightfully rejects goods, like one who revokes his acceptance, may cancel the contract.
N.J.S.A. 12A:2–711 & Official Comment 1. We need not resolve the extent to which
rescission for reasons other than rejection or revocation of acceptance, e.g. fraud and mistake,
survives as a remedy outside the Code. Compare N.J.S.A. 12A:1–103 and White & Summers,
supra, § 8–1, p. 295, with N.J.S.A. 12A:2–721. Accordingly, we approve Edelstein and Sudol,
which recognize that explicit Code remedies replace rescission, and disapprove Ventura and
Pavesi to the extent they suggest the UCC expressly recognizes rescission as a remedy.
Although the complaint requested rescission of the contract, plaintiffs actually sought not
only the end of their contractual obligations, but also restoration to their pre-contractual
position. That request incorporated the equitable doctrine of restitution, the purpose of which
is to restore plaintiff to as good a position as he occupied before the contract. Corbin, supra, §
1102 at 455. In UCC parlance, plaintiffs’ request was for the cancellation of the contract and
recovery of the price paid. N.J.S.A. 12A:2–106(4), 2–711.
General contract law permits rescission only for material breaches, and the Code restates
“materiality” in terms of “substantial impairment”. See Herbstman v. Eastman Kodak Co.,
supra, 68 N.J. at 9; id. at 15 (Conford, J., concurring). The Code permits a buyer who
rightfully rejects goods to cancel a contract of sale. N.J.S.A. 12A:2–711. Because a buyer may
reject goods with insubstantial defects, he also may cancel the contract if those defects remain
uncured. Otherwise, a seller’s failure to cure minor defects would compel a buyer to accept
imperfect goods and collect for any loss caused by the nonconformity. N.J.S.A. 12A:2–714.
Although the Code permits cancellation by rejection for minor defects, it permits
revocation of acceptance only for substantial impairments. That distinction is consistent with
other Code provisions that depend on whether the buyer has accepted the goods. Acceptance
creates liability in the buyer for the price, N.J.S.A. 12A:2–709(1), and precludes rejection.
N.J.S.A. 12A:2–607(2); N.J.S.A. 12A:2–606, New Jersey Study Comment 1. Also, once a
buyer accepts goods, he has the burden to prove any defect. N.J.S.A. 12A:2–607(4); White &
Summers, supra, § 8–2 at 297. By contrast, where goods are rejected for not conforming to
14-26
the contract, the burden is on the seller to prove that the nonconformity was corrected. Miron
v. Yonkers Raceway, Inc., 400 F.2d 112, 119 (2 Cir. 1968).
Underlying the Code provisions is the recognition of the revolutionary change in business
practices in this century. The purchase of goods is no longer a simple transaction in which a
buyer purchases individually-made goods from a seller in a face-to-face transaction. Our
economy depends on a complex system for the manufacture, distribution, and sale of goods, a
system in which manufacturers and consumers rarely meet. Faceless manufacturers mass-
produce goods for unknown consumers who purchase those goods from merchants exercising
little or no control over the quality of their production. In an age of assembly lines, we are
accustomed to cars with scratches, television sets without knobs and other products with all
kinds of defects. Buyers no longer expect a “perfect tender”. If a merchant sells defective
goods, the reasonable expectation of the parties is that the buyer will return those goods and
that the seller will repair or replace them.
[*1352] Recognizing this commercial reality, the Code permits a seller to cure imperfect
tenders. Should the seller fail to cure the defects, whether substantial or not, the balance shifts
again in favor of the buyer, who has the right to cancel or seek damages. N.J.S.A. 12A:2–711.
In general, economic considerations would induce sellers to cure minor defects. See generally
Priest, supra, 91 Harv.L.Rev. 973–974. Assuming the seller does not cure, however, the buyer
should be permitted to exercise his remedies under N.J.S.A. 12A:2–711. The Code remedies
for consumers are to be liberally construed, and the buyer should have the option of
cancelling if the seller does not provide conforming goods. See N.J.S.A. 12A:1–106.
To summarize, the UCC preserves the perfect tender rule to the extent of permitting a
buyer to reject goods for any nonconformity. Nonetheless, that rejection does not
automatically terminate the contract. A seller may still effect a cure and preclude unfair
rejection and cancellation by the buyer. N.J.S.A. 12A:2–508, Official Comment 2; N.J.S.A.
12A:2–711, Official Comment 1.
III
The trial court found that Mr. and Mrs. Ramirez had rejected the van within a reasonable
time under N.J.S.A. 12A:2–602. The court found that on August 3, 1978 Autosport’s salesman
advised the Ramirezes not to accept the van and that on August 14, they rejected delivery and
Autosport agreed to replace the cushions. Those findings are supported by substantial
credible evidence, and we sustain them. See Rova Farms Resort v. Investors Ins. Co., 65 N.J.
474, 483–484 (1974). Although the trial court did not find whether Autosport cured the
defects within a reasonable time, we find that Autosport did not effect a cure. Clearly the van
was not ready for delivery during August, 1978 when Mr. and Mrs. Ramirez rejected it, and
Autosport had the burden of proving that it had corrected the defects. Although the Ramirezes
gave Autosport ample time to correct the defects, Autosport did not demonstrate that the van
conformed to the contract on September 1. In fact, on that date, when Mr. and Mrs. Ramirez
returned at Autosport’s invitation, all they received was discourtesy.
On the assumption that substantial impairment is necessary only when a purchaser seeks
to revoke acceptance under N.J.S.A. 12A:2–608, the trial court correctly refrained from
14-27
deciding whether the defects substantially impaired the van. The court properly concluded
that plaintiffs were entitled to “rescind” — i.e., to “cancel” — the contract.
Because Autosport had sold the trade-in to an innocent third party, the trial court
determined that the Ramirezes were entitled not to the return of the trade-in, but to its fair
market value, which the court set at the contract price of $4,700. A buyer who rightfully
rejects goods and cancels the contract may, among other possible remedies, recover so much
of the purchase price as has been paid. N.J.S.A. 12A:2–711. The Code, however, does not
define “pay” and does not require payment to be made in cash.
A common method of partial payment for vans, cars, boats and other items of personal
property is by a “trade-in”. When concerned with used vans and the like, the trade-in market
is an acceptable, and perhaps the most appropriate, market in which to measure damages. It is
the market in which the parties dealt; by their voluntary act they have established the value of
the traded-in article. See Frantz Equipment Co. v. Anderson, 37 N.J. 420, 431–432 (1962) (in
computing purchaser’s damages for alleged breach of uniform conditional sales law, trade-in
value of tractor was appropriate measure); accord, California Airmotive Corp. v. Jones, 415
F.2d 554, 556 (6 Cir. 1969). In other circumstances, a measure of damages other than the
trade-in value might be appropriate. See Chemical Bank v. Miller Yacht Sales, 173 N.J. Super.
90, 103 (App.Div.1980) (in determining value of security interest in boat, court rejected both
book value and contract trade-in value and adopted resale value as appropriate measure of
damages).
[*1353] The ultimate issue is determining the fair market value of the trade-in. This
Court has defined fair market value as “the price at which the property would change hands
between a willing buyer and a willing seller when the former is not under any compulsion to
buy and the latter is not under any compulsion to sell, both parties having reasonable
knowledge of relevant facts.” In re Estate of Romnes, 79 N.J. 139, 144 (1978). Although the
value of the trade-in van as set forth in the sales contract was not the only possible standard, it
is an appropriate measure of fair market value.
For the preceding reasons, we affirm the judgment of the Appellate Division.
ZABRISKIE CHEVROLET, INC. v. SMITH

99 N.J. Super. 441 (Law Div. 1968)
DOAN, J.:
This action arises out of the sale by plaintiff to defendant of a new 1966 Chevrolet
automobile. Within a short distance after leaving the showroom the vehicle became almost
completely inoperable by reason of mechanical failure. Defendant the same day notified
plaintiff that he cancelled the sale and simultaneously stopped payment on the check he had
tendered in payment of the balance of the purchase price. Plaintiff sues on the check and the
purchase order for the balance of the purchase price plus incidental damages and defendant
counterclaims [*445] for the return of his deposit and incidental damages.
The facts are not complex nor do they present any serious dispute.
14-28
On February 2, 1967 defendant signed a form purchase order for a new 1966 Chevrolet
Biscayne Sedan which was represented to him to be a brand-new car that would operate
perfectly. On that occasion he paid plaintiff $124 by way of deposit. On February 9, 1967
defendant tendered plaintiff his check for $2069.50 representing the balance of the purchase
price ($2064) and $5.50 for license and transfer fees. Delivery was made to defendant’s wife
during the early evening hours of Friday, February 10, 1967, at which time she was handed
the keys and the factory package of printed material, including the manual and the
manufacturer-dealer’s warranty, none of which she or her husband ever read before or after
the sale was made, nor were the details thereof specifically explained to or agreed to by
defendant. While en route to her home, about 2 1/2 miles away, and after having gone about
7/10 of a mile from the showroom, the car stalled at a traffic light, stalled again within
another 15 feet and again thereafter each time the vehicle was required to stop. When about
halfway home the car could not be driven in “drive” gear at all, and defendant’s wife was
obliged to then propel the vehicle in “low-low” gear at a rate of about five to ten miles per
hour, its then maximum speed. In great distress, defendant’s wife was fearful of completing
the journey to her home and called her husband, who thereupon drove the car in “low-low”
gear about seven blocks to his home. Defendant, considerably upset by this turn of events,
thereupon immediately called his bank (which was open this Friday evening), stopped
payment on the check and called plaintiff to notify them that they had sold him a “lemon,”
that he had stopped payment on the check and that the sale was cancelled. The next day
plaintiff sent a wrecker to defendant’s home, brought the vehicle to its repair shop and after
inspection determined that the transmission was defective.
[*446] Plaintiff’s expert testified that the car would not move, that there was no power in
the transmission and in that condition the car could not move. Plaintiff replaced the
transmission with another one removed from a vehicle then on plaintiff’s showroom floor,
notifying defendant thereafter of what had been done. Defendant refused to take delivery of
the vehicle as repaired and reasserted his cancellation of the sale. Plaintiff has since kept the
vehicle in storage at his place of business. Within a short period following these occurrences
plaintiff and defendant began negotiations for a new 1967 Chevrolet, but these fell through
when plaintiff insisted that a new deal could only be made by giving defendant credit for the
previously ordered 1966 Chevrolet. This defendant refused to do because he considered the
prior transaction as cancelled.
The issues in this case present problems for disposition under the Uniform Commercial
Code (Code). The Code rejects the old court ‘lump concept’ or ‘title’ approach in favor of the
‘narrow issue’ access to sales problems. It provides that the act shall be liberally construed
and applied to promote its underlying purposes and policies. N.J.S. 12A:1–102. Further, that
unless displaced by the particular provisions of the Code, the principles of law and equity or
other validating or invalidating cause shall supplement its provisions, N.J.S. 12A:1–103; and
further, that the remedies provided by the Code shall be liberally administered to the end that
the aggrieved party may be put in as good a position as if the other party had fully performed.
N.J.S. 12A:1–106.
14-29
Plaintiff-seller contends that all rights and remedies in this case are governed and limited
by the sales contract. Paragraph 9 in fine print on the back of the order form states:
“9. There are no warranties, express or implied, on Chevrolet motor vehicles sold by
Dealer except the New Vehicle Warranty which Dealer, as Seller, and not as agent of
the Manufacturer, gives to Purchaser on each new Chevrolet motor vehicle sold by
Dealer.”
[*447] The new vehicle warranty which defendant-buyer did not receive at the time that
he signed the order form, states that the promise to repair or replace defective parts is:
“* * * in lieu of any other warranties, expressed or implied, including any implied
warranty of merchantability or fitness for a particular purpose, and of any other
obligations or liability on the part of the Manufacturer, and Chevrolet Motor Division
neither assumes nor authorizes any other person to assume for it any other liability in
connection with such motor vehicle or chassis.”
Assuming that this contract of adhesion is applicable, it is not enforceable in this case.
The contract does not limit the remedies of the buyer (see N.J.S. 12A:2–719), but attempts to
limit the warranty obligation.
The evidence is plain that the terms of these attempted disclaimers and limitations of
warranties were not actually brought to defendant’s attention nor explained to him in detail. It
would be difficult to conceive that a buyer of a new automobile would agree to a sale which
had conditions attached to the effect that the buyer would be compelled to accept the vehicle,
even if it did not operate. Obviously, this was not defendant’s intention and the proof is to the
contrary.
The Code makes provision for exclusion or modification of warranties. N.J.S. 12A:2–
316(2) provides as follows:
“Subject to subsection (3), to exclude or modify the implied warranty of
merchantability or any part of it the language must mention merchantability and in
case of a writing must be conspicuous, and to exclude or modify any implied
warranty of fitness the exclusion must be by a writing and conspicuous. Language to
exclude all implied warranties of fitness is sufficient if it states, for example, that
‘There are no warranties which extend beyond the description on the face hereof.’”
The critical requirement is that the language be “conspicuous.” The sales contract
contained in the purchase order form did not effectively disclaim or exclude the implied
warranties of merchantability or fitness. The attempted limitations [*448] of these warranties
were not “conspicuous” and hence failed in their purpose. Moreover, the “New Vehicle
Warranty” which endeavored to limit these warranties was contained in the manual which
was not received by defendant until the delivery of the car, long after the contract was signed.
In Diepeveen v. Larry Vogt, Inc., 27 N.J.Super. 254, 99 A.2d 329 (App.Div.1953), the
court said:
14-30
“After a contract to sell has been entered into or, at any event, where title has passed
to the buyer, a disclaimer of warranties, such as this one, is ineffectual. * * *” (at p.
256, at p. 330 of 99 A.2d)
Attempts at limitation and disclaimer of this type were severely criticized in Henningsen
v. Bloomfield Motors, Inc., 32 N.J. 358, 385-406, 161 A.2d 69, (1960), where the court said:
“* * * we are of the opinion that Chrysler’s attempted disclaimer of an implied
warranty of merchantability and of the obligations arising therefrom is so inimical to
the public good as to compel an adjudication of its invalidity.” (at p. 404, at p. 95 of
161 A.2d)
Although Henningsen was decided prior to the effective date of the Code, its basic
concept that a technique such as the one described herein is against public policy now finds
statutory support not only in N.J.S . 12A:2–316(2) but also in N.J.S. 12A:2–302
(unconscionable contract or clause).
The concept that the vendor’s obligation goes beyond the written instrument was
appropriately expressed in Henningsen, supra. The court expressed itself in this language:
“Under modern conditions the ordinary layman, on responding to the importuning of
colorful advertising, has neither the opportunity nor the capacity to inspect or to
determine the fitness of an automobile for use; he must rely on the manufacturer who
has control of its construction, and to some degree on the dealer who, to the limited
extent called for by the manufacturer’s instructions, inspects and services it before
delivery. In such a marketing milieu his remedies and those of persons who properly
claim through him should not depend ‘upon the intricacies of the law of sales. The
obligation [*449] of the manufacturer should not be based alone on privity of
contract. It should rest, as was once said, upon “the demands of social justice”.’” (at
p. 384, at p. 83 of 161 A.2d)
The court further said:
“In a society such as ours, where the automobile is a common and necessary adjunct
of daily life, and where its use is so fraught with danger to the driver, passengers and
the public, the manufacturer is under a special obligation in connection with the
construction, promotion and sale of his cars. Consequently, the courts must examine
purchase agreements closely to see if consumer and public interests are treated
fairly.” (at p. 387, at p. 85 of 161 A.2d)
Dealing further with the contractual foundation between the parties the court stated:
“The traditional contract is the result of free bargaining of parties who are brought
together by the play of the market, and who meet each other on a footing of
approximate economic equality. In such a society there is no danger that freedom of
contract will be a threat to the social order as a whole. But in present-day commercial
life the standardized mass contract has appeared. It is used primarily by enterprises
with strong bargaining power and position. ‘The weaker party, in need of the goods
or services, is frequently not in a position to shop around for better terms, either
14-31
because the author of the standard contract has a monopoly (natural or artificial) or
because all competitors use the same clauses. His contractual intention is but a
subjection more or less voluntary to terms dictated by the stronger party terms whose
consequences are often understood in a vague way, if at all.’ Kessler, ‘Contracts of
Adhesion—Some Thoughts About Freedom of Contract,’ 43 Colum.L.Rev. 629, 632
(1943); Ehrenzweig, ‘Adhesion Contracts in the Conflict of Laws,’ 53 Colum.L.Rev.
1072, 1075, 1089 (1953).” (at p. 389, at p. 86 of 161 A.2d)
In dealing with the remedy for a buyer who has gotten less than what he contracted for,
the court in Henningsen, supra, at page 395, 161 A.2d 69, quoted from the language in Myers
v. Land, 314 Ky. 514, 235 S.W.2d 988 (1950), where the Kentucky court expressed itself in
this fashion:
“* * * Anyone brought up to believe that for every wrong there is a remedy will
pause before saying that the seller will escape all liability by merely putting in an
order blank a statement to the [*450] effect that there is no assurance that the buyer
will get a machine that will work. We have paused for the moment and have readily
concluded that the avoidance of liability under such a circumstance is not permitted
by the law * * *.”
Accordingly, we hold that the vehicle delivered to defendant was substantially defective
and constituted a breach of the contract and the implied warranty of merchantability, and
unless otherwise legally bound defendant justifiably abrogated the sale.
Our attention is next directed to the claim that there was a breach of the contract by
plaintiff in that there was a failure of consideration thereunder. In Moreira Construction Co.,
Inc. v. Moretrench Corp., 97 N.J.Super. 391, 235 A.2d 211, the court pointed up this
important distinction:
“Plaintiff also relies on Myers v. Land, 314 Ky. 514, 235 S.W.2d 988 (Sup.Ct.1951), a
case cited in Henningsen. In that case plaintiff purchased from defendant a machine
to manufacture concrete blocks. The contract of sale expressly disclaimed any
warranties not contained therein and limited defendant’s liability to the replacement
of defective parts. When the machine failed to manufacture concrete blocks plaintiff
instituted an action for the purchase price. The court held that the limitation of
liability and disclaimer of warranties did not bar the suit. But the theory upon which
the court based its holding is important. It held that the failure of the machine to
accomplish the purpose for which it was designed amounted to more than a breach of
warranty. Rather, ‘there has been no delivery of that which was bought.’ (Emphasis
added.) 235 S.W.2d, at p. 991.” (at p. 395, at p. 213 of 235 A.2d)
Cf. Farrell v. Brandtjen & Kluge, Inc., 176 Pa.Super. 412, 107 A.2d 695 (Super.Ct.1954).
Plaintiff urges that defendant accepted the vehicle and therefore under the Code N.J.S.A.
12A:2–607(1) is bound to complete payment for it. Defendant asserts that he never accepted
the vehicle and therefore under the Code properly rejected it; further, that even if there had
been acceptance he was justified under the Code in revoking the same. Defendant supports
14-32
this claim by urging that what was delivered to him was not what he bargained for, i.e., a
[*451] new car with factory new parts, which would operate perfectly as represented and,
therefore, the Code remedies of rejection and revocation of acceptance were available to him.
These remedies have their basis in breach of contract and failure of consideration although
they are also viewed as arising out of breach of warranty. The essential ingredient which
determines which of these two remedies is brought into play is a determination, in limine,
whether there had been an ‘acceptance’ of the goods by the buyer. Thus, the primary inquiry
is whether the defendant had ‘accepted’ the automobile prior to the return thereof to the
plaintiff.
N.J.S. 12A:2–606 states in pertinent part:
“(1) Acceptance of goods occurs when the buyer
(a) after a reasonable opportunity to inspect the goods signifies to the seller that
the goods are conforming or that he will take or retain them in spite of their non-
conformity; or
(b) fails to make an effective rejection (subsection (1) of 12A:2-602), but such
acceptance does not occur until the buyer has had a reasonable opportunity to
inspect them, or
(c) does any act inconsistent with the seller’s ownership; but if such act is
wrongful as against the seller it is an acceptance only if ratified by him.”
The New Jersey Study Comment to 12A:2–606 states:
“2. Subsection 2–606(1)(a) is similar to the first clause of section 48 of the U.S.A.
(N.J.S.A. 46:30–54). See also, Paul Gerli & Co. v. Mistletoe Silk Mills, 80 N.J.L. 128,
76 A. 335 (1910).”
The Gerli case states:
“The question arises whether the defendant accepted it. The defendant had a right to
inspect and examine (Sales Act, s 47), and, if necessary, to test the goods even though
the test involved destruction of a part. Williston on Sales, § 475. If, however, the
defendant intimated to the plaintiff that it had accepted to goods, or if the defendant
did any act inconsistent with the ownership of the plaintiff, or if, after the lapse of a
reasonable time, it retained the goods without intimating to the plaintiff a rejection,
then the defendant must be deemed to have accepted the goods and the right of
rescission is gone. Sales Act, § 48.’ (at p. 129)
[*452] The New Jersey Study Comment to 12A:2–606 further states:
“3 . Subsection 2–606(1)(b) is in accord with Sections 47 and 48 of the U.S.A.,
N.J.S.A. 46:30–53 and 54, and the case law of the state. S. G. Young, Inc. v. B. & C.
Distributors Co., 23 N.J.Super. 15, 92 A.2d 519 (1952); Woodward v. Emmons, 61
N.J.L. 281, 39 A. 703 (1898).”
Young states:
14-33
“If plaintiff had found the resistors defective or imperfect it had the right to reject
them and demand replacement or refund, or it could confirm the agreement of
purchase, waiving its rights and treating the goods as its own. It could not do both.
Had it desired to reject the goods purchased for cause, it should have acted promptly
and within a reasonable time after discovering that the resistors were defective or
imperfect.” (at p. 27)
And Woodward held:
“Where the vendees of machines intended or adapted for pulverizing stone and hard
materials, and purchased under a warranty of fitness for such purpose, after testing
them, and, discovering defects which cause dissatisfaction, continue to use them, not
in order to make further tests, but merely for the purpose of their own convenience or
profit, such use constitutes an acceptance, and concludes them from the defense of a
total failure of consideration, and they must rely upon their warranty.”
It is clear that a buyer does not accept goods until he has had a ‘reasonable opportunity to
inspect.’ Defendant sought to purchase a new car. He assumed what every new car buyer has
a right to assume and, indeed, has been led to assume by the high powered advertising
techniques of the auto industry—that his new car, with the exception of very minor
adjustments, would be mechanically new and factory-furnished, operate perfectly, and be free
of substantial defects. The vehicle delivered to defendant did not measure up to these
representations. Plaintiff contends that defendant had ‘reasonable opportunity to inspect’ by
the privilege to take the car for a typical ‘spin around the block’ before signing the purchase
order. If by this contention plaintiff [*453] equates a spin around the block with ‘reasonable
opportunity to inspect’, the contention is illusory and unrealistic. To the layman, the
complicated mechanisms of today’s automobiles are a complete mystery. To have the
automobile inspected by someone with sufficient expertise to disassemble the vehicle in order
to discover latent defects before the contract is signed, is assuredly impossible and highly
impractical. Cf. Massari v. Accurate Bushing Co., 8 N.J. 299, 313, 85 A.2d 260.
Consequently, the first few miles of driving become even more significant to the excited new
car buyer. This is the buyer’s first reasonable opportunity to enjoy his new vehicle to see if it
conforms to what it was represented to be and whether he is getting what he bargained for.
How long the buyer may drive the new car under the guise of inspection of new goods is not
an issue in the present case. It is clear that defendant discovered the nonconformity within
7/10 of a mile and minutes after leaving plaintiff’s showroom. Certainly this was well within
the ambit of ‘reasonable opportunity to inspect.’ That the vehicle was grievously defective
when it left plaintiff’s possession is a compelling conclusion, as is the conclusion that in a
legal sense defendant never accepted the vehicle.
Nor could the dealer under such circumstances require acceptance. Cf. Code Comment 2
(subsection 2) to N.J.S. 12A:2–106:6.
“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. * * *”
14-34
Even if defendant had accepted the automobile tendered, he had a right to revoke under
N.J.S. 12A:2–608:
“(1) The buyer may revoke his acceptance of a lot or commercial unit whose non-
conformity substantially impairs its value to him if he has accepted it.
(a) on the reasonable assumption that its non-conformity would be cured and it has
not been seasonably cured; or
[*454] (b) without discovery of such non-conformity if his acceptance was
reasonably induced either by the difficulty of discovery before acceptance or by the
seller’s assurances.
(2) Revocation of acceptance must occur within a reasonable time after the buyer
discovers or should have discovered the ground for it and before any substantial
change in condition of the goods which is not caused by their own defects. It is not
effective until the buyer notifies the seller of it.
(3) A buyer who so revokes has the same rights and duties with regard to the goods
involved as if he had rejected them. L.1961, c. 120, sec. 2–608.”
The New Jersey Study Comment to 12A:2–608 reads:
“3. Subsection 2–608(1) permits revocation of acceptance only where there has been
a non-conformity which substantially impairs the value of the lot or commercial unit
which was accepted. No similar restriction is placed on the buyer’s rights to rescind
under section 69 of the U.S.A. (N.J.S. 46:30–75). Under the U.S.A., however, the
courts have not allowed rescission for a trivial breach of warranty. Therefore, the
U.C.C. requirement of substantial impairment does not differ radically from the
decisions under the U.S.A. See, in this connection, Miller & Sons Bakery Co. v.
Selikowitz, 4 N.J.Super. 97, 66 A.2d 441 (1949) (The right to rescind, however, is an
extreme one and does not arise from every breach. * * * The general rule is that
rescission will not be permitted for a slight or casual breach of contract, but only for
such breaches as are so substantial * * * as to defeat the objective of the parties * *
*’).” 12 C.J. Sec. 661, p. 613; 17 C.J.S. Contracts s 435, p. 918.
Nor did plaintiff have reasonable grounds to believe that a new automobile which could
not even be driven a bare few miles to the buyer’s residence would be acceptable. The dealer
is in an entirely different position from the layman. The dealer with his staff of expert
mechanics and modern equipment knows or should know of substantial defects in the new
automobile which it sells. There was offered into evidence the dealer’s inspection and
adjustment schedule containing over 70 alleged items that plaintiff caused to be inspected,
including the transmission. According to that schedule the automobile in question had been
checked by the seller for the satisfaction of the buyer, and such inspection [*455] included a
road test. The fact that the automobile underwent a tortured operation for about 2 1/2 miles
from the showroom to defendant’s residence demonstrates the inherent serious deficiencies in
this vehicle which were present when the so-called inspection was made by plaintiff, and
hence plaintiff was aware (or should have been) that the vehicle did not conform to the
14-35
bargain the parties had made, and plaintiff had no reasonable right to expect that the vehicle
in that condition would be accepted.
There having been no acceptance, the next issue presented is whether defendant properly
rejected under the Code. That he cancelled the sale and rejected the vehicle almost
concomitantly with the discovery of the failure of his bargain is clear from the evidence.
N.J.S. 12A:2–601, N.J.S.A. delineates the buyer’s rights following non-conforming delivery
and reads as follows:
“Subject to the provisions of this Chapter on breach installment contracts (12A:2–
612) and unless otherwise agreed under the sections on contractual limitations of
remedy (12A:2–712 and 2–719), if the goods or the tender of delivery fail in any
respect to conform to the contract, the buyer may
(a) reject the whole; * * *” (Italics added)
Section 12A:2–602 indicates that one can reject after taking possession. Possession,
therefore, does not mean acceptance and the corresponding loss of the right of rejection; nor
does the fact that buyer has a security interest along with possession eliminate the right to
reject.
“(1) Rejection of goods must be within a reasonable time after their delivery or
tender. It is ineffective unless the buyer seasonably notifies the seller.
(2) Subject to the provisions of the two following sections on rejected goods (12A:2–
603 and 2–604).
(a) after rejection any exercise of ownership by the buyer with respect to any
commercial unit is wrongful as against the seller; and
(b) if the buyer has before rejection taken physical possession of goods in which he
does not have a security interest under the provisions of this Chapter (subsection (3)
of 12A:2–711), he is [*456] under a duty after rejection to hold them with reasonable
care at the seller’s disposition for a time sufficient to permit the seller to remove
them; but
(c) the buyer has no further obligations with regard to goods rightfully rejected.”
(Italics added)
N.J.S. 12A:2–106 defines conforming goods as follows:
“(2) Goods or conduct including any part of a performance are ‘conforming’ or
conform to the contract when they are in accordance with the obligations under the
contract.”
The Uniform Commercial Code Comment to that section states:
“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
14-36
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.”
There was no evidence at the trial concerning any ‘custom or usage,’ although plaintiff in
its brief argued that it is the usage of the automobile trade that a buyer accept a new
automobile, although containing defects of manufacture, if such defects can be and are
seasonably cured by the seller. Perhaps this represents prevailing views in the automobile
industry which have, over the years, served to blanket injustices and inequities committed
upon buyers who demurred in the light of the unequal positions of strength between the
parties. The spirit of the Henningsen opinion, supra, contemplated these conditions which
cried out for correction. In the present case we are not dealing with a situation such as was
present in Adams v. Tramontin Motor Sales, 42 N.J.Super. 313, 126 A.2d 358 (App.Div.
1956). In that case, brought for breach of implied warranty of merchantability, the court held
that minor [*457] defects, such as adjustment of the motor, tightening of loose elements,
fixing of locks and dome light, and a correction of rumbling noise, were not remarkable
defects, and therefore there was no breach. Here the breach was substantial. The new car was
practically inoperable and endowed with a defective transmission. This was a “remarkable
defect” and justified rejection by the buyer.
Lastly, plaintiff urges that under the Code, N.J.S. 12A:2–508, it had a right to cure the
nonconforming delivery. N.J.S. 12A:2–508 states:
“(1) Where any tender or delivery by the seller is rejected because non-conforming,
and the time for performance has not yet expired, the seller may seasonably notify the
buyer of his intention to cure and may then within the contract time make a
conforming delivery.
(2) Where the buyer rejects a non conforming tender which the seller had reasonable
grounds to believe would be acceptable with or without money allowance the seller
may if he seasonably notifies the buyer have a further reasonable time to substitute a
conforming tender.” (Italics added)
The New Jersey Study Comment to 12A:2–508 reads:
“3 . Subsection 2–508(2) has been applauded as a rule aimed at ending ‘forced
breaches’. See, Hawkland, Sales and Bulk Sales Under the Uniform Commercial
Code, 120–122 (1958). * * *
Section 2–508 prevents the buyer from forcing the seller to breach by making a
surprise rejection of the goods because of some minor non-conformity at a time at
which the seller cannot cure the deficiency within the time for performance.”
The Uniform Commercial Code Comment to 12A:2–508 reads:
“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.”
14-37
It is clear that in the instant case there was no “forced breach” on the part of the buyer, for
he almost immediately [*458] began to negotiate for another automobile. The inquiry is as to
what is intended by “cure”’ as used in the Code. This statute makes no attempt to define or
specify what a “cure” shall consist of. It would appear, then, that each case must be controlled
by its own facts. The “cure” intended under the cited section of the Code does not, in the
court’s opinion, contemplate the tender of a new vehicle with a substituted transmission, not
from the factory and of unknown lineage from another vehicle in plaintiff’s possession. It was
not the intention of the Legislature that the right to ‘cure’ is a limitless one to be controlled
only by the will of the seller. A “cure” which endeavors by substitution to tender a chattel not
within the agreement or contemplation of the parties is invalid.
For a majority of people the purchase of a new car is a major investment, rationalized by
the peace of mind that flows from its dependability and safety. Once their faith is shaken, the
vehicle loses not only its real value in their eyes, but becomes an instrument whose integrity
is substantially impaired and whose operation is fraught with apprehension. The attempted
cure in the present case was ineffective.
Accordingly, and pursuant to N.J.S. 12A:2–711(1), judgment is rendered on the main case
in favor of defendant. On the counterclaim judgment is rendered in favor of defendant and
against plaintiff in the sum of $124, being the amount of the deposit, there being no further
proof of damages.
Defendant shall, as part of this judgment, execute for plaintiff, on demand, such
documents as are necessary to again vest title to the vehicle in plaintiff.
14-38

Contracts Chapter on Repudiation

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Contracts Chapter on Repudiation

Hochgeladen von

Copyright:

Verfügbare Formate

SITUATIONS & CONTRACTS

Chapter 14: Repudiation & Cancellation

This chapter considers a few effects of performance and non-performance of contracts.

One key question for cancellation is when it can be invoked—particularly by a buyer.

LORD CAMPBELL, C.J.:

COSDEN OIL & CHEMICAL CO. v. KARL O. HELM

III. THE JURY’S SUBSTANTIAL-IMPAIRMENT FINDING

15 Rule 612 provides in part:

ZABRISKIE CHEVROLET, INC. v. SMITH

cure of improper tender or delivery. Moreover usage of trade frequently permits

Das könnte Ihnen auch gefallen