Agreement - 1-201(3): Bargain in fact (means the deal) found in the express and implied terms of the contract (usage of trade/course of dealing) - the way you do business is taken for granted and is part of the contract - implied even if no one says anything.

Note: Court will only enforce this agreement if it satisfies Statute of Frauds or is not unconscionable.

Contract - 1-201(11): An agreement as affected by the law (meaning law will enforce it).

Note: Contract is narrower than agreement because an agreement may have parts that are not enforceable.

Good Faith - 1-201(19): Honesty in fact (non-merchants) in the conductor transaction concerned (subjective standard).

Every contract has a good faith obligation (1-203) (implicit) - every contractor duty within this act imposes an obligation of good faith in its performance, enforcement, negotiation or termination.

Good Faith - 2-103(l)(b): In case of merchant, it means honesty in fact and the observance of reasonable commercial standards of fair dealings in the trade (objective standard). Legher standard for merchants.

Purchase - 1-201(32): Taking by sale, discount, negotiations, mortgage, pledge, lien, issue or re-issue, gift, or any other voluntary transaction creating an interest in property.

Purchaser - 1-201(33): Person who takes by purchase. Note: Not the same as Buyer. Security Interest - 1-201(37):

You need both to have a security interest.  Transaction must not be terminable by the lessee (disguised sale on credit);

AND one of the following. To be a lease a contract cannot be:

a) Original term of lease is Equal to or Greater than remaining economic life of the goods; OR

b) Contract terms force (bound) lessee to renew or to become the owner of the goods (More than economic life);


c) By option to renew lease with no consideration or nominal consideration; OR

d) Option to own the goods with no additional consideration or nominal consideration.

Goods - 1-201(l): All tangible things (personal property) which are movable at time of sale/contract.

e.g. Electricity, Computer program, Assets (bulk)

Not goods: Money - exception: sale of coins Fixtures Blood transfusion; preparation of false teeth Stocks and bonds Health spa membership Insurance policies Real property unless governed by 2-107

Note: Leases [2A- 103(h)] goods means all tangible things movable at time of lease or any fixtures. * Difference - tease includes fixtures, sales does not.

Goods to be Severed from Realty - 2-107: Article 2 governs realty sales only if:

1. Sales applies only if the setter is doing the severing: minerals, oils, gas.

2. Sales covered no matter who does the severing: anything apart from the land to be cut - timber, crops.

Sale - 2-106(l): The passing of title from seller to buyer for a price.

Contract for Sale - 2-106(l): Includes both a present sale of goods and a contract to sell goods at a future time.

Lease - 2A- 103(j): means transfer of right to possession and use of goods for a term in return for consideration.

Note: If not said in contract, then deemed terminable by lessee.

Buyer - 2-103(l)(a): Person who buys or contracts to buy goods. Seller - 2-103(l)(d): Person who sells or contracts to sell goods.

Merchant - 2-104(l): 2 types

Goods Merchant: Person who deals in goods of the kind. e.g. woman opened up a hat store - retailer.

Practice merchant: By his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment. e.g. restaurant.

Note: poor farmers are still merchants.

Notice - 1-201(25): Person has notice of a fact when: a) has actual knowledge; b) has received notice or notification of it; or c) from all the facts/circumstances known at the time in question, has reason to know that it exists. "knows"/"knowledge" = actual knowledge "discover/"learn" = refers knowledge rather than reason to know

Notifies/Gives Notice - 1-201(26): Taking steps reasonably required to inform the other in usual course of business. As long as this occurs, it doesn't matter whether the other party received it.

A person "receives" notice or notification when a) it comes to his attention; or b) is delivered to place of business where contract was made or any other place held out as a place for receiving such communications.

1-201(27): 1-201(25) and (26) is affected for a transaction from the time it is brought to the attention (or the time it would have been brought) of the individual conducting the transaction if the organization had exercised due diligence. Due diligence maintaining reasonable routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routines.

Conspicuous: When a reasonable person ought to have noticed it (negligence standard). It is a matter of law. Purpose is to prevent unfair surprise.

Inspection: Comes before acceptance of the goods to ensure seller's performance conforms to the contract already made (after contract).

Examination: Occurs at the time or before the contract is made.



Scope of Article 2 - 2-102

Effect of Acceptance: If tender (payment/consideration) has been accepted, the buyer must give proper notice to the seller within a reasonable time of any breach or be barred from any remedies. 2-607(3a).

General services are not governed by UCC. Exception: Hybrid contracts - contracts for goods and services. Determined under 2 tests:

1. Predominant Factor Test (majority): Determines whether the contract is essentially for the sale of goods with services incidental (Art. 2 applies); or

Services with sale of goods incidental (Art. 2 does not apply).

2. Gravaman of the Complaint Test: Look at what the plaintiff is complaining about. Services - Art. 2 doesn't apply Goods - Art. 2 applies

Gift: e.g. free sample (not sale but promotes a sale) Warranty of merchantability (2-314) applies (sue seller).

Scope of Article 2A

Governs true leases - lease of personal property is not a sale.

Doctrine of Unconscionability:

  1. Procedural: Getting assent of other party to get out of a contract when the party is trying to get out of the contract. e.g. small print.
  2. Substantive: Has to do with the contracts itself, deals with the terms. One sided oppressive terms. e.g. Excessive prices "squeezing the consumer" e.g. Sale on credit (person paying more for product than it is worth) e.g. Warranty disclaimers e.g. Liquidated damages 2-718 Remedies e.g. Clause waiving (in small print).

Unconscionability is determined at the time the contract is made. Unconscionability only applies to consumer transactions and not transactions between merchants.

Remedies for Unconscionability: 1) Rescind contract. 2) Limit applicability of unconscionable term.

Formation of Contract - 2-204

3 elements:

  1. 1) Contract for sale may be made in any manner sufficient to show an agreement, including the conduct of the parties.
  2. 2) Agreement may be found even though the moment of its making is indeterminable.
  3. 3) Contract does not fail for indefiniteness if the *parties intended to make the contract and there is a reasonable basis for giving a remedy.

Offer: Note: Definition is common law - use 1-103 to get out of UCC.


  1. 1) Assent to terms of the offer which results in a contract being formed.
  2. 2) Assent to become owner of goods being tendered under the contract already being formed.

2-206(a): Acceptance is a reasonable manner.

2-206(b)(1):Offer that is ambiguous-can accept either by prompt promise to ship or prompt shipment of conforming or non-conforming goods. Once shipment is made then there is acceptance by conduct. A contract has been made but also simultaneously by seller

2- 206(b) (2): Shipment of non-conforming goods will not act as an acceptance if the seller notifies the buyer that the shipment of non-conforming goods were an accommodation. This is a counteroffer by the seller and the buyer is able to accept or reject.

Firm Offers - 2-205: Not revocable for lack of consideration.


  1. Offer;
  2. made by Merchant;
  3. Signed writing (any symbol by party with intent to authenticate e.g. letterhead, etc.); broad definition
  4. Offeror gives assurances that the offer will be held open. Note: Reasonable amount of time. No more than 3 months. Note: Even if expressed that offer will be open more than 3 month, still no more than 3 months.
  5. Does not require consideration during the time stated or reasonable time

Note: A raincheck is a firm offer.

If the offer is prepared by the buyer/offeree stating a firm offer, a) the seller (the one actually making the firm offer) must sign next to the paragraph stating the offer by the buyer/offeree; or b) regular signature by the offeror/seller plus the separate signature by offeror/seller. e.g. initialing the paragraph sent by the offeree.


Additional Terms in
Acceptance or Confirmation - 2-207:

Common law: Mirror Image Rule applies OR Last Rule (when offeror accepts counteroffer from offeree)

"Battle of Forms" - UCC Rule 2-207 - this converts common law counteroffer into an acceptance.

2-207(l): Two step analysis: (Applies to written confirmations that cross in the mail, contract is formed to the extent that the parties agree. Applies to situation which confirms an oral contract plus it contains additional or different terms)

1) Is there a contract?
2) If yes, What are the terms?

When has a contract been formed?

A) Seasonable expression of acceptance; OR

B) Written confirmation operates as an acceptance (sent within reasonable time)

Although it contains additional or different terms UNLESS there is PROVISO LANGUAGE: Defined: Acceptance is expressly made conditional on assent to the additional or different terms.

Proviso Clause acts just like a-railroad switch.

  • If the proviso clause is used, then the contract at that point is not formed and if the parties perform, then the parties are referred to 2-207(3).
  • If the proviso clause is not expressly made as part of acceptance, then you are refereed to 2-207(2) to determine the terms of the contract.

Without proviso language there is a contract with undefined terms.

With proviso language there is a contract with defined terms. Defined terms are specific and unequivocal terms; they cannot be boiler plate language.


2-207(2)(a): - merchants and consumers - additional terms are construed as proposals for additions to contract.

2-207(2)(b): - between merchants - additional terms become part of contract

  1. Offer "EXPRESSLY" limits acceptance to terms of offer,
  2. Materially alters the contract [e.g. warranty disclaimer (matter of law)]

Test: Surprise or Hardship
Hardship: Economic burden is shifted.
Surprise: When it is not common practice (subjectively surprised not enough to materially alter contract when it is objectively common practice).

C) Prior objection or objection within reasonable time.

Note: A "Restrictive Offer" by its terms acts as an objection to any additional terms. What do you do with additional terms? 3 Approaches: 1) Read the statute literally. Cleary says this is the best approach. 2) Different terms automatically dropped. 3) Conflicting terms knock each other out. "Knockout Rule"

2-207(3): Conduct-parties exchanging documents that don't form a contract, however the parties perform - contract is formed.

Conflicting terms cancel each other out. Agreed upon terms of the document govern. Any missing terms of the contract are supplemented by the Code - Gap fillers.

Note: Disclaimer doesn't becomes part of the contract. However, the Code supplies the warranty (2-314).

If the parties perform (conduct) the contract is governed by:

  1. Roto-Lith case (last document that was transferred governs); or
  2. 2-207(3) -see above.

Statute of Frauds - 2-201: Deals only with the enforceability of the contract When does SOF apply? 1) When you have a contract for sale of goods. NOT contract for transaction. 2) Goods $500 or more. Note: for Article 2A=$1,000

Requirements - 2-201(l): General

  1. Writing (sufficient to form a contract)
  2. Signed [2-201(39) - symbol, letterhead, [mark] by party against whom enforcement is sought.
  3. Must have quantity term. Writing doesn't have to state all terms of contract and doesn't have to state them correctly.

Confirming Memorandum - 2-201(2): e.g. Oral contract over phone, the confirmation letter signed and sent to other party.

Only satisfies SOF, DOESN'T prove contract exists.

Note: 2-207 is the one that proves contract exists.

How to beat SOF defense: ALL must be met.

  1. Between merchants
  2. Confirming memorandum - "writing" within reasonable time
  3. The memorandum (written letter confirms oral contract - past the negotiation stage)
  4. Sufficient against the sender (satisfies subsection I which is the basic requirements for SOF)
  5. It is received (the letter)
  6. Party receiving letter has reason to know its contents. Note: see definition
  7. After received (the letter, writing), no objection within 10 days of receipt.

You have satisfied SOF and person has lost the defense of SOF (even if he hasn't signed the writing).

Note: Even when letter has satisfied SOF, it must have a quantity term.

Note: check satisfies a writing.

Exceptions to SOF - 2-201(3): Quantity term is there.

  1. Specifically manufactured for buyer. Protect seller because seller cannot resell -- Detrimental reliance. e.g. Bust of someone. e.g. Buy yard of stripe material for suit.
  2. Judicial admission of truth - pleadings, testimony in court. (contract must still have quantity term).
  3. Part performance - contract is enforceable only to the extent to partial performance.

SOF satisfied when goods are received and accepted (meaning taking the goods, in physical possession).


Goods have been paid for (contract is enforceable)

Note: Down payment should get you past SOF with quantity term. Single, indivisible item, e.g. golf tank problem.


Parol Evidence - Terms of a Contract

Total legal obligation of an agreement as affected by law.

Things you look at to determine terms of an agreement - to find intent of parties - look at all (construe them as reasonable):

  1. Express terms
  2. Course of performance (implied terms)
  3. Course of dealings (implied)
  4. Usage of trade (implied)
  5. Statutory default terms

The court first looks at #1 and then on down. The hierarchy helps the court to find the actual intent of the parties.

  1. Express terms.
  2. Course of performance (COP) 2-208(t) - (one contract, but installment contract)

Needed: a) Repeated occasions b) Knowledge of nature of performance c) Opportunity to object

e.g. Contract for delivery on 15th. Delivery is made within a couple of days after. No breach because of b and c above.

Note: Course of performance is always admissible. Modification - modifies what is already in the contract and is OK. Max. - At most COP is a modification Min. -'Treat COP as a waiver of terms of contract Courts prefer waivers.

Course of Dealing 1-205(l)

Between two parties. If party has done business before, then that is part of their basis of their understanding of this particular agreement. Sequence of' previous conduct establishes common basis interpreting expressions of contract "Business background."

Usage of Trade 1-205(2) (the way business community conducts its business in that trade)

It is the usage of this particular trade to conduct business in this manner. Proven by fact.

STANDARD: Parties are or should be aware of it.

Course of dealing and usage of trade - these particular implied terms come up when there is a Merger Clause - Definition - this writing contains the entire agreement of the parties.

*'The general language of the merger clause will not keep evidence of course of dealings/usage of trade out. The only way to do this is to carefully negate the course of dealings in the merger clause. See Comment 2 (2-202).

Even if the writing is complete and inclusive, the parties may always introduce evidence of course of dealing or usage of trade to supplement the agreement, but not contradict it, even if the writing is ambiguous on its face. If the writing is silent on a particular issue, then there is nothing to contradict.

Silent writing: not a contradiction (doesn't mention whatever that issue is).

Supplement: means adding a term to the agreement. Parol Evidence Rule - 2-202- kicks in when the writing is to be final. Pre-supposes that you have an enforceable written contract Applies only to a prior agreement or contemporaneous oral agreement.

2-202(a)-Course of performance evidence will always be admissible even if it contradicts the express terms of the contract.

Course of performance occurs after the contract has been formed. Parol evidence only applies to prior agreements.

2-202(b) -Written contract maybe explained or supplemented by consistent additional terms, unless the court finds the writing to be a complete and exclusive statement.

Test - "No Way" test - if they had really agreed on the term, there is "no way" they would have left it out.

If additional terms are such that, if agreed upon, they would certainly have been included in the documents in the view of the court, then evidence of their alleged making must be kept from the trier of fact.

Parol evidence - no need for a finding of ambiguity to allow evidence of course of dealings, usage of trade or course of performance.

Terms of a Contract

Article 2 may supply terms that the parties haven't specifically agreed upon.

* Contract may be formed by conduct.

* Open term contract doesn't make it unenforceable for lack of definiteness.

* Where terms are deliberately left open, you can still keep out particulars of performance. Contract is not indefinite. (2-311)

* Good faith and commercial reasonableness controls.

This is general application of 2-204.

* 2-306 - will supply quantity terms for output contracts.

* 2-319 - 2-324 - shipping terms.

* 2-301 - The obligation of seller is to transfer and deliver the goods. The obligation of the buyer is to accept and pay for the goods.


Price Payments 2-304: (how you pay for goods) Price can be made payable in money or otherwise, e.g. you trade in your own car, you become seller w/same responsibilities as to warranties as a regular dealer. e.g. if you trade in different model year that what you represented to be - breach of warranty.

Open Price Terms - 2-305: you can leave contract price open and it won't fail for indefiniteness.

Reasons for open price terms: "fluctuating market price" - when parties deliberately leave price term out, 2-305(l) says parties can still have a contract without a contract price.

Parties can agree to set the price date.

  1. Need an agreement to be bound (parties have to have intent to contract to be bound); and
  2. Willing to give a reasonable price term (jury question).

Seller had to set a price in good faith. (At the latest setting price term upon delivery).

The price is the reasonable price at time of delivery if:

  1. Nothing is said as to the price; or
  2. Price is left to be agreed upon and the parties fail to agree; or
  3. Set price term of agree market or standard set or recorded by third person. Use reasonable price term "at delivery" when none of the above has occurred. Fixed Price Term Must be made in good faith by the seller or buyer.

Merchants (double standard):

  1. Honesty in fact; and
  2. reasonable commercial standards.

Contract with implied contract price e.g. call LL Bean and order shirts and give credit card number and hang up - there is an implied contract price.

Fixed price term has allocation of risk because of a fluctuating market price producing rising or falling prices.

2-305(1)(c) - agreeing to a price set or recorded by a third party is OK. e.g. Cleary wants to sell antique clock to George. But neither one knows what it is worth; they go to an expert and agree to go with the price set by the antique expert.

What happens when the third person mechanism falls through? Depends on intent of the parties. Look at the contract. If yes depended on thirrd person or external mechanism for price term, then contract fails for indefiniteness. If no intention to be bound by thirrd party or external mechanism, then come up with a reasonable price. If you can't reach a reasonable price, then no contract.

When you fail to set price because of fault of one party, then either:

  1. treat contract as canceled (def. 2-106);or
  2. set a reasonable price yourself.



Deals with the quality of the goods. Are construed consistent They can be excluded or modified. 2 types of warranties: Expressed - "dickered terms" - have to be agreed by the parties. Implied Expressed Warranties It is not necessary to use certain words. Don't have to have a specific intention.

Basis of the bargain test:

Not necessary that buyer shows any particular reliance.

If the buyer knows that goods are defective during the bargaining process, then the warranty is not part of the basis of the bargain.

What is said by the seller is less reliable by the buyer when:

Buyer relies on own knowledge; or Buyer relies on his expert's knowledge. 2-316(l) - Expressed warranties can not be disclaimed. Ways of creating expressed warranty: I . Affirmation (not "puffing");

2. Description; or

3 . Sample or model.

I . Affirmation - 2-313(l)(a):

a. Affirmation of a fact or promise by

b . seller to buyer

c. relating to the goods

d . becomes part of the basis of the bargain, e. there is an expressed warranty goods will conform tot he affirmation. Step A: 1. Was expressed statement inherently believable? or 2. Was it used to induce the sale')

If either (1) or (2), then it was an expressed warranty.

Step B: If is an expressed warranty, did it become party of the basis of the bargain? If yes, then it is a warranty available in the contract.

Seller says "in my opinion", there is an expressed warranty if it induces the sale and inherently believable.

The more factual the statement the more likely it is to become an expressed warranty. "Puffing" is sales talk. Puffing does not create an expressed warranty. Look at the circumstances objectively.

2. Description-2-313(l)(b):

Any description of the goods made as part of the basis of the bargain that the goods will conform to the description. e.g. I bought the bike because of your description reasonably believable.

If the goods fit the description and all other warranties are disclaimed --> no breach.

3. Sample or Model - 2-313(l)(c):

Sample or model which is made as part of the basis of the bargain creates an expressed warranty that the whole of the goods shall conform tot he sample or model.

Sample - drawn from bulk of the goods. Samples are more likely than models to become an expressed warranty.

Model - same thing shown to buyer when goods are at hand.

Note: Seller must adopt the sample or model --> meaning - he'll supply goods that conform to sample or model.

Product warranties should be consistent. e.g. Buy can of paint. Says use base coat on side of can. On the other side of can it says expressed warranty <--> won't crack. You don't use base coat. Paint cracks. you sue for breach of warranty and loose. Why? --> You have to construe both statement together (consistently). The problem is not with the disclaimer of the warranty but with parol evidence. How?

1. Made expressed warranty orally; 2. Followed by a written contract that does not include the warranty.

Parol evidence may not allow the introduction of the statement because if it were intended it would have been included in the final writing.

Merger clause and parol evidence rule combined protects the seller and makes the contract enforceable.

What can the buyer do - apply the "no way test."

Implied Warranties - not dickered terms. 2 types: Warranty of merchantability Warranty of fitness for a particular purpose

Implied warranties are implied in every contract by operation of law unless disclaimed. Implied warranties are gap filters.

Warranty of Merchantability - 2- 314: 2-314(l) - Unless excluded or modified, warranty that goods are merchantable is implied in a contract for their sale with respect to the goods of the kind.

Only given by a goods merchant. Serving for value of food or drink is a sale. Goods must be adequately contained. e.g. wine glass broke in person's hand at restaurant. fl has case here against restaurant for breach of merchantability. 2-314(2) - Buyer must show one of the following to prevail:

a. Pass merchantability without objection in the trade under contract description.

e.g. TV w/o knobs won't pass under K description because trade would object to it.

e.g. Delivery of "sour milk"'- objection.

b. In fungible goods, the fair average quality within the description. c. Fit for the ordinary purpose for which such goods are used. Note: Ordinary uses include safety measures which are implicit in the goods.

Note: This section is the only source of strict liability in MA.

d. Run within the variations permitted by the agreement of even (same) kind, quality and quantity within each unit and among all units involved.

Adequately packaged or contained.

f. Conform to promise or affirmation of fact made on container or label.

Note: Kicks in when label or container has a representation that original agreement did not contain.

Warranty of Fitness for a Particular Purpose - 2-315: Elements needed: 1. Seller has reason to know the particular purpose of the goods.

2. Seller has reason to know that buyer is relying on his skill and knowledge for using goods for a particular purpose of goods.

3. Buyer must rely on skill or judgment of seller.

Justifiable reliance (for both merchants and sellers):

Buyer is justifiably relying on the professional status or skill of the seller.

Buyer has the burden of proof. It is a question of fact.

Note: "Reason to know" element in above is not necessarily actual knowledge.

If buyer insists on a particular brand name --> indication that buyer is not depending on knowledge of seller. e.g. mountain boots. Special battery for clock.

General information. There has to be a particular purpose for the warranty of fitness to apply. Ordinary use is governed by warranty of merchantability.

Both warranties can overlap. However, warranty of fitness controls if there is a conflict between them.

Test: 1. Foreign v. Natural Substance 2. Consumer expectation

2-316(2): Implied warranties may be excluded or modified. Implied warranties are designed to protect the buyer.

Disclaimer of Implied Warranties: (Note: Cannot disclaim expressed warranties) Warranty of Merchantability: The language 1. must mention the word merchantability for disclaimer to be granted; and 2. If there is a writing, the writing must be conspicuous. Note: Disclaimer of merchantability must be in writing for a lease. Warranty of Fitness: 1. Must be in writing; and 2. Must be conspicuous (general language is insufficient).

Both disclaimers apply to merchants and non-merchants.

If the buyer has actual knowledge then whether the writing is conspicuous or not doesn't matter. Burden is on the seller. It is a question of law.

Ways to get around disclaimers - 2-316(3):

3 a. Language in common understanding lets buyer know there aren't implied wan-antics. Must be "conspicuous" to be effective.

3b. Implied warranty does not apply to defective goods which a examination of the sample or model ought to have revealed to the buyer. There must be a demand by the seller and refusal by the buyer to examine the goods.

3c. Implied warranty may be excluded or modified by course of dealings, course of performance and usage of trade.

General information.

Post sale (e.g. send warranty after sale): Disclaimers are ineffective because they are not part of the basis of the bargain. It is immaterial if the disclaimer is conspicuous because it is sent later.

Post sale disclaimers operates the same for merchants and non-merchants. MA rule --> Can't disclaim warranty of merchantability in consumer sales (2-316A). Magnuson Moss Act - Federal regulation that supersedes any state law.

1. Applies to consumer transactions where written warranties are given. The Act does not apply if no written warranty is given. The implied warranties can not be disclaimed or modified by state law. _108.

Problem w/warranties overlapping. When you have cumulative and conflict of warranties, warranties are to be construed as consistent and cumulative if it is reasonable. (2-317). If it is not reasonable, then the intent of the parties determines which warranty will control.

What determines intent?

Specific displaces any general language.

Express warranties displace inconsistent implied warranty other than an implied warranty of fitness for a particular purpose.

Privity - 2-318: Who does the warranty pertain to?

Alternative A: Potential plaintiffs are any natural person (limited to family or member or guest of household of buyer) where it is reasonable that they may be affected by the good. Defendant wise, it is only limited to the seller. Pertain to personal injury only.

Alternative B: Any natural person, no limitations on potential plaintiffs. Limited to personal injury and the actual seller.

Alternative C: Any person (including corporations). Includes personal injury and property damage.

All three alternatives --> Seller is prohibited from including anything in the contract to limit the warranty.

Modification of a Contract - 2-209:

2-209(l) - Consideration is not necessary to make modification binding.

Modification must be made in good faith. There is no obligation to modify a contract if only one party wants to.

2-209(2)-Parties are free to create their own statute of frauds. No money requirement.

2-209(3) - Requirements of statute of frauds must be satisfied if it is stated in the contract that any modification will be in writing.

2-209(4) - An attempt of modification (if it doesn't satisfy __ or 3) can operate as a waiver of the term you are trying to modify.

Modification - actual change in the contract term. Waiver - not insisting on a term in the contract. Waiver and modification operates with course of performance (2-208). Preference is for waiver than modification. 2-209(5) - Waiver may be retracted, modification can't because contract has been changed.

Impossibility of Performance - 2-613: Casualty of goods --> something happened to the goods.

If one party is responsible for the casualty of the goods, they will not be able to get out of the contract


1. Must require delivery of the goods identified 2. (2-501)when the contract was made.

2. Neither party must be at fault.

3. Risk of loss has not passed to the buyer.

e.g. Farmer contracts to sell crops. Crops fail. Not impossible because land was not specified.

e.g. Seller of chairs Buyer buys chair identified. Chair is destroyed not impossible because same model chair is available.

Doctrine of impossibility only operates when the seller has the risk of loss.

If risk of loss has passed to the buyer and goods are damaged or destroyed, risk of loss is on the buyer. Buyer is liable for the price of the goods. e.g. Seller puts goods on truck to be delivered to buyer. If anything happens to the goods while on truck or en route to buyer. Buyer has R/L

Partial Loss - 2-613(b) -

If the loss is partially destroyed, buyer has option of-.

1. Accept some or all; or

2. Accept some with money back for the damaged one; PE 3. Avoid the contract. If you choose #2, then you can't sue seller for breach of contract.

Substitute Performance - 2-614

Some problem occurs in the contract.

Doesn't deal with the goods. (Collateral matters - e.g. UPS on strike, use FedEx) Need to find substitute remedy. Delivered in a different way. Substitution must be tendered and accepted.

Note: If commercially reasonable substitute is available, such a substitute performance must be tendered and accepted.

Doctrine of Impracticability - 2-615:

Doesn't apply when there is impossibility (not when goods suffer casualty). Conditions:

1. Risk of loss is not on the seller.

2. Basic assumption rule - the basic assumption is that whatever happened is not going to happen.

3. Performance has been made impracticable because of what happened in #2.

Step analysis to see if impracticability exists:

1. Did parties agree expressly or implicitly what would excuse them from non-performance?

If yes, stop - party is excused.

2. If no, is relief going to be available under the basic assumption rule? Force rnajeur - clause that talks about allocation of risk.

Note: Allocation of risk can be set by the parties that may be different that than stated in the Code - enforceable (freedom of contract).

Note: If risk reasonably foreseeable and it is not included in the force majeur clause, then seller had consented to the risk of loss. e.g. - allocation of risk -> fixed price term.

Basic assumption Rule - 2-615A

Delay in delivery or non-delivery is not a breach if Performance is impracticable by the occurrence of a contingency that the parties didn't foresee to likely happen. e.g. man allocated assumption of risk by buying horse insurance which supports foreseen risk of loss.

Cost increases. Foreseeable (not excused). Exceptions: e.g. 1. Crop failure --> Crop on farmer's land -> they are excused. e.g. 2. Failure of source of supply --> satisfied supply -> excusable.

Compliance in good faith with government regulation or order is an excuse, but must truly supervene.

e.g. Sewer seller agrees to sell and install sewer. Seller doesn't get permit from Health Dept. Seller still has to install. Seller assumes the risk. Seller should put a contingency in the contract, e.g. I will install sewer contingent upon receiving a permit from Health Dept.

Excuse from performance must be severe and unreasonable e.g. bankruptcy.

Refusal to modify contract is OK, but must be in good faith. You are not obligated to re-negotiate contract.

Conditions of relief when impracticability requirements are met: e.g. goods weren't identified.

1. Seller must notify buyer regarding delay or non-delivery.

2. Seller must make an allocation for the needs of the buyer.

3. Seller can offer the buyer a modification of the contract to allocate part of the contract to be performed.

Once buyer accepts modification, then buyer can't sue seller for breach of contract.

What are buyer's rights assuming! seller is excused under 2-615? 2-616

(1)(a) Buyer may terminate contract and discharge the executory portion (part that has not been performed). Buyer can reject the goods and terminate the contract.

(1)(b) Buyer may modify the contract by agreeing to take substitution of the goods.

Adequate Assurance of Performance - 2-609

1 .You will not impair a party from receiving due performance. In the middle (gray area) by:

a. Complaining

b. Positive repudiation to impair positive performance (party has reasonable belief of other party breaching).

If not reasonable belief, you will be held liable for failure to perform.

You have to have reasonable grounds for insecurity with respect to performance of either party.

The other party may demand in writing an adequate assurance of performance.

Right to Adequate Assurance - 2-609

Merchant standard: 1. Need reasonable grounds to demand written assurance; and 2. suspend your performance in the meantime.

Ask: Do you have reasonable grounds for insecurity? Mere whining and complaining is not reasonable grounds.

If no reasonable grounds and you had guessed wrong, YOU can be held liable for breach.

a) You have a right to demand written adequate assurance of performance (question of fact and only need fairly minimal assurance in writing).

b) In the meantime, while waiting for the written assurance, you cannot cancel yet, but you can suspend performance while waiting.

Reasoning: no one has breached contract yet. Therefore, you are only due minimal assurance.

Steps: 1. You have to be justified in requesting an assurance.

2. Time period - not more than 3O days to send written assurance.

FAILURE TO DO SO: 3. Anticipatory repudiation - 2-610 of the contract and a breach. Not in MA. a) overt communication

b) definite and clear

c) ambiguous communication or action. NOTE: not just gray area.

NOTE: time line?? Opt-ions for non-repudiating Party: 1. a) wait for a commercially reasonable time, and b) suspend your own performance OR 2. a) sue for breach, and b) suspend you own performance.

Non-repudiating party has a right to retract repudiation. In certain circumstances, "the good guy" (aggrieved party) will not be penalized once repudiation is retracted.

Risk of Loss - 2-509(l)

Has nothing to do with who has technical title.

2-509(t)(b) - Risk of loss passes to buyer from seller when seller delivers the goods tot he buyer. Governs contracts where the seller is required to ship the goods to buyer by an independent carrier.

2-509(2) - Goods held by bailee (warehouse where goods have to be picked up). Risk of loss rests on whoever has control over the bailee.

Types of delivery tells. 1. Shipment contract

2. Destination contract.

F.O.B. - free on board - can indicate either shipment or destination contract. In a contract, it is always followed by a named place. e.g. F.O.B. Pittsburg. Risk of loss passes at the named place. 2-319 - Thus if the named place is the seller's warehouse, the F.O.B. term falls for a shipment contract. If it is the buyer's store, a destination contract results.

F.A.S. - free along side

C.I.F. - cost, insurance, freight (shipment contract). Price stated includes cost. Buyer takes risk of loss during shipment because buyer agreed to pay insurance as part of the price.

C&F - price stated includes cost.

Ex-ship - 2-322 - unless otherwise agreed, the term for delivery of goods ex-ship means from the carrying vessel.

2-322(b) - risk of loss does not pass to buyer until the goods leave the ship's tackle or are otherwise properly unloaded.

At the time the carrier takes possession, the risk of loss shifts to the buyer when the contract requires or authorizes the seller to ship the goods by carrier. If it does not require delivery to a particular destination, the risk of loss passes to the buyer when the goods are duly delivered tot he carrier.

Delivery of contract

2-301 - Seller's delivery obligation- risk of loss.

General obligation is to transfer and deliver goods. Ask: what goods have to be delivered? 2-501 - Identification of goods 2-501(l) - freedom of contract Parties agree buyer acquires certain interest. Identification: Certain specific ways all unborn animals (calf) must be born no more than 12

months from date of contracting.

Identification of fish --> entire catch to be sold --> said specifically in the contract. Once goods have been identified --> step 2: Is it unita[y contract? 2- 307 - all goods tendered in a single delivery. Opposite is installment contract (2-612) - delivery in separate installments. Question 3: Where delivered? 2-308 If not agreed, absence of delivery --> Seller's place of business OR

Seller's residence UNLESS at time of contract parties know a place where goods are. Question 4: How to deliver goods? Within reasonable time.

Tender of Delivery - 2.503:

Due tender properly

Requirements: 1. Who has possession? 2. Whether or not seller has agreed to have goods delivered by carrier? NOTE- 2-71 1 - Breach for failure to deliver or for improper delivery. Seller in Possession and not Lroing to be shigred A. Seller tenders delivery: 1. when seller delivers goods and goods are not in the possession of carrier. 2. by putting and holding goods at the buyers dispossession(disposal). 3. give buyer notice. B. Bailee (warehouse/independent person) 2-503(4) No duty to ship. This is considered delivered without being moved. Seller put goods there. Seller delivery by authorizing bailee to deliver to buyer. Once seller gives goods to bailee, R/L passes to the buyer. C . Shipment by seller - 2-504 Goods shipped by carrier - when seller agrees to ship by carrier. 2-319 - F.O.B. - point of shipment - seller's place. 2 types:

1. Shipment contract(norrnal)-does not require seller to deliver at particular destination.


2. Destinationcontract-does require seller to deliver goods to a particular destination.

Absence of arecified F.O.B., then it is a shirment contract Seller must (if shipment contract): 1 . Put goods in possession of carrier;

2. Make reasonable contract for transfer of goods to protect goods for buyer (make sure carrier has proper insurance coverage);

3 .Must obtain the necessary documents.

4. Promptly notify buyer of shipment.

Buyer can protect himself by getting insurance.

When seller does all four, then he has made tender of delivery. Risk of loss has transferred to buyer.

Destination contract: requires seller to deliver goods at a particular destination and tender delivery there.

1. when seller delivers goods and goods are not in the possession of carrier. 2. by putting and holding goods at the buyers dispossession (disposal). 3. give buyer notice. F.O.B. - free on board - place of shipment 2-319 Setter's place of business.

Seller must comply with 2-504(1-4) and bears the risk and expense of getting the goods in possession of carrier.

Once in carrier's hands, R/L is on the buyer. F.A.S. - 2-319(2) - (name of ship) Along side the ship. Once unloaded on side of ship, R/L passes to buyer. Does not have to be boarded on the ship. 2-320 (A), (B) C.I.F. - at the point of shipment - cost, insurance, name of freight. C&F - at point of shipment - price - no insurance

Seller complies with 2-504 Destination contracts (not shipment K's) All shipment contracts: Seller tenders when he gets goods to F.O.B. destination. F.A.S. Seller Must Comply to basic rule of 2-503. C.I.F. F.O.B. N.Y. - R/L passes to buyer in

NY. C&F C. F.

Ex-ship - 2-322 - when seller has to discharge any lien.

It is the OPPOSITE of F.A.S. 2-322 R/L passes to buyer when actually loaded Must be properly unloaded. Then and only then will risk of loss pass to buyer. General statement: When delivery takes place, risk of loss is on buyer once delivered.

Problems that occur after formation and before acceptance. Risk of loss:

If no breach of contract - use 2-509 (2A-219)

If breach of contract - use 2-510 (2A-220)

It doesn't make any difference who has title. It only allocates to the control and insuring of goods (insuring the goods from being lost or damaged).

If the goods are lost, seller may use 2-613 to allocate risk of loss - may claim doctrine of impossibility.

If the risk of loss has passed to the buyer, buyer is still responsible for payment of the goods. Seller may sue buyer for the contract price at this point. But usually sues for damages. Buyer can ftght it out with the carrier for payment (2-709).

2A-219 Lease - risk of loss stays with lessor. Finance lease - risk of loss is with lessee. Types of contracts:

1. Contract which requires goods in hand of bailee.

2. Some other type of contract. 3 . Contract which requires goods to be delivered by carrier. Risk of loss depends on the type of contract.

2-509(2) - Goods held by bailee (separate entity - usually a warehouse). Buyer has to go to the bailee to obtain the goods.

Risk of loss passes when:

1. bailee gets the necessary documents of tide; or

2. acknowledges that goods belong to the buyer (aware of buyer's right to possession); or

3. receipt of non-negotiable document of title (receives receipt that buyer has right of possession).

2-509(3) - if seller is a merchant, risk of loss passes to buyer upon receipt (means physical possession) of the goods.

e.g. buyer pays for shoes. Just before leaving, there is a robbery. Shoes are taken. R/L is on seller because no receipt of goods by buyer.

If seller is not a merchant, risk of loss passes upon tender of delivery.

2-503(l)(a) -Manner of seller's tender of delivery-time reasonably necessary for buyer to pick up goods. e.g. piano pick-up.

2 - 3 0 8 - absence of specified place of delivery.

2 - 7 0 9 ( 1) (a) - Seller has an action for the price of goods lost or damaged within a commercially reasonable time after risk of loss has passed to buyer. after a commercially reasonable time, risk of loss reverts back to seller.

Risk of loss varies on the type of delivery. ShiRMent contract - [2-509(t)(a)] - R/L passes to buyer when the goods are duly delivered (meaning transported by one of parties).

to carrier (common carrier - not

Destination contract - 12-509(l)(b)] - R/L passes to buyer when goods are duly tendered at the destination so that buyer can take delivery.

F.O.B. R.R. 2-319(l)(c) - if contract specifies a vessel or special car, seller has to make sure goods are loaded. R/L passes to buyer once delivered to carrier. C.I.F. Birmingham - 2-320 - Code is not clear if loading is required.

Underlying thing behind risk of loss:

1. control of the goods 2. insuring the goods.

Revocation after acceptance 2-510 - It puts the risk of loss on the breaching party when innocent party doesn't have insurance.

2-5 10(2) - When the buyer rightfully revokes acceptance, risk of loss is on the seller to the extent that the buyer is not covered by insurance.

2-5 1 0(3) - Where buyer is in breach, seller may treat risk of loss on the buyer for a commercially reasonable time.

Both __shift the risk of loss to the breaching party to the extent that the aggrieved party is not covered by insurance (anti-subrogation provision - equitable doctrine).

If there is a right to reject, risk of loss is on the seller.

Where buyer is in breach at a time when it usually would have been on the seller, then the risk of loss is put on the buyer.

Mere taking possession of goods does not mean acceptance of the goods.

If seller gets possession of the goods to cure a non-conformity, then the seller is obligated to tender the goods back to the buyer. Buyer has right to inspect the goods.

1-207-allowsyoutoperfortnpartofthecontractwithoutloosingyourrighttoany other remedies - reserve right to protect yourself.

Notice - not a defense if goods aren't lost or damaged.

Buyer's obligation 2-301 to accept and pay for the goods.

- 6 0 7 ( 1) - Buyer has to pay for the goods if he accepts them, even if defective.

- 7 1 7 - Buyer has a right to deduct from the contract price for defects i n the goods.

2 - 3 1 0 - payment terms - payment is due at the time and pi ace at which the buyer is to receive (meaning actual physical possession) the goods. The idea is to preserve the buyer's right to inspect the goods.

2-511-Payment is a condition of the seller tendering delivery. Concurrent condition with the buyer's obligation to accept and pay for the goods.

Seller has a right to insist on cash payment, but must allow an extension of time reasonable to get the cash.

2 - 5 I 1 (3) - payment by check is conditional. If dishonored, then the buyer has not paid the price. (if check bounced, buyer is still obligated).


Buyer's rights depend on the type of contract.

Installment contract - standard - substantial performance. You may have a breach with a single installment but not a breach of the whole contract.

Uni!M contract - perfect tender rule - right to reject if the goods do not conform. 2-6 12 (2) - Buyer may reject any installment which is non-conforming if:

1. the non-conformity substantially impairs the value of the installment; and

2. cannot be cured.

If it can be cured and the seller gives adequate assurance of its cure, the buyer must accept the installment. Buyer can't reject the installment.

2 - 6 1 2 (3) - You may have a breach of the whole contract when the non-conformity is to one or more installments that substantially impairs the value of the whole contract.

Cumulative effect of more than one non-conforming installment can amount to a breach of the whole contract. You can cancel the contract because it has been substantially impaired.

Substantial impairment is a question of fact.

If the situation is clear enough to constitute substantial impairment, the buyer is not required to use 2-609 first (demanding assurance in writing before canceling contract).

Uni@ contract - subject to 2-612 - substantial performance.

Perfect tender rule - if the goods or tender of delivery fails in any respect to conform to the contract, they may be rejected. May reject for any defects, whether substantial or insubstantial.

Conform to the contract (2-106) = goods are in accordance with the obligation under the contract [the total legal obligation in the agreement --> bargain in fact--> expressed and implied terms and circumstances of the contract.

Limitations on perfect tender role:

2-601 - parties are free to agree otherwise

2-612 - installment contract - substantial impairment 2-504 - shipment contract - material loss or delay.

2-508 - Seller has right to cure - Deals only with situations where the buyer rightfully rejected the non-conforming goods. Seller has a unilateral right to cure.

2-508(l) - (a) tender of delivery is rejected as non-conforming

(b) time for performance has not expired

(c) seller seasonably notifies buyer of his intention to cure

(d) seller makes conforming delivery within the contract time. 2- 508 (2) - Seller's right to cure after expiration of time in contract to deliver goods: (a) tender of delivery rightfully rejected as non-conforming

(b) nonconforming tender was one that seller had reasonable grounds to believe that tender would be acceptable

Can be read with or without money allowance. Courts recognize repair as a cure. (c) seller notified buyer seasonably to cure

(d) seller, if seasonably notifies buyer, may have further reasonable time (reasonable time is determined by the circumstances) to substitute the nonconforming tender. If there is special circumstances e.g. bought TV for special night of "boxing match" --> reasonable time would be to get a TV set before game starts. Courts like to cure.

Shaken faith doctrine: usually deals with a major investment like a car which is rationalized by its dependability and safety. Once the owner's faith is shaken, then the vehicle becomes an instrument whose integrity is substantially impaired.

2-601(c) - partial acceptance must be made in commercial units 12-105 - unit of goods as by commercial usage is a single whole]. Test: what unit is the basis of the contract? How are they sold? e.g. Shoes - a pair is a commercial unit - can't accept left shoe and reject right shoe.

How do you reject?

2-602 - Applies only where there has been a rightful rejection. Applies to any buyer. Any tender requires some kind of affirmative activity by the buyer to signify rejection.

2-602(l) (a) - Rejection must be made within a reasonable time after tender or delivery.

2-602(l)(b) - Must give seasonable notice [1-201(26)] 2-606(l) (b) - an ineffective rejection is an acceptance. Non acceptance of conforming goods is a breach.

2-602(2)(a) - Basic obligation is not to exercise ownership over the goods. Any exercise of ownership is wrongful and amounts to conversion.

2-602(2)(b) - Buyer has duty to hold goods with reasonable care at the sellers disposition.

2-602(2) (c) - Buyer has no further obligations to the goods.

If the buyer has prepaid any or all of the contract price, buyer has acquired a security interest in the goods and does not have to return the goods until the buyer has received repayment of the goods.

2-603 - Obligation on merchant buyer with respect to rejection of goods:

2- 603 (1) - buyer has a duty to follow the reasonable instructions of the seller where the seller doesn't have anyone local - subject to buyer's security interest.

Absent instructions from seller, buyer has obligation to use reasonable efforts to sell the perishable goods or goods that threaten to decline in value. Re-sale is an affirmative duty. buyer that does not make reasonable effort to re-sell may be liable for damages tot he goods.

Salvage -2-604-Applies to my buyer(merchant and non-merchant)

If seller doesn't give any instructions, buyer can: 1. store; 2. re-ship; or 3. sell the goods.

This is not an acceptance or conversion of the goods.

2 - 605 Failure to specify a particular defect precludes the buyer from relying on that defect as the basis of rejection (estoppel). It is a fairness to the seller. You must justify you rejection. Failuretojustifyyouracceptanceestopsyoufromusingittojustifyrejection.

Can't justify an unstated particular defect:

(a) where the seller could have cured it if the seller was told about the defect.

(b) between merchants, if seller had requested a full written list of all defects.

Buyer cannot go back and rely on this when buyer failed to put a specific defect in the final list of defects.

Buyer's right to inspect - 2-513 -

Unless otherwise agreed, the buyer has a right to inspect the goods. Buyer is not deemed to have accepted the goods unless he has the opportunity to inspect.

2 - 5 1 3 (1) - inspection may take place at any reasonable time and manner. Inspection can take place before or after payment.

2 - 5 1 3 (4) - parties may choose a place or method of inspection. If the place of inspection becomes impossible, then the contract may be avoided if it is clear that the place or method of inspection is a condition to acceptance.

Acceptance of goods - 2-606 - the assent to become the owner of the goods that are being tendered.

Acceptance - 2 types:

1. 2@ 1) - assent in terms of offer manifestation.

2. 2-606(2) - assent to become owner of goods - willingness to become the owner of the goods to be tendered.

2-606(l)(a) -buyer signifies to seller that goods are conforming or will take them even if non-conforming after reasonable opportunity to inspect.

Mere fact of paying for goods prior to inspection is not an acceptance 12-512(2)] Payment after tender may be an acceptance, but it is not conclusive.

2-606(l) (b) - making an ineffective rejection is an acceptance only after having a reasonable opportunity to inspect.

2-606(l)(c) - doing an act inconsistent with the seller's ownership. e.g. using goods, keeping goods, selling goods.

Effect of acceptance - 2-607

1. Buyer is bound to pay the contract price.

2. Buyer can no longer eject the goods if he has accepted them. Any rejection after acceptance is governed by 2-608 standard which is perfect tender rule.

3. Buyer is obligated to inform the seller of any breach of the contract within reasonable time of buyer discovering or should have discovered the breach or be barred from any remedy. Giving notice is a condition to any remedy.

4. Burden is on the buyer to establish any breach with respect to the goods.

Revocation of Acceptance - 2-608

Revocation takes place after acceptance where the standard is one of substantial impairment. Rejection takes place before acceptance where tender fails to conform in any form. In both: 1. Buyer avoids paying contract price. 2. Buyer recovers damages. 3. Buyer acquires security interest. 4. Buyer has duty to use reasonable care.

Revocation of acceptance has a combined standard of objectiveness and subjectiveness. When can you revoke acceptance?

2-608 ( 1) (a) - if buyer accepted goods on the assumption that the goods will be cured and have not been seasonably cured. (Implicit that seller has the opportunity to cure.) There has to be some reasonable assumption that the non-conformity will be cured.

2-608 (1) (b) - if buyer accepted the goods without discovery of the nonconformity (e.g. - latent problem - no reason to discover the problem). (Court is split whether a seller has a right to cure under this section).

How do you revoke acceptance?

2-608(2) (a) - should be done within reasonable time after the buyer discovers or should have discovered the defect. Reasonable time under this section is longer than that of giving notice for breach under 2-607.

2-608(2) (b) - must be made before any substantial change in the condition of the goods UNLESS the change is caused by the defective condition.

2-608(2)(c)-must give note-more particularized than that given for breach. (If you forget to include a defect, you will not be prejudiced.

It is OK to use goods after revocation if it is necessary to use the goods. Applies only to certain unusual situations. e.g. Farmer buys tractor. Tractor doesn't work. OK to use tractor after revocation because otherwise farmer will not be able to eat for that year.

Lemon Law - consumer protection legislation. You can revoke based on substantial impairment. The cumulative affect can add up to substantial impairment. Dealers are more aware of lemon law than 2-608. The Code may give the consumer more protection than the lemon law.

Title - 2-401

Sale of goods - passing of title.

2-40 1 (1) - title can't pass under a contract prior to identification. This gives buyer an insurable interest.

2-40 1 (2) - Title passes at time and place where seller completes Ms performance with regard to the physical delivery of the goods.

2-40 1 (2) (a) - Shipment contract - title passes at time of delivery.

Destination contract - title passes when goods tendered at destination.

2-401(3) (a) - documents - time and place where documents are delivered. 2 - 4 0 1 (3) (b) - time of contracting.

If buyer rightfully revokes acceptance or rejects goods, then title revests in the seller.

Doctrine of good faith purchaser - 2-403

Law of derivative title - you get what is transferred to you.

2-403(l) - purchaser of goods acquires all title which transferor had or had power to transfer.

Purchase includes any voluntary transaction creating an interest in property.

Person with voidable title has power to transfer a good tide to a good faith purchaser for value. Voidable title means owner has right in equity to go back and get goods from crook.

Owner --> Thief --> GFPV | --> not |--> gets nothing a transaction of purchase

Owner--> Crook--> GFPV |--> voluntary |--> if goods pass to GFPV, transfer even if owner can't get goods owner has been back because crook transferred deceived. good title.

2-403 (2) - Doctrine of negligent entrustment

Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in the ordinary course of business [defined in 1-201(9)] e.g. ordinary retail customer.

Entrusting means any delivery and acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence.

Buyer in ordinary course of business is not the same as good faith purchaser for value. Buyer in ordinary course must buy from goods merchant. Good faith purchaser can buy from anyone.

Buyer has to (1) buy the goods from a goods merchant and

(2) buy the goods in the ordinary course of business.

e.g. taking you watch to jeweler (merchant dealing in goods of a kind) for repairs. Merchant can sell you watch to one of his customers. You loose your right to the watch. You do not loose your rights against the merchant. Can sue for conversion.

Warranty of title - 2-312

2-312(l) (a) - title conveyed shall be good and its transfer rightful.

2-312(l) (b) - goods shall be delivered free from any security interest or other lien or encumbrance.

Can warranty of title be disclaimed?

2-312(2) - only by specific language (language should be conspicuous) or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title that or a 3rd person may have.