Statute of Frauds
To be enforceable, an agreement to buy and sell goods for a price of $500 or more must normally be evidenced by one or more signed writings unless an exception applies. The Uniform Electronic Transactions Act (“UETA”) validates electronic records and electronic signatures in transactions, including those under Article 2. In Parish Transport LLC v. Jordan Carriers Inc., the court considered a claim by Parish Transport LLC (“Parish”) that it had a contract for the purchase of heavy equipment from Jordan Carriers Inc. (“Jordan”) based on a lengthy email exchange. After several emails, Parish offered to buy the equipment for $1,250,000 and Jordan replied that it would get back with an answer. Jordan later replied to the earlier email “Ok. Let’s do it” in an email marked “Sent from my iPhone.” After Jordan sold the equipment to a higher bidder, Parish brought suit for breach of contract based on the email exchange, and Jordan moved for summary judgment. Parish asserted that there was a contract signed by the parties electronically under UETA and enforceable under section 2-201 based on Parish’s formal offer sent by email and the resulting email exchange that ended with the return email “Ok. Let’s do it.” The trial court granted summary judgment to Jordan, concluding that the emails did not amount to a signed contract sufficient to satisfy the statute of frauds. The court of appeals affirmed, observing that Jordan’s email did not satisfy the signature requirement under UETA because it did not indicate an intention to sign, and that “the email was ambiguous” as to assent.
The Supreme Court of Mississippi reversed and remanded, finding email correspondence can satisfy the statute of frauds under section 2-201. The court went on to conclude that “whether there is a valid electronic signature is dependent upon the person’s intent when he or she executed the writing, which is a question of fact.” The court noted that a sender’s name and email address in the “from” field are not electronic signatures, but “that in some instances an entire email chain, i.e., separate writings, can be combined and considered one signed writing” for purposes of the statute of frauds where the signed email is closely related such that the email thread can be considered a whole writing. As to the email correspondence between Jordan and Parish, the court concluded the emails related to a single subject matter and were sent a short time apart, but that “even though individual emails in an email chain can be combined to satisfy the statute of frauds signature requirement, the question remains whether the party intended the symbol to adopt or accept the writing when it was executed.” Because a material fact remained about Jordan’s intent relative to signing the contract for purposes of the statute of frauds, summary judgment was not appropriate.
Contract Formation
Sections 2-204 through 2-207 govern contract formation under Article 2. Section 2-204 abrogates a strict requirement of offer and acceptance, providing instead that an agreement may be reached in any manner and can subsequently be found to exist even if the moment of its creation cannot be determined. Section 2-205 validates firm offers made by merchants in a signed writing even in the absence of consideration. Section 2-206 permits a party to accept an offer by “prompt or current shipment” of goods or a promise to do so, whereas section 2-207 permits formation of a contract even when an acceptance contains additional or different terms, so long as acceptance is not expressly conditioned on assent to the terms.
The decision in Ruggiero v. Nocenti turned on the application of section 2-204. Michael Ruggiero orally agreed to purchase certain “Magic: the Gathering” trading cards from Brian Nocenti with the parties later confirming the purchase in writing and agreeing that $70,000 would be paid within one year and the total price would be $177,415. The parties later extended the deadline for the $70,000 but Nocenti ultimately returned Ruggiero’s money and refused to complete the sale. The court found that the parties manifested sufficient agreement under section 2-204 during the initial in-person meeting and later memorialized the agreement through email and messages. Moreover, the parties' agreement indicated essential terms as to the trading card categories, price, and payment. While the court noted that there was uncertainty as to when the parties agreed to the purchase price, the later agreement as to price did not prevent formation of the contract where the price would be dependent upon the card ultimately purchased, and the later email set forth “sufficiently definite payment timelines and methods.” The court found that the parties later modified the agreement to extend the date for Ruggiero to pay the initial $70,000. Accordingly, the court held at trial that the parties formed an enforceable contract under section 2-204, which they later modified, and entered judgment for the buyer.
The analysis in Communications Supply Corp. v. Iron Bow Technologies, LLC involved section 2-207, focusing on an attempt by the seller, Communications Supply Corporation (“CSC”), to recover damages after the buyer, Iron Bow Technologies, LLC (“Iron Bow”), cancelled the parties’ contract. Iron Bow requested that CSC provide a quote for work being done on a construction project at Vandenberg Air Force Base. CSC provided a detailed quote with its own terms and conditions, including a cancellation clause. The parties negotiated a set of terms and conditions for the purchase (the “Negotiated Terms”), but when Iron Bow submitted its purchase order, it failed to incorporate the Negotiated Terms and instead referenced its own online terms and conditions. After CSC delivered some of the product under the purchase order, Iron Bow inquired about restocking fees in the event of a return and then later sent an email to CSC to cancel the purchase order. CSC rejected the cancellation, which it considered an anticipatory breach, and brought suit for breach of contract. Both parties moved for summary judgment.
Because Article 2 does not define offer, the court applied the common law rule that price quotations can be offers where they are sufficiently detailed to conclude that CSC’s price quote was an offer where it “listed a description, quantity, unit price and total price for each Belden Product, as well as a total price of $1,881,095.18 for all the Products” and was “unequivocal and not conditioned on further approval.” Accordingly, the court concluded that Iron Bow’s purchase order was an acceptance under section 2-207(1) even though the purchase order included different terms and conditions, as Iron Bow did not communicate an unwillingness to proceed with the transaction if its terms did not apply. Turning to the different cancellation provisions in the terms and conditions in CSC’s price quotation and Iron Bow’s purchase order, the court noted that the purchase order included Iron Bow’s standard terms and conditions, so the Negotiated Terms did not apply. Because the cancellation provisions were different, rather than additional, the provisions were subject to the “knockout rule” and the contract of the parties consisted of the terms on which the writings agreed, and the inconsistent cancellation provisions were knocked out. Moreover, the court rejected Iron Bow’s argument that section 2-309 applied to permit terminations upon reasonable notice in cases of successive performances as the purchase order anticipated “specific quantities [of goods] delivered in a certain timeframe.” The court applied the provisions of section 2-610 regarding repudiations, however, to conclude that Iron Bow breached the contract through its cancellation. As such, the court granted summary judgment to CSC.
Contract Modification and Waiver
Article 2 expressly recognizes the enforceability of a clause prohibiting subsequent oral modification, the possibility that the parties may waive such a clause, and the ability to retract any such waiver by reasonable notification. The analysis in Morgan v. A. Frost, Inc. involved a claim by a buyer of a diamond for a refund of a deposit on the purchase even though he changed his mind and did not pay the remaining balance of $9,029.70 and the invoice stated: “No Cash Refunds—Store Credit Only.” The buyer argued that even if the invoice was the contract between the parties, the oral statements, written statements, and subsequent actions of the seller and his employee constituted a waiver and modification of the terms, allowing him to purchase a different diamond than the one identified on the invoice. The court applied section 2-209 to conclude that the buyer’s evidence of electronic statements made prior to the sales invoice would not constitute an agreement modifying the parties’ agreement as it occurred before the agreement and was barred by the parol evidence rule. Moreover, the court rejected the buyer’s argument regarding statements made by the seller after he terminated the agreement, finding modification cannot occur after termination of a contract. As such, the parties had not modified the contract under section 2-209, and the court affirmed the dismissal of the buyer’s claim.
Unconscionability
Section 2-302 recognizes that if a contract or contract clause is unconscionable, a court may refuse to enforce the contract or parts of it. Applying this provision, the analysis in Bieda v. CNH Industrial America LLC involved a claim of unconscionability made by the buyer of a defective crop planter. Lamb & Webster, Inc. (“L&W”), a dealer for CNH Industrial America LLC (“CNH”), contracted to sell the CNH planter to Bieda, but CNH did not inform L&W or Bieda that the planter would not operate correctly without additional equipment developed by CNH to remedy a defect in the planter. Both CNH and L&W disclaimed warranties and excluded all consequential damages. A dispute developed after Bieda suffered substantial crop losses because the defects in the planter resulted in the crop not being planted at a sufficient depth. Bieda brought suit for breach of contract against both L&W and CNH, and CNH moved for summary judgment. The court rejected CNH’s argument that it was entitled to summary judgment because it disclaimed warranties, applying section 2-302 and finding the disclaimer was procedurally and substantively unconscionable. In particular, the court noted that CNH’s failure to disclose the known defect in the planter to Bieda at the time of sale amounted to procedural unconscionability. As to substantive unconscionability, the court found the use of a blanket disclaimer that foreclosed remedies when CNH knew of the defects and failed to disclose them was substantively unconscionable. As such, summary judgment for CNH was not appropriate because the warranty disclaimer was unconscionable.
Warranties
Privity
Privity of contract is generally required to assert a successful breach of contract action, but in the warranty context, the traditional notions of privity are sometimes relaxed. The court in Knapp v. Zoetis Inc. applied the Virginia version of section 2-318; however, it underscored the importance of the character of the claim and the alternative adopted in the jurisdiction. In Knapp, a veterinarian used a Zoetis antibiotic on Knapp’s horse, Boomer, who then developed medical complications; Knapp alleged Zoetis knew about the risk of these medical complications but failed to disclose or warn of the antibiotic’s dangers to horses. The manufacturer moved to dismiss Knapp’s breach of warranty claims for lack of privity, asserting that section 2-715, addressing consequential damages, prevails over the relaxed version of section 2-318 used in Virginia. The court found that section 2-318 eliminated privity for Knapp’s express warranty claim and that section 2-715 did not require privity in order for her to assert consequential damages for injury to property arising from breach of warranty. Accordingly, Knapp could assert a claim for breach of express warranty against the manufacturer.
Warranty Creation and Disclaimers
“Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain” can create an express warranty. The decision in Knapp, discussed earlier in this Survey, involved a contract for an equine antibiotic, and shows how an informal express warranty may arise. Knapp’s veterinarian used Excede, developed by Zoetis, which stated “Excede provides peace of mind knowing that the antibiotic has been demonstrated to be safe and effective in horses” and “Excede makes the treatment process less stressful for you and your horse.” Knapp’s horse, Boomer, experienced medical complications from Excede including “persistent lameness” and problems with the “musculature in his neck” that rendered Boomer unable to return to show hunting. Knapp brought suit for claims including breach of warranty and Zoetis moved to dismiss. The trial court found that Knapp stated a claim for breach of express warranty by pleading: “(1) the existence of a warranty; and (2) breach of that warranty.” Additionally, the court noted that “actual reliance” was not an element of a breach of express warranty claim in Virginia. Specifically, the court found that the statements made by Zoetis “about the relative safety and treatment advantages of Excede” were “affirmations of fact” under section 2-313(1)(a). As to breach of warranty, the court found that “Knapp plausibly pleads that Zoetis breached its express warranty when it sold goods that did not conform to the above description and caused Boomer to become ill” and Excede did not conform to the representation of safety and effectiveness in horses causing harm to Boomer. Accordingly, the court denied Zoetis’ motion to dismiss the express warranty claim.
The decision in Crenshaw v. Michael J.’s Auto Sales turned on express warranties, the implied warranty of merchantability under section 2-314, and a disclaimer under section 2-316. Leticia Crenshaw (“Crenshaw”) contracted to purchase a 2005 Nissan Murano from Michael J.’s Auto Sales (“Michael J.’s”). The bill of sale contained an “as is” clause, but the parties also entered into a “we owe” agreement whereby Michael J.’s agreed to perform specified repairs on the Nissan. A dispute developed after Michael J.’s failed to perform the repairs. Crenshaw had another mechanic perform the repairs and brought suit for breach of contract and other claims against Michael J.’s. The trial court adopted the magistrate’s decision in favor of Crenshaw, and Michael J.’s appealed. Reversing in part, the court first noted that a seller makes an implied warranty of merchantability in the sale of goods, which can be disclaimed by use of an “as is” clause. However, the court noted that despite the use of a disclaimer, pursuant to section 2-316(1), “[w]ords or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit an express warranty shall be construed wherever reasonable as consistent with each other[.]” The court found that even though the bill of sale contained the “as is” clause, thereby negating implied warranties, the disclaimer did not invalidate the repair work Michael J.’s expressly promised to perform. Accordingly, the court affirmed the judgment as to the express warranty.
Title, Creditors, and Good Faith
Section 2-401 provides that the title to goods does not pass prior to identification of the goods in the contract, but unless otherwise agreed, title passes when the seller completes his performance regarding physical delivery of the goods. Section 2-403 permits: (i) a person possessing only voidable title to transfer good title to a good faith purchaser for value, and (ii) a merchant who deals in goods of the kind to transfer all rights of an “entruster” of the goods to a buyer in the ordinary course.
Performance and Breach
Anticipatory Repudiation, Retraction, and Installment Contracts
Section 2-610 provides that if either party repudiates the contract, the aggrieved party has a number of options, most importantly resorting to remedies. The decision in Scientific Machine & Welding, Inc. v. FlashParking, Inc. considered a motion for summary judgment granted by the trial court to FlashParking, Inc. against Scientific Machine & Welding, Inc. (“Scientific”). The dispute arose after FlashParking cancelled the parties’ contract for Underwriters Laboratories (“UL”) compliant parking payment kiosks on the basis that Scientific repudiated the contract by failing to maintain the required UL certification for the kiosks. After Scientific failed UL inspection, the certification company required a new contract prior to reauthorization of UL status, but Scientific refused to sign the required certification contract. FlashParking wrote to Scientific advising them that the failure to sign the certification contract was a repudiation and it was cancelling its purchase order and shifting its business to a UL compliant provider. Scientific responded that the parties could work on the issues but did not agree to sign the required contract, procure another certification company, or remedy the non-compliance issues. The parties did not resolve the outstanding UL certification issues and Scientific brought suit against FlashParking for breach of contract and FlashParking moved for summary judgment.
The court affirmed the summary judgment in favor of FlashParking noting that,
[u]nder the UCC, if either party repudiates a contract with respect to performance not yet due, the loss of which will substantially impair the value of the contract to the nonrepudiating party, the aggrieved party may either: (1) await performance by the repudiating party for a commercially reasonable time or (2) resort to any remedy for breach provided in Sections 2.703 or 2.711, even if the nonrepudiating party has notified the repudiating party that it would await the latter’s performance and has urged retraction.
As to when a party has actually repudiated, the court stated that “anticipatory repudiation centers upon an overt communication” and that performance does not have to be “literally and utterly impossible.” The court concluded that “Scientific’s refusal to sign the 2018 Factory Contract was an overt communication of and an action that demonstrated a clear and unequivocal intention not to perform under Scientific’s agreement with FlashParking.” Moreover, there was no evidence put forth by Scientific demonstrating assurances that it would perform under the contract, a willingness to sign the required certification contract, or any indication that its failure to sign was due to a “misunderstanding” about the need for the new contract. As to whether the repudiation “substantially impaired the value of the contract” to FlashParking, the court agreed that non-UL compliant parking kiosks were unmarketable and, therefore, a substantial impairment. The court rejected Scientific’s assertion that FlashParking’s procurement of an alternate supplier negated its damage, concluding that “FlashParking’s exercise of its available remedies after repudiation does not negate the fact that Scientific’s refusal to maintain its certification to produce UL-compliant SmartStations would substantially impair the value of the contract.” Accordingly, FlashParking established a defense of repudiation to Scientific’s breach of contract action and summary judgment was appropriate.
Rejection, Acceptance, and Revocation of Acceptance
Section 2-601 provides that a buyer receiving a non-conforming tender can reject, accept, or accept any commercial units and reject the remainder. A buyer that fails to make an effective rejection under section 2-602, though, is deemed to have accepted the goods under section 2-606. Section 2-608 provides aggrieved buyers with a limited right to revoke acceptance of non-conforming goods. For a buyer to exercise this right under section 2-608, the nonconformity must substantially impair the value of the goods, and the buyer must have accepted the goods either on the reasonable assumption that the nonconformity would be cured or without discovering the nonconformity because discovery would be difficult, or because of the seller’s assurances.
The decision in Campbell v. Bradco Supply Co. turned on the application of sections 2-606 and 2-608. Margaret Campbell purchased kitchen cabinets from Bradco Supply Co. (“Bradco”) and signed a “Completion Certificate” that the goods were “satisfactory” at the time of delivery, after Campbell and the salesperson opened one box to confirm the color of the cabinets. After full unpacking, Campbell discovered numerous nonconformities, but the salesperson instructed Campbell and the cabinet installer to proceed with installation and that inspection and remediation by Bradco would occur later. After installation, Campbell advised Bradco of various problems with the cabinets, including being too wide and not fitting the kitchen space such that they interfered with the use of the kitchen appliances, but Bradco failed to remedy the problems. Campbell brought suit for multiple claims including breach of contract and implied warranties and, after trial, the jury found in her favor and awarded $30,000 but the trial court set aside the verdict and Campbell appealed.
On appeal, the court first applied section 2-606 to conclude that Campbell accepted the cabinets when she signed the Completion Certificate, such that she could not reject the cabinets. As to revocation of acceptance, the court noted that the signing of the Completion Certificate would not preclude revocation of acceptance. The court observed that the record indicated “a multitude of defects.” Moreover, the defects “substantially impaired the value of the cabinets” to Campbell, who could not properly use her kitchen appliances. The court concluded that Campbell’s “acceptance of the cabinets was reasonably induced by the difficulty of discovering the defects in the goods” where only one box was opened with the salesperson to confirm color and Campbell “was unaware that the cabinets that were delivered were too wide for the kitchen wall” or that the crown molding delivered was insufficient for the job. The court found that Campbell revoked acceptance in a reasonable time by giving Bradco notice and an opportunity to cure, which it did not do. Lastly, the court concluded that even if Campbell had not properly revoked her acceptance of the cabinets, she was still entitled to damages for breach of contract. Accordingly, the court reinstated the jury verdict in favor of Campbell.
Remedies
Seller’s Remedies
Section 2-703 generally permits an aggrieved seller to withhold delivery of goods, cancel, and pursue specified remedies, including resale, under section 2-706, by a seller who has possession of the goods; recovery of the difference between the market price and the contract price, under section 2-708; or recovery of the price under section 2-709. Sellers are also entitled to incidental damages but not consequential damages.
Buyer’s Remedies
Section 2-711 generally permits an aggrieved buyer to pursue specified remedies, including the recovery of payments made to the breaching seller. Section 2-712 entitles an aggrieved buyer to “cover” by making reasonable, good faith purchases of substitute goods. In cases where the goods are accepted, an aggrieved buyer may pursue recovery under section 2-714, which provides that an aggrieved buyer’s damages are measured by the difference between the value of the goods as accepted and the value of the goods as warranted. An aggrieved buyer can also deduct its damages from the price owed to the seller for the goods under the same contract. Buyers are also entitled to incidental damages and consequential damages. Limitations of, additions to, or substitutions for remedies set forth in Article 2 are permitted pursuant to section 2-719 unless the agreed remedy fails of its essential purpose.
The decision in Ruggiero v. Nocenti, discussed earlier in this Survey, applied section 2-713 to evaluate the buyer’s claim for market-based and consequential damages after the seller failed to deliver trading cards. The court found that the buyer of the cards proved with reasonable certainty through expert testimony that the market price of the cards was $213,605 on the date of the breach, which was higher than the contract price of $177,415. Accordingly, the court found that the buyer was entitled to the difference in the amount of $36,190. However, the court rejected buyer’s claim that consequential damages were awardable because the parties viewed the purchase as an investment, and instead concluded that the buyer had not proven that consequential damages were foreseeable to the parties at the time of contracting. Therefore, the measure of damages was the difference between the market price of the cards and the contract price.
Statute of Limitations
Article 2 generally requires that actions for breach must be brought within four years of when the cause of action accrues, but the parties may shorten the limitations period to “not less than one year.” A cause of action accrues generally at the time of tender of delivery but a warranty can run to future performance such that the statute of limitations runs from the time of discovery of the breach (possibly extending beyond four years of the sale) under section 2-725(2). Plaintiffs who delay filing a lawsuit and come up against the statute of limitations often make creative arguments to avoid the dismissal of their suits as time-barred.
Whether the limitations period can be tolled may turn on the buyer’s actions and interactions with the seller and was at issue in Carroll v. BMW of North America, LLC. Carroll purchased a new BMW from BMW of North America, LLC (“BMW”) in 2010 that allegedly used excessive oil. Carroll brought suit for breach of warranty and other claims in 2019 and BMW moved for summary judgment on grounds that the buyer’s warranty claims were time-barred. BMW asserted that Carroll failed to notify BMW of the oil issue until eighty-four (84) months after adding oil and did not bring the car to BMW for service. Carroll asserted that BMW advised dealers to tell buyers that the oil consumption was “normal,” such that fraudulent concealment, the discovery rule, and estoppel applied to prevent BMW from asserting the statute of limitations.
First, the court rejected Carroll’s discovery rule argument, finding the discovery rule only applies when a warranty runs to future performance. In order to be a warranty running to future performance: “(1) it must be an explicit promise or guarantee, (2) it must concern the characteristics of the goods themselves, and (3) it must identify a specific future time period during which the goods will conform to that guarantee.” While the BMW warranty did contain an express promise as to protection for “defects in materials or workmanship,” which relates to the quality of the goods, the warranty did not use “future-tense language” or “provide that the Vehicle would be defect-free for that time.” As such, the BMW warranty was not one running to future performance, such that the discovery rule did not apply as to the limitations period, which began on April 15, 2010.
As to fraudulent concealment, the court noted that it can operate to toll the statute of limitations but the buyer must show concealment and “that either (1) the alleged wrongdoer actively concealed the cause of action and the claimant exercised due diligence to discover the cause of action, or (2) the parties’ relationship—such as a fiduciary relationship—imposed on the alleged wrongdoer a duty to disclose the cause of action to the claimant.” The court rejected Carroll’s assertion of fraudulent concealment based on statements that the oil use was “normal” and BMW internal documentation, finding Carroll did not exercise “due diligence” in his interactions with BWM for servicing the car. As such, fraudulent concealment did not toll the statute of limitations. As to equitable tolling or estoppel, the court noted that this doctrine typically applies in cases of fraudulent concealment and did not apply to Carroll’s claim. The court concluded that no basis to extend the statute of limitations applied, Carroll’s limitation period began on April 15, 2010 and expired four years later, and therefore an action brought in 2019 was not timely. Accordingly, the court granted summary judgment to BMW.
The author wishes to thank research assistants Bridget Gonzalez, Maegan Korovich, and Paola Rivera Lopez of St. Thomas University College of Law for their valuable work on this project.