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Case 11.1 Contract Sales and Lease Contracts: Performance and Breach
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443 N.E.2d 932 Page 1
57 N.Y.2d 574, 443 N.E.2d 932, 457 N.Y.S.2d 458, 36 A.L.R.4th 533, 35 UCC Rep.Serv. 12
(Cite as: 57 N.Y.2d 574, 443 N.E.2d 932, 457 N.Y.S.2d 458)
not join either in plaintiff's request that the statute well as sellers to extent that it displaces traditional
be read to jury or in the exception to the court's re- principles of law and equity by seeking to discour-
fusal to do so. age unfair or hypertechnical business conduct be-
speaking a dog-eat-dog rather than a live-
[3] Sales 343 177 and-let-live approach to the marketplace. McKin-
ney's Uniform Commercial Code §§ 1-103, 2-314,
343 Sales
2-315, 2-513, 2-601, 2-608.
343IV Performance of Contract
343IV(C) Delivery and Acceptance of Goods [6] Sales 343 1(1)
343k177 k. Obligation to Accept in Gen-
eral. Most Cited Cases 343 Sales
Statute, which permits seller to cure defective 343I Requisites and Validity of Contract
tender, is intended to act as a meaningful limitation 343k1 Nature and Essentials of Contract for
on the absolutism of the perfect tender rule under Sale of Personal Property in General
which no leeway was allowed for any imperfec- 343k1(1) k. In General. Most Cited Cases
tions. McKinney's Uniform Commercial Code § Overall aim of Uniform Commercial Code is to en-
2-508. courage parties to amicably resolve their own prob-
lems.
[4] Sales 343 153
[7] Appeal and Error 30 206
343 Sales
343IV Performance of Contract 30 Appeal and Error
343IV(C) Delivery and Acceptance of Goods 30V Presentation and Reservation in Lower
343k153 k. Tender or Offer by Seller. Court of Grounds of Review
Most Cited Cases 30V(B) Objections and Motions, and Rulings
Seller, who, acting in good faith and without know- Thereon
ledge of any defect, tenders nonconforming goods 30k202 Evidence and Witnesses
to buyer who properly rejects them, may avail itself 30k206 k. Reception of Evidence.
of provisions of certain statute and offer to cure de- Most Cited Cases
fect within reasonable period beyond time when (Formerly 30k206(1))
contract was to be performed, on seasonable notice,
if seller has acted with reasonable expectation that Appeal and Error 30 221
the original goods would be acceptable to buyer;
30 Appeal and Error
the statute does not limit availability of such right
30V Presentation and Reservation in Lower
to cure to cases in which seller knowingly makes a
Court of Grounds of Review
nonconforming tender. McKinney's Uniform Com-
30V(B) Objections and Motions, and Rulings
mercial Code § 2-508(2).
Thereon
[5] Sales 343 1(1) 30k221 k. Amount of Recovery or Extent
of Relief. Most Cited Cases
343 Sales In action in which seller had sought to recover dam-
343I Requisites and Validity of Contract ages incurred when buyer rejected seller's offer to
343k1 Nature and Essentials of Contract for cure nonconforming oil cargo, trial court would not
Sale of Personal Property in General be found to have erred in calculating damages on
343k1(1) k. In General. Most Cited Cases basis of difference between contract price and re-
Uniform Commercial Code applies to buyers as sale price of nonconforming cargo, rather than sale
price of cargo offered to replace it, where buyer did pectation that the original goods would be accept-
not object to the method used in calculating dam- able to the buyer.
ages or to seller's introduction of proof of the resale
price and where jointly framed advisory questions The factual background against which we decide
which went to the jury indicated that both parties this appeal is based on either undisputed proof or
were acting on assumption that the nonconforming express findings at Trial Term. In January, 1974,
oil was the one with which the court was to be con- midst the fuel shortage produced by the oil em-
cerned. McKinney's Uniform Commercial Code § bargo, the plaintiff (then known as Joc Oil USA,
2-508(2). Inc.) purchased a cargo of fuel oil whose sulfur
content was represented to it as no greater than 1%.
[8] Appeal and Error 30 171(1) While the oil was still at sea en route to the United
States in the tanker M T Khamsin, plaintiff received
30 Appeal and Error a certificate from the foreign refinery at which it
30V Presentation and Reservation in Lower had been processed informing it that the sulfur con-
Court of Grounds of Review tent in fact was .52%. Thereafter, on January 24,
30V(A) Issues and Questions in Lower Court the plaintiff entered into a written contract with the
30k171 Nature and Theory of Cause defendant (Con Ed) for the sale of this oil. The
30k171(1) k. In General; Adhering to agreement was for delivery to take place between
Theory Pursued Below. Most Cited Cases January 24 and January 30, payment being subject
An agreement on theory of damages at trial, even if to a named independent testing agency's confirma-
only implied, must control on appeal. tion of quality and quantity. The contract, following
*575 ***460 **934 Barry S. Goldstein, Ernest J. a trade custom to round off specifications of sulfur
Williams, Sheila Solomon Rosenrauch, New York content at, for instance, 1%, .5% or .3%, described
City, and Patricia M. Fruehling, for appellant. FN1
that of the Khamsin oil as .5%. In the course of
the negotiations, the plaintiff learned that Con Ed
*576 David L. Maloof, Francis J. McCaffrey,
was then authorized to buy and burn oil with a sul-
James J. Ruddy and Daniel G. McDermott, New
fur content of up to 1% and would even mix oils
York City, for respondent.
containing more and less to maintain that figure.
FUCHSBERG, Judge. When the vessel arrived, on January 25, its cargo
was discharged into Con Ed storage tanks in Bay-
In the first case to wend its way through our appel- FN2
onne, New *578 Jersey. In due course, the in-
late courts on this question, we are asked, in the dependent testing people reported a sulfur content
main, to decide whether a seller who, acting in of .92%. On this basis, acting within a time frame
good faith and without knowledge of any defect, whose reasonableness is not in question, on Febru-
tenders nonconforming goods to a buyer who prop- ary 14 Con Ed rejected the shipment. Prompt nego-
erly rejects them, may avail itself of the cure provi- tiations to adjust the price failed; by February 20,
sion of subdivision (2) of section 2-508 of the Uni- plaintiff had offered a price reduction roughly re-
form Commercial Code. We hold that, if seasonable sponsive to the difference in sulfur reading, but
notice be given, such a seller may offer to cure the Con Ed, though it could use the oil, rejected this
defect within a reasonable period beyond the time proposition out of hand. It was insistent on paying
when the contract was to be performed so long as it no more than the latest prevailing price, which, in
has acted in good faith and with a reasonable ex- the volatile market that then existed, was some 25%
below the level which prevailed when it agreed to price adjustment on the Khamsin oil (Uniform
buy the oil. Commercial Code, § 1-203), decided as a matter of
law that subdivision (2) of section 2-508 of the
FN2. The tanks already contained some Uniform Commercial Code was available to the
other oil, but Con Ed appears to have had plaintiff even if it had no prior knowledge of the
no concern over the admixture of the dif- nonconformity. Finding that in fact plaintiff had no
fering sulfur contents. In any event, the ef- such belief at the time of the delivery, that what
ficacy of the independent testing required turned out to be a .92% sulfur content was “within
by the contract was not impaired by the the range of contemplation of reasonable acceptab-
commingling. ility” to Con. Ed., and that seasonable notice of an
intention to cure was given, the court went on to
***461 **935 The very next day, February 21,
hold that plaintiff's “reasonable and timely offer to
plaintiff offered to cure the defect with a substitute
cure” was improperly rejected ( sub nom. Joc Oil
shipment of conforming oil scheduled to arrive on
USA v. Consolidated Edison Co. of N.Y., 107
the S.S. Appollonian Victory on February 28. Nev-
Misc.2d 376, 390, 434 N.Y.S.2d 623 [Shanley N.
ertheless, on February 22, the very day after the
Egeth, J.] ). The Appellate Division, 84 A.D.2d
cure was proffered, Con Ed, adamant in its inten-
970, 447 N.Y.S.2d 572, having unanimously af-
tion to avail itself of the intervening drop in prices,
firmed the judgment entered on this decision, the
summarily rejected this proposal too. The two car-
case is now here by our leave (CPLR 5602, subd.
gos were subsequently sold to third parties at the
[a], par. 1, cl. [i] ).
best price obtainable, first that of the Appollonian
and, sometime later, after extraction from the tanks FN4. The plaintiff originally also sought
FN3
had been accomplished, that of the Khamsin. an affirmative injunction to compel Con
Ed to accept the Khamsin shipment or, al-
FN3. Most of the Khamsin oil was drained
ternatively, the Appollonian substitute.
from the tanks and sold at $10.75 per bar-
However, when a preliminary injunction
rel. The balance was retained by Con Ed in
was denied on the ground that the plaintiff
its mixed form at $10.45 per barrel. The
had an adequate remedy at law, it amended
original price in January had been $17.875
its complaint to pursue the latter remedy
per barrel.
alone.
FN4
There ensued this action for breach of contract,
FN5. These circumstances included the
which, after a somewhat unconventional trial
fact that the preliminary injunction was not
course, resulted in a nonjury decision for the
denied until April so that, by the time the
plaintiff in the sum of $1,385,512.83, essentially
Khamsin oil was sold in May, almost three
the difference between the original contract price of
months had gone by since its rejection.
$3,360,667.14 and the amount received by the
plaintiff by way of resale of the Khamsin oil at In support of its quest for reversal, the defendant
what the court found as a matter of fact was a nego- now asserts that the trial court erred (a) in ruling
tiated *579 price which, under all the circum- that the verdict on a special question submitted for
FN5
stances, was reasonably procured in the open determination by a jury was irrelevant to the de-
market. To arrive at this result, the Trial Judge, cision of this case, (b) in failing to interpret subdi-
while ruling against other liability theories ad- vision (2) of section 2-508 of the Uniform Com-
vanced by the plaintiff, which, in particular, in- mercial Code to limit the availability of the right to
cluded one charging the defendant with having cure after date of performance to cases in which the
failed to act in good faith in the negotiations for a seller knowingly made a nonconforming tender and
(c) in calculating damages on the basis of the resale finding could be made or in testimony or evidence
of the nonconforming cargo rather than of the sub- of any kind from which a finding of such necessary
stitute offered to replace it. For the reasons which fact can be made, the parties do hereby authorize
follow, we find all three unacceptable. the Court nonjury to make such determination as a
prerequisite to the application of the law”.
ant to the application of section 2-508. Con- [4] In contrast, to meet the realities of the more im-
sequently, it was not error to ignore the jury's an- personal business world of our day, the code, to
swer to the question. avoid sharp dealing, expressly provides for the lib-
eral construction of its remedial provisions (§
FN6. Of the four questions submitted to 1-102) so that “good faith” and the “observance of
the jury, two bear no relationship to the reasonable commercial standards of fair dealing” be
theory on which the plaintiff succeeded, the rule rather than the exception in trade (see §
and the third, likewise disregarded by the 2-103, subd. [1], par. [b] ), “good faith” being
trial court, supported the court's damages defined as “honesty in fact in the conduct or trans-
disposition. action concerned” (Uniform Commercial Code, §
1-201, subd. [19] ). As to section 2-508 in particu-
[2] As a final word on this issue, we also add that,
lar, the code's Official Comment advises that its
to the extent that Con Ed now belabors the trial
mission is to safeguard the seller “against surprise
court for refusing to charge the provisions of subdi-
as a result of sudden technicality on the buyer's
vision (2) of section 2-508, suffice it to say that,
part” (Uniform Commercial Code, § 2-106, Com-
since defense counsel did not join either in
ment 2; see, also, Peters, Remedies for Breach of
plaintiff's request that the statute be read to the jury
Contracts Relating to the Sale of Goods under the
or in the consequent exception to the court's refusal
Uniform Commercial Code: A Roadmap for Article
to do so, the matter was not ***463 **937 pre-
Two, 73 Yale L.J. 199, 210; 51 N.Y.Jur., Sales, §
served for our review ( Hunt v. Bankers & Shippers
101, p. 41).
Ins. Co. of N.Y., 50 N.Y.2d 938, 940, 431 N.Y.S.2d
454, 409 N.E.2d 928; CPLR 4017, 5501, subd. [a], Section 2-508 may be conveniently divided
par. 3). between provisions for cure offered when “the time
for performance has not yet expired” (subd. [1] ), a
II precode concept in this State ( Lowinson v. New-
man, 201 App.Div. 266, 194 N.Y.S. 253), and ones
[3] We turn then to the central issue on this appeal: which, by newly introducing the possibility of a
Fairly interpreted, did subdivision *582(2) of sec- seller obtaining “a further reasonable time to substi-
tion 2-508 of the Uniform Commercial Code re- tute a conforming tender” (subd. [2] ), also permit
quire Con Ed to accept the substitute shipment cure beyond the date set for performance. In its en-
plaintiff tendered? In approaching this question, tirety the section reads as follows:
we, of course, must remember that a seller's right to
cure a defective tender, as allowed by both subdivi- “(1) Where any tender or delivery by the seller is
sions of section 2-508, was intended to act as a rejected because non-conforming and the time for
meaningful limitation on the absolutism of the old performance has not yet expired, the seller may sea-
perfect tender rule, under which, no leeway being sonably notify the buyer *583 of his intention to
allowed for any imperfections, there was, as one cure and may then within the contract time make a
court put it, just “no room * * * for the doctrine of conforming delivery.
substantial performance” of commercial obligations
“(2) Where the buyer rejects a non-conforming
( Mitsubishi Goshi Kaisha v. Aron & Co., 16 F.2d
tender which the seller had reasonable grounds to
185, 186 [Learned Hand, J.]; see Note, Uniform
believe would be acceptable with or without money
Commercial Code, § 2-508; Seller's Right to Cure
allowance the seller may if he seasonably notifies
Non-Conforming Goods, 6 Rutgers-Camden L.J.
the buyer have a further reasonable time to substi-
387-388).
tute a conforming tender.”
Since we here confront circumstances in which the *584 As to the third, the conforming state of the
conforming tender came after the time of perform- Appollonian oil is undisputed, the offer to tender it
ance, we focus on subdivision (2). On its face, tak- took place on February 21, only a day after Con Ed
ing its conditions in the order in which they appear, finally had rejected the Khamsin delivery and the
for the statute to apply (1) a buyer must have rejec- Appollonian substitute then already was en route to
ted a nonconforming tender, (2) the seller must the United States, where it was expected in a week
have had reasonable grounds to believe this tender and did arrive on March 4, only four days later than
would be acceptable (with or without money allow- expected. Especially since Con Ed pleaded no pre-
ance), and (3) the seller must have “seasonably” no- judice (unless the drop in prices could be so re-
tified the buyer of the intention to substitute a con- garded), it is almost impossible, given the flexibil-
FN7
forming tender within a reasonable time. ity of the Uniform Commercial Code definitions of
“seasonable” and “reasonable” (n. 7, supra ), to
FN7. Essentially a factual matter, quarrel with the finding that the remaining require-
“seasonable” is defined in subdivision (3) ments of the statute also had been met.
of section 1-204 of the Uniform Commer-
cial Code as “at or within the time agreed Thus lacking the support of the statute's literal lan-
or if no time is agreed at or within a reas- guage, the defendant nonetheless would have us
onable time”. At least equally factual in limit its application to cases in which a seller know-
character, a “reasonable time” is left to de- ingly makes a nonconforming tender which it has
pend on the “nature, purpose and circum- reason to believe the buyer will accept. For this
stances” of any action which is to be taken proposition, it relies almost entirely on a critique in
(Uniform Commercial Code, § 1-204, Nordstrom, Law of Sales (§ 105), which rational-
subd. [2] ). izes that, since a seller who believes its tender is
conforming would have no reason to think in terms
In the present case, none of these presented a prob- of a reduction in the price of the goods, to allow
lem. The first one was ***464 **938 easily met for such a seller to cure after the time for performance
it is unquestioned that, at .92%, the sulfur content had passed would make the statutory reference to a
of theKhamsin oil did not conform to the .5% spe- FN8
money allowance redundant. Nordstrom, inter-
cified in the contract and that it was rejected by estingly enough, finds it useful to buttress this posi-
Con Ed. The second, the reasonableness of the tion by the somewhat dire prediction, though
seller's belief that the original tender would be ac- backed by no empirical or other confirmation, that,
ceptable, was supported not only by unimpeached unless the right to cure is confined to those whose
proof that the contract's .5% and the refinery certi- nonconforming tenders are knowing ones, the in-
ficate's .52% were trade equivalents, but by testi- centive of sellers to timely deliver will be under-
mony that, by the time the contract was made, the mined. To this it also adds the somewhat moralistic
plaintiff knew Con Ed burned fuel with a content of note that a seller who is mistaken as to the quality
up to 1%, so that, with appropriate price adjust- of its goods does not merit *585 additional time
ment, the Khamsin oil would have suited its needs (Nordstrom, loc. cit.). Curiously, recognizing that
even if, at delivery, it was, to the plaintiff's sur- the few decisions extant on this subject have adop-
prise, to test out at .92%. Further, the matter seems ted a position opposed to the one for which it con-
to have been put beyond dispute by the defendant's tends, Con Ed seeks to treat these as exceptions
readiness to take the oil at the reduced market price rather than exemplars of the rule (e.g., Wilson v.
on February 20. Surely, on such a record, the trial Scampoli, 228 A.2d 848 (D.C.App.) [goods ob-
court cannot be faulted for having found as a fact tained by seller from their manufacturer in original
that the second condition too had been established. carton resold unopened to purchaser; seller held
within statute though it had no reason to believe the with the reasonableness of the seller's belief that the
goods defective]; Appleton State Bank v. Lee, 33 goods would be acceptable rather than with the
Wis.2d 690, 148 N.W.2d 1 [seller mistakenly de- seller's pretender knowledge or lack of knowledge
livered sewing machine of wrong brand but other- of the defect (Wilson v. Scampoli, supra; compare
wise identical to one sold; held that seller, though it Zabriskie Chevrolet v. Smith, 99 N.J.Super. 441,
did not know of its mistake, had a right to cure by 240 A.2d 195).
FN9
substitution] ).
It also is no surprise then that the afore-mentioned
FN8. The premise for such an argument, decisional history is a reflection of the mainstream
which ignores the policy of the code to of scholarly commentary on the subject (e.g., 1955
prevent buyers from using insubstantial re- Report of N.Y.Law Rev.Comm., p. 484; White &
mediable or price adjustable defects to free Summers, Uniform Commercial Code [2d ed.], §
themselves from unprofitable bargains 8-4, p. 322; 2 Anderson, Uniform Commercial
(Hawkland, Sales and Bulk Sales Under Code [2d ed.], § 2-508:7; Hogan, The Highways
the Uniform Commercial Code, pp. and Some of the Byways in the Sales and Bulk
120-122), is that the words “with or Sales Articles of the Uniform Commercial Code, 48
without money allowance” apply only to Cornell L.Q. 1, 12-13; Note, Uniform Commercial
sellers who believe their goods will be ac- Code, § 2-508: Seller's Right to Cure Non-
ceptable with such an allowance and not to Conforming Goods, 6 Rutgers-Camden L.J. 387,
sellers who believe their goods will be ac- 399; Note, Commercial Law-The Effect of the
ceptable without such an allowance. But, Seller's Right to Cure on the Buyer's Remedy of
since the words are part of a phrase which Rescission, 28 Ark.L.Rev. 297, 302-303).
speaks of an otherwise unqualified belief
that the goods will be acceptable, unless [5][6] *586 White and Summers, for instance, put it
one strains for an opposite interpretation, well, and bluntly. Stressing that the code intended
we find insufficient reason to doubt that it cure to be “a remedy which should be carefully cul-
intends to include both those who find a tivated and developed by the courts” because it
need to offer an allowance and those who “offers the possibility of conforming the law to
do not. reasonable expectations and of thwarting the chisel-
er who seeks to escape from a bad bargain” (op.
FN9. The only New York case to deal with cit., at pp. 322-324), the authors conclude, as do
this section involved a seller who know- we, that a seller should have recourse to the relief
ingly tendered a “newer and improved ver- afforded by subdivision (2) of section 2-508 of the
sion of the model that was actually Uniform Commercial Code as long as it can estab-
ordered” on the contract delivery date. The lish that it had reasonable grounds, tested object-
court held he had reasonable grounds to ively, for its belief that the goods would be accep-
believe the buyer would accept the newer ted (ibid., at p 321). It goes without saying that the
model ( Bartus v. Riccardi, 55 Misc.2d 3, test of reasonableness, in this context, must encom-
284 N.Y.S.2d 222 [Utica City Ct., Hymes, pass the concepts of “good faith” and “commercial
J.] ). standards of fair dealing” which permeate the code
(Uniform Commercial Code, § 1-201, subd. [19];
***465 **939 That the principle for which these FN10
§§ 1-203, 2-103, subd. [1], par. [b] ).
cases stand goes far beyond their particular facts
cannot be gainsaid. These holdings demonstrate FN10. Except indirectly, on this appeal we
that, in dealing with the application of subdivision do not deal with the equally important pro-
(2) of section 2-508, courts have been concerned tections the code affords buyers. It is as to
buyers as well as sellers that the code, to Chaddock, 135 N.Y. 116, 123, 31 N.E. 997; 10 Car-
the extent that it displaces traditional prin- mody-Wait 2d, N.Y.Prac., § 70:419, p. 690).
ciples of law and equity (§ 1-103), seeks to
discourage unfair or hypertechnical busi- For all these reasons, the order of the Appellate Di-
ness conduct bespeaking a dog-eat-dog vision should be affirmed, with costs.
rather than a live-and-let-live approach to
COOKE, C.J., and JASEN, GABRIELLI, JONES,
the marketplace (e.g., §§ 2-314, 2-315,
WACHTLER and MEYER, JJ., concur.
2-513, 2-601, 2-608). Overall, the aim is to
Order affirmed.
encourage parties to amicably resolve their
own problems ( Ramirez v. Autosport, 88 N.Y.,1982.
N.J. 277, 285, 440 A.2d 1345; compare T.W. Oil, Inc. v. Consolidated Edison Co. of New
Restatement, Contracts 2d, Introductory York, Inc.
Note to chapter 10, p 194 [“the wisest 57 N.Y.2d 574, 443 N.E.2d 932, 457 N.Y.S.2d 458,
course is ordinarily for the parties to at- 36 A.L.R.4th 533, 35 UCC Rep.Serv. 12
tempt to resolve their differences by nego-
tiations, including clarification of expecta- END OF DOCUMENT
tions [and] cure of past defaults”] ).