New York Law Review

Tag: UCC 2-508

  • Joc Oil USA, Inc. v. Consolidated Edison Co. of New York, Inc., 414 N.E.2d 577 (N.Y. 1980): Seller’s Right to Cure Non-Conforming Goods

    Joc Oil USA, Inc. v. Consolidated Edison Co. of New York, Inc., 414 N.E.2d 577 (N.Y. 1980)

    Under UCC § 2-508(2), a seller who tenders non-conforming goods that the seller reasonably believed would be acceptable has the right to cure the defect by substituting a conforming tender within a reasonable time, even after the original time for performance has expired, provided the seller acted in good faith and gives seasonable notice.

    Summary

    Joc Oil sold fuel oil to Con Ed. Con Ed rejected the shipment because the sulfur content was higher than specified in the contract. Joc Oil offered a substitute shipment arriving shortly thereafter, but Con Ed rejected this as well, seeking to take advantage of a drop in market prices. Joc Oil then sued for breach of contract. The court held that Joc Oil had the right to cure the defect under UCC § 2-508(2) because it reasonably believed the original shipment would be acceptable and offered a conforming substitute within a reasonable time. This case clarifies the seller’s right to cure non-conforming goods under the UCC, emphasizing good faith and reasonable commercial standards.

    Facts

    Joc Oil (plaintiff) contracted to sell fuel oil with a .5% sulfur content to Consolidated Edison (Con Ed, defendant). The oil was en route to the U.S. when Joc Oil received a refinery certificate indicating a .52% sulfur content. Con Ed was authorized to burn oil with up to 1% sulfur content. Upon arrival, the oil tested at .92% sulfur content, and Con Ed rejected the shipment. Joc Oil offered a substitute shipment of conforming oil, but Con Ed rejected it the next day.

    Procedural History

    Joc Oil sued Con Ed for breach of contract. The trial court found for Joc Oil, holding that it had the right to cure under UCC § 2-508(2) and that Con Ed improperly rejected the substitute shipment. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether, under UCC § 2-508(2), a seller who, in good faith and without knowledge of a defect, tenders non-conforming goods that a seller reasonably believed would be acceptable, may cure the defect by substituting a conforming tender within a reasonable time, even after the original time for performance has expired?

    Holding

    Yes, because UCC § 2-508(2) allows a seller to cure a non-conforming tender within a reasonable time after the original time for performance if the seller had reasonable grounds to believe the original tender would be acceptable, provided the seller acts in good faith and gives seasonable notice of their intention to cure.

    Court’s Reasoning

    The court reasoned that UCC § 2-508(2) was designed to limit the rigid perfect tender rule and promote good faith and fair dealing in commercial transactions. The court emphasized the importance of a liberal construction of the UCC’s remedial provisions to avoid “sharp dealing.” To invoke § 2-508(2), the buyer must reject a non-conforming tender, the seller must have had reasonable grounds to believe the tender would be acceptable, and the seller must seasonably notify the buyer of their intention to substitute a conforming tender within a reasonable time.

    The court found that all three conditions were met: the oil was non-conforming, Joc Oil reasonably believed the oil would be acceptable because Con Ed was authorized to burn oil with up to 1% sulfur content, and Joc Oil offered the substitute shipment within a reasonable time. The court rejected Con Ed’s argument that § 2-508(2) only applies when the seller knowingly makes a non-conforming tender. The court stated that “courts have been concerned with the reasonableness of the seller’s belief that the goods would be acceptable rather than with the seller’s pretender knowledge or lack of knowledge of the defect.”

    The court emphasized the need for a “carefully cultivated and developed” cure remedy under the UCC, highlighting that it “offers the possibility of conforming the law to reasonable expectations and of thwarting the chiseler who seeks to escape from a bad bargain.” The court found that the test of reasonableness must encompass the concepts of good faith and commercial standards of fair dealing. As such, the court affirmed the lower court’s decision.

    Regarding damages, the court affirmed the trial court’s decision because Con Ed did not object to the proposed method of calculation at trial.