Admit it, you’ve purchased ingredients you found out later were defective, or spoiled.

Well, buyers like Illinois wineries, Illinois dispensaries, Illinois craft brewers, and Illinois craft distillers have a new weapon in revoking acceptance of goods such as grapes, fruit, cannabis, distilling or brewing ingredients that turn out to be spoiled or damaged or defective in some way that decreases the value of the purchased commodity and which was unknown at the time of acceptance. And Illinois liquor lawyers have a new argument in asserting that revocation of the  acceptance doesn’t require offering the seller a chance to cure the defect.

It’s all thanks to the recent opinion from the Illinois Supreme Court on an issue of first impression, whether an unknown defect requires the buyer of goods it has accepted to offer the seller a chance to cure the defect before revoking the acceptance of the goods. *Legal Spoiler* It doesn’t (in Illinois).

A little law:

Under the Uniform Commercial Code (UCC), the buyer of goods can accept, reject, or revoke acceptance of the goods.

For “rejection” – under Section 2-601 – the buyer can reject “if the goods or the tender of delivery fail in any respect to confirm to the contract . . .”  But once the buyer has accepted, the buyer can only revoke in certain situations.

For “revocation” – under Section 2-608 – the buyer, following acceptance, can revoke acceptance only if the goods’ non-conformity “substantially impairs its value to him if he has accepted it

(a) on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or

(b) without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or the seller’s assurances.” 

The Illinois Supreme Court’s decision in, Accettura v. Vacationland, Inc., (link to opinion), shed some light on what Section 2-608(1)(b) requires.

This case involved an RV purchased from a dealership that leaked. The buyers didn’t know it leaked when they purchased it and drove it off the lot. The first time it leaked, they took it back and asked that it get fixed. The dealership said it fixed it and the buyers took it back and then on a July camping trip and during that trip a rainstorm struck. The RV leaked heavily in the dining area, damaging the walls and causing electrical failure.

The buyers towed the RV back to the dealership for repair and the dealership said it was unable to perform the repair and would have to send it to the manufacturer. The dealerships employees could not estimate how long it would take the manufacturer to repair the RV. The buyers called manufacturer in the manufacturer would not give them a time estimate how long it would take to repair the RV. A few weeks later before the manufacturer came to pick up the RV for repair the buyers called the dealership and verbally revoked acceptance of the RV. The manufacturer picked up the RV and two months later called the plaintiff’s to inform them that the RV was repaired and that they could pick it up. Plaintiff’s attorney sent the Dealer ship a letter the following week confirming the earlier revocation of acceptance. The dealership would not return the purchase price, so the buyers sued under UCC article 2-608(1)(b) arguing they had properly revoked acceptance.

Dealership alleged that the buyers needed to allow it a chance to cure under Article 2-608(1)(b) and the district court and appellate court Affirmed holding the buyers did not give the defendant a reasonable time to cure. The buyers did not give up, and appealed to the Illinois Supreme Court. And a good thing they did. The Supreme Court noted that this was an issue a first impression in Illinois, and that the word cure does not appear in 2-608 1(b).

The Illinois Supreme Court held that UCC 2-608(1)(b) does not require offering the seller a chance to cure.

Here’s an example cited by the Illinois Supreme Court from the buyers’ claims in this case, that should help in understanding how this works:

Plaintiffs argue that the statutory language is plain: subsection (1)(a) contemplates and expressly mentions a cure; subsection (1)(b) does not. Under subsection (1)(a), they argue, the cure is part of the contract while under subsection (1)(b) it is not. They illustrate their argument with an analogy: subsection (1)(a) would apply to a buyer who purchased an RV that she knew leaked and included in the sales contract an agreement that the seller would seasonably cure the leak. Subsection (1)(b), they assert, contemplates a buyer who purchases an RV that she reasonably believes does not leak but, she later finds out, does leak. Under plaintiffs’ theory, the buyer who knows of the leak and has an agreement with the seller to cure must give the seller a reasonable time to do so, but the buyer who is not aware of the leak can just return the RV to the seller and revoke acceptance, as long as the leak substantially impairs the RV’s value. Plaintiffs argue that a majority of other jurisdictions have reached this conclusion. …

Both situations contemplate a nonconformity that substantially impairs the unit’s value to the buyer. Where they diverge is in the buyer’s expectation. The first contemplates a buyer who accepts a nonconforming unit and expects the seller to cure the nonconformity. When she does not get that cure seasonably, she can revoke her acceptance. The second contemplates a buyer who accepts what she believes to be a conforming unit. When she does not get that conforming unit, she can revoke her acceptance. Because we find this language plain and because subsection (1)(b) does not require that a buyer give the seller an opportunity to cure, we need not consider the requirements of other statutes that defendant argues are analogous.

That’s really all you need to understand about the problem. Apart from not signing contracts for purchases that would waive some of these commercially reasonable rights.

The Illinois Supreme Court went on to offer Illinois alcoholic beverage attorneys and Illinois cannabis attorneys an additional boone by surveying other states’ determinations on the topic and finding that the Illinois position was in the majority view.

Because we find the language plain, we need not look to our sister states’ interpretations of this provision. Even if we review those decisions, however, our research indicates that, although a split of authority exists, a majority of other jurisdictions have interpreted their state’s adoption of the statutory provision consistent with our decision today. See, e.g., Head v. Phillips Camper Sales & Rental, Inc., 593 N.W.2d 595, 600 (Mich. Ct. App. 1999) (“A majority of courts considering this question have concluded that a seller has no right to cure after a buyer revokes his acceptance under § 2-608(1)(b) of the UCC.”); Bowen v. Foust, 925 S.W.2d 211, 215 n.6 (Mo. Ct. App. 1996) (“[T]he rule that a seller has no right to cure when a buyer justifiably revokes his acceptance remains the majority view.” (citing Unif. Commercial Code § 4 U.L.A. 63 (1995))); Gappelberg v. Landrum, 666 S.W.2d 88, 90 (Tex. 1984) (“The only reference to cure in [section 2-608] is in situations when the buyer knew of the defects at the time of acceptance of the goods.”); Johannsen v. Minnesota Valley Ford Tractor Co., 304 N.W.2d 654, 657 (Minn. 1981) (“[T]he seller has no right to cure defects which substantially impair the good’s value.”); Werner v. Montana, 378 A.2d 1130, 1136-37 (N.H. 1977) (“In the context of revocation, [section 2-608(1)(a)] speaks to the seller’s opportunity to seasonably cure a defect,” as distinguished from subsection (1)(b).).

Collecting these decisions is an important statement that Illinois is not alone in making this determination about 2-608(1)(b). Additionally, they bolster the closing points that the Illinois Supreme Court makes about the differences between rejection and acceptance and what they mean for the right to cure:

Defendant’s argument ignores the distinction between rejection and revocation of acceptance. A buyer may reject goods if they “fail in any respect to conform to the contract.” 810 ILCS 5/2-601 (West 2014). Once the buyer accepts the goods, however, he may only revoke that acceptance if the “non-conformity substantially impairs its value to him.” Id. § 2-608(1). When a buyer rejects nonconforming goods, the seller may have a right to cure. Id. § 2-508. In the case of a revocation, however, as aptly stated by the Head court, “[t]he seller, in turn, loses the right to cure, but gains the benefit of the higher substantial impairment standard for revocation.” 593 N.W.2d at 601. We further agree that the “rights and duties” referred to in section 2-608(3) (810 ILCS 5/2-608(3) (West 2014)) are found in sections 2-602, 2-603, and 2-604 (id. §§ 2-602, 2-603, 2-604), not section 2-508 (id. § 2-508). See Head, 593 N.W.2d at 600.

Takeaway: avoid contracts that try to limit your remedies or the time you have to revoke if you’re accepting delivery of a good that you won’t have full knowledge of for some time.

The post Illinois Supreme Court case provides insight about whether the UCC requires a chance to cure if you want to revoke acceptance of goods – could be useful if you bought grapes, hops, grains that are defective. appeared first on Libation Law Blog.