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Hey, did you notice that? Pre-suit notice under U.C.C. § 2-607(3)

Before a buyer of “goods”[1] can bring a breach of warranty claim, Section 2-607(3) of the Uniform Commercial Code requires that it, “within a reasonable time after he discovers or should have discovered any breach[,] notify the seller of breach or be barred from any remedy.”  In other words, where a party has accepted goods and wants to assert a breach of warranty claim, its claim will be barred unless it has notified the seller of the goods of any alleged breach of warranty within a reasonable time of discovering the breach.

Even if the plaintiff in your case had been a squeaky wheel leading up to the suit being filed, do not assume that your client cannot benefit from the protections of this requirement.  Though courts are split on the issue, many apply a “strict standard,” requiring more than just notice of the buyer’s dissatisfaction with the goods.

For example, in Peavey Electronics Corp. v. Baan U.S.A., Inc., 10 So. 3d 945 (Miss. Ct App. 2009), the Mississippi Court of Appeals held that even where a buyer had expressed dissatisfaction with a deal over the course of several years, it had not sufficiently complied with the notice requirement.  In Peavey, the plaintiff-company purchased a computer system from defendant Baan that was intended to coordinate various business operations and was to be integrated with Peavey’s existing systems.  Id. at 949.  Baan worked for over a year on installing and coordinating the systems until July 1999 when the sales and distribution components of the system were set to launch.  But by all accounts, the launch was a complete failure, requiring Peavey to manually perform many previously automated tasks and resulting in shipping delays.  Id. at 950.

Peavey claimed that Baan knew of the problems it was encountering during the launch and of its compatibility issues between Baan and Peavey’s systems.  In fact, after the issues with the launch, Peavey never implemented Phase II of the contract with Baan.  According to Peavey, it lost tens of millions of dollars over several years as the result of the defective software.[2] Id. at 958.  This led Peavey to file suit against Baan, asserting tort and breach-of-contract claims.

Baan argued summary judgment was appropriate because Peavey failed to provide timely notice of the breach as required by Section 607(3)(a).  Id. at 957.  In response, Peavey cited the comments to the rule and argued that it satisfied the requirement by providing notice that “the transaction [was] still troublesome and must be watched.”  But Baan also cited the comments, arguing that the notice must be sufficient to inform “the seller that the transaction is claimed to involve a breach. . . . “  Id.  In reconciling this tension, the court acknowledged that Peavey and Baan were both “merchants” and then held that strict compliance with the notice requirement was required in a claim between merchants.

In other words, Peavey must have given reasonable and timely notice to Baan that it considered Baan to have breached the agreement and must have provided Baan with an opportunity to have mitigated or cured the breach.  Id.  at 958.  Despite the back and forth between Baan and Peavey, including discussions, correspondence, and negotiations for a reduced price or for concessions, the court found that Peavey failed to provide sufficient notice that it considered Baan to be in breach of their agreement.

Mississippi is not an outlier.  Applying Tennessee law, the Sixth Circuit has recently held that general complaints of defect are not enough; instead, “plaintiffs must [demonstrate] that they provided notice of a breach (i.e., that the defendant will be asked to meet a claim for damages) in commercial cases.”  Bunn v. Navistar, Inc., 797 F. App’x 247, 254 (6th Cir. 2020).  In adopting the strict view for commercial cases, the Sixth Circuit explained that the statutory language contained in Section 607(3)(a) expressly required the buyer to “notify the seller of breach or be barred from any remedy.”  Id. (emphasis in opinion).

In Bunn, the plaintiff purchased two trucks from manufacturer Navistar, which Navistar warranted were free from defects.  Id. at 249.  Soon after, Bunn began experiencing significant issues with the trucks with both needing complete engine replacements within four months of purchase.  Id.  According to Bunn, it “repeatedly notified [Navistar] of the defects related to the trucks, but [Navistar] failed to make repairs sufficient to correct the defects.”  Id. (internal quotation marks omitted).  Bunn then filed suit for breach of warranty, and Navistar sought dismissal claiming, among other things, that Bunn did not give proper notice of breach under Section 607(3)(a).  Id. at 251-52.

In its analysis, the Sixth Circuit considered whether it was sufficient that the plaintiff notified the defendant there were various defects with the trucks or whether the plaintiff had to notify the defendant that the plaintiff considered those defects to be a breach of the agreement.  Id. at 252.  The court acknowledged prior caselaw holding that a personal-injury plaintiff could satisfy the notice requirement by filing suit, but held that that caselaw was inapplicable in commercial cases.  The court reasoned that, unlike in personal injury cases, the plain language of the statute requires more than a complaint from a buyer in commercial cases.

The court explained that the basis for the distinction between commercial cases and personal injury cases is that unlike in commercial cases, in personal injury cases the damages from the alleged breach has already been done and the seller can no longer remedy the situation even if pre-suit notice were given.  Id. at 253.  Instead, in commercial cases, the notice requirement “requires a buyer to put a seller on notice that ‘it was considered to be in breach’ and not simply that the buyer ‘was experiencing difficulties with the goods.’”  Id. at 254 (internal citation omitted).

Though neither Bunn nor Peavey would be controlling in non-commercial cases as Bunn was limited to commercial cases and Peavey’s holding was premised on the plaintiff being a merchant,[3] they illustrate the power of raising pre-suit notice as a defense in the appropriate sale of goods context in the appropriate jurisdiction.  Defense lawyers should take care to ascertain the appropriate standard in their jurisdiction and evaluate the interaction between plaintiff and defendant leading up to the lawsuit being filed.

[1] Under the UCC, “‘Goods’ means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. ‘Goods’ also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Section 2-107).”  See Section 2-105.

[2] Whether or not the software was a “good” for purposes of the UCC was not at issue in Peavey, but that conclusion is not a given.  While generally non-custom software will be considered a good, if the software must be developed and specialized for a specific customer’s requirement, courts may apply a predominant-purpose test to the contract to determine whether the UCC should apply.  See, Inc. v. Oracle Corp., 10 CV 03510, 2010 WL 5419075, at *3 (N.D. Ill. Dec. 23, 2010).

[3]  Some courts have found that in personal injury cases, a consumer can satisfy the notice requirement merely by filing a complaint.  See Connick v. Suzuki Motor Co., Ltd., 675 N.E.2d 584, 590 (Ill. 1996) (“Only a consumer plaintiff who suffers a personal injury may satisfy the section 2–607 notice requirement by filing a complaint stating a breach of warranty action against the seller.”).