THE LEGAL ENVIRONMENT TODAY, 8E ROGER LEROY MILLER / FRANK B. CROSS © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

CHAPTER 12 SALES, LEASES, AND PRODUCT LIABILITY © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

LEARNING OBJECTIVES 1.How do Article 2 and Article 2A of the UCC differ? What types of transactions does each article cover? 2.Under the UCC, if an offeree includes additional or different terms in an acceptance, will a contract result? If so, what happens to these terms? © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

LEARNING OBJECTIVES (CONT’D) 3.What remedies are available to a seller or lessor when the buyer or lessee breaches the contract? What remedies are available to a buyer or lessee if the seller or lessor breaches the contract? 4.What implied warranties arise under the UCC? © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

LEARNING OBJECTIVES (CONT’D) 5.What are the elements of a cause of action in strict product liability? © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

THE SCOPE OF ARTICLES 2 AND 2A Sales and lease transactions are governed by Articles 2 and 2A of the UCC. Article 2 deals with sales contracts Article 2A deals with lease contracts The UCC allows parties to form contracts more easily than the common law. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use. LO-1

EXHIBIT 12.1 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

THE SCOPE OF ARTICLES 2 AND 2A Article 2—The Sale of Goods What are goods? The UCC does not deal with real property. Goods on property would qualify, however. Goods are tangible and movable. When the contract involves goods and services, the predominant-factor test is determines which law prevails. Some rules vary depending on if one party is a merchant. A sale is “the passing of title from the seller to the buyer for a price.” © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

THE SCOPE OF ARTICLES 2 AND 2A Article 2A—Leases Lease agreement : an agreement where the lessor transfers the right to the possession and use of property to the lessee in exchange for rental payments. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

FORMATION OF SALES AND LEASE CONTRACTS Offer At common law, once a valid offer is accepted, a binding contract is formed. The UCC is more flexible and allows for open pricing, payment, and delivery terms. If parties have not agreed on pricing, court can determine “reasonable price at the time of delivery.” Unless otherwise agreed, buyer takes delivery at the seller’s place of business. Courts will generally not supply a quantity if one was not agreed upon. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

FORMATION OF SALES AND LEASE CONTRACTS Merchant’s Firm Offer An offer made by a merchant in writing and signed by the offeror is irrevocable for reasonable period of time (no more than 3 months). No consideration is necessary. Acceptance Either by prompt shipment of conforming or nonconforming goods Non-conforming goods: is both an acceptance and a breach unless the goods are sent as an accommodation to the buyer with prompt notice © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use. LO-2

FORMATION OF SALES AND LEASE CONTRACTS Additional Terms: UCC does not follow the mirror image rule If one party or neither party is a merchant: the contract is formed according to the terms of the original. If both parties are merchants: the contract incorporates the new terms unless the original offer limits terms, it is a material change, or the offeror objects within a reasonable time. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

FORMATION OF SALES AND LEASE CONTRACTS Consideration UCC adopts common law rule requiring consideration Modifications do not need consideration but must be made in good faith. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

FORMATION OF SALES AND LEASE CONTRACTS The Statute of Frauds Sale of goods over $500 must be in writing and signed by the party against whom enforcement is sought. If between merchants: Parties can agree on terms orally and send a writing within a reasonable period of time Exceptions Specially manufactured goods Admission by the breaching party Partial performance © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

EXHIBIT 12.2 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

PERFORMANCE Obligations of the Seller or Lessor Tender of delivery : occurs when seller delivers conforming goods to buyer Requires reasonable notice Reasonable hour and manner All goods in one installment (unless agreed upon by parties) If the contract does not specify, delivery occurs at the seller’s place of business (or the location of the goods). © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

PERFORMANCE Perfect tender rule : If goods, or tender of delivery, fail to conform to the contract, the Buyer has the right to: Accept the goods Reject the entire shipment Accept part and reject part Cure : seller can replace defective goods within the time of contract performance © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

PERFORMANCE Obligations of the Buyer or Lessee Payment is expected when the goods are received, unless other arrangements are made. The buyer has the right to inspect goods. Acceptance is demonstrated by: Words or conduct If the buyer doesn’t reject within a reasonable amount of time If the buyer performs an act which indicates he thinks he is the owner © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

PERFORMANCE Anticipatory Repudiation Constitutes breach of contract; the non- breaching party may suspend performance and pursue a remedy The party can wait a reasonable time to see if the repudiating party will perform. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

REMEDIES FOR BREACH Remedies of the Seller or Lessor If the buyer breaches the contract, the seller can: Choose to cancel the contract Withhold delivery of goods Resell the goods and hold buyer liable for the difference Recover damages (market price at the time and place of tender + incidentals) © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use. LO-3

REMEDIES FOR BREACH Remedies of the Buyer or Lessee If the seller breaches, the buyer can: Cancel the contract Obtain goods on insolvency Ask the courts for specific performance if the goods are unique Cover: buy substitute goods and recover the difference in price plus incidental and consequential damages Replevy: recover goods from the party withholding them Reject nonconforming goods Accept nonconforming goods and recover damages © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

WARRANTIES A warranty is an assurance by the seller concerning the goods. If seller breaches a warranty, buyer can recover damages or rescind the contract. Warranties arise in most sales. Normally warranties can be disclaimed or modified in the contract. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

WARRANTIES Title Warranties Good title: the property belongs to the seller No liens: no charges or claims against the property No infringements: free of copyright, trademark or copyright claims © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

WARRANTIES Express Warranties Express warranty : the seller makes representations about the quality of the goods Affirmation of fact or promise Description Sample or Model The buyer must rely on the warranty when entering into the contract. Opinions are not warranties. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

WARRANTIES Implied Warranties Implied warranty : one that the law derives by inference from the nature of the transaction Implied warranty of merchantability Goods must be “reasonably fit for ordinary purposes for which such goods are sold” Implied warranty of fitness for a particular purpose Arises by any seller who: Knows the particular purpose for which the goods are being bought Knows the buyer is relying on seller’s skill and judgment to select suitable goods © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use. LO-4

WARRANTIES Implied warranty from prior dealings or trade custom Arises when both parties to a contract have knowledge of a well-recognized trade custom Courts infer that both meant this custom to apply to their transaction © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

WARRANTIES Warranty Disclaimers Express warranties can be disclaimed If a clear written disclaimer in contract with specific, unambiguous language and called to the buyer’s attention Implied warranties can be disclaimed The warranties of fitness and merchantability can be disclaimed with the words “As Is,” “With All Faults” Disclaimer of the implied warranty of merchantability: must use the word “merchantability” Disclaimer of the implied warranty of fitness: must be in writing and conspicuous © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

PRODUCT LIABILITY Those who make, sell, or lease goods can be held liable for physical harm or property damage that those goods cause. Negligence: manufacturers must exercise due care to make a product safe Misrepresentation: when a buyer is knowingly misled about a product © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

PRODUCT LIABILITY Strict Product Liability Product must be in defective condition when sold Defendant is in the business of selling the product Product must be unreasonably dangerous Plaintiff must be physically harmed Defective condition must be proximate cause of injury Goods are in substantially same condition as when sold © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use. LO-5

PRODUCT LIABILITY Defenses to Product Liability Assumption of risk Product misuse Comparative negligence Commonly known dangers © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

APPENDIX TO CHAPTER 12 AN EXAMPLE OF A CONTRACT FOR THE INTERNATIONAL SALE OF COFFEE © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

CONTRACT EXAMPLE © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

CONTRACT (CONT’D) © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

CONTRACT (CONT’D) © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.

CONTRACT (CONT’D) © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use.