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© 2013 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.

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Presentation on theme: "© 2013 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."— Presentation transcript:

1 © 2013 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 11: Sales, Leases, and Product Liability © 2013 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.

2 The Scope of Article 2— Sale of Goods  Governs contracts for sale of “goods.” UCC 2 preempts common law in sale of goods and modifies common law of contracts in some areas. But where UCC 2 is silent, common law governs.  2

3 © 2013 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 Article 2  Only applies to goods. The common law of contracts governs real estate, services or intangible property. Mixed Goods-Services: The Predominant-Factor Test. 3

4 © 2013 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 11-1 Law Governing Contracts 4

5 © 2013 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 Article 2  What is a Sale? Article 2 applies to the “sale of goods.” A “sale” is the passing of title from seller to a buyer for a price (payable in cash, goods, services). 5

6 © 2013 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 Article 2  Article 2 applies to the “sale of goods.”  What are Goods? Must be tangible and movable. Tangible: has physical existence. Movable: carried from place to place. 6

7 © 2013 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 Article 2  What are Goods? Goods Associated with Real Estate can fall within Art. 2 if: (1) Contract for sale of minerals or a structure is a good IF severance is made by seller. If severance by buyer, sale is governed by common law. (2) Sale of growing crops.  7

8 © 2013 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 Article 2  What are Goods? Goods Associated with Real Estate can fall within Art. 2 if: (3) Other “things” attached to real property, capable of being severed without harm to land. 8

9 © 2013 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 Article 2  Mixed Contracts: Goods and Services Combined. What law governs? “Predominant Factor” Test – if goods, then UCC governs, if services then common law governs entire contract. 9

10 © 2013 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 Article 2  Who is a Merchant? UCC Art. 2 imposes special standards upon a “merchant” who has special business expertise and is not a casual buyer/seller.  10

11 © 2013 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 Article 2  Who is a Merchant? UCC Art. 2 defines merchant as someone who: Deals in goods of the kind in the sale. Holds herself out as having special expertise, knowledge, or skill. Person who employs a merchant. 11

12 © 2013 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. Scope of Article 2A—Leases  Definition of a Lease Agreement: contract for lease of personal goods between a lessor and a lessee. Lessor transfers right to possess and use goods under lease. Lessee acquires right to possess and use goods.  12

13 © 2013 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. Scope of Article 2A—Leases  Consumer Leases: lessor, lessee who leases for personal, family, or household use, and total payments less than $25,000.  Finance Leases (involves a 3rd party- supplier). 13

14 © 2013 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.  OFFER: At common law once a valid offer is unequivocally accepted, a binding contract is formed. UCC is more flexible, and allows for open pricing, payment, and delivery terms. Formation of Sales and Lease Contracts 14

15 © 2013 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.  Offer. UCC 2-204: even if terms are undetermined, a contract may still exist. Open Terms: “Indefiniteness” is OK as long as the parties intended to make a contract and there is a reasonable basis for a court to grant a remedy. Formation of Sales and Lease Contracts 15

16 © 2013 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.  Offer. Open Terms. Open Price Term: If parties have not agreed on pricing, court can determine “reasonable price at the time of delivery.” Formation of Sales and Lease Contracts 16

17 © 2013 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.  Offer. Open Terms. Open Delivery Term: Unless otherwise agreed, buyer takes delivery at the Seller’s place of business. UCC2-308(a). Seller has duty to make arrangements in good faith.  Formation of Sales and Lease Contracts 17

18 © 2013 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.  Offer. Open Terms. Open Quantity: generally courts will not impose a quantity and there is no remedy, unless the contract is either a requirements or output contract.  Formation of Sales and Lease Contracts 18

19 © 2013 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.  Offer. Open Terms. Open Quantity (exceptions). – Requirements Contract: buyer agrees to purchase what the buyer needs or requires. – Output Contract: buyer agrees to buy all of seller’s production or output. Formation of Sales and Lease Contracts 19

20 © 2013 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.  Offer. Merchant’s Firm Offer. Offer made by merchant in a signed writing is irrevocable for reasonable period of time. No consideration necessary. The Offer Must be in Writing and Signed by the Offeror. Formation of Sales and Lease Contracts 20

21 © 2013 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.  Acceptance. Either by prompt shipment of conforming or nonconforming goods. Non-conforming Goods: is both an acceptance and a breach unless goods sent as an “accommodation” to buyer, with prompt notice by buyer. Formation of Sales and Lease Contracts 21

22 © 2013 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.  Acceptance. Communication of Acceptance. Additional Terms. If One Party is a Merchant: contract is formed according to original terms of the offer.  Formation of Sales and Lease Contracts 22

23 © 2013 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.  Acceptance. Additional Terms (cont’d). When Both Parties are Merchants, the contract incorporates new terms unless: – (1) original offer expressly limits terms, or – (2) material change, or – (3) offeror objects within reasonable time. Formation of Sales and Lease Contracts 23

24 © 2013 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.  Consideration. UCC adopts common law rule requiring consideration. However, modifications do not need consideration. Modifications Must be Made in Good Faith. Formation of Sales and Lease Contracts 24

25 © 2013 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 Statute of Frauds. Sale of goods over $500 must have a signed writing to be enforceable. Sufficiency of the Writing: signed by party against whom enforcement is sought. Normally not enforceable beyond quantity of goods shown in the writing.  Formation of Sales and Lease Contracts 25

26 © 2013 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 Statute of Frauds. Special Rules for Contracts Between Merchants. After oral agreement, one of the merchants sends a signed, written memorandum containing essential terms to the other merchant within a reasonable time. Formation of Sales and Lease Contracts 26

27 © 2013 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 Statute of Frauds. Specially manufactured goods. Partial Performance: oral contract is enforceable IF payment has been made or goods have been accepted. Admissions by breaching party. Formation of Sales and Lease Contracts 27

28 © 2013 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 of Sales and Lease Contracts  General Principles: Seller must transfer and deliver conforming goods. Buyer must accept and pay for conforming goods. In the absence of an agreement between seller and buyer, UCC Article 2 controls as set out below.  28

29 © 2013 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 of Sales and Lease Contracts  UCC’s Good Faith Provision. Good faith means honesty in fact. For a merchant, it means honesty in fact and observance of reasonable commercial standards of fair dealing in the trade. Merchants are held to a higher standard of care than non-merchants. 29

30 © 2013 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 of Sales and Lease Contracts  Obligations of the Seller or Lessor. Tender of Delivery: occurs when seller delivers conforming goods to buyer. Requires reasonable notice. Reasonable hour and manner. Generally, all goods in one installment (unless agreed upon by parties). 30

31 © 2013 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 of Sales and Lease Contracts  Obligations of the Seller or Lessor. Place of Delivery. Parties can agree goods tendered at a particular destination for buyer to take possession. If the contract does not specify, then it is the seller’s place of business (or the location of the goods.) 31

32 © 2013 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 of Sales and Lease Contracts  Obligations of the Seller or Lessor. Perfect Tender Rule. If goods, or tender of delivery, fail in any respect to conform to the contract, the Buyer has the right to: – Accept the goods; – Reject the entire shipment; or – Accept part and reject part. 32

33 © 2013 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 of Sales and Lease Contracts  Obligations of the Seller or Lessor. Perfect Tender Rule (Exceptions). Agreement of the Parties: agree that some defective goods will be acceptable. Cure: seller has right to repair or replace defective goods within the time of contract performance. Substantially restricts right of rejection; buyers must act in good faith and give specific reasons for refusing acceptance.  33

34 © 2013 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 of Sales and Lease Contracts  Obligations of the Seller or Lessor. Perfect Tender Rule (Exceptions). Substitution of Carriers. If a carrier becomes impracticable or unavailable through no fault of either party, a commercially reasonable substitute is acceptable.  34

35 © 2013 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 of Sales and Lease Contracts  Obligations of the Seller or Lessor. Perfect Tender Rule (Exceptions). Commercial Impracticability. – If unforeseeable event occurs, the perfect tender rule no longer applies. – Seller must notify the buyer as soon as practicable the shipment is delayed or undeliverable.  35

36 © 2013 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 of Sales and Lease Contracts  Obligations of the Seller or Lessor. Perfect Tender Rule (Exceptions). Destruction of Identified Goods. – If no fault of either party and it occurs, – Before risk passes to Buyer then, – Both Seller and Buyer are excused from performance. 36

37 © 2013 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 of Sales and Lease Contracts  Obligations of the Seller or Lessor. Perfect Tender Rule (Exceptions). Assurance and Cooperation. – One party has “reasonable grounds” to believe other party will not perform, she can ask for written assurance, or ‘suspend’ performance or delivery. – Failure to respond may constitute a repudiation of the contract. 37

38 © 2013 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 of Sales and Lease Contracts  Obligations of the Buyer or Lessee. Payment: make payment at the time and place the Buyer receives the goods. Credit has to be prearranged. Pay with cash, credit card, check. 38

39 © 2013 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 of Sales and Lease Contracts  Obligations of the Buyer or Lessee. Right of Inspection. Buyer has absolute right to inspection before payment, unless C.O.D.  39

40 © 2013 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 of Sales and Lease Contracts  Obligations of the Buyer or Lessee. Acceptance. Buyer can accept goods: By words or conduct. If Buyer had reasonable amount of time and failed to reject. Buyer performs an act which indicates he thinks he is the owner.  40

41 © 2013 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 of Sales and Lease Contracts  Obligations of the Buyer or Lessee. Partial Acceptance. If some of the goods do not conform to the contract, and seller has failed to cure, buyer can make a partial acceptance. But buyer cannot accept less a single commercial unit. 41

42 © 2013 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 of Sales and Lease Contracts  Anticipatory Repudiation. A party communicates intention to not perform. Constitutes breach of contract. Nonbreaching party may suspend performance and treat the AR as material breach and pursue a remedy; or wait a reasonable time.  42

43 © 2013 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 of Sales and Lease Contracts  Anticipatory Repudiation. A Repudiation May Be Retracted. Breaching party may ‘retract’ repudiation by any method that clearly indicates their intent. However, no retraction if the nonbreaching party has materially changed their position. 43

44 © 2013 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 of Sales and Lease Contracts  Remedies of the Seller or Lessor. When buyer breaches, seller has various UCC remedies, depending on circumstances: Who has possession of the goods? Are goods in transit? Has buyer rejected or accepted the goods? 44

45 © 2013 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 of Sales and Lease Contracts  Remedies of the Seller or Lessor. If goods in seller’s possession, he has: The Right to Cancel (Rescind) the Contract. – Seller must notify buyer. – Buyer is not discharged from remaining obligations.  45

46 © 2013 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 of Sales and Lease Contracts  Remedies of the Seller or Lessor. If goods in seller’s possession, he has: The Right to Withhold Delivery. – If material breach by buyer, seller can withhold delivery of all goods. – If non-material breach, seller can withhold delivery of this installment. 46

47 © 2013 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 of Sales and Lease Contracts  Remedies of the Seller or Lessor. If goods in seller’s possession, he has: The Right to Resell or Dispose of Goods. – Seller can resell and keep profits from sale and hold buyer liable for difference. – Seller must give buyer notice of sale, unless goods are perishable. 47

48 © 2013 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 of Sales and Lease Contracts  Remedies of the Seller or Lessor. If goods in seller’s possession, he has: The Right to Recover Purchase Price or Lease Payments Due. – Seller can bring action to recover purchase price or lease payments. – If seller must sue, he must hold goods for buyer, and sell any time before collecting the judgment. 48

49 © 2013 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 of Sales and Lease Contracts  Remedies of the Seller or Lessor. If goods in seller’s possession, he has: The Right to Recover Damages for buyer’s wrongful nonacceptance. – If buyer repudiates or wrongfully chooses to accept goods, seller can bring action to recover damages. – Damages: market price at the time & place of tender + incidentals. 49

50 © 2013 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 of Sales and Lease Contracts  Remedies of the Buyer or Lessee. When Seller or Lessor Refuses to Deliver the Goods, Buyer has the right to: Cancel (rescind) the contract. Obtain Goods on Insolvency.  50

51 © 2013 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 of Sales and Lease Contracts  Remedies of the Buyer or Lessee. When Seller or Lessor Refuses to Deliver the Goods, Buyer has the right to: Sue for Specific Performance and recover damages. Cover: in some situations. Replevy Goods.  51

52 © 2013 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 of Sales and Lease Contracts  Remedies of the Buyer or Lessee. When Seller or Lessor Refuses to Deliver the Goods, Buyer has the right to: Recover Damages. – CASE 11.2 L ES E NTERPRISES J ACQUES D EFOUR & F ILS, I NC. V. D INSICK E QUIPMENT C ORP. (2011). – CASE 11.2 L ES E NTERPRISES J ACQUES D EFOUR & F ILS, I NC. V. D INSICK E QUIPMENT C ORP. (2011). When did the Buyer fully perform? How did the Seller breach the contract? 52

53 © 2013 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 of Sales and Lease Contracts  Remedies of the Buyer or Lessee. When Seller Delivers Nonconforming Goods, Buyer has the right to: Right to Reject Goods. – Buyer must timely notify seller of rejection and reasons and follow seller’s directions. – Merchant-buyer has good faith obligation to follow reasonable instructions. 53

54 © 2013 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 of Sales and Lease Contracts  Remedies of the Buyer or Lessee. When Seller Delivers Nonconforming Goods, Buyer has the right to: Revoke Acceptance for substantial nonconformity, and: – Acceptance assumed defect would be cured, – Nonconformity was discovered after acceptance, or – Effective upon notice to seller. 54

55 © 2013 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 of Sales and Lease Contracts  Remedies of the Buyer or Lessee. When Seller Delivers Nonconforming Goods, Buyer has the right to: Accept Goods and Recover Damages. – Buyer may keep the goods and recover any loss in ordinary course of events. – Measure of damages: difference between value of accepted goods and goods as warranted. 55

56 © 2013 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 of Sales and Lease Contracts  Additional Provisions Affecting Remedies. Exclusive Remedies. Consequential Damages. Lemon Laws. 56

57 © 2013 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. Sales and Lease Warranties  A warranty is an assurance or guarantee by the seller of certain facts concerning the goods being sold or leased.  If seller breaches a warranty, buyer can recover damages, or rescind the contract. 57

58 © 2013 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. Sales and Lease Warranties  Warranties automatically arise in most commercial sales transactions.  Normally warranties can be disclaimed or modified with specific language in the contract.  58

59 © 2013 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. Sales and Lease Warranties  Title Warranties: under the UCC, three types of warranties arise in sales and lease contracts: Good Title. No Liens. No Infringements. 59

60 © 2013 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. Sales and Lease Warranties  Express Warranties: Seller can create warranty by making representations about quality, condition, or performance of good. Can be created by: Any Affirmation or Promise. Any Description. Any Sample or Model. 60

61 © 2013 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. Sales and Lease Warranties  Express Warranties. Seller does not have to use the words “guarantee” or “warranty.” Basis of the Bargain. Reasonable buyer must only believe warranty was ‘basis of the bargain.’ Buyer must rely on warranty when he enters into contract.  61

62 © 2013 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. Sales and Lease Warranties  Express Warranties. Statements of Opinion and Value. Only statements of fact create express warranties. Exception for Statements of Opinion by Experts. Puffery versus Express Warranties. 62

63 © 2013 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. Sales and Lease Warranties  Implied Warranties. Implied Warranty of Merchantability: Automatically arises from sale of goods by merchants which are “reasonably fit for ordinary purposes for which such goods are sold.” Conform to promises on label. Adequately packaged and labeled. 63

64 © 2013 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. Sales and Lease Warranties  Implied Warranties. Implied Warranty of Fitness for a Particular Purpose. Arises by any seller who: – Knows the particular purpose for which the goods are being bought; and – Knows the buyer is relying on seller’s skill and judgment to select suitable goods.  64

65 © 2013 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. Sales and Lease Warranties  Implied Warranties. Implied Warranty of Fitness for a Particular Purpose. Ordinary vs. Particular Purpose: Goods can be merchantable but unfit for a particular purpose. Knowledge and Reliance Requirements: seller must have reason to know purpose, and buyer must have relied on the recommendation. 65

66 © 2013 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. Sales and Lease Warranties  Implied 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. 66

67 © 2013 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. Sales and Lease Warranties  Warranty Disclaimers: depends on type of warranty. Express Warranties can be disclaimed: If a clear written disclaimer in contract with specific, unambiguous language and called to Buyer’s attention (BOLD CAPS UNDERLINED).  67

68 © 2013 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. Sales and Lease Warranties  Warranty Disclaimers: depends on type of warranty. Implied Warranties. Unless circumstances indicate otherwise, warranties of fitness and merchantability can be disclaimed with the words “As Is,” “With All Faults.”  68

69 © 2013 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. Sales and Lease Warranties  Warranty Disclaimers: depends on type of warranty. Implied Warranties. 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. 69

70 © 2013 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  Product Liability is not a new tort.  Liability can be based on: Negligence;  Misrepresentation;  Strict Liability;  Warranty Theory.  70

71 © 2013 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  Negligence. Based on a manufacturer’s breach of the reasonable standard of care and failing to make a product safe. Due Care Must Be Exercised in: design, selection of materials, using appropriate production process, assembling and testing, adequate warnings, inspection, and testing.  71

72 © 2013 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  Negligence. Privity of Contract Not Required. No privity of contract required between Plaintiff and Manufacturer. Liability extends to any person’s injuries caused by a negligently made (defective) product. 72

73 © 2013 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  Misrepresentation. Occurs when fraud committed against consumer or user of product. Fraud must have been made knowingly or with reckless disregard for safety. Plaintiff does not have to show product was defective. 73

74 © 2013 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. Strict Liability holds people liable for results of their acts, regardless of their intentions or exercise of reasonable care.  74

75 © 2013 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. Public Policy. Consumers should be protected from unsafe products; Manufacturers and distributors should be liable to any user of the product; Manufacturers, sellers and distributors can bear the costs of injuries.  75

76 © 2013 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. Public Policy. CASE 11.3 B RUESEWITZ V. W YETH, LLC (2011). CASE 11.3 B RUESEWITZ V. W YETH, LLC (2011). What do you think about the ethical or moral implications of this decision?  76

77 © 2013 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. Requirements for Strict Liability: 1.Product must be in defective condition when sold. 2.Defendant is in the business of selling the product. 3.Product must be unreasonably dangerous.  77

78 © 2013 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. Requirements for Strict Liability: 4.Plaintiff must be physically harmed 5.Defective condition must be proximate cause of injury. 6.Goods are in substantially same condition. 78

79 © 2013 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. Requirements for Strict Liability. Proving a Defective Condition. – Plaintiff does not need to show product or in what manner the product become defective. – But plaintiff must show product was defective and “unreasonably dangerous” to the user.  79

80 © 2013 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. Requirements for Strict Liability. Unreasonably Dangerous Products. – The product was dangerous beyond the expectation of the ordinary consumer. – A less dangerous alternative was economically feasible for the manufacturer, but the manufacturer failed to produce it. 80

81 © 2013 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 Defects – Restatement (Third of Torts). Manufacturing Defects.  Design Defects.  Warning Defects.  81

82 © 2013 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. Manufacturing Defects. Occurs when a product “departs from its intended design even though all possible care was exercised in the preparation and marketing of the product.” 82

83 © 2013 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. Design Defects. Product is manufactured correctly, but defect is based on design. Test for Design Defects: plaintiff must show defendant’s failure to use a reasonable alternative design rendered the product not reasonably safe.  83

84 © 2013 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. Design Defects. Factors to be Considered. – Magnitude and probability of foreseeable risks. – Relative advantages and disadvantages of product. – Most courts use “risk-utility” analysis. 84

85 © 2013 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. Inadequate Warnings. A product may be defective because of inadequate warnings or instructions. Liability based on foreseeability that proper instructions/labels would have made the product safe to use.  85

86 © 2013 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. Inadequate Warnings. Obvious Risks. No duty to warn. Foreseeable Misuses. Seller must warn about foreseeable misuse. 86

87 © 2013 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. Market Share Liability. Theory of liability when multiple Defendants contributed to manufacture of defective product. Liability of each Defendant is proportionate to the share of the market held by each respective Defendant. 87

88 © 2013 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  Defenses to Product Liability. Assumption of Risk. Product Misuse. Plaintiff does not know the product is dangerous for a particular use. Comparative Negligence. Defendants may be able to limit damages by apportioning fault.  88

89 © 2013 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  Defenses to Product Liability. Commonly Known Dangers. Knowledgeable User. Statutes of Limitation and Repose. 89


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