Sales and Product Liability

1. Click your mouse anywhere on the screen to advance the text in each slide. After the starburst appears, click a blue triangle to move to the next slide or previous slide. CHAPTER 12 Sales and Product Liability

2. Quote of the Day “A commodity appears at first sight an extremely obvious, trivial thing. But its analysis brings out that it is a very strange thing, abounding in metaphysical subtleties and theological niceties.” Karl Marx, German political philosopher

3. Development of Commercial Law • As trade increased throughout history, the need for a uniform, modernized business law grew greater. • In 1952, the Uniform Commercial Code was published by a group of scholars whose goal was to draft a modern law of commerce. • The UCC has been revised several times, most recently in 2003.

4. Scope of Article 2 • Article 2 • UCC §2-102: Article 2 applies to the sale of goods, things that are movable, other than money and investment securities. • Article 2A • Article 2A governs the leasing of goods.

5. Merchants • UCC §2-104: A merchant is someone who routinely deals in the particular goods involved, or who appears to have special knowledge or skill in those goods, or who uses agents with special knowledge or skill in those goods. • The UCC frequently holds a merchant to a higher standard of conduct than a non-merchant.

6. Formation Basics: §2-204 • UCC §2-204 provides three important rules: • The parties may make a contract in any manner that sufficiently shows that they reached an agreement. • Knowing the moment of making of the contract is not critical. • One or more terms may be left open. Commercially reasonable terms will be assumed by the courts.

7. Statute of Frauds • UCC §2-201 requires a writing for any sale for goods worth $500 or more. • Writing Sufficient to Indicate a Contract • In general, the writing must be signed by the defendant. • Incorrect or Omitted Terms • Under the UCC, a court may enforce a bargain even though one or more terms were left open. • Enforceable Only to Quality Stated • The Code will enforce the contract only up to the quality of goods stated in the writing.

8. Merchant Exception • When two merchants make an oral contract, and • one sends a confirming memo to the other within a reasonable time, and • the memo is sufficiently definite that it could be enforced against the sender, then • the memo is also valid against the merchant who receives it, unless he objects in 10 days.

9. Added Terms: Section 2-207 • Under §2-207, an acceptance that adds or alters terms will often create a contract. Click once to start self-building graphic. Offeree does NOT intend to accept Offeree intends to accept OFFER Accepts terms Adds terms Changes terms Accepts IF offerer accepts new terms NO CONTRACT Usually forms a contract Usually forms a contract Contract NO contract (is a new offer)

10. Additional or Different Terms • Additional: those that raise issues not covered in the offer. • When both parties are merchants, additional terms generally become part of the bargain. • Different: contradict terms in the offer. • Cancel each other out; if there is no clear oral agreement, the Code supplies its own terms to cover prices, delivery dates and places, warranties, and other subjects.

11. Buyer’s Remedies • Conforming goods satisfy the contract terms. Non-conforming goods do not. • Inspection -- The buyer generally has the right to inspect the goods before paying or accepting. • May reject non-conforming goods, but the seller has the right to cure, by delivering conforming goods before the contract deadline.

12. Buyer’s Remedies (cont’d) • Cover • If the seller breaches, the buyer may ”cover” by reasonably obtaining substitute goods. • Buyer may then obtain the difference between the contract price and the cover price, plus incidental and consequential damages, minus expenses saved. • Incidental and Consequential Damages • An injured buyer is generally entitled to incidental and consequential damages.

13. Seller’s Remedies • Stop or refuse delivery • Resale • The seller may recover difference between the resale price and contract price, plus incidental damages, minus expenses saved. • Action for the Price • The seller may recover the contract price if: • the buyer has accepted the goods, or • the seller’s goods are conforming and he is unable to resell after a reasonable effort.

14. Warranties and Product Liability • When goods cause injury, there is a question of product liability. • There are three main issues related to product liability cases: • Warranty -- a contractual assurance that goods will meet certain standards. • Negligence – unreasonable conduct by the defendant. • Strict Liability – policy which holds the defendant liable regardless of his behavior.

15. Express Warranties • An express warranty is one that the seller creates with his words or actions. • Any affirmation of fact--or any promise--can create an express warranty. • Any description of the goods can create an express warranty. • Any sample or model can create an express warranty.

16. Implied Warranties • Are created by the Code itself, not by any act or statement of the seller. • Implied Warranty of Merchantability • Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale, if the seller is a merchant of goods of that kind.

17. Implied Warranties (cont’d) • Implied Warranty of Fitness for a Particular Purpose • When the seller at the time of contracting knows about a particular purpose for which the buyer wants the goods, and knows that the buyer is relying on the seller’s skill and judgement, there is (unless excluded or modified) an implied warranty that the goods shall be fit for such purpose.

18. Negligence • In negligence cases, plaintiffs most often raise one or more of these claims: • Negligent design • Negligent manufacture • Failure to warn • Where a sales contract includes proper disclaimers or remedy limitations, a buyer barred from a negligence case may have no remedy at all.

19. Strict Liability • Need not prove that the defendant’s conduct was unreasonable. • Strict liability may be imposed if: • The defective condition is unreasonably dangerous to the user. • Seller is in business to sell this product. • The product reaches the user without substantial change. • Strict liability may be imposed EVEN if: • The seller exercised all reasonable care. • There is no contractual relationship.

20. Contemporary Trends • Strict liability may be imposed based on design, manufacture or failure to warn. • Tests to measure design and warning cases include: • Consumer expectation: if the design causes the product to be less safe than expected • Risk-utility tests: weigh the value of the product, gravity and likelihood of the danger, feasibility of a safer design, and adverse consequences of a safer design.

21. “The Uniform Commercial Code enables merchants to form contracts more quickly and easily. But along with this increased facility goes greater responsibility, since informal discussions may suddenly turn into… a contract.”