Lecture 12: Ucc Article 2 Sales Contracts Part Ii

Front 1

What are buyer's remedies?

Back 1

When a seller breaches the contract either because the seller repudiated, failed to timely deliver, or the delivered goods failed to conform to the contract, then the buyer has the following remedies: CID'S WAR.

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What does CID’S WAR stand for?

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C - Cover enables the buyer to purchase similar goods in substitution for those goods due under the contract and then sue the breaching seller for the difference in price.
I - incidental and consequential damages.
D - damages for lost bargain or price paid.
S - specific performance.
W - warranties.
A - revoking acceptance.
R - rejecting non-conforming goods

Front 3

In more detail what does the C from CID’S WAR stand for?

Back 3

C - Cover enables the buyer to purchase similar goods in substitution for those goods due under the contract and then sue the breaching seller for the difference in price.
If a buyer covers without unreasonable delay, the buyer does not have to prove market value to establish damages, but can simply seek the difference between higher cost of cover and the original contract price.
A buyer does not have to cover, but the buyer cannot sit back and let consequential damages accumulate and expect to recover them from the breaching seller. A buyer cannot recover consequential damages that could have been avoided by cover.

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In more detail what does the I from CID’S WAR stand for?

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I - incidental and consequential damages.
Any costs incurred in a reasonable effort whether successful or not to avoid loss such as the cost of inspecting, storing, or insuring goods.
Consequential damages are lost profits on collateral business relationships following the seller's failure to perform.
The Code prohibits sellers from recovering consequential damages.
A seller can contractually limit a buyer's remedies to refund or repair or replacement.
If the seller limits the buyer's remedies to repair or replacement, but is in unable to repair the defective good, then the buyer can recover full breach of contract damages, including consequential damages.

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Under I from CID’S WAR, what must the buyer show in order to recover consequential damages?

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1. causation (that is, the damages were the result of the seller's breach)
2. the damages were foreseeable at the time the parties entered into the contract
3. a reasonable certainty as to the amount of damages and
4. that the damages could not have been mitigated

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In more detail what does the D from CID’S WAR stand for?

Back 6

D - damages for lost bargain or price paid.
If the buyer does not cover, then if goods were not delivered or non-conforming goods were delivered and rejected, then the buyer's measure of damages is the difference between
1. the market price at the place of tender when the buyer first could have covered (first learned of the seller's breach) and
2. the contract price plus
3. any incidental damages and
4. any amounts paid to the seller by the buyer.

Front 7

In more detail what does the S from CID’S WAR stand for?

Back 7

S - specific performance.
Specific performance is a right to replevy goods that is available to a buyer where goods are unique or where the buyer cannot cover. If substitute goods are readily available (cover), then the buyer has an adequate remedy and specific performance will not be awarded.

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In more detail what does the W from CID’S WAR stand for?

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W - warranties.
A buyer may recover from the seller for the seller's breach of the following warranties. M FEET.

Front 9

Under the W for CID’S WAR what does M FEET stand for?

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M - the warranty of merchantability.
F - fitness for a particular purpose.
E - the warranty against encumbrances.
E - express warranties
T - A seller's good title is implied in every sales contract. It implies that the transfer is proper and that the title conveyed is valid.

Front 10

Under the W for CID’S WAR what does the M from M FEET stand for?

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M - the warranty of merchantability.
Merchant sellers who regularly deal in the goods involved in a transaction impliedly warrant that the goods are fit for their ordinary purpose and that they will pass in the trade without objection. They are not the best, but they are not the worst. Rather, they are of fair and average quality.
A merchant who makes only an isolated sale of a particular type of good does not impliedly warrant the merchantability of the goods sold.
The price at which the product is sold by a merchant is an indicator of the scope of merchantability.
Any disclaimer of this warranty by a merchant will be ineffective unless it is clear and conspicuous and contains the word, "merchantability" or the phrases "as is" or "with all faults". Such language will disclaim any warranties of merchantability and fitness, but not the warranties of title or against encumbrances, which require more specific language.

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Under the W for CID’S WAR what does the F from M FEET stand for?

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F - fitness for a particular purpose.
This implied warranty can be given by merchant or non-merchant sellers. It warrants that the goods will be fit for the buyer's particular use or purpose rather than the ordinary purpose of the goods. To establish the warranty, the buyer must prove
1. the seller's expertise regarding the goods
2. the seller's knowledge of the buyer's purpose for the goods and
3. the buyer's reliance on the seller's expertise.
A seller can disclaim this warranty by general conspicuous language. Thus, a sales receipt that states in bold print, "The limited warranties in this paragraph are in lieu of any other express or implied warranties" will exclude the warranty of fitness, but not the warranty of merchantability since it does not contain one of the 3 magic words.

Front 12

Under the W for CID’S WAR what does the first E from M FEET stand for?

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E - the warranty against encumbrances.
This warranty given by all sellers implies that the delivered goods are free from security interests, patent infringements, or lawsuits related to the lawful possession and use of the goods.

Front 13

Under the W for CID’S WAR what does the second E from M FEET stand for?

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E - express warranties
Express warranties are created when a seller makes factual assertions regarding a product's capability or quality. They are breached when those factual assertions were part of the basis of parties' bargain and the product fails to conform to them.
NY requires a buyer to plead and prove reliance upon the factual assertions.
Express warranties can be made by merchants or non-merchants.
Embellished statements of the seller's opinion of the product or its value are considered puffing, not affirmations of fact.
A seller's disclaimer negating a prior written express warranty is unenforceable. Thus, a general warranty disclaimer in the invoice or sales slip that conflicts with a prior written express warranty is unenforceable.
Specific disclaimers of prior oral warranties are enforceable under the parole evidence rule.

Front 14

Under the W for CID’S WAR and under the second E from M FEET, express warranties take the form of SAD. What does SAD stand for?

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S - any sample or model that was the basis of the bargain.
A - any written or oral affirmation of fact or promise made by the seller that becomes part of the basis of the bargain.
D - any description of the goods in an advertisement, brochure, or catalog.

Front 15

Under the W for CID’S WAR what does the T from M FEET stand for?

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T - A seller's good title is implied in every sales contract. It implies that the transfer is proper and that the title conveyed is valid.
The seller of stolen goods breaches this warranty.
The warranty of title can only be disclaimed by specific language or circumstances that give the buyer reason to know the seller does not claim title herself.

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In more detail what does the A from CID’S WAR stand for?

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A - revoking acceptance.
The Code allows the buyer who has accepted goods without knowledge of a latent non-conformity (a defect that was not discoverable upon a buyer's reasonable inspection) to later revoke acceptance within a reasonable time after discovering the defect provided the non-conformity substantially impairs the worth of that good to the buyer.

Front 17

Under the A from CID’S WAR, revoking acceptant is what form of rescission of contract?

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Revoking acceptance is a self-help form of rescission of contract, which accomplishes a forced exchange of the goods for the return of the buyer's purchase price. However, if a buyer accepted the goods with knowledge of the non-conformity, then that buyer cannot later revoke acceptance unless the buyer accepted those non-conforming goods on assurances that the defect would be cured.

Front 18

Under the A from CID’S WAR, a buyer who knowingly accepts defective goods or who fails to timely revoke acceptance once the defect was discovered (but who gave the seller timely notice of the defect), can sue the seller for damages for the difference in value between what three things?

Back 18

1. the value of what
2. the buyers should have received under the contract terms
3. and the value of what the buyer actually received.

Front 19

Under the A from CID’S WAR, what does a sales contract limit?

Back 19

A sales contract can limit a buyer's time to revoke acceptance.

Front 20

Under the A from CID’S WAR, if after rejecting non-conforming goods, or revoking acceptance, the goods are in whose possession?

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In the buyer's possession, then the buyer must hold the goods for a reasonable time and with reasonable care because the buyer is now a bailee.

Front 21

Under the A from CID’S WAR, if the buyer is a merchant and the breaching seller is not from the buyer's geographic area, then what duty does the buyer have?

Back 21

The buyer has a duty to follow any reasonable instructions received from the seller. However the seller is required to pay for all costs.

Front 22

Under the A from CID’S WAR, what happens if the seller gives no instructions?

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If the seller gives no instructions within a reasonable time, then the buyer can store, ship or resell the goods and such activity will not constitute either a conversion or an acceptance of the goods by the buyer.

Front 23

Under the A from CID’S WAR, if non-conforming goods are perishable or they threaten to rapidly decline in value and the buyer has received no instructions from the seller, then what must the buyer do?

Back 23

The buyer must make a reasonable effort to sell the goods on the seller's behalf (mitigation of damages).

Front 24

Under the A from CID’S WAR, where does a buyer have possessory security interest?

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A buyer has a possessory security interest in the goods in his possession for any deposits paid to the seller or for any incidental expenses reasonably incurred in the inspection, care, or custody of the non-conforming goods. The buyer can sell the goods and recover these expenses from the price paid where the buyer sells the goods on the seller's behalf.

Front 25

In more detail what does the R from CID’S WAR stand for?

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R - rejecting non-conforming goods
If a seller delivers non-conforming goods, the buyer can
1. reject them
2. accept them and sue for damages or
3. upon discovering a latent defect, revoke acceptance.
However the buyer must notify the breaching seller of the non-conformity within a reasonable time of discovery or the buyer is barred from any CIDS WAR remedy.
This harsh penalty is imposed on the buyer even though it was the seller who in fact breached the contract.
When non-conforming goods are tendered, the buyer may reject the entire non-conforming shipment or it may accept any commercial unit and reject the rest.
A commercial unit is a single whole for purposes of sale, the division of which would materially impair its character or value. For example, a furniture set. The standard is not whether the designated unit in the contract was divided, but whether partial acceptance would produce such a materially adverse affect on the remaining goods to constitute bad faith.
Acceptance of any part of a commercial unit is acceptance of the entire unit under the Broken Box Rule.

Front 26

What constitutes a buyer's acceptance of goods?

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1. Acceptance of goods with knowledge of a defenct
2. Failure to timely and effectively reject when a latent defect is first discovered or
3. When a buyer continues to retain and use the goods after a rejection or revocation of acceptance.

Front 27

A plaintiff injured by a defective product may bring claims under 1 or more overlapping PINE theories of liability. What does PINE stand for?

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P - strict products liability
I - breach of implied warranty
N - negligence
E - express warranty

Front 28

In more detail what does the P from PINE stand for?

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P - strict products liability
A manufacturer, regular seller, or commercial lessor of a DUD (defective and unreasonably dangerous) is strictly liable for physical harm proximately caused by a product's dangerously defective condition.

Front 29

Under the P from PINE, why is an SPL action ordinarily preferable to a warranty action?

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An SPL action ordinarily is preferable to a warranty action because issues of privity and notice are irrelevant and the s/l is more favorable to the injured plaintiff (3 years accruing from the date of injury).

Front 30

Under the P from PINE, when can an SPL claim be established?

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An SPL claim can be established with circumstantial evidence by proving the product did not perform as intended and by excluding all other causes for the product's failure that are not attributable to the defendant. If plaintiff fails to prove either of these elements, the jury may not infer the harm was caused by a defective product unless the plaintiff offers competent evidence identifying a specific flaw. However, the negligence doctrine of res ipsa loquitor cannot be used in SPL since a seller or manufacturer has parted with exclusive possession and control over the alleged defective product before the accident.

Front 31

Under the P from PINE, where does SPL apply?

Back 31

SPL only applies to the defendant who regularly sells that product not to an isolated or occasional seller.
At most, the duty of an occasional seller is to warn the buyer of known latent defects that are not obvious or readily discernible.

Front 32

Under the P from PINE, is the user of a defective product liable under SPL?

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The user of a defective product is not liable under SPL for injuries caused to a third person. Thus, a doctor or dentist that uses a DUD product is not liable in SPL to the injured patient.

Front 33

Under the P from PINE, what do SPL claims allow for?

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SPL claims allow recovery only for physical injury (personal injury or injury to property other than the product itself), but not solely for economic loss. When a product injures only itself, then the only claim is for breach of warranty, which requires direct privity. This direct privity rule is applied to construction contracts against contractors, architects, or subcontractors for defective workmanship. It also applies to claims for economic loss against attorneys, title insurance companies, or accountants. The plaintiffs in all these cases generally must rely on some contract privity with the defendant.

Front 34

Under the P from PINE, to establish an SPL claim, plaintiff must prove what four things?

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1. the defendant manufactured or sold the product
2. the product was defective
3. the product proximately caused plaintiff’s injuries and
4. the defect existed when it left defendant’s hands
When asserting an SPL claim, the plaintiff must prove that some DIM dangerous defect in the product proximately caused a physical injury.

Front 35

Under the P from PINE, what does DIM stand for?

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D - a design defect
I - inadequate warning
M - manufacturing defect

Front 36

Under the P from PINE, in more detail what does the D from DIM stand for?

Back 36

D - a design defect
An unreasonable defect in the product's design exists when the design used by the manufacturer generates unreasonable dangers that outweigh its utility and benefits. The Court looks at whether the manufacturer could have adopted a reasonable alternative design that wouldn’t sacrifice the product’s functionality or significantly increase its costs.
The courts look at the state of the art at the time the product was manufactured and not subsequent improvements made thereafter.
Some products (knives) are inherently dangerous and their utility outweighs their foreseeable risk. After the product has been sold and the dangerously defective design comes to the manager’s attention, it must remedy the defect or give users adequate warnings and instructions to minimize the danger. There is no post-sale duty to recall a defective good when a seller discovers a post sale DUD defect. The only duty is to warn of the danger.
Where a buyer elects not to purchase an optional safety device, the manufacturer is not liable for defective design unless the product is inherently dangerous without the added safety device.
Courts balance whether the cost of an existing reasonable alternative design was warranted in light of the foreseeable risks posed by the product as manufactured. Courts also weigh the benefits of the product against the possible risk.

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Under the P from PINE, in more detail what does the I from DIM stand for?

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I - inadequate warning
A flawlessly produced and design product may be rendered unreasonably dangerous because of the seller's inadequate warning of the product's latent hazards in its foreseeable intended and unintended uses. This claim focuses primarily on the foreseeability of the risk and the adequacy and effectiveness of the warning.
The warning must clearly describe the nature and degree of the product's specific risks.
There is also a post-sale continuing duty to warn by a manufacturer.
If the plaintiff was aware of the danger or it was so open and obvious that it was likely to be appreciated by the user, then this will defeat an inadequate warning claim because the inadequate or absent warning did not proximately cause the plaintiff's injury. The obviousness of the danger, is itself, an adequate warning.
An inadequate warning claim gives rise to a presumption that the user would have read and headed the warning. However, the presumption can be rebutted. For example, if the defendant shows the plaintiff didn't read the other warnings he was given.
Under the Learned Intermediary Rule, manufactures of prescription drugs or medical devices only have to warn the doctor or the hospital of the drug’s dangers and not the patient since patients rely on doctors to fully inform them of any known dangers.
If a safe product is rendered unsafe by a 3rd person's substantial modification of the product, there is no claim for defective design because when it left the manufacturer's hands, it was not defective and unreasonably dangerous. If however, the manufacturer becomes aware that its products become highly dangerous by modification (i.e. removal of a safety guard), then it may be liable for its failure to warn of this foreseeable danger.

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Under the P from PINE, in more detail what does the M from DIM stand for?

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M - manufacturing defect
A manufacturing defect is an imperfection in the production or distribution of the particular product making it more dangerous than identical products sold.
Under the Restatement 3rd of Torts (MBE, but not NY), a manufacturing defect may exist even when the product is not unreasonably dangerous. A plaintiff must only show that the product departs from its intended design.

Front 39

In more detail what does the I from PINE stand for?

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I - breach of implied warranty
If a product is defective, then liability for breach of warranty is not based on the fault or misconduct of the manufacturer or seller, but is based on the failure of the product to meet a user's reasonable expectations for performance under the contract terms.
In a breach of warranty claim for personal injury, the plaintiff must show that the product posed unexpected dangers beyond those contemplated by the ordinary consumer.
Sellers of consumer goods (as opposed to commercial goods purchased by businesses) may not contractually limit damages for personally injury to refund, repair, or replacement because such limitations are unconscionable.
Breach of warranty claims are still advantageous to plaintiffs who suffer purely economic loss or for whom tort claim s/l have expired.

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In more detail what does the N from PINE stand for?

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N - negligence
A negligence claim requires proof of the defendant's failure to use reasonable care in tendering a safe product. Such claims are most commonly made against manufacturers for failing to safely construct, package, or ship a safe product. But negligence claims can also be asserted against retailers or other suppliers for their failure to exercise due care.
Privity between the plaintiff and defendant is not required, but recovery is only allowed where there has been "physical injury" (property damage other than to the product itself or personal injury).
There can be no negligence claim solely for economic, business, or profit-related injuries resulting from D's negligence.
While a retailer or wholesaler can be negligent for failing to warn a customer of known dangers, a retailer or wholesaler who purchases products from a reputable source has no duty to inspect or test the products even if a defect could have been easily discovered.

Front 41

When facing claims for defective goods, the defendant can raise the following defenses: GPS LAMP. What does GPS LAMP stand for?

Back 41

G - government military contract defense
P - federal preemption
S - statute of limitations
L - lack of timely notice to the seller
A - assumption of risk
M - unforeseen misuse of the good
P - lack of privity of contract (only for warranty claims)

Front 42

In more detail what does the G from GPS LAMP stand for?

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G - government military contract defense
A manufacturer cannot be held liable for a defectively designed military product if 1. the government approved the product specifications and the particular design feature that caused the injury, 2. the product conformed to those specifications and 3. the manufacturer notified the government of any known dangers.

Front 43

In more detail what does the first P from GPS LAMP stand for?

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P - federal preemption
Under the Constitution's Supremacy Clause, a claim under state law or common law is "preempted" if it is prohibited by or conflicts in some way with a federal statute or regulation.
The supremacy of federal law can expressly or impliedly displace conflicting state law and prevent a state c/l PINE personal injury claim based on the Constitution’s Supremacy Clause.
The key to a preemption question is the intent and scope of congress to preempt state law. If congress defines the preemptive reach of the federal statute, it infers that matters beyond that reach have not been preempted.

Front 44

In more detail what does the S from GPS LAMP stand for?

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S - statute of limitations
For a breach of warranty claim, is 4 years from when that defendant in the vertical chain of privity first tendered that defective good.

Front 45

In more detail what does the L from GPS LAMP stand for?

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L - lack of timely notice to the seller
A plaintiff who within a reasonable time fails to give written or oral notice of the defect to each potential defendant in the chain of vertical privity is prevented from suing that defendant for breach of warranty. Notice to the manufacturer is not notice to the retailer.

Front 46

In more detail what does the A from GPS LAMP stand for?

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A - assumption of risk
Assumption of risk refers to where the plaintiff was aware of the defect, but unreasonably and voluntarily continued to use the product. Under the Restatement, it can be asserted as a complete defense to any PINE claim. In NY, with the exception of participants or spectators of athletic activities, this defense has been supplanted by comparative negligence. Thus, if the plaintiff's negligent conduct contributes to her injuries from a defective product, her recovery will be reduced accordingly.

Front 47

Under the A from GPS LAMP, the assumption of risk defense arises when what three things occur?

Back 47

1. the plaintiff knew of the dangerous characteristics of the defective product or the danger was so obvious, the plaintiff must have known it,
2. the plaintiff voluntarily exposed himself to that danger and
3. the decision to encounter the known risk was unreasonable.

Front 48

In more detail what does the M from GPS LAMP stand for?

Back 48

M - unforeseen misuse of the good
If a plaintiff's negligence, alteration, or misuse of a product in an unforeseeable manner or for an unforeseeable purpose is a superseding cause of the plaintiff's injury, the manufacturer will not be liable for the plaintiff's injuries related to the use of the defective product. If the plaintiff's conduct is a concurrent cause of her injuries, the manufacturer will be liable for the plaintiff's injuries caused by the defective product, but the plaintiff's damages will be reduced by her comparative fault.
A manufacturer is under a duty to make a product safe for those unintended yet reasonably foreseeable uses for which the product might be used.

Front 49

In more detail what does the second P from GPS LAMP stand for?

Back 49

P - lack of privity of contract (only for warranty claims)
Breach of warranty claims arising from the sale of goods require some form of privity of contract with the seller who has expressly or impliedly warranted the performance of the product.
Privity is the legal relationship between the parties to a contract. At common law, only buyers in direct privity could recover for the harm caused by a defective unsafe product.
In a majority of states (NJ and CT), a seller's express or implied warranties extend horizontally beyond the buyer to any natural person (not a corporation) who suffers PERSONAL INJURY provided the injured plaintiff was the buyer, in the buyer's family or household or the buyer's guest (but not an employee or tenant of the buyer) if it was reasonable to expect such person would use, consume, or be affected by the goods.
In NY and 7 other jurisdictions, warranty protection is extended beyond the buyer's household to include any natural person who reasonably could be expected to use or be affected by the defective good. Thus, in spite of the absence of direct privity of contract where personal injury is proximately caused by a breach of warranty, then the injured person by using horizontal privity can sue and by using vertical privity can sue the retailer, supplier, or manufacturer for damages.
All sellers can seek indemnification against the manufacturer.
Vertical privity determines who can be a defendant in a warranty cause of action where the plaintiff is suing for personal injury. Horizontal privity determines who can be a plaintiff.
A plaintiff must not only prove the warranty and its breach, but must also show the breach was the proximate cause of the injury sustained.
When suing solely for economic loss (lost profits or the cost to replace or repair the defective good), direct privity is required.
Lack of privity is not a defense in negligence or strict products liability claims.