Advanced Business Law BPP 433 SALES/PRODUCT LIABILITY Advanced
Business Law (BPP433/85) 2007 Winter Quarter Week 6 Instructor:
David Oliveiri Slide 2 Advanced Business Law BPP 433 Learning
Objectives Just What Legal Rules Apply to the Production and Sales
of Goods to Customers? Managerial Implications -- Constraints,
Risks, Opportunities Slide 3 Advanced Business Law BPP 433 How
Law/Regulation Affects Business Review Owners LandEmployees
LaborCreditors/Suppliers Venture CapitalCustomers Ent.
TalentCompetitors The Public FORMINGOPERATING Slide 4 Advanced
Business Law BPP 433 Behavior Toward Customers A Thicket of
Regulation/Rules Contexts Product Development, Contracting,
Selling, Service After Sales State Common Law of Contracts and UCC
(State Statutes) Big Factors, BUT Other State/Federal Legislation
Applies To Product and Service Sales Process/Afterward (S&R42,
24): Need for Qualifying Information/Price of Credit (Truth in
Lending, Fair Credit Reporting Act) Discrimination in Granting
Credit Deception/Mistake (UCC Art 2, FTC Act, Lemon Laws,
Telemarketing Acts, Internet Sales Laws) Product Liability Slide 5
Advanced Business Law BPP 433 UNDERSTAND RISKS/ OPPORTUNITIES
Outline Business Process Proceduralize Forms Manuals
Training/Decision Rights/Incentives Review Processes/ Mine Data
Leadership Functional Depts. InHouse Counsel Retained Counsel THE
MANAGERIAL OPPORTUNITY PRODUCT/SALE LIFECYCLE Behavior Toward
Customers A Thicket of Regulation/Rules Slide 6 Advanced Business
Law BPP 433 Law of Sales Conceptual Fit PROPERTY LAW CONTRACT LAW
SALES LAW Property = Real + Personal Sales = UCC + Non-UCC Sales
Contracts = Sales + Other Primarily STATE LAW Slide 7 Advanced
Business Law BPP 433 Contract Law Compared with Law of Sales Some
UCC vs. Contract Law Differences Slide 8 Advanced Business Law BPP
433 UCC Sales Law (Article 2) Rationale Purpose To Modernize,
Clarify, Simplify, and Make Uniform the Law of Sales Minimize
Transaction Costs on Basic Transactions Marshalling Terms
Negotiating Drafting Create Transactions Costs on Variant Terms
Concept of Default Rules v. Mandatory Rules -- Deviation Allowed
[Example: If no price is specified, and delivery is made, the price
is a reasonable one at the time of delivery] Slide 9 Advanced
Business Law BPP 433 Freedom/Efficiency of Contract Reflecting
Preference of Majority Good Faith Honesty in Conduct or Transaction
Concerned; Observance by Merchant of Reasonable Commercial
Standards Unconscionability Refusal of Court to Enforce a Contract
Resulting from and Unfair Bargaining Process or with Oppressive or
Grossly Unfair Provisions Course of Dealing Previous Conduct
Establishing a Common Basis for Interpreting Agreement Usage of
Trade Practices or Methods Regularly Followed in a Place, Vocation,
or Trade UCC Sales Law (Article 2) Principles Slide 10 Advanced
Business Law BPP 433 Selected UCC Rules Applicable to Merchants
Slide 11 Advanced Business Law BPP 433 Contract formed based on
offerors terms without additional terms No No contract formed Yes
Contract formed (1) different terms cancel each other out, or (2)
offerors terms control, or (3) additional term test applied Yes
Battle of the Forms Is acceptance identical to offer? Contact
formed based on offerors terms Yes Is acceptance expressly
conditional upon assent to additional or different terms? No Does
acceptance include different terms? No Does acceptance include
additional terms? No Then, Yes Continues on next slide Slide 12
Advanced Business Law BPP 433 Does offer limit acceptance to its
terms? Yes Do additional terms materially alter the offer? No Has
offeror assented to the additional terms? Yes No Yes Contract
formed with additional terms No Contract formed based on offerors
terms without additional terms Are both parties merchants? Has the
offeror objected to the additional terms? No Battle of the Forms
(cont.) Slide 13 Advanced Business Law BPP 433 When Does the UCC
Apply to a Transaction? Sales Transactions in Goods Goods =
Moveables (Time of Sale); Not Real Property, Not Intangibles
(Stocks, Bonds), Not Money Includes Incidental Services [Example:
Installation + Set-Up]; Not Services Alone Lease Included If Sale
Subject To Security Interest [Example: Lease car for 15 years.
End-of-Term Option to Buy for $1.] Does Not Include Normal Security
Interests [Example: Sell Car 1/1 For $100, Agree to Buy Back 7/1
for $105.] Slide 14 Advanced Business Law BPP 433 Once UCC Art 2
Applies, Forming Deal Performance of Deal Quality of Performance
Remedies at Breakdown Slide 15 Advanced Business Law BPP 433
Forming a Sales Contract Offer-Varying Acceptance Battle of the
Forms Acceptance Contains Terms Not in Offer Generally, Exchange of
Standardized Writings Detailed Rules to Resolve Implied Terms Trade
Usage, Course of Dealing, Course of Performance Statute of Frauds
>= $5,000 Mandatory Rule Consent to Agreement Model v. Formal
Offer/Acceptance Slide 16 Advanced Business Law BPP 433 Performance
Insecurity & Adequate Assurance of Performance Anticipatory
Repudiation Tender, Inspection, Acceptance, Rejection, Cure
Generally, Risk of Loss Follows Control Allocating Risk of Loss Via
Poor Performance Self-Test P 5, 7 Slide 17 Advanced Business Law
BPP 433 Identification of Goods Tender of Performance By Seller
Continued on next slide (match arrow numbers) YesNo Duly delivered?
Shipment contract Breach 1 NoYes Seller holds goods for buyer at
destination? Destination contract Breach 2 NoYes Seller tenders
document of title? Goods held by bailee without moving 34 NoYes
Seller notifies buyer that goods are held at his disposal? Seller
holds goods for buyer Breach 5 Slide 18 Advanced Business Law BPP
433 Notifies buyer of shipment? No Yes No Yes Breach 1 Notifies
buyer? Yes No Yes Breach 2 Yes 3 No Bailee acknowledges buyers
right to possession? No Yes Breach 4 Yes 5 Tender Yes Tender of
Performance By Seller (cont.) Proper contract? Slide 19 Advanced
Business Law BPP 433 Breach by seller Performance by the Buyer
Goods conform Breach by buyer Goods conform Buyer liable for price
Goods do not conform Seller cures defect Seller does not cure Goods
do not conform Buyer revokes acceptance Buyer retains goods Buyer
rejects goods Buyer accepts goods OR Buyer liable for price Buyer
rejects Buyer accepts Breach by buyer Breach by seller Slide 20
Advanced Business Law BPP 433 4 Risk passes to buyer upon receipt
of goods 5 Risk passes to buyer upon tender of goods Passage of
Risk of Loss in Absence of Breach Risk of loss passes to buyer at
time of contract Trial sale Sale on approval? No Yes 1 No As
allocated by agreement Yes Agreement by parties? Continued on next
slide (match arrow numbers) No Contract involving carrier Shipment
contract? Yes 2 No Goods in possession of bailee Negotiable
document of title? Yes 3 Seller is a merchant Seller is not a
merchant All other sales Goods in possession of buyer Slide 21
Advanced Business Law BPP 433 Destination contract NoYes Risk on
seller until delivered to carrier Risk on seller until goods
tendered at destination 2 Non-negotiable document of title? No Yes
Risk shifts upon buyers receipt of document 3 No Yes 1 Risk on
seller until approved Risk on buyer until returned Risk shifts to
buyer upon written acknowledgment by seller or bailee No Yes No
document of title Risk shifts to buyer upon tender of document
Passage of Risk of Loss in Absence of Breach (cont.) Sale or return
Slide 22 Advanced Business Law BPP 433 Warranties Express
Warranties Implied Warranties Fitness for Particular Purpose
Merchantability Disclaiming Warranties Rules Products Liability
Distinguished Remedies and Parties Privacy of Contract Allocating
Risk of Quality, Given Performance Self-Test P3, 10 Slide 23
Advanced Business Law BPP 433 Warranties Type of Warranty How
Created What is WarrantedHow Disclaimed Title Seller contracts to
sell goods Good title Rightful transfer Not subject to lien
Specific language Circumstances giving reason to know that seller
does not claim title Express Affirmation of fact Promise
Description Sample or model Conform to affirmation Conform to
promise Conform to sample model, or description Usually not
possible Merchantability Merchant sells goods Fit for ordinary
purposes Adequately contained, packaged, and labeled Must mention
merchantability If in writing must be conspicuous As-is sale Buyer
examination Course of dealing, course of performance, usage of
trade Fitness for a particular purpose Seller knows buyer is
relying on seller to select goods suitable for buyers particular
purpose Fit for particular purpose No specific words necessary In
writing and conspicuous As-is sale Buyer examination Course of
dealing, course of performance, usage of trade Slide 24 Advanced
Business Law BPP 433 Allocating Loss of Transactional Breakdown
Remedies Slide 25 Advanced Business Law BPP 433 Buyers Remedies
Slide 26 Advanced Business Law BPP 433 Smith & Robersons
Business Law Chapter 25 Sellers Remedies or lost profits Recover
price Buyer repudiates CancelWithhold delivery of goods Stop
delivery of large shipment in transit Identify conforming goods to
the contract Resell and recover damages Recover difference between
unpaid contract and market pricesor lost profits Recover price
Buyers Breach Sellers Remedies Obligation-
orientedGoods-orientedMoney-oriented Buyer wrongfully rejects goods
CancelWithhold delivery of goods Stop delivery of large shipment in
transit Identify conforming goods to the contract Resell and
recover damages Recover difference between unpaid contract and
market pricesor lost profits Recover price Buyer wrongfully revokes
acceptance CancelWithhold delivery of goods Stop delivery of large
shipment in transit Identify conforming goods to the contract
Resell and recover damages Recover difference between unpaid
contract and market pricesor lost profits Recover price Buyer fails
to make payment CancelWithhold delivery of goods Stop delivery of
large shipment in transit or ofany shipment if buyer is insolvent
Identify conforming goods to the contract Reclaim goods upon buyers
insolvency Resell and recover damages Recover difference between
unpaid contract and market pricesor lost profits Recover price
Buyer repudiates CancelWithhold delivery of goods Stop delivery of
large shipment in transit Identify conforming goods to the contract
Resell and recover damages Recover difference between unpaid
contract and market pricesor lost profits Recover price Slide 27
Advanced Business Law BPP 433 Liability for Injury/Damage by
Defective Products Reflects Chain of Distribution Reality Supplier
of Components, Manufacturer, Intermediary ( Wholesaler,
Distributor, Dealer), Retailer, Purchaser, User Bystander Beyond
Customers Potential Defendants Often Indirect Contractual
Relationship; No Privacy Legal Rules (Mostly State Law) Evolved As
Manufacturing and Commerce Evolved Products Liability Non-UCC
Regulation of Quality/Function Unique Business Risk
Characteristics/ Wide Coverage Slide 28 Advanced Business Law BPP
433 Manufacturing Defects Design Defects Warning Defects Products
Liability Todays Rule: Strict Liability for Injury/Damage from
Defective Product Slide 29 Advanced Business Law BPP 433
Non-Conformity to Manufacturers Design [Example: Seat belt
improperly attached to car frame] Need Not Show Inadequate
Manufacturing Materials Need Not Show Improper Inspection
Rationale: Hard to Pinpoint Negligence Manufacturer in Superior
Position to Reduce Harm [Example: Research, Cost-Effective
Statistical Sampling] Manufacturer Can Better Spread Cost of
Defects When Not Cost- Effective to Eliminate [Example: Mouse in
Coke Bottle] Manufacturing Defects Slide 30 Advanced Business Law
BPP 433 Occurs in Entire Product Line [Examples: Faulty blueprint,
bad specification, bad choice of materials for product] Can Design
Ever be Risk-Free? [Example: Knives] Proof Standards: Consumer
Expectations -- Jury? Risk/Benefit Test -- Hindsight? Design
Defects Slide 31 Advanced Business Law BPP 433 Problem of Complete
Information on Product Risks/Benefits Proof Standard: Is Purchaser
in Best Position to Decide Benefits Outweigh Risks [Example:
McDonalds Coffee] Warning Defects Slide 32 Advanced Business Law
BPP 433 Standard Negligence Defenses Contributory Negligence,
Comparative Negligence (Reduces Damages), Assumption of Risk
Product Misuse [Exception: Foreseeable Misuse] [Examples Chainsaw
cutting upward v. using chainsaw to cut holiday turkey] Disclaimer
of Product Liability Not an Option Defenses to Product Liability
Claims Slide 33 Advanced Business Law BPP 433 Insurance v.
Self-Insure? Corrective or Protective Measures? Liability Runs With
Corporation! Management Issues Slide 34 Advanced Business Law BPP
433 Bottom Lines; Q&A Behavior Toward Customers (Pre-Sale and
Post-Sale) Highly Regulated UCC Article 2 Sales Rules = Default
Rules UCC Article 2 Sales Rules Have a Bias Toward Contracting/
Transacting Products Liability = Non-UCC Regulation of Quality
Function Direct Seller-Buyer Relationship Unnecessary for Strict
Product Liability
