Contract Legally Formed Discussion

Contracts move every aspect of commerce; big and small; down to every transaction in which you participate; down to the home you buy; the products you buy on Amazon; to the food you buy at the grocery store.

What questions do you have regarding the necessary elements required to form a legally binding contract; or in what circumstances is a contract legally formed or not?

Business Law
Text & Exercises
Ninth Edition
Roger LeRoy Miller
William Eric Hollowell
CHAPTER 20 WARRANTIES AND PRODUCT
LIABILITY
Learning Outcomes (1)
LO1
LO2
LO3
LO4
Name the three types of warranties
of title.
State when express warranties arise
in a sales or lease contract.
Identify the implied warranties that
arise in a sales or lease contract.
Define a warranty disclaimer.
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2
Learning Outcomes (2)
LO5
List the requirements of strict
product liability.
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LO1
LO1
Warranties of Title (1)
▪ Good Title.
– Valid and rightful.
▪ No Liens.
– Encumbrance on a property to
satisfy or protect a claim for
payment of a debt.→
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LO1
LO1
Warranties of Title (2)
▪ No Infringements.
– Patents, trademarks, copyright.
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Express Warranties (1)
▪ Seller (or lessor) makes a written
or oral promise in which the
seller assures the quality,
description, or performance
potential of the goods.
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Express Warranties (2)
LO2
▪ Express warranties arise when:
1. Goods conform to any affirmation
or fact that the seller makes to the
buyer about the goods.
2. Goods conform to any description.
3. Goods conform to any sample or
model.
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Express Warranties (3)
▪ Basis of the Bargain.
– Seller does not need to use words
such as “warrant” or “guarantee.”
– The UCC only requires that the
affirmation, promise, description, or
sample must become part of the
“basis of the bargain.”
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Express Warranties (4)
▪ Statements of Opinion.
– Value or worth of good, or
“puffery” do not constitute
warranties (unless EXPERT
opinion).
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LO3
LO3
Implied Warranties (1)
▪ The law implies a warranty based
on either the nature of the
transaction or the situation or
circumstances of the parties.
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LO3
LO3
Implied Warranties (2)
▪ Merchantability.
– Implied promise by a merchantseller of goods that the goods are
“reasonably fit for the general
purpose for which they are sold” or
leased, are properly packaged and
labeled, and are of proper quality.
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Implied Warranties (3)
LO3
LO3
▪ Fitness for a Particular Purpose.
– Arises when any seller or lessor
(merchant or nonmerchant):
• Knows the particular purpose for which a
buyer or lessee will use the goods, and
• Knows that the buyer or lessee is relying on
the seller’s skill and judgment to select
suitable goods.
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LO3
LO3
Implied Warranties (4)
▪ Other Implied Warranties.
– UCC recognizes implied warranties can
arise from course of dealing,
performance, or usage of trade.
– In the absence of specific language to
the contrary, courts will infer an
“industry wide” implied warranties in a
contract.
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Warranty Disclaimers and
Limitations on Liability (1)
LO4
▪ Warranty disclaimer: an oral or
written statement indicating
that the seller is not bound by
any warranty guarantees
regarding the product sold.
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Warranty Disclaimers and
Limitations on Liability (2)
▪ Disclaimer of Title Warranty.
▪ Disclaimer of Express Warranties.
▪ Disclaimer of Implied Warranties.
▪ Buyer’s or Lessee’s Examination or
Refusal to Inspect.
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Warranty Disclaimers and
Limitations on Liability (3)
▪ Magnuson-Moss Warranty Act.
– The MMWA (1975) was designed to
prevent deception in warranties by
making them easier to understand.
– Under the act, no seller or lessor is
required to give an express written
warranty for consumer goods.
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Warranty Disclaimers and
Limitations on Liability (4)
▪ Magnuson-Moss Warranty Act.
– The warrantor must use “readily
understood language.”
– Full vs. limited: full warranty requires
free repair or replacement of any
defective part, typically has no time
limit.
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Product Liability
▪ The legal liability of
manufacturers and sellers to
buyers, users, and sometimes
bystanders for injuries or
damages suffered because of
defects in goods purchased.
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Product Liability:
Negligence (1)
▪ Failure to exercise the standard of
care that a reasonable person
would have exercised under similar
circumstances.
▪ A manufacturer must exercise “due
care” to make a product safe.
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Product Liability:
Negligence (2)
▪ Manufacturer must exercise “due
care” in:
– Design, selection of materials,
production, assembly, testing, and
placing adequate warnings on the
label informing users of dangers.
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Product Liability:
Misrepresentation
▪ Fraud can be basis of product
liability when intentional
misrepresentation is made to a
user or consumer, and injury
results from that
misrepresentation.
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Product Liability:
Strict Liability (1)
▪ Liability without fault, regardless
of intentions or exercise of
reasonable care.
▪ To hold a manufacturer or seller
strictly liable, the following
requirements must be met:
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Product Liability:
Strict Liability (2)
LO5
▪ Requirements:
1. Product must be in a defective
condition when the defendant
sells it.
2. Defendant normally must be
engaged in the business of selling
that product.
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Product Liability:
Strict Liability (3)
LO5
▪ Requirements:
3. Product must be unreasonably
dangerous to user because of its
defective condition.
4. The plaintiff must incur physical
harm to self or property by use or
consumption of the product.
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Product Liability:
Strict Liability (4)
LO5
▪ Requirements:
5. The defective condition must be
the proximate cause of the harm.
6. The goods must not have been
substantially changed from the
time the product was sold to the
time the injury was sustained.
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Product Liability:
Strict Liability (5)
▪ Unreasonably dangerous: defective
to the point of threatening a
consumer’s health or safety.
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Product Liability:
Defects (1)
1. Manufacturing defects: product
departs from its intended design
even though all possible care was
exercised in the preparation and
marketing of the product.
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Product Liability:
Defects (2)
2. Design defects: foreseeable risks
of harm posed by the product
could have been reduced or
avoided by the adoption of a
reasonable alternative design,
and the omission of that design
renders the product unsafe.
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Product Liability:
Defects (3)
3. Warning defects: foreseeable risk
of harm could have been
reduced or avoided by the
provision reasonable instructions
or warnings, and their omission
renders the product unsafe.
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Product Liability:
Suppliers of Component Parts
▪ Under the rule of strict liability in
tort, the basis of liability includes
suppliers of component parts.
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Product Liability:
Defenses (1)
▪ Assumption of Risk.
– Plaintiff voluntarily engaged in the
risk while realizing the danger,
appreciated the risk created by
defect in the product, and
undertaking the risk was
unreasonable.
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Product Liability:
Defenses (2)
▪ Product Misuse.
– Product used for unintended purpose.
▪ Comparative Negligence.
– Liability for plaintiff’s injuries is shared
by all persons who were negligent
(including plaintiff) on a pro-rata basis
depending on each person’s
carelessness.
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Product Liability:
Defenses (3)
▪ Commonly Known Dangers.
– Dangers associated with certain
products (such as sharp knives and guns)
are so commonly known that
manufacturers need not warn users.
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Business Law
Text & Exercises
Ninth Edition
Roger LeRoy Miller
William Eric Hollowell
CHAPTER 18 TITLE AND RISK OF LOSS
1
Learning Outcomes
LO1
Explain the concept of identification.
LO2
LO3
Describe the effects of imperfect title
on sales of goods.
Discuss the concept of risk loss.
LO4
Identify insurable interest in goods.
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LO1
LO1
Identification (1)
▪ Before any interest in goods can
pass from seller to buyer the
goods:
– 1. Must be in existence, and
– 2. Must be identified.
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LO1
LO1
Identification (2)
▪ Identification.
– Takes place when specific goods
are designated as the subject
matter of the contract.
– Gives buyer insurable interest and
rights against third parties.
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LO1
LO1
Identification (3)
▪ Existing Goods.
– If goods exist at the time of
contracting, identification takes
place at that time.
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LO1
LO1
Identification (4)
▪ Future Goods.
– That do not exist and cannot be
identified.
1. Identification of unborn animals
within 12 months takes place on
conception.
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LO1
LO1
Identification (5)
▪ Future Goods.
– That do not exist and cannot be
identified.
2. Identification of crops harvested
within 12 months of contracting
takes place at planting.
3. Other: identification takes place on
shipment, mark, or other
designation.
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LO1
LO1
Identification (6)
▪ Goods from a Larger Mass.
– Goods identified when marked,
shipped, or specially designated by
seller.
– Exceptions: Fungible goods that are
alike by physical nature, by agreement,
or by trade usage.
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Passage of Title (1)
▪ Once goods exist and are
identified, title can be determined.
▪ Unless agreed otherwise, usually
title passes upon physical delivery.
▪ UCC provisions do not apply to
leases.
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Passage of Title (2)
▪ Shipment Contracts.
– A contract requiring the seller to
deliver the goods to a carrier, at
which time title passes to the buyer.
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Passage of Title (3)
▪ Shipment Contracts.
– Generally all contracts are
assumed to be shipment contracts,
unless designated otherwise.
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Passage of Title (4)
▪ Destination Contracts.
– A contract for the sale of goods in
which the seller assumes liability
for any losses or damage to the
goods until they are tendered at
the destination specified in the
contract.
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Passage of Title (5)
▪ Delivery Without Movement of
Goods.
– Document of Title: paper exchanged
in the regular course of business
that evidences the right to
possession of goods (e.g., a bill of
lading or warehouse receipt).
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Passage of Title (6)
▪ Sales or Leases by Nonowners.
LO2
– Void Title.
• A buyer acquires at least whatever
title the seller has to the goods sold.
• If the seller is a thief, the seller’s title
is void.
• The same result would occur if the
goods were leased.
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Passage of Title (7)
▪ Sales or Leases by Nonowners.
LO2
– Voidable Title.
• Seller has voidable title if the goods he
is selling were obtained by fraud; paid
for with a dishonored check;
purchased from a minor, or purchased
on credit, when the seller was
insolvent.
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Passage of Title (8)
▪ Sales or Leases by Nonowners.
LO2
– Voidable Title.
• Seller with voidable title has the
power to transfer good title to a
good faith purchaser.
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Passage of Title (9)
▪ Sales or Leases by Nonowners.
– Entrustment Rule.
• Entrusting goods to a merchant who
deals in goods of that kind gives the
merchant the power to transfer all
rights to a buyer in the ordinary
course of business.
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LO2
Void and Voidable Title
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LO3
LO3
Risk of Loss (1)
▪ Not necessarily determined by
title.
▪ Can be determined by the
parties in the contract.
▪ May also depend on whether the
sales or lease contract has been
breached at the time of loss.
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LO3
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LO3
Risk of Loss (2)
20
LO3
LO3
Risk of Loss (3)
▪ Delivery with Movement of
Goods.
– Shipment contracts: risk of loss
passes to buyer when the goods
are delivered to the carrier.
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LO3
LO3
Risk of Loss (4)
▪ Delivery with Movement of
Goods.
– Destination Contracts: risk of loss
passes from the seller to the buyer
when the goods are tendered to
the buyer at the destination.
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LO3
LO3
Risk of Loss (5)
▪ Delivery without Movement of
Goods.
– Goods held by Seller or Lessor: if a
merchant, risk of loss passes to
buyer when buyer takes physical
possession of the goods.
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LO3
LO3
Risk of Loss (6)
▪ Delivery without Movement of
Goods.
– Goods Held by Bailee. Goods
usually represented by a document
of title (bill or lading or warehouse
receipt).
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LO3
LO3
Risk of Loss (7)
▪ Delivery Without Movement of
Goods.
– Goods Held by Bailee. ROL passes to
Buyer when: (1) buyer receives
negotiable document of title for
goods, (2) bailee acknowledges
buyer’s right to possess the goods,
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LO3
LO3
Risk of Loss (9)
▪ Delivery Without Movement of
Goods.
– Goods Held by Bailee. ROL to Buyer
when: (3) buyer receives a
nonnegotiable document of title and
presents it to bailee, to demand the
goods.
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LO3
LO3
Risk of Loss (10)
▪ Conditional Sales.
– Sale on Approval.
• Sale is final when buyer approves of
the good(s) sold. Approval may be
inferred if buyer keeps the goods
beyond a reasonable time or uses the
goods in any way that is inconsistent
with the seller’s ownership.
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LO3
LO3
Risk of Loss (11)
▪ Conditional Sales.
– Sale or Return.
• A type of conditional sale wherein title
and possession pass from the seller to
the buyer.
–However, buyer retains the option to
rescind or return the goods during a
specified period even though the
goods conform to the contract.
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Risk of Loss in Breach (1)
▪ Seller or Lessor Breach: if the goods
are so nonconforming that the buyer
has the right to reject them, the risk
of loss does not pass to the buyer
until the defects are cured.
– Cure: right of seller to correct his
contractual performance within the
contract period.
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Risk of Loss in Breach (2)
▪ Buyer or Lessee Breach:
1. The seller or lessor must have already
identified the goods under the contract.
2. The buyer or lessee bears the risk for
only a commercially reasonable time
after the seller or lessor learns of the
breach.
3. The buyer or lessee is liable only to the
extent of any deficiency in the seller’s
insurance coverage.
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LO4
LO4
Insurable Interest (1)
▪ Any party purchasing insurance
must have “sufficient interest.”
▪ Insurance law determines
“sufficiency”; not the UCC.
▪ The UCC does have certain rules
regarding insurable interest.
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LO4
LO4
Insurable Interest (2)
▪ An interest either in a person’s
life or well-being or in property
that is sufficiently substantial
that insuring against injury to the
person or damage to the
property does not amount to a
mere wagering (betting)
contract.
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LO4
LO4
Insurable Interest (3)
▪ Buyer or Lessee: have
insurable interest in identified
goods.
▪ Seller or Lessor: have
insurable interest as long as
they retain title to the goods.
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