A sale of goods is a present transfer of title to movable property for a price. This price may be a payment of money, an exchange of other property, or the performance of services. The parties to a sale are the person who owns the goods and the person to whom the title is transferred. The transferor is the seller or vendor, and the transferee is the buyer or vendee. The sale of goods is governed by Article 2 of the Uniform Commercial Code (UCC), a form of which has been adopted by every state. Goods, which is the subject matter of a sale, mean anything movable at the time it is identified as the subject of the transaction. The subject matter may not be:
- investment securities, such as stocks and bonds, the sale of which is regulated by Article 8 of the UCC;
- choses in action, such as insurance policies and promissory notes, because they are assigned or negotiated rather than sold, or which, because of their personal nature, are not transferable in any case; or
- real estate, such as a house, land, factory, or farm.
Most goods are tangible and solid, such as an automobile or a chair. But goods may also be fluid, such as oil or gasoline. Goods may also be intangible, such as natural gas and electricity. The UCC is applicable to both new and used goods. Goods that are physically existing and owned by the seller at the time of the transaction are called existing goods. All other goods are called future goods. Future goods include both goods that are physically existing but not owned by the seller and goods that have not yet been produced
A person can make a contract to sell goods at a future date. However, no sale can be made of future goods. Because the “seller” does not have any title to future goods, there can be no transfer of that title now, and therefore no sale. For example, suppose a farmer tried to transfer the title today to a future crop. He would have a contractual duty to transfer the crop when it came into existence. However, the contract itself would not pass the title to the crop.
A contract for services is an ordinary contract and is not a sale of goods. Therefore, such a contract would be covered by general contract law. However, what if the contract involved both goods and services? If a contract calls for both the rendering of services and the supplying of materials (goods) to be used in performing the services, the contract is classified according to its dominant element. If the sale of goods is dominant, it is a sales contract covered by Article 2 of the UCC. If the service element is dominant, it is a service contract and not covered by the UCC but is covered by general contract law. For example, a contract with someone who repaired bicycles is a contract for services, even if parts are supplied to perform the repairs. The supplying of the parts is not regarded as a sale but is merely incidental to the primary contract of making repairs. In contrast, the purchase of a television set, with the incidental service of installation, is a sale of goods because the purchase of the set is the dominant element.
Contrast Between General Contract Law and the Law of UCC Sales
To make the law harmonize with general business practices, a sales contract is not required to meet all of the same standards as ordinary contracts. For a sales contract, it is sufficient that the parties by their conduct recognize the existence of a contract, even though it cannot be determined when the contract was made, and (generally) even though one or more terms are left open.
Merchants: In most instances, the UCC treats all buyers and sellers alike. In some cases, it treats merchants differently than it does the occasional or casual buyer or seller. The UCC recognizes that the merchant is experienced and has a special knowledge of the relevant commercial practices.
Firm Offer: Contract law as to offers is applicable to a sales contract, with the following exception. A firm offer by a merchant cannot be revoked if the offer:
- expresses an intention that it will not be revoked,
- is in a writing, and
- is signed by the merchant.
For example, on May 15, Smith, a dealer, offered in a signed instrument to sell a stereo set to Bill for $500. By the terms of the offer, Bill was given until June 25 to accept the offer. On June 15, Bill received a writing from Smith revoking the offer. On June 20, Bill wrote Smith, “I hereby accept your offer of May 15.” Since Smith’s offer was a firm offer, which could not be revoked before June 25, there was an enforceable contract. An express period of irrevocability in the offer cannot exceed three months. If nothing is said as to the duration of the offer, the offer can be revoked after a reasonable time. A firm offer is effective regardless of whether the merchant received any consideration to keep the offer open.
Acceptance: An offer to buy or sell goods may be accepted in any manner and by any medium that is reasonable under the circumstances. However, if a specific manner or medium is clearly required by the terms of the offer or the circumstances of the case, the offer can only be accepted in that manner.
Additional Term in Offer– Unless it is expressly specified that an offer to buy or sell goods must be accepted just as made, the offeree may accept an offer and at the same time propose an additional term. This is contrary to general contract law. Under general contract law, the proposed additional term would be considered a counteroffer and the original offered would be rejected. Under Article 2 of the UCC, the new term does not reject the original offer. A contract arises on the terms of the original offer, and the new term is a counteroffer. The new term does not become binding until accepted by the original offeror. If, however, the offer states that it must be accepted exactly as made, the ordinary contract law rules apply.
In a transaction between merchants, the additional term becomes part of the contract if that term does not materially alter the offer and no objection is made to it. However, if such an additional term from the seller operates solely to the seller’s advantage, it is a material term and must be accepted by the buyer to be effective. A buyer may expressly or by conduct agree to a term added by the seller to the acceptance of the buyer ‘s offer. The buyer may agree orally or in writing to the additional term. There is an acceptance by conduct if the buyer accepts the goods with knowledge that the term has been added by the seller.
Conflicting Term in Offer- When a term of an acceptance conflicts with a term of an offer, but it is clear that the parties intended to be bound by a contract, the UCC recognizes the formation of a contract. The terms that are conflicting cancel each other out and are ignored. The contract then consists of the terms of the offer and acceptance that agree, together with those terms that the UCC or contract law implies into a contract.
Determination of Price — The price for goods may be expressly fixed by the contract. If not fixed by the contract, the price may be an open term, whereby the parties merely indicate how the price should be determined at a later time or make no provision whatever as to the price. When persons experienced in a particular industry make a contract for goods without specifying the price to be paid, the price will be determined by the manner that is customary in the industry. Ordinarily, if nothing is said as to price, the buyer is required to pay the reasonable value of the goods, which is generally the market price. In recent years, there has been an increase in the use of the cost plus formula for determining price. Under this formula, the buyer pays the seller a sum equal to the cost to the seller of obtaining the goods plus a specified percentage of that cost. The percentage represents the seller’s profit.
The contract may expressly provide that one of the parties may determine the price. In such a case, that party must act in good faith. The contract may specify that the price shall be determined by some standard or by a third person. For example, Lee agreed to sell Glen 1,000 yards of cotton fabric at a price to be fixed by White, a cotton fabric expert. If White fixes the price at $7 a yard, that price is as binding on the buyer and the seller as though it had been fixed by agreement between them. If White refuses to fix a price through no fault of the parties, the price will be a reasonable price, probably the current market price.
Output and Requirement Contracts — Somewhat related to the open-term rule concerning price is the rule involved in output and requirement contracts that the quantity to be sold or purchased is not a specific quantity. Instead, it is the amount that the seller should produce or the buyer should require. Although this introduces an element of uncertainty, such sales contracts are valid. To prevent oppression, these contracts are subject to two limitations: (1) the parties must act in good faith, and (2) the quantity offered or demanded must not be unreasonably disproportionate to prior output or requirements or to a stated estimate.
Indefinite Duration Contract
When the sales contract is a continuing contract, such as one calling for periodic delivery of gas, but no time is set for the life of the contract, the contract runs for a reasonable time. It may be terminated on notice by either party.
Modification of Contract
An agreement to modify a contract for the sale of goods is binding even though the modification is not supported by consideration.
Parol Evidence Rule
The parol evidence rule applies to the sale of goods, with the slight modification that a writing is not presumed to represent the entire contract of the parties unless the court specifically decides that it does. If the court so decides, parol evidence is not admissible to add to or contradict the terms of the writing. If the court decides that the writing was not intended to represent the entire contract, the writing may be supplemented by proof of additional terms, as long as these terms are not inconsistent with the written terms.
Usage of Trade and Course of Dealing
The patterns of doing business as shown by the prior dealings of the parties may form part of their contract. These patterns may be looked to in order to find what was intended by the express provisions of the agreement and to supply otherwise missing terms.
Fraud and Other Defenses
The defenses that may be raised in a suit on a sales contract are, in general, the same as those that may be raised in a suit on any other contract. A defrauded party may cancel the transaction and recover what was paid or the goods that were delivered, together with damages for any loss sustained. If the buyer obtained title by means of fraud, the title is voidable by an innocent seller.
Bulk Sale
A bulk sale is a sale of goods by a business which engages in selling items out of inventory (as opposed to manufacturing or service industries), often in liquidating or selling a business. This type of sale is governed by the bulk sales law which is Article 6 of the UCC. When merchants are about to transfer a major part of their materials, supplies, merchandise, or other inventory (not in the ordinary course of business), advance notice of the transfer should be given to creditors. This notice should be given by the transferee. If the notice required by Article 6 is not given, the creditors of the seller may enforce their claims on property in the hands of the buyer. Creditors may also reach the property in the hands of any subsequent transferee who knew that there had not been compliance with the UCC or who did not pay a reasonable value for the goods. This provision is designed to protect the creditors of a merchant from the merchant’s selling all the inventory, pocketing the money, and then disappearing, leaving the creditors unpaid.
Ordinarily, the bulk purchaser who receives the goods does not become liable for the debts of the bulk seller merely because the requirements of Article 6 have not been satisfied. However, if the buyer mixes the transferred goods with other goods so that it is not possible for the creditor to identify the transferred goods that are subject to the creditor’s claim, the bulk buyer is personally liable for the debts of the bulk seller, up to the value of the transferred goods.
Frequently Asked Questions
What is the Uniform Commercial Code?
The Uniform Commercial Code (UCC) is a model statute covering things such as the sale of goods, credit, bank transactions, conduct of business, warranties, negotiable instruments, loans secured by personal property and other commercial matters. All states have adopted and adapted the entire UCC, with the exception of Louisiana, which only adopted parts of it. Article 2 of the UCC deals with sales.
How does the UCC define a “sale”?
A sale of goods is a present transfer of title to movable property for a price. This price may be a payment of money, an exchange of other property, or the performance of services.
What are goods?
Goods are anything movable at the time it is identified as the subject of the transaction. Most goods are tangible and solid, such as an automobile or a chair. But goods may also be fluid, such as oil or gasoline. Goods may also be intangible, such as natural gas and electricity. The UCC is applicable to both new and used goods. It does not apply to real estate.
What about a contract for services — like a contract with an electrician to wire a new house?
A contract for services is an ordinary contract and is not a sale of goods. Therefore, such a contract would be covered by general contract law.
What about a contract that deals with both goods and services?
If a contract calls for both the rendering of services and the supplying of materials (goods) to be used in performing the services, the contract is classified according to its dominant element. If the sale of goods is dominant, it is a sales contract covered by Article 2 of the UCC. If the service element is dominant, it is a service contract and not covered by the UCC but is covered by general contract law. For example, a contract with someone who repaired bicycles is a contract for services, even if parts are supplied to perform the repairs. The supplying of the parts is not regarded as a sale but is merely incidental to the primary contract of making repairs. In contrast, the purchase of a television set, with the incidental service of installation, is a sale of goods because the purchase of the set is the dominant element.
Are there any major differences between the law of sales as set forth in Article 2 of the UCC and general contract law? Yes, the following is a brief overview of the differences:
In most instances, the UCC treats all buyers and sellers alike. In some cases, it treats merchants differently than it does the occasional or casual buyer or seller. The UCC recognizes that the merchant is experienced and has a special knowledge of the relevant commercial practices.
Firm Offer. Contract law as to offers is applicable to a sales contract, with the following exception. A firm offer by a merchant cannot be revoked if the offer:
- expresses an intention that it will not be revoked,
- is in a writing, and
- is signed by the merchant.
Acceptance. An offer to buy or sell goods may be accepted in any manner and by any medium that is reasonable under the circumstances. However, if a specific manner or medium is clearly required by the terms of the offer or the circumstances of the case, the offer can only be accepted in that manner.
Additional Term in Offer. Unless it is expressly specified that an offer to buy or sell goods must be accepted just as made, the offeree may accept an offer and at the same time propose an additional term. The new term does not reject the original offer. A contract arises on the terms of the original offer, and the new term is a counteroffer. The new term does not become binding until accepted by the original offeror. If, however, the offer states that it must be accepted exactly as made, the ordinary contract law rules apply. In a transaction between merchants, the additional term becomes part of the contract if that term does not materially alter the offer and no objection is made to it. However, if such an additional term from the seller operates solely to the seller’s advantage, it is a material term and must be accepted by the buyer to be effective.
Conflicting Term in Offer. When a term of an acceptance conflicts with a term of an offer, but it is clear that the parties intended to be bound by a contract, the UCC recognizes the formation of a contract. The terms that are conflicting cancel each other out and are ignored. The contract then consists of the terms of the offer and acceptance that agree, together with those terms that the UCC or contract law implies into a contract.
Determination of Price. The price for goods may be expressly fixed by the contract. If not fixed by the contract, the price may be an open term, whereby the parties merely indicate how the price should be determined at a later time or make no provision whatever as to the price. When persons experienced in a particular industry make a contract for goods without specifying the price to be paid, the price will be determined by the manner that is customary in the industry. Ordinarily, if nothing is said as to price, the buyer is required to pay the reasonable value of the goods, which is generally the market price.
Output and Requirement Contracts. Somewhat related to the open-term rule concerning price is the rule involved in output and requirement contracts that the quantity to be sold or purchased is not a specific quantity. Instead, it is the amount that the seller should produce or the buyer should require. Although this introduces an element of uncertainty, such sales contracts are valid. To prevent oppression, these contracts are subject to two limitations: (1) the parties must act in good faith, and (2) the quantity offered or demanded must not be unreasonably disproportionate to prior output or requirements or to a stated estimate.
Indefinite Duration Contract. When the sales contract is a continuing contract, such as one calling for periodic delivery of gas, but no time is set for the life of the contract, the contract runs for a reasonable time. It may be terminated on notice by either party.
Modification of Contract. An agreement to modify a contract for the sale of goods is binding even though the modification is not supported by consideration.
Parol Evidence Rule. The parol evidence rule applies to the sale of goods, with the slight modification that a writing is not presumed to represent the entire contract of the parties unless the court specifically decides that it does.
Usage of Trade and Course of Dealing. The patterns of doing business as shown by the prior dealings of the parties may form part of their contract. These patterns may be looked to in order to find what was intended by the express provisions of the agreement and to supply otherwise missing terms.
What is a merchant?
The word “Merchant” is defined by § 2-104 of the UCC as a person that deals in goods of the kind or otherwise holds itself out by occupation as having knowledge or skill peculiar to the practices or goods involved in the transaction.
Why are merchants treated differently by the UCC? The UCC recognizes that the merchant is experienced and has a special knowledge of the relevant commercial practices.
What is a bulk sale?
A bulk sale is a sale of goods by a business which engages in selling items out of inventory (as opposed to manufacturing or service industries), often in liquidating or selling a business. This type of sale is governed by the bulk sales law which is Article 6 of the UCC. When merchants are about to transfer a major part of their materials, supplies, merchandise, or other inventory (not in the ordinary course of business), advance notice of the transfer should be given to creditors. This notice should be given by the transferee. If the notice required by Article 6 is not given, the creditors of the seller may enforce their claims on property in the hands of the buyer. Creditors may also reach the property in the hands of any subsequent transferee who knew that there had not been compliance with the UCC or who did not pay a reasonable value for the goods. This provision is designed to protect the creditors of a merchant from the merchant’s selling all the inventory, pocketing the money, and then disappearing, leaving the creditors unpaid.
Statute of Frauds
A contract for the sale of goods may be oral or written. In some cases, it must be evidenced by a writing or it cannot be enforced in court. Whenever the sales price of goods is $500 or more, the sales contract must be evidenced by a writing to be enforceable. The writing evidencing the sales contract may be either a complete written contract signed by both parties or (b) a memorandum signed by the defendant. The writing must indicate that there has been a completed transaction as to certain goods. It needs to indicate that a sale has been made and the quantity of goods involved. Any other missing terms may be shown by parol evidence. The writing must be signed by the person who is being sued or by the authorized agent of that person. The signature must be placed on the paper with the intention of authenticating the writing. The signature may consist of initials or may be printed, stamped, or typewritten, as long as it is made with the necessary intent.
When the transaction is between merchants, an exception is made to the requirement of signing. The failure of a merchant to repudiate a confirming letter sent by another merchant within ten days of receiving such a letter binds the merchant who did not sign just as he had signed the letter. This makes it necessary for a merchant seller to watch the mail and to act within ten days of receiving a mailed confirmation. For example, Adam and Sam both merchants, entered into an oral agreement for the sale of mattresses to Adam for $1,000. Adam immediately sent Sam a letter confirming the agreement. Sam did not make a written objection to the contents of Adam’s letter within ten days, but Sam refuses to deliver the mattresses. Sam is bound by the agreement.
A writing can satisfy a statute of frauds, even though it was not made for that purpose. When the buyer writes to the seller 30 days after delivery and merely criticizes the quality of the goods, the letter may satisfy the statute since it indicates that there was a sale of those goods. Formal contracts, bills of sale, and letters are common forms of writings that satisfy the requirement. Purchase orders, cash register receipts, sales tickets, invoices, and similar papers generally do not satisfy the requirement as to a signature, and sometimes they do not specify any quantity or commodity.
A sales agreement that does not satisfy the statute of frauds cannot be enforced. However, the oral contract itself is not unlawful and may be voluntarily performed by the parties.
Exceptions to Requirement of a Writing
The absence of a writing does not always bar proof of a sales contract.
- Nonresellable Goods. No writing is required when the goods are specially made for the buyer and are of such an unusual nature that they are not suitable for sale in the ordinary course of the seller’s business. For example, four reinforced steel doors were custom made by the seller for the buyer‘s building. The doors were not suitable for sale to anyone else in the ordinary course of the seller’s business, and they could only be sold as scrap. In this case, an oral contract of sale could be enforced. In order for the nonresellable goods exception to apply, the seller must have made a substantial beginning in manufacturing the goods or, if a distributor, in procuring them, before notice of repudiation by the buyer is received.
- Receipt and Acceptance. An oral sales contract may be enforced if it can be shown that the goods were delivered by the seller and were both received and accepted by the buyer. Therefore, if the buyer receives and accepts goods on credit, the seller may sue for the purchase price, even if it is over $500 and there is no writing. The receipt and acceptance of the goods by the buyer took the contract out of the statute of frauds. Both a receipt and an acceptance by the buyer must be shown.
- Payment. An oral contract may be enforced if the buyer has made full payment. In the case of part payment for divisible units of goods, a contract may be enforced only with respect to the goods for which payment has been made and accepted. If part payment is made for indivisible goods, such as an automobile, a part payment avoids the statute of frauds and permits proof of the entire oral contract.
- Admission. An oral contract may be enforced if the party against whom enforcement is sought admits in pleadings, testimony, or otherwise in court that a contract for sale was made. The contract, however, is not enforceable beyond the quantity of goods admitted.
Does the UCC require that all contracts regarding the sale of goods be in writing? A contract for the sale of goods may be oral or written. In some cases, it must be evidenced by a writing or it cannot be enforced in court. Whenever the sales price of goods is $500 or more, the sales contract must be evidenced by a writing to be enforceable. The writing evidencing the sales contract may be either a complete written contract signed by both parties or (b) a memorandum signed by the defendant. The writing must indicate that there has been a completed transaction as to certain goods. It needs to indicate that a sale has been made and the quantity of goods involved. Any other missing terms may be shown by parol evidence.
When the transaction is between merchants, an exception is made to the requirement of signing. The failure of a merchant to repudiate a confirming letter sent by another merchant within ten days of receiving such a letter binds the merchant who did not sign just as he had signed the letter. This makes it necessary for a merchant seller to watch the mail and to act within ten days of receiving a mailed confirmation.
Bill of Sale
A bill of sale is a document that transfers ownership of personal property from a seller to the buyer. It acts as a basic agreement for sale of goods, and a sales receipt. .A Bill of Sale also constitutes a record of the transaction for both the seller and buyer. It can provide the seller with a record of what has been sold, to whom, when, and for what price.
Most bill of sale forms should contain the following information:
- Amount of consideration paid for the transfer of title and date of purchase.
- Name and address of Seller
- Name and address of Buyer
- Specific information about the asset being transferred from the seller to the buyer.
- Guarantee from the seller that the item is free from all claims and offsets.
- Any representations or warranties
- Signature of the seller(s)
- Signature of a notary public.
Frequently Asked Questions – Bill of Sale
Does a bill of sale have to be recorded?
Generally, a bill of sale does not have to be recorded but may be required as proof of ownership.
Who must sign a bill of sale?
The owners of the property being sold must sign. If the property is owned jointly, both owners must generally sign.
May I use a bill of sale for the sell of a dog?
Yes. A pet is considered personal property and may be transferred by personal property bill of sale.
What does with or without warranties mean?
A bill of sale with warranties means that you assure the buyer that the property is yours and that you have the right to transfer the property and will defend the buyer from other persons who may claim the property. A bill of sale without warranties means that you quitclaim the property and do not warrant title. A quitclaim is used in several situations, such as where the seller cannot prove ownership in the seller, or where the seller just does not want to warrant title to the property. This is similar to a quitclaim deed as compared to a warranty deed.
What are the execution and witness requirements?
The requirements of how the bill of sale must be signed is governed by State law and varies from State to State. Some States require that a bill of sale be witnessed, others require that it be notarized and some do not require witnessing or a notary.
What does “as-is” mean?
This means that the seller you do not guarantee the condition of the property or that the property is free from defect. The transfer is generally without warranties and is used to protect the seller.
Products Liability and Warranties
Express Warranties
An express warranty is a statement by the seller relating to the goods, which statement is part of the basis of the bargain. This means that the buyer has purchased the goods on the reasonable assumption that they were as stated by the seller. Thus, a statement by the seller with respect to the quality, capacity, or other characteristic of the goods is an express warranty. For example, “This shirt is 100% cotton.”
No particular form of words is necessary to constitute an express warranty. A sale does not need to state that a warranty is being made or that one is intended. It is sufficient that the seller assert a fact that becomes a part or term of the bargain or transaction between the parties. An express warranty may even be demonstrated by conduct. If the buyer asks to purchase a light blue shirt that is 100% cotton, and the seller hands over a light blue shirt, the seller’s conduct expresses a warranty that the shirt is 100% cotton. The words on the label of a can for Florida orange juice is an express warranty that the orange juice comes from Florida.
“Sales talk” or “puffery” by a seller such as “this is the best used car money can buy” cannot ordinarily treat as a warranty. However, if the buyer has reason to believe that the seller has expert knowledge of the conditions of the market and the buyer requests the seller’s opinion as an expert, the buyer would be entitled to accept as a fact the seller’s statement as to whether a given article was the best obtainable, The statement could be reasonably regarded as forming part of the basis of the bargain.
When the contract is based in part on the understanding that the seller will supply goods according to a particular description or that the goods will be the same as the sample or a model, the seller is bound by an express warranty that the goods shall conform to the description, sample, or model.
If the express warranty is false, there is a breach of the warranty. The warrantor is then liable just as though the truth of the warranty had been guaranteed. It is no defense that the defendant honestly believed that the warranty was true, had exercised due care in manufacturing or handling the product, or had no reason to believe that the warranty was false.
Implied Warranties
An implied warranty is one that was not made by the seller but is implied by law. In certain instances, the law implies or reads a warranty into a sale, although the seller did not make it. That is, the implied warranty arises automatically from the fact that a sale has been made.
Express warranties arise because they form part of the basis on which the sale has been made. The fact that express warranties are made does not exclude implied warranties. When both express and implied warranties exist, they should be construed as being consistent with each other and cumulative if such a construction is reasonable. In case it is unreasonable to construe them as consistent and cumulative, an express warranty prevails over an implied warranty as to the subject matter of the sale, except in the case of an implied warranty of fitness for a particular purpose.
A distinction is made between a merchant seller and the casual seller with regard to implied warranties.
Warranty of Title
Every seller, by the mere act of selling, makes a warranty that the seller’s title is good and that the transfer is lawful as to passage of title. A warranty of title may be specifically excluded, or the circumstances may be such as to prevent the warranty from arising. The latter situation is found when the buyer has reason to know that the seller does not claim to hold the title or that the seller is purporting to sell only such right or title as the seller or a third person may have. For example, no warranty of title arises when the seller makes the sale in a representative capacity, such as a sheriff, an auctioneer, or an administrator of a decedent’s estate.
Warranty Against Encumbrances
Every seller, by the mere act of selling, makes a warranty that the goods shall be delivered free from any lien of which the buyer at the time of the sales transaction had no knowledge.
Warranty of fitness for a particular purpose.
A buyer may intend to use the goods for a particular or unusual purpose, compared to the ordinary use for which the goods are customarily sold. If so, the seller makes an implied warranty that the goods will be fit for that purpose when:
- the buyer relies on the seller ‘s skill or judgment to select or furnish suitable goods, and
- when the seller at the time of contracting knows or has reason to know the
- buyer’s particular purpose and of the buyer’s reliance on the seller’s judgment.
When the buyer makes the purchase without relying on the seller’s skill and judgment, no warranty of fitness for a particular purpose arises.
Additional implied warranties of merchant seller
- Warranty against infringement. Unless otherwise agreed, every merchant seller warrants that the goods will be delivered free of the rightful claim of any third person by way of patent infringement, trademark infringement, or any other intellectual property law infringement.
- Warranty of fitness for normal use. A merchant seller makes an implied warranty of the merchantability of the goods sold. This warranty is in fact a group of warranties, the most important of which is that the goods are fit for the ordinary purposes for which they are sold.
Warranties in Particular Sales
- Sale on Buyer’s Specifications. When the buyer furnishes the seller with exact specifications for the preparation or manufacture of goods, the same warranties arise as in the case of any other sale of such goods by the particular seller. However, no warranty of fitness for a particular purpose can arise since it s clear that the buyer is purchasing on the basis of the buyer’s own decision and is not relying on the seller’s skill and judgment.
- Sale of Secondhand or Used Goods. As far as the UCC is concerned, there is no difference between the warranties arising in the sale of used goods and those arising in the sale of new goods. With respect to used goods, what is “fit for normal use” will be a lower standard for used than for new goods.
- Sale of Food or Drink. The sale of food or drink, whether to be consumed or off the seller’s premises, is a sale. When made by a merchant, a sale of food or drink carries the implied warranty that the food is fit for its ordinary purpose, i.e., human consumption.
Necessity of Defect
To impose liability for breach of the implied warranty of merchantability, it is ordinarily necessary to show that there was a defect in the product and that this defect made the product not fit for its normal use and that this caused the plaintiff’s harm. A product may be defective because there is:
- a manufacturing defect,
- a design defect,
- inadequate instruction on how to use the product, or
- inadequate warning against dangers involved in using the product.
If the manufacturer’s blueprint shows that there should be two bolts at a particular place on the property and the factory puts in only one bolt, there is a manufacturing defect. If the two bolts are put in but the product breaks because four bolts are required to provide sufficient strength, there is no manufacturing defect, but there is a design defect. A product that is properly designed and properly manufactured may be dangerous because the user is not given sufficient instructions on how to use the product. Also, a product is defective if there is a danger that is not obvious and there is no warning at all or a warning that does not describe the full danger.
Is there any basic warranty coverage that automatically comes with a consumer product?
Customers will almost always receive the basic protection of the implied warranty of merchantability and the implied warranty of fitness for a particular purpose. Most states prohibit anyone who offers a written warranty from disclaiming or modifying implied warranties.
What is a full warranty? A warranty is a “full” warranty when:
- There is not a limit the duration of implied warranties
- Coverage is not limit to first purchasers
- Warranty service is free of charge, including such costs as returning the product or removing and reinstalling the product when necessary
- At the consumer’s choice, either a replacement or a full refund if, after a reasonable number of tries, the product can’t be repaired
- Consumers aren’t required to perform any duty as a precondition for receiving service, except notice that service is needed
Is a warranty a contract the manufacturer must honor? Yes, a warranty is a contract that commits the manufacturer to stand behind the product.
If a product doesn’t perform as anticipated, is it covered by any type of warranty?
A merchant seller makes an implied warranty of the merchantability of the goods he sells. This warranty is in fact a group of warranties, the most important of which is that the goods are fit for the ordinary purposes for which they are sold. The law says that merchants make this promise automatically every time they sell a product they are in business to sell.
I bought a washer because of what the salesperson said it would do. It does not do what he said. Do I have any legal recourse? A buyer may intend to use the goods for a particular or unusual purpose, compared to the ordinary use for which the goods are customarily sold. If so, the seller makes an implied warranty that the goods will be fit for that purpose when:
- the buyer relies on the seller ‘s skill or judgment to select or furnish suitable goods, and
- when the seller at the time of contracting knows or has reason to know the buyer’s particular purpose and of the buyer’s reliance on the seller’s judgment.
When the buyer makes the purchase without relying on the seller’s skill and judgment, no warranty of fitness for a particular purpose arises.
I feel the product I purchased is wearing out prematurely. Isn’t this covered under my warranty?
Implied warranties are promises about the condition of products at the time they are sold, but they do not assure that a product will last for any specific length of time. Everything that can possibly go wrong with a product does not fall within the scope of implied warranties. For example, implied warranties do not cover problems such as those caused by:
- Abuse;
- Misuse;
- Ordinary wear;
- Failure to follow directions; and
- Improper maintenance.
What is the statue of limitations claim for breach of warranty issue?
State statutes of limitation for breach of either an express or an implied warranty are generally four years from date of purchase. This means that buyers have four years in which to discover and seek a remedy for problems that were present in the product at the time it was sold. This does not mean that the product must last for four years. It means only that the product must be of normal durability, considering its nature and price.
Is there any type of warranty for a product I bought from a second-hand store?
As far as the UCC is concerned, there is no difference between the warranties arising in the sale of used goods and those arising in the sale of new goods. With respect to used goods, what is “fit for normal use” will be a lower standard for used than for new goods.
What is an express warranty?
Express warranties, unlike implied warranties, are not “read into” a sales contract by state law. An express warranty is a statement by the seller relating to the goods, which statement is part of the basis of the bargain. This means that the buyer has purchased the goods on the reasonable assumption that they were as stated by the seller. Thus, a statement by the seller with respect to the quality, capacity, or other characteristic of the goods is an express warranty. For example, “This shirt is 100% cotton.”
Coverage of Lemon Laws
These laws provide that if an automobile under warranty possesses a defect that significantly affects the vehicle’s value or use, and it is not fixed by the seller within a specified number of opportunities, the buyer is entitled to a new car, replacement of defective parts, or return of all consideration paid.
Product Liability
Products liability refers to the liability of any or all parties along the chain of manufacture of any product for damage caused by that product. This includes the manufacturer of component parts, an assembling manufacturer, the wholesaler, and the retail store owner. Product liability suits may be brought by the consumer or someone to whom the product was loaned. While products are generally thought of as tangible personal property, products liability law has stretched that definition to include intangibles (gas), naturals (pets), real estate (house), and writings (navigational charts).
Products liability claims can be based on negligence, strict liability, or breach of warranty of fitness depending on the jurisdiction within which the claim is based. In a strict liability theory of liability, the degree of care exercised by the manufacturer is irrelevant. As long as the product is proven to be defective, the manufacturer will be held liable for the harm resulting from the defect.
Claims may be based on the common law of the states or on the Uniform Commercial Code (UCC). Article 2 of the UCC deals with the sales of goods and it has been adopted by most states. The most important products liability sections are the implied and express warranties of merchantability in the sales of goods.
In order to prevail on a product liability claim, the product complained of must be shown to be defective. There are three types of product defects that incur liability in manufacturers and suppliers: design defects, manufacturing defects, and defects in marketing. Design defects are inherent; they exist before the product is manufactured. While the item might serve its intended use, it can be unreasonably dangerous to use due to a design flaw. Manufacturing defects occur during the construction or production of the item. Only a few out of many products of the same type are flawed in this case. Defects in marketing deal with improper instructions and failures to warn consumers of latent or hidden dangers in the product.
Negligence — Due Care Must Be Exercised
Due care must be exercised in designing products, in selecting materials, in producing and testing products, and in placing warnings on labels informing users of dangers of which an ordinary person might not be aware. The duty of care extends to inspecting and testing products that a manufacturer buys for use in the final product.
Privity of Contract Not Required — An action based on negligence does not require privity of contract.
Can a manufacturer be held liable to any person who suffers an injury proximately caused by the manufacturer’s negligently made product? Privity of contract is not required for recovery by an injured plaintiff on the ground of negligence in a product liability action. In other words, a manufacturer is liable for its failure to exercise due care to any person who sustains an injury proximately caused by a negligently made product, regardless of whether the injured person is in privity with the manufacturer.
Restatement (Second) of Torts, Section 395, Comments: “A manufacturer who fails to use reasonable care in manufacturing its product may be liable for harm caused by the product to those whom the manufacturer should expect to be endangered by use of the product. This rule is stated in the Restatement (Second) of Torts, Section 395.
Misrepresentation
When fraudulent misrepresentation to a user or consumer results in injury, it may serve as a basis of liability. A bad ad or label can show intent, but the injured party must have relied on it.
Strict Product Liability
Imposed since the 1960s in many states, strict product liability is not recognized in all states, and certain types of damage are not recoverable.
Strict Product Liability and Public Policy — Strict liability is imposed as a matter of public policy.
The Restatement (Second) of Torts explains how the doctrine of strict liability should be applied to assess liability against sellers of goods (including manufacturers, processors, assemblers, packagers, bottlers, wholesalers, distributors, and retailers). The following is the text of Restatement (Second) of Torts, Section 402A, Comments—selected comments accompanying the section.
A product is not in a defective condition when it is safe for normal handling and consumption. If the injury results from abnormal handling, as where a bottled beverage is knocked against a radiator to remove the cap, or from abnormal preparation for use, as where too much salt is added to food, or from abnormal consumption, as where a child eats too much candy and is made ill, the seller is not liable. Where, however, he has reason to anticipate that danger may result from a particular use, as where a drug is sold which is safe only in limited doses, he may be required to give adequate warning of the danger * * *, and a product sold without such warning is in defective condition.
The defective condition may arise not only from harmful ingredients, not characteristic of the product itself either as to presence or quantity, but also from foreign objects contained in the product, from decay or deterioration before sale, or from the way in which the product is prepared or packed. No reason is apparent for distinguishing between the product itself and the container in which it is supplied; and the two are purchased by the user or consumer as an integrated whole. Where the container is itself dangerous, the product is sold in a defective condition. Thus a carbonated beverage in a bottle which is so weak or cracked, or jagged at the edges, or bottled under such excessive pressure that it may explode or otherwise cause harm to the person who handles it, is in a defective and dangerous condition. The container cannot logically be separated from the content when the two are sold as a unit, and the liability stated in this Section arises not only when the consumer drinks the beverage and is poisoned by it, but also when he is injured by the bottle while he is handling it preparatory to consumption.
Unreasonably dangerous. The rule stated in this Section applies only where the defective condition of the product makes it unreasonably dangerous to the user or consumer. Many products cannot possibly be made entirely safe for all consumption, and any food or drug necessarily involves some risk of harm, if only from over-consumption. Ordinary sugar is a deadly poison to diabetics, and castor oil found use under Mussolini as an instrument of torture. That is not what is meant by “unreasonably dangerous” in this Section. The article sold must be dangerous to an extent beyond that which would be contemplated by the ordinary consumer who purchases it, with the ordinary knowledge common to the community as to its characteristics. Good whiskey is not unreasonably dangerous merely because it will make some people drunk, and is especially dangerous to alcoholics; but bad whiskey containing a dangerous amount of fusel oil, is unreasonably dangerous. Good tobacco is not unreasonably dangerous merely because the effects of smoking may be harmful; but tobacco containing something like marijuana may be unreasonably dangerous. Good butter is not unreasonably dangerous merely because, if such be the case, it deposits cholesterol in the arteries and leads to heart attacks; but bad butter, contaminated with poisonous fish oil, is unreasonably dangerous.
Requirements for Strict Product Liability
For a cause of action in strict product liability against a manufacturer—
- A product must be in a defective condition when the manufacturer sells it. The manufacturer must be normally engaged in the business of selling it.
- The product must be unreasonably dangerous to a user or consumer because of its defective condition (not required in all states).
- A plaintiff must incur physical harm to self or property by use or consumption of the product.
- The defective condition must proximately cause the injury or damage.
- The product must not have been substantially changed from the time it was sold to the time of the injury.
What are the elements of a cause of action in strict product liability? Under Section 402A of the Restatement (Second) of Torts, the elements of an action for strict product liability are (i) the product must be in a defective condition when the defendant sells it; (ii) the defendant must normally be engaged in the business of selling (or distributing) that product; (iii) the product must be unreasonably dangerous to the user or consumer because of its defective condition (in most states); (iv) the plaintiff must incur physical harm to self or property by use or consumption of the product; (v) the defective condition must be the proximate cause of the injury or damage; and (vi) the goods must not have been substantially changed from the time the product was sold to the time the injury was sustained.
Proving a Defective Condition
It need not be shown why or how a product became defective, but it must be shown that at the time of the injury, the product’s condition was essentially the same as it was in the hands of the manufacturer or seller.
Unreasonably Dangerous Products
A product is reasonably dangerous if:
- It is dangerous beyond the reasonable expectations of the ordinary consumer.
- A less dangerous alternative was economically feasible but the manufacturer failed to produce it.
Product Defects — Restatement (Third) of Torts
The Restatement (Third) of Torts: Products Liability replaces some of the hard-to-understand distinctions that developed when courts applied different theories of liability to the same defects. The Restatement (Third) categorizes product defects into the following three types.
- Manufacturing Defects – A product “contains a manufacturing defect when the product departs from its intended design even though all possible care was exercised in the preparation and marketing of the product.” This includes products that are physically flawed, damaged, or incorrectly assembled.
- Design Defects – A product “is defective in design when the foreseeable risks of harm posed by the product could have been reduced or avoided by the adoption of a reasonable alternative design by the seller or other distributor, or a predecessor in the commercial chain of distribution, and the omission of the alternative design renders the product not reasonably safe.” To determine whether a product has a design defect, the focus is on its actual design and the reasonableness of that design. To succeed on this theory, a plaintiff has to show that there is a reasonable alternative design. A defendant is liable only when the harm was reasonably preventable.
Test for Design Defects
To determine whether a product has a design defect, the focus is on its actual design and the reasonableness of that design. To succeed on this theory, a plaintiff has to show that there is a reasonable alternative design. A defendant is liable only when the harm was reasonably preventable.
Bullock v. Philip Morris USA, Inc.[1]
Jodie Bullock smoked Philip Morris-branded cigarettes for forty-five years from 1956 until she was diagnosed with lung cancer in 2001. Despite proof as early as the 1950s that smoking caused cancer, Philip Morris contended in its ads, and its executives asserted in interviews, that there was no proof. Jodie Bullock sued Philip Morris on a product liability theory. At trial, the jury found that a defect in cigarettes’ design, attributable to negligence, and awarded Bullock $850,000 in compensatory damages and $28 billion in punitive damages. Philip Morris appealed.
The California Court of Appeal for the Second District affirmed. Philip Morris failed to show any error with respect to its liability for products liability based on a design defect. “A product is defective in design for purposes of tort liability if the benefits of the design do not outweigh the risk of danger inherent in the design, or if the product, used in an intended or reasonably foreseeable manner, has failed to perform as safely as an ordinary consumer would expect.”
It seems clear that the “benefits” of the design of cigarettes do not outweigh the risk of the danger in their use. That risk is the potential—if not inevitable or predictable—effect on a smoker’s health. But what are cigarettes’ “benefits”? It might be said that there is some physical pleasure in smoking, and that that is the benefit, but this benefit is arguably short-lived. There may be some emotional satisfaction in the pose of smoking—“it’s cool”—or there may some allaying of “nerves” in the activity of it. What sort of safety does the ordinary consumer expect in the use of cigarettes? It might be that a consumers’ sense of safety with respect to cigarettes, or any other product, arises from a general feeling of security in reliance on the good faith of corporations ad other businesses to market products that are relatively safe, despite their apparent harm.
Under what circumstances, if any, could Philip Morris have justified its continuing campaign to discredit the scientific arguments that linked smoking with lung cancer? If the science purporting to support a link between smoking and cancer were less solid, or if the accompanying statistics were less valid, Philip Morris might have been able to justify its claims to that effect. Also. profiting from the sale of tobacco products was most likely the company’s motivation for denying the asserted link between smoking and bad health (and any connection between smoking and other adverse consequences, such as addiction). That profit would very likely have been reduced if customers and potential customers came to believe that smoking and ill effects were inextricably linked. In support of this motive, the company might have argued that it gave jobs to many people in diverse occupations, from farming to factory work, advertising and distribution to wholesale and retail sales.
Inadequate Warnings
A product “is defective because of inadequate instructions or warnings when the foreseeable risks of harm posed by the product could have been reduced or avoided by the provision of reasonable instructions or warnings by the seller or other distributor, or a predecessor in the commercial chain of distribution, and the omission of the instructions or warnings renders the product not reasonably safe.” There is no duty to warn about risks that are obvious or commonly known. There is a duty to warn of harm that can result from foreseeable misuse.
Other Applications of Strict Liability
The strict liability doctrine has been expanded to include suppliers of component parts. All courts extend the strict liability of manufacturers and other sellers to injured bystanders.
Statutes of Repose
A statute of repose may limit the time within which a plaintiff can file a suit, but a statute of repose begins to run at an earlier date and runs for a longer time than a statute of limitations.
Defenses to Product Liability
One defense is that there is no basis for the claim because the plaintiff has not proved its elements.
Assumption of Risk
In some states, the following elements must be shown: (i) the plaintiff voluntarily engaged in the risk while realizing the potential danger, (ii) the plaintiff knew and appreciated the risk created by the defect, and (ii) the plaintiff’s decision to undertake the known risk was unreasonable.
Product Misuse
If a party used a product for something for which it was not designed, the party may not be able to recover in strict liability (some courts hold, however, that if a misuse is reasonably foreseeable, a seller must take measures to guard against it).
Comparative Negligence (Fault)
Most courts consider a plaintiff’s negligence in apportioning liability. Some courts will consider only a plaintiff’s intentional conduct, however.
Commonly Known Dangers
If a plaintiff’s injury resulted from a commonly known danger, the defendant will not be liable.
What is the difference between express warranties and puffing? A seller’s statement about the value or worth of goods (“they’re priceless”) or a seller’s statement of opinion (“this is the best used car to come along in years”) is not an express warranty but puffing, which creates no warranty. A seller who is an expert can create a warranty by giving an opinion as an expert (an art dealer, for instance, who is an expert in twentieth-century paintings, who tells a buyer that a print is a Warhol warrants the accuracy of the opinion). What constitutes an express warranty and what constitutes puffing is often controlled by the reasonableness of a buyer’s reliance (statements on which no reasonable person would rely are puffing). Whether a statement is made orally or in writing and its specificity can be relevant to reasonableness.
If warranties are inconsistent, what are the priorities? If express and implied warranties are inconsistent: (i) express warranties displace implied warranties except implied warranties of fitness for a particular purpose (an express warranty in a contract for a short-wave radio, for example, stating that the radio will receive signals from 4,000 miles away displaces an implied warranty of fitness that a short-wave radio will pick up signals from any distance, but telling a buyer that the radio will receive signals from 8,000 miles, for which reason the buyer buys the radio, may violate a warranty of fitness for a particular purpose, which prevails over express warranties); (ii) samples displace general descriptions; and (iii) technical specifications displace samples or general descriptions.
How can implied warranties of merchantability and fitness for a particular purpose be disclaimed? Unless circumstances indicate otherwise, implied warranties are generally disclaimed by expressions such as “as is,” “with all faults,” and other similar phrases that call buyers’ attention to the fact that there are no implied warranties. To disclaim an implied warranty of fitness for a particular purpose, a disclaimer (“there are no warranties extending beyond the description on the face hereof”) must be written and be conspicuous. A merchantability disclaimer must mention merchantability, but it need not be written; if it is in writing, the writing must be conspicuous (printed in larger or differently colored type or with a heading in capitals, for example).
What effect does a buyer’s examination of the goods before contracting have on implied warranties? If a buyer examines goods or refuses to examine goods (or a sample or model) as much as he or she wants before contracting, there is no implied warranty with respect to defects that a reasonable examination will reveal (and the seller will not be liable for breach of warranty if the defects lead to an injury). A failure to examine goods available for inspection is not the same as a refusal to examine them; a refusal can occur only if a seller demands that a buyer examine the goods. A seller remains liable for latent (hidden) defects that a normal inspection would not reveal. What an examination should reveal depends on a buyer’s skill and method of examination (for example, an auto mechanic buying a car should discover defects that a nonexpert would not be expected to find).
When does a cause of action accrue for breach of warranty? A cause of action accrues for breach of warranty when a seller tenders delivery, even if the nonbreaching party is unaware that a cause has accrued. If a warranty extends to future performance, however, discovery of its breach must await the time of performance, and the statute of limitations does not begin to run until that time (for example, the statute would not begin to run until winter on a furnace installed in summer).
In what ways does the Magnuson-Moss Warranty Act modify UCC rules on implied warranties? Implied warranties do not arise under the Warranty Act, but when an express warranty is made in a sales contract or a combined sales and service contract (undertaken within ninety days of a sale), the Warranty Act prevents sellers from disclaiming or modifying the implied warranties of merchantability and fitness for a particular purpose. Sellers can impose a time limit on an implied warranty, but it must correspond to the duration of an express warranty.
To avoid liability on a negligence theory in a product liability suit, to what extent must a manufacturer exercise due care? A manufacturer must exercise due care to make a product safe for its intended use. Due care must be exercised in designing products, in selecting materials, in producing and testing products, and in placing warnings on labels informing users of dangers of which an ordinary person might not be aware. The duty extends to inspecting and testing products that a manufacturer buys for use in the final product.
Under the Restatement (Second) of Torts, Section 402A, what are the requirements for a cause of action in strict liability in a product liability suit? For a cause of action in strict liability in a product liability suit against a manufacturer, the requirements are: (1) the product must have been in a defective condition when the manufacturer sold it, (2) the manufacturer must be normally engaged in the business of selling the product, (3) the product must be unreasonably dangerous to a user or consumer because of its defective condition (not required in all states), (4) a plaintiff must suffer physical injury to self or property damage by use or consumption of the product, (5) the defective condition must proximately cause the injury or damage, and (6) the product must not have been substantially changed from the time it was sold to the time of the injury. It need not be shown why or how a product became defective, but it must be shown that at the time of the injury the product’s condition was essentially the same as it was when it left the manufacturer or seller
Can an injured bystander recover from a manufacturer or seller on a strict liability theory? Yes—all courts extend the strict liability of manufacturers and other sellers to injured bystanders (when the explosion of an automobile motor in traffic released a cloud of steam that blocked the view of other drivers, for example, the automobile manufacturer was held liable for the resulting multiple collisions).
Other than immediate sellers and manufacturers, who may be subject to strict liability? The strict liability doctrine has been expanded to include suppliers of component parts. Strict liability for personal injuries caused by defective goods extends to lessors. (Some courts have held that a lease gives rise to a contractual implied warranty that the leased goods will be fit for the duration of the lease—for instance, if U-Haul leases a trailer that has been improperly maintained, which causes an accident in which the lessee is injured, the lessee can sue U-Haul).
[1] 198 Cal.App.4th 543 (2011)
