Chapter 19

"Sale of GoodsThe sale of goods is the transfer of ownership to tangible personal property in exchange for money, other goods, or the performance of services. The law of sales of goods is codi-fiedinArticle2oftheUniformCommercialCode.Althoughthelawofsalesisbasedon the fundamental principles of contract and personal property, it has been modified to accommodate current practices of merchants. In large measure, the Code discarded many technical requirements of earlier law that did not serve any useful purpose in the market-placeandreplacedthemwithrulesthatassuremerchantsandconsumersofgoodsthatlaws will be applied in keeping with commercial expectations.Article 2 of the Code applies only to transactions in goods. Thus, it does not cover con-tracts to provide services or to sell real property. However, some courts have applied the principles set out in the Code to such transactions. When a contract appears to call for the furnishing of both goods and services, a question may arise as to whether the Code applies. Forexample,theoperatorofahairsalonmayuseacommercialsolutionintendedtobeused safely on humans that causes injury to a person's head. The injured person then might bring a lawsuit claiming that there was a breach of the Code's warranty of the suitability of the solution. In such cases, the courts commonly see whether the sale of goods is the

Chapter 22

"Usually, both parties to a contract for the sale of goods perform the obligations they agreed to in the contract. Occasionally, however, one of the parties to a contract fails to perform his obligations. When this happens, the injured party has a variety of remedies for breach of contract. The objective of these remedies is to put the injured person in the same pos-ition as if the contract has been performed. The remedies that are made available to the injured party by the Uniform Commercial Code are discussed in this chapter.Agreements as to RemediesThe buyer and seller may provide their own remedies, to be applied in the event that one of the parties fails to perform. They can also limit either the remedies that the law makes availableorthedamagesthatcanberecovered(2-719[1]).1Ifthepartiesagreeontheamount of damages that will be paid to the injured party, this amount is known as liquidated damages.Anagreementforliquidateddamagesisenforcediftheamountisrea-sonableandifactualdamageswouldbedifficulttoproveintheeventofbreachofthecontract. The amount is considered reasonable if it is not so large as to be a penalty or so small as to be unconscionable (2-718[1]).For example, Carl Carpenter contracts to sell a display booth for $3,000 to Hank Hawker for Hawker to use at the county fair. Delivery is to be made to Hawker by September 1. If the booth is not delivered on time, Hawker will not be able to sell his wares at the fair. Carpenter and Hawker might agree that if delivery is not made by September 1, Carpenter will pay Hawker $1,750 as liquidated damages. The actual sales Hawker might lose without a

"booth would be very hard to prove, so Hawker and Carpenter can provide some certainty through the liquidated damages agreement. Carpenter then knows what he will be liable for if he does not perform his obligation. Similarly, Hawker knows what he can recover if the booth is not delivered on time. The amount ($1,750) is probably reasonable. If it were $500,000, it likely would be void as a penalty because it would be way out of line with the damages that Hawker would reasonably be expected to sustain. And if the amount were too small, say, $1, it might be considered unconscionable and therefore not enforceable.If a liquidated damages clause is not enforceable because it is a penalty or unconscionable, then the injured party can recover the actual damages that were suffered.Liabilityforconsequential damagesresultingfromabreachofcontract(suchaslostprofits or damage to property) may also be limited or excluded by agreement. The limitation or exclusion is not enforced if it would be unconscionable. Any attempt to limit consequen-tialdamagesforinjurycausedtoapersonbyconsumergoodsisconsideredprimafacieunconscionable (2-719[3]). Suppose an automobile manufacturer makes a warranty as to the quality of the automobile. Then it tries to disclaim responsibility for any person injured if the car does not conform to the warranty and to limit its liability to replacing any defective parts. The disclaimer of consequential injuries in this case would be unconscionable and therefore wouldnotbeenforced.Exclusionoforlimitationonconsequentialdamagesispermittedwhere the loss is commercial, as long as the exclusion or limitation is not unconscionable."The sale of goods is the transfer of ownership to tangible personal property in exchange for money, other goods, or the performance of services. The law of sales of goods is codified in Article 2 of the Uniform Commercial Code. While the law of sales is based on the fundamental principles of contract and personal property, it

has been modified to accommodate current practices of merchants.

For many years, consumers dealt with merchants and providers of services on the basis of caveat emptor (let the buyer beware). Buyers were expected to look out for and protect their own interests. In addition, much of the law concerning the sales of goods and the extension of credit was structured to protect business interests rather than consumer interests. Beginning in the mid-1960s, at about the same time that the law of product liability was changing, many consumers recognized that these sales and credit laws put them at a disadvantage in trying to protect what they thought were their rights. Consumer groups lobbied Congress, state legislatures, and city halls to pass statutes or ordinances changing this body of law to make it more favorable to consumers.

Chapter 46

"Chapter 46Consumer Protection Laws951bar47767_ch46_950-968.indd95111/01/1907:29 PMIntroductionFormanyyears,consumersdealtwithmerchantsandprovidersofservicesonthebasisof caveat emptor (let the buyer beware). Buyers were expected to look out for and protect theirowninterests.Inaddition,muchofthelawconcerningthesalesofgoodsandtheextension of credit was structured to protect business interests rather than consumer inter-ests. Beginning in the mid-1960s, at about the same time that the law of product liability was changing, many consumers recognized that these sales and credit laws put them at a disadvantageintryingtoprotectwhattheythoughtweretheirrights.Consumergroupslobbied Congress, state legislatures, and city halls to pass statutes or ordinances changing this body of law to make it more favorable to consumers.Manyeverydayconsumerproblemsareaddressedbytheselaws.Forexample,haveyou, like Fischl, ever been denied credit without getting an adequate explanation from the creditor? Have you ever had a department store or charge card company credit your pay-ment to the wrong account or refuse to correct an error in your bill? Have you ever been harassed by a debt collector for a bill you do not owe or one you have already paid? The laws covering these situations will be discussed in this chapter.Federal Trade Commission ActThe Federal Trade Commission Act, which is the grandfather of "consumer protection" leg-islation,waspassedin1914.Undertheact,thefive-memberFederalTradeCommission(FTC)hasauthoritytodecidewhetherspecificmarketingandsalespracticesareunfairordeceptive and whether those practices may be harmful to competition among manufacturers, distributors, and sellers. After making such a decision, the FTC may order the company that is engaged in the unlawful conduct to cease and to take corrective action. It may also ask a federal court to award redress, such as giving refunds or damages to injured consumers. The FTC has the power to establish rules that govern conduct in certain industries. It also enforces most of the federal consumer protection laws and regulations that are discussed in this chapter, aswellasmanyothers.(SeeTable46.1.)TheincreaseduseoftheInternethascausedtheFTC to exercise its power to regulate unfair and deceptive practices in cyberspace. The 2006 UndertakingSpam,SpywareandFraudEnforcementwithEnforcersBeyondBordersAct(US SAFE WEB Act) amended the existing FTC Act to give the FTC the legal authority to assistoverseasinvestigationstotrackdownInternetscammersusingdevicessuchasspamand spyware. Congress reauthorized the SAFE WEB Act in 2012."

STEP ONE:

ASSIGNED READING:Read Chapters 19, 22 and 46 of Law for Business (Barnes, 2012).

STEP TWO:

BACKGROUND:

Article 2 of the Code applies only to transactions in goods. Thus, it does not cover contracts to provide services or to sell real property. However, some courts have applied the principles set out in the Code to such transactions. When a contract appears to call for the furnishing of both goods and services, a question may arise as to whether the Code applies. In such cases, the courts commonly see whether the sale of goods is the predominant part of the transaction or merely an incidental part; where the sale of goods predominates, courts normally apply Article 2. The first question you should ask when faced with a contracts problem is whether this is a contract for the sale of goods. If it is not, then the principles of common law apply. If the contract is one for the sale of goods, then the Code applies.

HYPOTHETICAL:

Star Coach, LLC, is in the business of converting sport utility vehicles and pickup trucks into custom vehicles. Star Coach performs the labor involved in installing parts dealers. Heart of Texas Dodge purchased a new Dodge Durango from Chrysler Motors and entered into an agreement with Star Coach whereby Star Coach would convert the Durango to a Shelby 360 custom performance vehicle and then return the converted vehicle to Heart of Texas Dodge. The manufacturer delivered the dealer's Durango to Star Coach, and over a period of several months, Star Coach converted the vehicle using parts supplied by another company, Performance West. Several months later, Star Coach delivered the vehicle to Heart of Texas Dodge, and Heart of Texas Dodge paid Star Coach the contract price of $15,768 without inspecting the vehicle. Two days later, Heart of Texas Dodge inspected the vehicle and concluded that the workmanship was faulty. It stopped payment on the check and Star Coach filed suit against Heart of Texas Dodge. One of the issues in the litigation was whether the UCC applied to the contract in this case.

QUESTION:

Does the UCC apply to a contract for the conversion of a van that involves both goods and services?

STEP THREE:

BACKGROUND:

The Federal Trade Commission Act, which is the grandfather of "consumer protection" legislation, was passed in 1914. Under the act, the five-member Federal Trade Commission (FTC) has authority to decide whether specific marketing and sales practices are unfair or deceptive, and whether those practices may be harmful to competition among manufacturers, distributors, and sellers. After making such a decision, the FTC may order the company that is engaged in the unlawful conduct to cease and to take corrective action. It may also ask a federal court to award redress, such as giving refunds or damages to injured consumers.

HYPOTHETICAL:

Zuccarini did business under a variety of names. He diverted consumers from their intended Internet site to his by using domain names that were misspellings of, or confusingly similar to, domain names of other parties. He also made it difficult to exit his website by causing pop-up windows, multiple copies of browser windows, or multiple copies of browser software to launch when the consumer used a "Close," "Exit," or "X" function. He was compensated by the advertisers displaying their ads on these pop-ups. The FTC argued that these tactics were unfair under the FTC Act because they used misleading practices.

QUESTION:

Is the FTC correct? Explain.