Scenario 1 - Warranties

Michael, a mechanic, needs to install a 2,000-pound machine in his shop. The installation will require lifting the equipment to the second story. Michael goes to Home Depot and tells Brett, the manager, that he needs some heavy-duty chain to be used in his auto repair shop. Brett recommends a half-ton chain, which Michael purchases. Michael attached the chain around the piece of equipment and attempted to lift the equipment off the ground. Suddenly, the chain breaks. The equipment crashes to the ground and is severely damaged. Michael learned that he needed at least a one-ton chain for the job. Michael files a suit against Brett and Home Depot for breach of the implied warranty of fitness for a particular purpose.

• Will Michael be successful in his lawsuit? Explain the options and the likely outcome.

Scenario 2 - Accountant's Liability

Walker, the CEO of Memphis Mini Golf and Go Carts (MMGGC), wanted to sell the business to Go Carts, Golf & Games. To provide a basis for the transaction, Walker retained Blanchard, an accountant, to conduct an audit of MMGGC. Blanchard was aware that Go Carts, Golf & Games would likely use the audit report in consideration of the purchase of the business from MMGGC. Blanchard's audit report showed that MMGGC's business was profitable. William, Go Cart's president, relied on this report in agreeing to purchase the business of MMGGC and in agreeing to the terms of the purchase. Sometime later, it was discovered that the accountant made a number of mistakes and that the business that was sold was actually insolvent. William and Go Carts sued Walker and Blanchard for damages. The suit claimed that the accountant had negligently misrepresented the facts.

• Discuss the arguments for each party, determine which party should win, and provide legal support for your decision.

Discussion Question Part II

In two to three paragraphs, provide the following information about the business you created in Week 1.

• Based on the type of product your business will offer, discuss potential product liability issues and how your company can avoid these potential risks. If your business only provides a service, pick a product your business will purchase and use it to answer this part.
• Explain the applicability of the UCC to your transactions and your plans to handle sales contracts and warranties. If your business provides a service, explain why the UCC will not apply.
• What is the difference between FOB Shipment and FOB Destination? Explain the advantages and disadvantages of each. Identify shipping term(s) you plan to use for your business and explain the selection.