Chapter 7Consumer Law and

Contracts

Sales of Goods Sales Law:

Interstate commerce led to the need to make sales practices uniform.

Sales of Goods Continued The Uniform Commerce Code (UCC)

is a collection of laws that governs various types of business transactions.***

A sale is a contract to transfer ownership of the goods.

Important TermsSa

le

Ownershi

p

GoodsPrice

Barter

Leasing Goods Sale of Goods

applies to leased goods, rentals and are also governed by the UCC

Contracts for both Goods and Services

When a contract includes both goods and services the dominant elements determines the law that will apply.

Special Rules for Sales Contracts Sales contracts must contain the

same elements as other contracts BUTThe UCC has relaxes some of the strict rules of contract law.

Methods of Dealing and Usage of Trade

When you have dealt with another person before, the method you use to deal with them has special meaning.

Similarly, any commonly used method of dealing in a particular area – or usage of trade - has special meaning. Unless you state otherwise, either an established method of dealing with someone or usage of trade may be used to supplement or qualify the terms of a sales contract.

Good Faith Parties to a sale contract must treat

each other fairly.

Offer and Acceptance of a Sales Contract

Sales contracts may be made in a way that shows the parties have reached an agreement.

Can be written or oral.

Offer and Acceptance of a Sales Contract

Acceptance can be by any means and in any reasonable manner; the party making the offer may request a certain method of acceptance.

Contract exists when acceptance is sent in a reasonable manner.

Firm Offer Firm Offer No consideration is necessary when a

merchant promises in writing to hold an offer open for the sale or lease of goods.

A merchant cannot revoke a firm offer during the time stated in the offer or for a reasonable amount of time. No offer can stand for longer than 3 months!

Different or Additional Terms

Acceptance may add different or additional terms.

Terms are treated as proposals for additions to the contract if both parties are not merchants.

If both parties are merchants the changes become part of the contract unless they are major or the offeror objects.

Different or Additional Terms Continued

No consideration is necessary to modify – or change – a contract for the sale of goods.

Modifications may be oral or in writing, unless the original agreement states that it must be modified in writing.

Statute of Limitations Sales contracts: 4 years.

Individual parties can reduce time period to a minimum of 1 year, but may not extend it any longer than 4 years.

The time limit begins to accrue when a breach occurs, regardless if whether the parties are aware the breech has occurred.

Form of Sales If the price for goods is less than

$500.00, then an oral sales contract is enforceable, over $500.00, the sales contract must be in writing to be enforceable.

Rules do not apply when: A written confirmation of an oral contract

between two merchants is sent within a reasonable time, and no objection is made within 10 days.

The contract involves specifically manufactured goods that cannot be easily resold.

The buyer receives and accepts the goods and pays for them.

The parties admit in court that they entered into an oral agreement.

Title and Risk of Loss Title Bill of Sale

Insurable Interest Insurable interest (II)

• Buyer

• Seller

Voidable Title Voidable Title

Anyone who obtains property as a result of another’s fraud, mistake, undue influence, or duress holds only a voidable title to the goods.

Voidable Title Continued Voidable title is also received when

goods are bought from or sold to a minor or a person is mentally impaired.

Anyone with a voidable title to goods is able to transfer valid (good) title to others.

Passage of Title and Risk of Loss Risk of Loss

Title passes to the buyer when the seller does what is required under the contract to deliver the goods.Cannot have title to goods that do not exist, like crops that are not grown.

Shipment and Destination Contracts A shipment contract is one where the

seller gives goods to a carrier for delivery to a buyer. A carrier is a transportation company. Both title and risk of loss pass to the buyer when the goods are given to the carrier.

Remedies for Breach of Sales Contract:

A breach of contract occurs when one party to a contract fails to perform the duties required by the contract.

Seller RemediesCancel

• the contract.

Withhold

• delivery of goods.

Stop

• delivery of goods held by a carrier.

Resell

• any goods that have been rightfully withheld, and bring a claim against the buyer for the difference between the agreed price and the resale price.

Seller Remedies ContinuedClaim

• If the goods cannot be resold, bring a claim against the buyer for the difference between the agreed price and the market price.

Claim

• Bring a claim against the buyer for the price of any goods that the buyer accepted.

Buyer’s RemediesCancel

• the Contract

Bring a claim

• against the seller for the return of money that was paid.

Refuse

• to accept the goods if something is wrong with them. The buyer must notify the seller about this and give the seller time to correct the problem.

Buyer’s RemediesBuy

• similar goods from someone else and bring a claim against the seller for the difference between the agreed price and the cost of the purchase.

Give notice• to the seller that the goods have been accepted, but that there is something wrong

with them.

Claim• If no adjustments are made, the buyer may bring a claim against the seller for breach

of contract or warranty.

Revoke• the acceptance and return the goods if a serious defect was undetectable, or if the

buyer was led to believe that the seller would fix the defect.

Consumer Protection Laws Applies to transactions between

consumers and businesses. Does not apply to transactions between consumers (example, purchasing a car from a dealer vs purchasing a car from an individual).

Consumer: is someone who buys or leases goods, real estate or services for personal, family, or household purposes.

Federal Trade Commission (FTC) is the government agency that promotes free and fair trade competition.

Federal Consumer Protection Law Consumer Protection Safety Act:

protects consumer from unreasonable risk of injury while using consumer products sold in interstate commerce.

Manufacturers and sellers must prove the product has been tested and is safe.

Consumer Leasing Act: Requires lease agreements to

include certain terms of the lease, including the required number of lease payments and their dollar amounts.

Leases must include the penalties for not paying on time and whether there is a lump-sum payment due at the end of the lease.

State and Local Laws Federal government has no

jurisdiction over intrastate commerce.

States have enacted their own laws and regulations.

Unfair and Deceptive Practices Most states have enacted the

Uniform Deceptive Trade Practices Act to protect consumers from unfair and deceptive practices.

Fraudulent Misrepresentation Any statement that deceives a buyer.

Occurs when a seller misstates or fails to disclose the facts about something that is important to the consumer.

Bait and Switch Advertising A store advertises a bargain that

doesn’t really exists to lure customers in, in hopes that they will buy something more expensive.

FTC Trade Regulation Rules: Negative Option Rule:

FTC Trade Regulation Rules: Sellers must legally tell you how

many selections you must buy, if any, how to notify the seller when you do not want the selection, and when you can get credit for the return of a selection. They must also tell you how often you will receive announcements and forms, and how and when you can cancel your membership.

The Cooling Off Rule Gives the consumer 3 days to cancel

a transaction made away from a seller’s regular place of business, such as a hotel, a restaurant, a fair, or your home.

Rules applies to purchases $25 or more.

The Cooling Off Rule Continues Seller must inform you of your right

to cancel at the time the sale takes place.

Seller must give you a cancellation form and a copy of your contract or receipt.

Does not apply to real estate, insurance, securities, or emergency home repairs.

Telemarketing Sale Rule DO NOT CALL REGISTRY helps reduce

the number of unwanted calls.It is illegal for telemarketers to call you if you have asked not to be called.Calling times are restricted between 8 am – 9 pm.

And yes I have had a telemarketer call at 8:59!

Telemarketing Sales Rule (Continued)

Telemarketers must identify that it is a sales call and the company they are working for.

Telemarketers must tell you the total cost of the products or services offered and if there are any restrictions that apply.

It is illegal for telemarketers to make false statements about their goods or services.

Shopping By mail Phone Fax or Internet

Sellers must ship goods in the time they promise in their catalogs or advertisements, if no time is stated sellers must ship goods within 30 days after receiving the order.

You have the right to cancel orders and get you money back. If time limits are not met.

Buyers must be notified of the delay in shipment and given a free means of responding to the delay. Buyers may cancel their order and get their money back or agree to the new shipping date.

Warranties A guarantee usually by a seller to a

buyer, that a product will perform as promised.

ExpressFull

LimitedImplied

Express Warranty Is an oral or written statement,

promise, or other representation about the quality of a product.

There are three ways a warranty can be made

Statement of Fact or Promise: a private party or merchant sells goods and makes a statement of fact or a promise about the goods to the buyer.

Express Warranty Continued Warranty must be stated in precise

and understandable terms.Usually found in sales brochures, circulars, and advertisements.

Description or Sample of the Goods: Any description or sample of the goods that is part of a transaction, such as an advertisement or even the box the item comes in. The seller warrants that the goods will be the same as the description.

Advertising Express Warranties:

Advertisements stating that a product is warranted must tell you how to get a copy of the warranty before you buy the product.

Magnuson-Moss Warranty Act: a warranty on goods in interstate commerce costing more than $10 must disclose whether it is full or limited.

Full Warranty: is an assurance that a defective

product will be repaired or replaced without charge within a reasonable time.

Limited warranty: is any written warranty that does not

meet the requirements of a full warranty.

Implied Warranties: Is a guarantee of quality imposed by

the law, automatic rather then verbally or in writing.

There are three types of implied warranties:

Usage of Trade Merchantability

Fitness For a Particular PurposeWa

rranty of Title

Usage of tradeMerchantability:

is an implied warranty that goods are fit for the ordinary purpose for which the goods are sold. Retailers, wholesalers, and manufacturers imply this warranty in every sale. Goods must pass without objection in the trade under contract description. They must be fit for the ordinary purposes for which the goods are used. They must also be adequately contained, packaged, and labeled.

Fitness For a Particular Purpose:

is an implied warranty that goods will be fit for a specific use. When the seller knows the purpose for which the goods are needed, such as a truck to haul heavy equipment. The seller warrants the implication that the goods will be fit for the purpose for which they are to be used.

Warranty of Title Seller warrants that the title being

given to the buyer is good and that the transfer is lawful, it guarantees that the goods have no liens or claims by others.

Exclusion of Warranties To exclude the warranty of

merchantability the word merchantability must be mentioned specifically.

The warranty of title may NOT be excluded.In some states, implied warranties can also be excluded or modified by words as is and with all faults.

Having buyers examine goods before the sale is another way to exclude or modify warranties.

Responsibilities of Consumers: Consumers must use the product

safely and as it is intended to be used.

You have the responsibility to read all the information provided.You have the duty to notify the seller in a reasonable amount of time of the defect.

Consumer Protection Assistance

Consumer Affairs

Federal Consumer Protection Safety Commission – The power to recall unsafe products and impose fines on the violators.

Better Business Bureau (BBB) private agency that hears consumer

complaints at the local and state level. Does not have the power to enforce laws or to recommend one business over another.