Description
For your Final Paper, assume the following scenario: You are the manager of Acme Fireworks, a fireworks retailer who sells fireworks, and produces fireworks displays with ground display fireworks and large aerial display fireworks. The company started in the owner’s garage 2 years ago and now has 15 employees who you manage. The company started as a sole proprietorship, and the owner has never changed the entity. The owner has informed you that the company has received inquiries from several large businesses wondering if the company could create several fireworks displays on a regular basis. The owner told the inquirers that the company could fill such display orders, and a price per display was agreed upon. It was discussed that most of the cost for a fireworks display is for skilled labor, insurance, and the actual service of setting off the fireworks. No other details were discussed. The owner is anticipating that new employees will need to be hired, but he is worried that if the large orders for fireworks displays do not continue, the company will not have the funds to pay the new employees. The owner is now considering changing the business entity, but he does not know what entity to form or how to form it.
In your paper, the owner has asked you to do the following:
Analyze if the contracts with the businesses will be governed by common law or the Uniform Commercial Code (UCC).
Explain why.
Analyze whether the owner formed a contract with the businesses.
Apply the five essential elements of an enforceable contract.
Explain the potential personal liability to Acme Fireworks if a spectator is injured by a stray firework from a fireworks display.
Discuss the different employment types and relationships relevant to agency law.
Analyze the advantages and disadvantages of each type specific to Acme Fireworks.
Explain why Acme Fireworks should not operate as a sole proprietorship.
Recommend a new business entity.
Provide rationale to support your recommendation.
For each task, be sure to analyze the relevant law, apply the facts to the law, and make a conclusion.
Must be eight to 10 double-spaced pages in length (not including title and references pages) and formatted according to APA Style.
Must address the topic of the paper with critical thought. That is, describe what your response is to the content, either positive or negative, and defend your position. If multiple options, alternatives, and/or positions are present and are being rejected, you must also defend the reasons for rejecting an option.
Must use at least five credible and/or scholarly sources, two of which must be from the University of Arizona Global Campus Library, in addition to the course text.
(Rogers, S., & Seaquist, G. (2023). Essentials of business law (2nd ed.). The University of Arizona Global Campus.) Chapters Attached.
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9
Warranties and Remedies
for Breach
Viktoria Korobova / iStock / Getty Images Plus
Learning Outcomes
After studying this chapter, you will be able to
• Explain the concept of implied warranties and distinguish implied from express warranties.
• Discuss the requirements for disclaiming warranties under the UCC.
• List three examples of buyers’ remedies for breach of the sales contract.
• List three examples of sellers’ remedies for breach of the sales contract.
© 2023 The University of Arizona Global Campus. All rights reserved. Not for resale or redistribution.
Section 9.1
Warranties
This chapter begins with an explanation of warranties, provided by Article 2 of the UCC with
regard to goods. A warranty is an assurance that the goods will meet certain requirements.
The UCC provides four specific types of warranties covering goods under sales contracts:
• warranty of title
• implied warranty of merchantability
• warranty of fitness for a particular purpose
• express warranties
These warranties offer buyers important protection covering purchases of goods and are
important to both merchant and consumer buyers.
Sales contracts are as susceptible to breach as any other contract. The common law of contracts provides a variety of remedies to parties who suffer a breach of contract, as we have
seen in Chapter 6. The UCC also provides remedies to buyers and sellers who suffer a breach
of contract. As usual, the UCC makes some modifications to the common law of contracts in
order that the remedies allowed to buyers and sellers reflect the economic realities of doing
business and fostering commerce.
9.1 Warranties
Suppose that you entered into a contract to purchase a new Tesla automobile. After you drove
the car for a few months, the battery lost the capacity to recharge. You returned the car to the
dealer and demanded that they replace the costly battery. Looking through the paperwork
you received from Tesla, you read the following:
Battery and Drive Unit Limited Warranty
The Battery and Drive Unit in your vehicle are covered for a period of:
• Model S/Model X: 8 years or 150,000
miles, whichever comes first, with minimum 70% retention of Battery capacity
over the warranty period.
This is an example of a warranty provided by the
manufacturer of goods. You may be surprised to
learn that if the manufacturer did not provide a
warranty, you would nevertheless receive warranties through Article 2 of the UCC, which provides
four types of warranties that offer buyers important
protection covering purchases of goods. Warranties are important to both merchant and consumer
buyers because they provide a guarantee about the
quality of the goods.
typhoonski / Getty Images Editorial RF
Tesla provides a warranty for its
cars. Even if the company did not,
consumers would receive warranties
through Article 2 of the UCC.
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Warranties
Section 9.1
All warranties are either express or implied. As discussed in Chapter 4 related to contracts,
express means oral or written, so an express warranty is one that is written down. The foregoing example given by Tesla is express because it is written and accompanies the sales contract. There are also implied warranties, or warranties that are not oral or written, that
come with the product even though they are not mentioned by the seller. Next we will discuss
these types of warranties covered under the UCC.
Warranty of Title and Against Infringements (§ 2-312)
The warranty of title is an example of an implied warranty because in every contract for the
sale of goods, every seller guarantees to every buyer that the seller owns the goods, the goods
are not stolen, the transfer is legal, and there are no liens or encumbrances against the title to
the goods being sold.
Example 9.1. Breach of implied warranty of title. Antonio purchases a new Honda automobile and finances the car. Honda places a lien on Antonio’s title, which is a notice to anyone
that Antonio owes money on the car. Antonio then sells the car to Kendra. Antonio takes his
title and artfully erases the information that shows Honda’s lien, so Kendra thinks she is getting a car that is free from any encumbrances.
Antonio has committed fraud and has also breached the warranty of title, which guarantees
that goods are sold free from any liens.
The warranty of title is an implied warranty that automatically attaches to every sale made. It
can, however, be disclaimed through specific language giving the buyer notice that the seller
does not claim title to the goods sold or that they are only transferring whatever ownership
right they have in the property.
Example 9.2. Susan, after breaking up with her boyfriend, wants to sell a ring he gave her as a
gift. Margaret agrees to buy the ring for $100. Susan believes that her ex-boyfriend purchased
the ring from a jeweler, but she also knows that he had purchased items from street peddlers
of questionable repute in the past. In order to cover herself against a possible future suit for
breach of warranty of title from Margaret, she draws up a sales contract that reads as follows:
In consideration of $100, I hereby sell all of my interest, if any, in a gold ring
with a small opal to Margaret Smith. I sell the ring AS IS and make no express
or implied warranties of any kind to the buyer. In particular, I make no warranty of title to the buyer.
As long as Susan sells the ring to Margaret in good faith, Margaret will not be able to sue her in
the future for breach of warranty if the ring turns out to be worthless or stolen. In order for a
warranty to be waived, the language waiving it must be conspicuous—it must stand out from
the written contract by being larger, darker, or of a different color. A waiver of warranty that
does not stand out from the text of a contract will not be enforced.
If the seller is a merchant who regularly deals in goods of the kind being sold, the seller also
makes a warranty against infringement to the buyer, through which the seller warrants that
the goods are delivered free of any copyright, patent, or trademark infringement.
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Warranties
Section 9.1
Example 9.3. Breach of the warranty of title. Big Box Store buys 100 copies of Lady Gaga’s
latest CD from Music Wholesale Inc. Music Wholesale automatically guarantees that the CDs
were manufactured under a proper license. If they turn out to be counterfeits that infringe
copyright, Music Wholesale will be liable for breach of warranty.
Every sale made by a merchant who deals in goods of the kind being sold, whether new or
used, gives an implied warranty that the goods are merchantable—or fit for their ordinary
purpose. Note that this warranty automatically comes with goods when they are purchased
unless the seller disclaims them.
Example 9.4. Acme Hardware Store sells a hammer to Stephanie. Acme is guaranteeing that
the hammer is fit for pounding in nails and other normal things for which people use hammers. Acme is not guaranteeing that the hammer will serve as an impromptu car jack.
No statement needs to be made by the merchant; it is implied and automatic (although it can
be excluded or modified by express language).
It is not necessary for the buyer to show that the seller knowingly or negligently sold faulty,
mislabeled, or otherwise nonconforming goods in order to sue for breach of the warranty of
merchantability. Merchants are strictly liable for breach of the warranty whether or not they
were aware that the goods were not merchantable at the time that they sold them.
Implied Warranty of Fitness for a
Particular Purpose (§ 2-315)
The implied warranty of fitness for a particular
purpose is unusual, because it requires that the
buyer and seller discuss the goods. Suppose that
Francisca suffers from severe allergies and needs
to be careful when selecting makeup. She goes into
Rawpixel / iStock / Getty Images Plus
a store and explains this to the makeup artist, who
If
a
customer
asks whether a loaf of
recommends a particular brand. Francisca applies
the makeup and suffers a severe allergic reaction, bread is gluten free and the store
for which she is hospitalized. Since Francisca and owner assures the customer it is, then
the seller had a dialogue about a particular purpose the owner is liable under the implied
for the goods, and the seller sold the goods knowing warranty of fitness for a particular
that Francisca was relying on their judgment, this is purpose if the bread contains
a breach of the warranty. When a buyer explains to gluten and the customer has an
a seller that they need a product for a special reason adverse reaction.
and the seller selects a product in response, the seller gives a warranty of fitness for a particular purpose. This warranty arises because the seller (merchant as well as nonmerchant) sells
goods to a buyer guaranteeing that the goods are suitable for the specific purpose for which
the buyer intends to use them. In order for the warranty to arise, two tests must be met.
• The seller must be aware that the buyer is purchasing the goods with a particular
use in mind.
• The buyer must rely on the seller’s superior skill and judgment in selecting goods
appropriate to the seller’s specific intended use.
© 2023 The University of Arizona Global Campus. All rights reserved. Not for resale or redistribution.
Warranties
Section 9.1
Consider the following example.
Example 9.5. Implied warranty of fitness for a particular purpose. Buyer, a novice angler,
tells Seller, the owner of a sporting goods store, that he needs a rod and reel for fly-fishing and
asks her to recommend a good model. Seller, who is new to the trade and unfamiliar with flyfishing, recommends an excellent deep-sea fishing rod and reel set that is inappropriate for
fly-fishing. Seller is liable for breach of warranty since Seller knew Buyer’s purpose and Buyer
was entitled to rely on Seller’s presumed expertise.
In the Media:
Product Liability Claims as a Result of COVID-19
According to The National Law Review, a prestigious legal publication, attorneys need to be
on the watch for breaches of various warranties arising out of COVID-19 treatments. The
Review states that attorneys are considering the many ways that persons infected with the
virus will be able to bring lawsuits for damages. Of particular applicability to this chapter is
using breach of the implied warranty of merchantability or implied warranty of fitness for
a particular purpose in these lawsuits (Price et al., 2020). For example, if a particular type
of medicine did not lessen a person’s symptoms, that could be a breach of the warranty of
merchantability, or if someone died from taking a drug that did not undergo the usual rigors
of testing that other drugs normally were subjected to, that could be a breach of implied
warranty of fitness for a particular purpose.
Questions to Consider
1.
2.
3.
Do you think that lawyers are wrong in pursuing cases based on a pandemic?
Product liability lawsuits normally relate to products. What theory could lawyers
sue under for death or injury resulting from contracting COVID-19 or a similar
affliction?
Warranties also normally relate to tangible products. How could one argue that
contracting a virus is a breach of a warranty?
Express Warranties (§ 2-313)
An express warranty arises when the seller has, with words, made representations about the
quality and capability of particular goods. Express warranties can arise through statements
of fact, such as “This car will last for 10 years,” or a description contained in paperwork that
comes with a purchase, or they can arise from models that represent the quality of the goods.
For the warranty to arise, the statements, descriptions, samples, or models must have been
made available to the buyer at a time when the buyer might have relied on such information
in agreeing to enter into the contract. Representations about the goods are binding whether
they are made orally, in writing, or by showing a sample or model before the buyer agrees to
purchase the goods.
An affirmation of fact must be specific and cannot be a mere opinion.
© 2023 The University of Arizona Global Campus. All rights reserved. Not for resale or redistribution.
Section 9.1
Warranties
Beyond the Book: Driver Who Relied on Extended Car
Warranty Says Company Refused to Pay for Repairs
Watch: https://www.youtube.com/watch?v=1AQ7zJB0hq8
While learning about warranties can provide assurance that consumer protection really
exists, sometimes in reality, theories and laws are unhelpful. Additionally, if you have ever
been the subject of a robocaller asking you to buy an extended warranty for your car, you
know that not only are these calls annoying, but the warranties promised might not be worth
the payment of extended coverage. Watch this video about a customer who paid $3,000 for
extended warranties from CarShield and American Auto Shield that did not cover repairs
after all.
Questions to Consider
1.
2.
3.
What do the advertisements say about coverage? What type of warranty is given by
the advertisements?
What is the problem with the product, according to the video? What complaints do
consumers have?
What advice does the video have about entering into these contracts?
Example 9.6. Express warranty. “This car gets an average of 35 miles per gallon” is an affirmation of fact that gives rise to an express warranty. “This car gets great mileage” is not a
statement of fact but is an opinion or “puffing” and thus does not create a warranty.
Example 9.7. Express warranty. “This elliptical exercise machine is guaranteed for
3 years” creates a warranty. “This thing will last forever” is puffery and not an affirmation,
and thus there is no warranty created. The display of a model or sample to a buyer can also
constitute an express warranty in some situations.
Example 9.8. Express warranty example based on a sample. Brianna, a budding rock star,
goes to Wally’s Piano Shop. The salesperson encourages her to try out a floor model of a
hybrid digital piano with a grand acoustic system but missing the pedal soft spot that she
wishes to experience. Nevertheless, the piano is so amazing that she purchases it with the
added pedals. When it arrives, she is disappointed to discover that it tends to make buzzing
noises when the power cord is jogged. This will clearly not do for Brianna, who has many
upcoming concerts with her band. Is Wally’s Piano Shop in breach of warranty? The answer
is yes, because by using the model, the store was guaranteeing that the piano Brianna bought
would perform in the same manner. The model did not buzz when Brianna played it, but the
one she bought does, which is not the same level of performance.
Disclaimer of Warranties (§ 2-316)
Generally speaking, sellers can waive the warranties on products they sell. The warranty of
merchantability, however, can only be excluded by language that specifically mentions the
word “merchantability,” and the disclaimer must be conspicuous. In addition, an exclusion of
the warranty of fitness for a particular purpose must be in writing and conspicuous. Implied
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Remedies
Section 9.2
warranties can be disclaimed by a clear statement that the warranties are excluded. Selling
goods “as is” or “with all faults” generally disclaims all implied warranties. But note that the
specific requirements for waiving implied warranties can vary among the states, and many
states prohibit a disclaimer in the sale of consumer goods.
Example 9.9. Disclaimer of warranties. Big Box Store sells an exercise bike with a written contract that disclaims all warranties. Buyer (who is out of shape but only weighs
140 pounds) is injured when he sits on the bike and it collapses. In many states, Big Box can
still be held liable for breach of warranty.
Most states also allow clauses that limit remedies for breach of warranty. Remedies are the
compensation a buyer or seller can collect from the liable party for breaches of warranty. Suppose Seller contracts to supply Buyer with a cement mixer and the contract states that Buyer’s
remedies in the case of malfunction or defect are limited to repair of the mixer by Seller. The
cement mixer breaks down almost immediately and discharges a load of wet cement in the
parking lot, damaging five of Buyer’s fleet vehicles. Buyer has over $50,000 in damage to his
property, but he will not be able to collect it from Seller because of the limitations of remedies
clause in the contract. In the next section, we turn to remedies.
9.2 Remedies
Sales contracts are as susceptible to breach as any other contract. The common law of contracts provides a variety of remedies to parties who suffer a breach of contract, as discussed
in Chapter 6. The UCC also provides remedies to buyers and sellers who suffer a breach of
contract. As usual, the UCC makes some modifications to the common law of contracts in
order that the remedies allowed to buyers and sellers reflect the economic realities of doing
business and fostering commerce. In this section we look at remedies, which apply to both
buyers and sellers in a sales contract.
Buyers’ Remedies for Breach
When a seller breaches the sales contract, the buyer
can pursue a number of remedies to compensate
for the breach. These include the right to reject
nonconforming goods, or goods that are not as
ordered, thereby giving the buyer the right to sue
for damages and, under certain circumstances, the
right to sue for specific performance.
Right to Reject Nonconforming Goods
(§ 2-601)
FG Trade / E+ / Getty Images Plus
If a shipment of plants arrives
damaged and moldy, the buyer can
keep them and sue for damages or
reject the nonconforming goods.
When a seller tenders delivery to a buyer of nonconforming goods, the buyer may keep them
and sue for damages under the contract or, in certain cases, reject the goods and either sue
for damages or cancel the contract at the buyer’s option. The options available to the buyer
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Remedies
Section 9.2
depend in part on whether the contract is for a single delivery or a contract requiring the
seller to ship the goods in separate installments. When the contract requires only a single
delivery by the seller and the seller tenders nonconforming goods, the buyer may reject the
whole shipment, accept the whole shipment, or accept any separate part of the shipment and
reject the rest.
Example 9.10. Buyer’s duty to follow seller’s instructions. A buyer purchased 100 crates
of live, potted plants, which arrived in broken containers with clear signs of fungus. The buyer
notified the seller that he was rejecting the shipment. The seller responded requesting that
the buyer move and store the goods in a covered warehouse until the seller could arrange to
have the goods picked up. In such a case, the seller would be responsible for all costs to the
buyer, but the buyer, as a merchant, must follow reasonable instructions of the seller, despite
the goods being nonconforming. As merchants engaged in business, both the seller and buyer
are expected to act to preserve each other’s interests as much as possible.
When the nonconforming goods are shipped as part of an installment contract that requires
or allows goods to be tendered in a series of separate shipments, the buyer’s right to reject
the contract is more limited. A buyer can reject a nonconforming delivery if the nonconformity materially impairs the value of that installment and cannot be cured. In other words, a
buyer who allows a seller to ship goods in installments will not be able to refuse the shipment
unless the buyer first informs the seller that the goods are nonconforming, gives the seller the
opportunity to cure the defect within a reasonable time, and can show that the nonconformity
lessens the value of the goods. This may seem to give an unfair advantage to the seller, but it
is yet another example of the UCC’s pragmatism in recognizing the practical realities of doing
business. Minor nonconformities in sales contracts, particularly between merchants dealing
in high volumes and repeat sales, are inevitable. The code seeks to encourage commerce and
prevent waste by ensuring that parties that collaborate with one another on an ongoing basis
can’t reject shipments for inconsequential nonconformities without first giving the breaching
party the opportunity to cure the breach.
Example 9.11. Installment contracts. A buyer orders 1,000 one-pound cans of coffee from
a seller to be delivered in installments of 100 cans per month for 10 months. During the third
month of the contract, the seller ships 90 cans of coffee. The buyer cannot reject the shipment,
since this is an installment sale, without first giving the seller the opportunity to cure the
defect within a commercially reasonable time (e.g., by sending the missing 10 cans of coffee
within a few days of being notified that the shipment was nonconforming).
Right to Sue for Damages (§ 2-713)
As with the common law of contracts, buyers who suffer a breach of contract may sue for the
difference between the original contract price minus the market price at the time the buyer
learned of the breach.
Example 9.12. Rights of buyer when nonconforming goods are delivered. A buyer orders
100 laptop computers from Arctic Computing in August for shipment by October 1, in time
for the Christmas rush. Due to the COVID-19 pandemic and the short supply of computer
chips, the seller fails to ship until March of the next year. When the laptops finally arrive,
the buyer can reject the shipment due to the seller’s failure to ship them on time and can
sue the seller for damages. Or the buyer could cancel the contract and purchase substitute
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Remedies
Section 9.2
goods. Damages are tied to the “market price at the time the buyer learned of the breach”
(UCC § 2-713, 1951), which is in all likelihood the time the buyer will cancel and seek substitute goods in the marketplace, and therefore the difference in price between the two is the
damages calculation.
Example 9.13. How damages are determined. One hundred laptop computers were ordered
at a cost of $1,200 each. The total original contract price was $120,000. The buyer learns of
the breach on October 15, when the cost of laptops is $1,250 each, or a total of $125,000.
The buyer would have to pay an additional $5,000 to buy substitute goods and therefore is
entitled to that amount in damages.
Right to Cover (Obtain Substitute Goods) (§ 2-712)
If the buyer does not receive the goods or rightfully rejects nonconforming goods, the buyer
has the right to cancel the contract. The buyer can then go out into the marketplace and try to
find substitute goods, or cover.
If the buyer chooses to do so, they may then sue the seller for the difference between what the
buyer would have paid the seller for the goods under the contract and what the buyer now
needs to pay a substitute supplier for the goods. In the previous example, the buyer could
have obtained the laptops from another supplier when the seller failed to ship the computers
on a timely basis. The buyer could then sue the seller for the difference between the contract
price and the higher price paid to the substitute supplier.
Right to Specific Performance (§ 2-716)
A court has the power to grant specific performance to the buyer under the UCC when the
goods in question are unique or “in other proper circumstances” (UCC § 2-716, 1951) in
which mere money damages would not properly compensate the buyer for their loss.
Example 9.14. When specific performance is an appropriate remedy. A buyer agreed to
purchase two airplanes from a seller for $870,000. The seller breached the contract, and the
buyer sued for specific performance, arguing that the planes were unique because of their
condition and asking price. Since the ability to cover is virtually impossible, the buyer is entitled to specific performance, and the court would order the transfer of the planes to the buyer
upon payment.
When a buyer breaches the sales contract, the seller has a number of remedies available to
them in seeking compensation for their loss. These include the right to withhold goods, the
right to recover shipped goods, and the right to force the buyer to accept shipped goods under
certain circumstances.
Right to Withhold Goods (§ 2-705)
The seller can withhold delivery of the goods to the buyer until payment is made.
Example 9.15. A buyer orders 100 hover balls and agrees to pay using PayPal. Until the seller
receives payment, the seller has no obligation to make the goods available to the buyer.
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Chapter Summary
Right to Recover Goods (§ 2-702)
Sometimes, however, the seller starts the goods in motion to the buyer even when the seller
has not received payment. This may occur by placing the goods on a common carrier. Section 2-702 gives the seller the right to recover the goods from the third party prior to their
delivery.
Example 9.16. When seller learns buyer is insolvent and goods are in transit. A buyer
in Ohio buys goods from a seller in Indiana and agrees to have the goods delivered via Red
Ball Express. If, after the goods are in transit but before Red Ball Express delivers them to the
buyer, the seller learns that the buyer is insolvent, the seller can recover the goods from the
common carrier (Red Ball Express).
Sellers’ Damages for Breach (§§ 2-708–2-711)
When a buyer breaches the sales contract, the seller can recover lost profits from the buyer
or, alternatively, the difference between the contract price and the market price, or the contract price and the resale price (the latter is the price at which the seller is able to resell the
goods to another buyer after a good faith effort to sell the goods). The seller is also entitled to
recover incidental damages and consequential damages from the buyer, such as the cost
of shipment, storage, and restocking.
Example 9.17. When buyer wrongfully refuses to accept goods. A seller ships to a buyer
100 widgets pursuant to a valid sales contract. When the goods arrive, the buyer wrongfully
refuses to accept them. The seller can sue the buyer for lost profits under the contract and for
the costs of storing the goods, shipping them back, and restocking them once they arrive at
the seller’s plant.
Chapter Summary
The UCC provides for a number of warranties, both express and implied, that may accompany
a sale of goods transaction. The seller’s guarantees that there is valid title to the goods and
that the goods are merchantable are implied warranties that do not need to be specifically
stated by the seller. The guarantee of fitness of the goods for a particular purpose is also
implied, but this warranty requires that the seller know what use the buyer intends and that
the buyer relies on the seller’s superior knowledge of the goods. It is obviously important for
both parties to be aware of the legal ramifications of any representations regarding the title
or function of the goods, but they must equally pay careful attention to the language of the
contract so as to be aware of disclaimers and limitations.
As with any contract, sale of goods contracts can be breached on either side, and the UCC has
a number of provisions dealing with remedies for breach. Buyers can reject nonconforming
goods, sue for damages, and in cases of unique subject matter, alternatively sue for specific
performance of the contract. If the buyer breaches, the possible remedies for a seller include
the right to withhold goods or to recover goods that were already shipped or monetary damages. An astute seller or buyer should know when they make the contract what remedies are
available to them should things go wrong.
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Chapter Summary
Focus on Ethics:
Limiting the Implied Warranty of Merchantability
On one hand, the UCC provides for the implied warranty of merchantability. On the other,
it allows sellers to easily disclaim the warranty or limit the damages the seller owes if the
product is defective. Let us look at two examples of how this may play out in the real world.
• Suppose you are buying a used car from Big Al’s Auto Dealership. The car, a 2021
Toyota, is sold with either a 1-year warranty for an extra $1,000 or “as is” for the list
price. You buy the car “as is,” since you are a cash-strapped college student and every
dollar counts. As you are driving away from the dealership, the accelerator pedal
sticks and you crash into a highway barrier, wrecking the car.
• Suppose Net One, a cable television and internet service provider, is buying cable
from Cable Co. to install for an upgrade to its system. The contract provides that
remedies are limited to replacement and repair. Net One spends over $1 million
installing the cable, which turns out to be defective. Net One loses an estimated
$7.5 million in business during the period that the cable is being replaced.
Questions to Consider
1.
2.
3.
How would Big Al’s Auto and Cable Co. argue that its lack of liability is not only legal
but ethical?
Does it have an effect with regard to the fairness of the transaction that you as
the cash-strapped college student had a choice to pay more for a warranty on the
used car?
What if Net One shows that all the cable manufacturers use remedy limitations,
and thus they had no choice in the matter, that they could not bargain for a better
deal because there was no other supplier to bargain with? Note that Net One is a
big company, complete with attorneys, which puts it at a distinct disadvantage in
attempting to argue any kind of unconscionability claim. Does that mean that the
law is giving the sellers an unfair advantage?
Case Study: Bigelow v. Agway Inc.
506 F.2d 551 (2d Cir. 1974)
Facts: Bigelow was a dairy farmer who grew and baled his own hay. Kemin, a chemical
manufacturer, made a chemical preparation called Hay Savor, which was sold by Agway Inc.
Hay Savor’s purpose is to retard mold in baled hay, enabling it to be baled earlier when it
has a higher moisture content, which is more nutritious. Advertising literature for Hay Savor
stated that moisture levels should be 25% or below. Bigelow bought Hay Savor and spraying
equipment from Agway.
(continued on next page)
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Chapter Summary
Case Study: Bigelow v. Agway Inc. (continued)
Representatives from Kemin (Mr. Nelson) and Agway
(Mr. Newton) visited the Bigelow farm when the hay lay
drying in the fields. Nelson stated that even though the
hay had over 30% moisture and the normal safe level
for baling would be 25% or below, it would be safe for
baling if Hay Savor was used. Bigelow thought the hay
was too green, but relying on Nelson’s statement, he
went ahead and baled the hay and stored it in his barn.
Unfortunately, it turned out that the hay was indeed
too wet, and as a result of the heat generated by mold,
spontaneous combustion occurred. The hay and barn
were destroyed in the ensuing fire.
Bigelow sued the sellers of Hay Savor, alleging among
other things breach of warranty of merchantability and
warranty of fitness for a particular purpose.
Issue: Could a jury find that the warranty was made and
breached?
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Even though an Agway
representative assured
Bigelow that it would be safe
to use Hay Savor, spontaneous
combustion occurred and
destroyed a barn. Was a
warranty of merchantability
made and breached?
Discussion: The court said there was no evidence that Hay Savor would not have performed
properly and safely had the hay been below the advertised 25% moisture level. Thus, the
warranty of merchantability could not have been breached.
With regard to the warranty of fitness for a particular purpose, the representation of Nelson
was made after the sale of the Hay Savor, and therefore Bigelow could not have been relying
on it when he made the purchase. The visit by Nelson and Newton was a different story,
however. If the language or samples or models are considered part of the contract, then the
contract was modified under 2-209, and the warranty became a modification to the original
contr
