Chapter 11: Sales, Leases,
and Product Liability
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The Scope of Article 2—
Sale of Goods
 Governs contracts for sale of “goods.”
• UCC 2 preempts common law in sale of
goods and modifies common law of
contracts in some areas. But where UCC
2 is silent, common law governs. 
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The Scope of Article 2
 Only applies to goods.
• The common law of contracts governs
real estate, services or intangible
property.
• Mixed Goods-Services: The
Predominant-Factor Test.
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Exhibit 11-1 Law Governing Contracts
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The Scope of Article 2
 What is a Sale?
• Article 2 applies to the “sale of goods.”
• A “sale” is the passing of title from
seller to a buyer for a price (payable in
cash, goods, services).
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The Scope of Article 2
 Article 2 applies to the “sale of
goods.”
 What are Goods?
• Must be tangible and movable.
• Tangible: has physical existence.
• Movable: carried from place to place.
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The Scope of Article 2
 What are Goods?
• Goods Associated with Real Estate can
fall within Art. 2 if:
• (1) Contract for sale of minerals or a
structure is a good IF severance is made
by seller. If severance by buyer, sale is
governed by common law.
• (2) Sale of growing crops. 
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The Scope of Article 2
 What are Goods?
• Goods Associated with Real Estate can
fall within Art. 2 if:
• (3) Other “things” attached to real
property, capable of being severed
without harm to land.
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The Scope of Article 2
 Mixed Contracts: Goods and Services
Combined. What law governs?
• “Predominant Factor” Test – if goods,
then UCC governs, if services then
common law governs entire contract.
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The Scope of Article 2
 Who is a Merchant?
• UCC Art. 2 imposes special standards
upon a “merchant” who has special
business expertise and is not a casual
buyer/seller. 
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The Scope of Article 2
 Who is a Merchant?
• UCC Art. 2 defines merchant as
someone who:
• Deals in goods of the kind in the sale.
• Holds herself out as having special
expertise, knowledge, or skill.
• Person who employs a merchant.
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Scope of Article 2A—Leases
 Definition of a Lease Agreement:
contract for lease of personal goods
between a lessor and a lessee.
• Lessor transfers right to possess and
use goods under lease.
• Lessee acquires right to possess and
use goods. 
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Scope of Article 2A—Leases
 Consumer Leases: lessor, lessee who
leases for personal, family, or
household use, and total payments
less than $25,000.
 Finance Leases (involves a 3rd partysupplier).
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Formation of Sales
and Lease Contracts
 OFFER: At common law once a valid
offer is unequivocally accepted, a
binding contract is formed.
• UCC is more flexible, and allows for
open pricing, payment, and delivery
terms.
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Formation of Sales
and Lease Contracts
 Offer. UCC 2-204: even if terms are
undetermined, a contract may still
exist.
• Open Terms: “Indefiniteness” is OK as long
as the parties intended to make a contract
and there is a reasonable basis for a court to
grant a remedy.
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Formation of Sales
and Lease Contracts
 Offer.
• Open Terms.
• Open Price Term: If parties have not agreed
on pricing, court can determine “reasonable
price at the time of delivery.”
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Formation of Sales
and Lease Contracts
 Offer.
• Open Terms.
• Open Delivery Term: Unless otherwise
agreed, buyer takes delivery at the Seller’s
place of business. UCC2-308(a). Seller has
duty to make arrangements in good
faith.
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Formation of Sales
and Lease Contracts
 Offer.
• Open Terms.
• Open Quantity: generally courts will not
impose a quantity and there is no remedy,
unless the contract is either a
requirements or output contract. 
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Formation of Sales
and Lease Contracts
 Offer.
• Open Terms.
• Open Quantity (exceptions).
–Requirements Contract: buyer agrees
to purchase what the buyer needs or
requires.
–Output Contract: buyer agrees to buy
all of seller’s production or output.
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Formation of Sales
and Lease Contracts
 Offer.
• Merchant’s Firm Offer.
• Offer made by merchant in a signed
writing is irrevocable for reasonable
period of time. No consideration
necessary.
• The Offer Must be in Writing and Signed
by the Offeror.
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Formation of Sales
and Lease Contracts
 Acceptance.
• Either by prompt shipment of
conforming or nonconforming goods.
• Non-conforming Goods: is both an
acceptance and a breach unless goods
sent as an “accommodation” to buyer,
with prompt notice by buyer.
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Formation of Sales
and Lease Contracts
 Acceptance.
• Communication of Acceptance.
• Additional Terms.
• If One Party is a Merchant: contract is
formed according to original terms of the
offer. 
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Formation of Sales
and Lease Contracts
 Acceptance.
• Additional Terms (cont’d).
• When Both Parties are Merchants, the
contract incorporates new terms unless:
–(1) original offer expressly limits terms, or
–(2) material change, or
–(3) offeror objects within reasonable
time.
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Formation of Sales
and Lease Contracts
 Consideration.
• UCC adopts common law rule requiring
consideration. However, modifications
do not need consideration.
• Modifications Must be Made in Good
Faith.
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Formation of Sales
and Lease Contracts
 The Statute of Frauds.
• Sale of goods over $500 must have a
signed writing to be enforceable.
• Sufficiency of the Writing: signed by
party against whom enforcement is
sought. Normally not enforceable
beyond quantity of goods shown in the
writing. 
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Formation of Sales
and Lease Contracts
 The Statute of Frauds.
• Special Rules for Contracts Between
Merchants. After oral agreement, one
of the merchants sends a signed,
written memorandum containing
essential terms to the other merchant
within a reasonable time.
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Formation of Sales
and Lease Contracts
 The Statute of Frauds.
• Specially manufactured goods.
• Partial Performance: oral contract is
enforceable IF payment has been made
or goods have been accepted.
• Admissions by breaching party.
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Performance of Sales
and Lease Contracts
 General Principles:
• Seller must transfer and deliver
conforming goods.
• Buyer must accept and pay for
conforming goods.
• In the absence of an agreement
between seller and buyer, UCC Article 2
controls as set out below. 
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Performance of Sales
and Lease Contracts
 UCC’s Good Faith Provision.
• Good faith means honesty in fact.
• For a merchant, it means honesty in fact and
observance of reasonable commercial
standards of fair dealing in the trade.
• Merchants are held to a higher standard of care
than non-merchants.
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Performance of Sales
and Lease Contracts
 Obligations of the Seller or Lessor.
• Tender of Delivery: occurs when seller
delivers conforming goods to buyer.
• Requires reasonable notice.
• Reasonable hour and manner.
• Generally, all goods in one installment
(unless agreed upon by parties).
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Performance of Sales
and Lease Contracts
 Obligations of the Seller or Lessor.
• Place of Delivery.
• Parties can agree goods tendered at a
particular destination for buyer to take
possession.
• If the contract does not specify, then it is
the seller’s place of business (or the
location of the goods.)
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Performance of Sales
and Lease Contracts
 Obligations of the Seller or Lessor.
• Perfect Tender Rule.
• If goods, or tender of delivery, fail in any
respect to conform to the contract, the
Buyer has the right to:
–Accept the goods;
–Reject the entire shipment; or
–Accept part and reject part.
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Performance of Sales
and Lease Contracts
 Obligations of the Seller or Lessor.
• Perfect Tender Rule (Exceptions).
• Agreement of the Parties: agree that some
defective goods will be acceptable.
• Cure: seller has right to repair or replace
defective goods within the time of contract
performance. Substantially restricts right of
rejection; buyers must act in good faith and
give specific reasons for refusing acceptance.
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Performance of Sales
and Lease Contracts
 Obligations of the Seller or Lessor.
• Perfect Tender Rule (Exceptions).
• Substitution of Carriers. If a carrier
becomes impracticable or unavailable
through no fault of either party, a
commercially reasonable substitute is
acceptable.
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Performance of Sales
and Lease Contracts
 Obligations of the Seller or Lessor.
• Perfect Tender Rule (Exceptions).
• Commercial Impracticability.
–If unforeseeable event occurs, the
perfect tender rule no longer applies.
–Seller must notify the buyer as soon as
practicable the shipment is delayed or
undeliverable. 
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Performance of Sales
and Lease Contracts
 Obligations of the Seller or Lessor.
• Perfect Tender Rule (Exceptions).
• Destruction of Identified Goods.
–If no fault of either party and it occurs,
–Before risk passes to Buyer then,
–Both Seller and Buyer are excused from
performance.
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Performance of Sales
and Lease Contracts
 Obligations of the Seller or Lessor.
• Perfect Tender Rule (Exceptions).
• Assurance and Cooperation.
–One party has “reasonable grounds” to
believe other party will not perform,
she can ask for written assurance, or
‘suspend’ performance or delivery.
–Failure to respond may constitute a
repudiation of the contract.
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Performance of Sales
and Lease Contracts
 Obligations of the Buyer or Lessee.
• Payment: make payment at the time
and place the Buyer receives the goods.
• Credit has to be prearranged.
• Pay with cash, credit card, check.
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Performance of Sales
and Lease Contracts
 Obligations of the Buyer or Lessee.
• Right of Inspection. Buyer has absolute
right to inspection before payment, unless
C.O.D. 
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Performance of Sales
and Lease Contracts
 Obligations of the Buyer or Lessee.
• Acceptance. Buyer can accept goods:
• By words or conduct.
• If Buyer had reasonable amount of time
and failed to reject.
• Buyer performs an act which indicates he
thinks he is the owner. 
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Performance of Sales
and Lease Contracts
 Obligations of the Buyer or Lessee.
• Partial Acceptance.
• If some of the goods do not conform to
the contract, and seller has failed to cure,
buyer can make a partial acceptance.
• But buyer cannot accept less a single
commercial unit.
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Performance of Sales
and Lease Contracts
 Anticipatory Repudiation.
• A party communicates intention to not
perform.
• Constitutes breach of contract.
• Nonbreaching party may suspend
performance and treat the AR as material
breach and pursue a remedy; or wait a
reasonable time. 
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Performance of Sales
and Lease Contracts
 Anticipatory Repudiation.
• A Repudiation May Be Retracted.
• Breaching party may ‘retract’ repudiation
by any method that clearly indicates their
intent.
• However, no retraction if the
nonbreaching party has materially
changed their position.
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Remedies for Breach of Sales
and Lease Contracts
 Remedies of the Seller or Lessor.
• When buyer breaches, seller has various
UCC remedies, depending on
circumstances:
• Who has possession of the goods?
• Are goods in transit?
• Has buyer rejected or accepted the
goods?
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Remedies for Breach of Sales
and Lease Contracts
 Remedies of the Seller or Lessor.
• If goods in seller’s possession, he has:
• The Right to Cancel (Rescind) the Contract.
–Seller must notify buyer.
–Buyer is not discharged from remaining
obligations. 
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Remedies for Breach of Sales
and Lease Contracts
 Remedies of the Seller or Lessor.
• If goods in seller’s possession, he has:
• The Right to Withhold Delivery.
–If material breach by buyer, seller can
withhold delivery of all goods.
–If non-material breach, seller can
withhold delivery of this installment.
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Remedies for Breach of Sales
and Lease Contracts
 Remedies of the Seller or Lessor.
• If goods in seller’s possession, he has:
• The Right to Resell or Dispose of Goods.
–Seller can resell and keep profits from sale
and hold buyer liable for difference.
–Seller must give buyer notice of sale, unless
goods are perishable.
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Remedies for Breach of Sales
and Lease Contracts
 Remedies of the Seller or Lessor.
• If goods in seller’s possession, he has:
• The Right to Recover Purchase Price or Lease
Payments Due.
–Seller can bring action to recover purchase
price or lease payments.
–If seller must sue, he must hold goods for
buyer, and sell any time before collecting
the judgment.
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Remedies for Breach of Sales
and Lease Contracts
 Remedies of the Seller or Lessor.
• If goods in seller’s possession, he has:
• The Right to Recover Damages for buyer’s
wrongful nonacceptance.
–If buyer repudiates or wrongfully
chooses to accept goods, seller can
bring action to recover damages.
–Damages: market price at the time &
place of tender + incidentals.
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49
Remedies for Breach of Sales
and Lease Contracts
 Remedies of the Buyer or Lessee.
• When Seller or Lessor Refuses to Deliver
the Goods, Buyer has the right to:
• Cancel (rescind) the contract.
• Obtain Goods on Insolvency. 
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Remedies for Breach of Sales
and Lease Contracts
 Remedies of the Buyer or Lessee.
• When Seller or Lessor Refuses to Deliver
the Goods, Buyer has the right to:
• Sue for Specific Performance and recover
damages.
• Cover: in some situations.
• Replevy Goods. 
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Remedies for Breach of Sales
and Lease Contracts
 Remedies of the Buyer or Lessee.
• When Seller or Lessor Refuses to Deliver
the Goods, Buyer has the right to:
• Recover Damages.
–CASE 11.2 LES ENTERPRISES JACQUES
DEFOUR & FILS, INC. V. DINSICK
EQUIPMENT CORP. (2011). When did
the Buyer fully perform? How did the
Seller breach the contract?
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52
Remedies for Breach of Sales
and Lease Contracts
 Remedies of the Buyer or Lessee.
• When Seller Delivers Nonconforming
Goods, Buyer has the right to:
• Right to Reject Goods.
–Buyer must timely notify seller of
rejection and reasons and follow
seller’s directions.
–Merchant-buyer has good faith
obligation to follow reasonable
instructions.
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53
Remedies for Breach of Sales
and Lease Contracts
 Remedies of the Buyer or Lessee.
• When Seller Delivers Nonconforming
Goods, Buyer has the right to:
• Revoke Acceptance for substantial
nonconformity, and:
–Acceptance assumed defect would be cured,
–Nonconformity was discovered after
acceptance, or
–Effective upon notice to seller.
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54
Remedies for Breach of Sales
and Lease Contracts
 Remedies of the Buyer or Lessee.
• When Seller Delivers Nonconforming
Goods, Buyer has the right to:
• Accept Goods and Recover Damages.
–Buyer may keep the goods and recover
any loss in ordinary course of events.
–Measure of damages: difference
between value of accepted goods and
goods as warranted.
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Remedies for Breach of Sales
and Lease Contracts
 Additional Provisions Affecting
Remedies.
• Exclusive Remedies.
• Consequential Damages.
• Lemon Laws.
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Sales and Lease Warranties
 A warranty is an assurance or
guarantee by the seller of certain
facts concerning the goods being sold
or leased.
 If seller breaches a warranty, buyer
can recover damages, or rescind the
contract.
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Sales and Lease Warranties
 Warranties automatically arise in
most commercial sales transactions.
 Normally warranties can be
disclaimed or modified with specific
language in the contract. 
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Sales and Lease Warranties
 Title Warranties: under the UCC,
three types of warranties arise in
sales and lease contracts:
• Good Title.
• No Liens.
• No Infringements.
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Sales and Lease Warranties
 Express Warranties: Seller can create
warranty by making representations
about quality, condition, or
performance of good.
• Can be created by:
• Any Affirmation or Promise.
• Any Description.
• Any Sample or Model.
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Sales and Lease Warranties
 Express Warranties.
• Seller does not have to use the words
“guarantee” or “warranty.”
• Basis of the Bargain.
• Reasonable buyer must only believe
warranty was ‘basis of the bargain.’
• Buyer must rely on warranty when he
enters into contract. 
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Sales and Lease Warranties
 Express Warranties.
• Statements of Opinion and Value.
• Only statements of fact create express
warranties.
• Exception for Statements of Opinion by
Experts.
• Puffery versus Express Warranties.
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Sales and Lease Warranties
 Implied Warranties.
• Implied Warranty of Merchantability:
Automatically arises from sale of goods by
merchants which are “reasonably fit for
ordinary purposes for which such goods are
sold.”
• Conform to promises on label.
• Adequately packaged and labeled.
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Sales and Lease Warranties
 Implied Warranties.
• Implied Warranty of Fitness for a
Particular Purpose.
• Arises by any seller who:
–Knows the particular purpose for which
the goods are being bought; and
–Knows the buyer is relying on seller’s
skill and judgment to select suitable
goods. 
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Sales and Lease Warranties
 Implied Warranties.
• Implied Warranty of Fitness for a
Particular Purpose.
• Ordinary vs. Particular Purpose: Goods can
be merchantable but unfit for a particular
purpose.
• Knowledge and Reliance Requirements:
seller must have reason to know purpose,
and buyer must have relied on the
recommendation.
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65
Sales and Lease Warranties
 Implied Warranties.
• Implied Warranty from Prior Dealings or
Trade Custom.
• Arises when both parties to a contract
have knowledge of a well-recognized trade
custom. Courts infer that both meant this
custom to apply to their transaction.
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66
Sales and Lease Warranties
 Warranty Disclaimers: depends on
type of warranty.
• Express Warranties can be disclaimed:
• If a clear written disclaimer in contract
with specific, unambiguous language and
called to Buyer’s attention (BOLD CAPS
UNDERLINED). 
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67
Sales and Lease Warranties
 Warranty Disclaimers: depends on
type of warranty.
• Implied Warranties. Unless
circumstances indicate otherwise,
warranties of fitness and
merchantability can be disclaimed with
the words “As Is,” “With All Faults.” 
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Sales and Lease Warranties
 Warranty Disclaimers: depends on
type of warranty.
• Implied Warranties. Disclaimer of the
Implied Warranty of Merchantability:
must use the word merchantability.
• Disclaimer of the Implied Warranty of
Fitness: must be in writing and
conspicuous.
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69
Product Liability
 Product Liability is not a new tort.
 Liability can be based on:
• Negligence; 
• Misrepresentation; 
• Strict Liability; 
• Warranty Theory. 
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Product Liability
 Negligence.
• Based on a manufacturer’s breach of the
reasonable standard of care and failing
to make a product safe.
• Due Care Must Be Exercised in: design,
selection of materials, using appropriate
production process, assembling and
testing, adequate warnings, inspection,
and testing. 
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Product Liability
 Negligence.
• Privity of Contract Not Required. No
privity of contract required between
Plaintiff and Manufacturer. Liability
extends to any person’s injuries caused
by a negligently made (defective)
product.
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Product Liability
 Misrepresentation.
• Occurs when fraud committed against
consumer or user of product. Fraud
must have been made knowingly or
with reckless disregard for safety.
• Plaintiff does not have to show product
was defective.
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Product Liability
 Strict Product Liability.
• Strict Liability holds people liable for
results of their acts, regardless of their
intentions or exercise of reasonable
care. 
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Product Liability
 Strict Product Liability.
• Public Policy.
• Consumers should be protected from
unsafe products;
• Manufacturers and distributors should be
liable to any user of the product;
• Manufacturers, sellers and distributors
can bear the costs of injuries. 
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Product Liability
 Strict Product Liability.
• Public Policy.
• CASE 11.3 BRUESEWITZ V. WYETH, LLC
(2011). What do you think about the
ethical or moral implications of this
decision? 
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Product Liability
 Strict Product Liability.
• Requirements for Strict Liability:
1. Product must be in defective condition
when sold.
2. Defendant is in the business of selling
the product.
3. Product must be unreasonably
dangerous. 
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Product Liability
 Strict Product Liability.
• Requirements for Strict Liability:
4. Plaintiff must be physically harmed
5. Defective condition must be proximate
cause of injury.
6. Goods are in substantially same
condition.
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Product Liability
 Strict Product Liability.
• Requirements for Strict Liability.
• Proving a Defective Condition.
–Plaintiff does not need to show
product or in what manner the
product become defective.
–But plaintiff must show product was
defective and “unreasonably
dangerous” to the user. 
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Product Liability
 Strict Product Liability.
• Requirements for Strict Liability.
• Unreasonably Dangerous Products.
–The product was dangerous beyond the
expectation of the ordinary consumer.
–A less dangerous alternative was
economically feasible for the
manufacturer, but the manufacturer
failed to produce it.
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Product Liability
 Strict Product Liability.
• Product Defects – Restatement (Third of
Torts).
• Manufacturing Defects. 
• Design Defects. 
• Warning Defects. 
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Product Liability
 Strict Product Liability.
• Manufacturing Defects.
• Occurs when a product “departs from its
intended design even though all possible
care was exercised in the preparation and
marketing of the product.”
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Product Liability
 Strict Product Liability.
• Design Defects.
• Product is manufactured correctly, but
defect is based on design.
• Test for Design Defects: plaintiff must
show defendant’s failure to use a
reasonable alternative design rendered
the product not reasonably safe. 
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83
Product Liability
 Strict Product Liability.
• Design Defects.
• Factors to be Considered.
–Magnitude and probability of
foreseeable risks.
–Relative advantages and disadvantages
of product.
–Most courts use “risk-utility” analysis.
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84
Product Liability
 Strict Product Liability.
• Inadequate Warnings.
• A product may be defective because of
inadequate warnings or instructions.
• Liability based on foreseeability that
proper instructions/labels would have
made the product safe to use. 
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Product Liability
 Strict Product Liability.
• Inadequate Warnings.
• Obvious Risks. No duty to warn.
• Foreseeable Misuses. Seller must warn
about foreseeable misuse.
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Product Liability
 Strict Product Liability.
• Market Share Liability.
• Theory of liability when multiple
Defendants contributed to manufacture of
defective product.
• Liability of each Defendant is
proportionate to the share of the market
held by each respective Defendant.
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87
Product Liability
 Defenses to Product Liability.
• Assumption of Risk.
• Product Misuse. Plaintiff does not know
the product is dangerous for a
particular use.
• Comparative Negligence.
• Defendants may be able to limit damages
by apportioning fault. 
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Product Liability
 Defenses to Product Liability.
• Commonly Known Dangers.
• Knowledgeable User.
• Statutes of Limitation and Repose.
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