QUESTION NO. 2
JULY 2009
OREGON BAR EXAM
Ricky, a race car driver, went to the RV Super Expo at the local county fairgrounds.
There, he met Bobby, a salesman for Colossal RVs, a motorhome manufacturer. Ricky told
Bobby that he wanted to buy a motorhome for traveling to races across the United States.
Ricky also told Bobby that he would be living in the motorhome and towing his heavy race car
with it during these trips.
Bobby showed Ricky several models of Colossal RVs, but he told Ricky that the model
motorhomes at the Expo were strictly for show and not for sale. Bobby knew that the model
motorhomes at the Expo had been serviced so they would show well and run perfectly, but he
assured Ricky that they were identical to the motorhomes available for purchase.
After touring and test-driving several models, Ricky zeroed in on the top-of-the-line
Calamity and asked Bobby if this would be a good pick. Bobby knew that the Calamity had
been recalled due to a manufacturing defect in the sewage tank but, wanting to close the sale,
Bobby said, “That’s the biggest, baddest motorhome we make. You’ll be the coolest cat at the
track in this baby.”
Taking Bobby at his word, Ricky plopped down $500,000 cash and signed the 10-page
sales contract. Ricky did not read the contract, so he did not notice that, buried in the middle
of the text on page 5, it said, “All warranties are disclaimed.” Bobby delivered a Calamity to
Ricky. The Calamity did not come with a written warranty.
Ricky hitched his race car to the back of his Calamity and set off for a race. Along the
way, he used the toilet, which immediately overflowed, due to the defective sewage tank. Even
though he could not use his motorhome’s bathroom, Ricky pressed on because he wanted to
make it to the race on time. As he was driving over a mountain, the dashboard lights started to
flash, indicating that the motorhome’s tow load was too heavy. A few minutes later, the engine
overheated and the Calamity shut down, stranding Ricky and his race car in the middle of
nowhere.
(70%)
1.
Applying only Article 2 of the UCC, discuss what
claims, if any, Ricky has against Colossal RVs. Do not
discuss damages.
(30%)
2.
Applying only Article 2 of the UCC, discuss the
disclaimer language and whether it provides a defense
against any of Ricky’s potential claims.
©2009
Oregon State Board
of Bar Examiners
JULY 2009
OREGON BAR EXAM
Outline
1. UCC Claims (70%)
Breach of Implied Warranty of Merchantability:
In every sale by a merchant who deals in goods of kind sold there is an implied
warranty that good are merchantable.
A merchant is one who regularly deals in goods of the kind sold or who otherwise
by his profession holds himself out as having special knowledge or skills as to the
practices or goods involved. [UCC §2-104(1)]
The most important test for determining merchantability is whether the good is “fit
for ordinary purposes for which such goods are used.” [UCC §2-314(2)]
It does not matter that seller did not know of defect or could not have discovered
it. Implied warranties are not based on negligence, but on absolute liability.
** In this case, Colossal qualifies as a merchant, since it regularly deals in
motorhomes. A motorhome is a good, which is both a vehicle and a home. Bathrooms
are essential parts of homes, so the bathroom must be functional in order for the
motorhome to be fit for its ordinary purpose for which such goods are used. Since
Ricky could not use his bathroom, the Calamity is unfit for the ordinary purposes for
which it is used. Consequently, Colossal breached the implied warranty of
merchantability.
Breach of Implied Warranty of Fitness for a Particular Purpose:
The breach of the implied warranty of fitness for a particular purpose arises
whenever: 1) any seller (merchant or not) has reason to know the particular purpose for
which the goods are to be used and that the buyer is relying on the seller’s skill and
judgment to select suitable goods; and 2) the buyer in fact relies on the seller’s skill or
judgment. [UCC §2-315].
“A particular purpose differs from the ordinary purpose for which goods are used
in that it envisages a specific use by the buyer which is peculiar to the nature of his
business, whereas the ordinary purposes for which goods are used are those envisaged
in the concept of merchantability.” [UCC §2-315 Comment]
** Here, Bobby (and by extension Colossal) knew Ricky intended to drive the
motorhome cross-country and intended to tow his heavy race car with the motorhome.
Bobby had reason to know Ricky was relying on his skill and judgment because Bobby
was a Colossal salesman at an expo focusing on RVs that was open to the public.
Bobby showed Ricky motorhomes in response to Ricky’s statements of his needs.
Ricky then made the purchase, trusting Bobby’s judgment.
** Ricky’s particular purposes were: 1) to drive the motorhome cross-country,
which naturally, includes over mountains, and 2) to tow his heavy race car. The
motorhome broke down while driving over a mountain, carrying the race car.
Consequently, Colossal breached the implied warranty of fitness for a particular
purpose.
Breach of Good Faith
Every contract or duty within the UCC imposes an obligation of good faith in its
performance or enforcement. [UCC §1-304] “Good faith” is defined as “honesty in fact
and the observance of reasonable commercial standards of fair dealing.” [UCC 1201(20)]
** Colossal knew about the defective sewage tank and it would be commercially
reasonable to expect it to disclose such a significant flaw to a prospective consumer.
Since Colossal did not disclose this to Ricky, it is subject to liability for a breach of good
faith under the UCC.
Breach of Express Warranty
Any sample or model creates an express warranty if the sample or model is part
of the basis of the bargain. For a sample or model to be part of the basis of the bargain,
it need only come at such a time that the buyer could have relied on it when he entered
into the contract. The buyer does not need to prove that s/he actually did rely, though
the seller may negate the warranty by proving that the buyer as a matter of fact did not
rely. It is not necessary that the seller intended the sample or model to create a
warranty. [UCC §2-313]
** Here, Bobby told Ricky that the motorhomes (models) at the RV Expo were for
show only/not for sale. However, Bobby said they were identical to the motorhomes
available for purchase. Ricky toured and test drove the model Calamity at the Expo,
which had been fixed up for the Expo. Presumably, the manufacturing defect to the
sewage tank had been fixed up on the Expo model, too. Ricky made his purchase
decision partly on this basis of his touring and test driving the Expo model. Ricky’s
motorhome was not comparable to the Expo model, as it had a defective sewage tank
that had not been fixed. Consequently, Colossal is liable for breach of express
warranty.
Statements purporting to be only the seller’s opinion or commendation of the
goods do not create an express warranty.
** Bobby said, “That’s the biggest, baddest motorhome we make. You’ll be the
coolest cat at the track in this baby.” This did not create an express warranty.
2. Disclaimer (30%)
The implied warranty of merchantability can specifically be disclaimed only by
mentioning merchantability. [UCC §2-316(2)] If the sale contract is in writing, the
disclaimer must be conspicuous.
The warranty of fitness for a particular purpose can be specifically disclaimed
only by a conspicuous writing. [UCC §2-316(2)] A term is conspicuous when it is “so
written, displayed, or presented that a reasonable person against whom it is to operate
ought to have noticed it.” A printed heading in capital letters at least equal in size to the
surrounding text, or in a contrasting type, font, or color is conspicuous. Language in the
body of a record or display is conspicuous if: 1) it is in larger type than surrounding text;
2) if is in contrasting type, font, or color; or 3) it is set off from the text by marks that call
attention to it. [UCC §1-201(b)(10)] Conspicuousness is a question for the court, not a
jury.
** Here, it does not sound like the disclaimer was conspicuous. (However, it is
open for applicant to discuss and conclude either way, and points will be awarded for
the discussion.)
In addition to determining whether disclaimers have met the formal requirements,
some courts will test warranty disclaimers by the conscionability standards of UCC §2302. Such things as lack of bargaining position, lack of choice, and failure to
understand would be relevant in determining whether a disclaimer is unconscionable.
** Applicants will get a nominal award of points for mentioning and discussing
conscionability in this context.
© 2009
Oregon State Board
of Bar Examiners