1 professor of law loyola law school, los angeles chapter 1 introduction
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- Problem 46
- b. Under the CISG
- Problem 47
- 5. Relationship of UCC Warranty Actions to Consumer Protection Law
- MEKERTICHIAN v. MERCEDES-BENZ U.S.A.
- Notes, Questions and Problems
- Problem 48
- CHAPTER 5 OTHER CONTRACT TERMS – RISK OF LOSS AND GAP FILLERS A. RISK OF LOSS
- 1. Cases where no shipment is involved
- Problems Problem 49
Notes and Questions
Problem 46 - As noted previously, Amended UCC § 2-313A covers the case of the “warranty in a box.” Generally speaking, this section makes it clear that the manufacturer is bound to the remote buyer by any descriptions or guarantees made in the warranty regarding the goods and must also make any promised repairs to or replacements of the goods. Assume that a bakery purchases an oven from a retailer for the purposes of making baked goods for re-sale. It is a large, commercial oven and is marketed to businesses. The manufacturer includes a warranty indicating that the oven will be free of defects for 5 years. If the oven malfunctions during that time, preventing the bakery from having sufficient goods for resale, may the bakery sue the manufacturer for the lost profits? See Amended UCC § 2-313A(5)(b). b. Under the CISG The CISG does not have any section comparable to UCC § 2-318 and says nothing about privity. Remember that the CISG does not apply to consumer goods transactions and also does not apply to any personal injury claims (CISG Articles 2 & 5), so it may not be as objectionable to require a buyer to proceed only against the immediate seller. With an international chain of distribution, it may also be less complicated to require privity of contract. In some situations, however, perhaps it is appropriate to permit a direct action by the buyer against the manufacturer. Please consider the following problem: Problem 47 - Buyer Manufacturing Company, located in Country A, purchased a machine for use in its business from XYZ Dealership, also located in Country A. It purchased the machine after reading an advertisement from the machine’s manufacturer, Remote Machine Co., which was located in Country B. Both countries have adopted the CISG. The advertisement touted the many fine qualities of the machine, and directed interested purchasers to contact licensed dealerships from a list contained in the advertisement. XYZ was one of the dealerships mentioned. When Buyer took delivery of the machine from XYZ, it contained a “warranty” document from Remote that indicated that the machine would perform the functions listed or that the purchaser could take the machine back to the dealer from which it was purchased for repairs. The machine never performed as indicated, and Buyer took the machine back to XYZ several times. Before the machine was repaired, XYZ went out of business. Buyer would like to sue Remote. Can it? What are some of the practical problems in answering this question either yes or no? See CISG Article 4. See also, J. Honnold, Uniform Law for International Sales § 63 (3d ed. 1999). 5. Relationship of UCC Warranty Actions to Consumer Protection Law Congress and a number of states have passed laws that give additional protections to consumers in sale of goods cases. The Magnuson-Moss Warranty Act, 15 USC § 2301, et. seq., has sometimes been referred to as a “Truth in Warranting” act in that it requires sellers of goods to “conspicuously disclose in simple and readily ascertainable language the terms and conditions” of warranties. 15 U.S.C. § 2302. Under Magnuson-Moss, a “written warranty” is defined as “any written affirmation of fact or written promise made in connection with the sale of a consumer product by a supplier to a buyer” that “relates to the nature of the material or workmanship,” promises a level of performance or promises that goods will remain defect free. Also included are promises to repair or provide refunds. As is the case with UCC § 2-313, the warranty must be part of the basis of the bargain. 15 USC § 2301(6). When you buy a product, you may notice that it is conspicuously labeled a “limited warranty” or more infrequently a “full warranty.” This disclosure is mandated by Magnuson-Moss, and if the warranty is labeled a “full warranty” it must comply with the Federal Minimum Standard for Warranties spelled out in § 104 of the Act. 15 U.S.C. § 2304. If you take a look at the requirements listed, you will understand why most warranties are therefore “limited warranties”! The Federal Trade Commission fleshes out the requirements of Magnuson-Moss in regulations to be found at 16 C.F.R. Parts 700-703. Magnuson-Moss applies to goods which are “normally” used for personal, family or household purposes. 15 U.S.C. § 2301(1). “Consumer” is defined to include a “buyer (other than for purposes of resale) of any consumer product.” 15 U.S.C. § 2301(3). So would a passenger car purchased by a business be included within Magnuson-Moss’s coverage? Why would it make sense to include it? One provision in Magnuson-Moss that is helpful to consumers is section 108 of the Act [15 U.S.C. § 2308], which provides that if a written warranty is given, a supplier may not disclaim or modify any implied warranties, except that for limited warranties the supplier may limit the duration of the implied warranty to the duration of the written warranty if that duration is reasonable. The meaning of this provision is not clear, since implied warranties are either breached or not at the time the goods are delivered to the buyer. That is, the good is either merchantable or not merchantable when it is delivered, even though discovery of the defect may occur sometime after delivery. We will explore what is meant by limiting duration of an implied warranty in an upcoming problem. The Magnuson-Moss Act creates a cause of action for consumers who are injured by failure to comply with the Act or under any express or implied warranty. The cause of action extends to “a supplier, warrantor, or service contractor,” meaning that lack of privity is not a defense. 15 U.S.C. § 2310(d). The consumer can sue the manufacturer who provides the warranty. As a prerequisite to a lawsuit under Magnuson-Moss, a warrantor may require a consumer to first go through an informal dispute resolution procedure established under rules promulgated by the Federal Trade Commission. 15 U.S.C. § 2310(a)(2)(3). In the event that a lawsuit is ultimately filed and the consumer is successful, the court has discretion to award reasonable attorney’s fees. The possible usefulness of Magnuson-Moss in some situations is demonstrated by the following case. MEKERTICHIAN v. MERCEDES-BENZ U.S.A. Appellate Court of Illinois 347 Ill. App. 3d 828, 807 N.E.2d 1165 (2004) Plaintiff, Edmond Mekertichian, brought the instant cause of action against defendant, Mercedes-Benz U.S.A., for breach of express and implied warranties under the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act (the Act or Magnuson-Moss) (15 U.S.C. § 2301 et seq. (1994)). Defendant moved for partial summary judgment regarding plaintiff's claim for breach of implied warranty of merchantability, alleging there was no privity between plaintiff and defendant. The circuit court denied the motion and defendant now appeals. We affirm the denial of the motion for summary judgment. BACKGROUND On November 27, 1999, plaintiff purchased a new 2000 Mercedes-Benz S500V from Autohaus on Edens, Inc., in Northbrook, Illinois. Defendant, the manufacturer, provided a 48-month or 50,000-mile limited written warranty with the new automobile. The warranty provided that any authorized dealership would make repairs or replacements necessary to correct defects in material or workmanship during the warranty period. Following the purchase, plaintiff began experiencing problems with the vehicle and, on several occasions, took it to Autohaus for repairs. However, plaintiff claimed that Autohaus was unable to repair the vehicle, and he attempted to revoke his acceptance of the vehicle. Defendant refused plaintiff's revocation. Plaintiff subsequently filed a complaint against defendant for breach of written and implied warranties under Magnuson-Moss. Claiming a lack of vertical privity between the parties, defendant filed a motion for partial summary judgment regarding plaintiff's claim for breach of implied warranty of merchantability. Defendant argued that because plaintiff did not purchase the vehicle directly from defendant, no vertical privity existed and the breach of implied warranty claim could not be maintained. The trial court denied the motion, but certified the question as to whether such privity is required pursuant to Supreme Court Rule 308 (155 Ill.2d R. 308). Defendant thereupon filed in this court an application for leave to appeal under Rule 308, which we denied. Following a supervisory order from our supreme court, we vacated our order denying leave to appeal and now consider defendant's interlocutory appeal. For the following reasons, we affirm the denial of defendant's motion for partial summary judgment. ANALYSIS The instant appeal was brought following the denial of defendant's motion for partial summary judgment. In its motion, defendant alleged, as it does before this court in its appeal, that an action for breach of an implied warranty of merchantability could not be maintained against it as the manufacturer. It argues that because it did not sell the vehicle in question to plaintiff, there was no vertical privity between it and plaintiff, a required element under Illinois law when seeking recovery for the breach of an implied warranty. Plaintiff responds that the action is proper because our supreme court has determined on two occasions, in Szajna v. General Motors Corp., 115 Ill.2d 294, 104 Ill.Dec. 898, 503 N.E.2d 760 (1986), and Rothe v. Maloney Cadillac, Inc., 119 Ill.2d 288, 116 Ill.Dec. 207, 518 N.E.2d 1028 (1988), that Magnuson-Moss expands our state law to provide for vertical privity where a manufacturer provides a written warranty to a consumer. As shall be discussed below, we find that we are bound by the doctrine of stare decisis to follow our supreme court's determination in Szajna and Rothe. Under the Magnuson-Moss Warranty Act "a consumer who is damaged by the failure of a supplier, warrantor, or service contractor to comply with any obligation under this chapter, or under a written warranty, implied warranty, or service contract" may sue for damages or other equitable relief, and, where a plaintiff prevails, for attorney fees and costs. 15 U.S.C. § § 2310(d)(1), (d)(2) (1994). With respect to actions predicated on the breach of an implied warranty of merchantability, which is at issue here, the Act provides that such actions may arise only under state law. 15 U.S.C. § 2301(7) (1994). The Act does not provide an independent avenue through which implied warranty actions may be filed. Accordingly, under the terms of the Act itself, any action for breach of implied warranty is governed and limited by state law (except to the extent that state law might be modified by section 2308, dealing with disclaimers of implied warranties, and section 2304 (a), dealing with attempts to restrict the duration of an implied warranty, neither of which is at issue here). In Illinois, actions for breach of implied warranty of merchantability are governed by the UCC. In order for a plaintiff to file a claim for economic damages under the UCC for the breach of an implied warranty, he or she must be in vertical privity of contract with the seller. This means that "the UCC article II implied warranties give a buyer of goods a potential cause of action only against his immediate seller." Rothe, 119 Ill.2d at 292, 116 Ill.Dec. 207, 518 N.E.2d at 1029. Although this vertical privity requirement has been challenged on a number of occasions, our supreme court has consistently declined to abolish the doctrine in cases where purely economic damages are sought. Despite this preservation of the privity requirement, the Illinois Supreme Court in Szajna and Rothe found that Magnuson-Moss serves to modify the state law privity requirement in cases filed under the federal Act. In Szajna, our supreme court held that, because the purpose of Magnuson-Moss is to "furnish [ ] broad protection to the consumer" and the Act modifies state law in "several" other of its provisions, under the Act where a manufacturer has expressly warranted a product to a consumer, vertical privity will be deemed to exist with respect to that consumer, enabling him to file an action for breach of implied warranty as well. Szajna, 115 Ill.2d at 315, 104 Ill.Dec. 898, 503 N.E.2d at 769. The Szajna court stated, "under [the Act] a warrantor, by extending a written warranty to the consumer, establishes privity between the warrantor and the consumer which, though limited in nature, is sufficient to support an implied warranty under * * * the UCC." Szajna, 115 Ill.2d at 315-16, 104 Ill.Dec. 898, 503 N.E.2d at 769. The same interpretation of Magnuson-Moss was again affirmed by our supreme court in Rothe. Rothe, 119 Ill.2d at 294-95, 116 Ill.Dec. 207, 518 N.E.2d at 1030-31. Simultaneously, our supreme court in Szajna and Rothe explicitly declined to relax the privity requirement under similar circumstances under the UCC when Magnuson-Moss was not involved. Therefore, the supreme court determined that under the federal Act only, vertical privity will be deemed to exist in the presence of a written warranty by a manufacturer to the downstream consumer. Szajna, 115 Ill.2d at 315-16, 104 Ill.Dec. 898, 503 N.E.2d at 769. Although there has been no determination on the vertical privity requirement under Magnuson-Moss by the United States Supreme Court, the holding in Szajna and Rothe that under Magnuson-Moss the vertical privity requirement is eliminated has been rejected by a consensus of the federal circuit courts of appeal that have dealt with this question, as well as by the overwhelming majority of federal district court cases. On the other hand, as previously discussed, it is clear that the Illinois Supreme Court, in the Szajna and Rothe cases, spoke without equivocation in construing federal law to modify or relax the privity requirement even though state law has not been modified in Illinois vis-a-vis the requirement of privity in vertical situations. In short, under our internal law, our supreme court still requires privity even where the manufacturer issues a written warranty, but has held that under Magnuson-Moss privity is deemed to exist where there is a written warranty. In this regard, our supreme court is not purporting to construe state law, which still requires privity, but purports to construe federal law in finding that Magnuson-Moss expands consumer rights under state law where there is a written warranty. While this construction finds support among certain state supreme court decisions from other jurisdictions (see, e.g., Ventura v. Ford Motor Corp., 180 N.J.Super. 45, 59, 433 A.2d 801, 808 (1981)), the federal circuits are, at this point, definitive in stating that the federal Act does not modify the privity requirement under state law, notwithstanding our supreme court's determination that it does. Given these premises, this case turns on the doctrine of stare decisis. The doctrine of stare decisis is a basic tenet of our legal system, which requires the courts to stand by legal precedent and not disturb settled points of law. On this issue, plaintiff urges that we are bound by our supreme court's decisions in Szajna and Rothe. Defendant argues to the contrary, that this court should adopt the reasoning and findings of the federal courts, as this involves the interpretation of a federal statute, which must be applied uniformly in the state and federal courts. Federal circuit court decisions are considered persuasive, but not binding on us or our supreme court in the absence of a decision by the United States Supreme Court. See Bishop v. Burgard, 198 Ill.2d 495, 507, 261 Ill.Dec. 733, 764 N.E.2d 24, 33 (2002) (where the United States Supreme Court has not ruled on a question, federal circuit courts of appeals exercise no appellate jurisdiction over the Illinois Supreme Court). As we have previously noted, the United States Supreme Court has not issued any opinions concerning state privity requirements under Magnuson-Moss. Accordingly, while the Illinois Supreme Court may opt to give weight to the decisions of lower federal courts interpreting a federal statute, it is under no compulsion to do so. We, however, are bound by the decisions of the Illinois Supreme Court. People v. Spahr, 56 Ill.App.3d 434, 438, 14 Ill.Dec. 208, 371 N.E.2d 1261, 1264 (1978) ("Illinois supreme court decisions are binding on all Illinois courts [citation], but decisions of Federal courts other than United States Supreme Court decisions concerning questions of Federal statutory and constitutional law are not binding on Illinois courts"). After our supreme court has declared the law with respect to an issue, this court must follow that law, as only the supreme court has authority to overrule or modify its own decisions. As an inferior court of review, our serving as a reviewing court on our supreme court's interpretation of federal law would inject chaos into the judicial process. As a result, whether there is going to be any change or modification of the precedent set by Rothe and Szajna should first be determined by our supreme court and not by us. Accordingly, the judgment of the circuit court is affirmed. Problems'>Notes, Questions and Problems 1) Do you agree with the Illinois precedent that a cause of action for breach of implied warranty should lie under Magnuson-Moss even when such a cause of action would not exist under state law? Why does Magnuson-Moss prohibit disclaimers of implied warranties when express warranties are given? Why should the court have the power to grant attorney’s fees in these cases but generally not in a case brought under UCC Article 2 (unless the parties have an enforceable agreement to the contrary)? 2) As previously noted, a seller of goods can opt out of the more onerous provisions of Magnuson-Moss by clearly labeling a warranty as a “Limited Warranty.” Feeling that the protection given to consumers by Magnuson-Moss was thus inadequate, a number of states adopted their own consumer protection laws to supplement both the UCC and Magnuson-Moss. Magnuson-Moss states that it does not preempt such laws. 15 U.S.C. § 2311(b)(1). California, for example, has adopted the Song-Beverly Consumer Warranty Act, Cal. Civil Code § 1790, et. seq., which provides additional protection to consumers. Under Song-Beverly, “consumer goods” are defined as “any new product or part thereof that is used, bought, or leased for use primarily for personal, family, or household purposes, except for clothing and consumables.” “Buyer” is defined as “any individual who buys consumer goods from a person engaged in the business of manufacturing, distributing, or selling consumer goods at retail.” “Lessee” is defined as “an individual who leases consumer goods under a lease.” Cal. Civil Code § 1791. Under Song-Beverly, a seller is not allowed to disclaim the implied warranty of merchantability or fitness if an express warranty is given. Cal. Civ. Code § 1793. If no express warranty is given, the warranties can be disclaimed, but the disclaimer must be more precise and explanatory than the disclaimer allowed under UCC § 2-316. Cal. Civ. Code § 1792.4. The Song-Beverly Act is perhaps best know for its “lemon law,” that requires a manufacturer of goods to replace the goods or refund the purchase price (less an amount attributable to the buyer’s use of the goods) if the manufacturer or its representative is unable to repair the goods to conform to applicable express warranties after a reasonable number of attempts. Cal. Civ. Code § 1793.2. Note that this provision applies to goods in addition to cars, although the lemon law is most frequently thought of (and probably applied) in cases involving cars. For cars, there is a presumption that a reasonable number of attempts have been made if, among other things, the same nonconformity has been subject to repair four or more times within 18 months from delivery to the buyer or 18,000 miles, whichever occurs first. Cal. Civ. Code § 1792.22(b). For cars, buyers are also given the option of obtaining restitution rather than replacement. In determining restitution, the buyer’s use of the car is taken into account in setting off the amount awarded. Cal. Civ. Code § 1793.2(d)(2). In some cases, Song-Beverly also will permit limited civil penalties for willful failure to comply and attorney’s fees. Cal. Civ. Code § 1794. Is the approach of Song-Beverly (as described) superior to that of Magnuson-Moss? Is it an unwarranted infringement on “freedom of contract”? Problem 48 – Buyer purchases a television set from a retailer. The manufacturer’s “limited warranty” states that the television is warranted to be free from defects for one year, and that any implied warranty is limited to the duration of the written warranty. If the television set completely fails to operate 13 months after purchase, does Buyer have any remedy? If no written warranty were given at all and the implied warranty of merchantability was not disclaimed, would Buyer have any remedy? See UCC § 2-314 and Magnuson-Moss Act § 108 [15 U.S.C. § 2308]. See C. Reitz, Consumer Product Warranties Under Federal and State Law 82, 86, 95 (2d ed. 1987). CHAPTER 5 OTHER CONTRACT TERMS – RISK OF LOSS AND GAP FILLERS A. RISK OF LOSS The parties to the contract may by contract determine who bears the risk of loss in the event that the goods are damaged or destroyed at some point during the transaction. In the event that the contract is silent, both the UCC and the CISG provide rules that allocate the loss. The UCC differentiates between situations in which the parties are properly performing under the contract and situations in which one of the parties is in breach. The relevant sections are 2-503, 2-504, 2-509 and 2-510. Section 2-510 deals with the question of risk allocation when one of the parties is in breach, and will be considered later when we take up the topic of performance and breach under the contract of sale. The CISG articles that are relevant are Articles 66-70. 1. Cases where no shipment is involved The following hypotheticals deal with situations where the contract does not call for the goods to be shipped by an independent carrier. In these cases, either the buyer is to pick up the goods in the store or the seller is to deliver the goods to the buyer via the seller’s own delivery truck. Problems Problem 49 - Buyer agrees to purchase a valuable painting from Seller Art Gallery, which is in the business of selling fine art and also displaying it in a museum-like setting. Buyer agrees to leave the painting at Seller Art Gallery for a month so that it can be displayed. During the month, the painting is stolen through no fault of Seller and cannot be found. Has the risk of loss passed to Buyer in this case under Article 2? See section 2-509 and read the comments to that section as they explain the policy behind the loss allocation rules. Would it make a difference if the seller was a private collector who was not a merchant and Buyer simply didn’t show up to claim the painting for a few days before it was stolen? See section 2-503. Compare, also Amended UCC §§ 2-503 & 2-509. How would these cases come out under the CISG? See Article 69. Download 1.49 Mb. Share with your friends:
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