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Consumer Warranty Law: 8.1.1 Overview of UCC Self-Help Remedies

This chapter focuses on self-help consumer remedies under the Uniform Commercial Code (UCC): canceling the sale (either rejecting the goods or revoking acceptance) and deducting from the outstanding loan balance the buyer’s damages caused by the warranty defect.

Consumer Warranty Law: 8.1.2 Differences Between Rejection and Revocation of Acceptance

Rejection and revocation of acceptance are similar in many ways, but the buyer may reject only before accepting the goods. The key question is whether the buyer has yet accepted the goods. Acceptance is a term of art under the Code, occurring most commonly when the buyer does not try to cancel the sale after a reasonable opportunity to try out the goods.8 Because it is often difficult to ascertain whether the buyer accepted, both rejection and revocation should always be pleaded in the alternative.

Consumer Warranty Law: 8.1.4 Law Versus Equity

The term “rescission” has been dropped by the Code.25 Most courts outside Illinois26 and Florida27 hold that revocation of acceptance is an action at law, so a jury trial is available and the consumer need not meet traditional equitable requirements.28

Consumer Warranty Law: 8.2.1 General

A buyer has the right to reject goods for even a minor nonconformity by properly notifying the seller before acceptance. Then the seller has an opportunity to cure the nonconformity. This section explores four issues: has the buyer rejected before acceptance, has the buyer properly notified the seller, are the goods nonconforming, and the seller’s right to cure.

Consumer Warranty Law: 8.2.2.1 Timeliness of Inspection and of Notice of Rejection

Section 2-606(1)(b) provides that “acceptance of goods occurs when the buyer fails to make an effective rejection (subsection (1) of Section 2-602), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect [the goods][.]” Section 2-602(1) in turn provides: “Rejection of goods must be within a reasonable time after their delivery or tender.

Consumer Warranty Law: 8.2.2.2 Length of Reasonable Opportunity to Inspect

Section 2-602(1) provides that the buyer’s opportunity for inspection begins when the goods are delivered or tendered, as section 2-602(1) provides. Inspection before then, and especially before the sale, has no effect on the buyer’s right to inspect to determine whether to accept,41 although it may be relevant to the scope of any warranties in the transaction.42

Consumer Warranty Law: 8.2.2.3 Contractual Specification of Time to Inspect

The time to inspect and reject can be shortened by a contract term establishing a specific time within which the buyer must reject.60 Such a contractual limitation is not typical of consumer transactions. Section 1-302(b) approves such a clause unless the contract time is manifestly unreasonable.61 What is manifestly unreasonable will depend on the nature of the goods, the use to which they will be put, and the buyer’s sophistication.

Consumer Warranty Law: 8.3.8.5 Rescission As an Alternative Claim Against a Remote Manufacturer

In a jurisdiction that bars revocation of acceptance against a remote manufacturer under the UCC, rescission may be an alternative that is worth pursuing. The UCC preserves equitable principles except when they are displaced by some particular provision of the Code.393 Accordingly, a number of courts have held that the equitable remedy of rescission continues to be available in transactions governed by the UCC.394

Consumer Warranty Law: 8.4.1 Introduction

A buyer who rightfully cancels a sale and notifies the seller must decide what to do with the goods. Must the buyer return or tender the goods to the seller? Are there alternatives that will protect the buyer’s interest in money already paid on the contract? Can the buyer continue to use the goods after cancellation? What should the buyer do when money for the purchase price is owed to a third-party creditor?

Generally, the buyer has four options:

Consumer Warranty Law: 8.4.2 Initial Strategy Questions

In cases involving cars the buyer often needs to use the goods but may want to minimize the risk that continued use will bar cancellation. One strategy is to have the buyer stop making payments for several months after revoking acceptance and canceling the contract.

Consumer Warranty Law: 8.4.3 Holding the Goods for Seller

Section 2-602(2) clarifies that a buyer is under no duty to tender the goods to the seller.411 The buyer’s only duty under a canceled contract is to hold the goods with reasonable care for a reasonable time in order to allow for the seller to remove them.412 Section 2-602(2) reads in part:

Consumer Warranty Law: 8.4.4.1 Advantages and Disadvantages of Returning the Goods

The buyer is always free to return the goods to the seller. This may be the best option for a buyer who wants to avoid the inconvenience and expense of either holding the goods with reasonable care or selling them. On the other hand, for the buyer who has paid money to the seller on the purchase price or who has incurred expenses, returning the goods may be unwise because it eliminates the only leverage the buyer has to recover the out-of-pocket loss without having to resort to litigation or threats of suit.

Consumer Warranty Law: 8.4.4.2 Steps to Protect the Buyer Who Returns the Goods

A buyer who has made payments toward the purchase price or incurred other expenses in inspecting, receiving, transporting, caring for, or holding the goods is entitled to reimbursement from the seller and can hold the goods as collateral until the seller pays.425 The right to hold the goods as collateral gives the buyer a strategic advantage, which is lost when the buyer returns the goods.

Consumer Warranty Law: 8.4.4.3 Providing Clear Title to the Goods

One possible impediment to returning the goods is an inability to provide clear title. The common law rule is that a rescinding party must be able to return the other party to the status quo ante. If title is encumbered, then the buyer would not be returning the seller to the status quo ante. Of course, UCC Article 2’s provision for revocation of acceptance is distinct from rescission,430 so it should not be assumed that this rule applies to revocation of acceptance under the UCC.

Consumer Warranty Law: 8.4.4.4 Strategy When Seller Refuses to Accept Return of the Goods

Sometimes a dealer refuses to accept the goods that a buyer is attempting to return. For example, the dealer may threaten to abandon or tow a vehicle if it is left at the dealership. In such a case, the buyer should be accompanied by witnesses when returning the vehicle. The buyer may also wish to take video or photographs of the vehicle upon its return.

Consumer Warranty Law: 8.4.5.1 Right to Sell the Goods

The buyer who cancels the sale after having made payments on the purchase price is in a difficult position. The buyer is entitled to the return of the money paid as well as any other damages suffered, but returning the goods to the seller or allowing the seller to pick up the goods removes the buyer’s leverage. This buyer’s problem is expressly recognized by the Code, which protects the buyer’s interest in the money paid on the purchase price.

Consumer Warranty Law: 8.2.2.5 Seasonable Notice

To properly reject, the buyer must not only inspect and reject within a reasonable time but must also give seasonable notification, that is, in most cases, notification of rejection to the seller within a reasonable time.

Consumer Warranty Law: 8.2.3.1 Overview

Section 2-606(1)(a) provides that a buyer accepts goods when the buyer, “after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity.” Actions such as repair or installation by the buyer, use of the goods or payment with knowledge of the nonconformity, or a statement by the buyer aware of the nonconformity that he or she will take the goods often signifies acceptance.69

Consumer Warranty Law: 8.2.3.2 Repairing the Goods As Acceptance

Generally, a buyer’s attempt to repair the goods at his or her expense signifies acceptance, because it demonstrates a decision to keep the goods.70 The buyer should, however, be allowed to reject for a nonconformity discovered before the inspection period has run, even though the buyer previously repaired another nonconformity. For instance, suppose a buyer, the day after buying a used car covered only by the implied warranty of merchantability, notices that the windshield wipers are worn and replaces them.

Consumer Warranty Law: 8.2.3.3 Use of the Goods

Use of the goods with knowledge of the nonconformity can also signify acceptance.72 A car buyer accepts the car by continuing to use it after defects appear, without attempting to secure repair by the seller. A manufactured home buyer’s move into the home despite knowledge of defects signifies acceptance.73

Consumer Warranty Law: 8.2.3.4 Payment for the Goods

Payment after tender is not enough in and of itself to signify acceptance.76 It would be particularly inappropriate to equate payment with acceptance in consumer cases because of the consumer’s lack of sophistication and the realities of consumer credit. A consumer often is in a poor position to discover nonconformities within the first few days. Consumers buying on credit may have no choice about their payment date to the creditor, and may fear repossession and negative credit reports if they withhold payment.

Consumer Warranty Law: 8.2.3.5 Resale of the Goods

Resale or attempted resale signifies acceptance.80 A consumer who discovers a defect in a newly purchased car and then tries to sell the car to someone else cannot subsequently reject. Resale of the goods may also be deemed acceptance because it is an act inconsistent with the seller’s ownership.81