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Outline: UCC Lecture for final exam & Hector Case

 
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PostPosted: Thu Aug 01, 2013 8:50 am    Post subject: Outline: UCC Lecture for final exam & Hector Case Reply with quote

The UCC (Uniform Commercial Code) Article 2 concerns itself with the sale of goods in an amount over $500.00. This code has been adopted in all but one of the U.S. States.

First we must see what is a good?

Goods: Most tangible items: e.g.: books, clothing, cars, etc.

Why the UCC rule: It provides a group of easy-to-apply rules placing risk of loss of goods on party most able to either bear the risk or insure against it.

If Articles 2 does not apply: Then the: Common law of contracts governs the sale.

Next we must define a sale:

A sale is when title passes from Seller to Buyer for a price EXAMPLE: Purchase of a book: Paid for by cash, check, credit card, or other form of consideration.

THESE ITEMS ARE NOT CONSIDERDED GOODS; AND THEREFORE ARE NOT COVERED BY ARTICLE 2:

1. MONEY.

2. INTANGIBLE ITEMS, E.G.: STOCKS, BONDS, AND PATENTS,

3. REAL ESTATE NOT A TANGABLE GOOD: NOT MOVABLE [UCC 2-105(1)].

4. SERVICES ARE NOT COVERED BY UCC RULES.

GOODS VERSUS SERVICES CONTRACTS

A problem can arise if we have a situation where there is a MIXED SALE, a mixed sale is where we have a combination of goods and services in the same transaction and where the GOODS ARE DEFECTIVE AND CAUSE A PROBLEM.


SOLUTION TO A MIXED SALE TRANSACTION:

Article 2 governs, and the U.C.C. applies ONLY IF the goods are predominant in the transaction. (And the amount of purchase is over $500.00) UCC: Gives No guidance as to deciding the rules of which predominates: it�s decided on a case-by-case basis using the �Reasonable Man Standard�.

Providing services: including legal, medical, dental, car repairs cases etc., where the goods are defective and the service predominates, it is not covered by Article 2, but is covered by Common Law Rules of Contract.

The Case of: Hector v. Cedars-Sinai Medical Center 180 Cal.App.3d 493, 225 Cal.Rptr. 595 (1986) California Court of Appeals P. 383

A detailed excerpt of this case is found on my website.

Explanation of HECTOR

This is a case where the plaintiff sued her hospital because her pacemaker failed. NOTE: SHE WAS NOT SUING BECAUSE OF DOCTOR DOING SOMETHING WRONG, BUT WAS SUING BECAUSE OF A FAILURE OF THE GOODS INVOLVED. The discussion centers around balancing and deciding which of the two is predominant in this surgery, the goods themselves or the service provided by the hospital? The reasonable person standard tells us the service was the predominant factor in this �transaction.� Because the pacemaker cost more than $500.00, the U.C.C. rules have to apply regarding the sale of goods and it�s the goods that failed!! The problem is the service was predominant here, and the hospital, a provider of service, NOT the �supplier� of the goods, cannot be subject to U.C.C. rules. The plaintiff sued the wrong party. She should have sued the manufacturer.

A MERCHANT IS A PERSON WHO:

1. Deals in goods of kind involved in transaction; or 2. By occupation holds self out as having knowledge/skill peculiar to goods involved in transaction. EXAMPLE: Sporting goods dealer is a merchant w/respect to sporting goods; but not when sells lawn mower to neighbor.

Article 2 applies to ALL sales contracts, merchants or not. Several provisions either apply only to merchants or impose a greater duty on merchants.

DIFFERENT UCC RULES FOR OFFER AND ACCEPTANCE

ADDITIONAL TERMS

Under the COMMON LAW: Any slight modification to the terms of the offer made by the offeree means there is no contract. MIRROR IMAGE RULE requires that the terms of the acceptance exactly match those of the offer. If the rule is not complied with it is defined as a counter-offer.

UCC, when an acceptance is unequivocal, dispenses with the mirror image rule. There is a severe limitation to the concept of counter-offers under the UCC (SEE BELOW). If the Offeree's response indicates a definite acceptance of the offer, a contract is formed even if the acceptance includes additional or different terms from those contained in the offer.

What happens to these additional terms? The answer to this question depends, in part, on whether the parties are non-merchants or merchants.

Rules When One Party or Both Parties Are Non-merchants.

If one (or both) of the parties is/are a non-merchant, the contract is formed according to the terms of the offer submitted by the original offeror and not according to the additional terms of the offeree. The additional term(s) is/are merely a proposal (suggestion) EXAMPLE Seller offers in writing to sell his personal computer, printer, and scanner to Buyer for $1,500. Buyer faxes a reply stating, "I accept your offer to purchase your computer, printer, and scanner for $1,500. I would like a box of laser printer paper and two extra toner cartridges to be included in the purchase price." Buyer has given Seller a definite expression of acceptance (creating a contract), even though the acceptance also SUGGESTS an added term for the offer. Because SELLER (And in this case buyer as well) is not a merchant, the additional term(s) are a mere suggestion which Seller can honor or not. NEVERTHELESS THE SALE FOR THE personal computer, printer, and scanner is a VALID CONTRACT.

Rules When Both Parties Are Merchants.

Additional terms automatically become part of the contract unless

(1) the original offer expressly limits acceptance to the terms of the offer, e.g.: THE OFFEROR STATES: I WON�T ACCEPT ANY ADDITIONAL TERMS; (2) the new or changed terms materially alter the contract (we use the reasonable person standard to determine materiality); or (3) the offeror objects to the new or changed terms within a reasonable period of time. (Again, the reasonable person standard) [UCC 2-207(2)].

What if the offeree�s response is conditional (not unequivocal)?

If there is anything but an unconditional acceptance of the offer, there is in fact a counter-offer under the UCC rules as well: Example: In the above case: The offeree stated: "I accept your offer to purchase your computer, printer, and scanner for $1,500. ONLY IF YOU INCLUDE a box of laser printer paper and two extra toner cartridges in the purchase price.

PASSAGE OF TITLE AND RISK OF LOSS OF GOODS VALUED AT OVER $500:

SELLER retains risk of loss until title passes to BUYER.
This point in time determined by applying these rules:

SHIPMENT CONTRACT

Contract Requires Seller ship to Buyer via common carrier:

Title passes to Buyer at time and place of placing the goods in the common carrier�s care.

DESTINATION CONTRACT

Requires Seller deliver goods either to Buyer�s place of business or another specified destination. (NOTE: A COMMON CARRIER IS EMPLOYED HERE AS WELL, BUT THERE IS A DESIGNATION THAT IT�S A DESTINATION CONTRACT)

Title only to Buyer when Seller tenders delivery at the specified destination.

DELIVERY OF GOODS W/O MOVING THEM

Authorizes delivery w/o requiring Seller moving them.

Who bears risk if goods destroyed or stolen?

UCC: Two different rules. One applies to MERCHANT-SELLERS and the other to NON-MERCHANT-SELLERS [UCC 2-509(3)1.

MERCHANT-SELLER

Risk does not pass to Buyer until buyer physically takes possession of goods and moves them from Seller�s place of business.

NONMERCHANT-SELLER

Risk passes upon completion of sale whether or not goods are trasnsferred to Buyer's actual possession.

IMPORTANT CASE FOR YOU TO READ:

This is an abridged copy of the case we will discuss during the preparation for your final exam:


180 Cal.App.3d 493,225 Cal.Rptr. 595

Frances J. HECTOR, Plaintiff and Appellant,
v.
CEDARS-SINAI MEDICAL CENTER, Defendant and Respondent.

INTRODUCTION

Plaintiff Frances J. Hector appeals from an order dismissing her second and third causes of action against defendant following the granting of defendant's motion for partial summary judgment.

STATEMENT OF FACTS

Plaintiff filed a complaint against Cedars-Sinai Medical Center (Cedars-Sinai) and American Technology, Inc., alleging personal injury resulting from the implantation of a defective pacemaker. The pacemaker was manufactured by American Technology, Inc. and implanted at Cedars-Sinai by plaintiff's physician, Dr. Eugene Kompaniez.

DISCUSSION

A motion for summary judgment properly is granted where the "affidavits, declarations, admissions, answers to interrogatories, depositions, and matters of which judicial notice ... may be taken" in support of and in opposition to the motion "show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." (Code Civ.Proc., � 437c, subds. (b), (c).) The moving party's papers will be strictly construed, accepting as fact only those portions not contradicted by opposing papers, while the opposing party's papers are liberally construed, all facts therein being accepted as true. Every reasonable doubt will be resolved in favor of the complaint.

After surveying the cases which expand the scope of strict liability......At the very least the defendant in each case was a link in the chain of getting goods from the manufacturer to the ultimate user or consumer.... Plaintiff seeks to extend the doctrine of strict liability to a hospital that furnishes, in connection with the care and treatment of a patient, a product that proves to have a defect that causes injury to the patient. The theory upon which she seeks to predicate such liability is that the hospital is a 'supplier' of such product and, therefore, should be subject to the same standard of liability as any other supplier of articles or products." (20 Cal.App.3d at p. 1026, 98 Cal.Rptr. 187, citations omitted.)

The court then examines two key cases in which strict liability has not been applied to the medical profession: "In Magrine v. Krasnica... the court declined to apply the doctrine of strict liability to a dentist whose drill, with a latent defect, broke while he was working on his patient, causing injury to the patient. The court stated, 'Of ... meaningful significance is a recognition that the essence of the transaction between the retail seller and the consumer relates to the article sold. The seller is in the business of supplying the product to the consumer. It is that, and that alone, for which he is paid. A dentist or a physician offers, and is paid for, his professional services and skill. That is the essence of the relationship between him and his patient.'

"The foregoing statement in Magrine was cited with approval in Carmichael v. Reitz [(1971)] 17 Cal.App.3d 958, 979 [95 Cal.Rptr. 381].... In Carmichael it was held that the doctrine of strict liability did not apply to a doctor who prescribed a drug which produced untoward results in a patient. In that case we find the following rationale: '[T]here is a difference in status or classification between those upon whom the courts have heretofore imposed the doctrine of strict liability and a physician who prescribes an ethical drug to achieve a cure of the disorders for which the patient has sought his professional services. The former act basically as mere conduits to the distribution of the product to the consumer; the latter sells or furnishes his services as a healer of illnesses. The physician's services depend upon his skill and judgment derived from his specialized training, knowledge, experience, and skill. The physician prescribes the medicine in the course of chemotherapy only as a chemical aid or instrument to achieve a cure. A doctor diagnosing and treating a patient normally is not selling either a product or insurance. One of the requisites which the Restatement prescribes for the imposition of strict liability is that "the seller is engaged in the business of selling such product."

The Silverhart court was "persuaded that the rationale of Magrine and Carmichael applies with equal force to a hospital in the exercise of its primary function which is to provide medical services. A hospital is not ordinarily engaged in the business of selling any of the products or equipment it uses in providing such services. The essence of the relationship between a hospital and its patients does not relate essentially to any product or piece of equipment it uses but to the professional services it provides." (Id., at p. 1027, fn. omitted, 98 Cal.Rptr. 187.) The court notes, however, that "this principle does not apply where the hospital is engaged in activities not integrally related to its primary function of providing medical services, such as the situation where the hospital operates a gift shop which sells a defective product." The court concludes the rule of strict liability cannot be applied to defendant hospital.

THE KEY TO THE COURT'S CONCLUSION IS THE CHARACTERIZATION OF HOSPITALS AS PROVIDERS OF PROFESSIONAL MEDICAL SERVICES, NOT SUPPLIERS OF PRODUCTS. THIS CHARACTERIZATION WAS REITERATED BY THE SUPREME COURT IN MURPHY V. E.R. SQUIBB & SONS, INC. (1985), WHICH ADDRESSES THE QUESTION WHETHER A PHARMACY SHOULD BE STRICTLY LIABLE FOR DEFECTS IN THE DRUGS WHICH IT DISPENSES. THE COURT FIRST NOTES THE GENERAL RULE; " 'THOSE WHO SELL THEIR SERVICES FOR THE GUIDANCE OF OTHERS ... ARE NOT LIABLE IN THE ABSENCE OF NEGLIGENCE OR INTENTIONAL MISCONDUCT.' MURPHY CITES SILVERHART, MAGRINE AND CARMICHAEL AS EXAMPLES OF THE APPLICATION OF THIS GENERAL RULE. IT THEN CONTRASTS THE ROLE OF THE PHARMACIST WITH THAT OF THE HOSPITAL, DENTIST OR DOCTOR: THE PHARMACIST'S SERVICES ARE RENDERED ONLY IN CONNECTION WITH THE SALE OF DRUGS AND THE PHARMACIST IS IN THE BUSINESS OF SELLING DRUGS, WHILE THE HOSPITAL, DENTIST AND DOCTOR ARE NOT IN THE BUSINESS OF SELLING DRUGS OR DEVICES; THEY USE THE PRODUCTS IN THE COURSE OF TREATMENT, AND FURNISHING SERVICES TO THE PATIENT DOES NOT DEPEND UPON SELLING A PRODUCT.

Cases dealing with blood transfusions and products reflect the same considerations when declining to apply strict liability to hospitals, although there is additional statutory justification for treating these items as services rather than sales. Shepard v. Alexian Brothers Hosp. states: "It needs no extended discussion to perceive that a hospital is primarily devoted to the care and healing of the sick. The supplying of blood by the hospital is entirely subordinate to its paramount function of furnishing trained personnel and specialized facilities in an endeavor to restore the patient's health. Providing medicine or supplying blood is simply a chemical aid or instrument utilized to accomplish the objective of cure or treatment. The patient who enters a hospital goes there not to buy medicine or pills, not to purchase bandages, iodine, serum or blood, but to obtain a course of treatment. It is also obvious that in the normal commercial transaction contemplated in the strict liability cases the essence of the transaction relates solely to the article sold, the seller is in the business of supplying the product to the consumer, and it is that, and that alone, for which he is paid. The foregoing marked distinctions compel the conclusion that a hospital is not engaged in the business of distributing blood to the public and does not put the blood as a product on the market in order to profit therefrom."

Turning to the facts in the instant case, Howard Allen, M.D., Director of the Cedars-Sinai Cardiac Noninvasive Laboratory states in his declaration that the specific model and type of pacemaker to be implanted in a patient is specified by the surgeon. The surgeon ordinarily contacts the manufacturer's representative to provide for delivery of the pacemaker to the operating room when it is to be implanted. The pacemaker may be sterilized and ready for implantation when it is delivered to the hospital; the manufacturer's representative or the surgeon may pretest the pacemaker, but the hospital employees do not.

DR. ALLEN INDICATED CEDARS-SINAI DOES NOT ROUTINELY STOCK PACEMAKERS, NOR IS IT IN THE BUSINESS OF RECOMMENDING, SELLING, DISTRIBUTING OR TESTING PACEMAKERS. THE TREATMENT PROVIDED BY CEDARS-SINAI IN RELATION TO IMPLANTATION OF PACEMAKERS INCLUDES PRE- AND POST-OPERATIVE CARE, NURSING CARE, A SURGICAL OPERATING ROOM AND TECHNICIANS.

(THIS IS JUST FYI: LOOK AT THE MARKUP!!!!Melanie Archibald, Cedars-Sinai Finance Manager for Operating Room Services, stated in her declaration the pacemaker implanted in plaintiff was delivered to Dr. Kompaniez in the operating room on the day of surgery by Jack Albrighton. Dr. Kompaniez had ordered the pacemaker directly from American Technology, Inc.; Cedars-Sinai received the packing slip and invoice slip from the manufacturer. The hospital was billed $2,295.00 for the pacemaker and $250.00 for a bipolar endocardial lead; the hospital added a routine surcharge of 85 percent to the patient's bill for the implanted pacemaker.)

MS. ARCHIBALD ALSO INDICATED CEDARS-SINAI DOES NOT STOCK, RECOMMEND, DISTRIBUTE OR SELL ANY PACEMAKERS. She characterized the hospital's role as facilitating the processing of the implantation by performing the management practice of completing a purchase requisition and completing a charge ticket which is forwarded to patient billing offices.

The foregoing declarations indicate Cedars-Sinai is not "engaged in the business of distributing [pacemakers] to the public" and does not play "an integral and vital part in the overall production or marketing" of pacemakers. The hospital does not order pacemakers for itself, but may fill out the purchase requisitions for surgeons who order the devices. The hospital does not stock or recommend pacemakers or provide them to the general public, dealing with pacemakers only in the context of the courses of treatment for particular patients. Even then, it is the surgeon who chooses or recommends the particular device to be implanted; the hospital merely provides administrative services in connection with the order and support services in connection with the implantation.

The essence of the relationship between hospital and patient is the provision of professional medical services necessary to effect the implantation of the pacemaker--the patient does not enter the hospital merely to purchase a pacemaker but to obtain a course of treatment which includes implantation of a pacemaker. As a provider of services rather than a seller of a product, the hospital is not subject to strict liability for a defective product provided to the patient during the course of his or her treatment.

.....The better approach is to view plaintiff's argument as: (1) Cedars-Sinai should be considered a seller of a product, rather than a provider of services, in that it did not rely on its skill and judgment in providing the pacemaker to plaintiff but was a mere conduit in the chain of distribution from manufacturer to consumer, or (2) even if Cedars-Sinai was providing services, they were not of the type which should be immune from the imposition of strict liability.


For the foregoing reasons, we conclude Cedars-Sinai is not "engaged in the business of selling" pacemakers, but is a provider of medical services which included the provision of the pacemaker implanted in plaintiff. Inasmuch as the hospital is not a seller, it cannot be held strictly liable for injuries to plaintiff caused by defects in the pacemaker. [3] Accordingly, the trial court did not err in granting the motion for partial summary judgment.

The order is affirmed.

LUCAS and DEVICH, JJ., concur.
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