Cure and Revocation for Quality Defects: The Utility of Bargains

Abstract

The objectives of sales laws, broadly speaking, should be to facilitate the contribution which private bargains can make to achieving desired social goals, such as economic efficiency, and to prevent bargains from yielding unacceptable outcomes, such as the exploitation of weak parties. These objectives cannot be realized, however, without an understanding of the contribution which bargains can make toward achieving particular social goals, the requisite conditions for bargaining effectiveness, and the situations in which exploitation is possible. The unfortunate regulatory choices often made by the Uniform Commercial Code (the Code) are generally explicable as resting on misapprehensions as to one or more of these matters. I have elsewhere sought to document these misapprehensions in three areas. Initially, I argued that the two goals of optimizing the costs which defective products yield and preventing parties from bearing concentrated losses when defects occur can best be achieved through bargains, but only if the parties thereto are sufficiently informed. I concluded, therefore, that the state should either fill information gaps where they exist or structure the transactions of uninformed parties. The Code, misunderstanding this, neither provides information nor structures bargains. I have also argued that consumer buyers cannot bargain rationally with respect to clauses requiring them to waive defenses against third party financers of sales, nor can they rationally contract out of the holder in due course rule, because the information to price the risks which the inability to assert defenses against financers imposes on such buyers is lacking and cannot be made available except at prohibitive cost. Waiver of defense clauses should thus be prohibited and the holder in due course rule, as applied to consumer sales, should be repealed. The Code fails to do either. Finally, I have argued that the problems posed by unequal bargaining power between sellers and buyers, except as such inequality arises from differential access to information, are not susceptible to sensible solution by the judicial process. The Code, in part because it rests on erroneous assumptions as to how economic power shapes bargains, delegates much of the task of regulating that power to the courts. This article further documents the allegation that the Code's regulation of sales transactions frequently rests on misapprehensions regarding the manner in which bargains operate, and thus fails to maximize the contribution of bargains to social welfare. Its subject will be the law regulating the parties' rights when sellers deliver non-conforming goods.