SH Contracts and Business Discussion

Marianne M. Jennings
BUSINESS
Its Legal, Ethical, and its 11th Ed.
Global Environment
Chapter 12
Contracts and Sales:
Performance, Remedies,
and Collection
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
Defenses
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-1
Defenses: Capacity
? Both Parties to a Valid Contract Must
Have Capacity, Which Includes Age
(18) and Mental Capacity
? Age Capacity
? In most states age is 18
? Before that, the party is an infant or
minor
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-2
Defenses: Capacity
? Capacity ? Age
? Contracts are voidable – minor can get
out at his/her option
? Liable in quasi-contract for necessaries
? Some exceptions – student loans;
military service
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-3
Capacity, Necessities, and
Parents
? Case 12.1 Yale Diagnostic Radiology
v. Estate of Fountain (2003)
? What was the nature of the medical care?
? Why was there money available for
payment?
? Why does the court see unfairness in
excusing the minor and the minor?s
parent?
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-4
Defenses: Mental Capacity
? Person Understands Contracts are
Enforceable and Significance of Legal
Documents
? Understands Contracts Involve Costs and
Litigation
? If Declared Legally Incompetent ?
Contracts are Void!
? Otherwise, If No Legal Capacity, Contracts
are Voidable
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-5
Misrepresentation
? Elements
? Misstatement of a material fact
? Reliance
? Damages
? Remedy Can Be Rescission ? Contract is
Set Aside
? Must Have Been Material
? Cannot Be Sales Puffing (Opinion)
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-6
Fraud
? Elements
? Knowing and intentional use of false
information
? Knowing and intentional failure to disclose
? Many states have statutes exempting the
disclosure of a murder or AIDS victims as
previous owners or residents
? However, if there is an inquiry by the potential
buyer, the information cannot be withheld
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-7
Fraud
? Fraud: The Failure to Disclose Material
Information Can Be Fraud or
Misrepresentation
? Case 12.2 Reed v. King (1983)
? What does Mrs. Reed need to establish to be
entitled to recession and damages?
? Would the information about the house make a
difference to you in making a buying
decision?
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-8
Canceling Credit Contracts
? Regulation Z Gives Three-Day CoolingOff Period
? Home Equity Loan Consumer Protection Act
of 1988/Home Ownership and Equity
Protection Act of 1994
? Penalties under TILA
? Two times the amount of finance charges
? Minimum of $100 and maximum of $1,000
? Class action = $500,000 or 1 percent of creditors?
net worth (the lesser of)
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-9
Three-Day Cancellation Notice
H-9 Rescission Model Form (Refinancing)
NOTICE OF RIGHT TO CANCEL
Your Right to Cancel
You are entering into a new transaction to increase the amount of credit provided to you. You are
entering into a new transaction to increase the amount of credit provided to you. We acquired a
[mortgage/lien/security interest] [on/in] your home under the original transaction and will retain that
[mortgage/lien/security interest] in the new transaction. You have a legal right under federal law to cancel
the new transaction, without cost, within three business days from whichever of the following events
occurs last:
(1) the date of the new transaction, which is ______; or
(2) the date you received your new Truth-in-Lending disclosures; or
(3) the date you received this notice of your right to cancel.
If you cancel the new transaction, your cancellation will apply only to the increase in the amount of
credit. It will not affect the amount that you presently owe or the [mortgage/lien/security interest] we
already have [on/in] your home. If you cancel, the [mortgage/lien/security interest] as it applies to the
increased amount is also cancelled. Within 20 calendar days after we receive your notice of cancellation
of the new transaction, we must take the steps necessary to reflect the fact that our [mortgage/lien/security
interest] [on/in] your home no longer applies to the increase of credit. We must also return any money
you have given to us or anyone else in connection with the new transaction.
You may keep any money we have given you in the new transaction until we have done the things
mentioned above, but you must then offer to return the money at the address below. If we do not take
possession of the money within 20 calendar days of your offer, you may keep it without further
obligation.
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-10
Three-Day Cancellation Notice
HOW TO CANCEL
If you decide to cancel the new transaction, you may do so by notifying us in writing, at
(creditor’s name and business address).
You may use any written statement that is signed and dated by you and states your
intention to cancel, or you may use this notice by dating and signing below. Keep one
copy of this notice because it contains important information about your rights.
If you cancel by mail or telegram, you must send the notice no later than midnight
of
(date)
(or midnight of the third business day following the
latest of the three events listed above). If you send or deliver your written notice to
cancel some other way, it must be delivered to the above address no later than that time.
I WISH TO CANCEL
________________________
Consumer’s Signature
____________________
Date
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-11
Duress
? Duress ? Contract Voidable
? Physical force or threats
? Party is deprived of a meaningful choice
? Has right of rescission
? Voidable
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-12
Undue Influence
? Undue Influence ? Contract Voidable
? Must have confidential relationship
? Attorneys/clients
? Elderly parents
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-13
Illegality ? Public Policy
? Illegal Subject Matter
? Contract is void
? Contracts in violation of criminal
statutes
? Examples: Contract to have someone
killed; contract to pay for a vote
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-14
Illegality ? Public Policy
? Case 12.3 Durrett v. ACT, Inc.
(2011)
? Did applicant agree to ACT terms?
? Were the contract provisions fair or
oppressive?
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-15
Illegality ? Public Policy
? Contracts in Violation of Licensing
Statutes Must Be Competency-Based
as Opposed to Revenue-Raising For
Contracts to Be Void
? Contracts in Violation of Usury Laws
Charging Interest in Excess of
Statutory Maximum
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-16
Illegality ? Public Policy
? Contracts in Violation of Public
Policy
? Exculpatory clauses – full liability
elimination is generally invalid
? Covenants not to compete must be
reasonable in time and geographic scope
? Unconscionable contracts
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-17
Illegality ? Public Policy
? Case 12.4 Hawkins v. Globe Life
Insurance (2015)
? Explain the full history of the insurance
policy
? Discuss whether the mother should have
disclosed more
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-18
Contract Performance
? When is Performance Due
? Conditions precedent
? Conditions concurrent
? Conditions subsequent
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-19
Contract Performance
? Standards for Performance
? Complete performance is required
? Substantial performance allowed in
contract cases
? Substantial Performance = Nonmaterial
Breach
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-20
Contract Performance
? E-Commerce: Payments
? Credit Cards
? Digital Cash
? Person-to-Person Payment (or PayPal)
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-21
Performance: Excuse
? When Performance is Excused
? Impossibility – contract cannot be performed
? Example: Cannot build house if the land is washed
away
? Commercial impracticability – UCC-2-615
? Basic assumptions parties made are no longer true
? Can protect themselves by putting in force majeure
clause – covers problems such as wars, embargoes,
depressions
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-22
Performance: Good Faith
? Case 12.5 Sons of Thunder, Inc. v.
Borden, Inc. (1997)
? What impact does ?good faith? have on
termination of a contract?
? What are the damages when there is a
lack of good faith in the termination of a
conduct?
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-23
Substitute Performance
? Novation
? Two original parties agree, along with
third party, to substitute one party for
another
? Accord and Satisfaction
? Agreement reached to discharge a
disputed obligation
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-24
Fair Credit Billing Act
? Requires Monthly Statement on Open-End
Transactions
? Bill Must Have Address to Write for Errors
? Debtors Must Write Bill Objections to Get
Damages
? Must send within sixty days of bill?s receipt
? Creditor has thirty days to acknowledge
? Creditor has ninety days to take action
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-25
Fair Credit Billing Act
? Fair Credit Billing Act
? Debtor need not pay protested amount or
finance charges during protest period
? Once resolved, must pay
? If creditor does not comply with time limits,
debtor need not pay (even if creditor is
correct)
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-26
Collection
? Collection Rights of the Creditor
? Regulated by FDCPA (Fair Debt
Collections Practices Act) if it is a
consumer debt
? Application
? Third party collection agencies
? Attorneys
? Prohibits unreasonable collection
practices by collection agencies
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-27
Collection
? Collection Rights
? Collectors? obligations
? Must provide written verification of debt
if debtor asks or within five days after
contact with debtor
? Must include amount of debt, name of
creditor, debtor?s right to disputed debt
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-28
Collection
? Collection Rights
? Collector?s restrictions
? Debtor contact
? Third party contact
? Prohibited Acts
? Penalties or FDCPA violations
?
?
?
?
FTC responsible for enforcement
Injunction
Debtor may collect actual damages
Debtor may collect up to $1,000 in additional damages
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-29
Collections
? Case 12.6 Litt v. Portfolio Recovery
Associates LLC (2015)
? What violations of FDCPA does the
court find?
? What policies should collectors develop
on phone calls?
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-30
Enforcement
? Suits to Enforce Debts
? Reduce to judgment
? Use garnishment for wages, accounts,
and so on
? Limits wage garnishments to 25 percent of
wages (50 percent for child support)
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-31
Enforcement
? The End of the Line on Enforcement
of Debts: Bankruptcy
? Debts discharged in bankruptcy except
? Alimony
? Child support
? Student loans (seven years)
? Taxes (three years)
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-32
Fair Credit Reporting Act
? Fair Credit Reporting Act
? Applies to consumer reporting agencies:
third parties (not creditors)
? Limitations on disclosure
? Can disclose to debtor his/her own report
? Can disclose to creditor with signed credit
application
? Can disclose to potential employer
? Can disclose for court subpoena
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-33
Fair Credit Reporting Act
? Limitations on Content
? No bankruptcies longer than ten years ago
? No lawsuits finalized longer than seven years
ago
? No disclosures of criminal convictions finalized
more than seven years ago UNLESS applying
for $50,000 in credit or $20,000/year job
? Debtor?s right of correction
? Notify agency
? If no connection, debtor can write 100-word
statement of clarification
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-34
Fair Credit Reporting Act
? Case 12.7 Smith v. EBackgroundchecks, Inc. (2015)
? Explain the impact of credit report errors
? What are the damages in a case such as
this?
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-35
Contract Remedies
? Types of Damages
? Compensatory – put party in same
position they would have been in
without the breach
? Example: Sales – buyer has to buy car for
$7,000 as opposed to original $6,000 –
gets $1,000 in damages
? Incidental damages, e.g., cost of finding
the other car; attorney?s fees
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-36
Contract Remedies
? Types of Damages
? Consequential damages
? Damages experienced in relation to third
parties
? Late fees or loss of income for delays
? Liquidated damages
? Parties agree on damage amount in advance
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-37
Third Party Rights
? Assignments
? Original party to contract assigns his/her
benefits under the contract to another
? Example: Credit company sells credit contract for
present value to another who undertakes its
collection
? Assignee has same rights as original party
? Delegation
? Transfer of obligations under contract
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-38
Third Party Rights
? Third Party Beneficiary
? Originally named in the contract to
benefit from the contract
? Insurance beneficiaries are third party
beneficiaries
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-39
International Issues
? Assuring Payment
? Use a bill of lading
? Title to goods controlled
? Used in connection with letter of credit or
draft
? Letter of Credit issued by buyers bank to
seller
? Seller may draw on L/C to receive payment
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-40
International Issues
? Assuring Performance
? Need force majeure clause
? Stability of currencies
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
12-41
Marianne M. Jennings
BUSINESS
Its Legal, Ethical, and
Global Environment
11th Ed.
Chapter 13
Product Advertising
and Liability
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
Development of Product
Liability
? Initially No Liability for the Seller
? Courts followed a theory of Caveat
Emptor (?Let the buyer beware?)
? Caveat Emptor Removed in Section
402A of the Restatement of Torts
? Law has swung from no liability to
almost per se liability
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-1
Contract Basis for Product
Liability
? Express Warranties
? Creation: Affirmation of fact or
promise of performance (samples,
model, descriptions)
? Restriction: Must be part of the basis of
the bargain
? Disclaimer: Cannot make a disclaimer
inconsistent with an express warranty
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-2
Fact vs. Opinion
FACT
This car gets 20 miles per gallon.
X
This car gets great gas mileage.
These goods are 100% wool.
X
X
This is the finest wool around.
This truck has never been in an accident.
X
X
This truck is solid.
This mace stops assailants in their tracks.
This mace is very effective.
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
OPINION
X
X
X
13-3
Fact vs. Opinion
FACT
This makeup is hypoallergenic.
X
This makeup is good for your skin.
This ink will not stain clothes.
X
X
This ink is safe to use.
This computer is IBM-compatible.
X
X
This computer is as good as any IBM.
This watch is waterproof.
This watch is durable.
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
OPINION
X
X
X
13-4
Contract Basis for Product
Liability
? Case 13.1 Castro v. QVC Network,
Inc. (1998)
? Was the pan represented as suitable for
roasting a 25 lb. turkey?
? What is the relationship between tort
liability and warranty liability?
? Did the pan pass the risk/utility test?
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-5
Federal Regulations
? Federal Trade Commission Act
Authorizes FTC as Enforcement
Agency
? Passed in 1914
? Federal Trade Commission given broad
authority
? Requires regulation of ?unfair and
deceptive trade practices?
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-6
Federal Regulations
? FTC Broadened by Wheeler-Lea Act
of 1938
? ?Is public deceived?? standard
? Not limited to adverse impact on
competition
? FTC Improvements Act of 1980
? Put some restrictions on FTC regulation
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-7
Federal Regulations
? Content Control and Accuracy
? ?No aspirin,? ?aspirin free,? all dairy
products, and so on (like express
warranties)
? Performance Claims: Advertiser Must
be Able to Prove Claim
? Corrective advertising: FTC has required
corrective advertising when
unsubstantiated claims have been made
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-8
Performance Claims
? Case 13.2 Warner-Lambert Co. v.
FTC (1977)
? What proposals for corrective
advertising are made in the order?
? What modification in the order does the
court make?
?2017 Cengage Learning?. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-9
Federal Regulations
? Celebrity Endorsements
? Celebrity must have used the product
? If the celebrity has not used the product,
the source of claims must be given
? Bait and Switch
? Prohibits advertising cheaper product
and then getting customers to buy the
more expensive product
?2017 Cengage Learning?. May not be scanned