Author(s): Peter L. Diesel

COMMFAX is a newsletter devoted to commercial law issues and published by Garan Lucow Miller, P.C.
This newsletter examines the criteria for effective revocation of acceptance under Michigan’s version of the Uniform Commercial Code.

CLAIM FOR REVOCATION OF ACCEPTANCE REQUIRES OBJECTIVE EVIDENCE

Inherent in every transaction of goods is the prospect that the purchaser will, at some time after acceptance, attempt to revoke its acceptance and return the goods for a full cash refund. When dealing with relatively inexpensive items such as household appliances or office equipment, return policies allow refunds with very little justification. In contrast, when the product is construction equipment, industrial machinery, an automobile or custom software, the purchase price often justifies a more stringent return policy.
Many reasons exist why a buyer may wish to return goods for a full refund after having the benefit of them for some time. The buyer may encounter financial problems; may have lost a contract or need for the product; may have found a better value elsewhere; or may be genuinely dissatisfied with performance.

Typically, a buyer is in a position to “reject” goods if the goods are not completely in conformity with the order placed by plaintiff, and the seller cannot correct the shortcoming or “cure” it. The color could be wrong, model number different, etc., and a buyer does not need to establish the significance or importance of that nonconformity to reject the goods. After “acceptance” of the goods, however, the buyer’s right to return the goods is diminished. This delayed return is referred to as a “revocation of acceptance.”

A later revocation of the goods is not possible if the purchaser accepted them knowing of the non-conformity, unless the buyer reasonably believed the non- conformity would be remedied within a reasonable time. Further, a buyer may only revoke his acceptance of the goods if the nonconformity “substantially impairs its value to him and the revocation occurs within a reasonable time after its discovery and before a substantial change in the condition of the goods.” MCL 440.2608.

Buyers typically take the position that they have a 100% customer satisfaction guarantee. That if they are displeased with the goods, for any reason, they can revoke acceptance. In support of their position, plaintiffs have historically relied upon the 1985 Michigan Court of Appeals decision of Colonial Dodge, Inc v Miller.
There, the Court found a substantial impairment of value where the buyer sought revocation of acceptance because the vehicle he purchased failed to have a spare tire. Plaintiffs claim that the purchaser in Colonial Dodge subjectively valued a spare tire so highly that its absence justified plaintiff’s revocation of the vehicle’s acceptance.

Recently, in Harris v Ford Motor Co, No. 210096, an unpublished opinion, the Michigan Court of Appeals revisited Colonial Dodge and found that “revocation” required more than the subjective opinion of the buyer as to diminished value. The Court recognized that the “substantial impairment” standard contains both a subjective and objective component.

First, the Harris court quoted the holding in Colonial Dodge which was:

In order to give effect to the (revocation) statute [MCL 440.2608], a buyer must show the nonconformity has a special devaluing affect on him and that the buyer’s assessment of it is factually correct.
The court in Harris then rejected the claims of the plaintiff that the buyer is the sole judge of whether the value of the goods have been impaired:

This test has both a subjective and objective element. The subjective element is that the non- conformity has a “devaluing effect on him,” and the objective element is that the buyer’s belief is the devaluing effect is factually correct.

The court went on to note that the plaintiff in Harris v Ford Motor Co, failed to present any evidence that the vehicle’s value was diminished. Consequently, a jury could not conclude that the claimed nonconformity in fact had a devaluing effect.

The effect of the ruling will require future plaintiffs to come forward with objective evidence to prove a devaluing characteristic. Plaintiffs cannot simply claim that the goods are “unreliable” or “undependable” or “out of operation too much.” Plaintiffs will now be required to establish, for example, by objective measures, diminished market value; time out of operation; specific output numbers are short of seller’s representatives or standards; or that quality is diminished.

Occasionally the buyer will establish some reduction in value. The issue then becomes whether the diminished value is substantial, by objective measures.

This ruling will assist sellers by requiring the buyer to show specific and measurable reduction of value enabling sellers to better screen those return requests and requests to remedy beyond warranty by assessing the complaint with objective measures and possibly avoid costly litigation.

Peter L. Diesel is a partner in Garan Lucow Miller’s Grand Blanc office and concentrates his practice on commercial transactions and litigation. He can be reached at (800) 875- 3700 or by FAX at (810) 695- 6488.

NOTICE TO CREDITORS WHO TAKE SECURITY INTERESTS IN PROPERTY
Article 9 of the UCC is to be revised effective July 1, 2001. Be ready, be prepared, and look here for a summary of those anticipated changes.