CHAPTER 23

Sales and Lease Warranties

 


 

Warranty: an assurance by one party of the existence of a fact on which the other party can rely. For example, warranty of title, express warranties, and/or implied warranties.  This is a duty on the seller, therefore, upon a breach by the seller, the buyer can sue, because the seller’s promise has been broken.

 

 

WARRANTIES OF TITLE

 

UCC 2-312

 

       Good Title: Except where disclaimed, sellers warrant that they have good and valid title to the goods being sold and that they have the power to rightfully transfer title to the buyer.  In other words, the goods aren’t stolen.

 

        No Liens: Except where disclaimed, sellers warrant that the goods they are selling are free of any liens -- that is, any encumbrance on the goods or other property to satisfy a debt or protect a claim for payment of a debt (e.g., a security interest on personal property or a mortgage on real property).

 

        No Infringements: Except where disclaimed, a seller warrants that the goods delivered are free from any copyright, trademark, or patent claims by a third party.

 

 

èDisclaimer of Title Warranties:  In an ordinary sales transaction, any of the foregoing warranties can be disclaimed in the sales contract only by specific language therein.

 



EXPRESS WARRANTIES

 

        Express Warranty: A seller’s or lessor’s oral or written promise, ancillary to an underlying sales or lease agreement, as to the quality, description, or performance of the goods being sold or leased.

 

·        Under the U.C.C., express warranties arise when a seller/lessor indicates to the buyer/lessee that the goods:

 

(1)     conform to any affirmation or promise of fact made by the seller/lessor to the buyer/lessee about the goods (i.e., there is a 1 Gig Pentium Processor in the machine);

(2)     conform to any factual description of the goods (i.e., the label says it is an Intel processor); and/or

(3)     conform to any sample or model of the goods shown to the buyer/lessee prior to purchase.

        In order to give rise to an express warranty, the affirmation, promise, description, sample, or model must:

        become part of the basis of the bargain between the seller/lessor and the buyer/lessee; and

        constitute more than a mere statement of opinion.

 

These warranties can be found in a seller’s advertisement, brochure or other promotional materials, as well as being made orally or expressly in a written contract.

 

To be an express warranty, the seller does not have to specifically say “warrant” or guarantee.  Rather, the buyer must have reasonably understood a representation as part of the basis of the bargain.  For example, “in good mechanical condition” is presumptively part of the bargain and is held to be a warranty.

 

A statement of opinion and value is not always easy to separate.  Puffing is always around.  this is the best used car to come around in years, it has 4 new tires, and a 150 horsepower engine rebuilt this year.  You have a case for the tires and the engine here.

 

A statement that something is “worth a fortune” or “you’d pay $500 elsewhere” does not usually create a warranty.


 

IMPLIED WARRANTIES

 

        Implied Warranty: A warranty imposed by implication or inference from the nature of the transaction or the relative bargaining positions or circumstances of the parties.

 

        Merchantability: A warranty, arising in every sale or lease of goods made by a merchant who deals in goods of the kind, that the goods being sold or leased are:

(1)     reasonably fit for the general purpose for which they are being sold or leased,

(2)     properly packaged and labeled, and

(3)     of proper quality.

         

          The goods generally must be of at least average quality.  Classic examples of merchantability include a sale of a wooden handle for an ax that appears ok, but on use, was actually rotten.  The merchant is liable.  Food at a restaurant is presumed to be safe and free of glass in a drink or meal. Contrast this against finding a cherry pit in a cherry pie- you know that you might, on occasion find this type of thing.  Obviously, you don’t expect to find a foreign object such as glass.

 

        Fitness for a Particular Purpose: A warranty that the goods being sold or leased are fit for the particular purpose for which the buyer/lessee wishes to use the goods, which is imposed on any seller who knows that the buyer/lessee is relying on the seller/lessor’s skill and judgment to select suitable goods.  For example, say you want a particular color of paint (say light yellow), you show the shade you want, and they mix it up.  You get home and it is totally wrong (say deep purple).  Here, the paint is ok as far as merchantability is concerned, but NOT for the particular purpose.

 

        The parties’ prior course of dealing and/or custom and usage in a particular industry and/or locale may also give rise to an implied warranty.  For example, burning in a computer before it is delivered is normal.  If the maker doesn’t do it and it fails, they have breached this additional warranty as well, because it is customary for the industry to do this before a computer is delivered.

 

Overlapping Warranties, What Controls?

 

·        Express warranties control over implied warranties;

·        Samples take precedence over inconsistent general descriptions; and

·        Technical specs displace inconsistent samples or general specs

 

 

Warranties and Third Parties

 

          è Say I buy a turkey for Thanksgiving from a merchant, and you come over, and it turns out the turkey is spoiled. Can you sue the merchant, or can only I? Generally the right to sue only applies to the purchaser.

 

 

DISCLAIMERS OF WARRANTIES

 

 

        Waiver of Express Warranty: Any oral or written express warranty may be disclaimed by (i) a clear and conspicuous written disclaimer, (ii) which is called to the buyer/lessor’s attention, (iii) at the time the contract is formed.

 

        Waiver of Implied Warranty of Fitness: To disclaim an implied warranty of fitness for a particular purpose, the disclaimer must be (i) in writing, and (ii) conspicuous.

          For example, THERE ARE NO WARRANTIES THAT EXTEND BEYOND THE DESCRIPTION ON THE FACE HEREOF.  Notice the word fitness was not used.

 

        Waiver of Implied Warranty of Merchantability: The disclaimer does not have to be in writing; however, (i) it must specifically use the term merchantability,” and, (ii) if it is in writing, it must be conspicuous.  Maybe you were buying a chain saw, but it was last year’s model.  The seller may disclaim warranty by saying since it’s last years model, I disclaim any warranty of merchantability. Doesn’t have to be in writing, but it would obviously be smart to so record it as such.  Notice this may not eliminate the implied warranty of fitness if they were discussing whether the saw could cut a 2” tree.

 

        Waiver by Inspection or Failure to Inspect: If the buyer/ lessor actually examines the goods as fully as desired before entering into the sales or lease contract, or if the buyer/lessee refuses to examine the goods at the seller/lessor’s request, there is no implied warranty with respect to defects that a reasonable examination did reveal or would reveal.

 

·        Unconscionablity:  Take it or leave it!  If there is a lack of bargaining power, there may be an issue of unconscionability.

 

 


LIMITATIONS ON REMEDIES

 

 

        Statute of Limitations: An action for breach of contract under the U.C.C. must be commenced within four years after the cause of action accrues.

 

        A cause of action for breach of warranty under the U.C.C. accrues when the seller or lessor tenders delivery -- even if the aggrieved party is unaware that her cause of action has accrued.   Recall the parties may agree in writing to modify the Statute of limitations to not less than one year nor more than four years.

 

        Non-U.C.C. limitations and accrual rules apply to claims brought under other legal theories, even when the claims relate to the sale of goods. For example, you buy tires.  Three of them blow out 4 years 3 days after you bought them.  You still can bring an action in tort, but not under the UCC.

 

 


MAGNUSSON-MOSS WARRANTIES

 

 

        The Magnusson-Moss Warranty Act modifies U.C.C. warranty rules with respect to consumer transactions. The Act does not require any seller to give a warranty for goods sold to a consumer; however, if the seller chooses to give an express warranty, and if the value of the goods sold is more than $10 the warranty must be labeled as “full” or “limited.” 

 

        A full warranty (i) requires free repair or replacement of any defective part; and, (ii) if the product cannot be repaired within a reasonable time, the consumer must have the choice of either a refund or replacement.

 

        However, the warrantor need not perform warranty services if the product was damaged or unreasonably used by the consumer.

        A full warranty generally has no time limit.

 

           A limited warranty is any warranty which does not meet all of the requisites for a full warranty. If an express warranty is a limited warranty, that fact must be conspicuously designated.  This is the warranty we most commonly see in practice.

 

          NOTE: Implied warranties are not covered under the Act, rather are governed by the UCC.