© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 22 - 1

Chapter 21Sales and Lease Warranties

Chapter 21Sales and Lease Warranties

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Caveat Emptor

• Let the buyer beware• Doctrine governed law of

sales and leases since Roman times.

• Modern law recognizes that consumers need more protection.

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Express Warranty• Created when seller/lessor

affirms goods meet certain standards of quality, description, performance, or condition

• May be written, oral, or inferred from conduct

• Formal words not required to make such warranties

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 22 - 4

Express Warranty (continued)

• It is not necessary to use formal words such as warrant or guarantee to create an express warranty.

• Sellers and lessors are not required to make such warranties.

• Created when seller/lessor indicates goods will conform to:– Affirmations of facts or promises– Any descriptions of them– Any model or sample

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Express Warranty (continued)

Basis of the Bargain

• Sellers and lessors of goods do not have to make express warranties concerning the quality of their goods.

• They often make such warranties to convince people or businesses to purchase or lease goods from them.

Basis of the Bargain

• Sellers and lessors of goods do not have to make express warranties concerning the quality of their goods.

• They often make such warranties to convince people or businesses to purchase or lease goods from them.

Statements of Opinion

• Sales “puffing” by sales-persons usually does not create a warranty.

• It is merely a statement of opinion.

Statements of Opinion

• Sales “puffing” by sales-persons usually does not create a warranty.

• It is merely a statement of opinion.

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Damages Recoverable for Breach of Warranty

• The buyer/lessee may sue the seller or lessor to recover compensatory damages.

• May recover difference between value of goods as warranted and actual value at time and place of acceptance.

• May also recover for personal injuries.

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Warranties Implied By Law

Implied Warranty of Implied Warranty of MerchantabilityMerchantability

Implied Warranty of Implied Warranty of Fitness for Human Fitness for Human

ConsumptionConsumption

Implied Warranty of Implied Warranty of Fitness for a Particular Fitness for a Particular

PurposePurpose

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Implied Warranty of Merchantability• If seller/lessor is a merchant

with respect to the goods, there is an implied warranty of merchantability.– May be disclaimed

• Does not apply to sales or leases by nonmerchants or casual sales.

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Implied Warranty of Merchantability (continued)

• The goods are warranted to:– be fit for the ordinary purposes for

which they are used.– be adequately contained, packaged,

and labeled.– be of an even kind, quality, and

quantity within each unit.– conform to any promise or

affirmation of fact made on the container or label.

– Be of a quality that must pass without objection in the trade.

– meet a fair average or middle range of quality if fungible goods.

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Implied Warranty of Fitness for Human Consumption

• Applies to food or drink consumed on or off the premises of:– Restaurants

– Grocery stores

– Fast-food outlets

– Vending machines

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Implied Warranty of Fitness for Human Consumption (continued)

Consumer Consumer Expectation Expectation

TestTest

A test to determine A test to determine merchantability merchantability based on what the based on what the average consumer average consumer would expect to would expect to find in food find in food products.products.

Foreign Substance Test

Under this test, food product unmerchantable if foreign object in product causes injury to person.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 22 - 12

Implied Warranty of Fitness for a Particular Purpose

• A warranty that arises where a seller or lessor warrants that the goods will meet the buyer’s or lessee’s expressed needs.

• The warranty applies to both merchant and nonmerchant sellers and lessors.

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Summary: Express and Implied Warranties (1 of 2)

Type of Warranty

How Created Description

Express warranty Made by the seller or lessor

Affirmation that the goods meet certain standards of quality, description, performance, or condition

Implied warranty for fitness for a particular purpose

Implied by law Implied that the goods are fit for the purpose for which the buyer or lessee acquires the goods.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 22 - 14

Summary: Express and Implied Warranties (2 of 2)

Type of Warranty How Created Description

Implied warranty of merchantability

Implied by law if the seller or lessor is a merchant

Implied that the goods:1. Are fit for the ordinary purposes

for which they are used2. Are adequately contained,

packaged, and labeled3. Are of an even kind, quality, and

quantity within each unit4. Conform to any promise or

affirmation of fact made on the container or label

5. Pass without objection in the trade6. Meet a fair average or middle

range of quality for fungible goods

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Warranty Disclaimer

• Express warranty:– Can be disclaimed provided

disclaimer and warranty can be construed together.

• Implied warranty:– Disclaimed by language like “as is”,

“with all faults”.– If no specific language, disclaimers

must mention merchantability.– Fitness for particular purpose may

be disclaimed in general language.

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Magnuson-Moss Warranty Act

• Covers written warranties relating to consumer products.

• Commercial and industrial transactions are not governed by the Act.

• The Act does not require a seller or lessor to make express written warranties.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 22 - 17

Magnuson-Moss Warranty Act (continued)

• Persons who do make such warranties are subject to the provisions of the Act.– Full Warranties

– Limited Warranties

• The Act does not create any implied warranties.

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Warranties of Title and No Infringements

Good TitleGood TitleNo Security No Security

InterestsInterests

No No InfringementInfringement

ss

No No InterferenceInterference

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Warranty of Good Title:Warranty of Good Title:

Sellers warrant that they Sellers warrant that they have valid title to the goods have valid title to the goods they are selling and that they are selling and that transfer of title is rightful.transfer of title is rightful.

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Warranty of No Security Interests

• Under the UCC, sellers of goods warrant that the goods they sell are delivered free from any third-party security interests, liens, or encumbrances that are unknown to the buyer.

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Warranty of No Infringements

• A seller or lessor who is a merchant who regularly deals in goods of the kind sold or leased automatically warrants that the goods are delivered free of any:– Third-party patent,– Trademark, or– Copyright claim

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Warranty of No Interference

• The lessor warrants that no person holds a claim or interest in the goods that arose from an act or omission of the lessor that will interfere with the lessee’s enjoyment of his or her leasehold interest.

• Warranty of Quiet Possession