Warranties

Chapter 10

Warranties

• A warranty is an assurance by one party of the existence of a fact on which the other party can rely.

• Warranties include

a.warranties of title,

b.express warranties, and

c.implied warranties

Warranty of Title

• Title warranty arises automatically.

• UCC 2-312 imposes three types of warranties of title.– Good Title – No Liens – No Infringements

Good Title

• Sellers warrant that they have good and valid title and that the transfer of title is rightful. UCC 2-312(1)(a)]. – Example: Alice steals goods from Henry and sells

them to Ona, who does not know that they are stolen. If Henry discovers that Ona has the goods, Henry has the right to reclaim them from Ona. Alice automatically warranted to Ona that the title conveyed was valid and that its transfer was rightful. Because a thief has no title to stolen goods, Alice breached the warranty of title and became liable to the buyer for appropriate damages.

No Liens

• Sellers warrant that goods are free of a security interest or other lein of which the buyer has no knowledge.

• Example: Henderson buys a used boat from Loring for cash. A month later, Barish repossesses the boat from Henderson, having proved that she, Barish, has a valid security interest in the boat and that Loring, who has missed five payments, is in default. Henderson has legal grounds to recover his purchase price. UCC 2-312(1)(b)

•

No Infringements

• Merchant sellers warrant that the goods are free of any third person's patent, trademark, or copyright claims. UCC 2-312(3)

• Unless buyer has supplied specifications.

Disclaimer of Title Warranty

• Title warranty can be disclaimed or modified only by specific language in a contract.

• Example: Seller transfers only such rights, title, and interest as they have in the goods.

Express Warranties

• A seller can create an express warranty by making representations concerning the quality, condition, description, or performance potential of the goods.

UCC 2-313

Express Warranties

• Express Warranties are created by:

• A. Affirmation or promise of fact that the about the goods.

• B. Description of the goods.

• C. Sample or Model.

Express Warranties

• Statement must be a statement of fact statements of 0pinion and value will not create an express warranty..

• "this is the best used car to come along in years”

• "it's worth a fortune"

Implied Warranties

• Implied Warranty of Merchantability

• Implied Warranty of Fitness for a Particular Purpose

• Implied Warranty Arising from Course of Dealing or Trade Usage

Warranty of Merchantability

• An implied warranty of merchantability automatically arises in every sale of goods made by a merchant who deals in goods of the kind sold.

Merchantability

a."reasonably fit for the ordinary purposes for which such goods are used."

b. At least average, fair, or medium-grade quality.c. Comparable to quality that will pass without objection

in the traded. Adequately packaged and labeled as provided by the

agreement, e. Conform to the promises or affirmations of fact made

on the container or label, if any.f. Run within permitted variations.

Implied Warranty of Fitness for a Particular Purpose

• Arises when any seller (merchant or nonmerchant) makes a recommendation knowing the particular purpose for which a buyer will use the goods and knows that the buyer is relying on the skill and judgment of the seller to select suitable goods. UCC 2-315, 2A-213.

Implied Warranty from Course of Dealing or Trade Usage

• When both parties to a sales contract have knowledge of a well-recognized trade custom, the courts will infer that both parties intended for that custom to apply to their contract.

Example: If it is an industry-wide custom to lubricate a new car before it is delivered and a dealer fails to do so, the dealer can be held liable to a buyer for damages resulting from the breach

of an implied warranty.

Warranty Disclaimers

• Express Warranties:– Obviously express warranties can be excluded if the

seller refrains from making any promise or affirmation of fact relating to the goods, describing the goods, or using a sample or model.

– The UCC does permit express warranties to be negated or limited by specific and unambiguous language, Therefore, a written disclaimer in language that is clear and could negate all oral express warranties not included in the written sales or lease contract [UCC 2-316(1),

Warranty Disclaimers

• Implied warranties of merchantability and fitness are disclaimed by the expressions "as is," "with all faults," and other similar expressions that in common understanding for both parties call the buyer's attention to the fact that there are no implied warranties

[UCC 2-316(3)(a), 2A-214(3)(a)].

Warranty Disclaimers

Iimplied warranty of fitness or of merchantability [U To disclaim an implied warranty of fitness for a particular purpose, the disclaimer must be in writing and be conspicuous. The word fitness does not have to be mentioned in the writing; it is sufficient if, for example, the disclaimer states, "THERE ARE NO WARRANTIES THAT EXTEND BEYOND THE DESCRIPTION ON THE FACE HEREOF."

•

Warranty Disclaimers

• A merchantability disclaimer must be more specific; it must mention merchantability. It need not be written; but if it is, the writing must be conspicuous UCC 2-316(2)

Buyer's Examination of the Goods

• If a buyer or lessee actually examines the goods (or a sample or model) as fully as desired before entering into a contract, or, if the buyer or lessee refuses to examine the goods on the seller's demand that he or she do so, there is no implied warranty with respect to defects that a reasonable examination would reveal or defects

that are found on examination [UCC 2-316(3)(b), 2A-214(2)(b)].

Magnuson-Moss Warranty Act

• The Magnuson-Moss Warranty Act modifies UCC warranty rules to some extent when consumer transactions are involved. The UCC, however, remains the primary codification of warranty rules for industrial and commercial transactions.

Magnuson-Moss Warranty Act

If a seller chooses to make an express written warranty, however, and the cost of the consumer

goods is more than $10, the warranty must be labeled as either "full" or "limited." In addition, if the cost of the goods is more than $15, by FTC regulation, the warrantor must make certain disclosures fully and conspicuously in a single document in "readily understood language." This disclosure states the names and addresses of the warrantor(s), what specifically warranted,procedures for enforcement