Chapter 25 Warranties McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Warranty (Definition): Seller’s promise(s) regarding certain characteristics of good(s) sold 25-2

“Express” Warranty Versus “Implied” Warranty Express Warranty: Explicitly stated in contract Express Warranty: Explicitly stated in contract Implied Warranty: Automatically (by operation of law) applied to contract Implied Warranty: Automatically (by operation of law) applied to contract 25-3

Types of Warranties Warranties of Title Passage of good title Passage of good title Implied promise of no liens/judgments against title Implied promise of no liens/judgments against title Implied promise that title not subject to claims of intellectual property (copyright, patent, or trademark) infringement Implied promise that title not subject to claims of intellectual property (copyright, patent, or trademark) infringement 25-4

Types of Warranties Express Warranties Description of good’s physical nature or its use Description of good’s physical nature or its use May be found in advertisements or brochures May be found in advertisements or brochures May be material term of contract May be material term of contract Salesperson’s oral promise concerning good can give rise to express warranty Salesperson’s oral promise concerning good can give rise to express warranty Buyer’s reliance on seller’s representations generally means those representations become express warranties, and part of contract Buyer’s reliance on seller’s representations generally means those representations become express warranties, and part of contract 25-5

Sales “Puffery” Definition: Salesperson’s mere statement of opinion, rather than representation of facts Definition: Salesperson’s mere statement of opinion, rather than representation of facts “Puffing” generally does not create express warranty liability “Puffing” generally does not create express warranty liability 25-6

Types of Warranties: Implied Warranties Implied Warranty of Merchantability (Definition): Warranty based on reasonable expectation of product performance Implied Warranty of Merchantability (Definition): Warranty based on reasonable expectation of product performance Good purchased must: Good purchased must: Pass without objection in trade/market for similar goods Pass without objection in trade/market for similar goods Be of fair quality (within the product’s description) Be of fair quality (within the product’s description) Be fit for “ordinary use” Be fit for “ordinary use” Have “even kind, quality and quantity” Have “even kind, quality and quantity” Be adequately packaged and labeled Be adequately packaged and labeled Conform to promises made on package/product label Conform to promises made on package/product label 25-7

Types of Warranties: Implied Warranties Implied Warranty of Fitness For Particular Purpose Implied Warranty of Fitness For Particular Purpose (Definition): Warranty that arises when seller knows purpose for which buyer purchasing goods, and buyer relies on seller’s judgment to recommend/select certain product (Definition): Warranty that arises when seller knows purpose for which buyer purchasing goods, and buyer relies on seller’s judgment to recommend/select certain product Seller does not have to be merchant to make this warranty Seller does not have to be merchant to make this warranty 25-8

Types of Warranties: Implied Warranties Implied Warranty of Trade Usage (Definition): Warranty that arises as result of generally- accepted trade practices (Definition): Warranty that arises as result of generally- accepted trade practices 25-9

Warranty Rights of Third Parties: Third Party Beneficiaries of Warranties Seller’s warranties may extend to: Seller’s warranties may extend to: Buyer’s household members and guests Buyer’s household members and guests Any “reasonable and foreseeable” user Any “reasonable and foreseeable” user Anyone injured by good Anyone injured by good 25-10

Warranty Disclaimers and Waivers Methods of Disclaiming/Waiving Warranties: Methods of Disclaiming/Waiving Warranties: Seller does not make express warranties Seller does not make express warranties Seller disclaims implied warranties in clear, unambiguous, conspicuous language Seller disclaims implied warranties in clear, unambiguous, conspicuous language Buyer fails/refuses to examine goods Buyer fails/refuses to examine goods Buyer fails to file suit within applicable statute of limitations period Buyer fails to file suit within applicable statute of limitations period 25-11

Magnuson-Moss Warranty Act Provides that if seller decides to issue written warranty for consumer good, seller must specify whether warranty is “full” or “limited” 25-12