© 2004 West Legal Studies in Business A Division of Thomson Learning 1 Chapter 23 Sales and Lease Warranties Chapter 23 Sales and Lease Warranties

© 2004 West Legal Studies in Business A Division of Thomson Learning 2 Overview A warranty is an assurance of fact upon which a party may rely.  Warranty of Title.  Express Warranty.  Implied Warranty of Merchantability.  Implied Warranty of Fitness for a Particular Purpose.  Implied warranty arising from the course of dealing or trade usage. A warranty is an assurance of fact upon which a party may rely.  Warranty of Title.  Express Warranty.  Implied Warranty of Merchantability.  Implied Warranty of Fitness for a Particular Purpose.  Implied warranty arising from the course of dealing or trade usage.

© 2004 West Legal Studies in Business A Division of Thomson Learning 3 §1: Warranty of Title Automatically arises in most commercial sales transactions. UCC-312 creates 3 warranties:  Good Title.  No Liens.  No Infringements. Automatically arises in most commercial sales transactions. UCC-312 creates 3 warranties:  Good Title.  No Liens.  No Infringements.

© 2004 West Legal Studies in Business A Division of Thomson Learning 4 Warranty Title Disclaimer Title warranty can generally be disclaimed only with specific language in contract. Circumstances may be obvious to clearly indicate disclaimer of title, such as a sheriff’s sale. Title warranty can generally be disclaimed only with specific language in contract. Circumstances may be obvious to clearly indicate disclaimer of title, such as a sheriff’s sale.

© 2004 West Legal Studies in Business A Division of Thomson Learning 5 §2: Express Warranties Can be oral or written-- don’t have to use the words “warrant” or “guarantee.”  Any Affirmation or Promise.  Any Description.  Any Sample or Model. Can be oral or written-- don’t have to use the words “warrant” or “guarantee.”  Any Affirmation or Promise.  Any Description.  Any Sample or Model.

© 2004 West Legal Studies in Business A Division of Thomson Learning 6 Express Warranties [2] To create an express warranty, the affirmation of fact must become the “basis of the bargain.” And Buyer must rely on warranty when he enters into contract. Case 23.1: Genetti v Caterpillar Inc (1999). To create an express warranty, the affirmation of fact must become the “basis of the bargain.” And Buyer must rely on warranty when he enters into contract. Case 23.1: Genetti v Caterpillar Inc (1999).

© 2004 West Legal Studies in Business A Division of Thomson Learning 7 Express Warranties [3] Statements of Opinion and Value.  Generally excludes “puffing” – “Best car in town”, not an express warranty.  However, expert opinion is not puffery. Statements of Opinion and Value.  Generally excludes “puffing” – “Best car in town”, not an express warranty.  However, expert opinion is not puffery.

© 2004 West Legal Studies in Business A Division of Thomson Learning 8 §3: Implied Warranties Warranty inferred at law based on the circumstances or nature of the transaction. Under the UCC, merchants warrant the goods they sell are “merchantable”, i.e., fit for ordinary purpose for which such goods are sold. Warranty inferred at law based on the circumstances or nature of the transaction. Under the UCC, merchants warrant the goods they sell are “merchantable”, i.e., fit for ordinary purpose for which such goods are sold.

© 2004 West Legal Studies in Business A Division of Thomson Learning 9 Implied Warranty of Merchantability Automatically arises from merchants. Goods are of average, fair, or medium-grade. Adequately packaged and labeled. Conform to promises on label. Have a consistent quality and quantity among the commercial units. Case 23.2: Webster v. Blue Ship Tea Room (1964). Automatically arises from merchants. Goods are of average, fair, or medium-grade. Adequately packaged and labeled. Conform to promises on label. Have a consistent quality and quantity among the commercial units. Case 23.2: Webster v. Blue Ship Tea Room (1964).

© 2004 West Legal Studies in Business A Division of Thomson Learning 10 Implied Warranty of Fitness for a Particular Purpose Arises by any Seller who:  Knows the particular purpose for which the goods are being bought; and  Knows the buyer is relying on seller’s skill and judgment to select suitable goods. Arises by any Seller who:  Knows the particular purpose for which the goods are being bought; and  Knows the buyer is relying on seller’s skill and judgment to select suitable goods.

© 2004 West Legal Studies in Business A Division of Thomson Learning 11 Implied Warranty Arising from Course of Dealing or Trade Usage Arises when both parties to a contract have knowledge of a well-recognized trade custom. Courts infer that both meant this custom to apply to their transaction.

© 2004 West Legal Studies in Business A Division of Thomson Learning 12 §4: Overlapping Warranties Occurs when two or more warranties made in a single transaction:  If warranties are consistent, they are construed as cumulative.  If inconsistent: First: implied warrant of fitness for a particular purpose. Then: express. Occurs when two or more warranties made in a single transaction:  If warranties are consistent, they are construed as cumulative.  If inconsistent: First: implied warrant of fitness for a particular purpose. Then: express.

© 2004 West Legal Studies in Business A Division of Thomson Learning 13 §5: Warranties and Third Parties At common law only the Buyer could sue the Seller because she is the one in privity of contract with the Seller. UCC provides 3 alternatives from which the states may choose. At common law only the Buyer could sue the Seller because she is the one in privity of contract with the Seller. UCC provides 3 alternatives from which the states may choose.

© 2004 West Legal Studies in Business A Division of Thomson Learning 14 §6: Warranty Disclaimers Express Warranties can be disclaimed:  If they were never made (evidentiary matter).  If a clear written disclaimer in contract with specific, unambiguous language and called to Buyer’s attention (BOLD CAPS UNDERLINED). Express Warranties can be disclaimed:  If they were never made (evidentiary matter).  If a clear written disclaimer in contract with specific, unambiguous language and called to Buyer’s attention (BOLD CAPS UNDERLINED).

© 2004 West Legal Studies in Business A Division of Thomson Learning 15 Warranty Disclaimers [2] Implied Warranties:  Merchantability: “As Is,” “With All Faults.”  Fitness for a Particular Purpose: must be in writing and conspicuous.  If Buyer has the right to fully inspect and either: does so or refuses to do so, warranties are disclaimed as to defects that could reasonably be found. Case 23.3: International Turbine Services v. Vasp Brazilian Airlines (2002). Implied Warranties:  Merchantability: “As Is,” “With All Faults.”  Fitness for a Particular Purpose: must be in writing and conspicuous.  If Buyer has the right to fully inspect and either: does so or refuses to do so, warranties are disclaimed as to defects that could reasonably be found. Case 23.3: International Turbine Services v. Vasp Brazilian Airlines (2002).

© 2004 West Legal Studies in Business A Division of Thomson Learning 16 §7: Statute of Limitations Action for Breach of Warranty :  Begins to toll at tender.  Buyer must notify Seller within a reasonable time.  Buyer must sue within four years after cause of action accrues. If warranty is for future performance, action accrues when performance happens and breach is discovered. Action for Breach of Warranty :  Begins to toll at tender.  Buyer must notify Seller within a reasonable time.  Buyer must sue within four years after cause of action accrues. If warranty is for future performance, action accrues when performance happens and breach is discovered.

© 2004 West Legal Studies in Business A Division of Thomson Learning 17 §8: Magnuson-Moss Warranty Act FTC enforces; Attorney general or consumer can bring action. Modifies UCC for consumer sales. Only applies when written warranties are made by Seller (including a service contract).  If goods > $10 label “full” or “limited.”  If goods > $15 Seller must make additional disclosures. FTC enforces; Attorney general or consumer can bring action. Modifies UCC for consumer sales. Only applies when written warranties are made by Seller (including a service contract).  If goods > $10 label “full” or “limited.”  If goods > $15 Seller must make additional disclosures.

© 2004 West Legal Studies in Business A Division of Thomson Learning 18 Magnuson-Moss [2] Full Warranty: Seller must repair or replace. Limited Warranty must be conspicuous.  If limit of time only must say, e.g., “full twelve- month warranty.” UCC Implied Warranties:  May not be disclaimed, but can be limited, but must correspond with time of express warranty. Full Warranty: Seller must repair or replace. Limited Warranty must be conspicuous.  If limit of time only must say, e.g., “full twelve- month warranty.” UCC Implied Warranties:  May not be disclaimed, but can be limited, but must correspond with time of express warranty.

© 2004 West Legal Studies in Business A Division of Thomson Learning 19 §9: Warranties Under the CISG Art. 35: uses the word “conformity” instead of warranty, but very similar to UCC.

© 2004 West Legal Studies in Business A Division of Thomson Learning 20 Law on the Web West’s Encyclopedia of American Law. Grimes and Reese LLC on Warranties. Legal Research Exercises on the Web. West’s Encyclopedia of American Law. Grimes and Reese LLC on Warranties. Legal Research Exercises on the Web.