2. Protecting Consumers and Third Parties
18-2
A seller or manufacturer has a very significant legal responsibility to buyers and users of goods and services, as well as to third parties.
These obligations are covered by the law of sales, contract law, the Uniform Commercial Code (UCC), and tort law.
Two important aspects of the law protecting buyers and users concern warranties and product liability:
Warranties: Covered by the law of sales, contract law, and the UCC, provide consumers with remedies when goods that they purchase are not or do not perform as expected.
Product liability: Covered by tort law, provides consumers and users with remedies when they are injured or suffer property damage as a result of defective goods.
Learning Outcome 18-1: Identify the various provisions of the law that protect consumers and third parties who suffer physical injuries or financial losses.
Page: 288

3. 18-3
The Law of Warranties
Warranty: A guarantee or promise made by the manufacturer or seller that the goods offered really are what they are claimed to be, or that the goods are what a reasonable person has a right to expect.
Two types of warranties:
Express warranty: Explicit, specifically stated promises.
Implied warranty: A guarantee suggested or inferred from known facts and circumstances.
Learning Outcome 18-2: Explain the term “warranty” and distinguish between express and implied warranties.
Page: 288

4. Express Warranty by Promise
18-4
Express Warranty by Promise
It is an explicit, definite promise by the seller that the goods will have certain characteristics.
An express warranty that is made by the seller to the buyer and becomes part of the basis of the agreement creates an explicit warranty that the goods will be as promised.
If a written warranty is ague and indefinite, the court may apply the custom of the marketplace.
It is not required that a seller make a specific written or oral statement of warranty for an express warranty to exist.
Actions of the seller also may be considered express warranties.
Learning Outcome 18-3: Identify the four kinds of express warranties.
Page: 289

5. Express Warranty by Description, Sample, or Model
18-5
Any description of goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
Any sample or model that “is made part of the basis of the bargain creates an express warranty that the whole of the goods will conform to the sample” or model.
A buyer may refuse delivered goods if the goods are not the same as described by the seller or do not conform to the sample or model used by the seller to effect the sale.
Learning Outcome 18-3: Identify the four kinds of express warranties.
Page: 289

6. Example: Express Warranty
18-6
Example: Express Warranty
Facts:
Cool Appliances, Inc. displayed a double-door refrigerator model, RE 1290.
Prospective buyers were encouraged to examine the appliance, understand the features, and make note of the technical specifications.
By using a display model as the basis for the sale, Cool Appliances warranted that any model of RE refrigerators sold would be substantially the same as the display model.
In this case, Cool Appliances Inc. makes an express warranty by the description of the model.
Learning Outcome 18-3: Identify the four kinds of express warranties.
Page: 290

7. The Timing of the Express Warranty
18-7
The Timing of the Express Warranty
Most express warranties are made before or during a sales transaction.
Written or oral statements issued by the seller after the transaction has been completed can also be interpreted as express warranties.
Marketers recognize the uneasiness that many buyers experience after having made a buying decision.
To reduce this uneasiness, sellers often send out mailings to assure buyers that they did indeed make a wise purchase.
These statements, subsequent to the sale, can also be regarded as express warranties.
Learning Outcome 18-3: Identify the four kinds of express warranties.
Page: 290

8. The Effect of Sellers’ “Puffing”
18-8
The Effect of Sellers’ “Puffing”
“It is not necessary to the creation of an express warranty that the seller use formal words such as ‘warrant’ or ‘guarantee’ or that the seller have a specific intention to make a warranty, but an affirmation of the value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty” [UCC 2-313(3)].
Consequently, puffing, however sincere and persuasive this sales talk may be, does not constitute a warranty, even if the buyer relies on the statements.
Learning Outcome 18-3: Identify the four kinds of express warranties.
Page: 290

9. Disclaimers of Express Warranties
18-9
To limit the effect of express warranties, some sellers put specific limitations in the warranty.
Disclaimer: A denial or repudiation in an express warranty, which serves to limit the effectiveness of a warranty.
Example: A manufacturer claims a pump will deliver a certain number of gallons of water per minute. A disclaimer may say, “Warranty does not cover applications where water must be pumped into storage tanks.”
Another example of a disclaimer is when oral warranties are given and then followed by a written document containing a disclaimer.
Learning Outcome 18-3: Identify the four kinds of express warranties.
Page: 291

10. 18-10
Implied Warranties
Specific references to implied warranties, which are those warranties not made explicitly but that a buyer might reasonably expect a seller to honor.
Implied warranties can relate to either:
Title, or
Quality of goods.
Learning Outcome 18-4: Identify the three kinds of implied warranties.
Page: 291

11. 18-11
Title
The UCC provides that “the title conveyed shall be good, and its transfer rightful; and the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.”
This means the seller promises that:
He or she is the real owner of the goods offered for sale.
The seller has the right to sell the goods.
There are no claims or liens of any kind against the goods that might later cause the seller to lose title to someone else who might claim ownership or an interest in the goods.
Learning Outcome 18-4: Identify the three kinds of implied warranties.
Page: 291

12. Example: Implied Warranties of Title
18-12
Facts:
Ken bought a used car from Will, a college friend, for $18,000.
After a few days, a local bank notified Ken that Will owed $4,000 to the bank, and had used the car as security for the loan—this was recorded in the appropriate bank documents.
In this case, Ken may sue Will for his loss on the grounds that the implied warranty of title had been breached.
Learning Outcome 18-4: Identify the three kinds of implied warranties.
Page: 291

13. Quality: Implied Warranty of Merchantability
18-13
The law assumes that the goods sold by a merchant or seller are fit to be sold or resold and, therefore, carry an implied warranty of merchantability.
Merchant: Anyone who deals in goods of the kind being sold in the ordinary course of business, or who presents himself or herself as having the skills or knowledge relating to the goods.
When a merchant sells goods, he or she warrants that the goods will:
Pass without objection in the trade under the contract description.
Be fit for the ordinary purposes for which such goods are sold.
Be adequately contained, packaged, and labeled as the agreement may require.
Conform to the promises or statements of fact made on the container or label.
Learning Outcome 18-4: Identify the three kinds of implied warranties.
Page: 293

14. Quality: Implied Warranty of Fitness for a Particular Purpose
18-14
Quality: Implied Warranty of Fitness for a Particular Purpose
A seller, at the time of making a contract, knows or has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment in selecting or furnishing suitable goods.
The warranty exists even if the buyer does not expressly inform the seller of his or her intended use of the merchandise.
To recover for breach of the implied warranty of fitness of purpose, a buyer must prove that:
The seller knew or had reason to know the buyer’s purpose.
The seller knew or had reason to know that the buyer was relying on the seller’s skill or judgment.
The buyer did rely on the seller’s skill or judgment.
Learning Outcome 18-4: Identify the three kinds of implied warranties.
Page: 292

15. Disclaimers of Implied Warranties
18-15
The two important implied warranties of merchantability and of fitness for a particular purpose may be disclaimed in several ways.
The UCC provides specific rules that must be followed by a seller who wants to avoid the responsibility of these implied warranties.
Learning Outcome 18-4: Identify the three kinds of implied warranties.
Page: 294

16. Disclaimers of Implied Warranties (cont.)
18-16
A disclaimer of the warranty of merchantability must mention the word merchantability.
If the disclaimer is in writing, it must be conspicuous; it cannot be buried in the fine print of the contract.
Disclaimers of the warranty of fitness for a particular purpose must be in writing and must be conspicuous.
Such warranties are excluded by the use of expressions such as “as is” or “with all faults,” or other language.
Also, the court may refuse to enforce unconscionable disclaimers.
Unconscionable disclaimers are ones that are inconspicuous, oppressive, or unfair.
Learning Outcome 18-4: Identify the three kinds of implied warranties.
Page: 292

17. Magnuson-Moss Warranty Legislation
18-17
The Magnuson-Moss Warranty Act addresses many different kinds of abuses to consumers relating to warranties.
The Magnuson-Moss Warranty Act
Applies only when written warranties are made voluntarily on consumer products that cost more than $25.
The act requires that such warranties be both (1) clearly disclosed to the buyer, and (2) labeled as either “full” or “limited.”
The act applies only to purchases by consumers of tangible personal property normally used for personal, family, or household purposes, not to commercial or industrial transactions.
It is a federal statute and affects only warranties on products that are sold in interstate commerce, that is, trade between two or more states.
Learning Outcome 18-5: Explain the provisions of the Magnuson-Moss Warranty Act.
Page: 293

18. Magnuson-Moss Warranty Legislation (cont.)
18-18
The type of warranty to which the act applies is much more narrowly defined than is an express warranty under the UCC. Warranties covered by the act are:
Any written statement of fact made by a seller to a purchaser relating to the quality or performance of a product and stating that the product is free of defects or that it will meet a specified level of performance over a period of time.
A written promise to “refund, repair, replace, or take other action” if a product fails to meet written specifications.
Learning Outcome 18-5: Explain the provisions of the Magnuson-Moss Warranty Act.
Page: 293

19. Distinction between Full and Limited Warranty
18-19
Full warranty: Promises that a defective product will be repaired without charge within a reasonable time after a complaint has been made.
If the product cannot be repaired within a reasonable time, the consumer may receive either a replacement product or a refund of the purchase price.
It applies to anyone who owns the product during the warranty period, not just the original buyer.
No time limitation can be placed on a full warranty.
Limited warranty: A written warranty that does not meet the minimum requirements of a full warranty.
If only a time limitation distinguishes a limited warranty from a full warranty, then the act permits the seller to indicate this fact by such language as “full 12-month warranty.”
Learning Outcome 18-5: Explain the provisions of the Magnuson-Moss Warranty Act.
Page: 293

20. Remedies under the Magnuson-Moss Warranty Act
18-20
Generally, a consumer who has suffered damages pursuant to this law may sue for breach of warranty in state court.
If, however, a large number of consumers are injured by the same seller, a class action lawsuit may be brought against the seller in federal court.
A class action lawsuit is a lawsuit collectively filed by many individuals.
In either situation, consumers can recover court costs and attorney's fees if they win the case.
Learning Outcome 18-5: Explain the provisions of the Magnuson-Moss Warranty Act.
Page: 294

21. 18-21
Lemon Laws
The Magnuson-Moss Warranty Act is sometimes referred to as the federal lemon law.
In addition to federal law, consumers are also protected by lemon laws enacted by the individual states.
Lemon laws: Statutes that provide remedies to consumers for products such as automobiles that repeatedly fail to meet certain standards of quality and performance.
Lemon laws vary greatly from state to state, and may not necessarily cover used or leased products.
Learning Outcome 18-5: Explain the provisions of the Magnuson-Moss Warranty Act.
Page: 294