1. 22 - 1 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Chapter 21 Sales and Lease Warranties Chapter 21 Sales and Lease Warranties

2. 22 - 2 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Caveat Emptor Let the buyer beware Doctrine governed law of sales and leases since Roman times. Modern law recognizes that consumers need more protection.

3. 22 - 3 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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

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

5. 22 - 5 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

6. 22 - 6 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

7. 22 - 7 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Warranties Implied By Law Implied Warranty of Merchantability Implied Warranty of Fitness for Human Consumption Implied Warranty of Fitness for a Particular Purpose

8. 22 - 8 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

9. 22 - 9 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

10. 22 - 10 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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

11. 22 - 11 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Implied Warranty of Fitness for Human Consumption (continued) Consumer Expectation Test A test to determine merchantability based on what the average consumer would expect to find in food products. Foreign Substance Test Under this test, food product unmerchantable if foreign object in product causes injury to person.

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

13. 22 - 13 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Summary: Express and Implied Warranties (1 of 2) Type of WarrantyHow CreatedDescription Express warrantyMade 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 lawImplied that the goods are fit for the purpose for which the buyer or lessee acquires the goods.

14. 22 - 14 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Summary: Express and Implied Warranties (2 of 2) Type of WarrantyHow CreatedDescription 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 used 2. Are adequately contained, packaged, and labeled 3. Are of an even kind, quality, and quantity within each unit 4. Conform to any promise or affirmation of fact made on the container or label 5. Pass without objection in the trade 6. Meet a fair average or middle range of quality for fungible goods

15. 22 - 15 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

16. 22 - 16 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

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

18. 22 - 18 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Warranties of Title and No Infringements Good Title Good Title No Security Interests No Infringements No Interference

19. 22 - 19 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Warranty of Good Title: Sellers warrant that they have valid title to the goods they are selling and that transfer of title is rightful.

20. 22 - 20 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

21. 22 - 21 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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

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