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SALES AND LEASE WARRANTIES

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CHAPTER 21 CHAPTER 21

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Caveat Emptor

• “Let the buyer beware.”

• Doctrine governed law of sales and leases since Roman times.

• Warranties that apply under UCC give buyers more protection.

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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.

• Sellers/lessors not required to make such warranties, but goods accompanied by warranty often attractive to buyers/lessees.

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Express Warranty (continued)

• Not necessary to use formal words such as warrant or guarantee to create express warranty.

• Created when seller/lessor indicates goods will conform to:– Affirmations of facts or promises– Any descriptions of them (“Idaho potatoes”;

“v.v.s. quality diamonds”)– Any model or sample

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Express Warranty (continued)

Basis of the Bargain

• Warranty must be contributing factor that enticed buyer/lessee to enter contract.– Statements made at or before time of

contracting.

Basis of the Bargain

• Warranty must be contributing factor that enticed buyer/lessee to enter contract.– Statements made at or before time of

contracting.

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Express Warranty (continued)

Statement of Opinion

• Puffing or sales talk– E.g., “This is the best roast beef in town.”

• Not actionable as warranty.

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Damages Recoverable for Breach of Warranty

• Compensatory damages: difference between value of goods as warranted and actual value at time and place of acceptance.

• May also recover for personal injuries.

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Warranties Implied By Law

Implied Warranty of Implied Warranty of MerchantabilityMerchantability

Implied Warranty of Implied Warranty of Fitness for Human Fitness for Human

ConsumptionConsumption

Implied Warranty of Implied Warranty of Fitness for a Particular Fitness for a Particular

PurposePurpose

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Implied Warranty of Merchantability

• Merchant seller/lessor warrants goods: – Fit for ordinary purposes.– Adequately packaged and labeled.– Of even kind, quality, and quantity.– Conform to promises or facts on container or

label.– Of average quality for fungible goods.– Would pass without objection in industry.

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Implied Warranty of Fitness for Human Consumption

• Applies to food or drink obtained from restaurants, grocery stores, fast-food outlets, vending machines.

• Warranty breached if food:– Contains foreign substance, or– Fails to meet consumer expectations. E.g.,

chicken bone in chicken sandwich.

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Implied Warranty of Fitness for a Particular Purpose

• Arises where a seller/lessor warrants that the goods will meet the buyer/lessee’s expressed needs.

• May be made by both merchant and nonmerchant sellers/lessors.

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Express and Implied Warranties (1 of 2)

Type of Warranty

How Created Description

Express warranty Made by seller/lessor Affirmation that the goods meet certain standards of quality, description, performance, or condition.

Implied warranty for fitness for a particular purpose

Implied by law Implied that the goods are fit for the purpose for which the buyer or lessee acquires the goods.

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Express and Implied Warranties (2 of 2)

Type of Warranty

How Created Description

Implied warranty of merchantability

Implied by law if the seller/lessor is a merchant

Implied that the goods:1. Are fit for the ordinary purposes for which

they are used2. Are adequately contained, packaged, and

labeled3. Are of an even kind, quality, and quantity

within each unit4. Conform to any promise or affirmation of fact

made on the container or label5. Pass without objection in the trade6. Meet a fair average or middle range of

quality for fungible goods

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Warranty Disclaimers• 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, disclaimer must mention

merchantability.– Fitness for particular purpose may be disclaimed in

general language.

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Warranty Disclaimers (continued)

• Express Warranty• Can disclaim only if

disclaimer and warranty can reasonably be construed together.

• Implied Warranties• “As is” or “with all

faults” disclaims all implied warranties.

• For merchantability, must mention “merchantability.”

• For fitness, must be in writing and be conspicuous.

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Magnuson-Moss Warranty Act

• Covers written warranties relating to consumer products.

• Commercial and industrial transactions not

governed by the Act.

• Does not require a seller/lessor to make

express written warranties.

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Magnuson-Moss Warranty Act (continued)

• Sellers/lessors who do make such warranties are subject to the provisions of the Act.

• Must indicate whether warranties are full or limited.

• May not disclaim merchantability or fitness.

• Violators pay damages, attorney fees.

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Warranties of Title and No Infringements

Good TitleGood TitleNo Security No Security

InterestsInterests

No No InfringementInfringement

ss

No No InterferenceInterference

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Warranty of Good Title:Warranty of Good Title:

Sellers warrant that they Sellers warrant that they have valid title to the goods have valid title to the goods they are selling and that they are selling and that transfer of title is rightful.transfer of title is rightful.

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Warranty of No Security Interests

• Sellers warrant that the goods are

delivered free from any third-party security

interests, liens, or encumbrances that are

unknown to the buyer.

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Warranty Against Infringements

• Merchant seller/lessor warrants that the goods are delivered free of any:– Third-party patent,– Trademark, or– Copyright claim.

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Warranty of No Interference

• 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.

• Also called warranty of quiet possession.