WARRANTIES

What is warranty? Warranty is a guarantee or

assurance about goods.How to classify warranty?

Normally, a seller makes two types of warranties: warranty of title and warranties relating to performance

1. A warranty of title guarantees the seller’s right to transfer goods to a later buyer.

2. Warranties of performance are designed to encourage honesty in transactions because they assure the buyer that the goods will conform to certain standards of performance.

Warranties of performance are divided into express and implied.

(1)Express warranties are the guarantees which result from the parties’ expectations, and they arise from the specific words of the parties and must become part of the basis of their bargain.

(2)Implied warranties are imposed by Article 2 of the UCC.

A. the warranty of merchantability B. the warranty of fitness for a

particular purpose

I. Warranties of title

1. The UCC protects the buyer’s expectations as to good title by means of the warranty of title. Title warrany arises automatically in most sales contracts.

(1) The seller warrants that she has good and valid title and the right to transfer the goods. If the seller’s title proves defective, the buyer has a right to recover damages from the seller.

(2) The seller also warrants that she will deliver the goods free from any security interests or liens which the buyer did not know about at the time they contracted.

(3) A merchant also warrants to the buyer that the goods do not violate or infringe on a third person’s patents, copyrights or trademarks.

II. Express warranties1. T or F Statements

(1) An express warranty can be given only by the seller. It is a part of “the basis of the bargain” according to the UCC.

(2) Express warranties cannot be created orally; they have to be written.

(Express warranties may be created orally; they do not have to be written.)

(3) The seller is not required by law to provide any express warranties.

2. Which of the following are express warranties?

(1) Borok, a car dealer, affirms the manufacturer’s promise that the engine will not need substantial repair during the first 50,000 miles.

(2) The car dealer, Borok, might say to a prospective buyer, “This is a dandy car—one you’ll enjoy for years.”

(3) Cardley, a furniture salesman, describes the covering on a couch as being 100% nylon, specially treated to be stain- and water-repellant.

(4) Cardley, the furniture salesman, tells his customers, “You won’t find a finer couch for the money anywhere in the city.”

5. Compton, a dealer in leather goods, shows an expensive leather suitcase to a customer and agrees to ship the buyer one “just like it”.

(2. This is not an express warranty. This is only opinion. It is not based on fact. it is not provable one way or the other.

4. This is not an express warranty. He may seem to be making a factual comparison, but in reality he’s just applying his own subjective standards. Such claims are typically referred to as “puffing. They are not binding on the seller.)

III. Implied warranties1. T or F statements(1) Implied warranties are created by

the seller. (Implied warranties are not created

by the seller. Rather, they are imposed by law.)

(2) Unlike express warranties, implied warranties do not have to be specifically stated by the manufacturer or seller.

2. Warranty of merchantability A large number of lawsuits concerning

the warranty of merchantability have involved food and drink. Therefore, the courts have developed some special tests to determine merchantability in such cases, such as disputes arising from cases where a mouse skeleton was found in a soda bottle, or peach pits in fresh fruits pies.

These are the foreign-natural test and the reasonable-expectations test.

(1) The foreign-natural test is applied whenever consumers discover some substance within food or drink that they feel should not be there. The rules of this test are simple: If the undesired substances is “foreign” to the product, the product doesn’t pass the test; however, if the substance is “natural”, even though it might be be undesirable, the seller cannot be held in breach.

(2) The reasonable-expectation test is the court’s way of asking what a reasonable person would expect to find in food or drink—even if the substance is not foreign.

3. Implied warranty of fitness for a particular purpose

(1) A “particular purpose” of the buyer differs from the “ordinary purpose” (merchantability). Goods can be merchantable but unfit for a buyer’s particular purpose.

(2) The product may be covered by a warranty of fitness for a particular purpose only if certain conditions are met:

First, the seller must be aware that the buyer is contemplating that particular use for the goods.

Second, the seller must be aware that the buyer is relying on the seller’s expertise in selecting the right goods for the purpose.

And finally, the buyer must not restrict the seller’s range of choices by imposing criteria that make the proper choice difficult or impossible

case: Helman buys a set of racing tires for his

street rod from dealer Rodman. The manufacturer’s label attached to the tires reads: “Dry weather use only-not suitable for use on wet pavement.” Rodman, however, tells Helman to ignore the label; the tires are “ideal” for use in rain. Helman specifically wants a tire he can use in both wet and dry conditions, but relies on Rodman’s judgment. The first time Helman drives on wet pavement, his car skids uncontrollably and crashes. Which of the following is most likely true, based on the information presented?

a. Rodman has violated the warranty of fitness for a particular purpose.

b. Rodman has violated the warranty of merchantability, but not fitness for a particular purpose.

c. Rodman has vilolated no warranties; Rodman’s claim that the tires were “ideal” was just an opinion.

4. Warranty disclaimer----a clause in the sales contract whereby

the seller attempts to eliminate its liability. For example, the seller may try to modify the coverage of an implied warranty, or to limit its duration.

(1) Express warranty disclaimers (UCC Section 2-316(1))

How to make express warranty disclaimers?

A. in language that is specific, clear and unambiguous

B in language that is called to a buyer’s attention

(2) Implied warranty disclaimers (UCC section 2-316 (2))

To exclude or modify the implied warranty of merchantability, the seller must:

A. use the word merchantabilityB. make the disclaimer conspicuous if

it is in writing To exclude or modify the implied

warranty of fitness for particular purpose, the seller must:

A. use a writingB. make the disclaimer conspicuous

(How to make a disclaimer conspicuous?-(1) A reasonable person ought to have noticed it. (2) Capital letters, larger type, contrasting type,

and contrasting colors usually satisfy this requirement. )

(3) The difference between merchantability warranty disclaimer and fitness warranty disclaimer

A. Unlike the fitness warranty disclaimer, a disclaimer of the implied warranty of merchantability can be oral.

B. Disclaimers of the merchantability must always use the word merchantability. No special words are needed to disclaim the fitness warranty.

Example: What can the following conspicuous

written statement disclaim, the merchantability warranty or fitness warranty?

“THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THE DESCRIPTION ON THE FACE HEREOF”

----It will disclaim the implied warranty of fitness.

(4) Other ways to disclaim implied warranties (UCC section 2-316(3)(a).

A. The seller can also disclaim either implied warranty by using such terms as with all faults, as is, and as they stand. These commercial terms of art ordinarily refer to used goods, and so they may be ineffective as disclaimers if (a) new products are sold; (b) products of any sorts are sold to an ordinary consumer.

B. The buyer’s refusal to inspect goods can have the same practical effect as a disclaimer.

C. An implied warranty can be excluded or modified by course of dealing (the parties’ previous conduct), course of performance (the parties’ previous conduct under the same contract) or usage of trade (any practice regularly observed in the trade).