Sales Warranties

Warranty is an age-old concept. In sales law, a warranty is an assurance by one party to the existence of a fact on which the other party can rely. Article 2 designates several types of warranties that can arise in a sales contract. These warranties include warranties of title, express warranties, and implied warranties.

Because a warranty imposes a duty on the seller, a breach of warranty is a breach of the seller's promise. If the parties have not agreed to limit or modify the remedies available to the buyer and if the seller breaches a warranty, the buyer can sue to recover damages from the seller. Under some circumstances a breach can allow the buyer to rescind the agreement.

Warranty of Title

Title warranty arises automatically in most sales contracts. UCC 2-312 imposes the following three types of warranties of title:

Good Title

In most cases, sellers warrant that they have good and valid title to the goods sold and that transfer of the title is rightful.

No Liens

A second warranty of title provided by the UCC protects buyers who are unaware of any encumbrances (claims, charges, or liabilities -- usually called liens) against goods at the time the contract is made. This warranty protects buyers who, for example, unknowingly purchase goods that are subject to a creditor's security interest. If a creditor legally repossesses the goods from a buyer who had no actual knowledge of the security interest, the buyer can recover from the seller for breach of warranty. (The buyer who had actual knowledge of a security interest has no recourse against a seller.)

No Infringements

A merchant seller is also deemed to warrant that the goods delivered are free from any copyright, trademark, or patent claims of a third person. If this warranty is breached and the buyer is sued by the party holding the copyright, trademark, or patent rights in the goods, the buyer must notify the seller of litigation within a reasonable time to enable the seller to decide whether to defend the lawsuit. If the seller says in writing that he has decided to defend and agrees to bear all expenses, including that of an adverse judgment, then the buyer must let the seller undertake litigation; otherwise, the buyer loses all rights against the seller if any infringement liability is established.

Disclaimer of Title Warranty

In an ordinary slaes transaction, the title warranty can be disclaimed or modified only by specific language in a contract. For example, sellers may indicate in the contract that they are transferring only such rights, title and interests as they have in the goods. In certain cases, the circumstances surrounding the sale are sufficient to indicate clearly to a buyer that no assurances as to title are being made. The classic example is a sheriff's sale. Obviously the goods don't belong to the sheriff.

Express Warranties

A seller can create an express warranty by making representations concerning the quality, condition, description, or performance potential of the goods. Express warranties arise when a seller or lessor indicates any of the following:

(1) That the goods conform to any affirmation or promise of fact that the seller makes to the buyer about the goods. Such affirmations or promises are usually made during the bargaining process. Statements such as "these drill bits will easily penetrate stainless steel, and without dulling" are express warranties.

(2) That the goods conform to any description of them. For example, a label that reads "Crate contains one 150-horsepower diesel engine" or a contract that calls for the delivery of a "wool coat" creates an express warranty that the content of the goods sold conforms to the description.

(3) That the goods conform to any sample or model of the goods shown to the buyer.

Express warranties can be found in a seller's advertisement, brochure, or promotional materials, in addition to being made orally or in an express warranty provision in a sales contract. To create and express warranty, a seller does not have to use formal words such as warrant or guarantee. It is only necessary that a reasonable buyer would regard the representation as part of the basis of the bargain. Therefore, if an express warranty is not intended, the marketing agent or salesperson should not promise too much.

Statements of Opinion and Value

If the seller merely makes a statement that relates to the value or worth of the goods, or makes a statement of opinion or recommendation about the goods, the seller is not creating an express warranty.

The seller's opinion such as "this vehicle is the best used car to come along in years" is known as puffing and creates no warranty. Puffing is an expression of opinion by a seller that is not made as a representation of fact. It is not always easy to determine what constitutes an express warranty and what constitutes puffing. The reasonableness of the buyer's reliance appears to be the controlling criterion. The context within which a statement is made might also be relevant.

Implied Warranties

An implied warranty is one that the law derives by inference from the nature of the transaction or the relative situations or circumstances of the parties. Under the UCC, merchantes impliedly warrant that the goods they sell are merchantable and, in certain circumstances, fit for a particular purpose. In addition, an implied warranty may arise from a course of dealing or usage of trade.

Implied Warranty of Merchantability

An implied warranty of merchantability automatically arises in every sale of goods made by a merchant who deals in goods of the kind.

Merchantable Goods

To be merchantable, goods must be "reasonably fit for the ordinary purposes for which such goods are used." They must be of at least average, fair, or medium-grade quality. The quality must be comparable to quality that will pass without objection in the trade or market for goods of the same description. To be merchantable, the goods must also be adequately packaged and labeled as provided by teh agreement, and they must conform to the promises or affirmations of fact made on the container or label, if any.

An implied warranty of merchantability also imposes on the merchant liability for the safe performance of the product. It makes no difference whether the merchant knew of or cold have discovered a defect that makes the product unsafe. Of course, merchants are not absolute insurers against all accidents arising in connection with goods. For example, a bar of soap is not unmerchantable merely because a user could slip and fall by stepping on it.

Merchantable Food. The UCC recognizes the serving of food or drink to be consumed on or off the premises as a sale of goods subject to the implied warranty of merchantability. "Merchantable" food is food that is fit to eat. Courts generally determine whether food is fit to eat on the basis of consumer expectations. For example, the courts assume that consumers should reasonably expect to find on occasion bones in fish fillets, cherry pits in cherry pie, a nutshell in a package of shelled nuts, and so on -- because such substances are natural incidents of the food. In contrast, consumers would not reasonably expect to find an inchworm in a can of peas or a piece of glass in a soft drink -- because these substances are not natural to the food product.

Implied Warranty of Fitness for a Particular Purpose

The implied warranty of fitness for a particular purpose arises when any seller (mechant or nonmerchant) knows the particular purpose for which a buyer will use the goods and knows that the buyer is reling on the skill and judgment of the seller to select suitable goods.

A "particular purpose" of the buyer differs from the "ordinary purpose for which goods are used" (merchantability). Goods can be merchantable but unfit for a particular purpose. A seller does not need to have actual knowledge of the buyer's particular purpose. It is sufficient if a seller "has reason to know" the purpose. The buyer, however, must have relied on the skill or judgment of the seller in selecting or furnishing suitable goods for an implied warranty to be found.

Overlapping Warranties

Sometimes tow or more warranties are made in a single transaction. An implied warranty of merchantability, an implied warranty of fitness for a particular purpose, or both, can exist in addition to an express warranty. Under the UCC, the rule is that express and implied warranties are construed as cumulative if they are consistent with one another. If the warranties are inconsistent, the courts usually hold as follows:

(1) Express warranties displace inconsistent implied warranties, except implied warranties of fitness for a particular purpose.
(2) Samples take precedence over inconsistent general descriptions.
(3) Technical specifications displace inconsistent samples or general descriptions.

Warranties & Third Parties

One of the general principles of contract law is that a person who is not one of the parties to a contract has no rights under the contract. This connection between the contracting parties is called privity of contract. It was established at common law that privity must exist between a plaintiff and a defendant for any action based on a contract to be maintained (except in cases of assignment and delegation or intended third party beneficiaries).

There is sharp disagreement among the states as to how far warranty liability should extend. In view of this disagreement, the UCC offers three alternatives for liability to third parties. All three alternatives are intended to eliminate enumerated types of injuries (personal versus property) for certain beneficiaries (for example, household members or bystanders).

Warranty Disclaimers

Because eacth type of warranty is created in a special way, the manner in which warranties can be disclaimed or qualified by a seller varies with the type of warranty.

Express Warranties

Express warranties can be excluded if the seller carefully refrains from making any promise or affirmation of fact relating to the goods, describing the goods, or using a sample or model. The UCC permits express warranties to be negated or limited by specific and unambiguous languaged, provided that this is done in a manner that protects the buyer from surprise. Therefore, a written disclaimer in language that is clear and conspicuous, and called to a buyer's attention, could negate all oral express warrantiesnot included in the written sales contract. The buyer must be made aware of any warranty disclaimers or modifications at the time the contract is formed.

Implied Warranties

Generally speaking, unless circumstances indicate otherwise, the implied warranties of merchantability and fitness are disclaimed by the expressions "as is," and "with all faults," and other similar expressions that in common understanding for both parties call the byer's attention to the fact that there are no implied warranties.

The UCC also permits a seller to specifically disclaim an implied warranty either of fitness or of merchantability. To disclaim and implied warranty of fitness for a particular purpose, the disclaimer must be in writing and be conspicuous. The word fitness does not have to be mentioned in the writing. If is sufficient if, of rexample, the disclaimer says, "THERE ARE NO WARRANTIES THAT EXTEND BEYOND THE DESCRIPTION ON THE FACE HEREOF."

A merchantability disclaimer must be more specific. It must mention merchantability. It need not be written, but if it is in writing, it must be conspicuous. A term is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals is conspicuous. Language in the body of a form is conspicuous if it is in larger or other contrasting type or color.

Buyer's Examination of the Goods

If a buyer actually examines the goods (or a sample or model) as fuly as desired before entering into a contract, or if the buyer refuses to examine the goods on the seller's demand that he do so, thereis no implied warranty with respect to defects that a reasonable examination would reveal or defects that are found on examination.

Magnuson-Moss Warranty Act

The Magnuson-Moss Warranty Act of 1975 was designed to prevent deception in warranties by making them easier to understand. The act is mainly enforced by the Federal Trade Commission. Additionally, the attorney general or a consumer who has been injured can enforce the act if informal procedures for settling disputes prove to be ineffective. The act modifies UCC warranty rules to some extent when consumer transactions are involved. The UCC, however remains the primary condification of warranty fules for industrial and commercial transactions.

No seller is required to give a written warranty for consumer goods sold under the act. If a seller chooses to make an express written warranty, however, and the cost of the consumer goods is more than $10, the warranty must be labeled as either "full" or "limited." In addition, if the cost of the goods is more than $15, by FTC regulation, the warrantor must make certain disclosures fully and conspicuously in a single document in "readily understood language." This disclosure provides the names and addresses of the warrantor(s), what specifically is warranted, procedures for enforcing the warranty, any limitations on warranty relief, and that the buyer has legal rights.

A "full" warranty requires free repair or replacement of any defective part. If the product cannot be repaired within a reasonable time, the consumer has the choice of either a refund or a replacement without charge. The full warranty frequently does not have a time limit on it. Any limitation on consequential damages must be conspicuous. Additionally, the warrantor need not perform warranty services if the problem with the product was caused by damage to the product or unreasonable use by the consumer.

A "limited" warranty arises when the written warranty fails to meet one of the minimum requirements of a full warranty. If only a limited warranty is given, it must be conspicuously designated. If it is only a time limitation that distinguishes a limited warranty from a full warranty, the act allows the warrantor to identify the warranty as a full warranty bu such language as "full twelve-month warranty."

Implied warranties are not covered by the act.