Contracts Chapter 8 -- Express Warranties

What is a warranty?

A warranty is a particular type of promise. It is a promise that a fact is true, and in most instances the fact relates to the condition of an object.

How does a warranty differ from an ordinary promsie?

With an ordinary contract promise, breach means one party failed to do what they promised. With a warranty, breach means the goods do not conform to the warranted facts. The seller promised that a fact was true. If the fact isn't true, the warranty is breached.

What was the traditional rule before warranty protection?

Caveat emptor ("let the buyer beware"). Buyers assumed the risk regarding the quality of goods they purchased, and the seller was not responsible for defects.

What replaced caveat emptor?

Warranty protection. This shift happened because manufacturers of branded goods began making promises about quality to encourage purchases. The law followed, holding sellers to those promises.

Where does warranty law come from?

• UCC Article 2 (applies to sale of goods)

• Common Law (applies to real estate, services, construction)

• Magnuson-Moss Act (appleis to consumer product disclosers)

Do warranties only apply to goods?

No. Warranties appear in construction contracts, contracts for the sale of land, residential leases, sales of businesses, and contracts for the assignment of accounts receivables. Common law courts frequently apply UCC standards to non-goods transactions where a seller makes factual statements as part of an effort to complete a sale.

Implied Warranties v. Express

• Express: created by parties’ words or conduct

• Implied: arise by operation of law

What question does § 2-313 answer?

When is the seller just talking versus when is the seller making a legal commitment? Sellers say a lot of things to make a sale. Some statements are just chatter. Others create enforceable rights. Section 2-313 tells us which is which.

What are the three ways to create an express warranty under § 2-313?

1. Made a factual statement or promise about the goods

2. Described the goods

3. Showed a sample or model

+ Did it matter to the deal? ("basis of the bargain")

What are the key rules about creating express warranties?

• No magic words required ("warranty" or "guarantee" not needed)

• No intent to warrant required

• Need not be in writing

• Can be created inadvertently

What is the two-question test under § 2-313?

1. What did the seller do? Did they make a factual statement, a promise, a description, or show a sample or model?

2. Did it matter to the deal? Was it part of the basis of the bargain?

If the answer to both is yes, the seller created a warranty, whether they meant to or not.

How does a description create a warranty?

Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. It is unlikely that a seller can sell something without at least a minimal description, and that minimal description is an express warranty.

What are case examples of description as warranty?

• Standard Stevedoring Co. v. Jaffe: Describing a crane as a "15-20 ton crane" warranted

the crane could lift at least 15 tons

• Malul v. Capital Cabinets, Inc.: Describing kitchen cabinets as having "French doors"

warranted they would include French-style doors

• Describing a car as a "new red Streamstar automobile" creates warranties that the car is

new, red, a Streamstar model, and an automobile

What is the difference between a factual statement and puffing?

Factual: specific and verifiable

Puffing: vague and subjective

What is the key test for distinguishing fact from opinion?

Specificity. Vague, general statements are regarded as mere puffing. Specific, verifiable statements are factual statements that create warranties.

What is the case example for puffing?

Guiggey v. Bombardier: Statements that a used snowmobile "runs nice," that the original owner "took real good care of it," and that "it will go good" were not sufficiently specific to constitute factual statements. These were puffing, not warranties.

How does the parties' sophistication affect the analysis?

The "decisive test" is whether the seller asserts a fact of which the buyer is ignorant or merely states an opinion on a matter where the buyer may be expected to have their own judgment. (Royal Business Machines Inc. v. Lorraine Corp.)

What is the key case for sophistication?

Daughtrey v. Ashe: A seller told a buyer that diamonds were of "VVS quality" (a technical diamond clarity grade). The court held this was a factual statement, not opinion, because the buyer lacked the expertise to independently assess diamond clarity. The buyer had to trust the seller's technical assessment. Compare "VVS quality" (factual, creates warranty) to "these are beautiful diamonds" (opinion, puffing).

What is the difference between a sample and a model?

Sample:

• drawn form the actual goods to be sold

• example: handful of grain from the bulk

• more definitive

Model:

• an exemplar, not from actual goods

• example: floor model at furniture store

• more room for variation

Do courts treat samples and models equally?

Both create warranties, but samples carry more weight because they are drawn from the actual goods. With a model, the seller might argue it was just to show general style, not exact specifications.

Does timing matter for samples?

Yes. Where the seller's sample is supplied after the buyer has committed to purchase, it is difficult for the buyer to claim the sample served as a basis of the bargain.

Representation vs. Warranty: what is it?

Representation: statement of fact

Warranty: promise that fact is true

Representation vs. Warranty: time

Representation: present/past only

Warranty: extends into future

Representation vs. Warranty: claim type

Representation: tort (misrepresentation)

Warranty: contract (breach)

Representation vs. Warranty: key element

Representation: must prove reliance

Warranty: “basis of the bargain”

Representation vs. Warranty: damages

Representation: possibly punitive

Warranty: no punitive

Representation vs. Warranty: statute of limitations

Representation: shorter (tort)

Longer: (contract)

Why does the time distinction matter?

A seller cannot represent that a widget will operate without defects for a year after purchase (that's a future state of affairs). But a seller can warrant that it will do so. Representations only address the state of affairs at signing or beforehand. Warranties extend into the future.

Why does the reliance distinction matter?

Misrepresentation requires the plaintiff to have relied upon the alleged misrepresentation (it must have "induced" the plaintiff to act). For breach of warranty, the warranty need only be "part of the basis of the bargain."

Why do sophisticated parties prefer warranties over representations?

A representation requires you to prove you believed it. A warranty just requires you to prove it was part of the contract and the facts weren't true. Warranties treat the promise like any other contract term: "You promised X. X wasn't true. You breached. Pay up."

What does "basis of the bargain" mean?

Under the old law, a buyer had to prove they relied on the seller's statement. The UCC dropped the word "reliance." Courts disagree about whether that changed the rule, but the trend is toward making it easier for buyers: if the seller made the statement during the deal, it's presumed to be part of the basis of the bargain.

What are the three court approaches to “basis of the bargain”?

1. No reliance required at all

2. Reliance is a defense (buyer doesn't have to prove it, but seller can disprove it)

3. Reliance required (buyer must prove)

What are the facts of CBS v. Ziff-Davis?

Ziff-Davis sold magazines to CBS with warranties about financial performance. Before closing, CBS did its own investigation and concluded the financial information was wrong. CBS suspected Ziff-Davis was overstating value. CBS closed the deal anyway (despite having an escape hatch) and then sued for breach of warranty.

What was Ziff-Davis's argument?

CBS didn't rely on our warranties. They did their own investigation. They didn't believe us. They bought the magazines anyway. How can they claim breach of warranty when they never believed the warranty?

How did the court rule?

The court ruled for CBS. CBS did "rely" on the warranty, just not in the way Ziff-Davis meant. CBS didn't rely on the truth of the facts (they didn't believe them). But they relied on the warranty itself as a commitment, like an insurance policy. If the facts turned out to be false, Ziff-Davis would be on the hook for the difference in value.

Why does the CBS case illustrate the representation vs. warranty distinction?

If CBS had sued for misrepresentation (tort), CBS would have lost because reliance is an element and CBS didn't believe the statements. But CBS sued for breach of warranty (contract). In contract, the question isn't "did you believe it?" The question is "was it part of the deal?" A warranty exists because both parties agreed to it. Whether CBS believed the warranty is irrelevant to whether the warranty exists.

What is the key insight from CBS?

A warranty isn't just a statement you believe. It's a commitment the seller makes. If the commitment turns out to be false, the seller pays, regardless of whether the buyer believed it going in. Think of a car warranty: you might fully expect problems, but you're relying on the warranty as protection.

What is breach of warranty?

Breach of warranty means the goods do not conform to the warranty. If the seller warranted "30,000 miles" and the car has 90,000 miles, the goods don't conform. That's breach.

What is the three-step framework for warranty disputes?

Step 1: Does a warranty exist?

• Did seller make factual statement, promise, description, or show sample/model?

• Was it "basis of the bargain"?

• Was it fact (specific) or puffing (vague)?

• Did seller try to disclaim it?

Step 2: Was the warranty breached?

• Do the goods conform to the warranty?

• If goods ≠ warranty → breach

Step 3: What damages flow from the breach?