Business Law CH23 F2024 LEW

Introduction

• Definition of Warranty: An assurance or guarantee by the seller or lessor regarding the quality and features of the goods sold or leased.

• Types of Warranties under UCC:

  • Warranties of title

  • Express warranties

  • Implied warranties

• Breach of Warranty: Occurs when the seller's or lessor's promise is not fulfilled. Remedies for breach include:

  • Sue for damages

  • Rescind (cancel) the agreement in specific circumstances.

• Warranties of Title

• Express Warranties

• Implied Warranties

• Overlapping Warranties

• Warranty Disclaimers and Limitations on Liability

Warranties of Title

Types of Title Warranties under UCC

• Three Title Warranties:

  • Good Title: Assurance that the seller possesses valid title to the goods sold.

  • No Liens: Assurance that the goods are free of encumbrances, such as claims or charges.

  • No Infringements (for merchants): Assurance that goods do not infringe third-party rights.

• Modification/Disclaimer: Generally, sellers can only modify these warranties by including specific language in the contract.

Good Title

• Sellers warrant:

  • Valid title to the goods sold.

  • Rightful transfer of title.

• Breach Consequence: Buyers can sue if they discover the seller lacked good title.

• Note: No warranty of good title in lease contracts due to different nature of transactions.

No Liens

• Protects buyers from unawareness of encumbrances (debt/liabilities)

• Security Interest: Seller must not sell goods subject to a creditor’s claim without notifying the buyer.

• If repossession occurs due to unnoticed encumbrance, buyer can recover damages from seller.

No Infringements

• Merchant sellers assure buyers that purchased goods are free from copyright, trademark, or patent claims.

• Notification Requirement: Buyers must inform sellers of any third-party claims to enable the seller to respond. If notified, the seller may defend and must bear expense of litigation.

Express Warranties

Definition

• An express warranty is a seller's promise regarding the quality, condition, description, or performance of the goods.

• Arises from:

  • Affirmations or facts made by seller

  • Descriptions of goods

  • Samples or models presented to buyer.

Basis of the Bargain

• Sellers don't need to use terms like "warrant" or “guarantee”; what matters is that a reasonable buyer considers the representation integral to their decision.

Statements of Opinion and Value

• Only statements of fact create express warranties; statements of opinion or value do not.

• Expert Opinions: An expert’s opinion may establish an express warranty if it is given to a layperson, subject to reliance standards.

• Reasonable Reliance Standard: The reasonableness of the buyer’s reliance often is the controlling criterion in whether a statement constitutes an express warranty or is merely puffery (sales exaggeration/swindeling).

Implied Warranties

Definition

• An implied warranty is a legal assumption that the goods sold or leased by merchants are suitable for general sale

• Merchants are deemed to warrant goods are:

  1. Merchantable

  2. Fit for a particular purpose in certain cases.

Implied Warranty of Merchantability

• Implies that goods:

  • Are fit for ordinary purposes

  • Properly packaged and labeled

  • Of fair quality.

• The warranty automatically arises in every sale or lease of goods made by a merchant who deals in goods of the kind sold or leased.

• Breach Conditions: Buyers can sue for defects even if merchants were unaware.

Implied Warranty of Fitness for a Particular Purpose

• Arises when seller knows the buyer's specific purpose for the goods and that the buyer is relying on the seller's expertise.

Warranties Implied from Prior Dealings or Trade Custom

• Implied warranties can emerge from:

  • Previous transactions between parties

  • Norms in trade usage.

Lemon Laws

Overview

• Regulations providing remedies for automobile buyers facing defects affecting vehicle quality or performance.

• Common application:

  • Covers cars under warranty and are defective

  • Generally excludes used/leased cars unless covered by extended warranties.

Seller's Opportunity to Remedy

• Buyers must inform dealers of defects and allow attempts (typically four) to rectify issues.

• If unresolved, remedies may include:

  • New car

  • Replacement parts

  • Full reimbursement.

  • reimbursement of attorneys fees

Arbitration Requirement

• In many states, disputes must go to arbitration before court action.

• Manufacturer's arbitration decisions bind them but not the buyer.

• Some states feature government-sponsored arbitration programs.

Magnuson-Moss Warranty Act

Applicability

• Modifies UCC warranty rules for consumer transactions.

• No mandatory written warranties, but if offered, products over $25 must be identified as "full" or "limited".

Disclosure Requirements

• The Act mandates clear disclosures in easy-to-read language in warranty documents, including:

  • Warrantor's name and address

  • Specifics of the warranty

  • Enforcement procedures

  • Buyer rights.

Overlapping Warranties

Interpretation Rules

• Consistent warranties interpreted as cumulative.

• If inconsistent:

  • Express warranties override conflicting implied warranties.

  • Samples take precedence over general descriptions.

  • Technical specifications supersede samples/general descriptions.

Warranty Disclaimers and Limitations on Liability

General Disallowance

• UCC allows disclaimers as long as clear language is used to prevent buyer surprise. Must use clear and unambigious language

  • Variability in disclaiming methods depending on warranty type.

Express Warranties Disclaimers

• Sellers can disclaim oral express warranties with written disclaimers.

• Must be conspicuous and brought to buyer's attention.

Implied Warranties Disclaimers

• Commonly disclaimed with phrases like "as is" or "with all faults".

• Disclaimers must mention "merchantability" and need to be conspicuous (obvious) if in writing.

Examination Clauses

• If the buyer examines goods adequately, there are no implied warranties for discoverable defects.

• Refusal to examine can lead to loss of remedies for evident defects.

Diclaimer of the implied warranty of fitness

• the disclaimer must be in writing and must be conspicuous.

  • The writing does not have to mention the word “fitness.”

  • Example:  “There are no warranties that extend beyond the description on the face hereof.”

Unconcionability (unfairness)

Under the UCC, while warranty disclaimers don't directly mention unfairness, courts will still assess them for unconscionability. Factors that suggest a disclaimer might be unfair include if the buyer has little bargaining power, is presented with a "take-it-or-leave-it" situation, or doesn't understand or know about the disclaimer.

Statute of Limitations

• Actions for warranties must commence within four years from delivery, regardless of the buyer's knowledge of breach. Nonbreaching party must notify breaching party within reasonable time