Sales and Consumer Issues Objective Interpret sales contracts and warranties within the rights and law of consumers. WARRANTIES AND GUARANTEES

Warranties and Guarantees Implied warranty – A guarantee of quality imposed by law but not in writing –Implied warranty deals with sale of goods –Regulated by UCC –Given by all sellers

Implied Warranties Warranty of fitness for a particular purpose –Seller knows the purpose for which goods are needed –Seller advises buyer in making purchase –Buyer relies on seller’s advice to make decision –Seller infers that the goods are fit for a particular purpose –A warranty exists

Implied Warranties Warranty of Merchantability –Given by a merchant only –Merchant infers that goods pass in the trade without objection –Goods are fit for the ordinary purpose such goods are used for –Conform to any promises or statements made on the container or label

Implied Warranties Warranty of Title –Seller warrants that the title is good and transfer is rightful –Seller warrants that goods will be delivered free of any financial obligations about which the buyer had no knowledge

Sale of Stolen Goods If stolen goods are sold to an innocent purchaser, the true owner is entitled to return of the goods The buyer can pursue remedy against the seller for breach of warranty of title

Usage of Trade An implied warranty that is a well established custom or practice among people in specific trades or businesses –Example: When a person sells a thoroughbred horse there is an implied warranty that papers are provided to prove the animal’s pedigree as a thoroughbred. It is expected in the horse trading business

Express Warranty Express warranty is also called a guarantee –“Guaranteed satisfaction or your money back” –“Lifetime guarantee” –The promise or assurance of the quality or life of a product

Express Warranties Can be oral or written Written form recommended Parol evidence rule applies: evidence of oral statements made before signing a written contract cannot be presented in court to change or add to the terms of that written agreement

Express Warranties Puffery by salesman is not a warranty, but an opinion of the salesperson. Express warranties created by: –Statement of fact or promise by seller –Description of goods –Use of same item or model

Full Warranties A full warranty requires that the defective product be repaired or replaced for free within a reasonable length of time after complaint is made. If the product cannot be fixed, the consumer has the option to get their money refunded. Have you ever tried to return merchandise that you thought was under warranty but was not?

Limited Warranty A limited warranty provides a restricted guarantee. Must state “Limited” Warranty Be sure to read and understand the limits of the warranty before purchasing…caveat emptor!

Caveat Emptor Latin for “Buyer Beware” –Warning: It is the duty of the consumer to make informed decisions. –Be sure to read labels and research products before buying. Comparison shop. –It is the duty of the seller to provide appropriate information for the consumer.

Caveat Venditor Latin for “Seller Beware” –Warning: It is the duty of the seller to make informed decisions. –Example: Banks, credit card companies and businesses who extend credit to customers check credit histories and applications before extending credit.

Growth of Consumerism Ralph Nader - “ Father of the Consumer Movement” –Lectured widely against corporate carelessness and greed –Gained national fame in 1965 with his book “Unsafe At Any Speed” about the Chevrolet Corvair –Followers were known as “Nader’s Raiders” –Brought attention to products that were not safe for consumers.

Lemon Laws Purpose: To protect consumers against chronically defective or “LEMON” products Commonly relates to vehicles, but can be other products Can be either federal or state law Buyer can get replacement of part or reimbursement of purchase price.

Lemon Laws Apply if a dealership tries unsuccessfully to fix a vehicle returned by consumer with a major defect Duty of the Buyer: –Must notify the seller Recommend certified letter to give documentary evidence of notice given and received Only relates to “substantially” defective products

Used Car Rule Purpose: To help consumers make better decisions when buying used cars Established in 1985 by the FTC Requires dealers of used cars to post a “Buyers Guide” on every car

Used Car Rule The Buyer’s Guide Must advise or suggest: –If warranty, what is covered? –If no warranty, “AS IS”, or implied only –To have inspection before purchasing –What are some major car problems –To get warranties in writing

Regulation of Warranties Federal Trade Commission (FTC) encourages manufacturers to make warranties very clear. FTC is a federal agency that ensures fair economic practices among businesses.

Magnuson-Moss Act (1975) Expands the FTC ‘s authority over written warranties Regulates the advertisement of warranties and enforces guidelines Requires written warranties to be in clear and understandable language

Express Written Warranties must disclose: Which part of product is guaranteed? What part is not guaranteed? What is the time limit? –Lifetime of purchaser? Or of product? How is a claim made? What are options for settlement? Who is making the guarantee?

Magnuson-Moss Act Requires that written warranties be labeled as full or limited Limits exclusions on implied warranties Requires that an exclusion or disclaimer to the written warranty be: –In writing –CONSPICUOUS

Breach of Warranty Requirements: –Buyer should give notification to seller within a reasonable time –Seller may refund $ or make restitution or offer to replace defective goods –Buyer may claim damages