Chapter 22 Sales and Lease Warranties

2 Overview A warranty is an assurance of fact upon which a party may rely. Warranty of Title. Express Warranty. Implied Warranty of Merchantability. Implied Warranty of Fitness for a Particular Purpose. Implied warranty arising from the course of dealing or trade usage.

3 §1: Warranty of Title Automatically arises in most commercial sales transactions. UCC-312 creates 3 warranties: Good Title. No Liens. No Infringements.

4 Warranty Title Disclaimer Title warranty can generally be disclaimed only with specific language in contract. Circumstances may be obvious to clearly indicate disclaimer of title, such as a sheriff’s sale.

5 §2: Express Warranties Can be oral or written-- don’t have to use the words “warrant” or “guarantee.” Any Affirmation or Promise. Any Description. Any Sample or Model.

6 Express Warranties [2] To create an express warranty, the affirmation of fact must become the “basis of the bargain.” And Buyer must rely on warranty when he enters into contract. Statements of Opinion and Value. Generally excludes “puffing” – “Best car in town”, not an express warranty. However, expert opinion is not puffery.

7 §3: Implied Warranties Warranty inferred at law based on the circumstances or nature of the transaction. Under the UCC, merchants warrant the goods they sell are “merchantable”, i.e., fit for ordinary purpose for which such goods are sold.

8 Implied Warranty of Merchantability Automatically arises from merchants. Goods are of average, fair, or medium- grade. Adequately packaged and labeled. Conform to promises on label. Have a consistent quality and quantity among the commercial units.

9 Implied Warranty of Fitness for a Particular Purpose Arises by any Seller who: Knows the particular purpose for which the goods are being bought; and Knows the buyer is relying on seller’s skill and judgment to select suitable goods.

10 Implied Warranty Arising from Course of Dealing or Trade Usage Arises when both parties to a contract have knowledge of a well-recognized trade custom. Courts infer that both meant this custom to apply to their transaction.

11 §4: Overlapping Warranties Occurs when two or more warranties made in a single transaction: If warranties are consistent, they are construed as cumulative. If inconsistent: First: implied warrant of fitness for a particular purpose. Then: express.

12 §5: Warranties and Third Parties At common law only the Buyer could sue the Seller because she is the one in privity of contract with the Seller. UCC provides 3 alternatives from which the states may choose.

13 §6: Warranty Disclaimers Express Warranties can be disclaimed: If they were never made (evidentiary matter). If a clear written disclaimer in contract with specific, unambiguous language and called to Buyer’s attention (BOLD CAPS UNDERLINED).

14 Warranty Disclaimers [2] Implied Warranties: Merchantability: “As Is,” “With All Faults.” Fitness for a Particular Purpose: must be in writing and conspicuous. If Buyer has the right to fully inspect and either: does so or refuses to do so, warranties are disclaimed as to defects that could reasonably be found.

15 §7: Statute of Limitations Action for Breach of Warranty : Begins to toll at tender. Buyer must notify Seller within a reasonable time. Buyer must sue within four years after cause of action accrues. If warranty is for future performance, action accrues when performance happens and breach is discovered.

16 §8: Magnuson-Moss Warranty Act FTC enforces; Attorney general or consumer can bring action. Modifies UCC for consumer sales. Only applies when written warranties are made by Seller (including a service contract). If goods > $10 label “full” or “limited.” If goods > $15 Seller must additional disclosures.

17 Magnuson-Moss [2] Full Warranty: Seller must repair or replace. Limited Warranty must be conspicuous. If limit of time only must say, e.g., “full twelve- month warranty.” UCC Implied Warranties: May not be disclaimed, but can be limited, but must correspond with time of express warranty.

18 §9: Warranties Under the CISG Art. 35: uses the word “conformity” instead of warranty, but very similar to UCC.

19 Case 22.1: Genetti v. Caterpillar (Express Warranties) FACTS: Genetti bought a new GMC truck and trailer for $97,043 from Omaha Truck Center, Inc. The truck was equipped with a model 3116 medium-duty diesel engine manufactured by Caterpillar, Inc. GMC and Caterpillar expressly warranted the truck for three years or 150,000 miles. Over the next seven months, the truck broke down four times. Each time, Genetti lost the use of the truck, time and money, including a fourth repair bill of $12,000. Genetti sued GMC and Caterpillar for breach of express warranties.

20 HELD: FOR GENETTI. The court entered separate judgments against GMC and Caterpillar in favor of Genetti on the express warranty claim. The manufacturers had argued that plaintiff could not recover for a breach of express warranty simply by asserting “engine failure.” Looking at the evidence, a jury using common sense and experience could reasonably arrive at the conclusion that the * * * breakdown[s] [were] caused by a defect in the engine and should have been covered by the warranty.” Case 22.1: Genetti v. Caterpillar (Express Warranties)

21 Case 22.2: Felley v. Singleton (Express Warranties) FACTS: Felley bought a used car from Singleton who told Felley the car had no brake and the car was in good mechanical condition. Almost immediately, Felley had to replace the clutch, and the car developed serious brake problems within a month. A technician at Car X Muffler later said that the problems probably existed when Felley bought the car. Felley sued Singleton and ground of breach of express warranty and the court ruled for Felley. Singleton appealed.

22 HELD: AFFIRMED. FOR FELLEY. Singleton asserted he is not an automobile dealer or mechanic with specialized knowledge of the brake and clutch systems of the car and therefore their statements were merely expressions of opinion. The court responded that “affirmations of fact made during a bargaining process regarding the sale of goods are presumed to be part of the basis of the bargain unless clear affirmative proof to the contrary is shown.” Case 22.2: Felley v. Singleton (Express Warranties)

23 Case 22.3: Borden v. Advent (Disclaimer of Implied Warranty) FACTS: Borden sold Aquablak (an ingredient in water ‑ based inks) to Advent Ink Co. On the front of the invoice, was the phrase “SEE REVERSE SIDE.” On the back was a list of nineteen conditions, starting with a disclaimer of warranties. The Aquablak caused problems for one of Advent’s customers causing Advent to loose the account and go out of business. Advent did not pay for the Aquablak. Borden sued and Advent counterclaimed Aquablak had not complied with implied warranties.

24 HELD: FOR BORDEN. The Court ruled the disclaimer was inconspicuous but affirmed for Borden on other grounds. “[T]he print on the reverse side of the invoice is no larger than one ‑ sixteenth inch in height. All of the type appears to be bold ‑ faced.” A disclaimer on the Aquablak label was also inconspicuous because “the heading ‘DISCLAIMER’ and the disclaimer itself are printed in capitals, [but] so too are the preceding lines of text, and they are printed in larger sizes of type.” Case 22.3: Borden v. Advent (Disclaimer of Implied Warranty)