© 2010 Pearson Education, Inc., publishing as Prentice-Hall 1 SALES AND LEASE WARRANTIES © 2010 Pearson Education, Inc., publishing as Prentice-Hall CHAPTER 21

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 2 Caveat Emptor “Let the buyer beware.” Doctrine governed law of sales and leases since Roman times. Warranties that apply under UCC give buyers more protection.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 3 Express Warranty Created when seller/lessor affirms goods meet certain standards of quality, description, performance, or condition. May be written, oral, or inferred from conduct. Sellers/lessors not required to make such warranties, but goods accompanied by warranty often attractive to buyers/lessees.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 4 Express Warranty (continued) Not necessary to use formal words such as warrant or guarantee to create express warranty. Created when seller/lessor indicates goods will conform to: –Affirmations of facts or promises –Any descriptions of them (“Idaho potatoes”; “v.v.s. quality diamonds”) –Any model or sample

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 5 Express Warranty (continued) Basis of the Bargain Warranty must be contributing factor that enticed buyer/lessee to enter contract. –Statements made at or before time of contracting. Basis of the Bargain Warranty must be contributing factor that enticed buyer/lessee to enter contract. –Statements made at or before time of contracting.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 6 Express Warranty (continued) Statement of Opinion Puffing or sales talk –E.g., “This is the best roast beef in town.” Not actionable as warranty.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 7 Damages Recoverable for Breach of Warranty Compensatory damages: difference between value of goods as warranted and actual value at time and place of acceptance. May also recover for personal injuries.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 8 Warranties Implied By Law Implied Warranty of Merchantability Implied Warranty of Fitness for Human Consumption Implied Warranty of Fitness for a Particular Purpose

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 9 Implied Warranty of Merchantability Merchant seller/lessor warrants goods: –Fit for ordinary purposes. –Adequately packaged and labeled. –Of even kind, quality, and quantity. –Conform to promises or facts on container or label. –Of average quality for fungible goods. –Would pass without objection in industry.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 10 Implied Warranty of Fitness for Human Consumption Applies to food or drink obtained from restaurants, grocery stores, fast-food outlets, vending machines. Warranty breached if food: –Contains foreign substance, or –Fails to meet consumer expectations. E.g., chicken bone in chicken sandwich.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 11 Implied Warranty of Fitness for a Particular Purpose Arises where a seller/lessor warrants that the goods will meet the buyer/lessee’s expressed needs. May be made by both merchant and nonmerchant sellers/lessors.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 12 Express and Implied Warranties (1 of 2) Type of Warranty How CreatedDescription Express warrantyMade by seller/lessorAffirmation that the goods meet certain standards of quality, description, performance, or condition. Implied warranty for fitness for a particular purpose Implied by lawImplied that the goods are fit for the purpose for which the buyer or lessee acquires the goods.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 13 Express and Implied Warranties (2 of 2) Type of Warranty How CreatedDescription Implied warranty of merchantability Implied by law if the seller/lessor is a merchant Implied that the goods: 1. Are fit for the ordinary purposes for which they are used 2. Are adequately contained, packaged, and labeled 3. Are of an even kind, quality, and quantity within each unit 4. Conform to any promise or affirmation of fact made on the container or label 5. Pass without objection in the trade 6. Meet a fair average or middle range of quality for fungible goods

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 14 Warranty Disclaimers Express warranty: –Can be disclaimed provided disclaimer and warranty can be construed together. Implied warranty: –Disclaimed by language like “as is,” “with all faults.” –If no specific language, disclaimer must mention merchantability. –Fitness for particular purpose may be disclaimed in general language.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 15 Warranty Disclaimers (continued) Express Warranty Can disclaim only if disclaimer and warranty can reasonably be construed together. Implied Warranties “As is” or “with all faults” disclaims all implied warranties. For merchantability, must mention “merchantability.” For fitness, must be in writing and be conspicuous.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 16 Magnuson-Moss Warranty Act Covers written warranties relating to consumer products. Commercial and industrial transactions not governed by the Act. Does not require a seller/lessor to make express written warranties.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 17 Magnuson-Moss Warranty Act (continued) Sellers/lessors who do make such warranties are subject to the provisions of the Act. Must indicate whether warranties are full or limited. May not disclaim merchantability or fitness. Violators pay damages, attorney fees.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 18 Warranties of Title and No Infringements Good Title Good Title No Security Interests No Infringements No Interference

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 19 Warranty of Good Title: Sellers warrant that they have valid title to the goods they are selling and that transfer of title is rightful.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 20 Warranty of No Security Interests Sellers warrant that the goods are delivered free from any third-party security interests, liens, or encumbrances that are unknown to the buyer.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 21 Warranty Against Infringements Merchant seller/lessor warrants that the goods are delivered free of any: –Third-party patent, –Trademark, or –Copyright claim.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 22 Warranty of No Interference Lessor warrants that no person holds a claim or interest in the goods that arose from an act or omission of the lessor that will interfere with the lessee’s enjoyment of his or her leasehold interest. Also called warranty of quiet possession.