Transcript Chapter 022 - Sales & Lease Warranties

PowerPoint Slides to Accompany
BUSINESS LAW
E-Commerce and Digital Law
International Law and Ethics
5th Edition
by Henry R. Cheeseman
Chapter 22
Sales and Lease
Warranties
Slides developed by
Les Wiletzky
Wiletzky and Associates, Puyallup, WA
Copyright © 2004 by Prentice-Hall. All rights reserved.
Warranties

Article 2 of the UCC – establishes certain
warranties that apply to the sale of goods.


Applies only to sales transactions.
Article 2A of the UCC – establishes
warranties that apply to lease transactions.
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Warranties (continued)
Warranties are the buyer’s or lessee’s
assurance that the goods meet certain
standards.
 Warranties, which are based on contract law,
may be either expressly stated or implied by
law.
 If the seller or lessor fails to meet a warranty,
the buyer or lessee can sue for breach of
warranty.

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Warranties of Title and No Infringements
Good Title
No
Interference
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No Security
Interests
No
Infringements
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Warranty of Good Title:
Sellers warrant that they have
valid title to the goods they are
selling and that transfer of title is
rightful.
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Warranty of No Security Interests

Under the UCC, sellers of goods warrant that
the goods they sell are delivered free from
any third-party security interests, liens, or
encumbrances that are unknown to the
buyer.
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Warranty Against Infringements

A seller or lessor who is a merchant who
regularly deals in goods of the kind sold or
leased automatically warrants that the goods
are delivered free of any:
Third-party patent,
 Trademark, or
 Copyright claim

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Warranty Against Interference

The 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.
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Warranties of Quality


Seller’s or lessor’s assurance to buyer or
lessee that the goods meet certain
standards of quality.
Warranties of quality include:
1. Express warranties
2. Warranties implied by law
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Express Warranties

Are created when a seller or lessor makes an
affirmation that the goods he or she is selling
or leasing meet certain standards of:
Quality,
 Description,
 Performance, or
 Condition

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Express Warranties (continued)
Express warranties can be either written,
oral, or inferred from the seller’s conduct.
 It is not necessary to use formal words such
as warrant or guarantee to create an express
warranty.
 Sellers and lessors are not required to make
such warranties.

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Express Warranties (continued)
Basis of the Bargain
 Sellers and lessors of goods
do not have to make express
warranties concerning the
quality of their goods.
 They often make such
warranties to convince people
or businesses to purchase or
lease goods from them.
Statements of Opinion
 Sales “puffing” by salespersons usually does not
create a warranty.
 It is merely a statement of
opinion.
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Warranties Implied By Law
Implied Warranty of
Merchantability
Implied Warranty of Fitness
for Human Consumption
Implied Warranty of Fitness
for a Particular Purpose
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Implied Warranty of Merchantability
Unless properly disclosed, a warranty that is
implied that sold or leased goods are fit for
the ordinary purpose for which they are sold
or leased, and other assurances.
 The implied warranty of merchantability does
not apply to sales or leases by nonmerchants
or casual sales.

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Implied Warranty of Merchantability
(continued)

The implied warranty of merchantability
requires the following standards to be met:
The goods must be fit for the ordinary purposes for
which they are used.
 The goods must be adequately contained, packaged,
and labeled.
 The goods must be of an even kind, quality, and
quantity within each unit.

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Implied Warranty of Merchantability
(continued)

Standards (continued)
The goods must conform to any promise or affirmation
of fact made on the container or label.
 The quality of the goods must pass without objection in
the trade.
 Fungible goods must meet a fair average or middle
range of quality.

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Implied Warranty of Fitness for Human
Consumption

A warranty that applies to food or drink
consumed on or off the premises of:

Restaurants

Grocery stores

Fast-food outlets

Vending machines
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Implied Warranty of Fitness for Human
Consumption (continued)
Foreign Substance Test

A test to determine
merchantability based
on foreign objects that
are found in food.
Consumer Expectation
Test

A test to determine
merchantability based
on what the average
consumer would
expect to find in food
products.
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Implied Warranty of Fitness for a
Particular Purpose

A warranty that arises where a seller or
lessor warrants that the goods will meet the
buyer’s or lessee’s expressed needs.

The warranty applies to both merchant and
nonmerchant sellers and lessors.
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22 - 19
Summary: Express and Implied Warranties of
Quality (1 of 2)
Type of Warranty
How Created
Description
Express warranty
Made by the seller or
lessor
Affirmation that the goods meet
certain standards of quality,
description, performance, or condition
Implied warranty for Implied by law
fitness for a
particular purpose
Implied that the goods are fit for the
purpose for which the buyer or lessee
acquires the goods.
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Summary: Express and Implied Warranties of
Quality (2 of 2)
Type of Warranty
How Created
Description
Implied warranty of
merchantability
Implied by law if the
seller or 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
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Other Warranty Issues

Overlapping and inconsistent warranties

Warranty disclaimers

Conspicuous display of disclaimer

Unconscionable disclaimers

Warranty disclaimers in software licenses

Third-party beneficiaries of warranties
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22 - 22
Damages Recoverable for Breach of
Warranty

Compensatory
Damages
Damages that are generally
equal to the difference
between the value of the
goods as warranted and the
actual value of the goods
accepted at the time and
place of acceptance.


Consequential
Damages
Foreseeable damages that
arise from circumstances
outside the contract.
To be liable for these
damages, the breaching
party must know or have
reason to know that the
breach will cause special
damages to the other party.
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Statute of Limitations
The UCC provides for a four-year statute of
limitations for breach of warranty actions.
 The parties may agree to reduce the period
to not less than one year.
 They may not extend it beyond four years.
 The statute begins to run when the goods
are tendered to the buyer or lessee.

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22 - 24
Landmark Law:
Magnuson-Moss Warranty Act (1975)

Covers written warranties relating to
consumer products.

Commercial and industrial transactions are
not governed by the Act.

The Act does not require a seller or lessor to
make express written warranties.
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22 - 25
Landmark Law:
Magnuson-Moss Warranty Act (1975) (continued)

Persons who do make such warranties are
subject to the provisions of the Act.
Full Warranties
 Limited Warranties


The Act does not create any implied
warranties.
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