Business Law Exam 2: Warranties

Caveat Emptor

Let the buyer beware. The state of the law as to sale of goods prior to the adoption of the Uniform Commercial Code in whole or in part by all 50 states. Warranties may be expressly made or implied by law.

Implied Warrenties

The following are warranties that are implied by law and apply only to sales by persons considered under the law to be merchants as to the goods being sold. They do not apply to non-merchants or casual sales.

Magnuson-Moss Warranty Act

A federal statute, passed in 1975, which contains certain requirements for warranties of consumer goods. The act does not require warranties but it specifies requirements for warranties that are offered. Administered by the FTC.

Express Warranties

A warranty that is created when a seller makes an affirmation that the goods he is selling meet certain standards of quality, description, performance or condition. Can be written, oral or implied by the conduct of the seller. Can be formed by accident as the seller does not have to possess the intent to create an express warranty. Not necessary to use formal words such as "warrant" or "guarantee" to create an express warranty. An express warranty is created when a seller indicates that the goods will conform to: (1) All affirmations of fact or promises made about the goods. Examples: " This car will go 100 miles per hour". " This paint will not fade for at least 5 years". (2) Any descriptions of goods. Examples: Idaho potatoes, Michigan cherries, Virginia hams (3) Any model or sample of the goods. Examples: A model of an oil-drilling rig or a sample of flooring or paint or wheat. Statements of opinions usually do not form an express warranty and are considered as sales "Puffery". Also, statements as to the value of the goods usually do not create a warranty. Examples: "This painting is worth a fortune". "This is the best used car on the lot." "Lots of people would gladly pay $20,000 for a car like this."

Implied Warranty of Fitness for a Particular Purpose

A warranty which arises when the seller warrants that the goods will meet the buyer's expressed needs. (1) The seller has reason to know the particular purpose for which the buyer is purchasing the goods. (2) The seller makes a statement that the goods will serve the buyer's purpose. (3) The buyer relies on the seller's skill and judgment and purchases the goods.

Damages for Breach of Warranty

Compensatory damages, which are measured by the difference between the value of the goods as warranted and the actual value at the time of sale. Damages are available for personal injuries if caused by the breach of warranty.

Warranty Disclaimers

Express warranties may be disclaimed, but the warranty disclaimer must be capable of being construed as consistent with the original warranty. All Implied Warranties may be disclaimed as follows: (1) "As is" disclaimer. Expressions such as "as is", "without all faults", or any other language that makes it clear to the buyer that there are no implied warranties. (2) Disclaimer of the implied warranty of merchantability. If the "as is" language is not used, a disclaimer of the implied warranty of merchantability must specifically mention the word merchantability. These disclaimers can be written or oral. (3) Disclaimer of the implied warranty of fitness for a particular purpose. If the "as is" language is not used, a disclaimer of the warranty of fitness can contain general language and does not have to specifically mention the word fitness. This disclaimer would have to be in writing.

Implied Warranty of Merchantability

Unless properly disclaimed, a seller who is a merchant as to the goods sold passes an implied warranty merchantability. This warranty is implied by law. (1)This warranty guarantees that the goods are fit for the ordinary purpose for which they are sold. Example; A chair sold by a furniture store will function as a chair when used as a chair and when it is sat in by an average sized person. If the chair is altered or used for something other than a chair, the warranty does not apply. (2) The goods must be adequately contained, packaged and labeled. This means, for example, that the implied warranty of merchantability warrants that the milk carton will serve as a proper container for the milk. (3) The goods must be of an even kind, quality, and quantity within each unit. Example:All eggs in a carton must be of similar size and quality and each carton of the same size must contain the same number of eggs. (4) The goods must conform to any promise or affirmation of fact made on the container or label. Example; The goods must be capable of being used safely in accordance with the instructions on the package or label. (5) The quality of the goods must pass without objection in the trade. Example; the goods must be of such quality that other users of these types of goods would not object to their quality. (6) Fungible goods must meet a fair average or middle range of quality.