Warranties in Contracts for the Sale of Goods
The legal landscape for purchasing goods has changed drastically over the years, from “buyer beware” to the implementation of a system that protects buyers through implied/express warranties. If you are considering a sale of goods contract, it is absolutely beneficial to understand the various obligations and entitlements of the contracting parties.
Consider this scenario: a buyer and a seller want to commit to an exchange using a SignatureConfirm contract. The seller would like to exchange their used refrigerator to the buyer for $1,000 in cash. Neither of the parties are merchants, which is to say that neither of the two interested parties deal in the relevant good (here, consumer electrical appliances) as per their occupation, or present themselves as having specializing knowledge as to industry practices relevant to the transaction.
Naturally, each party would like to protect themselves from the possibility of a contract gone awry, and as such, certain legal concerns begin to crop up.
What law or set of laws apply to the sale?
Is the buyer protected?
What recourse does the buyer have if the goods do not meet their quality expectations?
Let’s consider these concerns in turn.
What laws apply?
In every state except for Louisiana, the Uniform Commercial Code, or UCC, applies to the sale of new and used goods. The UCC does not apply to real estate or service contracts, which can lead to some confusion – there are a great many service contracts that involve the sale of goods, and a great many sales contracts that involve the limited application of services – but in effect it is actually quite simple.
Suppose that the contract for the refrigerator sale discussed above involves a limited service engagement as well. The seller will not only give the buyer the fridge, but will also take the time and effort to install the fridge in the buyer’s kitchen.
Despite the fact that services are being rendered, this is still a sale of goods contract, as the sale of goods is the dominant element of the contract. The installation is not the core of the contract, though it may be important to the value exchanged. Clearly an installation service would be ineffectual without goods to install.
The UCC has broad applicability in a contract scenario. It not only governs the dynamics of contract formation, breach, and damages, but also governs the various warranties that attach to contracted-for goods.
How is the buyer protected?
Both express and implied warranties protect the buyer from the possibility of a “dud” product exchange.
An express warranty is an affirmative promise made by the seller concerning the goods. The warranty need not be written (it can be an oral guarantee), but for the purpose of suing for breach of contract, it is certainly better from an evidentiary perspective to have any express warranties made by the seller written into the contract.
The seller may expressly warranty any number of things: they may convince the buyer that the good(s) will meet certain safety tolerances, or that it will be composed of certain high-quality materials. Ultimately, what constitutes an express warranty is whether the seller’s affirmative promises formed the partial or full basis of the contractual bargain. To put it more simply, the question of whether an express warranty exists depends largely on whether the buyer’s agreement to enter the contract depended – at least in part – on the seller’s statements.
For example, suppose that the seller of a used refrigerator states affirmatively to the buyer (whether written into the contract or orally promised) that the refrigerator will have a working ice-grinder. The buyer is only interested in purchasing refrigerators with a working ice-grinder. Pleased, the buyer agrees to the deal. The seller’s statements here clearly constitute an express warranty. If the ice-grinder does not work, then the buyer will likely have a legal claim against the seller.
An implied warranty is a guarantee relating to the quality or nature of the goods being sold, but it is automatic – it does not require any affirmative statement or promise on the part of the seller. The imposition of implied warranties on goods helps to shield buyers from potentially unscrupulous sellers by setting certain minimum standards for the goods.
There are two primary implied warranties under the UCC – an implied warranty of merchantability, and an implied warranty of fitness for a particular purpose.
The implied warranty of merchantability is only applicable to non-merchant sellers. It specifically attaches only to merchant sellers, and that too, only to merchant sellers who are selling a good that they commonly sell on the marketplace. For example, a clothes merchant who decides to sell a single customer a watch does not make an implied warranty of merchantability as to the watch. Under the implied warranty of merchantability, the seller is liable for any goods that are not fit for their ordinary purpose. If the goods do not adequately perform their ordinary purpose, then the seller has breached their implied warranty of merchantability.
For non-merchant sellers of goods, the warranty that may actually apply is the implied warranty of fitness for a particular purpose. For the implied warranty of fitness for a particular purpose to attach: 1) the seller must possess some knowledge or expertise concerning the goods at-issue; 2) the seller must have reason to know or must actually know that the buyer will be using the goods for a particular, non-ordinary purpose; and 3) the buyer must rely on the seller’s knowledge or expertise. Ultimately, the implied warranty of fitness for a particular purpose is intended to force the seller to disclose all and any relevant details concerning the goods.
Let’s continue with the refrigerator example. Suppose that the buyer makes it clear to the seller that they would like to setup the refrigerator for a particular, non-ordinary purpose – the summers in his city are quite warm, and the buyer hopes to benefit from leaking cold air from the refrigerator, creating an ambient cold in the kitchen. The seller is aware of this particular purpose. The seller is not a specialized appliance merchant, but has owned the fridge for some years and is aware of its abilities and limitations. The fridge is air-tight and has an advanced system that prevents any ambient cold leakage. The buyer is not aware of this. If the seller were to move forward with the sale, it would likely be a breach of the implied warranty of fitness for a particular purpose.
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When entering a contract for the sale of goods, be aware of the various warranties – both express and implied – that may attach. A strong warranty can provide peace of mind for the buyer, while no warranty can lead to conflict later on.