Thursday, July 5, 2012

Warranties and Disclaimers

The following question was asked as a comment on the blog:

"Can you go over the different warranties (i.e. merchantability, fitness for a specific purpose, etc.), including in what circumstances they can be negated?"


Although warranties are fairly straight-forward, it's important to keep in mind how to disclaim each individual warranty. In addition, this information can arise in both a UCC question, and a question on strict products liability. As such, it's important to know it well.

Warranty of Title: All sellers (merchants and non-merchants) warrant that the title transferred is good, and that there are no liens or encumbrances against the title of which the buyer may be unaware. This warranty need not be mentioned in the contract, as it arises automatically.

Disclaimer: Specific language is required to put the buyer on notice that the seller does not claim title.

Implied Warranty of Merchantability: This warranty is implied in every contract for sale by a merchant. The warranty applies regardless of whether it is expressly stated in the contract, and it warrants that the goods are fit for the ordinary purpose for which such goods are sold.

Disclaimer: This warranty can be disclaimed only by mentioning merchantability. This can be stated orally to the buyer, but if the sales contract is in writing, then the disclaimer must be conspicuously stated in that writing.

Implied Warranty of Fitness for a Particular Purpose: All sellers (merchants and non-merchants) are subject to this warranty. Once again, it need not be expressly stated in the contract. For this warranty to apply, however, it must be true that the seller had reason to know the particular purpose for which the goods are to be used, and that the buyer was relying on the seller's skill and judgement to select suitable goods.

Disclaimer: For this warranty to be disclaimed, a conspicuous writing is required.

Express Warranties: Express warranties apply when a seller makes a promise to the buyer, provides a description of the goods to the buyer, or provides a sample or model of the goods to the buyer. The only requirement is that the buyer relies upon this information from seller as a basis of the bargain. In determining whether the information provided to a buyer was a basis of the bargain, determine whether the buyer could have relied on it when entering in the contract.

Disclaimer: It is very difficult to disclaim express warranties. Words tending to negate the express warranties will only apply if reading them together with the warranty itself does not lead to a construction that is unreasonable.

**note: Along with the specific disclaimers above, it is also possible to disclaim more generally. Words such as "as is," and "with all faults" will disclaim the implied warranties above. In addition, if the buyer, before entering into the contract, has examined the goods, or has refused to examine them, there is no warranty as to defects that a reasonable inspection would have revealed. Finally, implied warranties can also be disclaimed by the course of dealing, and course of performance between the buyer and seller, as well as the usage of trade.

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