Performance, breach, and discharge - Express and implied warranties in sale-of-goods contracts

Learning Outcomes

After reading this article, you will be able to identify and distinguish express and implied warranties under the UCC, determine how warranties are created and disclaimed, recognize what constitutes a breach of warranty, and apply the correct remedies for breach in sale-of-goods contracts. You will be able to answer MBE-style questions on warranty issues with confidence.

MBE Syllabus

For the MBE, you are required to understand the rules governing warranties in contracts for the sale of goods under the UCC. This article covers:

  • The creation and scope of express warranties.
  • The implied warranty of merchantability and its requirements.
  • The implied warranty of fitness for a particular purpose.
  • How warranties may be disclaimed or limited.
  • What constitutes breach of warranty and available remedies.
  • The parties to whom warranties extend.
  • The relationship between warranty law and strict products liability.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. Which of the following is required to create an express warranty under the UCC?
    1. The seller must use the word "warranty."
    2. The seller must be a merchant.
    3. The seller must make an affirmation of fact or promise about the goods that becomes part of the basis of the bargain.
    4. The buyer must inspect the goods before purchase.
  2. The implied warranty of merchantability applies:
    1. Only if the seller is a merchant dealing in goods of the kind.
    2. To all sellers of goods.
    3. Only if the goods are custom-made.
    4. Only if the buyer asks for it in writing.
  3. Which of the following is NOT a valid method for disclaiming the implied warranty of merchantability?
    1. Using the phrase "as is."
    2. A conspicuous written disclaimer mentioning "merchantability."
    3. An oral disclaimer mentioning "merchantability."
    4. A disclaimer in fine print buried in the contract.
  4. If a buyer is injured by a defective product, which warranty theory requires the buyer to prove the seller was at fault?
    1. Express warranty
    2. Implied warranty of merchantability
    3. Implied warranty of fitness for a particular purpose
    4. None of the above

Introduction

Warranties in sale-of-goods contracts are promises by the seller regarding the quality or characteristics of the goods. The Uniform Commercial Code (UCC) governs warranties in most sales transactions. Warranties may be express or implied, and their breach gives rise to specific remedies. Understanding how warranties are created, disclaimed, and enforced is essential for answering MBE questions on contract performance and remedies.

Key Term: Warranty A legally enforceable promise by the seller about the quality, characteristics, or performance of goods sold.

Types of Warranties

There are three main types of warranties in sale-of-goods contracts:

  1. Express warranties—created by the seller’s statements or conduct.
  2. Implied warranty of merchantability—arises automatically when the seller is a merchant dealing in goods of the kind.
  3. Implied warranty of fitness for a particular purpose—arises when the seller knows the buyer’s particular purpose and the buyer relies on the seller’s know-how.

Key Term: Express Warranty Any affirmation of fact, promise, description, or sample by the seller relating to the goods that becomes part of the basis of the bargain.

Key Term: Implied Warranty of Merchantability A warranty that goods sold by a merchant are fit for the ordinary purposes for which such goods are used.

Key Term: Implied Warranty of Fitness for a Particular Purpose A warranty that arises when the seller knows the buyer’s particular purpose and that the buyer is relying on the seller’s skill or judgment to select suitable goods.

Creation of Express Warranties

Express warranties are created when the seller makes a statement of fact, promise, description, or provides a sample or model that forms part of the basis of the bargain. The seller does not need to use the word "warranty" or intend to create a warranty. Mere opinions or "puffery" do not create express warranties.

Implied Warranties

Implied Warranty of Merchantability

This warranty arises automatically when the seller is a merchant dealing in goods of the kind. The goods must be fit for their ordinary purpose, of fair average quality, adequately packaged and labeled, and conform to any promises on the label.

Implied Warranty of Fitness for a Particular Purpose

This warranty arises when the seller knows or has reason to know the buyer’s particular purpose for the goods and that the buyer is relying on the seller’s skill or judgment to select suitable goods. The seller does not need to be a merchant.

Disclaimers and Limitations

Sellers may disclaim or limit warranties, but strict requirements apply:

  • Express warranties cannot be disclaimed if inconsistent with the seller’s statements.
  • Implied warranty of merchantability can be disclaimed by conspicuous language mentioning "merchantability" or by "as is" or similar language.
  • Implied warranty of fitness for a particular purpose can be disclaimed only by a conspicuous written disclaimer.
  • Disclaimers hidden in fine print or not brought to the buyer’s attention are generally ineffective.

Key Term: Disclaimer A statement or provision that limits or eliminates a warranty or remedy otherwise provided by law.

Breach of Warranty

A breach occurs when the goods fail to conform to the warranty at the time of sale. The buyer must notify the seller of the breach within a reasonable time after discovery. The buyer may recover damages for personal injury, property damage, or economic loss.

Key Term: Breach of Warranty The failure of goods to conform to a warranty, giving the buyer a right to remedies under the UCC.

Remedies for Breach

Remedies for breach of warranty include:

  • Damages: Difference between the value of goods as delivered and as warranted, plus incidental and consequential damages.
  • Revocation of acceptance: If the nonconformity substantially impairs the value of the goods and was difficult to discover at delivery.
  • Rescission: In some cases, the buyer may cancel the contract and recover the purchase price.

Extension of Warranties

Warranties may extend to certain third parties, such as family members or guests, depending on state law and the UCC provision adopted.

Relationship to Strict Products Liability

Warranty law overlaps with strict products liability, but warranty claims do not require proof of fault, only that the goods were defective and the warranty was breached.

Worked Example 1.1

A retailer sells a new washing machine to a consumer. The retailer states, "This machine will handle any household laundry load." The machine breaks down after one week when used for ordinary laundry. The consumer sues for breach of warranty. What warranties may apply?

Answer: The retailer’s statement is likely an express warranty that the machine will handle ordinary laundry loads. As a merchant, the retailer also gives an implied warranty of merchantability (fit for ordinary laundry). Both warranties are breached if the machine fails under normal use.

Worked Example 1.2

A buyer tells a hardware store clerk, "I need paint that will withstand outdoor weather for five years." The clerk recommends a specific paint, which peels after one year. The buyer sues for breach of warranty. What is the likely result?

Answer: The clerk’s recommendation creates an implied warranty of fitness for a particular purpose, since the buyer relied on the seller’s know-how for a specific use. The paint’s failure to last breaches this warranty.

Exam Warning

On the MBE, be careful to distinguish between an express warranty (which requires a specific promise or affirmation of fact) and mere sales talk or opinion, which does not create a warranty.

Revision Tip

If a question involves a merchant seller, always consider the implied warranty of merchantability. If the buyer relies on the seller’s know-how for a special use, consider the implied warranty of fitness for a particular purpose.

Key Point Checklist

This article has covered the following key knowledge points:

  • Express warranties are created by seller’s statements of fact, promises, descriptions, or samples that become part of the basis of the bargain.
  • Implied warranty of merchantability applies to merchants selling goods of the kind; goods must be fit for ordinary purposes.
  • Implied warranty of fitness for a particular purpose arises when the seller knows the buyer’s purpose and reliance.
  • Disclaimers of implied warranties must be conspicuous and use specific language; "as is" may suffice.
  • Express warranties cannot be disclaimed if inconsistent with seller’s statements.
  • Breach of warranty occurs when goods fail to conform at delivery; buyer must notify seller within a reasonable time.
  • Remedies include damages, revocation of acceptance, and sometimes rescission.
  • Warranties may extend to certain third parties depending on state law.
  • Warranty claims do not require proof of fault—only that the goods were defective and the warranty was breached.

Key Terms and Concepts

  • Warranty
  • Express Warranty
  • Implied Warranty of Merchantability
  • Implied Warranty of Fitness for a Particular Purpose
  • Disclaimer
  • Breach of Warranty
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