Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
10 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
language of the deal must be carefully scrutinized to determine whether this warranty has been disclaimed.
whole or in part.
whole or in part.
CHAPTER 19: WARRANTIES 15
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
Footnote 5: The Magnuson-Moss Warranty Act was designed to prevent deception in warranties by making
them easier to understand. The following is the text of the section of the Warranty Act (15 U.S.C. § 2302) that details
information that must be included when a warranty is written.
TITLE 15. COMMERCE AND TRADE
CHAPTER 50—CONSUMER PRODUCT WARRANTIES
§ 2302. Rules governing contents of warranties
(a) Full and conspicuous disclosure of terms and conditions; additional requirements for contents
In order to improve the adequacy of information available to consumers, prevent deception, and improve
competition in the marketing of consumer products, any warrantor warranting a consumer product to a
consumer by means of a written warranty shall, to the extent required by rules of the Commission, fully and
conspicuously disclose in simple and readily understood language the terms and conditions of such warranty.
Such rules may require inclusion in the written warranty of any of the following items among others:
(1) The clear identification of the names and addresses of the warrantors.
(2) The identity of the party or parties to whom the warranty is extended.
(3) The products or parts covered.
(4) A statement of what the warrantor will do in the event of a defect, malfunction, or failure to conform with
such written warranty—at whose expense—and for what period of time.
(5) A statement of what the consumer must do and expenses he must bear.
(6) Exceptions and exclusions from the terms of the warranty.
(7) The step-by-step procedure which the consumer should take in order to obtain performance of any
obligation under the warranty, including the identification of any person or class of persons authorized to
perform the obligations set forth in the warranty.
(8) Information respecting the availability of any informal dispute settlement procedure offered by the
warrantor and a recital, where the warranty so provides, that the purchaser may be required to resort to such
procedure before pursuing any legal remedies in the courts.
(9) A brief, general description of the legal remedies available to the consumer.
(10) The time at which the warrantor will perform any obligations under the warranty.
(11) The period of time within which, after notice of a defect, malfunction, or failure to conform with the
warranty, the warrantor will perform any obligations under the warranty.
(12) The characteristics or properties of the products, or parts thereof, that are not covered by the warranty.
(13) The elements of the warranty in words or phrases which would not mislead a reasonable, average
consumer as to the nature or scope of the warranty.
16 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
(b) Availability of terms to consumer; manner and form for presentation and display of information; duration;
extension of period for written warranty or service contract
(1)(A) The Commission shall prescribe rules requiring that the terms of any written warranty on a consumer
product be made available to the consumer (or prospective consumer) prior to the sale of the product to him.
(B) The Commission may prescribe rules for determining the manner and form in which information with
respect to any written warranty of a consumer product shall be clearly and conspicuously presented or
displayed so as not to mislead the reasonable, average consumer, when such information is contained in
advertising, labeling, point-of-sale material, or other representations in writing.
(2) Nothing in this chapter (other than paragraph (3) of this subsection) shall be deemed to authorize the
Commission to prescribe the duration of written warranties given or to require that a consumer product or any
of its components be warranted.
(3) The Commission may prescribe rules for extending the period of time a written warranty or service
contract is in effect to correspond with any period of time in excess of a reasonable period (not less than 10
days) during which the consumer is deprived of the use of such consumer product by reason of failure of the
product to conform with the written warranty or by reason of the failure of the warrantor (or service contractor)
to carry out such warranty (or service contract) within the period specified in the warranty (or service
contract).
(c) Prohibition on conditions for written or implied warranty; waiver by Commission
No warrantor of a consumer product may condition his written or implied warranty of such product on the
consumer’s using, in connection with such product, any article or service (other than article or service
provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate
name; except that the prohibition of this subsection may be waived by the Commission if—
(1) the warrantor satisfies the Commission that the warranted product will function properly only if the article
or service so identified is used in connection with the warranted product, and
(2) the Commission finds that such a waiver is in the public interest.
The Commission shall identify in the Federal Register, and permit public comment on, all applications for
waiver of the prohibition of this subsection, and shall publish in the Federal Register its disposition of any
such application, including the reasons therefor.
(d) Incorporation by reference of detailed substantive warranty provisions
The Commission may by rule devise detailed substantive warranty provisions which warrantors may
incorporate by reference in their warranties.
(e) Applicability to consumer products costing more than $5.00
The provisions of this section apply only to warranties which pertain to consumer products actually costing the
consumer more than $5.
CHAPTER 19: WARRANTIES 17
whole or in part.
(Pub. L. 93-637, Title I, § 102, Jan. 4, 1975, 88 Stat. 2185.)
REVIEWING—
WARRANTIES
Shalene Kolchek bought a Great Lakes spa from Val Porter, a dealer who was selling spas at the state
fair. Porter told Kolchek that Great Lakes spas are “top of the line” and “the Cadillac of spas” and indicated
that the spa she was buying was “fully warranted for three years.” Kolchek signed an installment contract.
Then, Porter handed her the manufacturer’s paperwork and arranged for the spa to be delivered and installed
for her. Three months later, Kolchek noticed that one corner of the spa was leaking onto her new deck and
causing damage. She complained to Porter, but he did nothing about the problem. Kolchek’s family continued
to use the spa. Ask your students to answer the following questions, using the information presented in the
chapter.
1. Did Porter’s statement that the spa was “top of the line” and “the Cadillac of spas” create any
type of warranty? Why or why not? This statement did not create an express warranty, because it is a
statement of opinion. Only a statement of fact creates an express warranty. If the seller or lessor makes a
statement that relates to the supposed value or worth of the goods, or makes a statement of opinion or
recommendation about the goods, the seller or lessor is not creating an express warranty.
2. If the paperwork provided to Kolchek after her purchase indicated that the spa had no warranty,
would this be an effective disclaimer under the Uniform Commercial Code? Explain. A warranty
disclaimer must be clear and specific, not buried in paperwork. Further, the disclaimer was inconsistent with
the promise made at the time of the purchase.
3. Can Kolchek sue Porter for a breach of the implied warranty of merchantability because the spa
leaked? Explain. Every sale of goods made by a merchant who deals in goods of the kind sold automatically
gives rise to an implied warranty of merchantability. To be merchantable, goods must be reasonably fit for the
ordinary purposes for which such goods are used. They must be at least average, fair, or medium-grade
quality—quality that will pass without objection in the trade or market for goods of the same description.
Because a spa that leaks does not meet this test, Kolchek could sue Porter for breach of this implied
warranty.
4. Suppose that one year later, Pacific Credit Union contacted Kolchek and claimed that it had a
security interest in the spa. Would this be a breach of any of the title warranties discussed in the
chapter? Explain. A title warranty protects buyers who unknowingly purchase goods that are subject to a
creditor’s security interest. If a creditor legally repossesses the goods from a buyer who had no actual
knowledge of the security interest, the buyer can recover from the seller for breach of warranty. In contrast, a
buyer who has actual knowledge of a security interest has no recourse against a seller. Thus, whether Pacific
Credit’s security interest breached a title warranty hinges on what Kolchek knew. Assuming that Kolchek was
not aware of Pacific Credit’s interest at the time of the purchase and that Pacific Credit has repossessed the
spa, then Kolcheck could sue Porter for breach of title warranty.
whole or in part.
DEBATE THIS
No express warranties should be created by the oral statements made by salespersons about a
product. If no express warranties could be created orally by salespersons, then consumers would demand
written warranties for which there would be no arguments about what was and what was not warranted by
the retailer or manufacturer of a product. This would avoid a “he said” or “she said” shouting match during
litigation about liability for a defective product.
In contrast, if salespeople could not create express warranties during their oral sales presentations, they
would be free to say just about anything about a product that they were trying to sell. They would know that
no matter what outrageous claims they made, their employers would not be bound by their oral statements.
EXAMPREP—
ISSUE SPOTTERS
1. General Construction Company (GCC) tells Industrial Supplies, Inc., that it needs an adhesive to
do a particular job. Industrial provides a five-gallon bucket of a certain brand. When it does not
perform to GCC’s specifications, GCC sues Industrial, which claims, “We didn’t expressly anything.”
What should GCC argue? The buyer should argue that the seller breached an implied warranty of fitness for
a particular purpose. An implied warranty of fitness for a particular purpose arises when a seller knows a
particular purpose for which a buyer will use goods and that the buyer is relying on the seller’s skill and
judgment to select suitable goods.
2. Stella bought a cup of coffee at the Roasted Bean Drive-Thru. The coffee had been heated to 190
degrees and consequently had dissolved the inside of the cup. When Stella lifted the lid, the cup
collapsed, spilling the contents on her lap. To recover for third-degree burns on her thighs, Stella filed
a suit against the Roasted Bean. Can Stella recover for breach of the implied warranty of
merchantability? Why or why not? Yes. Stella can recover from the Roasted Bean for breach of the implied
warranty of merchantability. An implied warranty of merchantability arises in every sale of goods sold by a
merchant who deals in goods of the kind. Goods that are merchantable are fit for the ordinary purposes for
which such goods are used. A sale of food or drink is a sale of goods. Merchantable food is food that is fit to
eat or drink on the basis of consumer expectations. A consumer should reasonably expect hot coffee to be
hot, but not to be so scalding that it causes third-degree burns.
language of the deal must be carefully scrutinized to determine whether this warranty has been disclaimed.
whole or in part.
whole or in part.
CHAPTER 19: WARRANTIES 15
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
Footnote 5: The Magnuson-Moss Warranty Act was designed to prevent deception in warranties by making
them easier to understand. The following is the text of the section of the Warranty Act (15 U.S.C. § 2302) that details
information that must be included when a warranty is written.
TITLE 15. COMMERCE AND TRADE
CHAPTER 50—CONSUMER PRODUCT WARRANTIES
§ 2302. Rules governing contents of warranties
(a) Full and conspicuous disclosure of terms and conditions; additional requirements for contents
In order to improve the adequacy of information available to consumers, prevent deception, and improve
competition in the marketing of consumer products, any warrantor warranting a consumer product to a
consumer by means of a written warranty shall, to the extent required by rules of the Commission, fully and
conspicuously disclose in simple and readily understood language the terms and conditions of such warranty.
Such rules may require inclusion in the written warranty of any of the following items among others:
(1) The clear identification of the names and addresses of the warrantors.
(2) The identity of the party or parties to whom the warranty is extended.
(3) The products or parts covered.
(4) A statement of what the warrantor will do in the event of a defect, malfunction, or failure to conform with
such written warranty—at whose expense—and for what period of time.
(5) A statement of what the consumer must do and expenses he must bear.
(6) Exceptions and exclusions from the terms of the warranty.
(7) The step-by-step procedure which the consumer should take in order to obtain performance of any
obligation under the warranty, including the identification of any person or class of persons authorized to
perform the obligations set forth in the warranty.
(8) Information respecting the availability of any informal dispute settlement procedure offered by the
warrantor and a recital, where the warranty so provides, that the purchaser may be required to resort to such
procedure before pursuing any legal remedies in the courts.
(9) A brief, general description of the legal remedies available to the consumer.
(10) The time at which the warrantor will perform any obligations under the warranty.
(11) The period of time within which, after notice of a defect, malfunction, or failure to conform with the
warranty, the warrantor will perform any obligations under the warranty.
(12) The characteristics or properties of the products, or parts thereof, that are not covered by the warranty.
(13) The elements of the warranty in words or phrases which would not mislead a reasonable, average
consumer as to the nature or scope of the warranty.
16 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
(b) Availability of terms to consumer; manner and form for presentation and display of information; duration;
extension of period for written warranty or service contract
(1)(A) The Commission shall prescribe rules requiring that the terms of any written warranty on a consumer
product be made available to the consumer (or prospective consumer) prior to the sale of the product to him.
(B) The Commission may prescribe rules for determining the manner and form in which information with
respect to any written warranty of a consumer product shall be clearly and conspicuously presented or
displayed so as not to mislead the reasonable, average consumer, when such information is contained in
advertising, labeling, point-of-sale material, or other representations in writing.
(2) Nothing in this chapter (other than paragraph (3) of this subsection) shall be deemed to authorize the
Commission to prescribe the duration of written warranties given or to require that a consumer product or any
of its components be warranted.
(3) The Commission may prescribe rules for extending the period of time a written warranty or service
contract is in effect to correspond with any period of time in excess of a reasonable period (not less than 10
days) during which the consumer is deprived of the use of such consumer product by reason of failure of the
product to conform with the written warranty or by reason of the failure of the warrantor (or service contractor)
to carry out such warranty (or service contract) within the period specified in the warranty (or service
contract).
(c) Prohibition on conditions for written or implied warranty; waiver by Commission
No warrantor of a consumer product may condition his written or implied warranty of such product on the
consumer’s using, in connection with such product, any article or service (other than article or service
provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate
name; except that the prohibition of this subsection may be waived by the Commission if—
(1) the warrantor satisfies the Commission that the warranted product will function properly only if the article
or service so identified is used in connection with the warranted product, and
(2) the Commission finds that such a waiver is in the public interest.
The Commission shall identify in the Federal Register, and permit public comment on, all applications for
waiver of the prohibition of this subsection, and shall publish in the Federal Register its disposition of any
such application, including the reasons therefor.
(d) Incorporation by reference of detailed substantive warranty provisions
The Commission may by rule devise detailed substantive warranty provisions which warrantors may
incorporate by reference in their warranties.
(e) Applicability to consumer products costing more than $5.00
The provisions of this section apply only to warranties which pertain to consumer products actually costing the
consumer more than $5.
CHAPTER 19: WARRANTIES 17
whole or in part.
(Pub. L. 93-637, Title I, § 102, Jan. 4, 1975, 88 Stat. 2185.)
REVIEWING—
WARRANTIES
Shalene Kolchek bought a Great Lakes spa from Val Porter, a dealer who was selling spas at the state
fair. Porter told Kolchek that Great Lakes spas are “top of the line” and “the Cadillac of spas” and indicated
that the spa she was buying was “fully warranted for three years.” Kolchek signed an installment contract.
Then, Porter handed her the manufacturer’s paperwork and arranged for the spa to be delivered and installed
for her. Three months later, Kolchek noticed that one corner of the spa was leaking onto her new deck and
causing damage. She complained to Porter, but he did nothing about the problem. Kolchek’s family continued
to use the spa. Ask your students to answer the following questions, using the information presented in the
chapter.
1. Did Porter’s statement that the spa was “top of the line” and “the Cadillac of spas” create any
type of warranty? Why or why not? This statement did not create an express warranty, because it is a
statement of opinion. Only a statement of fact creates an express warranty. If the seller or lessor makes a
statement that relates to the supposed value or worth of the goods, or makes a statement of opinion or
recommendation about the goods, the seller or lessor is not creating an express warranty.
2. If the paperwork provided to Kolchek after her purchase indicated that the spa had no warranty,
would this be an effective disclaimer under the Uniform Commercial Code? Explain. A warranty
disclaimer must be clear and specific, not buried in paperwork. Further, the disclaimer was inconsistent with
the promise made at the time of the purchase.
3. Can Kolchek sue Porter for a breach of the implied warranty of merchantability because the spa
leaked? Explain. Every sale of goods made by a merchant who deals in goods of the kind sold automatically
gives rise to an implied warranty of merchantability. To be merchantable, goods must be reasonably fit for the
ordinary purposes for which such goods are used. They must be at least average, fair, or medium-grade
quality—quality that will pass without objection in the trade or market for goods of the same description.
Because a spa that leaks does not meet this test, Kolchek could sue Porter for breach of this implied
warranty.
4. Suppose that one year later, Pacific Credit Union contacted Kolchek and claimed that it had a
security interest in the spa. Would this be a breach of any of the title warranties discussed in the
chapter? Explain. A title warranty protects buyers who unknowingly purchase goods that are subject to a
creditor’s security interest. If a creditor legally repossesses the goods from a buyer who had no actual
knowledge of the security interest, the buyer can recover from the seller for breach of warranty. In contrast, a
buyer who has actual knowledge of a security interest has no recourse against a seller. Thus, whether Pacific
Credit’s security interest breached a title warranty hinges on what Kolchek knew. Assuming that Kolchek was
not aware of Pacific Credit’s interest at the time of the purchase and that Pacific Credit has repossessed the
spa, then Kolcheck could sue Porter for breach of title warranty.
whole or in part.
DEBATE THIS
No express warranties should be created by the oral statements made by salespersons about a
product. If no express warranties could be created orally by salespersons, then consumers would demand
written warranties for which there would be no arguments about what was and what was not warranted by
the retailer or manufacturer of a product. This would avoid a “he said” or “she said” shouting match during
litigation about liability for a defective product.
In contrast, if salespeople could not create express warranties during their oral sales presentations, they
would be free to say just about anything about a product that they were trying to sell. They would know that
no matter what outrageous claims they made, their employers would not be bound by their oral statements.
EXAMPREP—
ISSUE SPOTTERS
1. General Construction Company (GCC) tells Industrial Supplies, Inc., that it needs an adhesive to
do a particular job. Industrial provides a five-gallon bucket of a certain brand. When it does not
perform to GCC’s specifications, GCC sues Industrial, which claims, “We didn’t expressly anything.”
What should GCC argue? The buyer should argue that the seller breached an implied warranty of fitness for
a particular purpose. An implied warranty of fitness for a particular purpose arises when a seller knows a
particular purpose for which a buyer will use goods and that the buyer is relying on the seller’s skill and
judgment to select suitable goods.
2. Stella bought a cup of coffee at the Roasted Bean Drive-Thru. The coffee had been heated to 190
degrees and consequently had dissolved the inside of the cup. When Stella lifted the lid, the cup
collapsed, spilling the contents on her lap. To recover for third-degree burns on her thighs, Stella filed
a suit against the Roasted Bean. Can Stella recover for breach of the implied warranty of
merchantability? Why or why not? Yes. Stella can recover from the Roasted Bean for breach of the implied
warranty of merchantability. An implied warranty of merchantability arises in every sale of goods sold by a
merchant who deals in goods of the kind. Goods that are merchantable are fit for the ordinary purposes for
which such goods are used. A sale of food or drink is a sale of goods. Merchantable food is food that is fit to
eat or drink on the basis of consumer expectations. A consumer should reasonably expect hot coffee to be
hot, but not to be so scalding that it causes third-degree burns.
