Warranties and Breach of
Contractual Duty
Warranties
Relationship between Breach of
Warranty and Nonperformance
Warranties
• Definition
• Nature
• Types
– The Warranties of Title
– The Warranties of quality
Definition of “the Liability of Warranties”
• A constructive liability which the seller
shall take if the object sold is defect or
void title.
Warranties under Uniform Commercial Code
(UCC) in the USA
• Warranties
– Warranty of Title (Implied warranty)
• The title shall be good and its transfer rightful
– Warranty of Quality
• Express Warranties
– Part of the basis of bargain
– by Affirmation, Promise, Description, Sample or
model.
• Implied Warranty
– Merchantability
– Fitness for Particular Purpose.
Classification of Warranty
• ROC civil Code
– Warranty of “defect of title”
• The warranty of quiet possession (349)
• The warranty of legal existence of the right(350)
– Warranty of “defect of thing”
• The warranty of value (354I)
• The warranty of function agreed(354I)
• The warranty of quality guaranteed (354II)
Classification of Warranty
• PRC Contract Law
– Warranty of title ( “defect of title”)
• The warranty of quiet possession (150)
• The warranty of legal existence of the right(350)
– Warranty of thing (“defect of thing”)
• The warranty of quality agreed(153)
• The implied warranty of quality (154)
The Liability for Warranties of Title
• The buyer may claim damages or avoid
the contract of sale
– If the seller does not perform his duties
specified in Articles 348-351, the buyer may
exercise his rights in accordance with the
provisions concerning non-performance of
obligations. (RCC Article 353)
The Requirements to Establish
the Liability for Warranties of Title
• The defect on title must be existed at the time
the contract is formed.
• The warranty for good title
• The seller shall warrant that the thing sold is free from any right
enforceable by third parties against the buyer.
(RCC Article 349)
• Apply to any kinds of objects sold.
•
The warranty for the actual existence of the title
• The seller of a claim of prestation or any other right shall warrant the
actual existence of such prestation or right. The seller of valuable
securities shall also warrant that it shall not be declared voidance
through public summons. (RCC Article 350)
• Apply to any kinds of objects sold except chattels and real estate.
The Requirements to Establish
the Liability for Warranties of Title
• The buyer shall be in good faith.
– If the buyer knew at the time of concluding the
contract the defect of the right sold, the seller
is not bound to warrant such defect, unless
otherwise provided by contract. (RCC Article
351)
• The defect on title has yet to removed
when the buyer claim damages.
Warranty of title in PRC
• Classification
– The warranty of quiet possession
• The seller is obligated to warrant that the buyer will
be free from any third party claim against it in
respect of the subject matter delivered, except
otherwise provided by law. (PCL Article 150)
Warranty of title in PRC
• Prerequisites
– The defect exists before delivery
– The buyer has no knowledge about the defect
• Where the buyer knew or should have known that
the subject matter was subject to a third party
claim at the time of conclusion of the contract, the
seller does not assume the obligation prescribed in
Article 150 hereof. (PCL Article 151)
•
Warranty of title in PRC
• Effect
– PCL
• Where the buyer has conclusive evidence
establishing that a third person may make a claim
on the subject matter, it may withhold payment of
the corresponding price, except where the seller
has provided appropriate assurance. (PCL Article
152) (compare PCL art 66 & 67)
• Terminate the contract (PCL art 94)
• Claim damage (PCL art 97)
The Requirements to Establish
the Liability for Warranties of quality
• The existence of defect in quality
– The seller of a thing shall warrant that the thing sold is, at the
time when the danger passes to the buyer according to the
provisions of Article 373, free from any defect in quality which
may destroy or impair
• its value, or
• its fitness for ordinary efficacy ,or
• its fitness for the efficacy of the contract of sale.
– However, if the extent of the impairment is of no importance,
such impairment shall not be deemed to be a defect.
– The seller also shall warrant that, at the time the danger passes;
the thing has the guaranteed qualities. (RCC Article 354)
The Requirements to Establish
the Liability for Warranties of quality
• Defect in quality shall be existed at the time of delivery
– The seller of a thing shall warrant that the thing sold is, at the
time when the danger passes to the buyer according to the
provisions of Article 373, free from any defect in quality (RCC
Article 354I)
– The profits and dangers of the object sold pass to the buyer at
the time of delivery, unless otherwise provided by contract.
(RCC Article 373)
– If the buyer requests that the object sold be delivered at a place
other than the place where delivery ought to be made, the
dangers pass to the buyer at the time when the seller delivers
the object to the person who transports it or is entrusted
with its transportation.
(RCC Article 374)
The Requirements to Establish
the Liability for Warranties of quality
• The buyer shall be in good faith and without gross
negligence
– A seller is not responsible for such defect of quality in the thing
sold as specified in the first paragraph of the preceding article, if
the buyer knew of the defect at the time when the contract
was made.
– If a defect of the kind specified in the first paragraph of the
preceding article has remained unknown to the buyer in
consequence of gross negligence, the seller is not
responsible if he has not guaranteed that the thing is free from
the defect, except in the case that he has intentionally concealed
it. (RCC Article 355)
The Requirements to Establish
the Liability for Warranties of quality
• The buyer shall inspect the object sold and seasonally notify the
seller
– The buyer is bound to examine without delay the thing received in
accordance with the nature of such thing and as far as the ordinary
procedure of affairs allows it, and should he discover any defect for
which the seller is responsible, he shall immediately notify the seller
of such defect.
– If the buyer delays giving the notice mentioned in the preceding
paragraph, he is deemed to have accepted the thing, except in case
where the defect is one which would not have been revealed by
ordinary examination.
– Should a defect, which could not have been discovered immediately, be
discovered subsequently, notice shall be sent to the seller without
delay after the discovery. If the buyer delays giving such notice, the
thing is deemed to be accepted. (RCC Article 356)
The Liability for Warranties of quality
• General liability
– Reduction of the price
• When there is a defect in the thing sold for which, according
to the provisions of the five preceding articles, the seller is
responsible for a warranty, the buyer has the option to
rescind the contract or to ask for a reduction of the price,
unless in the case specified, that a rescission of the contract
would constitute an obvious unfairness of the transaction the
buyer is only entitled to ask for a reduction of the price. (RCC
Article 359)
The Liability for Warranties of quality
– Rescission of the contract
• When there is a defect in the thing sold for which,
according to the provisions of the five preceding
articles, the seller is responsible for a warranty, the
buyer has the option to rescind the contract or to
ask for a reduction of the price, unless in the case
specified, that a rescission of the contract would
constitute an obvious unfairness of the transaction
the buyer is only entitled to ask for a reduction of
the price. (RCC Article 359)
The Liability for Warranties of quality
• Particular liability
– Tender another object without defect
• When the thing sold is a thing designated only as to its kind,
and the thing is defective, the buyer may, instead of
rescission of the contract or a reduction of the price,
immediately request the seller to deliver in exchange another
thing free from defect.
• The seller is also bound to warrant that the thing delivered in
exchange under the preceding paragraph is free from defect.
(RCC Article 364)
The Liability for Warranties of quality
– Right to damages
• In the absence of a quality of the thing sold, which
was guaranteed by the seller, the buyer may
demand to compensate for the injury of
nonperformance, instead of rescission of the
contract or of a reduction of the price.
• The same rule shall be applied if the seller has
intentionally concealed a defect in a thing. (RCC
Article 360)
Exclusion of Warranties
– (3) Notwithstanding subsection (2)
• (a) unless the circumstances indicate otherwise, all implied warranties are
excluded by expressions like "as is", "with all faults" or other language which
in common understanding calls the buyer's attention to the exclusion of
warranties and makes plain that there is no implied warranty; and
• (b) when the buyer before entering into the contract has examined the goods
or the sample or model as fully as he desired or has refused to examine the
goods there is no implied warranty with regard to defects which an
examination ought in the circumstances to have revealed to him; and
• (c) an implied warranty can also be excluded or modified by course of
dealing or course of performance or usage of trade.
– (4) Remedies for breach of warranty can be limited in accordance with
the provisions of this Article on liquidation or limitation of damages and
on contractual modification of remedy (Sections 2-718 and 2-719).
Warranties of quality in PRC Contract Law
•
Requirements
– Non-compliance of quality requirements
• If the subject matter delivered by the seller fails to comply
with the quality requirements, the buyer may hold the seller
liable for breach of contract in accordance with Article 111
hereof. (Article 155)
• quality requirements
– The seller shall deliver the subject matter in compliance with
the prescribed quality requirements. Where the seller gave
quality specifications for the subject matter, the subject matter
delivered shall comply with the quality requirements set forth
therein. (Article 153)
– Where the quality requirements for the subject matter were not
prescribed or clearly prescribed, and cannot be determined in
accordance with Article 61 hereof, Item (i) of Article 62 hereof
applies.( Article154)
Warranties of quality in PRC Contract
Law
– Defect in quality shall be existed at the time of
delivery
– The buyer shall be in good faith and without gross
negligence
– The buyer shall inspect the object sold and
seasonally notify the seller
• Article 157 Inspection upon Receipt of Subject Matter
Upon receipt of the subject matter, the buyer shall inspect it
within the prescribed inspection period. Where no inspection
period was prescribed, the buyer shall timely inspect the
subject matter.
• The subject matter is not bought from
compulsory auction.
Warranties of quality in PRC Contract Law
• Where an inspection period was prescribed, the buyer shall notify
the seller of any non-compliance in quantity or quality of the subject
matter within such inspection period. Where the buyer delayed in
notifying the seller, the quantity or quality of the subject matter is
deemed to comply with the contract. (Article 158)
• Where no inspection period was prescribed, the buyer shall notify
the seller within a reasonable period, commencing on the date when
the buyer discovered or should have discovered the quantity or
quality non-compliance. If the buyer fails to notify within a
reasonable period or fails to notify within 2 years, commencing on
the date when it received the subject matter, the quantity or quality
of the subject matter is deemed to comply with the contract, except
that if there is a warranty period in respect of the subject matter, the
warranty period applies and supersedes such two year period.
Where the seller knew or should have known the non-compliance of
the subject matter, the buyer is not subject to the time limits for
notification prescribed in the previous two paragraphs. (Article 159)
Comparative study of Warranties
Warranty of Title
• UCC § 2-312. Warranty of Title and Against
Infringement; Buyer's Obligation Against Infringement.
– (1) Subject to subsection (2) there is in a contract for
sale a warranty by the seller that
• (a) the title conveyed shall be good, and its transfer
rightful; and
• (b) the goods shall be delivered free from any security
interest or other lien or encumbrance of which the buyer at
the time of contracting has no knowledge.
Warranty of Title
– (2) A warranty under subsection (1) will be excluded or modified
only by specific language or by circumstances which give the
buyer reason to know that the person selling does not claim title
in himself or that he is purporting to sell only such right or title as
he or a third person may have.
– (3) Unless otherwise agreed a seller who is a merchant regularly
dealing in goods of the kind warrants that the goods shall be
delivered free of the rightful claim of any third person by way of
infringement or the like but a buyer who furnishes specifications
to the seller must hold the seller harmless against any such
claim which arises out of compliance with the specifications.
Express Warranties
• UCC § 2-313. Express Warranties by Affirmation,
Promise, Description, Sample.
– (1) Express warranties by the seller are created as
follows:
• (a) Any affirmation of fact or promise made by the seller to
the buyer which relates to the goods and becomes part of the
basis of the bargain creates an express warranty that the
goods shall conform to the affirmation or promise.
• (b) Any description of the goods which is made part of the
basis of the bargain creates an express warranty that the
goods shall conform to the description.
Express Warranties
• (c) Any sample or model which is made part of the basis of
the bargain creates an express warranty that the whole of the
goods shall conform to the sample or model.
– (2) It is not necessary to the creation of an express
warranty that the seller use formal words such as
"warrant" or "guarantee" or that he have a specific
intention to make a warranty, but an affirmation
merely of the value of the goods or a statement
purporting to be merely the seller's opinion or
commendation of the goods does not create a
warranty.
Implied Warranty: Merchantability
•
UCC § 2-314. Implied Warranty: Merchantability; Usage of Trade.
– (1) Unless excluded or modified (Section 2-316), a warranty that the goods shall
be merchantable is implied in a contract for their sale if the seller is a merchant
with respect to goods of that kind. Under this section the serving for value of
food or drink to be consumed either on the premises or elsewhere is a sale.
– (2) Goods to be merchantable must be at least such as
•
•
•
•
(a) pass without objection in the trade under the contract description; and
(b) in the case of fungible goods, are of fair average quality within the description; and
(c) are fit for the ordinary purposes for which such goods are used; and
(d) run, within the variations permitted by the agreement, of even kind, quality and
quantity within each unit and among all units involved; and
• (e) are adequately contained, packaged, and labeled as the agreement may
require; and
• (f) conform to the promise or affirmations of fact made on the container or label if any.
– (3) Unless excluded or modified (Section 2-316) other implied warranties may
arise from course of dealing or usage of trade.
Implied Warranty: Fitness for Particular
Purpose
• UCC § 2-315. Implied Warranty: Fitness for
Particular Purpose.
– Where the seller at the time of contracting has
reason to know any particular purpose for
which the goods are required and that the
buyer is relying on the seller's skill or
judgment to select or furnish suitable goods,
there is unless excluded or modified under the
next section an implied warranty that the
goods shall be fit for such purpose.
Exclusion of Warranties
• UCC § 2-316. Exclusion or Modification of Warranties.
– (1) Words or conduct relevant to the creation of an express warranty
and words or conduct tending to negate or limit warranty shall be
construed wherever reasonable as consistent with each other; but
subject to the provisions of this Article on parol or extrinsic evidence
(Section 2-202) negation or limitation is inoperative to the extent that
such construction is unreasonable.
– (2) Subject to subsection (3), to exclude or modify the implied warranty
of merchantability or any part of it the language must mention
merchantability and in case of a writing must be conspicuous, and to
exclude or modify any implied warranty of fitness the exclusion must be
by a writing and conspicuous. Language to exclude all implied
warranties of fitness is sufficient if it states, for example, that "There are
no warranties which extend beyond the description on the face hereof."
Termination of Contract
Termination by Agreement
• The parties may terminate a contract if
they have so agreed. (PCL art 93I)
• The parties may prescribe a condition
under which one party is entitled to
terminate the contract. Upon satisfaction
of the condition for termination of the
contract, the party with the termination
right may terminate the contract. (PCL art
93II)
Termination Prescribed by Law
•
The parties may terminate a contract if:
(i) force majeure frustrated the purpose of the contract;
(ii) before the time of performance, the other party
expressly stated or indicated by its conduct that it will not
perform its main obligations;
(iii) the other party delayed performance of its main
obligations, and failed to perform within a reasonable
time after receiving demand for performance;
(iv) the other party delayed performance or otherwise
breached the contract, thereby frustrating the purpose of
the contract;
(v) any other circumstance provided by law occurred.
(PCL art 94)
Extinction of Right of Termination
• Where the law or the parties prescribe a period
for exercising termination right, failure by a party
to exercise it at the end of the period shall
extinguish such right.
• Where neither the law nor the parties prescribe
a period for exercising termination right, failure
by a party to exercise it within a reasonable time
after receiving demand from the other party shall
extinguish such right. (PCL Article 95)
Remedies in Case of Termination
• Upon termination of a contract, a
performance which has not been rendered
is discharged; if a performance has been
rendered, a party may, in light of the
degree of performance and the nature of
the contract, require the other party to
restore the subject matter to its original
condition or otherwise remedy the
situation, and is entitled to claim damages.
(PCL Article 97)