Sales and Consumer Issues
Objective 09.01
Interpret sales contracts and warranties
within the rights and law of consumers.
WARRANTIES AND
GUARANTEES
Warranties and Guarantees
• Implied warranty – A guarantee of quality
imposed by law but not in writing
– Implied warranty deals with sale of goods
– Regulated by UCC
– Given by all sellers
Implied Warranties
• Warranty of fitness for a particular purpose
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Seller knows the purpose for which goods are needed
Seller advises buyer in making purchase
Buyer relies on seller’s advice to make decision
Seller infers that the goods are fit for a particular
purpose
– A warranty exists
Implied Warranties
• Warranty of Merchantability
– Given by a merchant only
– Merchant infers that goods pass in the trade
without objection
– Goods are fit for the ordinary purpose such
goods are used for
– Conform to any promises or statements made
on the container or label
Implied Warranties
• Warranty of Title
– Seller warrants that the title is good and
transfer is rightful
– Seller warrants that goods will be delivered
free of any financial obligations about which
the buyer had no knowledge
Sale of Stolen Goods
• If stolen goods are sold to an innocent
purchaser, the true owner is entitled to
return of the goods
• The buyer can pursue remedy against the
seller for breach of warranty of title
Usage of Trade
• An implied warranty that is a well
established custom or practice among
people in specific trades or businesses
– Example: When a person sells a
thoroughbred horse there is an implied
warranty that papers are provided to prove
the animal’s pedigree as a thoroughbred. It is
expected in the horse trading business
Express Warranty
• Express warranty is also called a
guarantee
– “Guaranteed satisfaction or your money back”
– “Lifetime guarantee”
– The promise or assurance of the quality or
life of a product
Express Warranties
• Can be oral or written
• Written form recommended
• Parol evidence rule applies: evidence of
oral statements made before signing a
written contract cannot be presented in
court to change or add to the terms of that
written agreement
Express Warranties
• Puffery by salesman is not a warranty, but
an opinion of the salesperson.
• Express warranties created by:
– Statement of fact or promise by seller
– Description of goods
– Use of same item or model
Full Warranties
• A full warranty requires that the defective
product be repaired or replaced for free within a
reasonable length of time after complaint is
made.
• If the product cannot be fixed, the consumer has
the option to get their money refunded.
• Have you ever tried to return merchandise that
you thought was under warranty but was not?
Limited Warranty
• A limited warranty provides a restricted
guarantee.
• Must state “Limited” Warranty
• Be sure to read and understand the limits
of the warranty before purchasing…caveat
emptor!
Caveat Emptor
• Latin for “Buyer Beware”
– Warning: It is the duty of the consumer to
make informed decisions.
– Be sure to read labels and research products
before buying. Comparison shop.
– It is the duty of the seller to provide
appropriate information for the consumer.
Caveat Venditor
• Latin for “Seller Beware”
– Warning: It is the duty of the seller to make
informed decisions.
– Example: Banks, credit card companies and
businesses who extend credit to customers
check credit histories and applications before
extending credit.
Growth of Consumerism
• Ralph Nader - “ Father of the Consumer
Movement”
– Lectured widely against corporate
carelessness and greed
– Gained national fame in 1965 with his book
“Unsafe At Any Speed” about the Chevrolet
Corvair
– Followers were known as “Nader’s Raiders”
– Brought attention to products that were not
safe for consumers.
Lemon Laws
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Purpose:
To protect consumers against chronically
defective or “LEMON” products
Commonly relates to vehicles, but can be
other products
Can be either federal or state law
Buyer can get replacement of part or
reimbursement of purchase price.
Lemon Laws
• Apply if a dealership tries unsuccessfully
to fix a vehicle returned by consumer with
a major defect
• Duty of the Buyer:
– Must notify the seller
• Recommend certified letter to give documentary
evidence of notice given and received
• Only relates to “substantially” defective
products
Used Car Rule
• Purpose: To help consumers make better
decisions when buying used cars
• Established in 1985 by the FTC
• Requires dealers of used cars to post a
“Buyers Guide” on every car
Used Car Rule
The Buyer’s Guide
• Must advise or suggest:
– If warranty, what is covered?
– If no warranty, “AS IS”, or implied only
– To have inspection before purchasing
– What are some major car problems
– To get warranties in writing
Regulation of Warranties
• Federal Trade Commission (FTC)
encourages manufacturers to make
warranties very clear.
• FTC is a federal agency that ensures fair
economic practices among businesses.
Magnuson-Moss Act (1975)
• Expands the FTC ‘s authority over written
warranties
• Regulates the advertisement of warranties
and enforces guidelines
• Requires written warranties to be in clear
and understandable language
Express Written Warranties
must disclose:
• Which part of product is guaranteed?
• What part is not guaranteed?
• What is the time limit?
– Lifetime of purchaser? Or of product?
• How is a claim made?
• What are options for settlement?
• Who is making the guarantee?
Magnuson-Moss Act
• Requires that written warranties be labeled
as full or limited
• Limits exclusions on implied warranties
• Requires that an exclusion or disclaimer to
the written warranty be:
– In writing
– CONSPICUOUS
Breach of Warranty
• Requirements:
– Buyer should give notification to seller
within a reasonable time
– Seller may refund $ or make restitution or
offer to replace defective goods
– Buyer may claim damages