Warranties and Limits on Sales Contracts: Module 3 of 5

Warranties and Limits on Sales Contracts

This module explains warranties under the Uniform Commercial Code (UCC), how sellers may disclaim them, when third parties can bring warranty claims, and how courts address unconscionable contract terms and online agreements.

Warranties: The Basic Framework

A warranty reflects a purchaser’s reasonable expectations based on what the seller says, writes, does, or provides during a transaction. Courts consider whether a warranty was made, what it means, and whether it became part of the agreement or was effectively excluded by a disclaimer.

• Express warranties arise from a seller’s affirmation of fact or promise about the goods, a description of them, or a sample or model shown to the buyer. Under the UCC, buyer reliance on an express warranty is generally presumed, though the seller may offer evidence to rebut it.
• Implied warranties are inferred from the circumstances of the transaction or the parties’ conduct.
• Sales puffery—general opinions or exaggerated promotional claims—does not necessarily create an enforceable warranty. Courts distinguish puffery from a concrete promise by considering:
  • How specific the statement was
  • The context in which it was made
  • The nature of the defect
  • The parties’ relative knowledge and sophistication
  • The seller’s choice of words
  • Whether the claim was oral or written

For example, saying a used truck is “the best on the road” and will last for years may be treated as sales talk. Specific claims that its brakes and spark plugs are new may create express warranties if untrue.

A description of goods can also create an express warranty. Even a basic description can imply characteristics associated with the item—for example, that a car can reasonably transport people and things. A seller’s sample is a unit drawn from the goods being sold; a model is a demonstration unit that is not drawn from that stock. If the goods delivered are substantially inferior to the sample or model, the buyer may have a warranty claim.

Implied Warranties

Implied warranty of merchantability: A merchant selling goods of a particular kind generally warrants that they are fit for the ordinary purposes for which such goods are used. Goods must be adequately packaged and labeled and must be acceptable in the trade. Courts may assess merchantability by considering factors such as the parties’ dealings and performance, trade practices, whether goods are new or used, price, comparable products, and government standards.

Implied warranty of fitness for a particular purpose: This may apply when the buyer relies on the seller’s skill or judgment to select goods for a specific use, and the seller has reason to know that use. Unlike merchantability, this warranty may apply to non-merchants as well as merchants. The buyer must show reliance on the seller’s expertise and that the seller knew, or had reason to know, the intended use.

The module illustrates this with a buyer who tells a dealer she needs a vehicle for plowing snow. If the vehicle cannot accommodate a plow, she may have a claim even if the dealer did not explicitly promise that it would work for that purpose.

Warranty of title: Buyers are also entitled to a warranty that the seller has good title and is conveying the goods free of undisclosed third-party claims, security interests, liens, and co-owners.

Disclaimers of Warranties

The UCC permits sellers to disclaim warranties, but courts scrutinize disclaimers because they can defeat a buyer’s reasonable expectations.

• A disclaimer should be clear and, where possible, consistent with the seller’s other statements. It generally cannot erase a specific warranty merely by using broad language.
• An “as is” disclaimer does not necessarily negate a separate claim that a used car has had only one owner.
• The parol evidence rule may prevent a party from using an earlier or contemporaneous oral disclaimer to alter a written contract that is intended to be complete.
• To disclaim the implied warranty of merchantability, the disclaimer must use the word “merchantability” and be conspicuous.
• A disclaimer of the implied warranty of fitness for a particular purpose must be in writing, though it need not use the phrase “particular purpose.”
• A buyer’s opportunity to inspect the goods may defeat implied warranties where the circumstances show the buyer relied on their own inspection.
• A disclaimer may also be effective through the parties’ prior dealings, trade usage, or course of performance, even if it does not meet the UCC’s usual formal requirements.

Warranty Claims by Third Parties

A person who is not a party to the sales contract is a non-privity party. This may be:

• A vertical non-privity party, such as a later buyer who purchased the product from the original purchaser
• A horizontal non-privity party, such as a passenger injured in a car owned by someone else

The UCC offers states three approaches to third-party warranty protection, and states may choose among them:

1. Protection limited to family members or guests of the immediate purchaser
2. Protection for anyone foreseeably affected by the product, but only for personal injury
3. The broadest approach: protection for anyone foreseeably affected, covering personal injury and property damage

Unconscionability

Unconscionability is a common-law doctrine that may allow a party to avoid enforcement of an unfair contract or term.

• Procedural unconscionability concerns how the agreement was made, including the parties’ bargaining power, sophistication, ability to understand the language, and the presentation of the contract terms.
• Substantive unconscionability concerns the terms themselves, such as oppressive prices, unfair limitations on remedies, or one-sided provisions.

For example, a dealer who rushes a buyer through paperwork, leaves blanks, and fills them in later with harsh financing or insurance terms may support a procedural unconscionability claim. The terms may also be substantively unconscionable if they are oppressively one-sided.

A court may refuse to enforce the whole agreement, sever the unconscionable clause and enforce the rest, or limit a clause to avoid an unconscionable result. The judge determines unconscionability, and it is commonly raised as a defense to enforcement. Courts may consider the commercial setting and the purpose and effect of the challenged term.

The module also describes cases involving excessive prices and financing charges, including situations where language barriers and lack of translation contributed to the unfairness. Manipulation of contractual remedies—such as oppressive liquidated damages, overly broad warranty disclaimers, or unfair repossession provisions—may also raise concerns.

Electronic Transactions and Online Terms

Software agreements evolved from shrink-wrap licenses, in which terms were inside or accompanied packaged software and became available only after purchase, to online agreements:

• Click-wrap agreements require the user to click an acceptance box. Courts have generally found these enforceable because the user clearly indicates assent.
• Browse-wrap agreements typically provide a hyperlink to terms without requiring a specific acceptance action. Their enforceability is more uncertain. Courts may consider whether the link was conspicuous and where it appeared, since the user’s assent may not be clear.

Courts assess whether the purchaser adequately manifested willingness to be bound and whether the purchaser had a fair opportunity to review the terms. Common-law principles often guide disputes over these online agreements.

Speakers and Sources Featured

• Speaker: One instructional narrator presents the LawShelf module; no other individual speakers are identified.
• Legal sources discussed: The UCC, common-law unconscionability principles, and courts’ approaches to warranty, disclaimer, and electronic-contract disputes. The examples involving Arthur, Robert Jackson, and Arlene are hypothetical illustrations.