Section 14.2

1. Section 14.2

2. What You’ll Learn • How to recognize ways that warranties are excluded (not in force) (p. 305) • How to determine who is covered by warranties made under the laws of your state (pp. 306-308)

3. What You’ll Learn • How to explain the buyer’s duty to notify the seller of a defect (p. 308)

4. Why It’s Important Knowing how warranties are excluded, to whom warranties are made, and notification requirements will help you protect your rights and the money you spend.

5. Legal Terms • consequential damages (p. 305) • privity of contract (p. 306) • duty to notify (p. 308)

6. Section Outline Exclusion of Warranties Consumer Protection Privity of Contract Not Required Duty to Notify and Remedies for Breach

7. Pre-Learning Question How can some warranties be excluded?

8. Exclusion of Warranties • To exclude the warrant of merchantability, merchantability must be mentioned specifically. • The warranty of title may be not excluded. • Implied warranties can also be excluded by words such as “as is.”

9. Exclusion of Warranties Under the Magnuson-Moss Warranty Act, any clause that excludes or limits consequential damages for breach of warranty must appear conspicuously on the face of the warranty.

10. Exclusion of Warranties Consequential damages are losses that do not flow directly from an act, but only from some of the consequences or results of the act.

11. Harriet loves to shop at the outlet stores in Commerce. Her favorite name brand store has an As Is rack.

12. After returning home from shopping there one day, she discovered the skirt she bought off the As Is rack has a large tear. Can Harriet take the skirt back? Why or why not?

13. ANSWER No. This is an example of an excluded implied warranty.

14. Consumer Protection The Magnuson-Moss Warranty Act limits the exclusions of implied warranties to consumers. Under this law, if a seller makes a written express warranty to a consumer, the implied warranties cannot be disclaimed or excluded.

15. Consumer Protection Some states have gone further to protect consumers by saying that implied warranties cannot be excluded when goods are sold.

16. Pre-Learning Question What is privity of contract?

17. Privity of Contract Not Required People who contract directly with each other are said to be in privity of contract. In the past, warranties extended only to the actual buyer of a product.

18. Privity of Contract Not Required The UCC has abolished the requirement of privity of contract. Instead it provides states with three alternatives.

19. Privity of Contract Not Required In all of the three alternatives, express and implied warranties extend to people who would reasonably be expected to use, consume, or be affected by the goods purchased by the buyer.

20. 14.2 Comparing the Alternatives Alternative A Alternative B Alternative C gives sellers’ warranties to any person injured by a breach of warranty who is in the family or household of the buyer, including guests. gives sellers’ warranties to any person injured by a breach of warranty. gives sellers’ warranties to any person or corporation injured by a breach of warranty.

21. 14.2 Comparing the Alternatives Alternative A Alternative B Alternative C Sellers cannot exclude this provision. Sellers cannot exclude this provision. Sellers may exclude this provision with respect to injuries to corporations but not to individuals. Warranties are not extended to corporations. Warranties are not extended to corporations.

22. UCC Alternatives to Privity Most states have adopted one of the three alternatives, but a few states have written their own versions (OV).

23. 14.2 UCC Alternatives to Privity AK, AZ, AR, CT, DC, FL, GA, ID, IL, IN, KY, MD, MI, MS, MO, MT, NE, NV, NJ, NM, NC, OH, OK, OR, PA, SC, TN, WA, WV, WI A B AL, CO, DE, KS, SD, VT, WY C HI, IA, MN, ND, UT OV ME, MA, NH, NY, RI, TX, VA NA CA, LA

24. Pre-Learning Question What do you think is a duty to notify?

25. Duty to Notify and Remedies for Breach To succeed in a claim for breach of warranty, the buyer must satisfy his or her duty to notify.

26. Duty to Notify and Remedies for Breach This duty requires that the buyer notify the seller within a reasonable time after the defect is discovered. Failure to do so will prevent the buyer from recovering.

27. Duty to Notify and Remedies for Breach Often, when sellers are notified that a product is defective or that a warranty has been breached, they will arrange to correct the situation.

28. Duty to Notify and Remedies for Breach When the warranty of title is breached, the buyer has a claim against the seller for damages. This could be the cost of clearing the title or the purchase price of the goods.

29. Chunta bought a digital camera from his friend Thomas for $50, only to find out that it was stolen. What remedy does Chunta have?

30. ANSWER Chunta has a claim against Thomas for $50.

31. Section 14.2Assessment Reviewing What You Learned • To whom are warranties made under the laws of your state?

32. Section 14.2Assessment Reviewing What You Learned Answer Answers will vary by state.

33. Section 14.2Assessment Reviewing What You Learned • How may warranties be excluded under the laws of your state?

34. Section 14.2Assessment Reviewing What You Learned Answer Answers will vary by state.

35. Section 14.2Assessment Reviewing What You Learned • What is the buyer’s duty to notify the seller of a defect?

36. Section 14.2Assessment Reviewing What You Learned Answer The buyer must notify the seller within a reasonable time after the defect is discovered.

37. Section 14.2Assessment Critical Thinking Activity Warranties Clip an advertisement that mentions a warranty from a newspaper or magazine. Is the warranty express or implied? Is it full or limited? Does it offer good protection to the buyer?

38. Section 14.2Assessment Critical Thinking Activity Answer Warranties Answers will vary depending on the advertisements.

39. Section 14.2Assessment Legal Skills in Action Calculating Warranty Protection Corey paid $600 for new tires for his truck in March 2000.

40. Section 14.2Assessment Legal Skills in Action Calculating Warranty Protection He chose the warranty protection the company offered, which would allow him to pay a reduced price to replace one or more of the tires during a four-year warranty period.

41. Section 14.2Assessment Legal Skills in Action Calculating Warranty Protection When he had to replace a tire in March 2001, Corey paid only 25 percent of the retail cost for a new tire.

42. Section 14.2Assessment Legal Skills in Action Calculating Warranty Protection When he had to replace another tire in March 2003, Corey paid 50 percent of the retail cost for a new tire.

43. Section 14.2Assessment Legal Skills in Action Calculating Warranty Protection Assuming that the price of a new tire did not change during that time, what was the total cost of Corey’s replacement tires?

44. Section 14.2Assessment Legal Skills in Action Answer Calculating Warranty Protection $112.50 (Original price: $600 ÷ 4 = $150. Cost of first replacement: $150 x 25% = $37.50. Cost of second replacement: $150 x 50% = $75. Total cost: $37.50 + $75 = $112.50.)

45. End of Section 14.2