Sales Law

In the context of the sale of goods, a WARRANTY is concerned with identifying the kind and quality of the goods that are tendered by the seller. The two basic types of warranties are express warranties and implied warranties.

An express warranty is any representation or affirmation about the goods made by the seller's words or conduct. For example, the description of the goods in the sales contract constitutes an express warranty that the goods will conform to the description.

Implied warranties are warranties that are imposed on sellers by law. A warranty of merchantability is implied in every sales contract. This warranty is a promise that the goods pass without objection in the trade, are adequately packaged, conform to all promises or affirmations of fact on the container, and are fit for the ordinary purposes for which such goods are used. The IMPLIED WARRANTY of merchantability also includes a promise that multiple goods will be of even kind and quality.

Another implied warranty recognized by courts is the warranty of fitness for a particular purpose. This warranty requires that goods be fit for an identifiable, particular purpose. It is effective only if the seller has reason to know of any particular purpose for which the goods are required and also knows that the buyer is relying on the seller's expertise to select suitable goods.

Some sellers attempt to disavow any responsibility for the quality of their merchandise. Sellers may not disclaim the warranty of merchantability unless they use the word "merchantability" in the disclaimer, which may be oral or written. If written, the disclaimer clause or term must be conspicuous. The implied warranty of fitness for a particular purpose may be disclaimed in writing, but it cannot be disclaimed orally. In some states, statutes or court decisions prohibit the disclaimer of warranties in consumer sales.

If a seller fails to tender goods, the buyer may choose one of three remedies. First, the buyer may seek damages from the seller. Damages are the total financial losses resulting from the failure to tender. Generally, damages for non-delivery consist of the market price of the goods minus the sale price. Market price is figured by determining the market price at the time the buyer learned of the breach at the place the tender was to have been made.

Second, the buyer may cover or purchase similar goods elsewhere and then recover for losses resulting from the purchase. If the purchase price of replacement goods is greater than the original sale price, the buyer may recover the difference from the seller. The buyer must cover in GOOD FAITH, without delay, and on reasonable terms. When a seller is unable to perform a sale as agreed, the buyer should try to minimize his or her damages by covering the loss. If an aggrieved buyer fails to make reasonable efforts to cover, a court may reduce any damage award to account for the failure.

Third, a buyer may force the seller to perform by taking the seller to court and obtaining an order for SPECIFIC PERFORMANCE or maintaining an action for REPLEVIN. An action for specific performance may be ordered if the goods are unique and in other proper circumstances. Goods may be considered unique if the buyer is unable to find the goods elsewhere. An action for replevin is a method of recovering goods that is similar to specific performance. Replevin is allowed where the goods are specifically identified in the contract and the buyer is unable to cover the goods after a reasonable effort, or the circumstances indicate that the buyer will be unable to cover. If a buyer has paid only part of the sale price and the seller becomes financially insolvent within ten days of the first payment and is unable to tender the goods, the buyer may pay any remaining balance and sue to obtain the goods. This would give the buyer the goods and prevent the seller from using the goods to pay other debts.

If the buyer elects to collect damages after covering or damages for non-delivery, the buyer may collect additional damages called incidental damages and consequential damages. Incidental damages are those resulting from the seller's breach. These include expenses incurred in inspection, receipt, transportation, care, and custody of goods rightfully rejected; any commercially reasonable charges or expenses incurred in covering; and any other reasonable expense incident to a delay in tender of the goods or other breach on the part of the seller. Consequential damages include any loss that results from requirements of which the seller is aware at the time of contracting and that could not have been prevented by cover or other method, and foreseeable and avoidable injuries to persons or property resulting from a breach of warranty.

In some cases the buyer and seller may agree in the sales contract to LIQUIDATED DAMAGES. Generally, a liquidated damages clause is placed into a sales contract to fix damages at a certain amount in case a party is unable to perform. A court may strike down a liquidated damages clause if it does not bear a reasonable relationship to actual damages or anticipated damages.

If a seller tenders nonconforming goods, or goods that do not meet the specifications in the sales contract, the tender constitutes a breach of the contract. In such a situation, the buyer may either accept or reject the goods. Any recovery by the buyer will depend on whether the buyer accepts or rejects the goods.

A buyer has the right to inspect goods before accepting them. If the goods are nonconforming, the buyer may accept the goods and recover from the seller the difference between the value of the goods as warranted and their actual value with the defects.

A buyer may elect to reject nonconforming goods. To reject goods, the buyer must take some positive action to give the seller notice of the rejection. If the seller can cure the problem, the buyer should tell the seller why he is rejecting the goods or risk a reduction in damages. In transactions between merchants, a buyer should specify the problem to the seller if the seller makes a written request for a full and final written statement of all defects on which the buyer bases the rejection.

A seller has the right to cure nonconforming goods if he gives notice to the buyer and if conforming goods can be delivered before the last date for delivery under the sales contract. In any case a buyer may agree to extend the time for delivery of conforming goods. In some cases a buyer may have no choice. Under section 2–508(2) of the UCC, if a seller sends nonconforming goods that he reasonably believed would be acceptable, the seller has additional time to deliver conforming goods if he gives notice of such intent to the buyer.

If a buyer rejects goods, the buyer may not exercise any ownership over the goods. The buyer must hold the goods for a reasonable time and permit the seller to remove them or await instructions from the seller. If the seller issues instructions to the buyer, the buyer should follow any reasonable requests. For example, if the goods are perishable and the seller has no local agent, the buyer should attempt to sell the goods for the account of the seller. The buyer then could recover the difference between the amount that the buyer could have made with the goods and the amount that the buyer actually received.

If the buyer rejects nonconforming, nonperishable goods and the seller has no agent near the buyer, the buyer should follow instructions from the seller. If the seller issues no instructions, the buyer may either store the goods for the seller's account, reship the goods to the seller, or sell the goods for the seller's account. An aggrieved buyer may then recover any losses incurred in storing, shipping, or reselling the goods.

If a buyer rejects nonconforming goods and cannot sell them, the buyer may hold the goods for the seller and recover the difference between the market price of the goods as warranted and the value of the goods as delivered. A buyer also may ask for specific performance. If the seller is unable to provide the goods as requested, the buyer may recover any money already paid toward the sale plus any consequential or incidental damages resulting from the breach.