Implied warranties provide consumers with what they expect in a transaction: a merchantable product which also, if the consumer relied on the seller, meets the consumer’s particular purpose in buying the product. Nevertheless, the UCC allows the seller to disclaim those warranties.
An important restriction on consumer warranty rights is the outdated concept of privity, that a consumer can enforce a warranty remedy against the manufacturer or other seller only if the consumer has a direct contractual relationship with the seller. A consumer is said to lack vertical privity when the consumer attempts to sue a manufacturer or other party in the distribution chain with whom the consumer has not dealt directly.
Limitations on remedies are different from disclaimers of warranties. The disclaimer of warranty attempts to prevent a warranty right from being created. A contractual limitation on remedies attempts to limit the recovery a consumer can seek when an existing warranty has been breached. Common limitation of remedies clauses limit the consumer’s remedy to repair or replacement, and waive any right to consequential or even direct damages.
In most cases the consumer must provide prompt notice to the seller of any breach of warranty, as a condition of recovering damages because of that breach.462 The notice need not be formal. The buyer need only communicate to the seller that the transaction is troublesome.
If the buyer has accepted the goods, the buyer has the burden of proving a warranty breach. If the buyer rightfully rejects the goods before legally accepting the goods, then the seller has the burden of proving that the goods conformed to all warranties.465
One of the unique aspects of the UCC is that it provides the consumer with three self-help remedies for breach of warranty, as detailed in Chapter 8, infra. Before the consumer accepts a good, the consumer may reject it.
The consumer can also sue the seller for actual damages, whether or not the consumer has canceled the sale. The consumer may seek incidental and consequential damages.473
This section provides a list of notable topics that may arise in automobile sales and finance transactions, and also pinpoints the subsections where these topics are discussed in this and other NCLC treatises. It is recommended that users view this checklist in this treatise’s digital edition, which provides live weblinks to these related subsections.
Dealer Sales Tactics
Investigation Techniques and Discovery
Most consumer transactions, especially those for used goods, involve some attempt by the seller or manufacturer to disclaim warranty liability. Typically, the disclaimer is a clause in the contract or warranty which states that there are “no warranties, express or implied,” or that the written warranty is “in lieu of all warranties, express or implied.” A more sophisticated contract will also contain a clause stating that the “IMPLIED WARRANTY OF MERCHANTABILITY IS DISCLAIMED.” A common variation of this clause is the statement that the product is sold “as is.”
The Uniform Commercial Code (UCC) approach to disclaimers is based on the UCC policy to give effect as much as possible to the parties’ understandings and reasonable expectations.3 The literal language of the writing may be ignored if it differs from those understandings and expectations, as substance is favored over form.
Consistent with the basic UCC policy that the substance of the parties’ actual agreement is more meaningful than the form of the written contract, section 2-316(1) provides that a seller cannot make a statement of fact or promise in the negotiation, in advertising, or in writing, and then attempt to avoid the legal consequences by using a contract disclaimer.6 To do so would be contrary to the parties’ agreement and an unfair surprise to the buyer. In the words of section 2-316(1):
Even when the Magnuson-Moss Act prohibits disclaimer of implied warranties, it allows a supplier to limit the duration of implied warranties to the duration of the written warranty.26 This provision means, for example, that a supplier offering a one-year written warranty can limit the duration of the implied warranty to one year.27 There are several important restrictions on this permissible limitation:
When a seller or supplier gives a written warranty as defined by the Magnuson-Moss Warranty Act, the Act requires the warranty to be made available to the consumer prior to the sale,36 that is, before the contract is handed to the consumer and even before the deal is struck.37 A disclaimer in such a warranty should be invalid because of the Act’s prohibition against disclaiming implied warranties when a written warranty is given, but if the warranty is not made available to the consumer in advance i
About a third of the states have broadly applicable statutes that preclude or restrict sellers’ ability to disclaim implied warranties. These statutes are listed below.39 In addition, many states have statutory warranties, lemon laws, inspection requirements, or restrictions on disclaimers that apply only to used motor vehicles.
A number of states have special restrictions on disclaimers in used car sales. These are discussed in detail in § 15.4, infra.
Section 2-316(2) provides: “to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability.” This statutory language, adopted to protect the buyer’s expectation of merchantable goods, has been enforced by the courts with little difficulty. Failure to use the word merchantability renders the disclaimer per se invalid as to the implied warranty of merchantability.87
In the purchase of new goods, the buyer is dealing directly with the seller and indirectly with the manufacturer. Both can be liable to the buyer.91 Because the two are almost always separate entities, a disclaimer by one will have no effect on the warranty liability of the other.
Sometimes the buyer is given a disclaimer only after the contract is signed, for example, at the time of delivery of the goods. The disclaimer may be in the operator’s or owner’s manual, on a label, or on an invoice. It may be contained in an installment sales contract that is signed after the buyer has already signed a purchase order and made a down payment. It may even be stamped on the contract after the signing. In some cases the disclaimer may be contained in the manufacturer’s warranty agreement.
The buyer’s expectations from the transaction are further protected by the requirement of section 2-316(2) that any disclaimer of the implied warranty of fitness for a particular purpose must be in writing and conspicuous, and that any written disclaimer of the implied warranty of merchantability must be conspicuous.110 This requirement applies to any “exclu[sion] or modif[ication]” of an implied warranty,111 and therefore should apply to a limit on the duration of the warranty, a provision narr
Although the principle of conspicuousness is clear, its application is not. Conspicuousness depends on the entire circumstances, including location in the contract, size and color of type, surrounding words, as well as the timing of the disclosure.118 Section 1-201(b)(10) defines “conspicuous” as follows:
A contract disclaimer in type no larger than any other and not otherwise set out from the rest of the contract is not conspicuous and is inoperative as a disclaimer.120 Similarly, a disclaimer that contrasts only slightly with neighboring text is not conspicuous.121 If the print is too small or too light to be read, the disclaimer is inconspicuous.122 On the other hand, a disclaimer in boldface, all capitals, or larger print, especially if located
Boldface disclaimers located on the back of a contract but referenced on the front are most troublesome.