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Express and Implied Warranties
Question: In the context of an auction, what is the difference between express and implied warranties?
There are two main categories of warranties: express and implied. An express warranty is clearly stated either verbally or in writing. A verbal warranty can be valid and enforceable, but proving the warranty was made may be challenging. An implied warranty is one that the law imposes unless otherwise disclaimed, in certain situations.
Before examining express or implied warranties in the auction setting, it is essential to be aware and have a clear understanding of what constitutes a warranty in the first place. A warranty is a representation made by a seller (or its agent – the auctioneer) to a buyer of a product or service that a refund, repair, or replacement will be made if the product or service proves defective or unsatisfactory, especially within a specific time period. A warranty is essentially just an agreement by a seller to provide repairs or a replacement for a faulty product or property that fails to conform to such representations.
Express warranties can be provided for real estate, cars, goods, and practically anything. For example, there can be express warranties about the title or condition of real estate. There can be express warranties on the condition of cars or other items. E-commerce companies typically include some express warranty on the goods they sell. This is partly because of the nature of online purchasing and the limited ability to inspect the item being purchased.
Article 2 of the Uniform Commercial Code relates to the sale of goods and has specific provisions relating to warranties. Section 2-313 provides: “Express warranties by the seller are created as follows:
(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
(b) Any description of the goods that is part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
(c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.”
It continues to explain that it “is not necessary to the creation of an express warranty that the seller use formal words such as ‘warrant' or ‘guarantee' or that he has a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.” UCC Section 2-313. Statements of fact may create an express warranty, but puffery and statements of opinion do not. So, an auctioneer who is not careful could create express warranties (either as the agent for the seller if authorized or personally if the seller did not authorize) even when he or she does not intend to create a warranty. Announcing a factual statement (such as the amount of acreage being sold or the specific condition of a piece of machinery) about an item or property when calling for bids could be argued to constitute a warranty guaranteeing that particular factual statement.
Implied warranties are unwritten guarantees that a product or service should work as expected. For example, if you buy a set of headphones, you would expect them to function when you first use them— unless you were told otherwise when you agreed to purchase them. The most common implied warranties are also from Article 2 of the UCC. Section 2-314 relates to the implied warranty of merchantability, and Section 2-315 relates to the implied warranty of fitness for a particular purpose.
Section 2-314 relates to the warranty of merchantability. It provides, in part, as follows: “Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.” The implied warranty of merchantability is restricted to sellers deemed to be merchants. A merchant is defined as “a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.” UCC Section 2-104.
Section 2-315 relates to the warranty of fitness for a particular purpose. It provides as follows: “Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified … an implied warranty that the goods shall be fit for such purpose.” This implied warranty is broader because it is not limited to merchants. Implied warranties can also be created in some instances from a course of dealing or usage of trade.
Words such as “as is” and “with all faults” tend to negate express warranties. What happens when an auctioneer makes different types of express warranties but says “sold as is” at the end? Article 2 of the UCC provides: “Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence negation or limitation is inoperative to the extent that such construction is unreasonable.” UCC Section 2-316. In these situations, the courts have to examine the evidence and determine what warranties have been made and what (if anything) was disclaimed. As such, the disclaimer of implied warranties of merchantability and fitness for a particular purpose generally should be in writing and conspicuous.
Auctioneers must exercise caution and be aware of issues related to both express and implied warranties. Auctioneers should know when they are making a warranty and avoid doing so unless they clearly intend
to guarantee the factual representations made. Auctioneers should only make warranties on behalf of a seller when they have written authority to make the warranty in the signed seller listing, consignment, or auction contract terms and conditions. Otherwise, the auctioneer may be deemed to have personally made a warranty for which they could be held accountable.