Performance, breach, and discharge - Express and implied war...

Learning Outcomes

This article explains core rules governing express and implied warranties in UCC sale-of-goods contracts, including:

• How to recognize and construct exam-ready analyses of express warranties created by seller statements, descriptions, samples, or models, and how those interact with integrated writings and parol evidence.
• When the implied warranties of merchantability and fitness for a particular purpose arise, what factual triggers to spot on the MBE, and how to distinguish them.
• How sellers can disclaim or modify warranties using "as is" language, specific references to merchantability, or conspicuous written terms, and the limits UCC § 2‑316 imposes.
• How contractual limitations of remedies and exclusions of consequential damages operate under UCC § 2‑719, including failure of essential purpose and unconscionability challenges on exam fact patterns.
• How to identify breach of warranty at tender, apply the four-year statute of limitations and notice requirements, and compute direct, incidental, and consequential damages for accepted or rejected goods.
• How warranty claims interact with strict products liability, the economic loss rule, privity and third-party beneficiaries, and how to choose the most advantageous theory in MBE answer choices.

MBE Syllabus

For the MBE, you are required to understand warranties in contracts for the sale of goods under the UCC, with a focus on the following syllabus points:

• The creation and scope of express warranties.
• The implied warranty of merchantability and its requirements.
• The implied warranty of fitness for a particular purpose.
• How warranties may be disclaimed or limited, including “as is” and other disclaimer language.
• What constitutes breach of warranty and available remedies (including revocation of acceptance).
• The parties to whom warranties extend and privity issues.
• The relationship between warranty law and strict products liability and the economic loss rule.
• The effect of limitations of remedies and exclusions of consequential damages.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is required to create an express warranty under the UCC?
   1. The seller must use the word "warranty."
   2. The seller must be a merchant.
   3. The seller must make an affirmation of fact or promise about the goods that becomes part of the basis of the bargain.
   4. The buyer must inspect the goods before purchase.
2. The implied warranty of merchantability applies:
   1. Only if the seller is a merchant dealing in goods of the kind.
   2. To all sellers of goods.
   3. Only if the goods are custom-made.
   4. Only if the buyer asks for it in writing.
3. Which of the following is NOT a valid method for disclaiming the implied warranty of merchantability?
   1. Using the phrase "as is."
   2. A conspicuous written disclaimer mentioning "merchantability."
   3. An oral disclaimer mentioning "merchantability."
   4. A disclaimer in fine print buried in the contract.
4. If a buyer is injured by a defective product, which warranty theory requires the buyer to prove the seller was at fault?
   1. Express warranty
   2. Implied warranty of merchantability
   3. Implied warranty of fitness for a particular purpose
   4. None of the above

Introduction

Warranties in sale-of-goods contracts are promises by the seller regarding the quality or characteristics of the goods. They are a core part of performance and breach analysis under the UCC, and they feed directly into questions about buyer remedies and seller defenses.

Key Term: Warranty
A legally enforceable promise by the seller about the quality, characteristics, or performance of goods sold.

Most warranty questions on the MBE arise in UCC Article 2 sales of "goods"—tangible, movable items at the time of identification to the contract. The UCC applies to goods contracts regardless of whether either party is a merchant, but many warranty rules (especially merchantability) depend on whether the seller is a merchant with respect to goods of that kind.

Key Term: Merchant
Under the UCC, a person who deals in goods of the kind involved in the transaction or who by occupation holds themselves out as having knowledge or skill peculiar to the goods or practices involved in the transaction.

Goods v. services and mixed contracts

The UCC applies only to transactions in goods. Many MBE questions use mixed contracts (goods plus services):

• If the contract is predominantly for goods (even if services are included), Article 2 and its warranty rules apply.
• If the contract is predominantly for services, the common law governs, and these UCC warranty rules do not apply.
• If the deal is clearly divisible (separate price for goods v. services), the UCC can apply to the goods part only.

Warranty questions almost always assume you are in the goods universe. On exam day, quickly confirm that the transaction mainly concerns tangible, movable items before launching into warranty analysis.

Because warranties are promises about performance, they are often litigated when a buyer claims the goods are defective. On the MBE, warranty issues tend to be embedded in broader fact patterns about:

• Perfect tender, acceptance, rejection, and revocation of acceptance.
• Limitation of remedies and exclusion of consequential damages.
• Privity and whether remote buyers or users can sue upstream sellers (e.g., manufacturers).
• The overlap between contract warranty claims and strict products liability.
• Statute of limitations and notice of breach.

Understanding what warranties exist, whether they have been effectively disclaimed or limited, and how breach is remedied is critical to analyzing UCC performance and breach problems.

Types of Warranties

There are three main types of warranties in sale-of-goods contracts:

• Express warranties — created by the seller’s statements or conduct.
• Implied warranty of merchantability — arises automatically when the seller is a merchant dealing in goods of the kind.
• Implied warranty of fitness for a particular purpose — arises when the seller knows the buyer’s particular purpose and the buyer relies on the seller’s know‑how.

Key Term: Express Warranty
Any affirmation of fact, promise, description, or sample by the seller relating to the goods that becomes part of the basis of the bargain.

Key Term: Implied Warranty of Merchantability
A warranty that goods sold by a merchant are fit for the ordinary purposes for which such goods are used and meet basic minimum quality standards.

Key Term: Implied Warranty of Fitness for a Particular Purpose
A warranty that arises when the seller knows the buyer’s particular purpose and that the buyer is relying on the seller’s skill or judgment to select suitable goods.

Key Term: Basis of the Bargain
The idea that a seller’s affirmation, description, or sample influenced the buyer’s decision to enter the contract; under the UCC, such statements are presumed part of the basis of the bargain if made before or at contracting.

Key Term: Puffery
Sales talk or opinion—such as "this is the best car on the road"—that is too general or subjective to be reasonably relied on as a factual promise; puffery does not create an express warranty.

The same transaction can involve multiple warranties at once. For example, a merchant car dealer who says "this used car has a new engine and runs great" makes express warranties and also gives implied warranties of merchantability. On the MBE, expect questions that require you to identify more than one warranty and then analyze disclaimers and remedies affecting each.

Creation of Express Warranties

Express warranties are governed by UCC § 2‑313. They are created when the seller makes a statement of fact, promise, description, or provides a sample or model that forms part of the basis of the bargain. The seller does not need to use the word "warranty" or intend to create a warranty. What matters is objective meaning: would a reasonable buyer take the statement as a factual promise about the goods?

Typical sources of express warranties:

• Affirmations of fact or promises about specific characteristics

  • "This truck can tow 10,000 pounds."
  • "These seeds have a 95% germination rate."
  • "This laptop has 16 GB of RAM."

• Descriptions of the goods:

  • "100% wool," "stainless steel," "2024 model," "U.S.D.A. Choice."
  • A contract for "Grade A, prime beef" or "organic apples" creates express warranties that the goods match those descriptions.

• Samples or models:

  • Floor samples, demo units, small test lots, or catalog samples.

Key Term: Basis of the Bargain
A seller’s affirmation, description, sample, or model is treated as part of the basis of the bargain if it reached the buyer before or at contracting; the buyer need not prove actual reliance unless the seller produces evidence that the statement played no role in the buyer’s decision.

Under the UCC, the "basis of the bargain" requirement is generous to the buyer:

• If the statement was made before or at contracting, it is presumed to be part of the basis of the bargain.
• The buyer does not have to prove reliance as an extra element; reliance is presumed unless the seller rebuts it.
• Later statements (after contracting) do not create an express warranty for the original contract, but they can be modifications if supported by consideration or a valid UCC modification rule.

By contrast, mere opinions or puffery do not create express warranties:

• "This is a fantastic car."
• "You’ll look great in this suit."
• "This is the best phone on the market."

The more specific, measurable, or verifiable the claim, the more likely it is an express warranty rather than puffery. Statements about value or quality in vague terms are usually puffery; statements about features, performance metrics, or compliance with standards are usually express warranties.

Express warranties can arise from:

• Advertisements and catalogues.
• Labels, packaging, and tags (e.g., "non‑shrink," "flame‑retardant").
• Written specifications, order forms, manuals, or brochures.
• Oral statements by sales staff in person or over the phone.

As long as the statement is about the goods and reaches the buyer before or at contracting, it can be an express warranty—even if it appears only in promotional materials and not in the final written contract.

Parol evidence and express warranties

The parol evidence rule may interact with express warranties when the parties reduce their agreement to a writing.

• If the writing is a fully integrated agreement (the final and complete statement of their deal), earlier or contemporaneous oral terms that contradict it are excluded.
• If it is only a partially integrated agreement, consistent additional terms (including oral express warranties) may be admitted.

However, even when the writing looks complete, prior statements may come in:

• As evidence of fraud or misrepresentation (parol evidence rule does not bar fraud evidence), or
• As evidence that the written warranty is not the whole story in a UCC jurisdiction that treats most writings as only partially integrated, which often presumes writings are only partially integrated unless the parties clearly intended otherwise.

On the MBE, if the seller’s written contract is silent about a promise and there is clear evidence of a prior specific statement about the goods, treat that statement as an express warranty unless the question explicitly focuses on the parol evidence rule.

Statements after contracting

Statements made after the contract is formed:

• Do not automatically become express warranties under the original contract.
• Can be contract modifications if the parties agree; under the UCC, no consideration is required for a good‑faith modification (§ 2‑209), although a signed writing may be required by the Statute of Frauds or by a "no oral modification" clause.

Implied Warranties

Implied warranties arise by operation of law, not by explicit promises. The two main implied warranties under UCC Article 2 are merchantability and fitness for a particular purpose.

Implied Warranty of Merchantability

This warranty arises automatically when the seller is a merchant dealing in goods of the kind (§ 2‑314). A grocery store selling canned beans or a car dealer selling cars are merchants for those goods; a private individual selling their personal used car is not.

For goods to be "merchantable," they must, at a minimum:

• Pass without objection in the trade under the contract description.
• Be of fair average quality within the description.
• Be fit for the ordinary purposes for which such goods are used.
• Be of even kind, quality, and quantity within each unit and among all units involved.
• Be adequately contained, packaged, and labeled as the agreement may require.
• Conform to any promises or affirmations made on the container or label.

Examples:

• Food sold for consumption must be reasonably safe to eat.
  • A rock or piece of glass in a can of soup usually breaches merchantability, because the food is not fit to eat in its ordinary way.
• Used goods still must be fit for the ordinary purposes of used goods of that type (e.g., a used lawnmower should still function as a lawnmower, given its age and condition).
• Safety equipment (ladders, helmets, life vests) that fails under normal, expected use may breach merchantability.

Important exam points:

• The buyer does not need to show the seller was negligent—merchantability is a strict obligation. Lack of care is irrelevant.
• The seller’s knowledge of the defect is irrelevant.
• Merchantability can be breached by design defects, manufacturing defects, or even inadequate instructions if those defects make the product not fit for ordinary use.
• Merchantability can arise even when the seller never mentions quality at all, so long as the seller is a merchant of the goods.

Common MBE patterns:

• Foreign objects in food (glass in soup, bone fragments in processed foods).
• Clothing or fabric that disintegrates in normal washing.
• Consumer electronics that fail shortly after purchase under normal use.
• Industrial goods that cannot perform their ordinary function (a crane that cannot lift its rated load).

Implied Warranty of Fitness for a Particular Purpose

This warranty arises under UCC § 2‑315 when:

• The seller knows or has reason to know:
  • The buyer’s particular purpose for the goods, and
  • That the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods; and
• The buyer actually relies on the seller’s skill or judgment.

The seller need not be a merchant; any seller can make a fitness warranty if these conditions are met. What matters is knowledge and reliance.

Examples:

• Buyer: "I need boots suitable for mountain climbing in winter."
  Clerk recommends a particular pair. The boots fail in typical climbing conditions.
  → Fitness warranty arises and is breached.
• Buyer tells a paint store: "I need paint that will bond to aluminum siding."
  Seller recommends a paint that peels off aluminum but would be fine on wood.
  → Fitness warranty arises for aluminum siding and is breached.

Contrast with ordinary use:

• Merchantability is about ordinary purposes.
• Fitness is about a special or particular purpose that may be different from ordinary use.
  • Buying a truck to "haul equipment around town" is likely ordinary use—merchantability.
  • Buying a truck to "pull a 15,000‑pound trailer over mountain passes" is a particular purpose—fitness, if the seller knows and the buyer relies.

Limits:

• If the buyer instead:
  • Insists on a particular brand or model despite the seller’s reservations (e.g., "I want that model, I don’t care what you think"), or
  • Makes clear that they are not relying on the seller’s judgment (e.g., "I’ve done my research; just ring this up"), an implied fitness warranty is less likely to arise.
• The buyer’s reliance must be reasonable, given the seller’s position and knowledge.

Disclaimers and Limitations

Sellers often try to disclaim (exclude) warranties or limit remedies. The UCC allows this, but imposes strict requirements, especially for implied warranties and consumer injuries. Distinguish carefully between:

• Disclaimers of warranties (attempts to eliminate a warranty obligation), and
• Limitations of remedy (attempts to limit what happens if a warranty is breached).

Key Term: Disclaimer
A statement or provision that limits or eliminates a warranty or remedy otherwise provided by law.

Key Term: Conspicuous
In the UCC, a term so written, displayed, or presented that a reasonable person against whom it operates ought to have noticed it—for example by using capital letters, bold type, contrasting color, or clear headings.

The analysis is different for disclaimers and limitations; on the exam, identify which the fact pattern is targeting.

Disclaimers of Express Warranties

Express warranties are especially resistant to disclaimers.

• UCC § 2‑316(1) provides that words or conduct creating an express warranty and words or conduct tending to negate or limit it must be read as consistent where reasonable; if not reasonably reconcilable, the express warranty controls.
• General disclaimers such as "as is" or "no warranties" cannot negate a prior specific express warranty that is inconsistent with them.
  • A dealer who says "this engine has a new timing belt" cannot escape by boilerplate "no warranties" language later.
• Sellers cannot use merger clauses or "entire agreement" clauses to erase specific, factual affirmations made during negotiations if those statements are treated as warranties or fraud.

On the MBE:

• Once you find a specific factual promise by the seller, treat it as an express warranty.
• Ignore generic disclaimers that would contradict it; the express warranty survives.

There is no special formal requirement to disclaim an express warranty—just remember that contradictory disclaimers are ineffective as to express warranties.

Disclaimers of Implied Warranty of Merchantability

The implied warranty of merchantability can be disclaimed, but UCC § 2‑316(2) imposes strict conditions:

• The disclaimer must mention "merchantability", and
• If the disclaimer is in writing, it must be conspicuous.

Examples:

• Oral disclaimer: "There is no warranty of merchantability."
  → Effective if communicated to the buyer, because it uses the word "merchantability."
• Written disclaimer in a contract: "SELLER MAKES NO WARRANTY OF MERCHANTABILITY."
  → Effective if conspicuous (e.g., capital letters, bold, larger font, separate heading).

Alternatively, all implied warranties, including merchantability, can be excluded by:

• Language such as "as is," "with all faults," or similar expressions that clearly call the buyer’s attention to the exclusion, and
• Circumstances that make it reasonable for the buyer to understand that there is no implied warranty.

"As is" language:

• Does not need to mention "merchantability."
• Must still be conspicuous and clear.
• Is more likely to be enforced in commercial contracts between merchants and scrutinized for unconscionability in consumer contracts.

Disclaimers of Implied Warranty of Fitness for a Particular Purpose

The implied warranty of fitness may be disclaimed if:

• The disclaimer is in writing, and
• It is conspicuous, and
• It uses clear language, such as "There are no warranties which extend beyond the description on the face hereof."

"As is" or "with all faults" language generally also disclaims the fitness warranty if conspicuous.

Asymmetry you must know:

• Merchantability can be disclaimed orally (if the word "merchantability" is used).
• Fitness cannot be disclaimed orally; it must be in a conspicuous writing (or via effective "as is" language).

Many exam questions test this difference.

Effect of Inspection and Course of Dealing

If, before entering the contract, the buyer:

• Examines the goods as fully as desired, or
• Refuses to examine the goods,

there is no implied warranty as to defects that a reasonable examination would have revealed.

• This follows UCC § 2‑316(3)(b).
• Hidden or latent defects that would not appear on a reasonable inspection remain covered.

Examples:

• Buyer inspects a used car and sees obvious rust holes and worn tires. Seller makes no misstatements. Later, buyer sues claiming breach of implied warranty as to rust and tires.
  → No implied warranty as to those obvious defects; the buyer inspected and saw them.
• Buyer refuses to inspect new machinery before delivery. Defects that would have been obvious upon inspection may be excluded from implied warranty coverage; hidden internal defects are still covered.

Implied warranties can also be limited or shaped by:

• Course of dealing (prior transactions between the parties),
• Course of performance (behavior under the current contract), and
• Usage of trade (industry customs),

but those refinements are less frequently tested in depth. They are more likely to appear to interpret ambiguous warranty terms than to eliminate warranties completely.

Limitation of Remedies and Exclusion of Consequential Damages

Even if a warranty exists, parties may try to limit the buyer’s remedies or exclude certain categories of damages. These are governed mainly by UCC § 2‑719.

Key Term: Consequential Damages
Losses that do not flow directly from the defect in the goods themselves, but from the buyer’s particular circumstances, such as lost profits, loss of goodwill, or injury to other property or persons.

Key Term: Incidental Damages
Reasonable expenses incurred in dealing with the breach, such as costs of inspection, transportation, care and custody of rejected goods, and reasonable expenses in effecting cover.

Key Term: Limited Remedy
A contractual provision that restricts the buyer’s remedy for breach (for example, to repair, replacement, or refund) instead of the full range of Code remedies.

Key Term: Failure of Essential Purpose
A situation in which a limited remedy fails to provide the buyer with the substantial value of the bargain, such as when repeated repairs are unsuccessful or the seller refuses to repair.

Under UCC § 2‑719:

• Parties may provide for remedies in addition to or in substitution for those in the Code.
• A remedy may be expressly limited—for example:
  • "Buyer’s sole and exclusive remedy shall be repair or replacement of defective parts."
  • "Seller’s liability is limited to refund of the purchase price."
• Such limitations are generally enforceable unless they fail of their essential purpose.

Failure of essential purpose typically occurs when:

• The contract limits the remedy to repair or replacement, and
• The seller either:
  • Cannot or does not actually fix the defect within a reasonable time, or
  • Refuses to perform the limited remedy.

When a limited remedy fails in this way, the buyer is entitled to the full range of UCC remedies, including damages and, if appropriate, revocation of acceptance.

Separately, contracts often try to:

• Exclude or limit consequential damages (such as lost profits).
• Limit incidental damages (less common).

UCC § 2‑719(3) provides:

• Limitation or exclusion of consequential damages is generally valid unless unconscionable.
• Limitation of damages for injury to the person in the case of consumer goods is presumed unconscionable.

On the MBE:

• Clauses excluding consequential damages in commercial settings between sophisticated parties are often enforced.
• Clauses excluding consequential damages for consumer personal injury are usually struck down as unconscionable.
• A "repair only" clause where the seller repeatedly fails to repair or never responds typically fails of its essential purpose, opening the door to broader damages even if consequential damages are excluded.

Note: Courts often treat the limited remedy clause and the consequential damage exclusion as analytically separate. Failure of essential purpose can free the buyer from the limited remedy, but the exclusion of consequential damages may still be enforced unless unconscionable. Some courts, however, are more willing to invalidate the exclusion when the limited remedy has failed.

Breach of Warranty

A breach occurs when the goods fail to conform to the warranty at the time of tender of delivery, even if the defect is discovered later.

Key Term: Breach of Warranty
The failure of goods to conform to a warranty, giving the buyer a right to remedies under the UCC.

Key points:

• The defect must exist at tender; later deterioration is not a breach unless covered by a separate future‑performance warranty.
• Latent defects that appear months or years later may still be breaches if the root defect existed at tender (e.g., defective design, hidden crack).
• The buyer must notify the seller of the breach within a reasonable time after discovery or when they should have discovered it.
  • Failure to give timely notice can bar recovery, especially in commercial cases.
  • The notice need not be detailed; it must simply inform the seller that the transaction is troubled and that the buyer asserts a breach.

Additional timing rule:

• The statute of limitations for warranty claims is four years from tender of delivery (UCC § 2‑725).
  • Generally runs from tender, not discovery, even for latent defects, unless the warranty explicitly extends to future performance.
  • Parties may shorten the limitations period by agreement, but not to less than one year, and the period must be reasonable.

If the warranty explicitly promises future performance (for example, "10‑year warranty" or "this roof is warranted for 20 years"):

• The cause of action accrues when the breach is or should be discovered.
• Exam pattern: a written "5‑year parts and labor warranty" may extend the limitation period such that suit filed in year four is timely, even though more than four years since tender.

Remedies for Breach of Warranty

Remedies for breach of warranty intersect with general buyer’s remedies under the UCC. The correct analysis depends on whether the buyer has accepted the goods, rejected them, or has revoked acceptance.

Damages for Accepted Goods

If the buyer keeps (accepts) the goods and sues for damages, the basic measure of damages for breach of warranty is:

• The difference between the value of the goods as accepted and the value they would have had if as warranted, plus incidental and consequential damages (if not validly excluded), minus any expenses saved.

Formula:

• Damages = value as warranted − value as delivered + incidental + consequential.

Examples:

• Warranted as a $10,000 machine but worth only$4,000 in defective condition → direct damages of $6,000.
• Warranted to have a 95% germination rate; actually only 20%; damages measured by difference in value of seed or crop yield caused by the breach.

Consequential damages require:

• Foreseeability (the seller had reason to know of the buyer’s particular needs or circumstances at the time of contracting),
• Causation, and
• Reasonable certainty.

Incidental damages cover reasonable expenses in handling the breach (inspection, sorting, storage, transportation, arranging cover).

Cover and Market Damages

If the breach amounts to non‑delivery, late delivery, or rightful rejection or revocation of acceptance, the buyer may:

• Cover by purchasing substitute goods in good faith and without unreasonable delay, and recover:
  • Cover price − contract price + incidental and consequential damages; or
• Recover damages based on the difference between market price at the time of breach and contract price + incidental and consequential damages.

Cover is not mandatory, but:

• A buyer who fails to cover cannot recover consequential damages that could reasonably have been avoided by cover.

These damages can be layered on top of warranty theory—i.e., the breach may be characterized as a breach of warranty and remedied with cover or market damages.

Revocation of Acceptance and Warranty

Revocation of acceptance (UCC § 2‑608) is closely connected to warranty. Often, the nonconformity that justifies revocation is the same defect that breaches a warranty.

Key Term: Revocation of Acceptance
The UCC remedy that allows a buyer who has already accepted goods to rescind that acceptance when a nonconformity substantially impairs the value of the goods and specified conditions are met.

A buyer may revoke acceptance if:

• The nonconformity substantially impairs the value of the goods to that buyer, and
• Either:
  • The buyer reasonably believed the seller would cure but did not, or
  • The defect was difficult to discover at acceptance, or the acceptance was induced by the seller’s assurances.

Revocation must be:

• Within a reasonable time after the buyer discovers or should discover the defect, and
• Before any substantial change in the condition of the goods not caused by the defect itself.

After effective revocation:

• The buyer may cancel the contract,
• Recover the price paid, and
• Assert all other remedies available to a buyer who has rightfully rejected goods (e.g., cover, damages).

Revocation is only available for substantial impairment. Minor breaches of warranty support damages but not revocation.

Rescission and Restitution

Rescission and restitution may be available in addition to or instead of damages:

• Rescission cancels the contract and unwinds the exchange.
• Restitution restores the parties to their pre‑contract positions, typically:
  • Buyer returns the goods (if possible) and receives the price paid.
  • Sometimes includes interest or other equitable adjustments.

Rescission often appears in consumer cases where the goods are seriously defective and repair attempts have failed, or when a limited repair remedy has failed of its essential purpose.

Extension of Warranties to Third Parties

Under common law, only parties in privity (the contracting parties) could sue for breach of warranty. Modern law, especially the UCC, extends warranties to certain third parties.

Key Term: Privity
The contractual relationship between parties to a contract; some states require privity between the injured plaintiff and the defendant seller for warranty actions, while others extend warranties to certain non‑privity users.

UCC § 2‑318 offers three alternative approaches; each state adopts one:

• Alternative A (narrowest): Warranties extend to the buyer’s family members and household guests who are injured in person by breach of warranty, if it was reasonable to expect that such persons might use, consume, or be affected by the goods.
• Alternative B: Warranties extend to any natural person who may reasonably be expected to use, consume, or be affected by the goods and who is injured in person.
• Alternative C (broadest): Warranties extend to any person (including corporations) who may reasonably be expected to be affected by the goods and who may recover for any damages (including economic loss).

On the MBE:

• Questions rarely specify which alternative is in force. Unless told otherwise, assume a relatively consumer‑friendly approach: at least family, household, and guests can sue for personal injuries.
• For purely economic loss by remote commercial parties, expect more variation:
  • Some states still require privity for economic loss.
  • Others allow claims up the distribution chain (e.g., retailer against manufacturer) based on warranty.

Vertical privity (remote sellers like manufacturers) and horizontal privity (non‑buyer users) are both in play. Many jurisdictions allow a consumer to sue a manufacturer directly for breach of express or implied warranties, especially when the manufacturer’s representations were on packaging or in advertising.

Relationship to Strict Products Liability and Economic Loss

Warranty law overlaps with strict products liability, but they are distinct doctrines.

• Warranty claims (UCC):

  • Contract‑based.
  • No need to prove negligence; only that:
    • A warranty existed,
    • It was breached, and
    • The breach caused damages.
  • Disclaimers and limitations of remedies can apply (subject to rules and unconscionability).
  • May be limited by privity and notice requirements.
  • Subject to a four‑year statute of limitations from tender (subject to future‑performance exceptions).

• Strict products liability (tort):

  • Focuses on whether the product was defective and unreasonably dangerous when it left the defendant’s control.
  • No proof of negligence required.
  • No privity required; any person foreseeably injured by the product can sue.
  • Disclaimers of liability are generally ineffective for personal injury.
  • Statute of limitations and repose rules vary by state but typically start at injury, not tender.

Key Term: Economic Loss Rule
The doctrine that limits tort recovery (including strict products liability) for purely economic loss—such as diminished value or lost profits—to contract remedies, leaving warranty law as the primary vehicle for such claims.

On the MBE:

• For personal injury or damage to other property:

  • Both strict products liability and warranty theories are plausible.
  • Disclaimers and remedy limitations are generally ineffective to block tort claims for bodily injury.

• For purely economic loss (lost profits, repair costs, diminished value of the goods themselves):

  • Many jurisdictions confine recovery to contract/warranty theories—tort is not available.
  • Warranty analysis (existence, disclaimer, limitation of remedies, notice, statute of limitations) becomes central.

Be alert to the interaction of:

• A conspicuous contractual disclaimer of implied warranties and limitation of remedies, and
• A consumer’s personal injury from a defective product.

In such cases, the contract limitations likely control economic loss, but tort remedies remain available for bodily injury.

Worked Example 1.1

A retailer sells a new washing machine to a consumer. The retailer states, "This machine will handle any household laundry load." The machine breaks down after one week when used for ordinary laundry. The consumer sues for breach of warranty. What warranties may apply?

Answer:
The retailer’s statement is likely an express warranty that the machine will handle ordinary household laundry loads. As a merchant of washing machines, the retailer also gives an implied warranty of merchantability (fit for ordinary laundry). Both warranties are breached if the machine fails under normal use. The consumer can seek damages based on the difference between the value as delivered and as warranted and may also revoke acceptance if the defect substantially impairs the value of the machine and revocation is timely.

Worked Example 1.2

A buyer tells a hardware store clerk, "I need paint that will withstand outdoor weather for five years." The clerk recommends a specific paint, which peels after one year. The buyer sues for breach of warranty. What is the likely result?

Answer:
The clerk’s recommendation creates an implied warranty of fitness for a particular purpose, because the seller knew the buyer’s specific purpose (long‑term outdoor durability) and the buyer relied on the seller’s judgment. The paint’s failure to last breaches this warranty. An implied warranty of merchantability may also be implicated if typical outdoor paint should last longer under ordinary use. The buyer can recover expectation damages and may be able to revoke acceptance if the failure substantially impairs the value of the paint job to the buyer.

Worked Example 1.3

A used‑car dealer advertises: "This car has a new transmission" and tells the buyer, "The odometer reading of 40,000 miles is accurate." The contract the buyer signs includes: "Car sold AS IS. Seller disclaims all warranties." The transmission soon fails and the odometer turns out to have been rolled back.

Answer:
The dealer’s specific statements about the transmission and mileage are express warranties that became part of the basis of the bargain. The general "as is" disclaimer is inconsistent with those promises and cannot negate them under UCC § 2‑316(1). The buyer can recover for breach of express warranty despite the disclaimer. The buyer may also claim breach of the implied warranty of merchantability, but even if that implied warranty were effectively disclaimed by a conspicuous "as is" clause, the express warranties remain.

Worked Example 1.4

A consumer buys a new toaster from a big‑box store. The contract contains a conspicuous clause: "Seller makes no warranties, express or implied, including any warranty of merchantability or fitness." The toaster explodes due to a manufacturing defect, injuring the buyer’s hand.

Answer:
As a merchant of toasters, the seller would normally give an implied warranty of merchantability. The written disclaimer mentioning "merchantability" and being conspicuous is effective to disclaim implied warranties. However, the buyer may still pursue strict products liability for personal injury; contractual disclaimers do not bar tort recovery for defective products causing bodily harm. For economic loss (e.g., the value of the toaster), the buyer’s contract remedies may be limited by the disclaimer and any limitation of remedies clause.

Worked Example 1.5

A wholesaler contracts to provide a restaurant with "U.S.D.A. Choice beef." The beef delivered is actually U.S.D.A. Select, a lower grade, but it is edible and safe. The restaurant has already accepted and used some of the beef when it discovers the problem. It wants to revoke acceptance of the remainder.

Answer:
The description "U.S.D.A. Choice" creates an express warranty. Delivering a different grade breaches that warranty and also breaches merchantability (goods must conform to label descriptions). However, revocation of acceptance requires a nonconformity that substantially impairs the value of the goods. If the difference between choice and select does not substantially impair the value to this buyer—for example, because the restaurant’s customers cannot tell the difference—revocation is improper and the restaurant is limited to damages. If the restaurant’s business model depends on serving only premium cuts (and the wholesaler knew that), substantial impairment is more likely and revocation may be allowed.

Worked Example 1.6

A seller sells industrial pumps to a manufacturer under a contract stating: "Seller’s liability is limited to repair or replacement of defective parts. Seller shall not be liable for consequential damages." Several pumps fail, causing the manufacturer to halt production and lose large profits. The seller repeatedly attempts but fails to fix the pumps. The manufacturer sues for lost profits.

Answer:
The "repair or replacement only" clause is a limited remedy under UCC § 2‑719. Because repeated repair attempts have failed, the limited remedy has likely failed of its essential purpose—it no longer provides the buyer with the substantial value of the bargain. As a result, the manufacturer may access the full range of Code remedies, including damages based on cover or market price. The separate exclusion of consequential damages (lost profits) is enforceable unless unconscionable. In a commercial context between sophisticated parties, courts usually enforce such exclusions. Thus, the manufacturer can recover direct and incidental damages, but the exclusion may bar recovery of consequential damages (lost profits) absent unconscionability.

Worked Example 1.7

A non‑merchant homeowner sells a used lawnmower to a neighbor, saying only: "It runs." The written bill of sale states in bold, capital letters: "SOLD AS IS. SELLER MAKES NO WARRANTIES OF FITNESS FOR ANY PARTICULAR PURPOSE." The buyer told the seller that she planned to use the mower for mowing steep, rocky terrain. The mower fails when used on that terrain.

Answer:
The seller is not a merchant of lawnmowers, so there is no implied warranty of merchantability. However, the seller knew of the buyer’s particular purpose (mowing steep, rocky terrain) and the buyer arguably relied on the seller’s statement that "it runs." This could create an implied warranty of fitness for a particular purpose. The written "as is" clause, conspicuous and in writing, effectively disclaims the implied warranty of fitness. The buyer’s best argument is that the seller’s statement "it runs" is an express warranty that the mower runs under ordinary conditions; that warranty may have been breached if the mower does not run even on ordinary, level terrain. Failure only on steep, rocky terrain is more about fitness for a particular purpose, which has been effectively disclaimed.

Worked Example 1.8

A consumer buys a new refrigerator with a written "5‑year parts and labor warranty." The refrigerator fails after four years. The contract also includes: "Any action for breach of warranty must be brought within two years of the date of purchase." The buyer sues four years after purchase, when the refrigerator fails.

Answer:
The written promise of a 5‑year warranty explicitly extends to future performance. Under UCC § 2‑725(2), for such warranties the statute of limitations accrues when the breach is or should be discovered, not at tender. A contractual clause shortening the limitations period is permitted if reasonable and not less than one year. Here, the 2‑year period from purchase effectively nullifies the 5‑year future‑performance warranty and is likely unreasonable as applied. Many courts would refuse to enforce the contracted 2‑year limit and instead apply the default 4‑year period running from discovery of breach. The buyer’s suit at year four would be timely.

Exam Warning

On the MBE, several recurring traps appear in warranty questions:

• Confusing express warranties with puffery.
• Overlooking an implied warranty of merchantability when the seller is clearly a merchant.
• Treating a generic "as is" clause as effective against express warranties (it is not).
• Ignoring the requirement that a fitness disclaimer be in a conspicuous writing.
• Forgetting that a seller can effectively disclaim warranties yet still face strict products liability for personal injuries.
• Failing to analyze whether a limited remedy has failed of its essential purpose.

When you see a goods fact pattern with a merchant seller, ask systematically:

• What express warranties were created (advertising, descriptions, labels, oral statements)?
• Did merchantability arise? Did fitness arise?
• Are there disclaimers? If so, do they satisfy UCC requirements?
• Are there remedy limitations or consequential damage exclusions? Have they failed or are they unconscionable?
• What damages are available and are there notice or time‑bar issues?

Revision Tip

When practicing MBE questions in this area:

• Mark every fact that hints at:
  • Seller’s status as a merchant.
  • Buyer’s particular purpose and reliance.
  • Specific factual statements, labels, or samples.
  • "As is," "with all faults," or limitation‑of‑remedy clauses.
• Train yourself to write a short "warranty checklist" in the margin:
  • Express?
  • Merchantability?
  • Fitness?
  • Disclaimers?
  • Limited remedy?
  • Consequential damages?

This structured approach helps avoid overlooking an available warranty or an ineffective disclaimer.

Key Point Checklist

This article has covered the following key knowledge points:

• Express warranties are created by the seller’s statements of fact, promises, descriptions, or samples that become part of the basis of the bargain under UCC § 2‑313.
• Mere opinion or puffery—general statements of value or quality—does not create an express warranty.
• The implied warranty of merchantability applies to merchants selling goods of the kind; goods must be fit for ordinary purposes and meet basic quality standards.
• The implied warranty of fitness for a particular purpose arises when the seller knows the buyer’s particular purpose and reliance, and selects or recommends goods for that special use.
• Disclaimers of the implied warranty of merchantability must mention "merchantability" and be conspicuous if written; "as is" or similar language can also disclaim implied warranties if clear and conspicuous.
• Disclaimers of the implied warranty of fitness must be in a conspicuous writing (or effective "as is" language); they cannot be purely oral.
• Express warranties cannot be disclaimed by general language if inconsistent with the seller’s specific statements; the express warranty prevails.
• Buyer inspection or refusal to inspect limits implied warranties as to defects that a reasonable examination would have revealed.
• Parties may limit remedies (e.g., to repair or replacement) and may exclude consequential damages, but such limitations are invalid if unconscionable or if the limited remedy fails of its essential purpose.
• Consequential damages compensate for special losses such as lost profits or damage to other property; incidental damages cover reasonable costs incurred in dealing with the breach.
• Breach of warranty occurs when goods fail to conform at tender; the buyer must notify the seller of breach within a reasonable time and generally has four years from tender to sue, subject to future‑performance warranties.
• Remedies include damages (difference in value plus incidental and consequential damages), cover, revocation of acceptance when the nonconformity substantially impairs value, and, in appropriate cases, rescission and restitution.
• Warranties may extend to certain third parties (family members, guests, or broader classes, depending on state law); privity requirements vary, especially for purely economic loss.
• Warranty claims do not require proof of fault—only that the warranty existed, was breached, and caused loss—but contractual disclaimers and limitations can significantly affect recovery.
• Strict products liability remains available for defective products causing personal injury even if warranties have been effectively disclaimed; disclaimers generally do not bar tort recovery for bodily harm.
• The economic loss rule often confines purely economic loss to contract or warranty remedies, making warranty analysis central in many commercial defect cases.

Key Terms and Concepts

• Warranty
• Merchant
• Express Warranty
• Implied Warranty of Merchantability
• Implied Warranty of Fitness for a Particular Purpose
• Basis of the Bargain
• Puffery
• Disclaimer
• Conspicuous
• Breach of Warranty
• Revocation of Acceptance
• Consequential Damages
• Incidental Damages
• Limited Remedy
• Failure of Essential Purpose
• Privity
• Economic Loss Rule