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Construing the Written Warranty

A Correction to this article was published on 28 July 2022

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Abstract

In common law, the question of whether the express warranty is one that sounds in contract or tort has been a question of some debate. This question is not one of mere academic or historical interest, but an urgent one even today. Its contemporary relevance is most apparent in the US, where the discussions around the tortious roots of the warranty are found in the current debates around “sandbagging”, which is concerned with whether a buyer has to prove that it actually relied upon the truth of the written warranty expressly incorporated into a commercial contract. This paper demonstrates that it is unjustified to require a showing of reliance with respect to the written warranty, which was even historically understood as simply a term of the contract, subject to a contract construction approach. Instead, the only appropriate role for a buyer’s pre-contractual knowledge of falsity is to serve as a relevant factor in evaluating the parties’ intention regarding the scope of the written warranty – an approach followed by UK courts, which have for over a century cast the warranty as a creature of contract. It is, however, pointed out that there are dangers presented by trying to create too much of a divide between the law of contract and tort with respect to the warranty, as demonstrated by a contemporary line of cases in the UK High Court, because the creation of artificial bright-line rules actually undermines a robust inquiry into the parties’ intentions.

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Notes

  1. 187 A.3d 1209, 1236 fn.185 (Del. 2018) (Valihura J.).

  2. 554 N.Y.S.2d 449 (N.Y. 1990).

  3. Heilbut, Symons & Co. v. Buckleton, [1913] A.C. 30.

  4. The language of tort is intentionally inserted into the brackets because both situations were understood by contemporary jurists to give rise to a claim that was ex delicto and not ex contractu.

  5. Slade v. Morley (Slade’s case) [1601] 80 E.R. 15.

  6. See also Medina v. Stoughton, 90 ER 1014 (1705) (breach of warranty brought as an action of trespass on the case).

  7. Cross v. Gardner, [1689] 89 E.R. 453 (breach of warranty brought as an action of trespass on the case); Medina, 90 ER 1014.

  8. Stuart v. Wilkins, (1778) 1 Douglas 18.

  9. See also, discussion of Chandelor v. Lopus, [1603] 79 E.R. 3, infra notes 10–13.

  10. Chandelor v. Lopus, [1603] 79 E.R. 3.

  11. Chandelor, 79 E.R. at 4 (emphasis supplied).

  12. Cross, 89 E.R. at 453.

  13. Medina, 90 ER at 1014.

  14. Ibid.

  15. Lord Buller disagreed with this assessment in a case where the vendor was out of possession, stating by way of dicta, “the case is strongest against the vendor when he is out of possession, because then the vendee has nothing but the warranty to rely on.” Pasley v. Freeman, [1789] 100 E.R. 450 [454].

  16. In addition to his skepticism as to Lord Holt’s distinction between a seller being in or out of possession in Medina, Lord Buller did state that he doubted whether any distinction mattered at all in an action for a breach of warranty: “…and if an affirmation at the time of sale be a warranty, I cannot feel a distinction between the vendor’s being in or out of possession. The thing is bought of him, and in consequence of his assertion…” Pasley, [1789] 100 E.R. [454].

  17. De Lassalle v. Guildford, [1901] 2 KB 215.

  18. [1601] 80 E.R. 15.

  19. Ibid. [15].

  20. Pasley v Freeman, [1789] 100 E.R. 450 [453] (Buller J.) (emphasis supplied).

  21. See discussion infra Part IV(A).

  22. Uniform Sales Act 1906, § 12.

  23. Citing Harwood v. Breese, 73 Neb. 521, 524 (S. Ct. Ne., 1905) (upholding a jury instruction which provided that even if the buyer “from the exercise of his sense of sight might have discovered” the defect in the pony, the buyer could not maintain a claim for breach of warranty)). In fact, according to Williston, even if the buyer could have discovered the truth of the matter through an inspection, as long as the affirmation was one that would have induced a reasonable buyer, the buyer was entitled to rely upon the seller’s affirmation; requiring any additional, affirmative proof of reliance “misinterprets the requirement of reliance.” Williston, 1908: 572–73 (referring to Crocker-Wheeler Electric Co. v. Johns-Pratt Co., 29 A.D. 300 (N.Y. App. Div. 1898)).

  24. Citing Knoepker v. Ahman, 72 S. W. 483 (Ct. App. Mo., 1903) (upholding a jury instruction that if the seller disclosed the defect in the horse, the buyer cannot maintain a claim for breach of warranty)).

  25. U.C.C. § 2–313(1)(a) (1978).

  26. U.C.C. § 2–313, comment 3.

  27. See U.C.C. § 2–313, comment 7; see also, U.C.C. § 2–313, comment 3, which goes on to provide that affirmations are dealt with “exactly as any other part of a negotiation which ends in a contract is dealt with.”.

  28. Crocker Wheeler Electric Co. v. Johns-Pratt Co., 29 A.D. 300 (N.Y. App. Div. 1898),).

  29. CBS (n 2, [452]-[454]).

  30. Ibid. at 452.

  31. Ibid.

  32. CBS, (n 2, 452) (citing Metropolitan Coal Co. v. Howard, 155 F.2d [780], [784]).

  33. Ainger v. Michigan Gen. Corp., 476 F.Supp. [1209], [1225] (S.D.N.Y. 1979).

  34. Metropolitan Coal, 155 F.2d [784].

  35. CBS (n 2, [452]-[453]) (citing Ainger, 476 F.Supp. at 1225) (emphasis supplied).

  36. Ibid. [453].

  37. CBS (n 2, [457]).

  38. Metropolitan Coal, 155 F.2d [784]; see also Ainger, 476 F.Supp. [1224]-[1225].

  39. CBS (n 2, [451]) (emphasis added).

  40. CBS (n 2 [455]).

  41. Galli v. Metz, 973 F.2d 145, 151 (2d Cir. 1992).

  42. Ibid. [150].

  43. Ibid.

  44. Ibid. [150].

  45. Ibid. [151].

  46. See e.g. Coniber v. Center Point Transfer Station, Inc. 137 A.D.3d 1604, 1606 (N.Y. App. Div.) (stating the familiar definition of waiver as “the voluntary and intentional relinquishment of a contract right”).

  47. Galli, (n 43 [151]).

  48. Ibid.

  49. Ibid.

  50. Rogath v. Siebenmann, 129 F.3d 261, [265] (2d Cir.1997) (“a court must evaluate both the extent and the source of the buyer’s knowledge about the truth of what the seller is warranting”); see also Promuto v. Waste Mgmt., Inc., 44 F. Supp. 2d 628, 648 (S.D.N.Y. 1999); Gusmao v. GMT Grp., Inc., No., 2008 WL 2,980,039, [13]-[14] (S.D.N.Y 2008); Powers v. Stanley Black & Decker, Inc., 137 F. Supp. 3d 358, [374]-[75] (S.D.N.Y. 2015).

  51. Rogath (n 52, [266]) (holding that because the buyer did not expressly preserve his right to bring a warranty claim, the only relevant factual inquiry was what the seller disclosed to the buyer, and other sources of information were “immaterial”).

  52. Ibid [261].

  53. Eagle Force (n 1).

  54. The Middleby Corp. v. Hussman Corp., 1992 WL 220,922, at *6; see also Kelly v. McKesson HBOC, Inc., 2002 WL 88,939, at *8–9 (Del. Super. 2002).

  55. Bleacher v. Bristol-Myers Co., 163 A.2d 526, 528 (Del. Super. 1960) (citing Loper v. Lingo, 97 A. 585 (Del. Super. 1916)). Although, it should be noted that the Loper case is not a case addressing whether reliance is a necessary element in an express, incorporated warranty. The Delaware Superior Court merely noted that “…it is a general rule of law that if the buyer relies on his own judgment and observation, and deals on the strength and basis of his own opinion, there is no warranty.” Loper, 97 A. 585 at 586.

  56. 316 F.3d 641, 649 (7th Cir. 2002).

  57. Ibid. [648].

  58. Ibid. [649].

  59. Gloucester Holding Corp. v. U.S. Tape & Sticky Products, 832 A.2d 116, 127 (Del. Ch. 2003).

  60. 884 A.2d 513 (Del. Super. 2005).

  61. Ibid. [548].

  62. Cobalt Operating, LLC v. James Crystal Enters., LLC, 2007 WL 2,142,926 (Del. Ch. 2007).

  63. Ibid. [6]-[7].

  64. Ibid. [8].

  65. Ibid. [8], [16]-[17].

  66. Ibid. [27] – [28].

  67. Ibid. (distinguishing Homan v. Turoczy, 2005 WL 2,000,756 (Del. Ch. 2005), where the question of justifiable reliance was considered in a claim to recover under fraud or equitable fraud).

  68. Ibid [28].

  69. Ibid. (“No inspection or investigation made by or on behalf of [Cobalt] or [Cobalt’s] failure to make any inspection or investigation shall affect [Crystal’s] representations, warranties, and covenants hereunder or be deemed to constitute a waiver of any of those representations, warranties, or covenants.”).

  70. Cobalt (n 64, [28]).

  71. NASDI Holdings v. N. Am. Leasing, No. 10540-VCL, slip. op. at 57 (Del. Ch. Oct. 23, 2015). (“Delaware is what is affectionately known as a ‘sandbagging’ state.” (Vice Chancellor Laster)).

  72. Eagle Force (n 1).

  73. Ibid.

  74. [1913] A.C. 30.

  75. Ibid. [36–37] (Lord Haldane); Ibid. [44] (Lord Atkinson); Ibid. [47] (Lord Moulton).

  76. Ibid.

  77. Ibid [33].

  78. Ibid [31].

  79. Ibid [36–37] (even though the defendant’s manager’s statement was one of fact, and it induced the plaintiff to buy the shares, there was no collateral contract) (Viscount Haldane); Id. [44] (the statement was an “assurance” as opposed to the collateral contract of warranty) (Lord Atkinson); Id. [48] (the statement of fact induced the plaintiff to buy shares but there was no evidence of any “animus contrahendi other than as regards the main contracts”) (Lord Moulton).

  80. See discussion supra notes 12–18.

  81. [1901] 2 KB 215.

  82. Heilbut, [1913] A.C. [51] (Lord Moulton).

  83. Heilbut, [1913] A.C. [50–51] (Lord Moulton).

  84. [1957] 1 W.L.R. 370.

  85. Ibid. [374].

  86. Ibid. [374].

  87. Ibid. He was perhaps being overly enthusiastic in his statement that the warranty denoted a “binding promise” for that length of time, however, at the time of the Oscar Chess decision, in the mid-twentieth century, it was certainly fair to characterize a warranty in England as one that was commonly understood to mean a contractual promise.

  88. Ibid. [375] (citing Lord Moulton’s opinion in Heilbut).

  89. Ibid.

  90. Ibid. [376].

  91. Ibid. [378].

  92. [1965] 1 W.L.R. 623.

  93. Ibid. [627–28] (emphasis supplied).

  94. Edwin Peel, Treitel on the Law of Contract para. 9–049 (1st South Asian ed. 2012).

  95. Restatement (Second) of Contracts, § 201; see also generally, §§ 18–23 and §§ 200, 202–204.

  96. 196 Va. 493, 503 (Va., 1954).

  97. The artifice of the collateral contract has also been used to avoid the strict application of the parol evidence rule, which may otherwise prevent the consideration of extrinsic evidence, even if in writing, when a contract has subsequently been reduced to writing. For an excellent discussion of the UK jurisprudence in this regard, see K.W. Wedderburn, Collateral Contracts, 17(1) Cambridge L. J. 58 (1959).

  98. [1992] WL 895,057.

  99. Ibid. [1].

  100. Ibid. [2].

  101. Ibid. [3].

  102. Ibid. [2–4].

  103. Ibid. [1].

  104. Ibid. [2–3] (citing the lower court judge’s opinion) (emphasis supplied).

  105. Ibid. [3] (Lord Nourse).

  106. Ibid. [4] (Lord Nourse); ibid [5] (Lord Lloyd).

  107. Ibid. [4–5].

  108. Infiniteland Ltd. v. Artisan Contracting Ltd., [2005] EWCA Civ 758.

  109. Infiniteland Ltd. v. Artisan Contracting Ltd., [2004] EWHC 955 (Ch) [113].

  110. Margetson v. Wright, (1831) 7 Bing. [603] – [605].

  111. Infiniteland (n 110, [115]).

  112. For debates on drafting practices, see Kenneth A. Adams, Eliminating the Phrase Represents and Warrants from Contracts, 16 Tenn. J. Bus. L. 203 (2015); see also, Tina Stark, Nonbinding Opinion: Another View on Reps and Warranties, Business Law Today, Volume 15, Issue 3 (January/February 2006), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1886357.

  113. UK Misrepresentation Act 1967, § 2(2).

  114. UK Misrepresentation Act 1967, § 2(2) giving the court discretion to award damages for innocent misrepresentation if it would be equitable to do so.

  115. [2009] EWHC 2471 (Ch).

  116. [2012] EWHC 3443 (Ch).

  117. [2016] EWHC 1909 (Comm).

  118. Invertec, [2009] EWHC 2471 [1].

  119. Ibid. [363].

  120. Ibid. (emphasis supplied).

  121. Sycamore Bidco, [2012] EWHC 3443 at [1], [201]-[202].

  122. Ibid. [202], [203(i)]-[203(iv)], [210].

  123. Ibid. [209] (emphasis supplied).

  124. [2016] EWHC 1909 [14].

  125. See e.g. SK Shipping Europe Plc v. Capital VLCC 3 Corp., [2020] EWHC 3448 (Comm); Ivy Technology v. Martin, [2020] EWHC 94 (Comm); Wiggin Osborn Fullerlove v. Bond,; Arani v. Cordic Group Ltd., [2021] EWHC 829, [168]-[169] (Comm).

  126. HIH Casualty and General Insurance Ltd. v. Chase Manhattan Bank, [2003] UKHL 6 [16].

  127. Section 3(1) of Misrepresentation Act.

  128. Sycamore Bidco, [2012] EWHC 3443 at [203(i)], [210].

  129. [2002] EWCA Civ 1235.

  130. Ibid. [2]-[3], [5].

  131. Ibid. [12].

  132. Ibid. [13].

  133. Ibid. [18]-[19]. See also, Leofelis SA v. Lonsdale Sports Ltd., [2008] EWCA Civ 640 at [141].

  134. Ibid. [23] (emphasis supplied).

  135. Ibid.

  136. Idemitsu, [2016] EWHC 1909 at [28].

  137. A buyer’s pre-contractual knowledge of falsity might also undercut the link between the breach (of warranty) and the loss suffered. Eurocopy Plc v. Teesdale [1992] WL 895,057, [4] (Lord Nourse); [5] (Lord Lloyd).

  138. It is hoped, however, that courts could at least resolve the Article 2 difficulties in favor of treating the written warranty as a separate category of express warranties that are contractual.

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Kumar, M., Pant, N. Construing the Written Warranty. Liverpool Law Rev (2022). https://doi.org/10.1007/s10991-022-09302-w

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Keywords

  • Express warranty
  • US
  • UK
  • Sandbagging
  • Reliance