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|Your Clients' Rights on Warranties on Cars and Trucks||
Last updated: December 2004
Your client has purchased a car (or truck) which does not meet his/her expectations because it has one or more defects. You want to know the client’s rights to have the defect rectified, or to recover damages, or to cancel the sale.
Illinois Commercial Code, 810 ILCS 5/2-312 through 5/2-318.
Includes: Warranty of Title §2-312; Express Warranties §2-313; Implied Warranty of Merchantability §2-314; Implied Warranty of Fitness for Particular Purpose §2-315; Exclusion or Modification of Warranties §2-316; Cumulation and Conflict of Warranties §2-317; Third Party Beneficiaries of Warranties §2-318
New Vehicle Buyer Protection Act (Lemon Law), 815 ILCS 380/1 et. seq.
Magnuson-Moss Warranty Act, 15 U.S.C. §2301 et. seq., 16 C.F.R. §§700-703
Common Law Implied Warranties
Notice. Where the buyer discovers a breach of warranty, he or she must, within a reasonable time, notify the seller of the breach or be barred from any remedy. 810 ILCS 5/2-607(3).
Actual Damages. If the seller fails to correct the breach, the buyer may recover actual damages, measured as the difference between the value of the vehicle when accepted and the value as warranted, absent special circumstances. An acceptable measurement of this difference is the cost to repair the vehicle in order to attain the quality warranted. 810 ILCS 5/2-714.
Incidental and consequential damages. These may also be recovered, including injury to person or property proximately resulting from the breach of warranty. 810 ILCS 5/2-715.
Proximate cause. The buyer must show that the breach of warranty was the proximate cause of the loss sustained.
Liquidated damages clauses. Under 810 ILCS 5/2-718, damages for breach by either party may be co-opted by a liquidated damages clause in the agreement but only at an amount which is reasonable in light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or non-feasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void.
Additional remedies. Under 810 ILCS 5/2-719, the contract may provide for remedies in addition to or in substitution for those provided in the UCC and may limit the buyer's remedies, unless the limitation is unconscionable.
Differences Between Rejection and Revocation:
Cancellation is a Self-Help Remedy. Cancellation is exercised by the buyer notifying the seller and making the vehicle available to the seller to pick up. If all goes well, the seller takes back the car, returns any money paid toward the purchase price and cancels the buyer's outstanding obligations. If the seller fails to do any of these things, the buyer may seek judicial relief under the Code in the form of damages.
When Rejection is Available as a Remedy. Since it is available only before acceptance, the key is whether the buyer accepted the car. Acceptance occurs when the buyer, by words, conduct, or silence, manifests an intention to accept the car.
810 ILCS 5/2-606 provides three methods by which the buyer can manifest the intent to accept: a) the buyer fails to reject after a reasonable opportunity to inspect; b) the buyer signifies acceptance or signifies that goods are conforming, after a reasonable opportunity to inspect, or c) the buyer performs any act inconsistent with the seller's ownership.
Important: The buyer does not accept goods merely because s/he has obtained title to them, has paid for them, or has possession of the goods. To properly reject the buyer must not only inspect and reject within a reasonable time, but must also give "seasonable" notification, that is notification of rejection to the seller within the time specified in the contract or, otherwise within a reasonable time. There is no prescribed method of notification in the Code, but merely returning the goods to the seller is insufficient.
When Revocation is Available as a Remedy. Once the buyer has accepted the goods, s/he can cancel the sale only by revoking that acceptance. 810 ILCS 5/2-608 establishes five conditions: a) the defect must substantially impair the value of the car to the buyer; b) the buyer must have been justifiably unaware of the defect when acceptance occurred, or if known, reasonably assumed seller would cure; c) the revocation must occur within a reasonable time after the buyer discovers or should have discovered the defect; d) the car must be in essentially the same condition as when delivered, except for damage caused by the defect; and e) the buyer must notify the seller of the revocation.
810 ILCS 5/2-711 entitles the buyer to the return of all money paid toward the purchase price.
810 ILCS 5/2-715 specifies incidental and consequential damages, including expenses reasonably incurred in inspection, receipt, transportation, and care/custody of the car and any other reasonable expense incident to any delay or breach. Consequential damages include certain losses resulting from the particular needs of the buyer as well as injuries to the person or property proximately resulting from any breach of warranty.
The canceling buyer may also recover any extra cost incurred buying substitute goods. This remedy is called "cover" and is expressly authorized by 810 ILCS 5/2-712. The buyer is not penalized for failing to cover and may recover damages for increased cost of the car under 810 ILCS 5/2-713.
If the seller refuses to return any payments made by the buyer, the buyer has a security interest in the goods to cover such payments and may sell the goods and keep the proceeds necessary to reimburse him. 810 ILCS 5/2-711(3).
The seller's refusal to discharge its UCC duties of recognizing the buyer's rightful rejection or revocation may also be actionable under the Consumer Fraud Act.
Express warranties by the seller are created, provided they are a part of the basis of the bargain, by:
No formal words necessary. It is not necessary that seller use formal words such as "warrant" or "guarantee." Nor is it necessary that seller intend to make a warranty. However, expression of the seller's opinion or commendation of the car does not constitute a warranty, nor does mere "puffing."
"Part of the Basis of the Bargain." This term is broadly interpreted. The term "bargain" encompasses the entire transaction and surrounding circumstances and specific evidence of reliance on a statement is unnecessary. The customer must usually only show that s/he read or heard and believed the statement, but other circumstances or contractual disclaimers can make it unreasonable for the buyer to believe that statements or promises were part of the basis of the bargain.
Manufacturer or Third Party warranties. The statement need not be made by the actual car dealer, but can be the manufacturer's statement or promise, or that of a third party that gets introduced into the bargaining process.
Implied in every sale. Every contract for sale of a vehicle implies a warranty by the seller that the title is good, and the vehicle is free of any security interest, lien, or other encumbrance.
The warranty extends to a buyer whether or not the seller was in possession of the vehicle at time of sale.
Limits on exclusions or modifications. The warranty is not subject to exclusion or modification under §2-316, but may be excluded or modified only by specific language or by circumstances which give the buyer reason to know that the seller does not claim title.
Implied in every sale. Whenever the seller is a merchant with respect to vehicles, a warranty that the vehicle shall be "merchantable" is implied in every sale.
What is Merchantable? To meet the test of "merchantable," the vehicle must at least:
Can be excluded. This implied warranty can be excluded or modified pursuant to §2-316 with an “as is” clause. Without an “as is” clause, the warranty of merchantability can only be excluded or modified if the language specifically mentions merchantability, and is conspicuous.
Use in consumer fraud cases. Note that in consumer fraud cases, you may also have a breach of the implied warranty of merchantability.
Example: A vehicle sold with an odometer roll-back would not "pass without objection in the trade" and would thus be unmerchantable.
Used cars. A used vehicle should be in reasonably safe condition and substantially free of defects that impair its operation. Overland Bond & Inv. Corp. v. Howard, 9 Ill.App.3d 348, 292 N.E.2d 168 (1st Dist. 1972). It should perform up to the level reasonably expected of a car of the same age, mileage and price.
Reliance on Seller’s Judgment. If the seller, at time of sale, has reason to know the particular purpose for which the car is required (e.g., cross-country trip), and that the buyer is relying on the seller's skill or judgment to select or furnish a suitable car, there is an implied warranty that the car shall be fit for such purpose.
Particular Purpose. Whether or not the car is sold for a "particular purpose" depends on whether the buyer is to put the car to a specific use peculiar to his business or circumstances. It is to be distinguished from ordinary or general use.
Can be excluded. This implied warranty can be excluded or modified under §2-316 with an “as is” clause. Without an “as is” clause, the warranty of fitness can only be excluded or modified if the exclusion/modification is in writing and conspicuous. The language need not mention “fitness” and is sufficient by stating, for example, "There are no warranties which extend beyond the description on the face hereof."
A seller cannot successfully exclude or modify an express warranty by words or conduct which cannot be reasonably construed consistently with the words or conduct relevant to the creation of the express warranty.
All implied warranties are excluded by expressions like "as is," "with all faults," or other language which calls the buyer's attention to the exclusion of warranties, unless circumstances indicate otherwise.
Note: An "as is" warranty disclaimer does not shield the seller from non-UCC fraud claims. Also, when you see an “as is” disclaimer, consider whether there were any express warranties.
No implied warranties for obvious defects. There are no implied warranties with regard to defects which an examination before entering the contract ought to have revealed, if the buyer has examined the goods as fully as desired or has refused to examine them.
The general rule is that warranties, whether express or implied, shall be construed as consistent with each other and as cumulative. If that construction is unreasonable, the intention of the parties determines which warranty is dominant. An express warranty (e.g., "I will replace defective parts") is superior to an inconsistent warranty of merchantability. An implied warranty of fitness is superior to an inconsistent express warranty.
Any of the above warranties, express or implied, extends to all family and household members of the buyer as well as to guests in his/her home if it is reasonable to expect that the family or household member or guest might use or be affected by the vehicle and who suffers harm by breach of the warranty.
Defenses include: buyer's negligence, assumption of risk, misuse of theproduct, non-compliance with conditions to warranty coverage, expiration of express warranty period, and statute of limitations (4 years after the cause of action accrues).
Persons who purchase a new vehicle for primarily personal, household or family purposes have a remedy against the seller where:
(1) the new vehicle fails to conform to all express warranties applicable to such vehicle, and
(2) that failure substantially impairs the use, market value or safety of that vehicle.
“Seller” defined. The Act provides a cause of action against the "seller," defined as the manufacturer, the manufacturer's agent or distributor, or that manufacturer's authorized dealer.
“New vehicle” defined. Means a passenger car, a second division vehicle having a weight under 8,000 pounds, and a recreational vehicle, all as defined in the Illinois Vehicle Code.
Requirement of written statement. The seller must provide the consumer with a written statement clearly and conspicuously setting forth in full detail the consumer's rights under this Act. This statement must be provided upon delivery of the vehicle to the consumer.
The consumer must elect whether to proceed and settle under this Act or to bring a cause of action under the Illinois Commercial Code. Persons who elect the former are barred from the latter.
Seller’s Right to Cure. The buyer must allow the seller a reasonable number of attempts to bring the new vehicle into conformance with the applicable express warranties.
Reasonable number of attempts. A presumption arises that a reasonable number of attempts have been undertaken where, within a period of one year or 12,000 miles after delivery, whichever occurs first:
1. the nonconformity has been subject to repair by the seller, its agents or authorized dealers, 4 or more times, and the non-conformity continues to exist; or
2. the vehicle has been out of service to repair the non-conformities for a total of 30 or more business days.
Informal Dispute Procedures. If the manufacturer has established an informal dispute settlement procedure, the consumer must first resort to that procedure before claiming a remedy under this Act, provided that:
1. the procedure conforms to 16 C.F.R. Part 703 (Magnuson-Moss Warranty Act regs); and
2. the consumer has received from the seller adequate written notice of the existence of the procedure.
3. the procedure requires the seller to notify the consumer of the decision reached through such procedure, and of the customer's right to bring a civil action to enforce his rights under this Act, if the customer is dissatisfied with the decision reached in the settlement procedure.
Replacement vehicle or refund. If the prerequisites have been met, the manufacturer must provide the consumer with a new vehicle of like model line, if available, or otherwise a comparable motor vehicle as a replacement, or accept the return of the vehicle from the consumer and refund to the consumer the full purchase price of the new vehicle, including all collateral charges, less a reasonable allowance for consumer use of the vehicle. (The Act defines "reasonable allowance.")
Refunds made shall be made to the consumer and lien holder if any exists, as their respective interests appeal.
Any replacement vehicle provided to the consumer pursuant to this Act is also accorded the same protection of the Act.
Where the nonconformity is the result of abuse, neglect or unauthorized modifications or alterations.
Where the action is brought beyond the statutory limitations period. Any action under this Act must be commenced within 18 months following the date of original delivery of the car to the consumer.
The Act does not create any new warranties. The Act has three purposes:
1. To promote better understanding for consumers purchasing products with written warranties through specific disclosures;
2. To make it easier for consumers to obtain court enforcement of a warranty by providing for attorneys fees and costs;
3. To stimulate the production of more reliable products by requiring clear disclosure of what the warranty promises.
The main features of the Act are disclosure in simple and readily understood language, minimum requirements for full warranties, prohibition of tie-ins, and recovery of attorneys fees.
The Act applies only to consumer products manufactured after July 4, 1975. 15 U.S.C. §2302(e). Consumer products are defined as any tangible personal property normally used for personal, family or household purposes. 15 U.S.C. §2301(1). Most of its provisions are restricted to products with written warranties. However, damages and attorneys fees for breach of both express and implied warranties are available.
The Act requires that for each written warranty within the scope of the Act, the terms of the warranty must be disclosed before the sale, clearly and conspicuously, in easily understood language, including the following information:
The Act requires that for each written warranty within the scope of the Act, the terms of the warranty must be disclosed before the sale, clearly and conspicuously, in easily understood language, including the following information:
Designation of the warranty. Must be described as "Full" or "Limited," as part of the caption or title.
Warranty coverage. Must explain what products, parts, characteristics or components are covered and which are excluded
Warranty duration, including commencement.
Warrantor's performance obligations. The obligations may vary considerably, e.g., repair, replace, refund, pay for parts only, etc.
Consumer's duties. These are preconditions to the warrantor's obligations. A step-by-step explanation of the procedures which a consumer must follow must be disclosed, including a statement of any expenses the consumer must bear, and including the identification of any person or class of persons authorized to do the warranty work.
Informal dispute settlement mechanisms. Must explain the availability of any informal dispute settlement procedure offered by the warrantor and a recital that the purchaser may be required to resort to such procedure before pursuing any legal remedies in the courts.
Legal Remedies. A brief, general description of the legal remedies available to the consumer.
Notice of State Rights. Each warranty must contain the following language: "This warranty gives you specific legal rights and you may also have other rights which vary from state to state."
The warrantor’s obligations are not required if he can show that the defect or malfunction was caused by damage (not resulting from defect or malfunction) while in the possession of the consumer, or unreasonable use (including failure to provide reasonable and necessary maintenance).
Whenever there is a written warranty, implied warranties cannot be disclaimed or modified. They may be limited in duration to the duration of a warranty, provided the limitation is both reasonable and conscionable. Any disclaimer, modification, or limitation violating this rule is ineffective under federal or state law. The same is true when there is a sale of a service contract as part of the sales transaction, or within 90 days. If a service contract is sold to the buyer, no implied warranty can be disclaimed or modified. Therefore, if the sales contract includes any written warranty or a service contract, all implied warranties exist. 15 U.S.C. §2308.
Act prohibits breach of implied warranties. The Act provides a remedy for a consumer who is damaged by any breach of an implied warranty. This remedy is available under the Act even where no written warranty was provided. This is an important and often overlooked Magnuson-Moss provision. It provides a federal cause of action for breach of virtually any implied warranty, permitting the plaintiff to recover damages and attorneys fees.
The Act provides a remedy for any breach of a written warranty. In addition, the Act requires that every warranty be labeled as full or limited. A warranty can be "full" without covering every product part, characteristic or component. If a written warranty meets the minimum standards in 15 U.S.C. §2304, as set forth below, it is a full warranty. Otherwise, it is a limited one. A warranty cannot be labeled as “FULL” unless, at a minimum, it complies with the following:
The Act prohibits a warrantor from tying the performance of a written or implied warranty to the buyer's use of a particular product or service. Example: It is unlawful for a car manufacturer to honor its implied or express warranty only if one of its dealers perform all maintenance and service work. 15 U.S.C. §2302(c).
Prohibited tie-ins include tying a warranty to the use of only authorized parts or to a certified product, and giving a longer warranty for a product when purchased with a tied-in product.
There are a number of less important prohibitions and restrictions applicable to all written warranties. First, the warrantor cannot grant itself the sole authority to determine a defect or nonconformity. Example: A warrantor cannot warrant a product against any defect in material or workmanship and then state that it alone shall determine what is and what is not a defect.
Other prohibitions cover subjects such as warranty registration cards, warranty extensions during repair efforts, and advertising and labeling.
Private right of action. A consumer has a private right of action and can sue, individually or as representative of a class, for violation of the Act. Possible violations of the Act arise when there is a failure to honor a written warranty, or to honor any implied warranty created by state law, or to comply with any requirement of the Act or regulations. 15 U.S.C. §2301(d).
Parties Who Are Liable: A consumer has a claim against any supplier, warrantor or service contractor who fails to comply with any obligation under the Act, the regulations, or with any written or implied warranty or a service contract.
Jurisdiction: Most suits under the Act will have to be brought in state court. 15 U.S.C. §2310(d) grants federal court jurisdiction only when the amount in controversy is $50,000 or more for an individual claim. In a class action, there is no federal court jurisdiction unless each individual claim is at least $25, the total amount in controversy is at least $50,000 and the class has at least 100 named plaintiffs, not just class members.
Relief: A consumer with a cause of action can sue for "damages and other legal and equitable relief." 15 U.S.C. §2310(d)(1). The word damages is not defined, but presumably it includes any monetary loss, including consequential and incidental damages, as well as personal or emotional injury. The measure of damages is not specified, but where appropriate, the Uniform Commercial Code will control. Punitive damages are not recoverable in Illinois. There are no statutory damages.
Attorneys Fees and Costs: A prevailing consumer may be awarded attorneys fees and costs. This provision is very important. It applies to the buyer who prevails on a claim for violation of the M-M disclosure rules or for breach of any "written warranty." Most significantly, the buyer who prevails on a UCC implied warranty claim can obtain attorneys fees.
Preconditions To Filing Suit Under the Act:
If the suit is for failure to comply with a warranty obligation, and the warranty requires use of a valid, informal dispute resolution mechanism, the consumer must use that mechanism before suing. The FTC has rules setting forth minimum requirements for any informal dispute settlement procedure which is incorporated into the terms of a written warranty.
The consumer must afford the warrantor a reasonable opportunity to cure.
Violations of Magnuson-Moss May Be Violations of the Illinois Consumer Fraud Act. Any person who violates any of the requirements or prohibitions of the Magnuson-Moss Act is deemed to have committed an unfair deceptive practice in violation of the Federal Trade Commission Act, 15 U.S.C. §45(a)(1). Illinois courts must consider FTC Act violations when construing the CFA.
Common law implied warranties are especially useful in sales transactions not governed by the UCC, such as contracts for labor, services, and real estate. Courts have implied warranties in contracts for labor and materials or for services. Courts applying Illinois law have held that one who contracts to perform construction work impliedly warrants to do the work in a reasonably workmanlike manner. Dean v. Rutherford, 49 Ill.App.3d 768, 364 N.E.2d 625 (4th Dist. 1977). Auto repair contracts are good examples of contracts in which warranties may be implied.
Many courts finding an implied warranty in the common law have analogized to the UCC implied warranty provisions. Although such provisions are limited to sales of goods, comments to §2A-213 make clear that this limitation was not intended to preclude common law evolution in other circumstances.
Some cases imply a warranty that services be performed in a "workmanlike manner," where the consumer must show that the work was not done properly. This is similar to the UCC implied warranty of merchantability. When the common law implied remedy is one of reasonable fitness for the intended use, it is analogous to the UCC implied warranty of fitness for a particular purpose.
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