2.3 Warranties, Title, and Risk of Loss in Sales of Goods
Key Takeaways
- Article 2 applies to goods, not real estate, and separates contract formation, title, and risk of loss.
- A seller warrants rightful transfer and good title unless the title warranty is properly limited by specific language or circumstances.
- Express warranties can arise from factual descriptions, promises, samples, or models; general “as is” language does not safely erase a contradictory factual promise.
- Merchantability applies only when the seller is a merchant with respect to goods of that kind; an auctioneer is not automatically the merchant seller of every consigned lot.
- Without a contrary agreement, risk-of-loss rules depend on delivery method, breach, and whether the seller is a merchant.
2.3 Warranties, Title, and Risk of Loss in Sales of Goods
Start with classification: Article 2 governs transactions in goods. Land is not a good, and a sale mixing goods and services may require a predominant-purpose analysis. Once Article 2 applies, contract formation, title, warranties, and risk of loss are separate questions.
Warranty of Title
Business & Commerce Code § 2.312 gives the buyer a warranty that the title conveyed is good, the transfer is rightful, and the goods are delivered free of a security interest or lien the buyer did not know about at contracting. The warranty can be limited only by specific language or circumstances that give the buyer reason to know the seller is transferring only whatever right or title the seller or another person has.
That is why an auctioneer should verify consignor identity, ownership documents, and lien releases. “As is” normally addresses quality; it does not automatically tell the buyer that title may be defective.
Express and Implied Warranties
Under § 2.313, an affirmation of fact, promise, description, sample, or model can create an express warranty when it becomes part of the basis of the bargain. Formal words such as “warrant” are unnecessary.
Compare:
- “This tractor has 410 verified engine hours” is a factual representation.
- “This is the finest tractor in the county” is usually opinion or commendation.
A catalog description and a pre-sale announcement can matter. If a material catalog error is found, correct it conspicuously before the lot is offered and preserve the correction. A broad disclaimer should not be expected to cancel a specific, inconsistent factual promise.
The implied warranty of merchantability in § 2.314 arises when the seller is a merchant with respect to goods of that kind. Do not automatically label the bid caller the merchant seller. Identify who owns and sells the lot and whether that seller deals in goods of the kind or otherwise fits the merchant definition for the relevant rule.
The implied warranty of fitness for a particular purpose can arise when the seller has reason to know the buyer's particular purpose and that the buyer relies on the seller's skill or judgment to select suitable goods.
Section 2.316 controls exclusions. A written disclaimer of merchantability must mention merchantability and be conspicuous. Language such as “as is” or “with all faults” can exclude implied warranties in appropriate circumstances. Inspection can also remove an implied warranty for defects the examination ought to reveal. None of those devices authorizes a deceptive factual statement.
Title Is Not Risk of Loss
Section 2.401 generally permits the parties to specify when title passes. Without an explicit agreement, title passes when the seller completes the performance concerning physical delivery. Retaining “title” solely to secure payment is generally treated as reservation of a security interest.
Risk of loss follows §§ 2.509 and 2.510, not simply the word “title” and not automatically the hammer. The governing delivery arrangement matters.
For a sale without carrier delivery:
- if the seller is a merchant, risk generally passes when the buyer receives the goods;
- if the seller is not a merchant, risk generally passes on tender of delivery.
For carrier transactions, the result depends on whether the contract is a shipment contract or destination contract. In a shipment contract, risk generally passes when conforming goods are duly delivered to the carrier. In a destination contract, risk generally passes when conforming goods are tendered at the destination.
A party's breach can shift risk. Nonconforming goods that permit rejection can leave risk on the seller until cure or acceptance. Because the statute permits agreement, well-drafted auction terms should define payment, pickup, storage, insurance, and risk without contradicting mandatory law.
Auction Application
Suppose a private owner sells a generator from a farm, makes it available at the stated pickup place, and the terms do not alter risk. The seller may be a nonmerchant, so tender of delivery can be the key event. Change the seller to an equipment dealer, and buyer receipt becomes important. Add a shipping promise, and the carrier terms control. The same hammer fall can lead to different risk results.
If the auction company makes its own factual statement—such as guaranteeing serial-number authenticity—it can create direct exposure even when the consignor is the statutory seller. The safest practice is to attribute information, verify important claims, allow inspection, state disclaimers conspicuously, and correct errors before bidding.
Exam Method
Work in this order:
- Is the subject a good?
- Who is the seller?
- Is that seller a merchant for this kind of good?
- What warranty or representation is involved?
- Did the parties agree on delivery and risk?
- Is there a shipment, destination, or breach issue?
Never answer a risk question solely with “the hammer fell.”
When does the implied warranty of merchantability ordinarily arise?
A nonmerchant seller tenders conforming goods at the agreed pickup place, and the contract does not alter risk. Which rule generally applies?
Which statement is most likely to create an express warranty?