11/07/2014 09:39 am ET Updated Jan 07, 2015

Selling an Item 'As Is' Does Not Eliminate All Responsibility

It would seem that "sold as is" means just that. However, additional language is frequently required to exclude all express and implied warranties. This comment briefly reviews some of the limitations of 'sold as is' language in a contract. Always utilize experienced legal counsel in preparing and reviewing contracts.

Sales of goods are typically governed by the Uniform Commercial Code, a state law. The Uniform Commercial Code states that when goods are sold certain implied (automatic) warranties are present even if not discussed or written into a contract.

The implied warranty of title states that the seller owns the goods, there are no liens against the goods, and the goods do not infringe on patents, trademarks, or copyrights. "Sold as is" does not eliminate the warranty of title. Rather, language such as "transfer such right, title, and interest as I have" is required to eliminate the title warranty. Courts frequently state that "sold as is" only draws the buyer's attention to the quality of the goods and not to ownership issues.

The implied warranty of merchantability is automatically created when a merchant sells goods. It states that the goods are reasonably fit for the ordinary purposes for which such goods are used. Many jurisdictions require a statement such as "there is no implied warranty of merchantability" to eliminate this warranty.

The implied warranty of fitness for a particular purpose is automatically created when a buyer describes her/his precise need and any seller (merchant or not) selects the goods for the buyer, knowing that the buyer is relying upon this selection. Courts typically require a bold face statement, "there are no warranties that extend beyond the description on the face hereof," to eliminate this warranty.

A model, sample, or description of goods creates an express warranty that the goods conform to this. It is difficult for a seller to describe the goods as possessing specified characteristics and then to deny that the description is meaningful when the goods fail to conform. Courts will, however, allow some vague statements to be made about the goods (this is a great car) without liability under an umbrella of sales talk or puffery.

A recent decision of the federal District Court for the Northern District of Texas involved the sale of a Bell helicopter (Luig v. North Bay Enterprises, Inc.). In brief summary, the Aircraft Purchase Agreement stated in one section that "The aircraft will be delivered with Fresh Annual Inspection with all systems in an airworthy condition and a current Certificate of Airworthiness." In another section the agreement stated: "At the time of delivery Purchaser agrees to accept the Aircraft in an 'as is where is'condition (NO WARRANTY)." The dispute centered on whether a failure by the seller to comply with certain FAA airworthiness directives constituted a breach of contract or warranty.

The Court decided that the implied warranties of merchantability and fitness had been disclaimed. However, the airworthiness language in the agreement created an express warranty that was not disclaimed. The specific term "airworthy" controlled over the general term "as is." Consequently, an express warranty had been violated under the facts of this case.

Thus, a seller must not consider "as is" or "as is where is" language as a magic phrase that sweeps away all responsibilities. Rather, more specific and precise phrasing, considering the agreement as a whole, should be provided by your legal counsel.