University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

408

Pages:

2
Author:

bratrochanter

Summary of Appendix B B-29 to B-32: Key Provisions on Warranties, Risk of Loss, and Lease Contract Effects Warranties in Lease Contracts 1. Express Warranties (§2A-210): o Created by:  Affirmations of fact or promises about the goods.  Descriptions forming part of the bargain.  Samples or models reflecting the goods. o Not dependent on formal terms like "warranty" but excludes mere opinions or commendations. 2. Warranties Against Interference/Infringement (§2A-211): o Lessor warrants that no third-party claims (other than infringement) will disrupt the lessee's use. o Merchant lessors warrant goods are free of rightful infringement claims, except in finance leases. o Lessees specifying goods must hold lessors harmless for infringement claims resulting from their specifications. 3. Implied Warranties (§2A-212 & §2A-213): o Merchantability: Implied for lessors who are merchants, ensuring goods meet ordinary use standards. o Fitness for Particular Purpose: Arises when lessors know the lessee’s specific purpose and reliance on the lessor’s judgment. o Additional warranties may arise from trade practices or course of dealing. 4. Exclusion/Modification of Warranties (§2A-214): o Requires conspicuous writing to exclude implied warranties. o Common exclusions include "as is" or "with all faults" language, subject to lessee awareness and clarity. o Warranties against interference or infringement require specific, conspicuous exclusions in writing. 5. Cumulative and Conflicting Warranties (§2A-215): o Warranties are interpreted as consistent and cumulative unless unreasonable. o Hierarchical rules determine dominance (e.g., technical specifications override samples). 6. Third-Party Beneficiaries (§2A-216): o Warranties extend to household members, guests, or others reasonably expected to use the goods. o Three alternative models specify the scope and limits of warranty extension and exclusion. Risk of Loss 1. General Rule (§2A-219): o Risk of loss remains with the lessor unless explicitly passed to the lessee (e.g., in finance leases). o If goods are shipped or held by a bailee, the risk transfers based on delivery or acknowledgment of possession. 2. Impact of Default (§2A-220): o Nonconforming goods or rightful rejection keeps risk of loss with the lessor. o In lessee defaults, risk may shift to the lessee for a commercially reasonable time, subject to insurance coverage. 3. Casualty to Identified Goods (§2A-221): o Total loss before delivery or risk transfer voids the lease contract. o Partial loss or deterioration allows lessees to inspect and either void the lease or accept goods with rent adjustments. General Lease Contract Effects 1. Enforceability (§2A-301): o Lease contracts are binding between parties and enforceable against third-party purchasers and creditors unless otherwise stated. 2. Title and Possession (§2A-302): o Provisions apply regardless of who holds title or possession, overriding fraud rules related to possession. 3. Alienability of Interests (§2A-303): o Restrictions on transferring lease rights, damages, or security interests are enforceable only if they impact performance materially. o Delegating material performance without consent can trigger default remedies.