Royal Business Machines, Inc. v. Lorraine Corp.
633 F.2d 34 (1980)
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Rule of Law:
Under U.C.C. § 2-313, a seller's general statements of opinion, such as that goods are of 'high quality' or will produce 'substantial profits,' are non-actionable 'puffery' and do not create an express warranty. Specific, verifiable assertions of fact about a product's performance capabilities can create an express warranty, but only if they become part of the 'basis of the bargain' for each transaction, considering the buyer's evolving knowledge and experience over a series of purchases.
Facts:
- Over an 18-month period beginning in June 1974, Michael L. Booher and Lorraine Corp. (Booher) purchased 114 RBC I and 14 RBC II plain paper copying machines from Royal Business Machines, Inc. (Royal).
- Booher, a dealer, purchased the machines with the intent to lease them to his own customers.
- During the sales process, Royal's representatives made numerous oral representations to Booher.
- These representations included general claims that the machines were of 'high quality,' had a 'very low' frequency of repair, and that purchasing them would return 'substantial profits.'
- Royal also made specific claims that the machines had been 'extensively tested,' were safe and 'could not cause fires,' that maintenance costs would be no more than a half-cent per copy, and that the RBC II model would require service calls only every 7,000 to 9,000 copies.
- After the purchases began, Booher experienced significant problems with the machines, including frequent jamming, poor copy quality, and instances of 'burn jams' and 'open flame' fires.
- In February 1975, Booher specifically asked a Royal representative about fire hazards and was assured that the machines could not cause fires.
- Royal made repeated promises to cure the defects in the RBC II machines, at one point replacing nine of Booher's machines and modifying others.
Procedural Posture:
- In mid-August 1976, Michael L. Booher sued Royal Business Machines, Inc. in an Indiana state court, alleging breach of warranties and fraud.
- On September 1, 1976, Royal sued Booher in the United States District Court based on financing agreements.
- Royal then removed Booher's state court action to the federal district court, where the two cases were consolidated.
- Following a bench trial, the district court found in favor of Booher, awarding him $1,171,216.16 in compensatory and punitive damages and $156,800.00 in attorneys' fees.
- The district court also denied Royal recovery of a $596,921.33 debt from Booher that had been previously established by summary judgment.
- Royal (appellant) appealed the district court's judgment to the U.S. Court of Appeals.
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Issue:
Under U.C.C. § 2-313, does an express warranty arise from a seller's general statements about product quality and profitability, and must an affirmation of fact be part of the 'basis of the bargain' for each transaction in a series of sales for a warranty to be enforceable?
Opinions:
Majority - Baker, District Judge
No, a seller's general statements about product quality and profitability are non-actionable 'puffery,' but specific assertions of fact can create a warranty if they form part of the 'basis of the bargain' for each individual transaction. The court distinguished between mere opinions and actionable warranties. General statements that goods are 'of high quality,' have a 'very low' repair frequency, or will bring 'substantial profits' are considered seller's opinion or 'puffing' and do not create an express warranty because they lack specificity and are not assertions of fact. However, specific, measurable claims—such as that the machines were 'extensively tested,' 'could not cause fires,' would have maintenance costs of a half-cent per copy, and would require service every 7,000 to 9,000 copies—are affirmations of fact that can constitute an express warranty. Crucially, the trial court erred by failing to determine whether these affirmations became part of the 'basis of the bargain' for each separate purchase in the 18-month series of transactions. An affirmation of fact that a buyer knows from experience to be untrue cannot form the basis of the bargain for a subsequent purchase. Therefore, the case must be remanded for a new trial to analyze, on a transaction-by-transaction basis, whether Booher's accumulating knowledge of the machines' defects prevented him from reasonably relying on Royal's affirmations in later purchases.
Analysis:
This case clarifies the critical distinction between non-actionable sales 'puffery' and enforceable express warranties under the Uniform Commercial Code. It establishes that courts must scrutinize not just the content of a seller's statement but also its context, particularly in long-term sales relationships. The key precedent set is the requirement for a transaction-by-transaction analysis of the 'basis of the bargain' element. This holding prevents a buyer from claiming continued reliance on initial representations for all subsequent purchases after gaining personal experience that contradicts those claims, thus adding a significant layer of nuance to the reliance element of warranty law.
