Royal Business Machines, Inc. v. Lorraine Corp.

United States Court of Appeals for the Seventh Circuit · Contracts

ContractsSalesWarrantiesFraudRevocation of AcceptancePunitive DamagesUCC 2-313UCC 2-314

Facts

Over approximately 18 months, Royal sold Booher 114 RBC I and 14 RBC II plain paper copiers through a series of commercial transactions. Booher sued claiming breach of warranties and fraud, and Royal sued to recover amounts due under financing agreements. The district court found that Royal had made multiple representations about testing, fire safety, maintenance cost, service frequency, parts availability, quality, low repairs, and profitability, and that Booher had revoked acceptance of both machine models. The appellate court focused on which statements could legally count as warranties or fraud, whether Booher proved implied warranty claims, and whether revocation and punitive damages were properly awarded across the multiple transactions.

Issue

Whether the evidence and findings supported the district court's conclusions that Royal made and breached express and implied warranties, committed fraud, and that Booher timely revoked acceptance of the copiers, thereby justifying compensatory damages, punitive damages, and attorneys' fees. Also, whether the district court's findings were sufficiently transaction-specific in a series of sales where the buyer's knowledge may have changed over time.

Rule

An express warranty exists only when the seller makes an affirmation of fact or promise relating to the goods that becomes part of the basis of the bargain; statements of opinion, puffing, or assertions not relating to the goods do not qualify. Fraud under Indiana law requires a false representation of existing material fact, scienter, deception or reasonable reliance, and injury; opinions and promises of future performance do not suffice. Implied merchantability requires proof that the goods failed ordinary trade standards, while implied fitness requires proof that the seller knew the buyer's particular purpose and that the buyer relied on the seller's skill or judgment in the particular purchase. Revocation of acceptance requires nonconformity substantially impairing value, acceptance without knowledge or with reasonable assumption of cure, and revocation within a reasonable time before substantial change in the goods.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Columbus, Ohio, Nora Patel considered buying commercial laminators from Midvale Office Systems, a dealer in document equipment. Midvale's salesperson told her the laminators were "top quality" and would be "a terrific money-maker" for her new rental business, and Nora bought ten units.

If Nora later sues for breach of express warranty based only on those two statements, which is the best answer?

Explanation. An express warranty requires an affirmation of fact or promise relating to the goods that becomes part of the basis of the bargain. General claims that goods are "top quality" or will generate profits are the kind of puffing or opinion that do not create an express warranty. Formal words like "warrant" are unnecessary, but there still must be a factual assertion, not mere commendation. (Derived from Royal Business Machines, Inc. v. Lorraine Corp. (n.d.).)