Do “As-Is” Clauses Actually Guarantee Prevention of Lawsuits?

We see them everywhere, whether it is buying a car, something used, or perhaps any product as it stands. The “As-Is” clause is more of a warning and a ‘buyer beware’ notice than just a wayto try to avoid liability. Many sales agreements sometimes include the words "as is" and "with all faults.” Sellers use these phrases with the hope of preventing buyers from bringing claims and lawsuits in an effort to reverse the sale. Do these words stop all sales-related lawsuits? The answer is surprisingly “no.” These clauses are not fully bulletproof.

“As Is” Clauses

An “as is” clause in a sale contract is generally designed to exclude or limit a buyer’s claims against sellers for a breach of warranty relating to the fitness for a particular purpose or condition at the time of sale. One example of an “as-is” clause is:

SELLER MAKES NO WARRANTIES WHETHER EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THE PURCHASE OF THIS (ITEM) IS SUBJECT TO THE TERMS AND CONDITIONS OF AN “AS IS” SALE.

Limits on How “As-Is” Clauses Are Enforced

“As-is” clauses do not prevent all possible sales disputes. When a contract with an “as-is” clause becomes the subject of a dispute, courts have considered these factors: Courts in some states have held that “as-is” clauses do not bar claims of sales fraud, fraudulent misrepresentation, or fraud in the inducement (i.e., fraud from the seller that led the buyer to enter into the contract and make the purchase). Some courts have held that these clauses will bar a buyer’s breach of warranty claims against sellers under Uniform Commercial Codes, as long as the seller qualifies as a “merchant” as the law defines.

According to some courts, an “as-is” clause in a sales contract will not bar claims against sellers based on consumer protection statutes (or state deceptive trade practice statutes).“As is” clauses are sometimes subject to interpretation. They certainly create a position of strength and stability for a seller but it is important to know that there may be a way around the clause given a specific fact scenario.

Avoiding Disputes

Sellers who want to maximize the effectiveness of an “as is” clause can check their state’s law to determine whether their state’s Uniform Commercial Code provides language for use in sales documents, such as disclaimers of warranty. Since these laws often provide that disclaimers should be “conspicuous” to be enforceable, sellers might want to set these clauses apart from the rest of the contracts and make them noticeable with bold-type font, contrasting color, or larger type size.

Buyers and sellers in sale transactions should consult with their own counsel to draft or review sales documents. Because state laws can differ, and because buyers and sellers typically have different interests in the transaction, parties to sales contracts should be especially cautious before using “one-size-fits-all” forms. Many people just sign agreements without truly reviewing the agreement or having an attorney do so, and without knowing the true legal effect of what the provision may actually lead to in the event the agreement is called into question.