As Tommy Callahan asks his customers in the high-brow '90s movie, Tommy Boy, "why would somebody put a guarantee on a box?" What does it mean and why it is useful? This post provides a high-level primer on commercial and consumer warranties on products.
I. Types of Warranties
There are two types of warranties: express warranties and implied warranties.
A. Implied Warranties.
Sections 2-314 and 2-315 of the U.C.C. impose on sellers broad implied warranties of merchantability and fitness for particular purpose, and provide for the possibility of other, implied warranties arising from course of dealing or usage of trade (in addition to the warranties of title and freedom from infringement found in U.C.C. § 2-312).
- Implied Warranty of Merchantability. There is an
implied warranty of merchantability in each sale of goods contract
when the seller is a "merchant", unless it is excluded or
modified. In order to be merchantable, goods must at least:
- Pass without objection in the trade under the contract description;
- Be of fair average quality within the description (for fungible goods);
- Be fit for the ordinary purposes for which such goods are used;
- Run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved;
- Be adequately contained, packaged, and labeled as the agreement may require; and
- Conform to the promise or affirmations of fact made on the container or label, if any. C.C. § 2-314(2).
- Implied Warranty of Fitness for a Particular Purpose. Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is also, unless it is excluded or modified under U.C.C. § 2-316, an implied warranty that the goods will be fit for such purpose. U.C.C. § 2-315.
- Course of Dealing or Usage of Trade. Other implied warranties may arise from course of dealing or usage of trade (unless excluded or modified). U.C.C. § 2-314(3).
- Disclaimer of Implied Warranties. As adopted in most states, the U.C.C. permits implied warranties to be disclaimed. The primary requirements for an effective disclaimer are: (1) notice of the disclaimer before purchase, and (2) use of CONSPICUOUS type. For the disclaimer of the warranty of merchantability, the disclaimer must also mention merchantability to be sufficient. A phrase that the goods are being sold "AS IS" is also sufficient to disclaim implied warranties. U.C.C. § 2-316.
B. Express Warranties.
Express warranties are created by (a) any statement of fact or promise made by the seller to the buyer which relates to the goods, (b) any description of the goods, and (c) any sample or model, in each case which is made part of the basis of the agreement to sell. It is not necessary that the seller use formal words such as "warrant" or "guarantee" or that the seller have a specific intention to make a warranty. U.C.C. § 2-313.
II. Warranty Remedies.
A. U.C.C. Remedies. The "warrantor" (the person giving the warranty) is responsible to the buyer for all losses that can be shown to have resulted from the breach (see U.C.C. §§ 2-714 and 2-715).
B. Limitation on Remedies. Remedies can be limited, but
- Damages for personal injury caused by a consumer product cannot be limited (U.C.C. § 2-719(3)),
- The remaining remedy must fulfill its "essential purpose", which is generally considered to mean that the buyer must get something commensurate with the product it bought (U.C.C. § 2-719(2)), and
- The disclaimer must be CONSPICUOUS and carefully drafted.
C. Sole and Exclusive Remedies. Warranty remedies in supply agreements are typically limited to repair or replacement of the non-conforming products or reimbursement of the purchase price paid by the buyer for the non-conforming products. From the Seller's perspective, the foregoing remedies should expressly state that they are the sole and exclusive remedies available to the buyer for a breach of the warranties. U.C.C. § 2-719(1)(b).
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.