Warranties- Module 4 of 5

Module 4: Warranties

A warranty is a guarantee regarding the quality of a product offered for sale.  When a seller makes a representation to the buyer at the time of sale regarding the nature of a product, the product is said to be under warranty. Should it turn out that the product is defective or not as advertised, the buyer can bring a tort action for breach of warranty.

The seller will be liable for harm or loss resulting from breaching the warranty regardless of whether he knew that the product did not meet his representation. This is true even if the breach of warranty is due to someone else’s negligence. In the United States, almost all jurisdictions have adopted the Uniform Commercial Code in part or whole as the statutory basis for products liability. The UCC deals with all aspects of breach of warranty, including when a warranty exists, who is considered a seller for warranty purposes, and which users of products may bring liability suits for breach of warranty.[1]

Express Warranties

Warranties are often based on an explicit promise made by the seller. A merchant may often inform a potential buyer of the qualities of a product which make it an attractive purchase. If the seller makes such representations to the buyer and these promises form part of the basis of the bargain to purchase the product, an express warranty is created.^[2] If the product is not as advertised, and the purchaser is injured or suffers economic loss as a result, the express warranty has been breached.

To take a typical warranty case, a plaintiff purchased a new car from a dealer and was later injured when a rock shattered the car windshield. The plaintiff successfully sued the dealer for breach of warranty, claiming that the brochures advertising the car specifically stated that the windshield was shatterproof, and this constituted an express warranty.[3] The manufacturer would be liable even if there was no negligence or fault or defect in the windshield. That the manufacturer made a promise that was not upheld is sufficient.

An express warranty is also created when the seller describes the product or shows a sample or model of the product.^[4] The buyer can assume the product actually purchased will have the same features and quality as the sample and can sue for breach of warranty if the product fails to meet expectations. Note that the seller does not have to use the words “warranty” or “guarantee” for a warranty to exist. If his words attest to the quality of the goods, a warranty is created.^[5]

Implied Warranties  

While express warranties are common, legally enforceable warranties may also be created even when the seller has not made any specific claims about the qualities of the products. Under certain conditions, simply offering goods for sale can be considered to imply the promise of warranty protections.

One such category of implied warranties is the implied warranty of merchantability. A warrant of merchantability is a legally enforceable guarantee that the goods are fit for the purposes for which they are ordinarily used.^[6] The law will imply the existence of a warrant of merchantability if the seller is considered a merchant with respect to the goods of the kind offered for sale.^[7]  

In practice, this warranty applies under two conditions. First, that the seller is in the business of selling products. It would not apply, for example, to someone holding a yard sale.   Second, the seller must regularly trade in the specific merchandise in question.^[8] What counts as meeting the requirements of merchantability is specific to the type of goods being offered for sale. They must conform to the standards of trade for the type of contract in which the buyer and seller are engaging. So, for example, if a salesperson at a car dealership also sells bottles of water to waiting customers, the seller does not necessary grant an implied warranty of merchantability on the water.

In addition to requiring fitness for ordinary use and that products conform to the standards of trade, the UCC lists several other qualifications for the merchantability of products. These include: 1) they are of uniform quality and quantity; 2) they are properly contained, packed, and labeled; and 3) they conform to the specifications on the face of the container or the label.[9] Failure in any of these regards could make the merchant liable.

There is some disagreement as to whether the implied warranty of merchantability applies to second-hand goods.[10] However, even in jurisdictions that recognize implied warranties for such goods, the expectations as to the quality of the product will be those of used products, not products sold as new. 

The UCC explicitly states that implied warranties apply to the service of food to be consumed on the premises or elsewhere. However, implied warranties are limited to products, so these protections do not generally apply to the provision of services.[11]

Another important category of implied warranties is the warranty of fitness for a particular purpose.  This warranty is created if a seller knows that the buyer is looking to use the goods for a particular or more specific use than the conventional purpose. If the buyer relies on the seller’s judgment regarding the suitability of the product for the purpose he has in mind, then the law implies a warranty that the goods are fit for that purpose.^[12] For example, if a show salesman knows that the customer is looking for hiking boots and sells the customer winter boots that are ineffective for hiking, the merchant can be liable even though the boots sold are not defective and are suitable for the purposes for which they are manufactured and normally marketed.

A case involving the purchase of a horse is instructive. The purchasers made it clear to the sellers, who were in the business of selling horses, that they were interested in buying a horse for breeding. However, the horse they purchased was unable to breed due to an infection.  The court held that an implied warranty of fitness for a particular purpose existed even though the purchasers selected the specific horse they ultimately purchased. Since it was clear that the seller understood their purpose in buying the horse, and the purchasers relied on the seller’s knowledge and experience to acquire a horse fit for their purposes, the sale of the horse violated the implied warranty of fitness.[13]

Who Can Bring a Breach of Warranty Claim Against Whom?

In the most straightforward breach of warranty claim, the person who bought the product brings a suit against the merchant she bought it from. In practice, however, the chain of distribution is often complex, and determining who can be a proper plaintiff and a proper defendant is often more complex.   

Consider the facts of an important case dealing with the sale of a car with a defective steering wheel. A married man purchased a Chrysler automobile from a local Chrysler dealership, and gave it to his wife to drive. While she was driving the car, the steering mechanism failed, leading to a serious accident and substantial injury to the wife. The wife sued the Chrysler Corporation rather than the local retailer that her husband bought the car from, since the former had deeper pockets and so was in a better position to pay a damage award.^[14]

To address the wife’s claim, the court had to decide two issues. First, could the wife, as someone who did not purchase the car herself, bring a suit for breach of warranty. Second, could the Chrysler Corporation, which did not directly transact with husband or wife, be sued for the product defect.

Stated generally, the first issue is who covered by warranty protections other than the immediate purchaser. The second issue concerns the question of which parties in the chain of commerce can be held liable for selling a product which is in breach of the product warranty.

Formerly, a warranty was considered a type of contract between buyer and seller. Therefore, any legal action could only be maintained against an immediate seller, and not another party further up the distribution chain. However, in modern economic conditions and regular use of dealers or middlemen to sell products, the law considers a manufacturer’s warranty to extend to remote purchasers well beyond the initial sale. So, the fact that a product such as the car was purchased from a dealership does not prevent a breach of warranty lawsuit against the manufacturer who sold it to the dealer.^[15]

Note that some jurisdictions recognize an exception known as the sealed container doctrine (also known as the “closed can” rule). This allows a merchant who resells a product in a sealed container unavailable for inspection, to escape liability for selling merchandise which does not live up to the warranty.[16] So, for example, a supermarket may not be liable under this rule for selling a defective can of corn that caused a consumer to suffer food poisoning. The supermarket would not be expected to open the can and test its contents between purchasing it from the wholesaler and selling it to the customer. As such, it would be unfair to hold the supermarket liable for a condition it had no realistic way of discovering. 

With regard to the issue of who is covered by warranty protections, the general rule is that a warranty covers all people who it is reasonable to expect would use the product in question.^[17] Clearly, this would cover the wife in the case of the defective steering wheel, since it is reasonable to expect the car would be used by family members. More broadly, it has been understood to cover not only members of the household of the purchaser, but all people who may be reasonably expected to be affected by the quality of the goods.^[18]

This means that even third-parties who are not related to the purchaser may sue for breach of warranty. In one case, a breach of warranty suit was brought by an employee who was injured by a machine he used at work which crushed his foot. Under the reasonable expectation test, his suit could proceed even though he was not involved at any stage in purchasing the machine.[19]

Finally, some jurisdictions allow recovery for breach of warranty by third parties even if the harm caused by the product is limited to property damage, not requiring any personal injury.[20]

Defenses to Breach of Warranty

Disclaimers

Product liability law operates with a strong presumption that merchants selling products are inherently offering a warranty. At the same time, there are ways that sellers can reduce their liability by limiting their warranties. One approach to negating the assumption of warranty protection is the use of a disclaimer.

A merchant can issue a written disclaimer that states that the merchandise offered for sale does not come with a warranty.  The disclaimer is effective if it is conspicuous, which usually means it must be in large, easily seen print, and it must include the word “merchantability.”^[21]   However, under federal law, a disclaimer is only effective if no written warranty is given to the customer.^[22] If the product comes with a written warranty, the seller may not at the same time disclaim the implied warranties of merchantability and fitness for a particular purpose.

This law was enacted to stop merchants from using disclaimers together with warranties in an unfair or misleading way. So, if a microwave was sold with a conspicuous stamp on the package making it clear it is not covered under a warranty, the disclaimer would free the seller of liability. If the same microwave comes with a written warranty, the same stamp will not suffice to negate the purchaser’s protections under the implied warranties.  

A warranty can also be disclaimed when it is clear from circumstances that the product is being sold without any guarantees. A common example is when goods are offered for sale in the ‘as’-is’ section of a store.^[23] In such cases, the disclaimer of a warranty is implied from the condition of the goods and the circumstances of the sale.

Alternatively, a seller may specify that products are offered for sale with limits on recovery if the products turn out to be defective. For example, the seller may stipulate that with regard to particular goods, remedies will be limited to repair or replacement. In this way, sellers are protected from further losses resulting from the defect, and the buyer must be aware of this at the time of purchase. It should be noted, though, that in some jurisdictions, repair or replace limitations may only be effective for commercial loss for business products and not for personal injury harms.^[24]

Misuse

Warranties protect purchasers by imposing liability on sellers who offer products that are not fit for the ordinary use. However, if the seller can demonstrate that products fail to conform to the expectations of a warranty due to the misuse of the product by the purchaser, this can serve as a defense against breach of warranty.

If the loss suffered by the purchaser results from an action or event involving use of the product in a manner that is not foreseeable by the seller, the buyer may not recover for breach of warranty.[25]  A seller may therefore cite the failure to follow instructions for proper use of a product as a defense against breach of warranty.[26]

Notice

The law permits the seller to cure defects in the product to comply with the terms of the warranty. To facilitate this, a buyer is required to give notice of an alleged breach of warranty within a reasonable time after he or she discovers the breach.[27] If the buyer fails to provide notice within a reasonable time, the seller is free of liability for breach of warranty.[28]

In our next and last module, we will look at defenses to actions under the various theories of product liability.