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Business Guide: Product Liability and Warranty Law

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Business Guide: Product Liability and Warranty Law

By JamieD
Published: March 23, 2010 Updated: February 17, 2011

As consumers, we're constantly looking for a great deal - the best quality, what will last the longest, and for the best price. Business owners are constantly looking for proof that their products will meet all those needs. Warranties are one way to give consumers peace of mind that you are selling a quality product and stand by everything it promises to be. A warranty is promise made by a manufacturer or seller to consumers, to stand behind their product and to correct problems when your product fails. The law recognizes two kinds of warranties: implied and expressed.

Expressed Warranties

Expressed warranties are voluntary promises explicitly offered to consumers in the course of a sale. These warranties emphasize a seller's willingness to uphold their product's integrity and fix unexpected failures. Expressed warranties can be oral or written, and come in a variety of different forms - from advertising claims to formal certificates.

Example: Melissa bought a new couch to help furnish her apartment's living room. She was offered a one-year
warranty that promised to replace the couch in case of damage. Several months after her purchase she spilled soda on one of the cushions. When she called the store, the manager asked for proof of warranty. Upon providing the proper
documentation, the store agreed to replace that section of her couch. Her expressed warranty was upheld.

Even though oral warranties are important, only written warranties are federally regulated by the Magnuson-Moss
Warranty Act. It was created to provide better warranty access for consumers and establish obligations for warrantors. The act designates three main rules for warrantors or sellers:

  1. The warranty must be clearly designated or titled as full or limited

  2. Certain specified coverage information must be written in a single, clear, and easy-to-read document.

  3. Warranty must be available to consumers where product is sold .

Implied Warranties

Implied warranties are created by states under the common law principle of "fair value for money spent". State law establishes these unwritten and unspoken warranties from the seller to the consumer. There are two types of implied warranties in consumer product transactions:

  1. Implied Warranty of Merchantability

This warranty ensures that a product is fit to be sold; basically, it does what it's supposed to do and it doesn't do what it shouldn't. The law says that with each purchase, this warranty is implied and therefore sellers are responsible for fixing any failures or products that they are in business to sell.

Example:  Dillon bought a new board game from a toy store the other day. When he went to play it for the first time, he realized that the green, purple, and red playing pieces were missing. Not only that, the cards were not printed correctly as it showed in the directions. Because his product was not fit to be sold at the time of purchase, his implied warranty of merchantability was violated.

  1. Implied Warranty of Fitness for a Particular Purpose 

This warranty is implied when a customer relies on a seller's advice that a product will do what they say it will. When a consumer has been told by a seller that a product can be used for a specific purpose, this implied warranty promises them that information is correct. The seller is responsible for remedying any cases where those promises are broken.
Example: Jessica decided to buy a kayak from a local sporting good store. Out of concern for flipping over, she selected a kayak that looked the most stable.. After a rather lengthy discussion with a salesman, she changed her mind and bought the long, skinny model that she was told would be excellent for a beginner. Five minutes into her first outing, her boat flipped over. The neighbor that helped her out of the water told her that she was actually using a kayak designed for experts and it's no wonder she ended up swimming. Her warranty of fitness for a particular purpose was breached.

These warranties cover the condition of the product at the time of sale. They do not make any claims about a product in the future and therefore do not account for ordinary wear of a product. They also do not cover any abuse, misuse, failure to follow directions, or improper maintenance of a product. There is no specific limitation for implied warranties but similar to expressed warranties, they are generally covered for four years from the date of purchase.

Implied Warranties on Used Merchandise

Selling used merchandise also gives an implied warranty. The consumer is given an implied promise that their purchase can be used as expected (considering its type and price). This warranty only applies to sellers that are in business to deal with those particular goods - not private individuals).

Example: Mike went to rent movies for himself and his wife on a rainy day. At the store, the salesman directed him to a table offering three previously viewed movies for $15. He decided to pick out three movies and buy them under that deal rather than rent. When he got home, he found that only two of the three movies actually played. There was a large scratch on the third movie that caused it to malfunction after the first scene. His implied warranties that the previously
viewed DVDs would function as a normal movie were breached.

Exception to the Rule

In most states, if you do not offer a written warranty, you can sell without implied warranties as well by designating your products "as-is". To eliminate your responsibility to implied warranties, you must clearly and conspicuously, generally in writing, disclaim all implied warranties on a product. If you chose this option, remember that eliminating implied warranties tells the customer that your product could be a risky purchase and may make them think twice before buying.

Be careful - some states have special "as-is" laws for disclosure. These states have specific requirements for sellers to adequately disclaim implied warranties on their products. Consult with a lawyer or small business expert in your area for more information. There are currently some states that do not allow "as-is" sales and therefore sellers are always liable to certain implied warranties. Alabama, Connecticut, District of Columbia, Kansas, Maine, Maryland, Massachusetts, Minnesota, Mississippi, New Hampshire, Vermont, Washington, and West Virginia all have implied warranties that cannot be avoided.

Additional Resources

Message Edited by JamieD on 09-08-2009 03:30 PM

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