The following excerpt comes from Chapter 9 of my handbook, Don’t Get Sued! A Guide to Help Reduce Your Business’s Exposure to Lawsuits. It explains breach of warranty actions and how to avoid them.
Understanding the Four Types of Warranties
The Uniform Commercial Code, or U.C.C., regulates the sale of goods and services, and most states have adopted a version of it. Reviewing it helps the business owner, the seller, understand what the law expects. The U.C.C. recognizes four types of warranties. They are the warranty of title, the implied warranty of merchantability, the implied warranty of fitness for a particular purpose, and express warranties. Below, I briefly describe each one and explain how breach of warranty actions can affect your business.
Warranty of Title
A warranty of title warrants that you, the seller, hold title to the product you sell. It also warrants that no liens encumber the product that the buyer does not know about at the time of purchase. In short, do not sell stolen or pirated goods.
Implied Warranty of Merchantability
The implied warranty of merchantability has six technical elements. I will not spell out each one here. Instead, focus on the most important element, because it most often forms the basis of a merchantability suit. That element asks whether the goods are fit for the ordinary purposes for which such goods are sold. Here is the key point for the seller to remember: it makes no difference whether you knew of the defect. If the product is defective, you may still be liable in many cases.
Implied Warranty of Fitness for a Particular Purpose
This warranty arises when a seller knows the particular purpose for which the buyer will use the goods, and the buyer relies on the seller’s judgment to select suitable goods.
Express Warranty
Any promise, statement, description, or sample that the seller makes, and that the buyer could have relied upon when entering the contract, creates an express warranty. Some courts recognize certain exceptions, including the personal opinions of the seller.
Disclaimers of Warranties
Essentially, the seller may attempt to disclaim certain warranties, but proceed carefully, because your disclaimers may not always hold up. A seller may successfully disclaim warranties through inspection or refusal to inspect. For example, a buyer may inspect the goods carefully and purchase anyway, or may have the opportunity to inspect but refuse. Additionally, a seller may disclaim certain warranties, including merchantability and fitness for a particular purpose, through conspicuous writing that clearly indicates the disclaimer. However, a court ultimately decides whether the seller actually disclaimed the warranty, just as in all disclaimer situations. Therefore, I urge you to avoid relying on disclaimers to circumvent warranties.
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