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Manufacturer’s Corner: Anatomy of a Limited Warranty (Part 3)

In our last installment in this series, we looked at the express warranty portion of an effective limited warranty.  We now turn our attention to the importance of shortening the limitations period for bringing a warranty claim.  Please remember that, for our purposes here, we’re assuming a non-consumer sale.

Remember that your express warranty will include a timeframe, so that it will read something to the effect of “we promise you that for one year from purchase, this product will be entirely snake-free, and if it’s not, we’ll replace the product.”  Obviously the warranty will be tailored to your product, and maybe your customers are more concerned about, say, defects in materials and workmanship.  The point is that your express warranty will have a temporal component – one year in the preceding example.

What we’re talking about here is a different issue, and it’s important to understand the distinction.  In the preceding example, the one-year limitation states the duration of your promise; here, we’re discussing how long the customer has to sue you if you break your promise to replace the product.

In most states, a buyer has four years to sue for breach of warranty, and that period generally starts running from the date the buyer accepts the product.[1]  But, that period can be reduced by contract to a term of not less than one year.  Many manufacturers, therefore, elect to shorten the period to one year, and that’s a good practice.  Frankly, your customer shouldn’t need more than a year following breach to bring suit, and shortening the limitations period narrows the universe of goods you have in the marketplace that could expose you to warranty liability.

Here are some things to keep in mind about shortening the limitations period.  The first is that, unlike written disclaimers of the implied warranty of merchantability, your provision shortening the limitations period need not be conspicuous to be enforceable.  That said, some courts don’t like that rule, so they don’t follow it.[2]  The better practice, therefore, is to make the provision conspicuous by, for instance, printing it in all capital letters.

The second issue to keep in mind is that your conduct after contracting can prevent you from asserting the shortened limitations period as a defense.  For instance, some courts have held that where a seller promises to repair a product so long as the buyer does not sue, the seller cannot rely on the shortened limitations period, because the seller’s own requests prompted the delay by the buyer.[3]  As I’ve warned before, it is critical that your staff be well-trained in handling warranty issues to avoid problems like this.

The third issue to consider is that the limitations period can be shortened only by “the original agreement of the parties.”  This is not a restriction that has generated much commentary, but it could be important when dealing with a repeat customer, especially one with whom you’ve entered a master supply agreement.  Say your master supply agreement is silent on the limitations issue, but your invoices purport to shorten the limitations period.  Assuming your buyer is a merchant with respect to the goods at issue, it is conceivable under general UCC principles that the shortened limitations period set out in your invoices becomes part of the contract.  But the “original agreement” language pertaining specifically to reduced limitations periods seems to preclude that.  Accordingly, you should exercise caution when introducing a shorter limitations period to a customer with whom you have had previous dealings, especially if you are operating under a master supply agreement with that customer.

Our next installment will address limitations of remedies.  Stay tuned.

[1] The limitations period begins to run from a different point when dealing with warranties that expressly warrant future performance of the goods “and discovery of the breach must await the time of such performance.”  Our example is just such a warranty, so the limitations period would begin to run when the breach is or should reasonably be discovered.

[2] For instance, see the case discussed in the first installment of this seriesSee also Judge Beam’s concurring opinion in Highway Sales, Inc. v. Blue Bird Corp., 559 F.3d 782, 797-98 (8th Cir. 2009).

[3] If you’re so inclined, you can find a pretty good discussion of this issue in Merricks v. Monaco Coach Corp., 2008 WL 5210856 (W.D. Va. 2008).  But don’t take this citation as an endorsement of the opinion.