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Manufacturer’s Corner: Anatomy of a Limited Warranty (Part 5)

In the first four installments of this series, we covered the essential components of an effective limited warranty.  But each of those installments carried an important caveat: that you were not selling consumer goods.  In this fifth and final installment of the series, we turn our attention to additional warranty issues to consider when selling consumer goods.

By way of background, Article 2 of the Uniform Commercial Code – which typically supplies the law governing creation and disclaimer of warranties – does not distinguish between consumer and non-consumer sales.[1]  Instead, the provisions dealing with creating and disclaiming warranties apply equally in and out of the consumer context.

Some states did not like that, and enacted laws forbidding disclaimer of implied warranties in consumer sales (Mississippi and Massachusetts spring to mind).  California enacted the Song-Beverly Act, which goes even further and imposes certain disclosure requirements on a seller.  And, arguably, state consumer protection laws can thwart warranty disclaimers.  In short, if you are selling goods to consumers, it is essential that you understand the patchwork of state laws that may apply to you.

And, atop that patchwork sits the federal Magnuson-Moss Act.  It applies to sales of “tangible personal property . . . which is normally used for personal, family, or household purposes[.]”  Very generally speaking, the Magnuson-Moss Act mandates that you either give no written warranty at all,[2] or that you give a written warranty that meets certain minimum standards.[3]  Because the Act probably applies to all readers selling consumer goods, it will be the focus of this article, but please understand that this is not to diminish the importance of the state laws.  Liability, after all, is liability, whether it results from a state law or a federal law.

The Act contemplates two types of written warranties: “full” and “limited” warranties.  As the title of this series suggests, we’re discussing “limited” warranties here.  For our purposes, a warranty is “limited” when it disclaims implied warranties and limits the costs and responsibilities imposed on you.

Since this is a series on drafting warranties, it will gloss over the permissible methods by which a warranty must be delivered or conveyed to the consumer.  With that in mind, let’s turn to the drafting requirements to consider.

The key issue is that, where an express warranty is given, “implied warranties may [only] be limited in duration to the duration of a written warranty of reasonable duration, if such limitation is conscionable and is set forth in clear and unmistakable language and prominently displayed on the face of the warranty.”  This is terrible.  As I’ve written before, implied warranties don’t have a duration – they just are what they are, and a buyer has four years (usually) to sue for their breach.  So, the Act suggests that you put something very silly in your warranty disclaimer, and, as a consequence, many warranty disclaimers include language that looks something like this: “Seller limits any implied warranties, including the warranty of merchantability, to the duration of the Seller’s express limited warranty.”  It tracks the language of the statute, but it can confuse courts, as evidenced by the opinion discussed in Part 1 of this series.

Instead, consider phrasing the disclaimer as an affirmative grant, such that it makes clear that you are affording the buyer all protections available under state law implied warranties, but only for period X, where X is the period of your express warranty, and that implied warranties are otherwise disclaimed entirely.  This should keep a court from any funny business, and it has the benefit of showing the customer you are granting additional rights, not taking them away.

The FTC has also imposed additional requirements that must be included in an express warranty covered by the Act.  Many of those have already been addressed in prior installments in this series – such as indicating to whom the warranty runs, the product and parts covered by the warranty, what you will do in the event a failure of the product to conform to the warranty specifications, etc.  But it should be noted that the FTC requires certain legends to appear as well.  Those legends are set out in 16 C.F.R. § 701.3(a)(7), (8), and (9), which are available online.

Because of the many pitfalls associated with limiting warranty coverage in the consumer context, I strongly advise that you consult an attorney prior to commencing sales of a consumer product, and prior to beginning sales of a consumer product in a new jurisdiction.  Unfortunately, the laws are far from uniform, and it is critical that you do not run afoul of them and risk having your limitations cast aside by a court, or risk liability for attempting (even in good faith) to limit warranties in an unpermitted manner.

[1] Well, for the most part, but Section 2-719 gives a consumer-specific directive.  Sometimes different rules apply when the buyer is a merchant versus a non-merchant, but that’s not really the same thing we’re talking about here.  And some enactments of the UCC strongly contemplate application only to consumer buyers and their guests and families, such as Alternative A to Section 2-318.  Again, though, the basic framework of the warranty provisions of the UCC does not depend on a consumer versus non-consumer distinction.

[2] In this sense, it permits disclaimer of implied warranties under the applicable enactment of Article 2.  What it restricts is disclaiming those warranties, and then imposing an express warranty that offers lesser protection.

[3] Note the written requirement there.  Mag-Moss doesn’t contemplate oral warranties, but it adopts state law regarding implied warranties.