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Manufacturer’s Corner: Implied Warranties, Part 3

After a brief detour, we now resume our series on implied warranties.  So far, we have discussed the implied warranty of merchantability and the unenumerated implied warranties that may be imposed by course of dealing or usage of trade.  We now turn to the implied warranty of fitness for a particular purpose.  This is an important one, because it examines not only how your product should perform as a general matter, but how the product should perform with respect to specific customers.

In broad terms, this implied warranty only applies when, at the time of entering your contract with the buyer: (1) you have reason to know of a particular purpose for which the buyer intends to use the goods, and (2) you have reason to know that the buyer is relying on your “skill or judgment” to furnish appropriate goods for that intended purpose.[1]  Like the other implied warranties, this one may be disclaimed.

Looking at the first element, observe that this warranty only applies when you have reason to know of a particular purpose for which the buyer will use the goods.  This is to be distinguished from the ordinary purpose for which the goods will be used, which is one of the relevant inquiries in determining the scope of the implied warranty of merchantability.  Thus, you must be aware of some unique way in which your buyer will use the goods.  That distinction can be deceiving, however.  For instance, when a lift table was used for its ordinary purpose but in a wet environment, and the manufacturer knew that it would be used in a wet environment, the Eighth Circuit Court of Appeals affirmed a jury award of damages for breach of the implied warranty of fitness for intended purpose because the lift table failed to perform in the wet environment.[2]  Although the plain text of the UCC does not admit of such a broad reading, courts routinely hold that the warranty for fitness extends not only to peculiar uses of the product, but also ordinary use of the product in peculiar circumstances.

The second element mandates that you have reason to know that the buyer is relying on your skill or judgment.  Observe that this element requires only “reason to know,” not actual knowledge, so you must exercise caution in dealing with your customers.  Talk to them about how they intend to use the product, then either speak up and tell them it’s not intended for that use, or be sure that it will function when put to that purpose (or disclaim the warranty).  In addition to being prudent from a legal standpoint, following this advice will help you better understand your customers and respond to their specific needs.

Our next installment will deal with disclaiming the implied warranties.  But, before we get there, one final point: the implied warranty of merchantability of fitness for a particular purpose must be distinguished from express warranties in which you specifically state that your product will do certain things or perform under certain conditions.  Accordingly, even an effective disclaimer of this implied warranty will not shield you from liability if your conduct otherwise supports a finding that you made a substantially similar express warranty.  We’ll walk you through that issue too, of course.  Stay tuned.

[1] Note that, unlike the implied warranty of merchantability, you need not be a merchant with respect to the goods sold for this warranty to arise.  Consider how peculiar this is when the warranty also requires that the buyer rely on your skill or judgment to furnish appropriate goods.  Why would a buyer rely on the opinion of someone who does not regularly deal in the goods sold?  But, unlike in, say, a fraud action, the UCC does not require that the buyer’s reliance be reasonable for this warranty to arise. 

Curiously, despite the lack of authority for the proposition under the UCC, Missouri’s approved verdict director for breach of this warranty requires the buyer’s reasonable reliance on the seller.  MAI 25.03 (1980 Revision).  This requirement in the director appears to be the result of misplaced reliance on pre-UCC case law.

[2] Piotrowski v. Southworth Products Corp., 15 F.3d 748, 752 (8th Cir. 1994) (applying Minnesota law).