While specific requirements must be adhered with respect to consumer warranties, warranty issues arise in any sale and purchase of goods transaction. The scope of the duties and obligations to the customer with respect to service and support is generally defined by warranties provided in connection with the original sale of the product. Since repairs covered by product warranties are essentially part of the purchase price, and cannot be charged for separately, manufacturers and distributors must carefully craft warranty provisions in the sale agreement.
The seller of the product, be it the original manufacturer or one of the distributors, should develop standard terms for the warranties relating to the product. When drafting warranties, consideration must be given to the impact of the Uniform Commercial Code (“UCC”), as well as the Magnuson-Moss Warranty Act in the case of consumer goods. From the perspective of the party responsible for complying with the warranties, a well-drafted clause will cover the following issues:
• A specific statement of any express warranties relating to the performance and quality of the product, coupled with an appropriate disclaimer of any other express warranties;
• A conspicuous disclaimer of any implied warranties of merchantability and fitness for a particular purpose;
• A concise specification of the period during which any warranties would be applicable (e.g., 90 days from the date of sale);
• A description of the purchaser's remedies for any breach of warranty, which should be exclusive and in lieu of any remedies available under the default provisions of the UCC.
While manufacturers and distributors will customarily disclaim any implied warranty of merchantability, the express warranties provided with the product will usually incorporate a number of the indicators of merchantability recognized in the UCC. Thus, for example, the warranties will often confirm that the product will:
• Pass without objection in the trade under the contract description;
• Be of fair or average quality within the description in the case of fungible goods (for example, grain);
• Be fit for the ordinary purposes for which such goods are used, although not necessarily the specific purposes of the customer;
• Run, within the agreement's permitted variations, of even kind, quality, and quantity;
• Be adequately contained, packaged, and labeled; and
• Conform to the promises or affirmations of fact made on the container or label, if any.
Express warranties can appear in a number of places, and marketing and sales personnel should be warned about the legal effect of statements made during negotiations with customers. In order to ensure that the warranty policies of the company are clear it is recommended that a single comprehensive statement of product warranties be created and conspicuously posted on the company website. Invoices for products sold by the company should either replicate the statement of product warranties precisely in its entirety, or clearly cross-reference to the website and incorporate the posted policy by reference.
Companies should also develop internal procedures for administration of warranty policies. This may include, among other things, a requirement that customers complete and return a warranty information form as a condition to effectiveness of the warranty coverage.
Clients involved in consumer sales transactions need to be mindful of all the federal and state law requirements applicable to consumer warranties. As you know, a warranty may be described as a contractual term concerning some aspect of a sale, such as title to the goods or their quality or quantity. For example, a warranty typically may warrant that a product will be free from defects for a specified period of time. The most important federal statute covering the law of consumer warranties is the Magnuson-Moss Warranty Federal Trade Commission Improvement Act (15 U.S.C.A. §§ 2301 et seq.), which addresses products liability arising out of the breach of specific warranties that come up in the course of consumer sales. State law is also an important consideration when drafting consumer warranties and any warranties provided in consumer transactions must be drafted to meet both federal and applicable state requirements.
Understanding the case law and regulatory regime applicable to consumer product warranties, and drafting effective disclosures of consumer warranties, is an activity that should be carried out as part of the larger process of documents sales of goods transactions and establishing procedures for providing service and other support to customers. In managing and completing the steps associate with preparing an effective consumer product warranty statement, the following checklist may be helpful:
- Determine the goods that are to be sold under the agreement;
- Review relevant laws and tax regulations relating to consumer sales arrangements;
- Prepare the initial draft of the warranty statement;
- Determine whether other forms or agreements are required to complete the transaction, such as service contracts or credit documents, and draft such agreements;
- Take all steps required to insure compliance with all federal and state law requirements relating to the form and content of consumer warranties;
- Circulate drafts of all documents to all parties, collect comments, and prepare the final form of documents for execution or public distribution;
An excellent additional resource to recommend to clients with respect to understanding federal consumer warranty law is the Federal Trade Commission publication titled “A Businessperson’s Guide to Federal Warranty Law”.
The growth of product liability litigation and its effect on businesses, and indeed on society, have been striking. The dramatic rise in product liability insurance premiums, as well as the many indirect costs of litigation, has provided a strong incentive for companies to address product liability issues before accidents occur. Many of the costs some suppliers incur are attributable to a lack of awareness of product liability law, or to an unwillingness to deal with it in a reasonable manner.
Product liability law and practice focuses on the risks associated with dangerous and defective products and should be approached as an integral part of the larger product development and distribution process. Product safety should be taken into account from the very beginning as new products are designed and undergo preliminary testing and safety features should be integrated into the manufacturing process. Once the manufacture or other production of a product is completed safe usage should be facilitated through delivery of instructions and warnings and the availability of advice from sales, marketing and support personnel. Accordingly, when developing policies and procedures for product safety companies and their attorneys should be sure that they are incorporated into policies and contracts that are used during the entire range of product development activities. This includes implementing quality control processes as part of the overall procurement process to be sure that raw materials and parts supplied by outside vendor are safe and reliable; ensuring that design elements necessary for the safe products are included in the manufacturing process and that manufacturing is carried out in accordance with the highest standards of workmanship and safety; and making sure that warnings, instructions and user manuals are carefully prepared and that advice regarding proper use of products is readily available from sales representatives and the company’s product service and support teams.
In managing and completing the steps associated with developing and administering an effective product safety and product liability risk mitigation program:
- Administer a questionnaire with appropriate representatives of all departments involved with the product development and commercialization process to identify areas of operations that might create product liability risks and concerns;
- Conduct a products liability self-evaluation for the client including an analysis of the product liability management process and use follow-up sessions to develop a strategy for creating a product safety program or improving an existing program..
- Collect copies of all product liability insurance policies covering activities of the client and conduct a review of the contents of such policies to determine adequacy and areas where changes in coverage might be appropriate
- Provide assistance to client in preparing documentation necessary to support creation of product safety program including rules and procedures for operation of a product safety committee;
- Conduct an analysis of the adequacy of warnings and instructions provided with products in light of regulatory requirements and practical aspects of using the products;
- Ensure that the client takes potential product liability claims into consideration when conducting due diligence investigations in anticipation of proposed mergers and acquisitions; and
- Assist the client in developing crisis management and recall procedures that can be quickly and efficiently implemented in the event it becomes necessary to recall products that are found to be defective or otherwise pose unreasonable safety risks to users.
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