Most machinery companies and manufacturers think they understand their own warranty obligations based on their standard warranty language or policy. For example, a company may assume its warranty obligations are limited to repairing or replacing the machinery for a period of one year following installation because that is its standard warranty policy. Under such circumstances, a company's warranty may be limited to the warranty policy, but it also may not.
Business people tend to have a number of misconceptions about warranties, starting with the fundamental issue of what a warranty is. Business people tend to assume that a warranty is a piece of paper entitled "Limited Warranty," or a written contractual provision captioned "Limited Warranty."
The legal definition of "warranty," however, is not so limited. Under the Uniform Commercial Code ("UCC"), which has been adopted in almost every state, an express warranty can be created in a number of ways. Under UCC Section 313, an express warranty can be created by "any affirmation of fact or promise made by the seller which relates to the goods and becomes part of the basis of the bargain ..." or "any description of the goods which is made part of the basis for the bargain ..." or "any sample or model which is made part of the basis of the bargain ..." In each instance, the resulting warranty is that the goods will conform to the affirmation of fact, description, or sample. However, mere statements of opinion or commendation--sometimes referred to as "puffing"--do not create warranties.
What does this mean in the real world? It means that statements in sales literature, product descriptions, quotations, or sales analyses may create unintended warranties. This can be a particular problem when sales people use "consultative" selling techniques designed to identify and meet the customer's needs and solve the customer's problems. Complex machinery and equipment sales often involve consultative selling.
In addition to potential express warranties, the UCC also provides for the creation of implied warranties. Generally, the important implied warranties are the "implied warranty of merchantability" and the "implied warranty of fitness for a particular purpose." The implied warranty of merchantability, set forth in UCC Section 314, essentially provides that goods will conform the the contract description and are fit for the ordinary purposes for which the goods are used.
The implied warranty of fitness for a particular purpose is set forth in UCC Section 315: "Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified ... an implied warranty that the goods shall be fit for such purpose." Again, this creates potential issues for consultative selling.
A major potential problem with implied warranties is this: Implied warranties almost never come into play unless the customer has had a problem--or says it has had a problem--with the product. Using "20/20 hindsight," the customer's lawyer can try to mold the vague implied warranties to conform to the legal position that the lawyer is advocating.
There is, however, some good news. In commercial transactions, the UCC usually allows the parties to define their obligations by their contract. This typically includes the right to define warranty obligations, to disclaim implied warranties, and to limit remedies. However, the UCC provides particular standards for disclaiming and limiting implied warranties. Preparing the contract documents or terms and conditions should be left to a professional. Note that consumer goods may be subject to different rights and obligations.
Here are some warning signs that a machinery or equipment supplier may be assuming unintended warranty risks:
(1) The supplier sells by purchase order only without professionally prepared terms and conditions;
(2) The supplier routinely accepts or fails to object to the customer's terms and conditions;
(3) The supplier fails to document substantial orders in written contracts that define the warranty obligations, disclaim implied warranties, and provide for limited and exclusive remedies.
Nothing in this post is meant to suggest that suppliers should not stand behind their products. Customers expect and are entitled to receive a warranty on the products they purchase. However, those warranty rights should be carefully defined and understood by both parties, as should the seller's obligation in the event of a warranty claim.
A prudent supplier cannot anticipate remaining in business for the long run if it accepts unlimited--and unintended--warranty risks.
It goes without saying that the usual caveats to this post apply: (1) this post is for information only; (2) even though the UCC is widely adopted, it may be different in your state or may be interpreted differently; (3) your company's particular circumstances should always be considered; and (4) seek legal advice from an experienced lawyer in your jurisdiction.
Business people tend to have a number of misconceptions about warranties, starting with the fundamental issue of what a warranty is. Business people tend to assume that a warranty is a piece of paper entitled "Limited Warranty," or a written contractual provision captioned "Limited Warranty."
The legal definition of "warranty," however, is not so limited. Under the Uniform Commercial Code ("UCC"), which has been adopted in almost every state, an express warranty can be created in a number of ways. Under UCC Section 313, an express warranty can be created by "any affirmation of fact or promise made by the seller which relates to the goods and becomes part of the basis of the bargain ..." or "any description of the goods which is made part of the basis for the bargain ..." or "any sample or model which is made part of the basis of the bargain ..." In each instance, the resulting warranty is that the goods will conform to the affirmation of fact, description, or sample. However, mere statements of opinion or commendation--sometimes referred to as "puffing"--do not create warranties.
What does this mean in the real world? It means that statements in sales literature, product descriptions, quotations, or sales analyses may create unintended warranties. This can be a particular problem when sales people use "consultative" selling techniques designed to identify and meet the customer's needs and solve the customer's problems. Complex machinery and equipment sales often involve consultative selling.
In addition to potential express warranties, the UCC also provides for the creation of implied warranties. Generally, the important implied warranties are the "implied warranty of merchantability" and the "implied warranty of fitness for a particular purpose." The implied warranty of merchantability, set forth in UCC Section 314, essentially provides that goods will conform the the contract description and are fit for the ordinary purposes for which the goods are used.
The implied warranty of fitness for a particular purpose is set forth in UCC Section 315: "Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified ... an implied warranty that the goods shall be fit for such purpose." Again, this creates potential issues for consultative selling.
A major potential problem with implied warranties is this: Implied warranties almost never come into play unless the customer has had a problem--or says it has had a problem--with the product. Using "20/20 hindsight," the customer's lawyer can try to mold the vague implied warranties to conform to the legal position that the lawyer is advocating.
There is, however, some good news. In commercial transactions, the UCC usually allows the parties to define their obligations by their contract. This typically includes the right to define warranty obligations, to disclaim implied warranties, and to limit remedies. However, the UCC provides particular standards for disclaiming and limiting implied warranties. Preparing the contract documents or terms and conditions should be left to a professional. Note that consumer goods may be subject to different rights and obligations.
Here are some warning signs that a machinery or equipment supplier may be assuming unintended warranty risks:
(1) The supplier sells by purchase order only without professionally prepared terms and conditions;
(2) The supplier routinely accepts or fails to object to the customer's terms and conditions;
(3) The supplier fails to document substantial orders in written contracts that define the warranty obligations, disclaim implied warranties, and provide for limited and exclusive remedies.
Nothing in this post is meant to suggest that suppliers should not stand behind their products. Customers expect and are entitled to receive a warranty on the products they purchase. However, those warranty rights should be carefully defined and understood by both parties, as should the seller's obligation in the event of a warranty claim.
A prudent supplier cannot anticipate remaining in business for the long run if it accepts unlimited--and unintended--warranty risks.
It goes without saying that the usual caveats to this post apply: (1) this post is for information only; (2) even though the UCC is widely adopted, it may be different in your state or may be interpreted differently; (3) your company's particular circumstances should always be considered; and (4) seek legal advice from an experienced lawyer in your jurisdiction.
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