Warranty

In commercial and consumer transactions, a warranty is an obligation that an article or service sold is as factually stated or legally implied by the seller, and that often provides for a specific remedy such as repair or replacement in the event the article or service fails to meet the warranty. A breach of warranty occurs when the promise is broken, i.e., a product is defective or not as should be expected by a reasonable buyer.

In business and legal transactions, a warranty is an assurance by one party to the other party that certain facts or conditions are true or will happen; the other party is permitted to rely on that assurance and seek some type of remedy if it is not true or followed.

In real estate transactions, warranty deed is a promise that the buyer's title to a parcel of land will be defended.

A warranty may be express or implied.

Express warranty

An express warranty is typically a guarantee from the seller of a product that specifies the extent to which the quality or performance of the product is assured and states the conditions under which the product can be returned, replaced, or repaired. It is often given in the form of a specific, written "Warranty" document. However, a warranty may also arise by operation of law based upon the seller's description of the goods, and perhaps their source and quality, and any material deviation from that specification would violate the guarantee. For example, an advertisement describing a product is often full of express warranties; the product must substantially conform to what is advertised. Many advertisers insert disclaimers for this purpose (e.g., "actual color/mileage/results may vary", or "not shown actual size"). Commonly, written warranties will assure the buyer that an article is of good quality and against defects in "materials and workmanship." A warranty may also apply to services that are sold. For example, an automobile repair shop may guarantee its repair for a period of 90 days.

An express warranty can be made orally, in writing and without the intent of the seller to actually create the warranty. In the United States, a seller is allowed to assert statements of opinion of value, known as puffery, that the buyer cannot justly rely on as part of the basis for the bargain. For instance, "This hunting knife is the best knife in the world" is mere puffery, whereas a statement such as "This hunting knife will never need to be sharpened" can be construed to be an express warranty as long as the knife is only used for its intended purpose. In certain other countries (e.g. the UK, Canada, and Taiwan), consumer protection laws exist to prevent advertisers making untrue or unprovable statements.

The misuse of a famous trademark may also create an express warranty, the violation of which is called "passing off"; the source and quality of the goods is misrepresented.

Warranty implementation

Many products come with a warranty promising repair or replacement for months or years or life. In theory, one can return a product to the "dealer" for repair, but most stores that sell such products—and even the manufacturers—lack repair facilities. Car dealers have repair shops, which is one of the main reasons many people buy new cars; computer dealers and consumer-electronics dealers had such shops into the 1990's, but most of these have disappeared. In practice, a product that fails within a month can be exchanged for a new one under the store's guarantee; or a product that fails after the store guarantee expires but before the manufacturer's warranty expires can be exchanged by the manufacturer — the store guarantee and the manufacturer's warranty are mutually exclusive. If it fails after the warranty expires, one is expected to throw it away and buy a new one, from the same company. There used to be repair shops that offered warranty service for small electric devices—such as electric razors or even lamps and toasters; but in the 1980's, most became mail-forwarding services that sent warrantied products to manufacturers for replacement; and most disappeared in the 1990's. It is possible that repair shops still exist, but this is not likely.

There are exceptions: some companies—notably Toshiba—actually repair products under warranty. Thomas Friedman tells how Dell worked out an arrangement with UPS to handle warranty work: a customer, who had originally ordered a computer directly from the Toshiba Website, can ship a malfunctioning computer to Toshiba via UPS. In fact, it never reaches Toshiba. Instead UPS maintains its own Toshiba-computer repair shops. When UPS picks up the user's computer, it ships it to the UPS shop, where it is repaired, tested, and returned to the user within a specified timeframe. In general, the user's software and data are preserved.

Implied warranty

Main article: implied warranty

An implied warranty is one that arises from the nature of the transaction, and the inherent understanding by the buyer, rather than from the express representations of the seller.

The warranty of merchantability is implied, unless expressly disclaimed by name, or the sale is identified with the phrase "as is" or "with all faults." To be "merchantable", the goods must reasonably conform to an ordinary buyer's expectations, i.e., they are what they say they are. For example, a fruit that looks and smells good but has hidden defects would violate the implied warranty of merchantability if its quality does not meet the standards for such fruit "as passes ordinarily in the trade". In Massachusetts consumer protection law, it is illegal to disclaim this warranty on household goods sold to consumers etc.

The warranty of fitness for a particular purpose is implied when a buyer relies upon the seller to select the goods to fit a specific request. For example, this warranty is violated when a buyer asks a mechanic to provide snow tires and receives tires that are unsafe to use in snow. This implied warranty can also be expressly disclaimed by name, thereby shifting the risk of unfitness back to the buyer.

Another implied warranty is the warranty of title, which implies that the seller of goods has the right to sell them (e.g., they are not stolen, or patent infringements, or already sold to someone else). This theoretically saves a buyer from having to "pay twice" for a product, if it is confiscated by the rightful owner, but only if the seller can be found and makes restitution.

Lifetime warranty

A lifetime warranty is a guarantee on the lifetime of the product. This is not to say that the product is guaranteed for the lifetime of the consumer. This type of warranty is generally assessed on a case by case basis by the distributor and the supplier. For instance, a backpack that has been purchased ten years ago and has some minor defects due to wear and tear may not be covered. However defects due to construction may be covered. Nike does an excellent job of covering products regardless of their age as long as the damage is not caused by over use.

Breach of warranty

A warranty is violated when the promise is broken; when goods are not as should be expected, at the time the sale occurs, whether or not the defect is apparent. The seller should honor the warranty by making a timely refund, repair, or replacement. The sale starts the time under the statute of limitations for starting a court complaint for breach of warranty if the seller refuses to honor the warranty. This period is often overlooked where there is an "extended warranty" in which a seller or manufacturer contracts to provide the additional service of replacing or repairing goods that fail within the extended period. However, if the goods were defective at the time of sale, and the relevant statute of limitations has not expired, then existence or duration of any "extended warranty" is secondary: there was a breach of a primary warranty for which the seller may be liable.

It could be an unfair and deceptive business practice (a statutory type of fraud) to attempt to avoid liability for breach of a primary warranty by claiming expiration of the irrelevant extended warranty. A statute of limitations on a contract claim may be shorter (or longer) than that of a tort claim, and some breach of warranty cases are filed late and are characterized as a fraud or other related tort.

For example, a consumer buys an item that was discovered to be broken or missing pieces before it was even taken out of the package. This is a defective product and can be returned to the seller for refund or replacement, regardless of what the seller's "returns policy" might state (with limited exceptions for second-hand or "as is" sales), even if the problem wasn't discovered until after the "extended warranty" expired. Similarly, if the product fails prematurely, it may have been defective when it was sold and could then be returned for a refund or replacement. If the seller dishonors the warranty, then a contract claim can be started in court.

See also product liability where liability for a defect causing a personal injury may go well beyond a warranty period, based upon negligent design or manufacture, or even strict liability.

Extended warranty

In retail business, a warranty (or "extended warranty") commonly refers to a guarantee of the reliability of a product under conditions of ordinary use. It is called "extended" warranty because it covers defects that could arise some time after the date of sale. Should the product malfunction within a stipulated amount of time after the purchase, the manufacturer or distributor is typically required to provide the customer with a replacement, repair, or refund. Such warranties usually do not cover "acts of God", owner abuse, malicious destruction, commercial use, or anything, for that matter, outside of a mechanical failure incurred with normal personal usage. Most warranties exclude parts that normally wear out, and supplies that must be periodically replaced as they are normally used up (e.g., tires and lubrication on a vehicle). An extended warranty may be included in the purchase price, or optionally extended for an additional fee, and may be for some ambiguous ordinary "lifetime" of the product (not the customer).

A manufacturer or distributor may be required to carry reserve funds on its financial balance sheet to cover potential services or refunds that may arise for any products still covered "under warranty".

There are also third-party warranty providers who sell optional "extended warranty" contracts on certain products, which amount to having an insurance contract for the product. These third parties range from well known store chains, such as [[Best Buy] and Circuit City to independent, often underwritten companies such as Access Warranty. As with other types of insurance, the companies are gambling that the products will be reliable, that the warranty will be forgotten or voided, or that any claims made can be handled inexpensively. Other companies provide their own support such as JTF Business Systems. these companies will remove the defective part and send it back to the manufacturer for reimburssment.

Many people do not realize that extended warranties are not always provided through the manufacturer, but in some circumstances it may work to the consumer's benefit. For instance, when an auto warranty is provided through a dealership from the manufacturer, repairs on the vehicle are reimbursed at a lower negotiated rate. Some mechanics might fraudulently attempt to defer the needed repair until the warranty has expired so that the ordinary (higher) shop rate will apply. The third party warranty, while often more expensive, can be worth the price difference because it will cover the higher shop rate as well, and may even permit the customer to select a different mechanic outside the dealership.

Legal aspects of warranties and disclaimers

In the United States, the rights and remedies of buyers and sellers of goods are governed by the Article 2 of Uniform Commercial Code (UCC) as it has been adopted with variations from state to state. The UCC governs both express and implied warranties. It also covers the extent to which sellers may disclaim certain types of warranties (e.g., warranty of merchantability or fitness for a particular purpose, or even disclaim all warranties in the case of goods sold "as is."

Whereas in the U.S. warranties are generally provided in writing subject to control of the laws, in other countries warranties may be governed by specific statutes. For example, a country's law may provide that goods are assured by the seller for a period of 12 months and may provide other specific rights and remedies in the event of a product failure. However, even in the U.S. there are specific laws that may provide warranties or warranty-like assurances to buyers. For example, many states have statutory warranties on new home construction, and many have so-called "lemon laws" governing new motor vehicles with repeated defects.

"Representations and Warranties"

In complex commercial transactions, buyers and sellers may make specific representations and warranties to each other. In common parlance, these are known as "reps and warranties." These are statements by which one party gives certain assurances to the other, and on which the other party may rely. In this context, a representation is commonly a declaration of a specific fact that can be verified to be true or not, e.g., "seller represents that it is a corporation duly organized and validly existing under the laws of the state of Delaware." Here, a warranty may be more of an assurance, e.g. "supplier warrants that all of its employees working on this project will be subject to confidentiality agreements that include the ability of supplier to seek injunctive relief for breach." Often there are specific remedies or consequences specified if the representations and warranties are not accurate or are not fulfilled. For example, a seller may represent and warrant that is has full ownership title in the item being sold, and that there is no legal impediment to the seller proceeding with the transaction. Should it turn out that the seller did not have complete title or was subject to another agreement that restricted the sale, and should these facts impact the buyer's ownership or cause it expense, the buyer would have remedies under the agreement to seek relief from the seller. Parties to these transactions typically seek representations and warranties to cover issues over which they are concerned. Because of the consequences of making representations and warranties, parties will typically try to limit the extent of any that they make. The tension between these two points of view will help to shape the negotiations between the parties as to the terms and conditions of the deal.

Car warranty

A car warranty extends from a minimal 1 year, more common 3 year and extended 5 years (Lexus offer a 4 year warranty, by default). Crate Engine manufacturers also give warranties based on the manufacturers' and workmanship warranties.

Some companies also offer Extended Warranties or Used Car Warranties for vehicles up to 12 years old. You can usually buy a warranty direct from an insurance company or insurance coverholder.

Home Warranty

Main article: Home warranty

A Home Warranty protects against the high costs of home and appliance repair by offering home warranty coverage for houses, town homes, condominiums, mobile homes, and new construction homes. When a problem occurs with a covered appliance or mechanical system such as an air conditioning unit or furnace, a service technician repairs or replaces it. The homeowner pays for a service call fee and the home warranty company pays the balance for the repair or replacement of the covered item.

See also

• Business law
• Consumer protection
• Due diligence representations and warranties
• Magnuson-Moss Warranty Act (USA) protection for voided warranties or denied claims based on modifications of the warranted object
• Warranty deed in land transactions
• Surety

External links

• (USA) Federal Trade Commission: Warranty Information
• Warranty News
• A commercial warranty administration application
• [http://www.homewarrantyreview.com Home Warranty Review - Listing of home warranty companies and reviews.