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Warranties: How They Arise and How To Make Them Work For You
by Frank Dennis, Barokas Martin and Tomlinson
I talked to a manufacturer this week about a threatened lawsuit. I will call him “Bob.” He said he called to make sure that he “was alright on this one.” He told me he doesn’t think he has any liability because he doesn’t give any warranties. He thought that if you didn’t affirmatively say there was a warranty, then there was no way for the user or customer to sue you. I explained to him that EVERY product comes with one, or several, warranties. Those warranties are present unless you specifically exclude them with the exact language that is required by the laws and by case law made by judges.
Bob also said that he wasn’t worried because he had a good database and he knew that he had not sold the product to the injured party, and only the people who buy the product can sue. I explained to him that if it was reasonably foreseeable that the product would go into commerce and be resold, then he had liability, or at least potential liability, if anyone is injured.
Bob and I talked about the odd results that occur in this area of the law and the policy reasons behind the law. We discussed the McDonalds hot coffee case and the many cases I have seen involving breach of warranty, even when the manufacturer attempted to exclude warranties. We talked about odd cases. The strangest one I have ever seen was related to a product sold in this country and used in South America as part of a power project. The manufacturer had excluded all liability that it could under the laws of the United States, and it was still found to be liable under the laws of Uruguay, whose laws differed considerably from the U.S. laws. A high voltage power line exploded and blew out half the toasters and small products in Uruguay. The manufacturer ended up with a $250,000,000 judgment against his company and needed a good bankruptcy lawyer to keep the company alive. It was only then that the manufacturer was better able to deal with the economic loss than the consumers, and as a matter of policy, somebody had to pay.
So how does Bob protect himself? First, know the rules. Products sold in this country and in the EU are subject to the Uniform Commercial Code (UCC) and the European equivalent. The UCC spells out how warranties attach to products. Almost all products are warranted. Section 2-315 of the UCC creates an IMPLIED warranty. It reads “…there is…an implied warranty that the goods shall be fit for such purposes.” This is the warranty of “fitness for particular purpose.” Whether you sell a car washing sponge or laboratory equipment, it must do what it is sold to do. If it doesn’t you are liable for all the reasonably foreseeable damages it does, refunds for the malfunctioning products and foreseeable expenses.
Another section (UCC 2-313) creates EXPRESS warranties by such innocent things as descriptions of the product, telling what the product does, giving samples or things said during the sale. Your salesman is a speaking agent of your company and he or she can create express warranties on every sales call they make.
Bob then asked, “Why am I liable to someone I don’t even know?” The answer is that the UCC in Washington State makes you liable, at least to family and guests of the buyer. The Washington Legislature declined to adopt the wider rule that was adopted by some states that says the manufacturer is liable to ANYONE that would be a reasonably foreseeable user or in the proximity of the product. Even if you are okay here in Washington State, if your product gets to California, there are different rules. The court with jurisdiction usually is the court where the injury or problem occurs. It is no defense to comply with the law where the product is made if the law is different where the problem occurs.
Bob next asked how to do it right. I told him there was a specific section in the law (UCC-316) that listed the rules regarding excluding warranties. He had to examine his sales materials, his invoices and his instruction sheets to insure that he did not create a warranty inadvertently. Then he had to clearly and “conspicuously,” (preferably in all capitals) in large print, specifically exclude all warranties such as warranty of fitness for use and merchantability. He also had to make sure that he was not responsible for the damages that might not be immediately foreseeable, like those toasters in Uruguay, or for damages caused by misuse of the product.
Finally, I told Bob that the law on warranties and manufacturer liability is ever changing. A manufacturer must keep up with the law and change when it changes. Yesterday’s advice may be wrong today.
I hope this helps. Next time, we will talk to Bob about shifting liability through indemnity clauses and in other ways.
[PRINTER FRIENDLY VERSION]
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About Frank Dennis
Frank Dennis is a partner at Barokas Martin and Tomlinson in Seattle. He has practiced business law for thirty-one years and represents clients around the world in warranty, indemnification and contract issues. He sits on the boards of many corporations and lectures and practices in the field of corporate finance.
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