The 5 Warranties Sellers Need to Know to Avoid a Lawsuit

The stage is set, and it’s time for you to introduce your new product to the public. You’ve worked with your R&D team, selected the product name, approved the new logo and packaging, and you’re ready to launch a full-scale marketing campaign. In the midst of your excitement you also need to consult an attorney to discuss the legal implications of five warranties designed by the law to protect consumers, not you as the seller.

Consider the Legal implications of 5 implied Warranties When Selling Goods

If your business sells “goods,” you make five kinds of warranties to your customers with every product sale unless you properly disclaim them. The term “goods,” with a few exceptions, means anything movable such as manufactured and hand-crafted products, and natural products such as animals, crops and minerals. If you ship what you sell, then it’s most likely your business sells “goods”.

Understanding these 5 implied warranties increases the chances you don’t wind up issuing refunds to hundreds of disgruntled customers, damaging your company’s brand, or worse, facing litigation because your product does not meet these standards.

The 5 Warranties

1. The Warranty of Title
2. The Warranty of Non-Infringement
3. The Express Warranty
4. The Warranty of Merchantability
5. The Warranty of Fitness for a Particular Use

Although implied warranties have no specific written wording, sellers are always legally responsible to make sure they don’t run afoul of the law’s intent to protect consumers. According to Businesdictionary.com, “implied warranties are always in effect unless negated through a written mutual agreement or a disclaimer, and implied warranties are always present and enforceable even if the seller (or provider or manufacturer) is unaware of them, or is unable to discover there is a defect in the products they sell.”

http://www.businessdictionary.com/definition/implied-warranty.html#ixzz3mwzhVsHa

Taking the Necessary Precautions When Selling Your New Product

If you’re ready to bring a new product to market these 5 warranties could make you nervous. What is your risk if something goes wrong? Well, if you don’t take precautions, it could be pretty extensive.

Here is a short summary of the warranties that the law imposes on sellers of goods and some ideas on ways to make sure you take the necessary precautions to protect you and your buyers.

1. The Warranty of Title: Every time you sell your product to a customer, you make an implied promise that you have clear title to it. Clear title means no other valid claim to ownership of the goods can be made by a third party, and no one holds a security interest in the product that prohibits its sale. The Fix: Make sure you own your merchandise free and clear. Working with your attorney, make sure no one else has title to the goods you are selling so disputes don’t develop in the future.
2. The Warranty of Non-infringement: As a merchant, you promise your buyer that the product you are selling does not infringe on anyone else’s patent or trademark rights. The Fix: Seek the proper legal assistance and conduct a thorough patent and trademark search before deciding to sell your new product.

Quality of Product Warranties

In addition to ensuring sellers own the goods they sell, and they don’t infringe on another’s patent or trademark, three more warranties exist that pertain to the quality of your product. Warning – these three quality of product warranties are the ones most often litigated in court or arbitration.

3. The Express Warranty: You can make an express warranty to a customer in many ways—with words, numbers, symbols, graphics, or in a real life example—anything that says how your product will look or perform. For example, if you place a specification on a label or in a brochure that promises your customer that your product will meet or exceed the standard given, then you need to make sure the product will perform in that way. Samples and models also set standards for how the final product will look and perform. The Fix: Get sound legal advice on the wording on any label you place in your product, and make sure that your final product works exactly like the models you display at trade shows or the samples you send in the mail prior to final customer purchase.

4) Warranty of Merchantability: “Merchantability” means that your product is good for the ordinary purposes for which such items are used. Products must also be contained, packaged and labeled according to your agreement with your customer. This means they are usable as it’s expected under normal circumstances unless they are sold as “as is” or as “with all faults” goods. The Fix: Discuss the implied warranty of merchantability with your business attorney to make sure there are no State-specific rules that may apply to your new product.

5) Warranty of Fitness for a Particular Purpose: As a purveyor of goods, the fifth promise you make is the implied warranty of fitness for a particular purpose. This occurs when you exercise your skill or judgment to select a product that is suitable for the customer’s intended use.

To clarify the difference between the last two implied warranties, imagine a customer who goes into a shoe store and tells the owner that he or she needs shoes for mountain climbing. If the owner sells the customer street shoes, the owner has met the warranty of merchantability—the shoes are fit for ordinary purposes—but not the warranty of fitness for a particular purpose—the shoes are not fit for the purpose that the customer specified. The Fix: Before making statements to sellers that your new product performs well for a specific use, you need to make sure it can function in that way through proper testing. Consult your attorney to ensure your statements are accurate.

2 Forms of Protection from Implied Warranties.

Fortunately, the Uniform Commercial Code, which governs most sales transactions throughout the United States, provides two forms of protection from these warranties. Exclusion or Modification of Warranties and Limitation of Damages both can help protect you as the seller from unwarranted buyer claims.

This is just a short summary of the warranties the law imposes on sellers of goods. Your situation may not fall under these generalities. Look for more information on these and other legal issues in future blog posts. Please consult with a business attorney for further guidance.

If you need help understanding how warranties imposed by law may affect the sale of your new product or the goods you sell, please contact us at 312-315-1221.

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