If you are in the business of selling products, then you want to understand the law around warranties. A warranty is essentially a part of a contract. As we know, a contract is a voluntary agreement between two or more parties that's legally enforceable. Like contracts, warranties are also enforceable. In this lesson, we're going to talk about some key terms of contracts and how they may impact warranties that may follow the contract. Key terms that you want to keep in mind for any contract include representations and warranties that may be part of the contract, conditions, price and payment terms, the timing of when the contract should be performed, any damages that are associated with breaching the contract, the duration and terms around the ability to renew the contract, options for terminating the contract, and the process for resolving disputes that may arise under the contract. Representations and warranties are almost always included in the contract. Warranties take several different flavors. First, is an express warranty. There are two requirements in order for a warranty to be an express warranty. First, there must be some statement, promise, description, or even showing a model of a particular product or good. Now, in addition to that statement or promise or showing a model or describing the good, the buyer must actually rely on that statement of promise. If you show a car and the car has certain features and you hold that out to the buyers and see what they're getting if they buy the car, and the buyer relies on that, you've created an express warranty. The idea of having to use the words warranty or guarantee, those words aren't required. It's just the idea that you have this statement, or promise, or description about your product, and a buyer relied on it, that will create a warranty. Now, puffing is okay. Puffing is saying, "Hey, look. This car is top-notch. This is a very good car." It's just giving your opinion about the particular product. That's okay. Puffing will not lock you into a warranty situation. But if you're giving facts like, "This car can get 36 miles per gallon," it's a very different thing than puffing and just giving your opinion. That's a factual statement. If a buyer relies on that factual statement, you've created an express warranty. A warranty becomes part of the contract. Failure to adhere to that warranty can constitute breach of contract, which may lead to damages and remedies that are spelled out in the contract. Express warranties, those are things you can control. You can control making certain statements or describing your products in a certain way and causing a buyer to rely on those. But the law also implies certain warranties based on the type of business that you're in. This first type of implied warranty is the implied warranty of merchantability. What this warranty essentially says is that the good or the product that you're putting into the marketplace is suitable for its ordinary purpose. Whether it's a bicycle or a toy for one of your kids, whatever that product is, this implied warranty of merchantability means that it's going to work. It's going to work as one would expect this product to work. If it doesn't, then you would have breached this implied warranty of merchantability. Even if you don't make a statement about the particular product, this warranty will still be implied because the product is being used in the way that it's ordinarily would be used. The idea here is that if you putting a product in the marketplace, you're trying to manage expectations for the buyer. As you are thinking about a particular product that you're building for your business, you want to make sure that you have certain quality controls in place to ensure that the products that you're putting out will satisfy this implied warranty of merchantability. Then the next implied warranty really applies in special cases. This is an implied warranty of fitness for a particular purpose. Unlike the implied warranty of merchantability, which essentially applies for all products, and that they should work in the way that they are intended to work, the implied warranty for fitness of a particular purpose are really very special cases. These are products that have a very unique use case. They're only used for a very specific action or a very specific need. Now, if you are in that business of applying very specific designs product for very specific issue, then this implied warranty will apply. In order for this warranty to apply, the seller must be building a product that has very special purpose, the buyer must rely on this particular purpose of the product, and the seller must know that the buyer is relying on this purpose. Those three requirements are necessary in order for this warranty to come in place. There's some exceptions to this rule. For example, if you're in a business of building very particular designs, but the buyer gave you the design, the buyer knows that you are building this specific thing according to the buyer's specifications, then this would exempt you from having the implied warranty of fitness for a particular purpose apply to you. Even in the event that warranties would apply, you want to think about ways to limit your liability. You can do this by including disclaimers. You're taking this product as is, or this product does not include warranties for how the product should be used. Or you can think about giving a limited warranty. We represent that the product can be used X, Y, and Z ways, and we will be responsible for guaranteeing this up to a certain amount. A limited warranty is very different from a full warranty, which is why you don't put certain limitations on how much you're going to warrant that the product is being used appropriately. Now, as the seller of a good, you're responsible for a defective product. Not only are you responsible for a defective product, everyone in the supply chain is. The defect could have occurred at the design phase, it could have occurred at the manufacturing phase, retail phase, anywhere in that supply chain would be responsible if a product is defective. Regardless of where your business is, whether you are the responsible for the initial design, whether you actually building the product, or whether you are the retail aspects of getting the product to market, be careful about defective products and be very cognizant of what warranties may apply to you. Because responsibility and liability would lie with anyone in that supply chain. If someone is injured by a defective product, even if you're just the person who's selling a product that you had no part in the design of that product, you could still be held liable. In summary, warranties come in many forms or fashions. They can be express warranties, they can be implied warranties. The law implies the warranty of merchantability for almost all goods. If you're building very particular goods, you can have the implied warranty of fitness for a particular purpose. You can have limited warranties which caps your responsibility, or full warranties which gives you a limited warranty for a particular product. Liability for defective products extend to all parts of the distribution chain. You want to make sure you understand one, the distribution chain, also understand what warranties exist because even as one player in that distribution chain, you can be held responsible for injuries resulting from a defective product. Because of this, you want to make sure you consider options for limiting your liability, rather by having disclaimers or otherwise having limitations in your individual liability. Seek the help of an experienced council to help you think through ways to help mitigate the potential legal exposure you may have when you're in the business of putting out products into the marketplace.
