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The following excerpt is from Chapter 9 of my handbook, Don’t Get Sued! A Guide to Help Reduce Your Business’s Exposure to Lawsuits:
The sale of goods and services is regulated by, among other things, the Uniform Commercial Code (hereinafter, the U.C.C.), a version of which is adopted by most states and reviewing it should help the business owner (the seller) understand what is expected of his or her business. The U.C.C. delineates four types of warranties, which are as follow: (1) warranty of title, (2) implied warranty of merchantability, (3) implied warranty of fitness for a particular purpose, and (4) express warranties. A brief description of each and the applicability of the warranty to your business is discussed below.
Essentially, a warranty of title warrants that you, the seller, have title to a product that you’re selling and that there are no liens on the product, which the buyer is unaware of at the time of purchase. Meaning, don’t sell stolen or pirated goods.
There are six technical elements to the implied warranty of merchantability. I am not going to spell out each of the elements. One element is most important and is most often the basis of a claim in a merchantability suit, i.e., whether the goods being sold are “fit for the ordinary purposes for which such goods are sold.” U.C.C. Here is the important part for the seller to remember: it makes no difference whether you knew of the defect. If the product is defective, in many cases, you are liable.
Implied warranty of fitness for a particular purpose arises when a seller knows the particular purpose for which goods being sold are going to be used and the buyer is relying on the seller’s judgment to select suitable goods.
Any promise, statement, description, or sample made by the seller, which the buyer could have relied upon when entering the contract, creates an express warranty. Some courts recognize certain exceptions including the personal opinions of the seller and certain statements relating to the value of the goods being sold.
Disclaimers of warranties may help the seller avoid some liability, however, the U.C.C. indicates that “negotiation of such warranties is inoperative to the extent that such a construction is unreasonable.”
Essentially, the seller may attempt to disclaim certain warranties, but be careful, because your disclaimers may not always be valid. A few examples of situations where warranties may successfully be disclaimed are: by inspection, or refusal to inspect, i.e., when a buyer purchasing something from the seller inspects the goods carefully and purchases anyway, or has the opportunity to inspect, but refuses.
Additionally, a seller may disclaim certain warranties (including merchantability and fitness for a particular purpose) by conspicuous writing, which indicates that the seller is disclaiming the particular warranty. However, whether the warranty was in fact disclaimed, as in all disclaimer situations may ultimately be determined by a court. As such, I would urge you to avoid considering attempts to circumvent warranties by way of disclaimers.