Protecting Your Business Interests from the Pitfalls of Implied Warranties
If your business sells goods, you should be aware that there are warranties that are implied in Pennsylvania, New Jersey, and many other states, even if you had no intention of selling a product with a warranty attached. This article’s focus is on the sale of goods to other businesses. There are additional responsibilities if your customers are individual consumers. Implied warranties can create a future liability with respect to the product you sell. Some of these implied warranties (and a very basic description) include:
- Warranty of Merchantability & Usage of Trade: Seller has an obligation of good faith and must sell goods that are merchantable. Merchantable goods must conform to certain standards of quality, conformity, fitness, quality, packaging, labeling, etc.
- Warranty of Fitness for a Particular Purpose: Seller is subject to an implied warranty that goods are fit for a particular purpose if the seller has any reason to know the buyer’s purpose or intended use of the goods and when the buyer relies on the seller’s skill or judgment to select or furnish suitable goods.
- Warranty Against Infringement: Seller must deliver goods free of any rightful claim by any third party by way of infringement.
- Warranty of Condition on Arrival: Seller is subject to additional warranties regarding the quality, condition, price, and delivery of goods under certain contracts or delivery terms.
- Warranty of Title: Seller must (1) have the right to transfer title; (2) convey good title; and (3) deliver goods from undisclosed security interests, liens, and encumbrances.
- Additionally, a Seller of goods is subject to Federal Minimum Standards for Warranties.
With conscientious contract drafting and adding warranty disclaimers to your product literature, you can disclaim much of the liability from some of these implied warranties. Such disclaimers can reduce the risk and uncertainty of future claims, improve future cash flows, reduce reserves/allowances, and augment the bottom line.
Of course if your business is purchasing products – whether for its own consumption or for resale – you should be aware of these issues and your rights. You may negotiate the terms of the contract to include express warranties that protect your interests, while simultaneously eliminating or reducing warranty disclaimers.
Attorney Marshal Davis originally wrote this article in 2009, which was published in the Fall/Winter 2009 edition of the Bucks Prospectus, published by the Bucks County Economic Development Corporation (BCEDC) several times per year. The BCEDC was chartered in 1958 and is a private, nonprofit organization governed by a volunteer board of directors representing a wide range of local industries and businesses.
Davis Law can advise your company and help it to draft warranty policies and disclaimers. Please call (267) 482-9595 to schedule a free initial consultation.