Warranties And Online Sales

What warranties apply to sales online?

US state and federal law set out warranties that apply to the sale of goods. The law is mostly state law, and the law in the individual states is substantially the same because all of them have adopted the Uniform Commercial Code (the "UCC") in substantially the same form. This law applies both to on and off-line sales. Some states have additional laws that apply to sales to consumers, and federal law provides some special rules for sale of "consumer goods." Other federal laws deal with the granting of credit for consumer sales and disclosure of credit terms. There are also state statutes that apply to the sale of specific kinds of goods such as new cars, recreational vehicles, boats and mobile homes. These special statutes differ from state to state.

The UCC does not directly apply to sales of "services" as opposed to "goods." However, courts have looked to the UCC for guidance in resolving contract and warranty questions related to the performance of services, especially when they are connected to a sale of goods. Many courts have also applied the UCC sale of goods law to sales or licenses of software, and the law continues to evolve on those issues. Maryland and Virginia have special statutes based on The Uniform Computer Information Transactions Act--"UCITA" that apply to sales and/or licenses of software and data. UCITA has been very controversial, and has been rejected in most states, and some states even forbid its application to their residents.

Because the UCC rules apply directly or indirectly to so many kinds of transactions, it is good practice to comply with them whether your business offers goods or services (including software) or products which have elements of both.

The UCC warranty provisions
When goods are sold online or off, there may exist under the UCC (1) express warranties (2) the implied warranties of (a) "merchantability" (b) "fitness for a particular purpose" and (c) title. Other implied warranties may arise in special circumstances in commercial sales from "course of dealing" or "usage of trade."U.S. Federal law (the Magnuson-Moss Act) supplies some special rules for the sale of "consumer goods." There may be more than one of these warranties in a sale, and they may protect not only the buyer, but also certain third parties.

Express Warranties
Express warranties are created by the conduct of the seller. That conduct, if it is "part of the basis of the bargain," includes statements ("affirmations") of fact or promises relating to the goods, descriptions of the goods, or the use of a sample or model of the goods. Special words are not necessary - express warranties may arise without using words like "warranty" or "guarantee" - and they do not have to be in a formal document. Warranties can also be based on advertising. However, some language used by the seller may not result in an express warranty but rather will be treated as "puffing" if it is merely a slight exaggeration or an expression of the seller's opinion or some other language that reasonable people would not consider a part of the deal.

The Implied Warranty of Merchantability in sales by "merchants."
As indicated above, the implied warranty of merchantability automatically comes with the sale of goods if the seller is a professional (a merchant) with respect to the kind of good being sold who has not excluded or modified the implied warranty of merchantability. It is part of the sale unless it is effectively disclaimed or limited (as explained below).

The basic thrust of this implied warranty is that the goods sold must be "fit for the ordinary purposes for which such goods are used." Sellers typically try to comply with the "conspicuous" requirement by putting implied warranty disclaimer language in all capital letters of a different font size than other print in the contract and perhaps in colored or bold print. Just how well they must do it or how long they must last depend on the kind of goods, the circumstances and the price.

The Implied Warranty of Fitness for the Particular Purpose.
The implied warranty of fitness for the particular purpose does not come automatically with every sale. The merchantability warranty relates to the "ordinary" purpose of the goods. The fitness warranty relates to a "particular" purpose that the buyer has communicated to the seller, and the seller, under the circumstances, should realize the buyer is relying on the seller to provide goods that will satisfy that communicated purpose. There are special disclaimer rules that apply.

The implied warranty of title and against infringement.
The implied warranty of title comes in every sale unless effectively disclaimed. It guarantees that the seller has the legal right to transfer the goods and they will be delivered free from liens or encumbrances that the buyer did not know about at the time of contracting. Closely associated is the implied warranty against infringement i.e., the goods do not infringe the intellectual property rights of third parties. As explained below, it is harder to disclaim this implied warranty than the others.

Disclaimer (exclusion) or modification of warranties.
Express Warranties. A seller may not exclude or disclaim an express warranty it has given. And ambiguous language will be interpreted to favor the person who did not draft the contract. A seller can, however, unless a special statute such as a lemon law provides otherwise, totally exclude or disclaim all express warranties (if it has not made an express warranty) by clear and conspicuous language. Statements or other evidence which might create an express warranty may not be admissable to prove the existence of the warranty, if the electronic record properly excludes such evidence.

The Implied Warranty of Merchantability.
As indicated above, the implied warranty of merchantability automatically come with a sale of goods if the seller is a professional (a merchant) who has not excluded or modified the IWM. The law provides for safeguards against unfair exclusion or modification by requiring disclosure and a certain format and by providing standards to prevent unfairness such as unconscionability or the separate laws prohibiting unfair and deceptive conduct even if the disclosures technically comply with the required format. These rules are supplemented by the federal law discussed below and other state statutes.

The UCC has two provisions relating to disclaimer or modification of merchantability. Under the first, a seller who wishes to exclude or limit the implied warranty of merchantability must mention the word "merchantability." Under this rule, general language such as "no implied warranties are made" is not sufficient. The language does not have to be written, but if it is part of a writing, it must be "conspicuous" so that a reasonable person against whom it is to operate ought to have noticed it. Sellers typically try to comply with the "conspicuous" requirement by putting implied warranty disclaimer language in bold print in all capital letters of a different size that the other print in the contract and perhaps a different color. It should also be placed in a prominent place in the contract and have an appropriate title (not buried in the text under a title that does not suggest disclaimer, exclusion or modification).

The second rule, which applies both to merchantability and fitness, allows less formal language without using the magic word "merchantability." It provides that "unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like 'as is,' 'with all faults' or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty." Many courts also require that any such language be "conspicuous."

The implied warranty of "fitness for a particular purpose."
An exclusion or modification of the implied warranty of "fitness for a particular purpose" must be in writing in conspicuous language. One rather stiff example of complying language is "There are no warranties which extend beyond the description on the face hereof." A more contemporary and communicative phrase is "There is no warranty that the goods will be fit for a particular purpose." The meaning of "conspicuous" is discussed above. Other expressions like "as is" or "with all faults" may also be sufficient to exclude or modify the implied fitness warranty.

The implied warranty of title and against infringement.
A disclaimer of the implied warranty of title and against infringement must be made separately from a disclaimer of other warranties. The law requires this because such a disclaimer is considered quite unusual. It must be done by "specific language" or by circumstances which give the buyer reason to know that the seller does not claim he has title or that he is purporting to sell only such right or title as he or a third person may have.

Special State Rules for Consumer Sales
A number of states have special rules that are more protective of consumers than the UCC rules discussed above.

Limitations on disclaimers in consumer sales.
A number of states have special laws that limit the use of the UCC implied warranty disclaimer rules in consumer sales. Some of these appear in amendments to the UCC and others are in separate statutes. The broadest approach is that of the nine states (Massachusetts, Connecticut, Maine, Vermont, Maryland, the District of Columbia, West Virginia, Kansas, Mississippi, and, with respect to personal injuries only, Alabama) which prohibit the disclaimer of implied warranties in consumer sales. There is a difference in these states whether the rules apply to manufacturers as well as retailers.

In five other states, (California, Minnesota, New Hampshire, Oregon and Rhode Island) disclaimers are heavily restricted but not totally banned. In California, e.g., (1) if either new or used goods are covered by an express warranty, the implied warranties may not be disclaimed; (2) the implied warranties may not be disclaimed in any sale of new goods not covered by express warranty unless there is compliance with an elaborate statutory formula which requires far more detailed communication to the consumer than the UCC and conveys a strong message of transfer of risk; (3) the implied warranty of merchantability has a duration for purposes of the act of no less than 60 days nor more than one year, and express warrantors may limit the duration of that implied warranty within those parameters.

A few other states, amplify the procedure for disclaimer in consumer cases. E.g., the Washington statute requires that disclaimers in consumer cases be "explicitly negotiated" and South Carolina requires specificity. Several other states confine "as is" disclaimers essentially for use with defective goods

Many of these statutes apply the special limitations on the use of disclaimer to manufacturers as well as retailers. Some require distant warrantors to indemnify immediate sellers and some confer standing on consumers to obtain remedies directly from the distant warrantor. Many also provide for attorney fees for consumers who win, and a few provide for multiple damages.

The Ban on "unfair" and "deceptive" practices.
Another category of special state statutes that affect consumer (and, in a few states, commercial) sales is state law banning "unfair" and "deceptive" acts and practices (UDAP). These laws were influenced by the federal ban on such acts and practices which is administered by the Federal Trade Commission.

The state udap statutes differ considerably. Most apply only to consumer transactions, but some apply as well in the commercial context. They generally provide for actions by the state attorney general and by private parties. Some of the statutes contain a "laundry list" of unfair or deceptive practices; others leave it to the courts to determine what is unfair or deceptive. Some provide for multiple damages and/or recovery of attorney fees.

There is disagreement among the states as to whether simple breach of warranty or a warrantor's failure to repair is "unfair" or "deceptive," or whether some sort of obdurate or unusual behavior is required. A very few states provide by statute that a breach of warranty is an unfair or deceptive practice. Others interpret their statutes to mean that a "mere" breach of contract is not an unfair or deceptive practice.

The Federal Magnuson-Moss Warranty Act imposes specific duties on sellers who offer written warranties on consumer products. (See the federal trade commission's information on warranties at: http://www.ftc.gov/bcp/conline/pubs/buspubs/warranty.htm, and the text of the Act at: http://www.law.cornell.edu/uscode/html/uscode15/usc_sup_01_15_ 10_50.html.)

The Act also substantially enhances consumers' remedies, giving prevailing consumers the possibility of recovering attorney's fees. See further discussion of the Magnuson-Moss Warranty Act and the implied warranty of merchantability, below.

Can I disclaim warranties for my online sales?

In the context of Internet sales, disclaimers of warranties should be plainly visible to customers before they make a purchase. Courts may find that the disclaimer of a warranty is conspicuous even if contained within product packaging and not discovered before the purchase of the product. To be on the safe side, the buyer should be made clearly aware of the disclaimer within the contract prior to the purchase, either by contrasting font near the description of the product or in a pop up box relating the details of the disclaimer. A hyperlink to such information is likely not enough.

The federal Magnuson-Moss Warranty Act places specific duties and liabilities on suppliers who offer written warranties on consumer products and restricts the power of the parties to disclaim implied warranties. This law does not require sellers to provide consumers with written warranties; nor does it regulate the specific substantive terms of warranties. It does, however, require that manufacturers and sellers provide consumers with detailed information about written warranty coverage.In addition, the statute affects both the rights of consumers and the obligations of warranty providers under any written warranties.

If a company offers a written warranty to consumers, the warranty must be clearly and conspicuously designated as either a "Full (Statement of Duration) Warranty" or a "Limited Warranty," depending upon whether the warranty satisfies certain standards set forth in Magnuson-Moss. The designation must appear clearly and conspicuously as a caption, or prominent title, clearly separated from the text of the warranty. The company must clearly and conspicuously disclose written warranties in a single document, and include, in simple and readily understood language, certain items of information, such as: (1) the identities of the parties to whom the warranty is extended; (2) a description of the products and parts covered by the warranty and, where necessary for clarification, a description of what is excluded from coverage; (3) a statement of what the warrantor will do in the event the product fails to conform to the written warranty; and (4) a step-by-step explanation of the procedures which the consumer should follow in order to obtain the performance of any warranty obligation. Magnuson-Moss prohibits any deceptive warranty terms. Written warranties must be displayed in close proximity to the warranted product and must be readily available for examination by the prospective buyer. As an alternative to displaying the warranty, the seller may place signs in prominent locations informing the buyer that copies of the warranty will be furnished upon request prior to the sale. The Federal Trade Commission has issued special guidance for providing information about warranties in internet sales transactions. (See the FTC publication "A Business person's Guide to Federal Warranty Law", online at: http://www.ftc.gov/bcp/conline/pubs/buspubs/warranty.htm.)

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