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In business and legal transactions, a warranty is an assurance by one party to the other party that specific facts or conditions are true or will happen; the other party is permitted to rely on that assurance and seek some type of remedy if it is not true or followed.

In real estate transactions, a general warranty deed is an agreement that the buyer's title to a parcel of land will be defended. A limited warranty deed, on the other hand, is a promise that the title will be defended against a limited set of claims which is usually claims arising from incumberances executed by the grantor. Thus, a general warranty deed binds the grantor to defend the title against all claims even those arising from previous owners; whereas, a limited warranty deed typically only binds the grantor to defend the title against claims arising from when the grantor held title to the property. A limited warranty deed is the deed of choice for banks when selling foreclosed properties.

A warranty may be express or implied, depending on the product.

Implied warranty[link]

An implied warranty is one that arises from the nature of the transaction, and the inherent understanding by the buyer, rather than from the express representations of the seller.

The warranty of merchantability is implied, unless expressly disclaimed by name, or the sale is identified with the phrase "as is" or "with all faults." To be "merchantable", the goods must reasonably conform to an ordinary buyer's expectations, i.e., they are what they say they are. For example, a fruit that looks and smells good but has hidden defects would violate the implied warranty of merchantability if its quality does not meet the standards for such fruit "as passes ordinarily in the trade". In Massachusetts consumer protection law, it is illegal to disclaim this warranty on household goods sold to consumers etc.

The warranty of fitness for a particular purpose is implied when a buyer relies upon the seller to select the goods to fit a specific request. For example, this warranty is violated when a buyer asks a mechanic to provide snow tires and receives tires that are unsafe to use in snow. This implied warranty can also be expressly disclaimed by name, thereby shifting the risk of unfitness back to the buyer.

Lifetime warranty[link]

A lifetime warranty is usually a guarantee on the lifetime of the product on the market rather than the lifetime of the consumer^[1] (the exact meaning should be defined in the actual warranty documentation). If a product has been discontinued and is no longer available, the warranty may last a limited period longer. For example:

• the Cisco Limited Lifetime Warranty currently lasts for five years after the product has been discontinued.^[2]

• HP Networking products lifetime warranties for as long as you own the product.^[3]

Second-hand Product Warranty[link]

The importance of the used/second-hand product market as a fraction of the total market (new + second-hand) has been growing significantly since the beginning of the twenty-first century. Second-hand products include products that have previously been used by an end user/consumer. Users change their products even if they are still in good condition. Some products such as computers and mobile phones have a short lifetime and technologies of these products are released to the market every day. As a result, the sale of new products is often tied to a trade-in, resulting in a market for second-hand products. For instance, in France, used car unit sales increased from 4.7 million to 5.4 million between 1990 and 2005, at the same time as new car sales declined from 2.3 million to 2.07 million units.

Breach of warranty[link]

A warranty is violated when the promise is broken; when goods are not as should be expected, at the time the sale occurs, whether or not the defect is apparent. The seller should honor the warranty by making a timely refund or a replacement. The date of delivery starts the time under the statute of limitations for starting a court complaint for breach of warranty if the seller refuses to honor the warranty. This period is often overlooked where there is an "extended warranty" in which a seller or manufacturer contracts to provide the additional service of replacing or repairing goods that fail within the extended period. However, if the goods were defective at the time of sale, and the relevant statute of limitations has not expired, then existence or duration of any "extended warranty" is secondary: there was a breach of a primary warranty for which the seller may be liable.

It could be an unfair and deceptive business practice (a statutory type of fraud) to attempt to avoid liability for breach of a primary warranty by claiming expiration of the irrelevant extended warranty. A statute of limitations on a contract claim may be shorter (or longer) than that of a tort claim, and some breach of warranty cases are filed late and are characterized as a fraud or other related tort.

For example, a consumer buys an item that was discovered to be broken or missing pieces before it was even taken out of the package. This is a defective product and can be returned to the seller for refund or replacement, regardless of what the seller's "returns policy" might state (with limited exceptions for second-hand or "as is" sales), even if the problem wasn't discovered until after the "extended warranty" expired. Similarly, if the product fails prematurely, it may have been defective when it was sold and could then be returned for a refund or replacement. If the seller dishonors the warranty, then a contract claim can be started in court.

See also product liability where liability for a defect causing a personal injury may go well beyond a warranty period, based upon negligent design or manufacture, or even strict liability.

Warranty data and analysis[link]

Warranty data consists of claims data and supplementary data. Claims data are the data collected during the servicing of claims under warranty and supplementary data are additional data (such production and marketing related, items with no claims, etc.) that are needed for effective warranty management.^[4] Analysing such data can therefore be of benefit to manufacturers in identifying early warnings of abnormalities in their products, providing useful information about failure modes to aid design modification, estimating product reliability for deciding on warranty policy, and forecasting future warranty claims needed for preparing fiscal plans.^[5]

U.S.A & Canada[link]

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In retail business, a warranty (or "extended warranty") commonly refers to a guarantee of the reliability of a product under conditions of ordinary use. It is called "extended" warranty because it covers defects that could arise some time after the date of sale. Should the product malfunction within a stipulated amount of time after the purchase, the manufacturer or distributor is typically required to provide the customer with a replacement, repair, or refund. Such warranties usually do not cover "acts of God", owner abuse, malicious destruction, commercial use, or anything, for that matter, outside of a mechanical failure incurred with normal personal usage. Most warranties exclude parts that normally wear out, and supplies that must be periodically replaced as they are normally used up (e.g., tires and lubrication on a vehicle). An extended warranty may be included in the purchase price, or optionally extended for an additional fee, and may have yearly extensions as well as ambiguous terms like "lifetimes" of the product.

• A manufacturer or distributor may be required to carry reserve funds on its financial balance sheet to cover potential services or refunds that may arise for any products still covered "under warranty".

Third-party warranty providers offer optional "extended warranty" agreements for a multitude of products, considered a contract of insurance for that product. Third parties are sold through a range of smaller, self-insured companies as well as larger, well known store chains, such as Best Buy and Circuit City. As with other types of insurance, the companies are gambling that the products will be reliable, that the warranty will be forgotten, or that any claims made can be handled inexpensively. Some third party companies provide their own support such as JTF Business Systems; these companies will remove the defective part and send it back to the manufacturer for replacement.

Extended warranties are not usually provided through the manufacturer but are extended through independent administrators. In some circumstances it may work to the consumer's benefit having an assurance to the product from a company outside of place of purchase and/or service. For instance, when an auto warranty is provided through a car dealership, it's usually a sub-contracted warranty (often from the retailer with the lowest offer), where vehicle repairs are negotiated to a lower rate, often compromising the service, labor and parts to a lower standard. Many times these types of warranties require an unexpected out-of-pocket expense at the time of repair, such as: -unexpected services provided outside of the warranty terms -uncovered parts and labor rates -paying the full balance while a reimbursement is arranged through dealership/warranty claims offices. Some mechanics and dealer service centers might put off, or defer the needed repair until the dealership's warranty has expired so that their (in-house) warranty will no longer be bound to cover the cost of repair, or so that the ordinary (higher) shop rate will apply.

• Most U.S. consumers with a combined total asset value of $4800+ (standard electronics, luxury electronics, antiques and collectibles, furnishings, automobile, home, etc.) or consumers averaging a combined household income of less than $122,000 per year, have 86% more likeliness of increasing the market value of their product, home, or vehicle, and are likely to triple their savings (cost of warranty extension vs. cost of proper service and repair on property exceeding $4800 in value) when owning a federally bonded and insured warranty. ~drp.report2007

Legal aspects of warranties and disclaimers[link]

In the United States, the rights and remedies of buyers and sellers of goods are governed by the Article 2 of Uniform Commercial Code (UCC) as it has been adopted with variations from state to state. The UCC governs both express and implied warranties. It also covers the extent to which sellers may disclaim certain types of warranties (e.g., warranty of merchantability or fitness for a particular purpose, or even disclaim all warranties in the case of goods sold "as is."

Whereas in the U.S. warranties are generally provided in writing subject to control of the laws, in other countries warranties may be governed by specific statutes. For example, a country's law may provide that goods are assured by the seller for a period of 12 months and may provide other specific rights and remedies in the event of a product failure. However, even in the U.S. there are specific laws that may provide warranties or warranty-like assurances to buyers. For example, many states have statutory warranties on new home construction, and many have so-called "lemon laws" governing new motor vehicles with repeated defects.....

"Representations and Warranties"[link]

In complex commercial transactions, buyers and sellers may make specific representations and warranties to each other. In common parlance, these are known as "reps and warranties." These are statements by which one party gives certain assurances to the other, and on which the other party may rely. In this context, a representation is commonly a declaration of a specific fact that can be verified to be true or not, e.g., "seller represents that it is a corporation duly organized and validly existing under the laws of the state of Delaware." Here, a warranty may be more of an assurance, e.g. "supplier warrants that all of its employees working on this project will be subject to confidentiality agreements that include the ability of supplier to seek injunctive relief for breach." Often there are specific remedies or consequences specified if the representations and warranties are not accurate or are not fulfilled. For example, a seller may represent and warrant that it has full ownership title in the item being sold, and that there is no legal impediment to the seller proceeding with the transaction. Should it turn out that the seller did not have complete title or was subject to another agreement that restricted the sale, and should these facts impact the buyer's ownership or cause it expense, the buyer would have remedies under the agreement to seek relief from the seller. Parties to these transactions typically seek representations and warranties to cover issues over which they are concerned. Because of the consequences of making representations and warranties, parties will typically try to limit the extent of any that they make. The tension between these two points of view will help to shape the negotiations between the parties as to the terms and conditions of the deal.

Car warranty[link]

A new car factory warranty extends from a minimal 1 year, more common 3 year and extended 5 years. Some car manufacturer warranties have gone as far as 10 years. Crate Engine manufacturers also give warranties based on the manufacturers' and workmanship warranties.

Some companies also offer extended warranties or used car warranties for vehicles up to 12 years old. The term extended warranty. Non-manufacturer based warranties are technically called motor vehicle service agreements or service contracts.

In the UK, car warranties come in three forms:

1. Original manufacturer warranty

2. Insurance warranty (extending new car warranties or starting a separate used car warranty)

3. Obligor warranty / guarantee (also extending new car warranties or starting a separate used car warranty)

An Insurance Warranty is underwritten by an insurance company and is an agreement that the insurance company will indemnify the policyholder against loss caused by a covered part.

An Obligor Warranty or Guarantee is a contractual warranty between the seller (usually a garage) and their customers.

While both are called a warranty and sold or given away in the same way, there are big differences.

The Financial Services Authority (FSA) regulate warranties when they are insurance, and it is illegal to sell insurane without being regualted by them, but they say the 'Obligor' kind of warranty is legal and not regulated by them:

"Some firms, such as car dealerships, offer their own warranties to cover repairs or mechanical faults as part of the sale of the goods. This includes car dealers who offer additional warranties to extend manufacturers’ guarantees on new cars, or mechanical guarantees on used vehicles. We have concluded that contracts of this kind are unlikely to be insurance. This is because the warranty is a consequence of the contract of sale, under which the substance of the provider’s obligation is the sale of goods that meet the required (often statutory) quality standard, not the provision of insurance. In this situation, the warranty does not involve a transfer of risk, but a recognition (and crystallisation) of an existing responsibility."

If you buy an insurance warranty, then it will be regulated by the FSA, which means that if you are not happy you can complain to the Financial Ombudsman and if the insurer cannot pay out you will be covered by the Financial Services Compensation Scheme.

So if you are buying a long-term warranty (several years) then an insurance warranty makes sense. If you are buying a short-term warranty, or given a 3-6 month warranty to cover the period just after you buy a new car, then the Obligor Warranty or Dealer Guarantee will offer sufficient protection.^[6]

Home Warranty[link]

A home warranty protects against the costs of home and appliance repair by offering home warranty coverage for houses, town homes, condominiums, mobile homes, and new construction homes. When a problem occurs with a covered appliance or mechanical system such as an air conditioning unit or furnace, a service technician repairs or replaces it. The homeowner pays for a service call fee and the home warranty company pays the balance for the repair or replacement of the covered item.

See also[link]

• Business law
• Consumer protection
• Due diligence representations and warranties
• Extended warranty as an extra or prolonged warranty offered to consumers
• Financial Global Monetary Warranty (FGMW)
• Magnuson-Moss Warranty Act protection for voided warranties or denied claims based on modifications of the warranted product (United States)
• Surety (Guarantee)
• Warranty deed in land transactions
• Warranty tolling

References[link]

1. ^ USA Today. 2001-01-18. http://www.usatoday.com/money/perfi/columnist/lamb/0004.htm. Retrieved 2010-05-27. 
2. ^ "Cisco Limited Lifetime Hardware Warranty Terms". http://www.cisco.com/en/US/docs/general/warranty/English/LH2DEN__.html. Retrieved 2008-09-10. 
3. ^ "HP Networking warranty information". http://h17007.www1.hp.com/us/en/support/warranty/index.aspx. Retrieved 2011-08-26. 
4. ^ http://dx.doi.org/10.1002/qre.1282
5. ^ http://dx.doi.org/10.1002/qre.1282
6. ^ "Warranty Expert FAQs". Car warranty FAQs. Warranty Expert. http://www.warrantyexpert.co.uk/car-warranty-questions/. 

External links[link]

• Federal Trade Commission: Warranty Information (United States)
• New Car Factory Warranty List