Responding to Claims That Goods Do Not Conform to Warranties

How a small business should respond to a claim that purchased goods do not conform to their warranties.



The following steps should be taken by a company when it is faced with a claim that its goods are not in conformance with whatever express or implied warranties were provided to the customer. Article 2 of the Uniform Commercial Code (UCC) governs sale of goods agreements.

Employees are a Businesses’ First Line of Defense

Employees should be well-versed in dealing with dissatisfied customers. They should be properly trained at the time of hiring, preferably by a dedicated Human Resources executive who remains available to answer questions. Training should be accompanied by written materials as a reference guide. Customers should be handled in a calm and professional manner, especially when others are present. Listen carefully to the customers’ complaints, and never be dismissive or impatient. All complaints should be handled promptly, and the store manager should be brought into the conversation as quickly as possible. Employees should understand well what promises they can and cannot make (such as offering replacement goods), as any such promises can create enforceable express warranties. You should maintain a record of all conversations.

Determine Which Express Warranties Were Provided

An express warranty is a seller's promise or guarantee that a buyer relies on when he or she purchases an item. Express warranties can be found in the sales contract, in the item’s product warranty, by way of an affirmation of fact (“The watch is 100% waterproof”), by way of an oral promise (“These jeans will not shrink”), by way of written or oral description (“The puzzle, when completed, shouldn’t take up more than 5 square feet of space”), or by way of having provided the customer with a sample (tester) or model (mock version). Personnel handling the complaint should review the company’s express warranty obligations and the customer’s complaint, in order to confirm whether or not the non-conformance falls within one of the express warranties provided (or if it occurred for reasons outside of the seller’s control, such as misuse).

Determine Which Implied Warranties Apply

Implied warranties are those imposed by operation of law, custom, or the parties’ conduct, regardless of whether they are provided in writing in an agreement. They are imposed by the UCC unless expressly and properly disclaimed. Some examples of the more common implied warranties (imposed by operation of law) include the warranty of merchantability, which is based upon a buyer’s reasonable expectation that the goods are fit for the ordinary purpose for which they are meant to be used and not defective, and the warranty of fitness for a particular purpose, which is based upon the seller’s provision of goods which are suitable for the buyer’s known, specialized needs. Other examples of implied warranties include those imposed by course of dealing, where the parties may have certain reasonable expectations based upon their previous pattern of dealings, and course of usage of trade, where a pattern of conduct that conforms to standard practice in a particular vocation, trade, or place regularly occurs, thereby justifying the parties’ expectation that the pattern will continue. Research what implied warranties apply to the sale in question, and what disclaimers, if any, were properly made.

Determine the Value of the Dispute

A business must decide whether it is worth the time and resources to defend against a claim instead of simply providing the customer with a refund or replacement item. Consumer satisfaction may be more valuable than the item itself. Look at factors such as the validity of the complaint, the cost of replacement, and the loyalty of the particular customer. Negative feedback spreads quickly and the damage is oftentimes irreversible. A business must never forget to look at the bigger picture, especially its reputation.

Evaluating and Responding to the Buyer’s Claim

Timeliness

A business should first ensure that the claim was made in a timely fashion. Rejection deadlines are governed by the UCC and the applicable sales agreement (if any). Pursuant to UCC § 2-602, a buyer has timely rejected goods if such rejection is made either prior to the buyer having exercised ownership over such item(s), or within a reasonable time thereafter (so that the buyer first had an opportunity to inspect and discover the problem). Pursuant to UCC § 2-608, a buyer has timely revoked its acceptance if such revocation is made either before there has been a substantial change in the condition of the goods, or within a reasonable time after the buyer discovered, or should have discovered, the defect. If a buyer knew of a defect and purchased an item anyway (without a promise by the seller to cure it), such acceptance cannot be revoked.

Exercise of Ownership

The business should next confirm whether or not the buyer has exercised ownership of the goods after rejection by engaging in any of the following acts: using the goods, reselling the goods for its own account, disposing of the goods before the seller can retrieve them, or engaging in any other act that would clearly demonstrate ownership. Pursuant to UCC § 2-603, a buyer rejecting goods must either return the items to the seller’s place of business or otherwise follow any of seller’s reasonable, detailed instructions (such as holding the items for pickup or inspection) at the seller’s expense. If a business fails to provide instructions, the buyer can decide what to do, and a business may not like the buyer’s decision.

Detailed Description of Non-Conformance

The business should demand that the buyer provide a sufficiently detailed written explanation of the alleged non-conformance. Pursuant to UCC § 2-605, a buyer’s failure to do so precludes him or her from later relying on them in court when the seller could have cured such defect(s).

Inspections

If a business requires a buyer to hold goods for inspection, it can perform the review itself or have a third-party handle it on its behalf. The parties can agree that any findings be binding upon them in any litigation or related proceeding. All inspections should be carefully documented (including written notes and photographic evidence) and should cover, in sufficient detail, every defect complained of by the buyer.

Determine Whether Any Third Party is Responsible

A business should determine when the defect first existed: Was it there when it first received the goods from the supplier? If so, the supplier may be responsible to the buyer pursuant to the product warranty (or other express or implied warranties). The business should review the agreement with the supplier and look for express or implied warranties from supplier; any agreement by the supplier to indemnify the seller from third-party claims made in connection with non-conforming goods; and any agreement by the supplier to handle the issue directly with the buyer. The buyer should be provided with all relevant information including applicable time periods. If a buyer files a claim against a business that believes the supplier is responsible, it should promptly inform the supplier of the claim in sufficient detail and attempt to “vouch in” the supplier in court.

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