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Protecting Your Business from Losses Due To "Non-Conforming Goods"

NonConforming Goods.jpgCalifornia's version of the Uniform Commercial Code's implied warranty of merchantability protects the consumer from suffering losses resulting from faulty consumer goods. Business owners must be aware of their options and should consult with counsel to devise a suitable business strategy to protect your business from losses while maintaining a high level of customer service and satisfaction. An experienced business attorney can help the business owner avoid pitfalls associated with implied warranties from the sale of consumer goods.

What is the Warranty of Merchantability?

The warranty of merchantability is implied in every consumer goods transaction in California. The law itself is found in the California Civil Code §1792 and is a component part of the Song-Beverly Consumer Warranty Act. Essentially, the warranty of merchantability guarantees that the consumer item is fit for the ordinary purpose for which those goods were made.

The law does not provide for a general requirement that the goods will precisely meet the buyer's expectation but rather provides for a minimum level of quality. A consumer may reject the non-conforming goods, or in pure contract terms, revoke acceptance of the goods, cancel the contract, and demand damages in addition to recovering the money that has already been paid toward the non-conforming goods. The purchaser may also keep the non-conforming goods, in which case the seller would be liable for the difference in price for what the purchaser has and value of the conforming item. The seller may also be liable for any consequential damages the purchaser suffered and may further be liable for injuries proximately caused by non-conforming goods. (See, Commercial Code, §§2711-2715)

Disclaimers May Provide Protection against Loss

The sellers of those non-conforming goods have the right of indemnification from the manufacturer of the goods, thus affording limited protection to the small business owner against potentially crippling losses. The Commercial Code permits a seller to disclaim the warranty of merchantability. A disclaimer for the warranty of merchantability must meet very stringent statutory requirements. First, the warranty of merchantability may not be disclaimed by simply claiming the goods are sold "as is" or "with all faults". Rather, the disclaimer must be in writing and conspicuously affixed to the goods.

Additionally, the writing must clearly and concise inform the buyer prior to the sale that:

  • The goods are being sold "as is" or "with all faults";
  • The entire risk of the quality and performance of the goods is on the buyer; and
  •  Should the goods prove defective, the buyer is solely responsible for the costs of repair.

Failure to strictly adhere to these written requirements will invalidate the attempted disclaimer.

Some sellers attempt to provide an express warranty as a means to navigate around the implied warranty of merchantability. Express warranties are a valid means to limit the potential risk of damages from selling non-conforming goods. Notwithstanding, creating an express warranty does not disclaim the implied warranty of merchantability. In fact, the two have been described as working "hand in glove".

Protect Your Business

Experienced counsel who is business savvy can devise the best legal strategies and business solutions to ensure your small business is protected from unexpected consumer losses while maintaining a high level of customer service. Contact the skilled San Jose business attorneys at Diemer, Whitman, & Cardosi, LLP to discuss your options. We are based in San Jose and serve businesses throughout Silicon Valley and the Bay area.



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