Transparency In Business Deals: The Use Of As-is Provisions & Warranty Disclaimers

Entering into contracts for the provision of goods and services is the bread and butter of most commercial enterprises. Whether your business deals are with manufacturers, suppliers, customers, or business partners, there’s always a lot at stake. You want to be sure that your business is appropriately protected from liability if something unforeseeable goes wrong with the product being supplied. This is where warranty disclaimers and ‘as-is’ provisions have an important role to play in commercial contracts. While this area of business law can be complex, it is vital to have a basic understanding of the implications of as-is provisions and how they can work in favor of – or against – your business.

What Is A Warranty?

Before we discuss warranty disclaimers, it is necessary to take a brief look at contractual warranties, and the most common warranties used in business deals. A warranty may be either express or implied. An express warranty is an explicit statement included in a contract that makes a representation (a promise) regarding the quality or condition of the product being sold. In contrast, an implied warranty is automatically included in the contract by operation of law. The Uniform Commercial Code (UCC), which has been adopted by all states, sets out the implied warranties that are automatically incorporated in all commercial contracts.

Probably the most important implied warranty set out in the UCC is the implied warranty for merchantability. This is a warranty that the goods being supplied in terms of the contract meet a minimum level of quality and are fit for the ordinary purpose for which they are expected to be used. This warranty is naturally very broad: it could cover a whole range of properties and functions of the goods being sold. For this reason, many manufacturers prefer to exclude this warranty from their business deals, in favor of more specific warranties.

What Is A Warranty Disclaimer?

A warranty disclaimer is a clause in a commercial contract in terms of which the seller excludes the implied warranty of merchantability (or another type of implied warranty). This means that the implied warranty is not included in the contract by automatic operation of law, as described above.

The UCC permits the inclusion of warranty disclaimers in commercial contracts, but they must meet certain requirements. For example, to exclude the implied warranty of merchantability, the seller must include a conspicuous (i.e. very noticeable) disclaimer clause in the contract which either (i) expressly refers to ‘merchantability’ or (ii) includes phrasing which says that the goods are sold ‘as-is’ or ‘with all faults’. For this reason, warranty disclaimers are often referred to as ‘as-is’ provisions. If a warranty disclaimer is vaguely or poorly worded, there is a good chance it will not be enforced by the courts. That is why you must seek the assistance of an attorney with business law expertise when you wish to include such provisions in your commercial contracts.

Are There Limits To The Enforcement Of As-is Provisions?

While the UCC permits as-is provisions to be included in contracts, Florida’s courts have placed limits on the enforcement of these clauses through several business law cases. One important case is White v. Ferco Motors Corp. In that case, Mr. White bought a motor vehicle in terms of a contract that included an ‘as-is’ provision. However, the vehicle almost immediately broke down after purchase. The Third District Court of Appeal of Florida found that Mr. White could still sue Ferco Motors Corporation under the Florida Deceptive and Unfair Trade Practices Act (FDUTPA) for fraud, notwithstanding that the contract of sale included an as-is clause.

The Importance Of Transparency When Including As-Is Provisions

The impact of the Ferco Motors decision and similar cases is essentially that a seller can still be held liable for material misrepresentations or omissions concerning the quality or condition of the goods sold even if the contract of sale included an as-is provision. For this reason, it is incredibly important that you are transparent about the quality of goods supplied in all your business deals. The seller should always make the purchaser aware of all known faults in the product when they include a warranty disclaimer in their contract. For, notwithstanding the inclusion of a warranty disclaimer, the seller could still be held liable for supplying defective goods if they were aware of the fault at the time of contracting and did not disclose this to the purchaser.

Negotiating For The Inclusion Of A Warranty Disclaimer In Your Business Deal

If you are a supplier or manufacturer, it is always a good idea to include a warranty disclaimer in your contracts. Of course, the inclusion of such a clause will need to be negotiated with the purchaser, and many purchasers and business partners will insist that at least some warranties be included in the contract. It is best to limit the warranties you provide to specific properties of the product being sold over which you can exert proper quality control. For example, if your business manufactures clothing, you could warrant that the items being sold are made of fibers of a particular quality. If your business sells products it has not manufactured, it is especially important to include warranty disclaimers, as you do not want to be held liable for defects in the goods when you have no control over their production processes.

Warranty disclaimers can be helpful for a wide range of goods and services contracts. For example, while many people think of ‘goods’ as manufactured items – such as equipment or textiles – warranty disclaimers can be useful in Software-as-a-Service (SAAS) contracts too. If you develop software for a client, you should include a warranty disclaimer so that you do not guarantee that the software will be entirely free of errors or interruptions, or that it will be compatible with other systems that the purchaser may use.