A Theory of the Consumer Product Warranty

Abstract

Consumer product warranties are our most common of written contracts, but little is known about what determines their content or how they relate to the reliability and the durability of goods. Since the first appearance of standardized warranties early in this century, two theories have been proposed to explain their role in sales transactions. The first emphasizes the absence of bargaining over warranty provisions. It views warranties as devices of manufacturers to exploit consumers by unilaterally limiting legal obligations. The second and more recent theory focuses on the difficulty consumers face at the time of purchase in estimating the risk of product defects. This theory regards express warranties as messages signaling the mechanical attributes of goods. Both theories have influenced substantially judicial and legislative responses to product warranties. The view of the warranty as an exploitative device has provided crucial support to the policy of enterprise liability and the replacement of contract principles with tort principles in product defect cases. In addition, the exploitation theory is the intellectual basis for the modern judicial treatment of consumer warranty issues, in particular for the expansive interpretation of warranties implied by law, for the elimination of the requirement of privity of contract, and for the restriction of the manufacturer's authority to limit available remedies or to disclaim general obligations. More recently, the signal theory has informed the design of the federal Magnuson-Moss Warranty Act, which directly regulates both the form and content of consumer product warranties.