CA's Flavor of Implied Warranty Leaves a Sour Taste

Courts construing the requirement that goods be 'fit for the ordinary purpose' have consistently offered a narrow appraisal of the standard's scope. See, e.g., Gen. Motors Corp. v. Brewer, 966 S.W.2d 56, 67 (Tex. 1998) ('A product which performs its ordinary function adequately does not breach the implied warranty of merchantability.'); Fed. Signal, 886 P.2d at 180 ('This phrase embodies the concept that goods be reasonably fit for their usual, intended purpose.' (internal quotations and citation omitted)). In automobile cases, for example, courts essentially ask whether the vehicle is 'drive-able.' Thus, a car that rusts but remains capable of providing 'safe, reliable transportation' qualifies as merchantable. Taterka v. Ford Motor Co., 271 N.W.2d 653, 655 (Wis. 1978). Likewise, an automobile requiring eight visits to the repair shop in the course of one year for problems ranging from a faulty fuel tank to a malfunctioning driver's seat satisfies the implied warranty so long as the defects do not 'disable[ ]' its 'capacity to operate as a means of transportation.' Hines v. Mercedes-Benz USA, LLC, 358 F. Supp. 2d 1222, 1225-27, 1233 (N.D. Ga. 2005). Distilling its canvass of implied-warranty case law, a California Court of Appeal observed in a 1995 decision that 'in the case of automobiles, the implied warranty of merchantability can be breached only if the vehicle manifests a defect so basic it renders the vehicle unfit for its ordinary purpose of providing transportation.' Am. Suzuki Motor Corp. v. Sup. Ct. of L.A. County, 44 Cal. Rptr. 2d 526, 529 (Cal. Ct. Appl. 1995).

By interpreting merchantability to require simply that a product adequately perform its ordinary purpose, courts have effectively ensured that the implied warranty provides a threshold guarantee of product worthiness. A recent Minnesota case provides a cogent example of the warranty's limited nature. In Carey v. Chaparral Boats, Inc., the plaintiff complained that his boat suffered 'several defects including a loose windshield, electrical problems, and interior cracking.' No. 06-3974 ADM/AJB, 2007 WL 2893375, at *1 (D. Minn. Oct. 1, 2007). The facts showed that he took the boat into the repair shop four times for electrical work and twice for repair of the windshield. Id. As to interior cracking, the manufacturer repaired 'cracking in the boat's finish' on at least four occasions, but, nevertheless, additional cracks remained. Id. The estimated cost to fix the existing cracks totaled $6,327.50. Id.

The plaintiff in Carey argued that the cracking on his boat evidenced breach of implied warranty. 2007 WL 2893375, at *3. The court disagreed. Id. at *4. It explained that a manufacturer breaches the implied warranty ”when the product is defective to a normal buyer making ordinary use of the product.” Id. (quoting Peterson v. Bendix Home Sys., Inc., 318 N.W.2d 50, 52-53 (Minn. 1982)). Cracking in the boat's finish, however, presents 'a cosmetic problem,' which 'in no way impacts the boat's ordinary use.' Id. Because the court found no evidence that the issues with the plaintiff's boat affected its capacity to perform its purpose, the court, applying the customarily narrow definition of merchantability, dismissed the plaintiff's breach of implied warranty claim at summary judgment. Id.

A CA Court of Appeal Pours a Glass of 'Lemon-Aid'

Although historically applied to ensure only a minimal level of product quality, the Code's imprecise definition of the implied warranty of merchantability presents the possibility of judicial expansion, as evidenced by a recent decision from a California Court of Appeal. In Isip v. Mercedes-Benz USA, LLC, the court considered an appeal by Mercedes-Benz USA, LLC ('Mercedes') of a jury verdict in favor of Marisa Isip on her claims of breach of written and implied warranties. 155 Cal. App. 4th 19, 21 (Cal. Ct. App. 2007). Isip alleged that her Mercedes-Benz C320 suffered several problems within the first 3,900 miles of use. Id. at 22. These 'problems' included 'an offensive smell' emanating from the air conditioner, 'a loud tugging noise' whenever Isip put the car in gear, a 'clanking noise' when she 'released the brake in reverse,' a strange hesitation effect when the automatic transmission shifted gears, fluid leaks, engine knocking, and white-colored exhaust. Id. Isip claimed that, as a result of these problems, she cut her driving in half. Id. Although, by the time of trial, repairs had resolved most of the issues, the clanking, hesitation, and white emissions remained. Id.

As to Isip's breach of implied warranty action, the trial court charged the jury as follows:

In order for Maria [sic] Isip to prove that [Mercedes] breached the implied warranty of merchantability, you must find that … the vehicle was not of the same quality as those generally acceptable in the trade, or was not fit for the ordinary purpose for which such vehicles are used. Isip, 155 Cal. App. 4th at 23.

To this point, the trial court's instruction to the jury hewed closely to the language that courts typically employ when discussing the protection afforded by the warranty of merchantability. The court went further, however, adding a significant addendum. It told the jury that the term ”[f]itness for the ordinary purpose of a vehicle means that the vehicle should be in safe condition and substantially free of all defects.” Id. (emphasis added). In so doing, the court denied Mercedes' proposed instruction, which would have informed the jury that:

[t]he implied warranty of merchantability does not impose a general requirement that goods precisely fulfill the expectations of the buyer; rather, it provides for a minimum level of quality which the law describes as being fit for the ordinary purposes for which such goods are used. In the case of automobiles, the implied warranty of merchantability can be breached only if the vehicle manifests a defect that is so basic that it renders the vehicle unfit for its ordinary purpose of providing transportation. Id.

Charged with trial court's 'free of all defects' standard, the jury found that Mercedes had breached the implied warranty of merchantability, resulting in damages of $20,000. Id.

On appeal, Mercedes argued that the trial court had erroneously instructed the jury as to the definition of merchantability. Isip, 155 Cal. App. 4th at 24. Mercedes contended that its proposed instruction correctly stated the law of implied warranty, but that the instruction given to the jury did not. Id. In support of its position, Mercedes pointed to the Court of Appeal's decision in Suzuki. Id. at 25. The court, however, refused to adhere to the Suzuki court's language, effectively discarding as non-precedential Suzuki's oft-cited definition of merchantability. Id. Although conceding that the 'core test' of merchantability lies in whether the goods are fit for ordinary purpose, the court nevertheless insisted that '[d]efining the warranty in terms of a vehicle that is 'in safe condition and substantially free of defects' is consistent with the notion that the vehicle is fit for the ordinary purpose for which a vehicle is used.' Id. at 27. Further, the court explicitly rejected Mercedes' proposed instruction that a vehicle satisfies the test of merchantability so long as it provides transportation. Id. According to the court, Mercedes' view of the law constituted 'an unjustified dilution' of the warranty of merchantability. Id. Concluding that a vehicle that 'smells, lurches, clanks, and emits smoke' is not fit for its purpose, the court ultimately affirmed the trial court's judgment. Id.

Unmistakably, the Isip decision marks a dramatic departure from well-settled case law establishing that merchantability assures only a threshold guarantee of product worthiness. This is not only evident from the broad free-of-defects standard approved by the court but also by the manner in which the court applied the new test. By rather blithely stating that a car that 'smells, lurches, clanks, and emits smoke' is not merchantable, the Isip court made clear that the 'defects' to which the free-of-defect standard refers need not affect the capacity of the vehicle to perform its basic purpose. To the contrary, it would seem that an aggregation of relatively minor annoyances suffices to prove breach ' a sea change, to be sure.

The possibility that the Isip court's interpretation of the implied warranty of merchantability may take hold in other jurisdictions presents a serious risk to manufacturers and sellers of consumer goods. Under the Code, a seller or warrantor has the option to exclude or modify the warranty of merchantability. See UCC ”2-314(1), 2-316(2). The Magnuson-Moss Warranty Act, however, effectively eliminates that option as to consumer goods. Under the Act, a supplier may not disclaim or modify 'any implied warranty to a consumer with respect to such consumer product if … such supplier makes any written warranty to the consumer with respect to such consumer product.' 15 USC '2308(a)(1) (2006) (The Magnuson-Moss Warranty Act does permit a supplier to limit the duration of any implied warranty 'to the duration of a written warranty of reasonable duration.' 15 U.S.C. '2308(b).) In other words, as to a consumer product for which a manufacturer provides an express written warranty, the Magnuson-Moss Warranty Act prohibits any attempt to disclaim the implied warranty of merchantability. In the context of a broadening definition of merchantability, the Act could indirectly transform implied warranty into yet another form of 'lemon-aid.'

Conclusion

The significantly expanded version of the implied warranty of merchantability advocated by the California Court of Appeal in Isip coupled with Magnuson-Moss's prohibition of warranty disclaimers would provide consumers with a dramatically enhanced extra-contractual assurance of product quality. For good reason, the Uniform Commercial Code does not mandate this enhanced protection, as such a regime promises only to increase warranty costs borne by manufacturers and sellers and the price of goods paid by consumers.

Nathan Marcusen is an associate in the Minneapolis office of Bowman and Brooke LLP, a national firm of trial lawyers who defend household-name manufacturers in product liability, toxic tort, property damage, and warranty cases. He defends manufacturers of recreational vehicles and institutional chemical manufacturers in consumer and commercial litigation.

The warranty of merchantability, implied in almost every consumer purchase, rarely presents a litigation opportunity, even for the most-savvy advocates. For decades, courts have consistently interpreted the term 'merchantability' to connote a minimal, baseline assurance of product fitness and functionality. Essentially, if a product adequately performs its ordinary purpose, it satisfies the implied warranty. A recent decision from an appellate court in California, however, offers footing for plaintiff attorneys to argue for an expanded definition of 'merchantability.' Such a development, which the Uniform Commercial Code neither compels nor suggests, marks a departure from settled law and presents a significant risk of higher warranty costs for manufacturers and higher prices for consumers.

Merchantability: A Threshold Guarantee of Product Worthiness

Section 314 of Article 2 of the Uniform Commercial Code establishes the warranty of merchantability and provides that 'a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of the kind.' UCC '2-314(1). Although it does not define 'merchantability' with precision, the Code does identify various criteria that goods must satisfy to qualify as merchantable. See '2-314(2). They must:

(a) pass without objection in the trade under the contract description; and

(b) in the case of fungible goods, [be] of fair average quality within the description; and

(c) [be] fit for the ordinary purpose for which such goods are used; and

(d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and

(e) [be] adequately contained, packaged, and labeled as the agreement may require; and

(f) conform to the promise or affirmations of fact made on
the container or label if any.
'2-314(2).

Notwithstanding the multifactor approach suggested by the text of '314, courts ' at least in the context of consumer goods ' almost exclusively focus their merchantability analyses on whether the goods at issue are 'fit for the ordinary purpose.' See, e.g., Fed. Signal Corp. v. Safety Factors, Inc. , 886 P.2d 172, 180 (Wash. 1994) ('The requirement most often cited is that of 'fit for the ordinary purposes.”). Although perhaps too limited for certain cases, this tendency to reduce merchantability to a single inquiry is pervasive and appears to capture the thrust of the protection intended. See, e.g., UCC '2-314 cmt. 8. ('Fitness for the ordinary purposes for which goods of the type are used is a fundamental concept.')

Courts construing the requirement that goods be 'fit for the ordinary purpose' have consistently offered a narrow appraisal of the standard's scope. See, e.g., Gen. Motors Corp. v. Brewer , 966 S.W.2d 56, 67 (Tex. 1998) ('A product which performs its ordinary function adequately does not breach the implied warranty of merchantability.'); Fed. Signal, 886 P.2d at 180 ('This phrase embodies the concept that goods be reasonably fit for their usual, intended purpose.' (internal quotations and citation omitted)). In automobile cases, for example, courts essentially ask whether the vehicle is 'drive-able.' Thus, a car that rusts but remains capable of providing 'safe, reliable transportation' qualifies as merchantable. Taterka v. Ford Motor Co. , 271 N.W.2d 653, 655 (Wis. 1978). Likewise, an automobile requiring eight visits to the repair shop in the course of one year for problems ranging from a faulty fuel tank to a malfunctioning driver's seat satisfies the implied warranty so long as the defects do not 'disable[ ]' its 'capacity to operate as a means of transportation.' Hines v. Mercedes-Benz USA, LLC , 358 F. Supp. 2d 1222, 1225-27, 1233 (N.D. Ga. 2005). Distilling its canvass of implied-warranty case law, a California Court of Appeal observed in a 1995 decision that 'in the case of automobiles, the implied warranty of merchantability can be breached only if the vehicle manifests a defect so basic it renders the vehicle unfit for its ordinary purpose of providing transportation.' Am. Suzuki Motor Corp. v. Sup. Ct. of L.A. County , 44 Cal. Rptr. 2d 526, 529 (Cal. Ct. Appl. 1995).

By interpreting merchantability to require simply that a product adequately perform its ordinary purpose, courts have effectively ensured that the implied warranty provides a threshold guarantee of product worthiness. A recent Minnesota case provides a cogent example of the warranty's limited nature. In Carey v. Chaparral Boats, Inc., the plaintiff complained that his boat suffered 'several defects including a loose windshield, electrical problems, and interior cracking.' No. 06-3974 ADM/AJB, 2007 WL 2893375, at *1 (D. Minn. Oct. 1, 2007). The facts showed that he took the boat into the repair shop four times for electrical work and twice for repair of the windshield. Id. As to interior cracking, the manufacturer repaired 'cracking in the boat's finish' on at least four occasions, but, nevertheless, additional cracks remained. Id. The estimated cost to fix the existing cracks totaled $6,327.50. Id.

The plaintiff in Carey argued that the cracking on his boat evidenced breach of implied warranty. 2007 WL 2893375, at *3. The court disagreed. Id. at *4. It explained that a manufacturer breaches the implied warranty ”when the product is defective to a normal buyer making ordinary use of the product.” Id. (quoting Peterson v. Bendix Home Sys., Inc. , 318 N.W.2d 50, 52-53 (Minn. 1982)). Cracking in the boat's finish, however, presents 'a cosmetic problem,' which 'in no way impacts the boat's ordinary use.' Id. Because the court found no evidence that the issues with the plaintiff's boat affected its capacity to perform its purpose, the court, applying the customarily narrow definition of merchantability, dismissed the plaintiff's breach of implied warranty claim at summary judgment. Id.

A CA Court of Appeal Pours a Glass of 'Lemon-Aid'

Although historically applied to ensure only a minimal level of product quality, the Code's imprecise definition of the implied warranty of merchantability presents the possibility of judicial expansion, as evidenced by a recent decision from a California Court of Appeal. In Isip v. Mercedes-Benz USA, LLC, the court considered an appeal by Mercedes-Benz USA, LLC ('Mercedes') of a jury verdict in favor of Marisa Isip on her claims of breach of written and implied warranties. 155 Cal. App. 4th 19, 21 (Cal. Ct. App. 2007). Isip alleged that her Mercedes-Benz C320 suffered several problems within the first 3,900 miles of use. Id. at 22. These 'problems' included 'an offensive smell' emanating from the air conditioner, 'a loud tugging noise' whenever Isip put the car in gear, a 'clanking noise' when she 'released the brake in reverse,' a strange hesitation effect when the automatic transmission shifted gears, fluid leaks, engine knocking, and white-colored exhaust. Id. Isip claimed that, as a result of these problems, she cut her driving in half. Id. Although, by the time of trial, repairs had resolved most of the issues, the clanking, hesitation, and white emissions remained. Id.

As to Isip's breach of implied warranty action, the trial court charged the jury as follows:

In order for Maria [sic] Isip to prove that [Mercedes] breached the implied warranty of merchantability, you must find that … the vehicle was not of the same quality as those generally acceptable in the trade, or was not fit for the ordinary purpose for which such vehicles are used. Isip, 155 Cal. App. 4th at 23.

To this point, the trial court's instruction to the jury hewed closely to the language that courts typically employ when discussing the protection afforded by the warranty of merchantability. The court went further, however, adding a significant addendum. It told the jury that the term ”[f]itness for the ordinary purpose of a vehicle means that the vehicle should be in safe condition and substantially free of all defects.” Id. (emphasis added). In so doing, the court denied Mercedes' proposed instruction, which would have informed the jury that:

[t]he implied warranty of merchantability does not impose a general requirement that goods precisely fulfill the expectations of the buyer; rather, it provides for a minimum level of quality which the law describes as being fit for the ordinary purposes for which such goods are used. In the case of automobiles, the implied warranty of merchantability can be breached only if the vehicle manifests a defect that is so basic that it renders the vehicle unfit for its ordinary purpose of providing transportation. Id.

Charged with trial court's 'free of all defects' standard, the jury found that Mercedes had breached the implied warranty of merchantability, resulting in damages of $20,000. Id.

On appeal, Mercedes argued that the trial court had erroneously instructed the jury as to the definition of merchantability. Isip, 155 Cal. App. 4th at 24. Mercedes contended that its proposed instruction correctly stated the law of implied warranty, but that the instruction given to the jury did not. Id. In support of its position, Mercedes pointed to the Court of Appeal's decision in Suzuki. Id. at 25. The court, however, refused to adhere to the Suzuki court's language, effectively discarding as non-precedential Suzuki's oft-cited definition of merchantability. Id. Although conceding that the 'core test' of merchantability lies in whether the goods are fit for ordinary purpose, the court nevertheless insisted that '[d]efining the warranty in terms of a vehicle that is 'in safe condition and substantially free of defects' is consistent with the notion that the vehicle is fit for the ordinary purpose for which a vehicle is used.' Id. at 27. Further, the court explicitly rejected Mercedes' proposed instruction that a vehicle satisfies the test of merchantability so long as it provides transportation. Id. According to the court, Mercedes' view of the law constituted 'an unjustified dilution' of the warranty of merchantability. Id. Concluding that a vehicle that 'smells, lurches, clanks, and emits smoke' is not fit for its purpose, the court ultimately affirmed the trial court's judgment. Id.

Unmistakably, the Isip decision marks a dramatic departure from well-settled case law establishing that merchantability assures only a threshold guarantee of product worthiness. This is not only evident from the broad free-of-defects standard approved by the court but also by the manner in which the court applied the new test. By rather blithely stating that a car that 'smells, lurches, clanks, and emits smoke' is not merchantable, the Isip court made clear that the 'defects' to which the free-of-defect standard refers need not affect the capacity of the vehicle to perform its basic purpose. To the contrary, it would seem that an aggregation of relatively minor annoyances suffices to prove breach ' a sea change, to be sure.

The possibility that the Isip court's interpretation of the implied warranty of merchantability may take hold in other jurisdictions presents a serious risk to manufacturers and sellers of consumer goods. Under the Code, a seller or warrantor has the option to exclude or modify the warranty of merchantability. See UCC ”2-314(1), 2-316(2). The Magnuson-Moss Warranty Act, however, effectively eliminates that option as to consumer goods. Under the Act, a supplier may not disclaim or modify 'any implied warranty to a consumer with respect to such consumer product if … such supplier makes any written warranty to the consumer with respect to such consumer product.' 15 USC '2308(a)(1) (2006) (The Magnuson-Moss Warranty Act does permit a supplier to limit the duration of any implied warranty 'to the duration of a written warranty of reasonable duration.' 15 U.S.C. '2308(b).) In other words, as to a consumer product for which a manufacturer provides an express written warranty, the Magnuson-Moss Warranty Act prohibits any attempt to disclaim the implied warranty of merchantability. In the context of a broadening definition of merchantability, the Act could indirectly transform implied warranty into yet another form of 'lemon-aid.'

Conclusion

The significantly expanded version of the implied warranty of merchantability advocated by the California Court of Appeal in Isip coupled with Magnuson-Moss's prohibition of warranty disclaimers would provide consumers with a dramatically enhanced extra-contractual assurance of product quality. For good reason, the Uniform Commercial Code does not mandate this enhanced protection, as such a regime promises only to increase warranty costs borne by manufacturers and sellers and the price of goods paid by consumers.

Nathan Marcusen is an associate in the Minneapolis office of Bowman and Brooke LLP, a national firm of trial lawyers who defend household-name manufacturers in product liability, toxic tort, property damage, and warranty cases. He defends manufacturers of recreational vehicles and institutional chemical manufacturers in consumer and commercial litigation.