1976, December, Pg. 1778. The Magnuson-Moss Product Warranty Act - A Consumer Prospectus?.

• Author: by © Chery L. Hodgson

5 Colo.Law. 1778

Colorado Lawyer

1976.

1976, December, Pg. 1778.

The Magnuson-Moss Product Warranty Act - A Consumer Prospectus?

1778Vol. 5, No. 9, Pg. 1778The Magnuson-Moss Product Warranty Act --- A Consumer Prospectus?by © Chery L. Hodgson,, 1976 Cheryl L. Hodgson, Denver, is an associate of the firm of Burton & Dorr.1779The passage of the Magnuson-Moss Warranty Act(fn1) comes at a point when consumers' rights are flourishing while others bewail the plight caused by what some feel has approached the absurd in governmental regulation. The quintessential question now being asked is whether compliance with the Act is worth the cost of offering a written warranty which meets the requirements of the statute. Should not the consumer (the intended beneficiary) be made aware that in the end he may well bear the added costs resulting from manufacturer compliance? The legislative vision embodied in the Act may fall short of its goal and definitely presents, even to the wariest of practitioners, pitfalls of unmeasured magnitude.

The task of the Bar is presently and promptly to advise clients of the necessity of compliance in the absence of specified exemptions.(fn2) Aside from the legal risks involved, the business decision to continue to offer written consumer product warranties can effectively be made only with competent advice of counsel regarding the cost of compliance in light of the client's competitive position in the marketplace. Transcending the problems faced in complying with the literal provisions of the Act is the practical problem of possible liability for failure to advertise properly the existence and terms of the warranty offered. Pending issuance of new regulations clarifying proper content of advertisements of warranty terms, the warrantor may only attempt to minimize such risks by a good faith attempt at full and fair disclosure.

The value of a warranty to the warrantor is inescapably linked to fostering the good will of the warrantor, both through identifying his reputation for quality and a willingness to place emphasis on consumer satisfaction. Within this framework, the warrantor must not only meet the recently imposed standards, but seek to preserve his ability to communicate the terms and existence of that warranty to the public through media advertising.

This article presupposes a familiarity with the basic requirements of the Act. The instant discussion is addressed primarily to the practitioner representing a warrantor wishing to offer a written product warranty in accordance with the provisions of the Magnuson-Moss Warranty Act, and the problems to be encountered in offering a product warranty which protects the consumer yet allows the warrantor to advertise the terms of these warranties in such a manner as to enhance his reputation and goodwill.

1780THE ACT---COMPLIANCE BY THE WARRANTOR

Requirements of Written WarrantiesInitially, it should be noted that use of the word "warranty" is now the only proper designation under the Act, as the Federal Trade Commission (F.T.C.) has expressed a strong desire for warrantors to terminate use of the word "guarantee" or "guaranteed" on the face of written warranties. Although they may still technically be used, "these words may tend to confuse the consumer as to the relationship of such representations with the term warranty which is required for all designations under Section 103."(fn3)

Thirteen requisite disclosures for all written warranties are set forth in 15 U.S.C.A. § 2302(a).(fn4) Closer examination of certain of these disclosure requirements is justified in order to reveal problems which may be encountered in compliance.

1. Exceptions and exclusions. One troublesome provision which becomes immediately apparent from a practical standpoint is the requirement that all exceptions and exclusions from the terms of the warranty be clearly set forth on the face of the written warranty.(fn5) Those manufacturers whose written warranties include numerous exceptions and exclusions from the terms of the warranty offered may be placed in the precarious position of using more space on the face of the written warranty listing exclusions and exceptions from the terms thereof than the actual coverage of the warranty. The only practical effect is diminished advertising return for such manufacturers who desire to advertise the existence of such a warranty. This becomes even more problematic when it is recognized that failure to include all favorable exceptions and exclusions from the terms of the warranty may result in possible liability for false and misleading statements to a consumer.(fn6) As one authority recognized, when dealing with consumer rights, few, if any, terms could be deemed non-material.(fn7) As is more fully discussed below, the question becomes how a warrantor can fully and fairly disclose all exceptions and exclusions from the terms of the warranty when making the existence of the warranty known to the consumer in the first instance.(fn8)

2. The persons to whom and from whom the warranty extends. Sec. 2302(a)(2) requires inclusion in the written warranty of the "identity of the party or parties to whom the warranty is extended." This, on its face, seems simple enough, yet reference to regulations promulgated by the F.T.C. reveal that failure to specify, for example, that only the initial purchaser is covered by the terms of the warranty deems the warranty to be extended to all who may use the product as well.(fn9)

   A "clear identification of the names and addresses of the warrantors,"(fn10) also presents problems to a warrantor whose dealers or franchisees will be involved in providing warranty service. After much industry objection, the Commission settled on the availability of three alternatives by which a warrantor may comply with the requirements of this provision.(fn11) Also, it must be made very clear whether it will be the manufacturer or the retailer who is providing the warranty.(fn12)

   For those warrantors whose dealers and/or franchisees would be involved in honoring warranty terms and provisions, there must be a careful understanding of the role between the manufacturer offering the warranty and the dealers who sell the product. Although 15 U.S.C.A. § 2310(f) recognizes that "only the warrantor actually making a written affirmation of fact, promise, or undertaking shall be deemed to have created a written warranty, and any rights arising thereunder may be enforced under this section only against such warrantor and no other person," the retailer, suppliers and/or 1781 franchisees of these products may make warranties under state law which are above and beyond those made by the manufacturer itself. This problem has been recently recognized by the F.T.C. in its inclusion of a proposed regulation exempting suppliers and others under the Act but warning of the effect of state law.(fn13)

   The most immediately apparent example of a situation in which a retailer could incur liability above and beyond that of the written warrantor is one in which the written warranty contains a limitation on the duration of implied warranties in accordance with the provisions of the Act.(fn14) A manufacturer who has limited the duration of an implied warranty on the face of the written warranty has effectively dealt with his liability under Uniform Commercial Code provisions to the extent allowed by state law. However, the retailer or supplier of that product who does nothing more than sell the product together with the written warranty may be the person to whom the consumer turns for redress in a situation where breach of the warranty occurs at a point in time beyond that allowed for recovery against the warrantor in his written warranty. Similar results could be expected where the retailer makes an oral point of sale representation to the consumer(fn15) or where a limitation on consequential damages is found in the written warranty. Hence, the warrantor offering a written warranty may owe an obligation to franchisees and dealers to advise them or at least discuss the interrelationships between their respective...