A Seller's Responsibilities to Remote Purchasers for Breach of Warranty in the Sales of Goods Under Washington Law

JurisdictionWashington,United States
CitationVol. 28 No. 02
Publication year2004



A Seller's Responsibilities to Remote Purchasers for Breach of Warranty in the Sales of Goods Under Washington Law

Thomas J. Holdych(fn*)

I. Introduction

In a sale of goods, a seller may expressly or impliedly warrant that the goods have certain physical qualities, such as being free from defects in manufacturing.(fn1) Although enforcing these warranties may not be problematical while the goods are in the hands of the immediate purchaser, that is, the buyer who bought directly from the seller, invoking the warranties may be considerably more difficult, if not impossible, when the goods have been sold to a remote buyer who seeks to enforce such guarantees. The problem confronting a remote purchaser is exemplified by Daughtry v. Jet Aeration Co(fn2) In that case, James Daughtry purchased a home sewage treatment system manufactured by Jet Aeration Co. for use with a new house he was constructing.(fn3) Three years after installing the system, Daughtry encountered difficulties with the system, including water backing up into the system's chambers. After a number of attempts to correct the problems, including the provision of a new agitation unit by Jet Aeration, Daughtry sued Jet Aeration for breach of warranty.(fn4) Despite trial court findings that Jet Aeration breached both express and implied warranties pertaining to the proper functioning of the treatment system, Daughtry was unable to enforce the warranties against Jet Aeration because he did not purchase the system directly from the manufacturer and therefore lacked a contractual relationship with it.(fn5) Instead, Daughtry was relegated to his rights under Article 2 of the Uniform Commercial Code, which enables a purchaser who suffers a loss from nonconforming goods to obtain a remedy for breach of warranty from the entity that sold it the goods.(fn6)

Although a remote buyer, such as Daughtry, may have a remedy against its immediate seller, there are instances in which it may be more beneficial for a buyer to obtain relief from a more remote seller in the chain of distribution, one with whom the buyer is not in privity of contract. For example, the immediate seller may have become insolvent(fn7) or otherwise be unavailable.(fn8) The buyer may have failed to give its immediate seller notice of breach of warranty, barring the buyer from any remedy against the seller.(fn9) In addition, the contract of sale between the buyer and the immediate seller may have contained a disclaimer of warranty(fn10) or remedy limitation,(fn11) precluding or limiting any remedy against the seller.(fn12) Finally, the remote supplier may have offered a more extensive express warranty, or a potential class action may be available against a remote supplier.(fn13)

Despite these potential advantages for a remote purchaser, the provisions of Article 2 pertaining to warranties indicate, with one exception,(fn14) that there must be privity of contract(fn15) between a buyer and seller in order for the buyer to assert an obligation with respect to the attributes of the goods against the seller.(fn16) Nevertheless, buyers have sought to expand the class of sellers against whom they can proceed.

In confronting these attempts by remote buyers, Washington courts have, with limited exceptions,(fn17) continued to adhere to the privity requirement. In the recent case of Tex Enterprises, Inc. v. Brockway Standard, Inc.,(fn18) for example, the Washington Supreme Court reaffirmed existing Washington law that a purchaser must be in privity of contract with a seller to maintain an action for breach of implied warranty of merchantability. The court also indicated, however, that privity is not a barrier to a claim for breach of express warranty when a seller makes a direct representation about its goods to a remote purchaser. The Tex Enterprises, Inc. case and others preceding it(fn19) raise a number of questions concerning the enforceability of express and implied warranties against remote sellers.

The purpose of this article is to examine Washington law pertaining to a seller's obligations to a remote purchaser with respect to the quality of goods, attending in particular to the judicially created exceptions to the privity requirement.(fn20) Part II explores the reasons a seller may provide and a buyer may purchase a warranty, reasons that bear on resolution of the question whether the privity requirement should be retained. Parts III and IV analyze not only what warranty obligations a seller may have to a remote purchaser but also the theoretical bases for those obligations and the manner in which those obligations may be excluded, modified, or disclaimed. Part V considers a number of arguments in favor of abolishing the privity requirement and demonstrates that the arguments do not merit the requirement's abrogation and that privity of contract is appropriate for a proper allocation of loss among a seller, its immediate buyer, and a remote buyer. Finally, the article concludes that seller liability to a remote buyer should exist, subject to the ability of a seller to create contractual rights in a remote buyer under U.C.C. section 1-103(b),(fn21) only where the seller has made an express commitment to the buyer or where the remote buyer is a third-party beneficiary of a contract of sale between the remote seller and its intermediate buyer under established contract principles. Consistent with this conclusion, the article further maintains that the ability of a seller to make an express warranty to a remote buyer should be enhanced by eliminating the requirement that a buyer be aware of a representation prior to purchase in order to be able to enforce the representation as an express warranty.

II. The Existence of Warranties

Two kinds of warranty obligations exist that pertain to the attributes of goods:(fn22) express and implied. Express warranties are part of the express or "dickered" terms between the parties to an agreement.(fn23) Implied warranties, on the other hand, are default obligations(fn24) supplied by the law to supplement the express terms between the parties(fn25) absent disclaimer or modification.

Why a seller will either include an express warranty or not disclaim an implied warranty is an important question. Warranties impose costs on a seller by requiring it to assure that its goods conform to its representations or commitments and, if they do not, by requiring it to provide a buyer with an appropriate remedy.(fn26) Such costs are included in the price paid by a buyer.

Two competing theories attempt to explain a seller's decision to make or to not disclaim a warranty. According to the signaling theory, an express warranty provides to a buyer a signal about the quality of a product.(fn27) Absent a warranty, a buyer would either have to make assumptions about a product's quality or incur costs in ascertaining information about its quality.(fn28) When a buyer's information costs are high, it may have to assume either the worst or that a product is of average quality.(fn29) For a seller who offers a product of above average quality or reliability, a warranty gives the buyer that information. A seller with such a product will give a more extensive warranty, since a warranty for a better quality or more reliable product is less costly to provide, involving lower remedy costs because of fewer nonconformities.(fn30) The warranty, then, acts as a signal to consumers about the condition of the product and gives some degree of insurance for failure.(fn31)

According to the comparative advantage theory, a seller will warrant that a good has certain attributes when a buyer values those attributes more than the cost of providing them or of insuring against losses resulting from their absence, and the seller can provide the attributes or insurance more cheaply than the buyer can.(fn32) Thus, if a buyer prefers a product free from defects in manufacturing more than the cost of providing such a product, and the seller can provide the defect-free attribute or insure against losses resulting from the attribute's absence more cheaply than the buyer can, the seller will provide a warranty against defects in manufacturing to the buyer.(fn33)

III. Express Warranty Obligations to Remote Buyers

A. The Uniform Commercial Code

As indicated above,(fn34) U.C.C. section 2-313 provides that a seller creates an express warranty concerning the quality of the goods it sells when it promises that the goods will have certain attributes, describes the goods in a particular manner, or provides the buyer with a model or sample of the goods. By its terms, section 2-313 deals only with an affirmation or description made by a seller to its buyer.(fn35) Section 2-313 does not pertain to a representation made by a seller to an entity with whom the seller is not in privity of contract.(fn36) Section 2-318, however, does extend an express warranty to certain designated third-party beneficiaries, but not to a remote buyer.(fn37)

B. Common Law Principles and Obligations to Remote Buyers

The only basis in the U.C.C., outside of section 2-318, for allowing what might appear(fn38) to be a nonprivity entity to claim an obligation to it by a remote seller is section 1-103(b).(fn39) That section provides that the principles of law and equity, including the law of estoppel...

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