UCC Law Journal
Prior to the adoption of the Uniform Commercial Code (“UCC”), warranties of goods required reliance on the affirmation or promise relating to the goods for liability to attach. The UCC changed this standard from a reliance standard to a “basis of the bargain” standard. This shift has caused much confusion as to whether the new standard was meant to completely eliminate reliance as a relevant factor, or if reliance still plays a primary role in warranty analysis. Adding to this area of law is the Magnuson-Moss Warranty Act (“MMWA” or “the Act”), which was enacted to address concerns that sellers’ warranties were becoming too confusing for the average consumer. To address these concerns, the Act requires a number of explicit disclosure requirements associated with “warranties” as defined under the Act as well as substantive limitations on disclaimers and remedies. Given the consequences under the Act of making a warranty, how that term is defined under the Act is of the utmost importance. Though the Act defines a warranty more narrowly than the UCC does, it utilizes the same “basis of the bargain” language as U.C.C. § 2-313. This issue raises interesting questions concerning MMWA warranties and extended service plans offered by retailers. While warranty liability might seem to attach under UCC standards, the Federal Trade Commission (“FTC”), which is authorized under the Act to provide guidance and standards has thrown a wrench in this analysis in the form of 16 C.F.R § 700.11 which provides that if any additional consideration is paid “beyond the purchase price of the consumer product,” then the basis of the bargain test is not satisfied and the plan would instead be a “service contract” for purposes of the Act.
This provision was at the center of the recent case of Ware v. Samsung Electronics America, Inc. The Wares purchased a plasma-screen Samsung television from Best Buy and the five-year Geek Squad Protection Plan (“GSPP”), with a bundled discount for both. When the television was incapable of being repaired, the Wares sued for violations of the MMWA, alleging that the GSPP qualified as a warranty under the Act. Citing to the Regulation, the district court dismissed holding that, because additional consideration was paid, the GSPP was a “service contract.” The case is of interest as it is one of the few reported decisions to explore, albeit briefly, the issue of what role the “basis of the bargain” language plays when additional consideration is paid. If the Regulation is taken at face value, then any additional consideration, even nominal, would disqualify an otherwise valid warranty under the Act from warranty status. This presents a loophole for manufacturers and retailers alike, which calls into question the rationale of the regulation. This article explores the definition of “warranty” under the Act with reference to the UCC in an attempt to discover where the “additional consideration” language in the Regulation comes from, and whether it is well-founded.
Colin P. Marks, When is a Warranty Not a Warranty?: Deconstructing the Magnuson-Moss Warranty Act’s Narrow Definition of “Warranty,” 49 Unif. Com. Code L. J. 203 (2020).