In business law, a warranty is a promise that something sold is in good condition. A warranty may be express or implied. A breach of warranty occurs when the promise is broken, i.e., a product is defective or not as should be expected by a reasonable buyer. A warranty deed is a promise that the buyer's title to a parcel of land will be defended.

An express warranty is one in which the seller indicates specific qualities of the goods, such as "waterproof" or "hypoallergenic." It is nearly impossible to disclaim an express warranty without creating a contradiction. If the goods fail to perform as advertised or as shown in a sample, it is a breach of express warranty.

Implied warranty

The warranty of merchantability is implied, unless expressly disclaimed by name, or the sale is identified with the phrase "as is" or "with all faults." To be "merchantable", the goods must reasonably conform to an ordinary buyer's expectations, i.e., they are what they say they are. For example, a mislabeled package would violate the implied warranty of merchantability because it does not contain what the purchaser expects. In Massachusetts consumer protection law, it is illegal to disclaim this warranty on household goods sold to consumers.

The warranty of fitness for a particular purpose is implied when a buyer relies upon the seller to select the goods to fit a specific request. For example, this warranty is violated when a buyer asks a mechanic to provide snow tires and receives tires that are unsafe to use in snow. This implied warranty can also be expressly disclaimed by name, thereby shifting the risk of unfitness back to the buyer.

Another implied warranty is the warranty of title , which implies that the seller of goods has the right to sell them (e.g., they are not stolen, or patent infringements, or already sold to someone else). This theoretically saves a seller from having to "pay twice" for a product, if it is confiscated by the rightful owner, but only if the seller can be found and makes restitution.

Breach of warranty

A warranty is violated when the promise is broken. When goods are not as should be expected, at the time the sale occurs, whether or not the defect is apparent. The seller should honor the warranty by making a refund, repair, or replacement. The sale starts the time under the statute of limitations for starting a court complaint for breach of warranty if the seller refuses to honor the warranty. This period is often overlooked where there is an "extended warranty" in which a seller or manufacturer contracts to provide the additional service of replacing or repairing goods that fail within the extended period. However, if the goods were defective at the time of sale, and the relevant statute of limitations has not expired, then existence or duration of any "extended warranty" is secondary: there was a breach of a primary warranty for which the seller may be liable. It could be an unfair and deceptive business practice (a statutory type of fraud) to attempt to avoid liability for breach of a primary warranty by claiming expiration of the irrelevant extended warranty.

For example, a consumer buys an item that was discovered to be broken or missing pieces before it was even taken out of the package. This is a defective product and can be returned to the seller for refund or replacement, regardless of what the seller's "returns policy" might state (with limited exceptions for second-hand or "as is" sales), even if the problem wasn't discovered until after the "extended warranty" expired. Similarly, if the product fails prematurely, it may have been defective when it was sold and could then be returned for a refund or replacement. If the seller dishonors the warranty, then a contract claim can be started in court.

See also product liability where liability for a defect causing a personal injury may go well beyond a warranty period, based upon negligent design or manufacture, or even strict liability.

Extended warranty

In retail business, a warranty (or "extended warranty") commonly refers to a guarantee of the reliability of a product under conditions of ordinary use. It is called "extended" warranty because it covers defects that could arise some time after the date of sale. Should the product malfunction within a stipulated amount of time after the purchase, the manufacturer or distributor is typically required to provide the customer with a replacement, repair, or refund. Such warranties usually do not cover acts of God, owner abuse, malicious destruction, commercial use, or anything, for that matter, outside of a mechanical failure incurred with normal personal usage. Most warranties exclude parts that normally wear out, and supplies that must be periodically replaced as they are normally used up (e.g., tires and lubrication on a vehicle). An extended warranty may be included in the purchase price, or optionally extended for an additional fee, and may be for some ambiguous ordinary "lifetime" of the product (not the customer).

A manufacturer or distributor may be required to carry reserve funds on its financial balance sheet to cover potential services or refunds that may arise for any products still covered "under warranty".

There are also third-party warranty providers who sell optional "extended warranty" contracts on certain products, which amount to having an insurance contract for the product. These third parties range from well known store chains, such as Best Buy and Circuit City, to independent, often underwritten companies such as Warranty Direct. As with other types of insurance, the companies are gambling that the products will be reliable, that the warranty will be forgotten or voided, or that any claims made can be handled inexpensively.

Many people do not realize that extended warranties are not always provided through the manufacturer, but in some circumstances it may work to the consumer's benefit. For instance, when an auto warranty is provided through a dealership from the manufacturer, repairs on the vehicle are reimbursed at a lower negotiated rate. Some mechanics might fraudulently attempt to defer the needed repair until the warranty has expired so that the ordinary (higher) shop rate will apply. The third party warranty, while often more expensive, can be worth the price difference because it will cover the higher shop rate as well, and may even permit the customer to select a different mechanic outside the dealership.

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