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In simplest terms, a warranty (also called a guarantee) is an agreement between a seller and a buyer to ensure that a product will work properly. While the concept is simple, the actual application of a warranty can be quite complex. There is no law requiring a company to offer a written warranty on a product it manufactures or sells. The absence of a written warranty, however, does not mean that a product is not warranted to perform according to expectation. When a written warranty does exist, it binds the company under state and federal law into assuming responsibility in the event that a product malfunctions.

Warranties promise that a product will perform properly. When a product fails to perform, it will be replaced or repaired, or the consumer will be given a refund or a credit toward another product. The retail pioneer John Wanamaker, who introduced the concept of the “department store” in Philadelphia in 1876, is also credited with introducing the money-back guarantee. Wanamaker was a progressive businessman who was among the first to offer benefits such as paid vacations to his employees. He was also a deeply ethical man who believed that his customers should be satisfied with their purchases. The money-back guarantee earned the trust and the loyalty of Wanamaker’s customers.

Trust and loyalty represent sound business practice for most companies. In fact, it is not uncommon for companies to use warranties as a selling point. By offering a better warranty than their competitors, companies are saying in effect that they believe more strongly in the quality of their products.

Warranty problems occur when the company has misstated its policy, or when the language included in the warranty is confusing. The concept of the “lifetime warranty” provides a good illustration of how this sort of confusion can develop. The Federal Trade Commission (FTC) offers the example of an automobile muffler with a so-called “lifetime” guarantee. “Lifetime” can mean the life of the automobile in which the new muffler was installed. Alternatively, it can mean the duration of the buyer’s ownership of the car, or it can mean the buyer’s actual lifetime. It is an unfortunate fact that some companies are unscrupulous and try to renege on their warranty agreements. But as the seemingly straightforward example of the muffler shows, sometimes the problem is misinterpretation. That said, it is the seller’s responsibility to make sure that the warranty’s language and intent is clear.

Inside Warranties