Most new consumer products come with an “implied warranty of merchantability.” That means that anytime you purchase a new product, you are trusting that the product is going to do what it is sold to do. You buy a vacuum expecting it to work when you plug it in. You expect a brand new car to run without any major repairs for at least a little while. If the products don’t perform as a normal consumer would expect, for some minimum period of time, then this may be a breach of an “implied warranty of merchantability.”
But what happens when you buy a used product? That is the question before the Texas Supreme Court in MAN Engines & Components, Inc. v. Shows. In 2002, Mr. Shows became the third owner of a used “as is” fifty-foot yacht containing engines made by MAN Engines. When the engines failed, Mr. Shows sued the manufacturer on a variety of theories. The jury found that the manufacturer violated the implied warranty and awarded Mr. Shows more than $80,000 for the engine’s replacement value. The appellate court upheld the award , on the theory that the engine came with an implied warranty from the manufacturer that it would last longer, even though the original buyer’s sales contract explained that there was no such promise. The result? Mr. Shows got a better warranty than the original buyer!
PLF’s amicus brief explains to the Texas Supreme Court that extending an implied warranty of merchantability to used goods could hurt consumers (especially low-income consumers), manufacturers, businesses, and ultimately, the state’s economy. An implied warranty for used goods will increase costs for manufacturers, who may absorb higher costs by laying off employees, dropping salaries, decreasing investment in innovation, raising prices, or some combination thereof.
Higher prices for new goods increase demand for used goods. Higher prices hurt low-income consumers the most, since they most rely on secondhand markets to get the goods that they need. If they cannot afford the higher prices, they will go without. Start-up companies – one of the most important ingredients for a healthy economy – likewise need used goods to open their doors or to expand. New tech companies, for example, have internal knowledge of how to repair used machinery and computers and therefore place no value on any added warranties. In short, the court’s attempt to “protect” consumers could end up hurting the most vulnerable consumers and businesses.