As a startup owner, you may be wondering what the difference is between a guarantee and a warranty and whether you should apply either to the good or service that your company is selling.
When a company makes a warranty, the company promises to the purchaser that certain conditions of the product or service will be met — for example, car companies make warranties that their cars will be free from mechanical defects or problems for a period of time — and if the conditions of the warranty aren’t met, the company will repair the issue, replace the product or service, or provide a refund for a return of the product or cancellation of the service. If a company guarantees a feature of a product or a service — like a kitchen knife manufacturer guaranteeing that their knife will never need sharpening — it operates largely the same as a warranty.
However, a guarantee can also be a promise to step in and be responsible for another person’s or entity’s liabilities — like a parent co-signing on their child’s loan. The difference between this kind of guarantees and traditional product/service guarantees is that this kind of guarantee is conditional on the primary obligor failing to satisfy its liability, at which point the guarantor steps in. With a product/service guarantee, the company is the primary obligor.
It is possible for companies to make guarantees/warranties without explicitly using the term guarantee or warranty. For example, Article 2 of the Uniform Commercial Code — the law in every state except Louisiana — provides that certain warranties are implied in every sale of goods, including the implied warranties of merchantability and fitness for a particular purpose. A seller must explicitly disclaim these warranties (and some states such as Massachusetts limit the ability of sellers to disclaim implied warranties in consumer transactions). Sellers can also disclaim any other warranties either explicitly or by labeling their goods or services “as is” or “as available”; however, any explicit warranties or guarantees made may still be held effective despite a disclaimer.
It is possible for guarantees/warranties to apply if a seller makes a claim, promise, or description of the goods or services, or if the seller provides an example of the good or service for the buyer to inspect; it is not necessary for the seller to explicitly state that its claim, promise, description, or example constitutes a guarantee or warranty. Of course, there is a limit to whether claims and promises can form guarantees or warranties. Courts have held that claims and promises and other advertising that constitute exaggerations or other “puffery” that no reasonable consumer would take seriously (like claiming one’s product is the “best in the world”) create guarantees or warranties.