The Ugly Baby Rule of Warranties
Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant
Editor’s note: This case taken from publicly available records is presented as a blind case study. Names and sensitive information have been redacted since they are not material to the facts. For additional interesting, educational, entertaining stories on purchasing and sales warranties, read Part I and Part II
The question
If the buyer’s expectation for the purchase of an item is that it will accomplish a certain job, is it a good idea to test samples beforehand? This is the central issues posed in a dispute between a customer and a supplier.
The Case
A food company (Customer) that produced canned precooked product wanted to offer a frozen version. Customer sourced a packaging company (Supplier) to explore options. Customer advised Supplier that the product had to be packaged while still hot and then frozen. The Supplier sales rep suggested a heat/foil carton and offered to send samples for the Customer to try.
The Customer’s process was to hand spoon cooked hot product from vats into the sample cartons, which were then quick-frozen. The Customer periodically examined frozen packages and detected no leakage. Further, when the contents were defrosted and reheated, they came up smelling and tasting like fresh product.
Based upon the results of experiment with Supplier’s heat/foil cartons, Customer placed an order for 100,000 of the freezable cartons. The first shipment of 25,000 cartons were mechanically mass packed, sealed, and then consolidated in boxes of twelve and frozen. Soon thereafter, the cartons were leaking.
The Supplier sent a technician to ascertain why the sample cartons did not leak but the mass production cartons did. The technician found that the packaging and freezing of the product did not replicate the same process as had the samples. More precisely, the samples of product had been spooned into the carton. The mass packed product was poured out of a spigot. The samples were frozen individually; the mass packed frozen in boxes of twelve. Because of increased thermal inertia and decreased heat transfer surfaces involved, the freezing process took much longer.
The Supplier suggested a carton with heavier insulation and further offered to buy the heavier carton if the Customer gave credit for the 25,000 cartons already shipped. The Customer refused and sued. At trial, the Customer claimed: that the Supplier “knew we needed a carton to package hot” product and alleged that the Supplier’s final product delivered failed to do the job. That’s a breach of warranty, and why should we have to pay for something that’s completely useless to us?”
online training in purchasing, negotiation, and sales
The Supplier countered that Customer took over a month to test and examine the performance of sample cartons. Customer issued an order based on this information, and Supplier delivered. There was no warranty of fitness. Plus, Customer then used the cartons in a significantly different way which was the reason the product performed differently.”
The Decision:
The Customer must pay for the initial shipment of cartons, ruled the St. Louis, Missouri Court of Appeals. The Customer got what it ordered. “The food company did not rely on the skill or judgment of the packaging company to select a carton to fit its needs. The food company tested the carton, then gave its written order. Under the facts, there can be no warranty of fitness.” (334 S.W. 2d 408)
Comment:
When a customer buys by sample, the supplier’s obligation is to deliver goods that match the sample. The supplier would be obligated for the warranty of fitness for an ordinary purpose, i.e., a container. In this case, the customer liked the sample and ordered on this basis.
If a customer tells its supplier it wants a product to do a particular job and the supplier is the one who selects the item for the customer, it is then the supplier’s responsibility if the product fails to perform adequately. The supplier would be obligated for a warranty of fitness for a particular purpose.
This case poses an interesting juxtaposition of science and law. Two underlying problems sank the Customer’s case, the law and science. The law was properly applied as to warranties. The Customer brought the warranty problem on itself due to its ignorance of its own process. Frozen product was a new line yet Customer was not sufficiently skilled in the requisite thermal science. Packing the cartons together created a larger mass to cool with a smaller surface area. While this fact might be understandable to many, the Customer owns the obligation for fully vetting its process.
The Ugly Baby Rule
So what is the Ugly Bay Rule of Warranties? If the customer tells the supplier what to make, how to make it, and when to make it, and the result is an ugly baby, the buyer owns that ugly baby – the supplier is only the baby-sitter.
Moral of the Ugly Baby Rule
If the customer wants a supplier to be on the hook for the fitness for a particular purpose warranty, it should expressly state so on the purchase order.