Opinion ID: 2634622
Heading Depth: 2
Heading Rank: 1

Heading: Is a Service Contract an Express Warranty Within the Meaning of the Song-Beverly Act?

Text: The Song-Beverly Act, in section 1793.2, subdivision (d)(2), provides in pertinent part that [i]f the manufacturer or its representative in this state is unable to service or repair a new motor vehicle ... to conform to the applicable express warranties after a reasonable number of attempts, the manufacturer shall either promptly replace the new motor vehicle ... or promptly make restitution to the buyer.... However, the buyer shall be free to elect restitution in lieu of replacement, and in no event shall the buyer be required by the manufacturer to accept a replacement vehicle. Gavaldon argues that a service contract is an express warranty within the meaning of that section and the Song-Beverly Act generally, and therefore she is entitled to the replacement/restitution remedy, as the trial court concluded. DaimlerChrysler contends that the Court of Appeal is correct in holding that a service contract is not an express warranty, and the judgment cannot be sustained. We conclude that DaimlerChrysler is correct. DaimlerChrysler essentially advances two arguments as to why a service contract cannot be considered an express warranty: (1) a service contract, as defined by statute, does not fit the statutory definition of express warranty; and (2) aside from the definitions, the terms service contract and express warranty are used together in the statute in such a way as to make clear that they are mutually exclusive terms. We find the second persuasive. The legislative history of the Act provides additional support for DaimlerChrysler's interpretation.
An express warranty under the Song-Beverly Act is defined in section 1791.2 in pertinent part as follows: (a) ... A written statement arising out of a sale to the consumer of a consumer good pursuant to which the manufacturer, distributor, or retailer undertakes to preserve or maintain the utility or performance of the consumer good or provide compensation if there is a failure in utility or performance; ... [¶] ... [¶] (b) It is not necessary to the creation of an express warranty that formal words such as `warrant' or `guarantee' be used, but if such words are used then an express warranty is created. An affirmation merely of the value of the goods or a statement purporting to be merely an opinion or commendation of the goods does not create a warranty. [¶] (c) Statements or representations such as expressions of general policy concerning customer satisfaction which are not subject to any limitation do not create an express warranty. Section 1791, subdivision ( o ) provides: `Service contract' means a contract in writing to perform, for an additional cost, over a fixed period of time or for a specified duration, services relating to the maintenance, replacement, or repair of a consumer product, except that this term does not include a policy of automobile insurance, as defined in Section 116 of the Insurance Code. DaimlerChrysler argues that an express warranty arises out of the sale of a consumer good (see § 1791.2, subd. (a)) because it is a representation integrally included in the purchase price; a service contract does not because it offers additional performance purchased for `additional cost.' (See § 1791, subd. ( o ).) Moreover, it argues, section 1794. 4 addresses the sale of a service contract, implying that a service contract is sold separately from the consumer good, and therefore cannot be said to arise out of the sale of the latter. Gavaldon points out, however, that the purchase of her automobile and her service contract were part of the same transaction, concluded at the same time, and therefore the service contract would be reasonably understood to arise out of the sale of the automobile. (See Reveles, supra, 57 Cal.App.4th at pp. 1155-1156, 67 Cal.Rptr.2d 543.) We need not decide which party has the better argument. As discussed below, another reason supports the conclusion that DaimlerChrysler's position is correct.
The terms service contract and express warranty are used together in several sections of the Song-Beverly Act in such a way as to indicate, DaimlerChrysler argues, that the Legislature conceived of them as distinct entities. Section 1794.41, subdivision (a)(3), for example, provides: The [service] contract is applicable only to items, costs, and time periods not covered by the express warranty. However, a service contract may run concurrently with or overlap an express warranty if (A) the contract covers items or costs not covered by the express warranty or (B) the contract provides relief to the purchaser not available under the express warranty, such as automatic replacement of a product where the express warranty only provides for repair. (Italics added.) Section 1794.4, subdivision (a) provides that Nothing in this chapter shall be construed to prevent the sale of a service contract to the buyer in addition to, or in lieu of, an express warranty if that contract fully and conspicuously discloses in simple and readily understood language the terms, conditions and exclusions of that contract.... (Italics added.) And section 1794, subdivision (a) provides: Any buyer of consumer goods who is damaged by a failure to comply with any obligation under this chapter or under an implied or express warranty or service contract may bring an action for the recovery of damages and other legal and equitable relief. (Italics added.) The above three statutes indicate that the Legislature not only conceived of service contracts as distinct from express warranties, but intended the two categories to be mutually exclusive. Section 1794.41, subdivision (a)(3), does not permit a service contract to cover the same items as an express warranty. Section 1794.4 specifies that service contracts are sold in addition to or in lieu of express warranties. And section 1794 refers to express warranties and service contracts in the alternative. If express warranties and service contracts were intended to overlap, then these sections would have been phrased differently, by modifying the term express warranty to at least leave open the possibility of overlap. For example, section 1794.4, subdivision (a) might have read: Nothing in this chapter shall be construed to prevent the sale of a service contract to the buyer in addition to, or in lieu of, an express warranty that is included in the original price of the consumer good if that contract fully and conspicuously discloses in simple and readily understood language the terms, conditions and exclusions that contract.... Without such a modifier to the term express warranty, it is difficult to escape the inference that the Legislature considered service contracts to be categorically distinct from express warranties. The legislative history of the Song-Beverly Act supports this interpretation. As originally enacted, the Song-Beverly Act's sole reference to service contracts was the provision in section 1794.4 allowing service contracts to be sold in addition to or in lieu of express warranties. (Stats.1970, ch. 1333, § 1, p. 2482.) The Act was amended in 1971 to, among other things, specify in section 1791, subdivision (a), that the term consumer goods with which the Act was concerned signified new goods. (Stats.1971, ch. 1523, § 2, p. 3001.) At the same time, section 1795.5 was added to extend the Song-Beverly Act's application to used consumer goods sold with express warranties. It provided that, notwithstanding the definition of consumer goods as new goods, the obligation of a distributor or retail seller of used consumer goods in a sale in which an express warranty is given shall be the same as that imposed on the manufacturer under this chapter, with certain enumerated exceptions. (Stats.1971, ch. 523, § 17, p. 3008.) In response to concerns about the prospective enactment of section 1795.5 from the Northern California Motorcar Dealers Association, Inc., Senator Song's staff assured the association that the proposed remedies with respect to express warranties on used vehicles would not apply to used vehicles with service contracts. That response is perhaps the clearest window we have into the Legislature's reason for distinguishing between a service contract and an express warranty. It stated: You may be correct that the distinction between a warranty and a service contract is purely one of semantics, but such is often the most important kind. I believe the words `guarantee' and `warranty' possess a meaning that `service contract' does not share. .... We think that an `as is' sale, with or without a service contract, will better inform the public as to what they are actually buying than a sale accompanied by the express warranties presently used in the used car trade. (Richard Thomsen, Admin. Asst. to Sen. Song, Letter to Wallace O'Connell, Apr. 16, 1971, p. 2.) [2] It is true that, functionally speaking, warranties and service contracts appear to have the same purpose  to guarantee the repair or replacement of certain products or parts of products for a specified period of time. But, as the above passage suggests, the Legislature apparently conceived of an express warranty as being part of the purchase of a consumer product, and a representation of the fitness of that product that has particular meaning for consumers. In contrast, it apparently thought of the purchase of a service contract as distinct from the purchase of the product, and not as a representation of fitness but only an agreement to provide repair services, a kind of insurance. Hence, one difference between express warranties and service contracts is that the latter is generally purchased for an additional cost. [3] (§ 1791, subd. ( o ).) In arguing that express warranties and service contracts do indeed overlap, Gavaldon points to language in the definition of express warranty in section 1791.2 stating that [i]t is not necessary to the creation of an express warranty that formal words such as `warranty' or `guarantee' be used, but if such words are used then an express warranty is created. Therefore, a service contract that is denominated an extended warranty, as service contracts are sometimes called, will also be an express warranty under section 1791.2, and therefore subject to the replacement/restitution remedy. This argument does not assist Gavaldon. As discussed above, the Legislature apparently believed that the terms warrant or guarantee had particular significance to consumers. And because the Legislature generally conceived of service contracts and extended warranties as falling into distinct categories, it also provided that a manufacturer that confused those categories by labeling service contracts as warranties should assume the obligations imposed on manufacturers that issued express warranties. DaimlerChrysler did not so label its service contract in the present case. Gavaldon also argues that sections 1794.4 and 1794.41 are antifraud provisions, designed to protect a consumer who pays for an express warranty, as part of the price of the vehicle or other consumer good, from paying extra for a service contract that partly provides the same coverage as the warranty. Assuming she is correct, such purpose is nonetheless wholly consistent with the Legislature's view that service contract and express warranty should be considered distinct entities. In sum, reading the various portions of the Act, together with relevant legislative history, it appears that the Legislature thought of service contracts and express warranties as mutually exclusive categories, except when the manufacturer chooses to use the terms warrant or guarantee in a service contract. When, as here, the manufacturer has not used those terms in its service contract, the breach of its service contract does not make it subject to the replacement/restitution remedy reserved in section 1793.2, subdivision (d) for purchasers of motor vehicles sold with express warranties.
Gavaldon argues that the above conclusion conflicts with the Court of Appeal's holding in Reveles, supra, 57 Cal.App.4th 1139, 67 Cal.Rptr.2d 543. The Court of Appeal in the present case usefully summarized Reveles: In that case, the plaintiff purchased a used vehicle from a dealership. The sale was `as is,' i.e., without an express warranty, so he also purchased a `vehicle service agreement' covering `repair of mechanical failures' of various parts for two years or 24,000 miles. Two months later, the front end of the car suddenly dropped, and the dealer's mechanic told the plaintiff the vehicle had significant preexisting frame damage and could not be repaired. Nonetheless, the dealer refused the plaintiff's demand it replace the vehicle or refund his purchase price, insisting repairs would be made. ([ Reveles, ] at p. 1145, 67 Cal.Rptr.2d 543.) The plaintiff sued the dealer for breach of contract, rescission and restitution, negligent and intentional misrepresentation, breach of the Consumers Legal Remedies Act (§ 1750 et seq.) and breach of the Song-Beverly Act. After rejecting the plaintiff's repeated offers to settle for $9,300, on the morning of trial the dealer announced it would settle for that amount. The plaintiff settled but reserved his right to move for attorney fees and costs to which he argued he was entitled under various statutes, including the Song-Beverly Act. The trial court eventually found the plaintiff was the prevailing party and awarded him $19,000 in attorney fees, plus expert witness fees and costs. ( Reveles, supra, 57 Cal.App.4th at pp. 1146-1148, 67 Cal.Rptr.2d 543.) The Court of Appeal affirmed the award, concluding in part that the plaintiff was the prevailing party under the Song-Beverly Act, and was therefore entitled to costs and attorney fees pursuant to section 1794, subdivision (d). ( Reveles, supra, 57 Cal.App.4th at pp. 1149, 1158, 67 Cal.Rptr.2d 543.) In so deciding, the court had to address the argument that the Act's remedies do not apply to used vehicles sold as is. As discussed ante, the Act generally applies to the purchase of consumer goods which are generally defined as being new goods. (§ 1791, subd. (a).) Notwithstanding that definition, section 1795.5 provides, as noted ante, that the Act also applies to used consumer goods in a sale in which an express warranty is given. The plaintiff's used car was sold as is, but he had purchased a service contract. The court was faced with the issue of whether that service contract was an express warranty, in which case the used car purchaser would be afforded the Act's protection under section 1795.5. In addressing the problem, the Reveles court reviewed the patchwork of relevant amendments to the Act. As noted above, the Act as originally passed in 1970 hardly mentioned service contracts, but subsequent amendments have increased protection for service contract purchasers. Section 1796.5, added in 1978, provides that any entity which engages in the business of providing service or repair to new or used consumer goods has a duty to the purchaser to perform those services in a good and workmanlike manner. (Stats.1978, ch. 991, § 13, p. 3066.) Subdivision (b) of section 1794.4, added in 1988, states that [e]xcept as otherwise expressly provided in the service contract, every service contract shall obligate the service contract seller to provide to the buyer of the product all of the services and functional parts that may be necessary to maintain proper operation of the entire product under normal operation and service for the duration of the service contract and without additional charge. (Stats.1988, ch. 581, § 2, p. 2136, as amended by Stats.1993, ch. 1265, § 13, pp. 7422-7423, italics added.) Additionally, section 1794.4, subdivision (c), added at the same time, requires the service contract to contain substantial information, including a step-by-step explanation of the procedure which the buyer should follow in order to obtain performance of any obligation under the service contract.... (See § 1794.4, subd. (c)(5); Stats.1988, ch. 581, § 2, p. 2137.) Subdivision (d) was also added to section 1794.4, providing: Subdivisions (b) and (c) of this section are applicable to service contracts on new or used home appliances and home electronic products entered into on or after July 1, 1989. They are applicable to service contracts on all other new or used products entered into on and after July 1, 1991. (Stats.1988, ch. 581, § 2, p. 2137, as amended by Stats.1990, ch. 127, § 1, p. 1141, italics added.) Section 1794 was added in 1982, enumerating the remedies available to a consumer for breach of the Act. It states in part: Any buyer of consumer goods who is damaged by a failure to comply with any obligation under this chapter or under an implied or express warranty or service contract may bring an action for the recovery of damages and other legal and equitable relief. (§ 1794, subd. (a); Stats.1982, ch. 385, § 2, p. 1716, as amended by Stats.1987, ch. 1280, § 4, p. 4562, italics added.) The Reveles court therefore confronted an apparent statutory anomaly, in which, under sections 1794.4 and 1796.5, buyers of any service contract, for either a new or used good, were entitled to the proper enforcement of the contract as well as various statutory protections, but the remedies provided under the Act, in sections 1794, and 1795.5, seemed not to include remedies for breaches of service contracts for used goods. The Reveles court reasoned that [i]f `express warranty' under section 1795.5 is interpreted to exclude the vehicle service agreement, Reveles has no Song-Beverly Act remedy for [the dealership's] breach of sections 1794.4, subdivisions (b) and (d) and 1796.5, and they would thus be rendered meaningless. ( Reveles, supra, 57 Cal.App. 4th at p. 1157, 67 Cal.Rptr.2d 543.) But the fact that equating express warranty and service contract would solve an apparent statutory anomaly does not free us to so interpret the statute, when such interpretation would be at variance with the statutory language and the legislative history reviewed above. Although we will not interpret a statute literally if it leads to an absurd result, we cannot say that the statute's failure to explicitly provide a remedy under the Act for breaches of service contracts on used vehicles is an absurd result. We need not decide whether the result in Reveles  that attorney fees under the Act may be awarded for breach of a service contract on a used vehicle  is correct under a different rationale. But we disapprove of its conclusion that a service contract is a type of express warranty under the Song-Beverly Act. For all the above reasons, we conclude that the service contract in the present case, which was sold for an additional cost and which does not use the words warrant or guarantee, is not an express warranty for purposes of the Act.