Puffery vs. Promises: How [Legally] Far a Company Can Take Salesmanship

July 22, 2013

In business and in law, there is the well-known adage, “buyer beware.” When dealing with salesmen of any kind, it is generally a given that they will, let’s say, “exaggerate” the quality of the product they’re selling. This is called “puffery.” There’s nothing wrong with it, and everyone knows that it happens. It’s only natural that a salesman thinks his product is “the best,” and if the salesman believes in his product, he will be more successful at his job. That’s why the law doesn’t hold salesmen responsible for engaging in this kind of talk. However, there is a limit. The question is: when do a salesman’s opinions stop being mere puffery and start being facts about the product?

That is precisely the question the Wisconsin Supreme Court answered in its recent opinion in United Concrete v. Red-D-Mix, 2013 WI 72. The case deals with a rocky business relationship between United and Red-D-Mix. From 2002-04, Red-D-Mix was the concrete supplier for United, but the relationship ended when the quality of the concrete supplied was not to United’s satisfaction. Id., ¶ 5. However, United was not happy with its new supplier and, in 2007, decided to give Red-D-Mix a second chance. Id., ¶ 6. Before United was willing to re-establish the business relationship, it wanted to make sure that the earlier quality issues were solved, and Red-D-Mix assured United that all problems had been resolved. Id. Unfortunately, the problems were not resolved, and quality issues again were a problem for United. As a result, many of the projects that United performed were damaged, and the company needed to repair the damaged projects. Id., ¶ 7. United asked each of the affected homeowners to let them sue Red-D-Mix in their names and ultimately brought several claims against Red-D-Mix for the faulty concrete. Id., ¶ 8.

The Supreme Court answered two important questions: First, it answered whether the statements Red-D-Mix made about the quality of its concrete were puffery. Second, whether United could, in fact, sue Red-D-Mix in the names of the homeowners.

On the first question, the Court held that the statements made by Red-D-Mix were not puffery. In order to qualify as puffery, the statements have to refer to the seller’s opinion and whether they are capable of being confirmed or refuted. Id., ¶ 25. Basically, if it’s an opinion, it’s puffery, but if it’s a fact, then it could result in liability. In this case, the conversations between United and Red-D-Mix were about more than just whether Red-D-Mix could offer a “quality” product or “the best” concrete. The two companies had a history and the negotiations were about the specific problems that United had experienced. According to the Court, Red-D-Mix made “a specific, factual statement” about its concrete. Id., ¶ 28. Therefore, Red-D-Mix could be held liable for any misrepresentation it made about the problems to United.

The second question involves the Economic Loss Doctrine and the ability of a customer to sue a third-party subcontractor. United attempted to sue Red-D-Mix in its own name, as well as on behalf of all the homeowners that suffered a loss due to the faulty concrete. The Court held that United could not sue on behalf of the homeowners because they had no legitimate claims against Red-D-Mix. Id., ¶ 48. The purpose of the Economic Loss Doctrine is to prevent a party from suing in tort when they have only suffered an “economic loss.” Specifically, in this case, it prevented the homeowners from suing Red-D-Mix for the faulty concrete when the only damage was to the concrete itself. Id.Therefore, absent a contract between the homeowners and Red-D-Mix, there was no way for the homeowners to sue for the damaged concrete. As a result of this, the Court held that because the homeowners could not file suit against Red-D-Mix themselves, then there were no rights to assign to United and United could not sue on their behalf. Id., ¶ 50.

The bottom line from this case is that sometimes a salesman’s statements about his product’s quality cannot be relied on, but when that salesman does make specific promises about specific characteristics of the product, the company can be held liable if it turns out that salesman was wrong. Also, the case highlights that, just because a general contractor has a cause of action against its subcontractor, it doesn’t mean that the homeowner or customer that hired the general contractor does, too.

Special thanks to Axley Summer Law Clerk Micheal Hahn for his assistance with this article.

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