| Representations, warranties and remedies are | | | | and possesses all necessary and requisite legal and |
| central to the longevity of a contract. If a | | | | corporate authority necessary to enter into this |
| representation proves to be fraudulent, the | | | | agreement." |
| agreement may be set aside ab initio - as though | | | | While that sentence sounds impressive, it is short |
| it had never existed. If a warranty is breached, | | | | on substance. If vendor is not a legitimately |
| the agreement is subject to termination. If | | | | organized business, or does not have the proper |
| remedies and thoughtfully constructed, however, | | | | authority, you could be confronted with significant |
| even serious disagreements may be resolved | | | | difficulties, and this sentence provides no |
| short of termination or, perhaps worse, litigation. | | | | meaningful tools to resolve them. |
| REPRESENTATIONS | | | | Or |
| In legal-speak, a representation is a statement | | | | ➢ "Vendor warrants that the product will |
| made to induce reliance or action: "Buy the new | | | | perform substantially in compliance with Vendor's |
| Acme carburetor because it will deliver 100 miles | | | | published documentation for 120 days after |
| per gallon of water." If the carburetor does not | | | | delivery." |
| live up to that statement - to that representation | | | | This sentence has its own challenges. What does |
| - you have the right to return it and get your | | | | "substantially in compliance" mean? Does vendor |
| money back. | | | | have the right to change the performance |
| In the consumer world, the principal is straight | | | | standards by changing the documentation? These |
| forward. If a product does not "work," you are | | | | are questions for another time. For the moment, |
| free to return it for a replacement or a refund. | | | | the question of interest is: "What happens if the |
| The analysis becomes more complicated in the | | | | product does not work?" |
| commercial world: | | | | If the contract contains just this one sentence, |
| ➢ Consumer protection laws generally do | | | | and assuming there is no dispute that the product |
| not apply; | | | | is defective, you have two options: Terminate the |
| ➢ The terms of the contract may | | | | agreement and start over or live with the |
| exclude consideration of any representations not | | | | defective product. |
| set forth in the written document; | | | | REMEDIES |
| ➢ Defining the meaning of "does not | | | | General contract law provides a standard set of |
| work" can be problematic; | | | | remedies for contract disputes. These remedies |
| ➢ Determining which representations | | | | are available if the contract itself does not provide |
| were "material" - which ones were relied upon | | | | any other tools. Unfortunately, these default |
| when deciding to enter into the transaction - can | | | | remedies may not meet your specific situation |
| be difficult; | | | | and most require the time and expense of |
| ➢ Even if the parties agree on, or the | | | | litigation. However, these are only default |
| contract defines, the meaning of "work" or "does | | | | remedies. Parties are, within limits, free to decide |
| not work," a question remains: Is the perceived | | | | how they will resolve claims of defect, late |
| defect "material?" Is it sufficient to set aside the | | | | performance or other disagreements. |
| contract? | | | | For example: |
| Consider: | | | | ➢ "Vendor warrants that the product will |
| Assume the carburetor delivers only 90 miles per | | | | perform substantially in compliance with Vendor's |
| gallon, rather than 100. Is that a material defect? | | | | published documentation for 120 days after |
| Did you decide to switch to the Acme carburetor | | | | delivery. In the event of non-compliance, Vendor |
| because you wanted 100 mpg or because you | | | | will repair or replace the defective product within |
| believed running your car on water would cost | | | | ten days of receipt of notice of defect." |
| less and cause less pollution than using gasoline? | | | | Taking the time to ask one simple question - |
| ➢ If you did expect 100 mpg, can you | | | | "What if?" - and to draft one short sentence |
| prove that claim was central to your decision? | | | | yields a concrete remedy short of termination |
| ➢ If your decision was based on what | | | | and litigation. |
| you regarded as the advantages of water over | | | | ➢ "Acme warrants that its home reactor |
| gasoline, would you have a claim if the carburetor | | | | will produce no less than X kilowatt hours per day, |
| actually used 100 gallons per mile? | | | | 365 days per year, in normal operation. In the |
| ➢ What if the carburetor only delivers the | | | | event power output is less than Y% of X, Acme |
| promised mileage when used with a little known | | | | shall provide a refund of Z% of the purchase |
| and very expensive brand of imported water? | | | | price." |
| If the deal blows up, your attorney is sure to ask, | | | | "Pay first and get a refund of it doesn't work" is |
| or at least mutter: "If you wanted 100 mpg of | | | | not an ideal remedy, but here it illustrates one |
| tap water, why didn't you put that in writing?" | | | | way to resolve a potential dispute short of the |
| WARRANTIES | | | | courthouse. A better course would be to pay |
| A warranty is generally a promise that the | | | | most of the money up front, and to tender the |
| product or service will meet certain standards or | | | | balance if and when the home reactor proves |
| do certain things, or the vendor will do something | | | | itself. |
| about it. Again the concept is familiar in the | | | | What constitutes a good warranty? It protects |
| consumer world: "Try the Acme home nuclear | | | | the customer from defects or failures that would |
| reactor for thirty days. If you are not completely | | | | threaten the value of the contract to the |
| satisfied, return it for a full refund." In the | | | | customer. It is a mechanism to help ensure that |
| consumer world, such a solution is clean and | | | | customer gets what he or she is paying for. |
| simple, but it may not work in the commercial | | | | What makes a good remedy? It must be |
| world: | | | | mutually agreed and, to be practical and effective, |
| ➢ What if your company needs a reliable | | | | must protect the interests of both parties. |
| source of energy more than it needs the cash | | | | Customers want to ensure they receive true |
| back? | | | | value for their money; vendors want to ensure |
| ➢ Will a simple cash refund make your | | | | that they make an appropriate profit. |
| company whole for the time lost testing, installing | | | | Two points are central: |
| and then removing the Acme product? | | | | ➢ If certain of vendor's claims are |
| ➢ Who will bear the losses you will bear | | | | essential to your decision to enter into the |
| as the result of starting your search over? | | | | agreement, spell that out in the contract. |
| ➢ What if the Acme reactor does | | | | Asserting that "He/she told me X or Y or Z" |
| everything Acme promised, but you cannot | | | | after the signatures have dried is a long, |
| connect it safely to your outdated infrastructure? | | | | expensive and often unsuccessful exercise. |
| ➢ What if the final product costs 10% | | | | ➢ A warranty without a matching |
| more than Acme promised, and delivers only | | | | remedy is an incomplete mechanism. Taking the |
| 75% of the energy you expected? | | | | time to think through, and negotiate, acceptable |
| To further complicate matters, not all warranties | | | | solutions may seem tedious and unproductive. It |
| are made the same: | | | | is, however, far faster and efficient than heading |
| ➢ "Vendor warrants that it is duly | | | | to court fill in the blanks in the contract. |
| organized and recognized in accordance with law | | | | Copyright 2006, Thomas J. Hall. All rights reserved. |