How to Prevent a Breach of Contract—Contract Warranties

Along with poor contract drafting, warranties are the most litigated issue in business contracts.  Typically the parties have different expectations, especially when the buyer claims that the goods or services did not meet the promised expectations.  Here are a few tips on warranties to protect your company from unnecessary disputes:

The importance of the description

The statement of work/specifications/scope of the product or service is key to a meaningful warranty. The more vague, subjective, or general the description, the greater likelihood of misunderstanding and conflict between buyer and seller. Even if you are not the subject matter expert, review your internal customer’s description.  Phrases like “target goal”, “if feasible”, or “to be determined” are seemingly innocuous but can cause stalemates down the road.  It’s in both the buyer’s and seller’s best interest to take as much time as possible and to ensure specificity in the contract description of the product/ service.

A promise is a promise

Buyers should ensure that all promises made by the Seller – in its proposal, advertising material, emails, and verbal discussions with internal customers – is included in the warranty provision. If you don’t, you risk the possibility of that particular promise not becoming part of the contract.

Sellers should make sure they do not over promise, especially promising generic things like, “this product will work for all buyer’s [fill in the blank] purposes.”  This is setting your company up for trouble—regardless of how useful your product might be you cannot possibly anticipate all of the buyer’s potential networking/animal husbandry/cosmetic purposes that he or she could use your product in or for.  The best way to prevent overpromising is by including all specifications,  plans, detailed requirements, , and the like in your contract, so that those specific purposes and promises (and those only!) become binding warranties.  Attaching these items as appendices to the contract is sufficient.

Be clear about the remedies

Whether drafted by the buyer or seller, the typical warranty states that the buyer’s remedy for failure of the product to meet the warranty will be seller’s obligation to repair, replace or issue credit.  Since these clauses are generic, they frequently do not specify the time period by which the “fix” should be accomplished.

While business people are skilled at negotiating the “deal”, they often do not discuss the “what if something goes wrong” issues. When lawyers discuss this issue, we discuss it in terms of Limitations of Liability and assume the parties are going into court and obtaining a million dollar verdict.

As we know, however, there are thousands of steps between the initial dispute and the time where the parties go to court.  Give thought to and discuss “what happens if” the seller doesn’t fix the problem within the defined time period.  Those guidelines identified upfront can help to avoid a major dispute if the parties

If you have questions about contract warranties for your business, attorney Leslie S. Marell can help.  Leslie has more than 25 years of experience as in-house counsel and as a legal adviser working with businesses, business people, and business contracts, in the technology, manufacturing, software, and medical device industries.  She understands the real-world practicalities of what it takes to draft, review, and negotiate corporate contracts, and has presented her dynamic seminars to Fortune 500 companies and small to mid-sized businesses across the country.  Leslie specializes in helping contract analysts, project managers, and department leaders work better with their own internal legal departments and outside counsel.  To learn more about Leslie’s seminars, or get expert advice on contracting matters, contact Leslie at (310) 372-8663, or visit her online.