Sunday, December 23, 2012

Contracts: Warranties, Liability and Indemnification

Do you remember the example of a sales agreement I used in my last blog? When you bought Call of Duty 4 at Gamestop? When you walked out of the store with it, it had an express warranty. That is, you assumed it would work properly when you put it into your Xbox. If in fact it didn't, in most stores, you could take it back where you purchased it for a store credit or refund, or refund with a 15% restocking fee (it's all in the Store Policies and Ts & Cs, remember?).

This warranty is tied to the warranty of Merchantability - again, a valid seller, a valid product, consideration etc. -- a valid contract. You expect the CD to work. The merchant, by selling it, has implied it will work.

Well good luck with that. Reputable companies will honor these warranties. Most however, sell their products "As is." No warranties of any kind, or, in their Ts & Cs, they openly deny any warranty of any kind.  So, check the product or service warranty before you buy. In this case, even if Gamestop has no warranty, you may still be protected by Activision, the product manufacturer. Manufacturer warranties are a good deal, and are more common then seller warranties. You may have to pay to ship the bad CD back to Activision, and they may or may not, depending on their return policy, reimburse you. Again, its all in the Ts & Cs.  I'm sure you're familiar with RMAs and the like -- this would be no different.

This brings us to product liability, and liability in general. Product liability means you have rights if the product itself is defective or causes you injury. If you put the CD into your Xbox, and the Xbox blows up and fails immediately after, you may have a case for product liability. Good luck with that too. Most vendor Ts & Cs are written so narrowly you'd probably have a hard time getting money from them for a new Xbox. Again, check their terms.

And here's where I pause to explain what you already know. The reason for Ts & Cs, Terms of Service, or agreements at all, is 1) they are always initiated by the vendor, 2) they always protect the vendor from any liability against anything, or extremely limit their exposure to damages, the money you can collect from them for any reason. And, if you're able to collect anything at all, the most it will be is what you paid for the product or service. That's fair, right?

General liability means that for any reason, and most agreements list them, there's no way you get to hold the vendor (or manufacturer) liable for anything. Again, even if they are found liable, in other words, you hired a lawyer to prove your case, the most you'll be likely to get from the vendor is some kind of refund, whether partial or full. Of your own money. Unless you sue of course, like the lady holding a cup of hot McDonald's coffee between her legs while driving. It spilled and scalded her. She got millions of dollars, and now there's warning labels on all coffee cups. That's fair too, right?

This brings up Indemnification. You may see this in some really paranoid companies, but usually all service contracts, like when an electrician comes to your house to install new circuits, or, my favorite, a repairman of any type, whether for your computer, your car, anything. Even if you haven't signed a contract specific to this, believe me, they're covered. In every contract I recommended or signed while with the State (hundreds), this clause was there. It usually said "You agree to indemnify and hold harmless company ABC from __________, and ____________ (i.e. everything)." Now all vendors expect you to agree to this. Some are so strict, that unless you do agree to their blanket indemnity, they won't do business with you. We had a few like that, and usually we were stuck because we really needed their specific product or service.

However, most reasonable vendors, with price and other terms, we were able to negotiate with. The only reason being that we were spending millions of dollars with them, and they wanted all that money. You can forget it if the deal is worth less than that. Try negotiating with Microsoft. I did, and it wasn't pleasant. The best we could do, to modify this blanket indemnity, was to add that we would NOT indemnify them for "gross negligence." It had to be "gross."  "Negligence" by itself wasn't enough. Now, to my way of thinking, if you're repairman is negligent, and causes my IBM 287 printer to catch on fire, that's negligent enough to get a new printer out of it. But no, the burden is on us, the customers, to prove that the repairman was "grossly negligent."  So, bottom line, guess what, you can't win.

Our only saving grace is that we as the State had a whole floor of lawyers, Deputy Attorney Generals, that we could sic on such a vendor, and the State was self-insured, so that cost was lower also. You, my friend, have neither. See why we need the Department of Justice, UCC, and the Consumer Protection Bureau?  I'm a fan of all three.

What I'm trying to say, is Caveat Emptor, Buyer Beware. As they used to say on NYPD Blue "Watch it out there."

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