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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Elements of a Contract

A contract is an agreement between two entities, either people to people, people to companies, companies to companies, between the government and you etc. Every contract, according to textbooks, has six elements: Offer, Acceptance, Mutual Assent, Capacity, Consideration, and Legality. You can probably tell from the title what each one means, and you'd be right.

But just for arguments sake, let's look at each one. First, Offer and Acceptance. There has to be an offer to buy, or an offer to sell. When you pick up Call of Duty 4 at Gamestop, marked $60, take it to the counter and buy it with your credit card, you get a written receipt. That's Offer and Acceptance -- a contract. An offer to sell was made, and you accepted it at face value and bought it.

Since the clerk only asked you to pay the price marked on the game, and you accepted that, it was Mutual Assent. Capacity relates to the ability of the two parties to enter a contract. The store is established to sell games. It's a known entity. You are just Joe Blow, but you have a credit card. In other words, you both have the ability (capacity) to make the transaction.

Consideration simply means the thing of value needed for the transaction. Call of Duty 4 had a $60 value. You had $60 on VISA to pay for it. The $60 is the consideration paid for the thing of value (to you). Legality simply means the transaction is regarded by the government or lawmakers (local, state or Federal) as having value, AND being between two parties that have reasonable intelligence and free will. In other words, the clerk didn't hold a gun on you and force you to buy it. In other words, based on all the elements described, it was legal.

The legal basis for all business transactions between buyers and sellers in the U.S. is the Uniform Commercial Code (UCC). You can Google it. It's pages and pages long, and contains all the details I'm leaving out, such as delivery of the goods to you, and the means used.  It can be interesting reading. In our example above, you took delivery when the clerk handed you a bag with your game in it.  You assume when you get home and open up the game, that there'll be a CD in it that will work on your Xbox 360. If not, that's also covered by the UCC. And the store policies.  Did you make a note of them?

The governments and all business transactions in the U.S. are based on the Rule of Law. That's why we're lucky we live here. It's order out of what could be chaos or anarchy. If you don't like it, go to other countries and see how they handle it. You'll find that sometimes you have to add a bribe to get what you're legally entitled to. We're lucky we don't (unless it's illegal).

In the transaction above, there is no negotiation. The price is marked and that's what you pay if you want it. Most transactions are governed this way. When you click "I Accept" on the Internet, or put something in "Your cart" on Amazon, then pay for it, you did so with no ability to negotiate. In other words, the transaction was essentially one sided -- in favor of the seller. This is no different than when you open a bank account, buy a CD, sign a mortgage, or buy a Christmas card.

Most of us make simple non-negotiable buy/sell transactions daily. In many other countries, everything except government fees can be negotiated to a degree. When you sell your crystal candlestick holders at your yardsale, its covered by the UCC.  The difference here is that your buyer may have said "Will you take $3 instead of $5?" And you may have said, "What about $4" and both made the deal. This transaction, although very different from the Call of Duty 4 purchase, contains all six elements, including terms equally agreed to by both parties (the candlesticks and the $4).

That's why the UCC exists, to bring balance and fairness to transactions. However, all that's out the window when you click "I Accept" for an Internet purchase. You have agreed to 100% of the seller's terms, with absolutely no input from you. Take 'em or leave 'em. Either buy it under their terms or go somewhere else.  How do you like that? Have you ever signed an agreement where some of the terms weren't in your favor? Or, as is usually the case, only gave you very limited rights? If you look carefully at product sales agreements, you'll  see that the only right you may have is 1) return the product for a refund -- or not, 2) go to arbitration (always in the vendor's favor -- and potentially costly), or 3) take the seller to court -- always expensive.  Is there a better way?

More on this in the future. Join the site to leave a comment, its free.

Free Stuff not Always Free, Duh...

Boy, it's a tricky marketplace out there, isn't it? If you're like me, someone who uses Google a lot to do research on products, companies, doctors etc., you know there's a lot of "Free Trials" going on. You also know by now, it's only been recently that some of those products/services actually are free.

I've already written about my online experience with eCig, an online product for quitting smoking. It billed itself as a $4.95 "trial," and, like a dummy, I fell for it. Also, my biggest mistake when I signed up, was not reading their Terms of Service. I've also written about how important that is, as well.
Needless to say, when I got my first shipment of eCig filters, I also discovered my credit card was charged $69.95! It was a total surprise. And that for only a month's supply! It took me a month to put two and two together, and after some digging, I found their number and called them to cancel.

Their rep was pleasant but firm, "You have to cancel within 14 days of receiving the shipment." This was day 20. No refund. Even I know contract law. Once you agreed by clicking "I Accept," you are bound by their Terms and Conditions. Not yours. Not what's fair. Not what makes sense. Just theirs. That's the risk you take everytime you buy something online, or anywhere for that matter.

However, these companies, like Carbonite (Cloud backup), are now much smarter about it. No $$$ necessary for your "Trial!" None. No credit card info etc. Actually try it free for 14 days. Cool right? Well, yes, if you read their Terms of Service, like the product and the cost, and trust them. You see, they only show you their Ts & Cs at time of signup, not at time of payment, so its easy to forget. I don't. When I buy stuff I like, trial or not, I print out a copy of their Ts &Cs, you should too. It seems only us geeks do that.  Well, you've been warned.

Also, you have to put up with their daily notice "Your trial will expire in 5 days! Don't be stupid! pay now!"

Also, if they won't let me see or print their Ts & Cs, I just don't sign up, or buy from them at all. You may notice some online companies are like that. That's why we need internet usage laws -- and a universal sales tax.

It's no different than going to Staples or Bed, Bath & Beyond. Look for the signs that say "Store Policy. " Like Best Buy or Burlington Coat Factory (BCF). BCF is a good-sized company, and I did a phone interview with them for a Buyer's position, but didn't get it. They seemed nice enough. But, most things at those stores have to be returned within 14 days. If not, you may only get a store credit, if that. That's worth butkus when you don't need anything else there.  But it could make a reasonable Gift Certificate. It's not as good as getting the cash back, however. The deal with eCig was that their fine print said I only had 14 days to cancel a shipment. BUT, I couldn't cancel it AT ALL once I received it. Ha! They had me.

I was able to cancel the contract though, but only after I had to pay them over $75 and insisted over the phone. But it was worth it to learn a valuable lesson.  Now, BEFORE, I click "I Accept" or give credit card info, I read their Terms of Service, their small blue link hidden on the page. I've saved myself $$$ doing that, and agita from bad deals.

Speaking of cancelling, never cancel a service or subscription without first calling the company and telling them you want to cancel. I've written about that as well, when we cancelled Opimum/Xfinity/Comcast? (I get the names confused), and signed up with FIOS for two years at $99.99/month. $99/month! For TV phone and Internet. It should be more like $40 or $50. I'm tempted to get Magic Jack just because it works and is cheap, just to spite all those cable companies who rake us over the coals. Europe's services are much cheaper, and their Internet is much faster.

After Optimum got our cancellation notice from Verizon, a man was at our door two weeks later. Offered us a $50 discount to stay with them, and other services for free! If I had known that would happen, we might not have actually cancelled! But it was too late, FIOS was installed (took half-a-day), and we weren't going through all that again. The Optimum rep came back months later, and actually offered to pay the FIOS early termination penalty if we switched back!  Bottom line, everyone in business knows it is easier and cheaper to retain current customers than it is to find new ones.

So, just a reminder, click the little blue link, and scroll through the company's Terms of Service, what I call Ts & Cs -- Terms and Conditions. You'll be glad you did.

Future blogs: Agreements and contracts, and what terms mean, like Liability and Indemnification.

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I Hate Glitches - Except Sara Silverman

Okay, so Sarah Silverman isn't a glitch in real life, although I could draw some parallels if asked. However, the character she played in the animated movie Wreck-it Ralph, was a glitch - a video game glitch. And Sarah was hilarious - just like real life. In the old days of the 60s, a glitch would equate to being a "tilt" on a pinball machine. As a pinball fanatic, whenever I tilted, I wasn't quite sure if I caused it, or the machine did - frustrating. And all glitches are very frustrating.

Take software for example. Specifically, take Microsoft Word. First, I've loved it and used it since the early Windows systems, notably Windows 95. its improved a lot since and added some great conveniences. It also takes 40 GB on my machine, but hey, there's a lot to it! (A lot I can't figure out -- because its all "intuitive" -- another word for obfuscatory AND frustrating.)

I'm trying to be a writer, so I write every morning for a few hours. Besides the GUI interface itself, the ability to move and use the cursor effectively for almost anything, my favorite Word feature is Cut and Paste. That has to be one of the greatest computer related inventions of all time. Especially since it isn't hampered by size or content (pictures for example). Someday I'll do a whole post just on Cut and Paste, but for now, it shouldn't be taken for granted, yet it should be expected in every application, and is especially useful on Internet sites.

Getting back to glitches: one, I have a sneaky feeling that Word doesn't always Save documents properly. Any number of times I have made changes to a document, saved them, and when I open what I think is the same document the next day? The changes aren't there. I've looked at my hundreds of documents and eliminated duplicate or very similar document names as  the culprit, so it must be Word itself. That's not good. Its also very scary, because as a writer I get inspired to make changes, save it and forget it. I've become to trusting of Word. Ah, but now I'm not anymore. Have you ever had that Save problem?

Two: settings can be another glitch -- losing them I mean. Again, it must be a problem with the Save feature. Why my page formats would change between saving and opening the same document later, I don't know.

It could be the Autosave Feature that's responsible, saving the older version and not the new. Whatever it is its happened to me many times.

I've been using a computer at home (Commodore 64) and work (earliest IBM PC) for decades now. I love computers and all the spinoffs. (phones are a different story) Computers have come a long way in most ways, and not very far in others (take the step backward Microsoft took in Windows 7 with its extremely poor Control Panel). Currently any computer attempt at artificial intelligence is stupid. Like the Autofill Feature in Excel sometimes, or automatic paragraph indenting or numbering in Word. Failures and extremely frustrating. Even more so because I can't figure out how to turn them off!

The most frustrating thing of course, is that there's no User Manual, only incredibly limited and stupid Help. But those aren't glitches, that gets into design, and that's a different blogpost.

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Voter ID Constitutional

I've been voting since I was 21, when I registered with the Mercer County NJ Board of Elections. I only registered because my wife Janet encouraged me to do so, and because it was painless. If I remember correctly, back in 1971 I had to actually go to their office in Trenton, show them my Driver's License, and sign a form. Painless.

I registered as an independent with the firm belief that I should vote for the best candidate regardless of party. I was not familiar with party platforms or the rough and tumble of political maneuverings. It was the days before there were public debates sponsored by the League of Women Voters or others, except for presidential ones which couldn't be missed with all the hype. Now, in 2012, during the Obama-Romney election cycle, not a moment goes by without a new comment, news bulletin or attack ad. So much in fact, that its very difficult to get through all the chatter, or find independent sources of information.

That's why I'm so grateful to the Internet and for email. I get my daily political news summaries from Politifact and others. I realize Politifact isn't neutral according to many critics, or that all political statements are empirical enough to even be fact-checked. But notwithstanding its detractors and faults, I get a kick out of reading their pronouncements. Especially when they present data to explain their judgement.

But I digress. My real point is that registering to vote has long been required. Once registered, my signature was added to the County Elections Book, and whenever I vote, I must sign the book and, theoretically, my signature is compared to whats on file. Notwithstanding the fact that the original signature is now over 40 years old. Believe me, after a long career in State government and signing thousands of letters and documents, my signature today is in no way similar to what it was. Nor is it uniform. There's got to be a better way.

Some form of ID at the polls seems inevitable, and in the long run, some form of national or international ID, also seems inevitable. So why all the fuss?
Its because of the timing. Six months or less before a presidential election is not the time to institute new voter controls. Its prima facie and patently unfair to require such documentation now. After the election in November? Be my guest.

The fed budget Problems: Part Two

“Spending vs. GDP. [Here are some] CBO projections: by 2022, [Federal] spending will be 23% of GDP; by 2050 = 55%; by 2070 = 90%. Totally unsustainable. Revenues have only increased 20% historically.”

“Debt vs. GDP. Now the ratio is 67%. [By that is meant for every dollar the Federal Government spends, $.67 cents is borrowed.] By 2050 it will be 100%. The recently recommended debt goal is 40-60%. So if we don’t reduce debt, we will be bankrupt, no question about it.  Social Security and Medicare will turn into “pay-as-you-go” programs [because we can’t afford to borrow to pay for them].  Bottom Line: more pain now, and more pain later.”

“Two recent Task Forces produced recommendations. Let’s see how many we agree with: 1. They both recognize the problem as real, and opine that Washington must act now; 2. It’s cruel to make promises that can’t be kept, [like Social Security]; 3. We must still protect the disadvantaged; 4. We must reform and simplify the Tax Code, [which has over 5,000 provisions]; 5. We must have Social Security reform; 6. We must reduce healthcare costs – it’s our biggest spending problem; 7. We must reduce annual spending deficits to only 3% of GDP, [now they are 5%]; 8. We must adopt a progressive tax system; 9. We must institute a National Sales Tax (Internet etc.); 10. We must cut Corporation Taxes from 35% to 27%; 11. We must eliminate tax deductions and credits, saving $1.1 trillion; and we must eliminate the Alternative Minimum Tax (AMT); and 12.We must institute  higher gas taxes to fund transportation infrastructure (on top of state sales taxes). Bottom line: [In all of this,]the Feds don’t care about the states problems [at all.]” 

“Congress has also convened separate Debt Reduction Task Forces: 1. Healthcare, 2. Social Security – with no income limits on contributions, and reductions in benefits to millionaires, 3. Debt reduction – Freeze spending (in place now, including Defense), and enforce spending caps; become a pay-as-you-go system. Problem: Bush II abolished the spending caps. And 4. A Biennial Budget (every two years instead of one) – 26 states have it now, but the problem is revenue estimating that far ahead.”

In closing, Rich stated: ‘“A lot of these things better start happening now.” We must cut our national debt to 60% of GDP by 2024, and below 40% by 2037.  Raising taxes alone will not solve our problems – we need cuts too. Bottom line: we need much better controls on spending.”  I agree wholeheartedly, especially about the need for more and better controls.

Rich also showed many documents from www.cbo.gov to make his points.

That’s a lot to think about, and even more to do. But we can’t just stop everything and pay off the debt.  Think of the thousands of decisions, big and small, that have to be made to solve this problem!  Aren’t you glad you’re not a legislator or the President? So, tell me, what tax deductions can you personally live without? Your mortgage deduction? Or, would you also like to pay a higher gas tax?  How about higher Social Security taxes? Guess what? We’re in store for these and much, much more in the days ahead. I can only say that I pray to God every day that I continue to receive my monthly state pension and social security checks. Think about the millions of people who have neither, or very little. Or those still looking for a job. How will we get them out of this mess? 

Somehow, our representatives in Congress, must put aside their differences and work towards consensus. Wouldn’t it be novel if they voted their individual conscience and not by party lines?  What about having more voices in government? How about establishing “The Independent Party” who can vote to end these deadlocks? All in favor?

The Fed Budget Problems: Part One

I really respect Richard F. Keevey.  I knew him 15 years ago when he was the Budget Director and Comptroller for the State of NJ under two Governors. I worked for the State then as the Manager of the Contract Administration unit in the Treasury Department. In that capacity I initiated dozens of contracts and procurement documents worth millions of dollars that had to be approved by the State Budget Director; in other words, by Rich.  All spending had to be approved by Rich’s office. Every check issued by the State had Rich’s name and title on it. So I got to walk thru many documents directly to him for his signature. He was always professional and keen-witted, and made sure all the i’s were dotted and the t’s crossed. After leaving the state Rich went on to work in high positions in the Federal departments of Housing and Defense, at the Policy Institute for Princeton University, and as a Distinguished Practitioner in Public Affairs at Rutgers.  He’s experienced,  smart, and savvy.

In April at the Annual AGA Spring Symposium, I got to hear Rich present a seminar on the current Federal Budget problems. It was fascinating and I took rapid notes. I’d like to share them with you because I think they boil down some facts that we really don’t understand. This information helps explain why our government is so screwed up.

Here’s Rich’s presentation, [with my additions for clarity]:

“I will speak on three areas: Terminology – first, the federal government is a different world than the states, with different terms. Second, the current problem. And third, recommendations to reduce growth in spending.”

“The Feds always end in deficits. Deficits have rolled into our $13 trillion in debt. Feds borrow for everything. The Feds mix operating and capital budgets together. NJ only borrows for capital projects [never for operating expenses]. “ 

“The Federal Budget has two spending parts: mandatory, called entitlements, and discretionary. Entitlements are 57% of the Budget, i.e. Medicare, Medicaid and Social Security alone. Discretionary spending has been flat at 43% of the Budget – it’s not growing, mainly because a freeze has been on for some time. [Discretionary spending is what flows into and out of the 21 major executive branch departments, and then some.] So that’s the spending side. On the revenue side, the Feds have three main revenue sources: Income Tax (45%), FICA (37%), and Corp Tax (9%). The Feds do “Current Services Budgeting” which is the baseline. That means, looking at what the government will spend over the next ten years based on current laws. They look at all growth, increases and decreases.  Their terminology is: Expenditures equals Outlays equals Cash. All projects must have budget authority for outlays.”  

“The Feds have 12-13 annual Appropriation Bills. Until they are passed in their entirety, Congress passes “Continuing Resolutions” as stop-gap measures. Those are the 11^th hour bills on things like Homeland Security and Defense or they get shut down.  [More recently it was Transportation.] The President has no Line Item Veto like we have in NJ, [which makes it much more difficult to trim the fat]. All the Federal numbers come from the Congressional Budget Office, or CBO. It is the Gold Standard as far as estimates and reports, and is very respected and objective. All reports are comparisons to national Gross Domestic Product, or GDP, which states don’t do. [GDP is how the Feds measure the value of goods, services and property produced in this county. Recently it was $15.5 trillion annually.]” 

“The CBO also gives alternative projections [for everything]. Even so, the NJ and local municipalities are better [because we follow GAAP, GASB, CAFR etc., that is, recognized accounting principles], and we don’t borrow for operating expenses. The current CBO projection is $14 trillion in debt by 2020. The Feds have been borrowing at very low interest rates, but they will be higher in the future, and money will cost a lot more. The long term problem is 77 MILLION retiring Baby Boomers.  Now, there is a 3 to 1 ratio of workers to retirees; in the near future it will be 2 to 1.  That’s a huge problem.”