Tuesday, December 14, 2010

Warranties – How Long Should The Last

How long should a warranty last ? The answer really depends upon what is being warranted.  In negotiations I’ve seen Lawyers want to have all warranties expire when the warranty against defects in material and workmanship expires. The problem with that is when a warranty relates to a potential third party claim, in many cases the typical warranty period for defects in material and workmanship is far less than the statute of limitations provides for the third party to make a claim.

For example assume that you have a 3 year warranty for defects in material in workmanship but your agreement also has the Supplier warrant that the product is safe.
The Product is purchased on January 1, 2011. The warranty against defects would expire on January 1, 2014. On January 1, 2013 the customer is injured.  If the Customer lived in New York, the Statute of Limitations for tort claims (claims for personal injury or property damage) is three years from the date of the injury.  This means that injured party must make a claim by January 1, 2016.  This also means that since the Buyer is potentially liable on that claim as a reseller of the item, their potential liability would not extinguish until January 1, 2016 on that potential claim. If you allowed the Suppliers warranty to co-terminate with the warranty against defects in material and workmanship, you would create the situation where the Supplier is no longer liable to you, but you could still be liable to the injured party.

Many times Buyer’s will refer to their warranties as on-going. Suppliers may view that as them having potential liability forever. It’s really not forever as the potential liability will at some point cease as a result of the Statute of Limitations. What you need and should require is that as long as you could be liable to a third party, you need the Supplier to be continuing to provide you protection.

One of the keys in maintaining that protection is to make sure that the Warranties, and other key terms that are intended to provide protection against third party claims, such as Indemnities and Insurances, are included in the Survival section of your Agreement so those obligations do in fact survive the termination or expiration of the contract.    

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