Friday, January 11, 2013

Warranty – Should you ever agree to limit you Warranty Remedies to only Repair or Replace?

When people ask me questions abut thing like this, I want them read the agreement to understand the impact something will have. Most product warranty sections deal with a number of warranties in addition to the warranty for a defective defective product. In reading those ask yourself which, if any of those warranties may be really cured by repair or replacement? If the answer isn't all, don't agree to it.

For example all of the following may be warranties:
Requirement that the product meets your specifications
Requirement that a product have no liens or encumbrances against it.
Requirement that the product not infringe another party's Intellectual Property Rights.
A warranty that the product is safe.
A requirement that the product complies with applicable laws

Will repairing or replacing it with the same product that most likely has the same problems do anything for you? It never did anything for me. So the first part of the answer is limiting remedies to repair or replacement for all warranties should never he agreed.

The next question is would it work if the limitation only applied to the warranty against defects in material and workmanship? While that sounds more reasonable, you need to think that through. As a buyer, the last thing you want to do is buy something, have it not work properly and get jerked around forever. In that case supplier has your money and you have something that doesn't work. The only party that will benefit from that situation will be the post office or carriers that get uses and things get shipped back and forth and you can have things shuttle back and forth to the point in time when you no longer have a warranty.

I can see why a Supplier may want to limit the remedy to only repair or replace. First, they made the sale and would never have to refund the purchase price. Second, even if you could only recover direct damages, it avoids more expensive other direct damages that could be claims such is you having a more costly third party repair it or your people attempting to repair it themselves.

So my answer to limiting the remedy to the warranty against defects in material and workmanship to only repair or replace would be you shouldn’t unless you build other protections into the agreement. When I did contracting that include both warranty and out of warranty repair one of the concerns we managed was trying to get “lemons” out of the system. We would require repair stickers and dates be attached and required that any product that had been repaired twice under warranty be replaced with new if found to be defective within the warranty period. We also knew that spare parts inventory have a cost to it, and things that could take longer to replace the item (such as repairing it) would add to our inventory. If we agreed to limit the remedy, we would limit the time in which either option must be done.

Another thing to consider is the fact that where there is a defective product, there may also be the potential for property damage or personal injury to have occurred. An electrical product shorts out and causes a fire. A short causes a party to be burned or get electrocuted. So the key is in limiting remedies to repair or replacement, you don’t want to giving up any rights for claim for personal injuries or property damages caused by the defective product so you would want to carve those out of any limitation on the remedies. For example: “Except for any claims personal injury or property damage caused by defective product, Buyer’s sole and exclusive remedy for defective product shall be repair or replacement of the product.”

If I were to limit my remedy to only repair or replace, I would make that limitation conditional on performance.
One limit may be a fixed time period for performance. For example: “For any defective Product returned by Buyer, as long as Supplier repair or replaces the defective Product with a good, working Product that meets the specifications, within ____ days, such repair or replacement shall be Buyer’s sole remedy for the defective product.

Another limit could be number of repairs or replacements the Supplier can perform.
For example: Buyer’s sole remedy for defective Product shall be repair or replacement of the product, provided however that if, after a maximum or four(4) repairs or replacements combined, the product remains Defective, Buyer shall have all remedies available at law or in equity.

If a supplier wants to limit the warranty remedy to repair or replacement tell them no. If they insist tell them all the things that will be needed to do that:
1.It’s limited to only the warranty against defect in material and workmanship and not other warranties.
2.It must specifically exclude claims for personal injury or property damage that may occur because of the defective product.
3.It will be tied to clear repair or replacement performance requirements.
4.It will be conditioned on performance. The failure to perform will void the limitation.