The maker giveth and the maker taketh away.

The maker of a product giveth a warranty and the maker taketh away when it limits that warranty. While the consumer has learned to expect that any warranty will have its limitations - in terms of what parts of the product it warrants for what time period – neither the individual consumer nor the commercial consumer understand what it means to waive incidental and consequential damages, or to limit the Implied Warranties of Fitness or Merchantability. These are rights and remedies we have by law, unless we making a knowing intelligent and/or have received something of value – consideration – in exchange for giving them up.

Imagine your small to medium size business client owns a company that mass produces widgets on an assembly line. The widgets travel down a conveyor belt, which of course therefore is essential to manufacturing and thus selling that widget. Your client buys a new conveyor belt for $100,000. The conveyor belt breaks down every day for 12 hours. The manufacturer comes out every day and fixes it, ….. until the next day when it breaks down again. So for 12 hours every day no widgets are manufactured by your client. He can’t make production schedules, his customers lose faith when he can’t consistently perform on a timely basis so they go elsewhere, cancel orders, and he is forced out of business. You say, well he should just buy a new conveyor belt? He can’t afford to put out another 100,000 for a new conveyor belt 6 months after the current one was purchased. He can’t afford to pay your hourly rates to get you as his lawyer to intercede, perhaps litigate to force the manufacturer to replace the conveyor belt; and, besides litigation will take over a year. The manufacturer contends they satisfied their limited warranty which was to repair or replace the conveyor belt at their option. There is no "lemon law" remedy in commercial transactions like these. 

Moreover, the manufacturer says "We aren’t responsible for the business losses because the Limited Warranty excludes the following "funny words" in tiny print on the back side of some document it says it gave your client at some time:

Incidental Damages
Consequential Damages
Implied Warranty of Fitness for Particular Purpose
Implied Warranty of Marketability
Attorneys Fees"

And alas you read the Limited Warranty and sure enough it says all of that. What do you do? What do you do?

The scenario above could be cars, trucks, phones, computer systems, golf cart fleets, and anything else that is necessary to allow your client to do business. They are all sold with warranties but what parts of the warranty did your client actually bargain for? What warranties did your client pay for? More importantly is what exclusions did they agree to and what otherwise applicable remedies did they agree to waive and give up. You can bet they did not get a discount from the sales price for giving up these valuable remedies.

In the context of selling a product there is always a discussion between seller and buyer about the great features of the product – how fast it works, how long it will run, how many years the manufacturer warrants it will run, and what a great warranty like this one covers in parts and labor. What is not usually discussed, however, is that the product will have problems, will break down, and what will actually be done if, albeit fixed temporarily or permanently, the repetitive break downs damage your client’s business. The dark side of the sales pitch, never brought up, is what remedies and types of damages are excluded and what those funny words mean.

Since the buyer, particularly individuals and small to medium sized businesses, generally have no bargaining power, these contracts of warranty might be considered contracts of adhesion. But putting that aside for discussion a different day about an esoteric public policy, let’s focus instead on the simple yet often overlooked concept of "bargained for consideration."

Without bargained for consideration the benefits of legislated remedies cannot be waived even in a commercial setting. Putting it more simply, ask your client in the above situation the following question:

"When you signed the contract to buy the conveyor belt for $100,000, were you told verbally, or in writing, that incidental damages, consequential damages, implied warranty of fitness, or implied warranty of marketability were being waived by you? Did you know at the time what those words meant? When, in relation to when you decided to buy the conveyor belt, were you given the document the manufacturer now says vastly limits your damages and remedies."

Often times the contract doesn’t say anything like that. Other times its on the back. Most often, if it appears at all, the exclusions are on some document delivered to your client after he signed the contract and after the money has been paid and at, or after, the product is delivered to your client. In each of those cases there is or may be no bargained for consideration for waiving those valuable rights, damages, and remedies.

Consider the following legal argument successfully made by the authors in a jury trial recently concluded in Los Angeles Superior Court:

Legal Analysis

This argument was successfully used and resulted in a 1.67 million dollar judgment against a major Forbes 500 manufacturer of golf cart fleets. In that case a golf course bought a fleet of 80 new golf carts for $260,000. The golf course suffered numerous breakdowns every week, lost golf rounds, lost reputation, refunds of golf green fees, and diminished sales value of the golf course as a result. During the 4 years of the warranty period the manufacturer came out about every week but the problem never ceased. Fraud was plead and proved. At trial the manufacturer contended all it was required to do was provide labor and parts to repair and replace as necessary. The written document entitled Limited Warranty excluded incidental and consequential damages, as well as implied warranties of fitness and merchantability. So the manufacturer during litigation offered only $5,000. But at trial it was proven that the Limited Warranty document with all of its exclusions was either never delivered, or at best was delivered only after the golf course agreed to buy the fleet, i.e. the Limited Warranty was delivered with the delivery of the fleet approximately 2 weeks after executing the contract of sale. The court held, based on the legal authorities above, that there was no bargained for consideration sufficient to exclude these damages and remedies.

The trial court, therefore on a Motion in Limine, excluded from evidence, the Limited Warranty with all of its exclusions – net result 1.67 million dollars where otherwise the manufacturer said it’s only a $5,000 deal. WRONG! How many other small and large manufacturers try and succeed in asserting a Limited Warranty on these issues because they know they can take advantage of the consumer? Probably many of them. Think how often the Limited Warranty document is never delivered until the product is delivered. Then the manufacturer illegally hides behind an ineffective limitation of damages and remedies. Don’t let that happen to you or your clients!

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