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Demystifying Legalese in Contracts: Warranties, Part II


This is a post by guest blogger Jonathan I. Ezor.

The first blog in this series discussed how while some words do have legal weight, agreements should still be written in clear, understandable language in order to do what they’re meant to. When it comes to legal “magic words,” one of the major ones is “warranty.” Merriam-Webster defines it as:

1 a : a real covenant binding the grantor of an estate and the grantor’s heirs to warrant and defend the title b : a collateral undertaking that a fact regarding the subject of a contract is or will be as it is expressly or by implication declared or promised to be

2 : something that authorizes, sanctions, supports, or justifies : warrant

3 : a usually written guarantee of the integrity of a product and of the maker’s responsibility for the repair or replacement of defective parts

Law.com’s dictionary takes a different approach:

n. a written statement of good quality of merchandise, clear title to real estate or that a fact stated in a contract is true. An “express warranty” is a definite written statement and “implied warranty” is based on the circumstances surrounding the sale or the creation of the contract.

It’s a broader definition, encompassing not only product quality but “that a fact stated in a contract is true.” What warranties (may) do in agreements is provide enforcement not only for acts but for the underlying assumptions.

With contracts for selling goods, laws like the Uniform Commercial Code may insert warranties automatically unless the parties “disclaim” them. For services, though, the warranties will stand on their own, and need to be written and read very carefully to understand what they do and don’t promise.

Here's an example of a warranty provision from a Web development agreement, written from the point of view of the client, meaning that it has promises the client wants the developer to make:

Developer warrants that the site shall conform in all material respects to and operate in accordance with the functions, specifications and descriptions described herein and in any proposal relating to the site provided to Client by Developer; that the services provided by Developer shall be of a professional nature, performed by knowledgeable and skilled personnel, and conform to or exceed the standards generally observed in the industry for similar services; that it has all necessary rights and authority to execute and deliver this Agreement and perform its obligations hereunder and to grant the rights granted under this Agreement to Client, and nothing contained in this Agreement or in the performance of this Agreement will place Developer in breach of any other contract or obligation; that the works delivered hereunder by Developer will be free of any virus, Trojan horse, or other disabling device; and that the performance of the services or provision of the works by Developer will not in any way constitute an infringement or other violation of any copyright, patent, trademark, trade secret or other proprietary or personal rights of any third party.

Fairly dense; let's take this apart.

Developer warrants that the site shall conform in all material respects to and operate in accordance with the functions, specifications and descriptions described herein and in any proposal relating to the site provided to Client by Developer;

First, the site is being compared to the specifications "described herein"; that means that the contract should include a detailed list of what the Web site is supposed to look like and do. Without that list (the "specifications"), the two parties may not have a single standard to use. The sentence also says the site will confirm to "any proposal relating to the site provided to Client by Developer"; that might include sales brochures, pitches, or early concepts that proved too costly. Most savvy developers will try to take that last part out of the sentence.

that the services provided by Developer shall be of a professional nature, performed by knowledgeable and skilled personnel, and conform to or exceed the standards generally observed in the industry for similar services;

Admirable idea, but impossible to enforce, unless somewhere there is an actual list of universal Web developer standards. Having anything so vague in a contract can be a problem, since it can lead to disagreement over what it means, but this is probably not a major issue either way.

that it has all necessary rights and authority to execute and deliver this Agreement and perform its obligations hereunder and to grant the rights granted under this Agreement to Client, and nothing contained in this Agreement or in the performance of this Agreement will place Developer in breach of any other contract or obligation

Always useful, and rarely controversial. Is the developer permitted to sign this contract, and will the client get sued by some other company claiming priority on the developer's services, or by a competitor claiming the developer is exclusive? This kind of warranty should be given by both parties to the other.

that the works delivered hereunder by Developer will be free of any virus, Trojan horse, or other disabling device;

One the one hand, the client doesn't want a Web site filled with viruses, or with some hidden code that the developer can use to shut it off the client doesn't pay (or for any other reason). On the other hand, the developer may not intentionally include a virus, but one could be accidentally introduced (or be part of some third-party product the developer uses). This can be an issue for even the largest, most sophisticated companies, as Microsoft discovered back in 1996. A developer may ask to limit this warranty to cover only viruses and other malicious code it "knowingly" introduces; that's a fair request.

; and that the performance of the services or provision of the works by Developer will not in any way constitute an infringement or other violation of any copyright, patent, trademark, trade secret or other proprietary or personal rights of any third party.

Again, the client does not want to get sued for infringement for something the developer includes in the Web site. Here too, even if the developer is willing to accept some kind of warranty like this, it may try to limit it to "knowing" infringement. The client may object, because the developer is in a much better position to investigate who owns the materials it uses than is the client, and should do so in order to protect itself and the client. It is reasonable, though, for the developer's warranty not to cover any materials the client itself provides for the site or the project.

Depending on the particular contract, there may be many other types of warranty provisions that come up, and the remedies for breaching those warranties (breaking the promises, or lying about them in the first place) will differ as well. Some of those warranties will be backed up by "indemnification," which will be covered in a future blog. The key to a well-written and fair warranties section, though, is that the promises are clear, relevant for the particular deal, and that each party warrants those things it can best control.

Jonathan I. Ezor is the director of the Touro Law Center Institute for Business, Law and Technology, and an assistant professor of law and technology. He also serves as special counsel to The Lustigman Firm, a marketing and advertising law firm based in Manhattan. A technology attorney for more than 15 years, Ezor has represented advertising agencies, software developers, banks, retailers, and Internet service providers, and has been in-house counsel to an online retailer, an Internet-based document printing firm, and a multinational Web and software development company.


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