Sales and marketing materials as warranties

I HAVE WRITTEN more columns than I can count on the need for suppliers and contractors to carefully read and negotiate the agreements that they sign. In particular, I have warned of the dangers of agreeing to warranty clauses that either give up rights or expand obligations that one of the parties did not intend. For my own clients, I was feeling pretty good where their own documents were clearly

I HAVE WRITTEN more columns than I can count on the need for suppliers and contractors to carefully read and negotiate the agreements that they sign. In particular, I have warned of the dangers of agreeing to warranty clauses that either give up rights or expand obligations that one of the parties did not intend.

For my own clients, I was feeling pretty good where their own documents were clearly written and their project managers understood the issues that might come up in negotiations. That was before I learned about the clients' sales and marketing brochures.

The role of the marketing person is to help the company get more business. Aside from sponsoring holes in charity golf tournaments, one common marketing technique is to prepare a brochure that touts the many good qualities of the firm. These can include vague qualities such as " responsiveness," " professionalism" and "innovation," none of which can get you into trouble. When the brochure starts making specific representations about a product or service, however, it could inadvertently-become an enforceable warranty that a customer can later say it relied on in making a purchase.

An example of how this effort to gain more business can backfire is a recent court case out of the Washington State Supreme Court. In Fortune View Condominium Association v. Fortune Star Development Co., 90 P.3d 1062 (2004), a general

contractor was sued by condo owners for damage from leaks. It settled the lawsuit but went after the manufacturer of the EIFS siding system on the theory that in choosing the product to use, it had relied on the brochures from the EIFS company that specified the physical properties of the system. The brochure included a representation that the system was "designed and engineered specifically for the residential and light commercial market" and that using its " warranted materials" presented an advantage to a builder over other products.

The manufacturer argued that it didn't have a contract with the general contractor so there was no "privity," and that it wasn't fair to hold it liable based on what was in its brochures because this would "expose it to claims from anyone who comes in contact with [the manufacturer's] brochure." The Washington

Supreme Court cut this argument off quickly: It said that if the manufacturer wants to limit its exposure for making an express warranty, it could stop putting such language in its advertising.

"... If, however, [the manufacturer] finds express warranties to be a useful tool to induce builders to use its products and wishes to continue to make such representations regarding the quality and durability of its products, it cannot hide behind the doctrine of privity when its product fails to perform as represented."

It is not at all unusual for the people who are trained about warranties to be in entirely different parts of a firm from the marketing people. Indeed, many firms hire outside marketing firms to prepare brochures, so that there is even less coordination, and seldom does the company's lawyer review these marketing materials before they are printed and distributed.

And now, we have Websites, which are often developed and updated by an entirely different group of people. The Websites add another whole dimension to potential liability, since anyone can access it (

unless it's restricted, which is not likely for the sales promotion material), and therefore anyone could later say he relied on it. I have stopped being surprised when clients do not know what is on their own Websites.

I recognize that every firm has to have some means of "tooting its own horn" if it is to get business. But setting up some procedures to control the sales and marketing staff can help keep the right balance between not enough and too much boasting.

Some ideas to consider: Have general marketing brochures and Website content reviewed by your lawyer before making it publicly available. The hour or two of attorney review time that you will have to buy is far cheaper than a lawsuit later.

Limit the number of people who are authorized to make marketing pitches to clients, and make sure that they are trained on the issues of warranties and representations. Particularly in the Internet age, communication happens so quickly that even if senior people are copied on e-mails, the damage might be done before a correction could be issued.

Require that all proposals and project-specific information packages be reviewed and signed off on by senior management to control what is in them. It is not uncommon for the marketing staff to be brought in to make the proposal more attractive and one of their techniques is often to make the wording more " persuasive." Only trained senior management should have the right to decide how much risk to run here.

Make sure that all your contracts and purchase orders say that they are the "final and integrated documents," and do not include any sales or general information that doesn't relate to the specific project. This won't help you avoid the kind of third-party claim involved in the Washington state case, but it will control a good portion of your risk.

TAGS: Law