| SPECIAL TYPES OF CONTRACTS
Leases and Surety Contracts
Q. Is a lease a contract?
A. Yes. A lease has all the elements of a contract explained
earlier: It involves something
someone lets you use for a specified time, for a specified fee. There
are two main kinds of
leases. The first involves real estate, such as a lease for an apartment
(discussed more fully in
the "Renting Residential Property" chapter). The second includes
all other kinds of property,
such as leases for office equipment and vehicles, for example.
Q. What should I look for in a lease for equipment or a vehicle?
A. These leases, usually on preprinted forms with very few blanks,
often offer little room for
bargaining. Hence, it is very important that you understand the terms
and are sure you'll be
able to meet them, especially where there's an option to buy. Make sure
that the lease states
the price at which you'll be able to buy the item. The lease may specify
the price as a dollar
figure or as a percentage of some amount that you should be able to figure
out easily.
Obviously, be sure that at least from where you stand now, it's a price
worth paying. If you
have no intention of buying, of course, then there's no problem - but
you should be able to get
a less expensive deal by not including an option to buy in the contract.
Q. Why would I lease something instead of buying it?
A. Leasing doesn't usually require you to invest as much of your
money up front as buying
because you are not paying for ownership of the item. You must return
the item to the owner
at the end of the lease period. A lease also cushions you from the risk
of owning a piece of
equipment that may become obsolete in a few years. The drawback is that
your payments
never add up to equity (an ownership interest) in the property. Leases
also normally come with
service contracts of some sort (a later section will discuss these contracts
more fully).
Q. Are there laws designed to protect renters under residential
leases?
A. Yes. Most states have laws that protect people who lease their
homes. The chapter on
rental property discusses them fully. Many states also have laws that
require special
disclosures (information statements) and other protection for people who
enter into other types
of consumer leases. These laws may even cancel out what the contract states.
Q. What are surety contracts?
A. A surety contract is an agreement where one party, called
the surety, accepts the
responsibility for someone else's contractual obligations. For example,
you might agree to pay
back your son's bank loan if he does not. Usually a surety is bound with
the other person (the
principal) on the same promise, often on the same document; under such
an arrangement the
surety is sometimes called a co-signer. A guaranty contract is similar,
but with a guaranty the
person who's vouching for the principal - led the guarantor - makes a
separate promise and is
liable only if the principal breaches and it is impossible to collect
from him or her. In many
cases, the terms "surety" and "guaranty" are used
interchangeably, since their practical effects
are nearly identical.
Warranties
Q. Is there any difference between a guarantee and a warranty?
A. In law, there is a very fine difference. But for consumers
the two terms mean essentially the
same thing. Both words have the same root, which means "to protect."
Each represents
obligations taken on by the provider or imposed on the provider by law.
Some warranties deal
with the quality of the goods: Will they do a specific job or meet certain
specifications? Are
they reasonably fit for their intended purpose? Other warranties might
deal with the ownership
of the goods: Does the seller have good title or ownership rights that
may be lawfully
transferred to the buyer?
A federal law, the Magnuson-Moss Act, covers written warranties for consumer
goods
costing more than a few dollars. It does not require that merchants make
written warranties. If
they do make such a warranty, however, it must meet certain standards.
The warranty has to
be available for you to read before you buy. It must be written in plain
language, and must
include the following information:
• the name and address of the company making the warranty;
• the product or parts covered;
• whether the warranty promises replacement, repair, or refund,
and if there are any
expenses (such as shipping or labor) you would have to pay;
• how long the warranty lasts;
• the damages that the warranty does not cover;
• the action you should take if something goes wrong;
• whether the company providing the warranty requires you to use
any specific informal
(out-of-court) methods to settle a dispute;
• a brief description of your legal rights.
Consider all these warranty terms when you shop. The terms of a warranty
are seldom
negotiable, especially the length of the warranty, whether it covers only
parts or certain
problems, and what you must do to use your rights. But some elements,
such as the price of an
extended warranty, may be negotiable. Many companies offer such extended
warranties
(sometimes called service contracts) for varying lengths of time and for
varying amounts of
money (see below).
Some states have warranty laws that provide consumers with greater protection
than the
Magnuson-Moss federal warranty law.
Q. What is the difference between a full warranty and a limited
warranty?
A. Magnuson-Moss requires all written warranties for consumer
products costing more than a
few dollars to be designated as either a "full" warranty or
a "limited" warranty. A full warranty
is a promise that the product will be repaired or replaced free during
the warranty period. State
and federal laws require that if the warrantor (the company making the
warranty) will repair
the item, it must be fixed within a reasonable time and it must be reasonably
convenient to get
the item to and from the repair site. Many stores will offer a short full
warranty of their own
(thirty to ninety days), above what the manufacturer offers, and some
premium credit cards
will double a warranty for up to a year for products purchased with the
card. Repairs or
replacement during the extended warranty period become the responsibility
of the card issuer
after the manufacturer's warranty expires.
A limited warranty is much more common. Not surprisingly, it covers less
- usually only
parts, and almost never the cost of labor.
Warranty Sense
The best-made products usually have the best warranties, because they're
less likely to need
them. Thus the manufacturer can guarantee a long period with little
risk. A warranty is a
statement about the maker's confidence in its products; because it
involves the manufacturer's
pocketbook, it's a statement you should take seriously. Try to figure
the value of a warranty
into the price of a product and make it part of your formula Also
remember that the dealer that
sells you merchandise is not the only source of extended warranties
– you can search online
and elsewhere for companies that may offer you a better deal. |
Q. What are express and implied warranties?
A. Express warranties are any promises to back up the product
that a warrantor expresses
either in writing or orally. Suppose your friend bought your Yugo and
you said, "I guarantee
you'll get another ten thousand miles out of this transmission."
That's an express warranty. It
isn't an opinion about quality or value, such as, "This Yugo is the
best mauve used car for sale
in town." Rather, it's a specific statement of fact or a promise.
A warrantor does not state implied warranties at all - they're automatic
in certain kinds of
transactions. There are two main types of implied warranties: The implied
warranty of
merchantability and the implied warranty of fitness for a particular purpose.
Q. What is the implied warranty of merchantability?
A. When someone is in the business of selling or leasing a specific
kind of product, the law
requires that the item must be adequate for the purpose for which it is
purchased or leased.
This is a general rule of fairness that what looks like a carton of milk
in the supermarket dairy
case really is drinkable milk and not sour or unusable. The implied warranty
of
merchantability wouldn't apply, however, to someone buying your car, unless
you were in the
business of selling cars.
Q. What is the implied warranty of fitness for a particular purpose?
A. It means that any seller or lessor (even a nonprofessional)
is presumed to guarantee that an
item will be fit for the purpose for which you are getting it, as long
as you make that purpose
known. Even when you sell your used Yugo to your friend you make this
warranty as far as
your general understanding of her purpose (basic transportation). Suppose
your friend told you
she needed a car that could tow a trailer full of granite up steep mountains
in the snow. When
you sell the Yugo to your friend with this knowledge, you make an implied
warranty that it
can do that. When the car fails in that purpose, your warranty will have
been breached. On the
other hand, if your friend tells you she's buying your car only because
she needs spare Yugo
parts, you can sell your Yugo to her--even if it's sitting out back on
cinder blocks--without
breaching a warranty of fitness for the intended purpose.
Read Warranties Before You Buy
Don't wait until a product needs repair to find out what's covered
in any written warranty you
get. Compare the terms and conditions of the warranty before you buy
and look for the
warranty that best meets your needs.
There are several points to consider. How long is the warranty, and
when does it start
and end? Will the warranty pay 100 percent of repair costs? Does it
cover parts but not labor?
What kinds of problems are covered? What do you have to do to enforce
your warranty
rights? And when do you have to do it? Are regular inspections or
maintenance required? Do
you have to ship the product to the repair center? If so, who pays
for shipping? What about a
loaner? Who offers the warranty - the manufacturer or the retailer?
How reliable is each? |
Q. How long do warranties last?
A. It depends on the type of transaction and warranty involved,
and the applicable law. In
most states, you have up to four years to enforce an implied warranty
after the start of the
transaction. In cases involving written warranties the period may be much
shorter. A written
warranty will disclose how long it lasts. It may be as short as ninety
days for a portable radio.
A warranty on a new car, on the other hand, may last several years or
many thousand miles.
Q. May a merchant disclaim a warranty?
A. Not after you've made the purchase. But before you buy, unwritten
express warranties and
(in most states) implied warranties of merchantability or fitness may
be excluded or
disclaimed if the contract or disclaimer is in writing and the relevant
language is obvious. The
word "merchantability" may have to appear for a such a disclaimer
of an implied warranty to
be valid, or it may have to state that a product is sold "as is."
In contrast, the implied warranty
of fitness for a particular purpose may be disclaimed merely by a less
communicative written
statement. In any event, a person may not disclaim an express warranty
that's written in the
contract.
Q. Is disclaiming a warranty common?
A. It cannot be done on a consumer product that carries a written
warranty. If there is not such
a warranty, a disclaimer is common. In many cases of consumer products,
a warranty will be
stated and the contract you sign will state a specific remedy if the product
fails. This avoids
having to give no warranty while still protecting the seller or lessor
to some extent. For
example, the contract may provide that the seller will repair or replace
the merchandise, if
necessary, but that the customer has no right to get back any money. This
protects the seller
against the worst-case scenario (having to give your back money) while
still protecting the
buyer.
Q. Does the law ever overrule the guarantees contained in a warranty?
A. Yes. Lemon laws provide a good example. Many states have these
laws, which provide
extra guarantees to people who have been unlucky enough to buy new cars
so bad that they fit
the statutory definition of a "lemon." (See the "Automobiles"
chapter for details on lemon
laws.)
Q. Most warranty limitations exclude some forms of consequential
damages. What are consequential damages?
A. Consequential damages are losses caused by the product's defect,
including your lost time
and expense which result from the defect and repair costs. If, for example,
your new computer
crashes and destroys weeks of work, you may get a new computer. But under
the terms of the
wording in the warranty that came with the computer (as well as the disks),
the warrantor will
almost certainly not reimburse you for the lost time, work or software
- much less a lost job or
client. At some point, the law expects you to protect yourself, in this
case by backing up your
computer files. However, you usually may recover damages in cases of personal
injury that
result from a product's defect.
Q. What about extended warranties or service contracts?
A. Both of these will cost you extra. Take a hard look and ask
if the benefits are worth the
cost. Consider how the extended warranty or service contract enhances
your regular warranty.
Find out where you'll have to send the product for repairs. Also look,
especially in service
contracts, at whether there's a deductible amount. For example, the contract
might not cover
repairs costing less than fifty dollars. The deductible amount, or a per-repair
flat fee that you
agree to pay, can add up to erase all the expected savings. Sometimes
it pays to wait until after
the warranty has expired before deciding to buy a service contract, if
you can. Then you have a
sense of a product's reliability.
Be sure to take a good look at who is backing up the contract or warranty.
Is it a wellknown
manufacturer? The store where you got it? Or a company you have never
heard of with
only a post-office box for an address or a website? You don't have to
buy an extended
warranty from the dealer, by the way. Just search online under "warranties"
and you will see a
wealth of alternatives. They can at least provide you with useful comparative
shopping
information.
Ultimately, don't be pressured by a salesperson into taking one of those
contracts.
They're frequently a major source of profit on the transaction. Ask the
salesperson why you
should be so concerned about insuring yourself for repair costs if the
product is well made.
Q. How can I protect my warranty rights?
A. First, keep your receipts through the warranty period. They
are your proof of when the
warranty period starts and ends, and are more important than the warranty
return card. (That
card often is just a marketing device to learn more about you.)
Also remember that any violation of the manufacturer's operating and service
instructions probably will void the warranty.
If a problem arises, try the store where you got the item. It may be able
to "go around"
the warranty process, especially if it's very soon after your acquisition.
If you end up
contacting the manufacturer, do so only as instructed in the warranty.
Keep a list of the people
with whom you have spoken or letters you have written. It's a good idea
to contact the
manufacturer in writing, keeping copies of all correspondence, at the
address specified in the
warranty. That's especially true if you aren't getting quick responses.
Your correspondence file
will protect your warranty rights near the end of the coverage period.
For more details, see the
section on contract remedies later in this section.
|
