Warranty: Overview, definition and example
What is a warranty?
A warranty is a contractual promise that a specific fact or condition is true at the time the promise is made, or that a product or service will meet a certain standard. If the warranty turns out to be false or is breached, the other party may be entitled to remedies, such as damages or compensation.
For example, in a business agreement, a seller might warrant that a product complies with safety regulations. If the product fails to meet those standards, the buyer could claim a breach of warranty.
Why is a warranty important?
Warranties are important because they build trust and clarify expectations in agreements. They ensure that the parties can rely on certain facts or assurances when entering into a deal. If a warranty is breached, it provides the injured party with a legal basis to seek remedies.
In business, warranties protect the buyer by ensuring they get what they were promised and protect the seller by defining the scope of their guarantees. They’re particularly critical in contracts involving goods, services, or intellectual property.
Understanding warranty through an example
Imagine a seller warrants that their product is compliant with all applicable safety standards. The buyer purchases the product, but later discovers it doesn’t meet those standards. Because of the warranty, the buyer has a legal claim against the seller for any damages caused by the breach.
In another case, a software company licenses its product to a customer and warrants that the software doesn’t infringe on any third-party intellectual property rights. If a third party sues the customer for IP infringement, the customer can hold the software company liable under the warranty.
An example of a warranty clause
Here’s how a warranty clause might look in a contract:
“The Seller warrants that all goods delivered under this Agreement are free from defects in materials and workmanship and conform to the specifications outlined in Exhibit A. The Seller further warrants that it has full legal title to the goods and that they comply with all applicable laws and regulations at the time of delivery.”
Conclusion
A warranty is a legal promise that a fact is true or that a product or service meets specific standards. It provides both parties with clarity and accountability, offering protection to the buyer while setting boundaries for the seller’s commitments.
By drafting clear and precise warranty terms in contracts, businesses can protect their interests, manage risk, and create more reliable agreements. Warranties are a key component of building trust and ensuring fairness in transactions.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.