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What are warranties in contracts?

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In general, a warranty is a promise, assurance, or statement made by the party (warrantor) regarding the existence or accuracy of specific facts or the condition, quality, quantity, or nature of a good or property. An express warranty and an implied warranty are both legally binding commitments.

Commitment is the act or an instance of committing, putting in charge, keeping, or trust, while a contract is an agreement between two or more parties, to perform a specific job or work order, often temporary or of fixed duration and usually governed by a written agreement.

What Are Warranties in a Contract?

In contract law , a warranty is a promise which is not a condition of the contract or an unnamed term: (1) it is a term “not going to the root of the contract”, and (2) which only entitles the innocent party to damages if it is breached: i.e., if the warranty is not true, or the defaulting party does not perform the contract in accordance with the terms of the warranty. Warranties can also be made for services.

A warranty is not a guarantee. It is a promise. It may be enforced it if is breached by an award for of damages. A warranty is a term in a contract.

Depending on the terms of the contract, a product warranty may cover the quality of a product but the manufacturer provides a warranty to a consumer where the manufacturer has no direct contractual relationship.

Warranties may be express or implied. An express warranty is expressly stated (written); whether a term will be implied into a contract depends on the contract law of the country in question. Warranties may also state that a particular fact is true at one point in time or that the fact will continue into the future (a “continuing warranty”). Furthermore, warranties can be statutory, which are warranties imposed by law and cannot be disclaimed or excluded.

Express Warranty

Express warranties are created when the seller makes a guarantee to the buyer that the product or service being offered has certain qualities. For an express warranty to exist 1) a statement regarding the product or service must be made to the buyer and 2) the statement must play a role in the buyer’s decision to purchase the product or service. An express warranty can also be created through written statements, advertisements, or even samples or models of the product.

Implied Warranty

Implied warranties are unwritten promises that arise from the nature of the transaction and the assumed understanding by the buyer, rather than from the express representations written by the seller. Article 2 of the Uniform Commercial Code provides that the following two warranties are implied unless they are explicitly disclaimed (such as an “as is” statement):

  • The warranty of merchantability is implied unless expressly disclaimed by name, or the sale is identified with the phrase “as is” or “with all faults”. To be “merchantable”, the goods must reasonably conform to an ordinary buyer’s expectations . In some jurisdictions, the implied warranty of merchantability cannot be disclaimed or excluded. For example, a fruit that looks and smells good but has hidden defects may violate the warranty if its quality does not meet the standards for such fruit “as passes ordinarily in the trade”.
  • The warranty of fitness for a particular purpose is implied unless disclaimed when a buyer relies upon the seller to select the goods to fit a specific request. For example, this warranty is violated when a buyer asks a mechanic to provide tires for use on snowy roads and receives tires that are unsafe to use in the snow.

You can read more general information about warranties here.

How Warranties Work

Warranties usually have exceptions that limit the conditions in which a manufacturer will be obligated to fix a problem. For example, many warranties for common household items only cover the product for up to one year from the date of purchase and usually only if the product in question contains problems resulting from defective parts or workmanship.

As a result of these limited manufacturer warranties, many vendors offer extended warranties. These extended warranties are essentially insurance policies for products that consumers pay for upfront. Coverage will usually last for several years above and beyond the manufacturer’s warranty and is often more lenient in terms of limited terms and conditions.

Here is an article about how warranties work.

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Types of Warranties

As previously mentioned, there are two main types of warranties, expressed and implied. Within each category exists different types of warranties with their own terms, conditions, and guarantees. The guarantee covers a certain warranty period, such as one year from the date of purchase.

Express Warranty

This type of warranty is created when the seller makes a guarantee to the buyer that the product or service being offered has certain qualities. For there to exist an express warranty 1) a statement regarding the product or service must be made to the buyer and 2) the statement must play a role in the buyer’s decision to purchase the product or service.

Implied Warranty

This type of warranty is an unwritten promise created by the specific nature of the transaction, and the inherent understanding by the buyer. Article 2 of the Uniform Commercial Code provides that the following two warranties are implied unless they are explicitly disclaimed (such as an “as is” statement):

  • The warranty of merchantability is implied unless expressly disclaimed by name, or the sale is identified with the phrase “as is” or “with all faults”. To be “merchantable”, the goods must reasonably conform to an ordinary buyer’s expectations. For example, a fruit that looks and smells good but has hidden defects may violate the warranty if its quality does not meet the standards for such fruit “as passes ordinarily in the trade”.
  • The warranty of fitness for a particular purpose is implied unless disclaimed when a buyer relies upon the seller to select the goods to fit a specific request. For example, this warranty is violated when a buyer asks a mechanic to provide tires for use on snowy roads and receives tires that are unsafe to use in the snow.

This type of warranty also applies when sellers present and sell a product fit to fulfill a specific purpose. The buyer relies on the seller’s expertise to purchase the product. Any statements made by the seller regarding the product can be considered assurances.

Extended Warranty

An extended warranty is a type of warranty that covers the repair and maintenance of a product beyond the manufacturer’s warranty. It is more of a service contract than a warranty as it is optional coverage purchased by the buyer covering service-related claims. Extended warranties have terms and conditions, and coverage can be denied if the buyer breaches the agreement.

Most commonly, extended warranties are available on products of substantial value, such as cars, electronics, and appliances. Although sold by the retailer, the manufacturer is responsible for executing the extended warranty on behalf of the customer.

A Special Warranty Deed

A special warranty deed is specific to real estate transactions whereby the seller issues a guarantee against title defects occurring during their ownership of the property. This deed transfers ownership to the grantee with an expressed warranty about the title.

Special warranty deeds transfer property ownership from one person to another and assures the buyer that the title, during the seller’s ownership, is free of encumbrances, liens, or claims.

Read more about the different types of warranties here.

Differences Between a Warranty and Indemnity

In general, a warranty protects against the unknown and indemnities allocate risk in respect of a known liability. A warranty is a contractual statement of fact made by the warrantor to the warrantee which is usually contained in a share or asset purchase agreement. Warranties often take the form of assurances from the seller as to the condition of the target company or business.

An indemnity is a promise to reimburse the claimant in respect of loss suffered by the claimant. The purpose of an indemnity is to provide pound for pound compensation in respect of a specific loss. Indemnities can be used in circumstances where a breach of warranty may not necessarily give rise to a claim in damages (for example, because the seller has disclosed against the warranty or because the loss arises from a third-party claim).

Refer to an article here relating to the differences between a warranty and indemnity.

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