Legal Glossary
Warranties Definition, Remedies, and Risk Allocation
A warranty is a contractual assurance. It confirms a specific fact or condition. Breach of warranty often entitles the non-breaching party to damages, but usually not contract termination.
A warranty is a contractual promise. It assures that certain facts are true or will be true at the time the contract is signed, or for a specified period. If a warranted fact proves false, the party providing the warranty may be liable. This liability typically involves damages for loss suffered due to the breach. Warranties are distinct from conditions and representations. They serve to allocate risk in commercial agreements.
What is a Legal Warranty?
A warranty is a contractual guarantee that specific facts are true. For example, in a software license agreement, a vendor might warrant that its code does not infringe on third-party intellectual property rights. This provides assurance to the buyer and allocates specific risks to the vendor. If the warranty proves false, the warrantor is liable for the resulting loss.
Warranties in Practice
Warranties are common in many legal contexts. They appear in sale of goods contracts, real estate transactions, and mergers and acquisitions (M&A) agreements. In M&A, sellers provide warranties about the target company's financials or assets. This protects the buyer if the company's state differs from what was represented. In consumer sales, warranties often cover product defects for a set period. Their inclusion shifts specific risks to the warranting party. This impacts pricing and negotiation strategy.