A warranty clause is a provision in a contract that generally provides a promise specifying that something is true or will happen. In contract law, this clause can have more than one meaning, and it tends to be one of the most misunderstood.

What Is a Warranty Clause?

A warranty is simply a promise that something is true, nothing more. Not all warranties benefit the customer.

Due to the confusion surrounding warranty clauses, it's not uncommon for even professionals to misunderstand them. The reason for this misunderstanding is that standard warranty language in contracts isn't specific to what you're buying.

These generic templates might apply to toilet paper or rocket engine parts. The only person who can make a warranty clause useful for a specific purchase is you.

Most purchasing professionals don't understand what a warranty actually is. As a result, they may think a warranty is good based on how long it lasts, but there are other factors to consider.

When Warranties Are Too Generic

You must consider all the details when assessing a warranty clause. For instance, say you're purchasing manufacturing equipment. It's critical that this equipment works; any downtime could adversely affect your business. To protect your bottom line, consider adding a standard warranty clause in a contract, which may state that the product should work for four years from the purchase date. If it fails to perform to those specifications during those four years, the buyer can notify the seller, and the seller can replace or repair, at his or her discretion.

While this may sound ideal on the surface, keep in mind the contract doesn't factor in the critical nature of the goods you're purchasing. How can this end up hurting you? If the supplier doesn't hurry to replace or repair your item, you won't have the necessary parts for running your business. After all, the clause doesn't give a time frame.

If the supplier takes weeks to replace your equipment, your company could potentially lose a great deal of money.

In addition, the supplier hasn't even breached the contract by taking a long time to service your item because there was no time frame for replacement or repair spelled out in the contract. As a result, you cannot file a lawsuit, and your only recourse is to wait.

Warranty Language Should Be Specific

If the contract dictates that a situation must be remedied within “days” or “hours," what exactly does that mean? You need to know the following:

  • Do you count business hours and days or calendar hours and days?
  • Who covers the cost of airfare, if required?
  • Who pays the cost of return shipping?
  • Who is responsible for installing the new equipment?
  • Does new equipment get a brand new warranty?

These are just examples of language in a warranty clause should be customized to fit that purchase. You should also consider:

  • Specifying what you want warrantied in exact terms, including service performance or the product.
  • Making the performance a measurable quantity. Otherwise, you need a way to identify a contract breach.
  • Stating that if the part or item that fails is a critical purchase, it's a material breach of contract.

Make it clear what happens in the event a warranty is breached, such as the following:

  • What you want to be done.
  • How fast you want services performed.
  • Who you want to perform the necessary services.
  • How you want services performed.
  • Who will pay for repairs/replacements.
  • If liquidated damages will be in place if a breach of warranty occurs.

In the event of a disaster, you need to make sure you have effective coverage for damages. You also want adequate limitation of liability and detailed insurance clauses.

Contract law can be a complex arena. You should always understand what you're signing before you agree to a contract's terms. Consider consulting with an experienced professional in the contract law field if you have any questions about reviewing or drafting a contract. In particular, it's important to have a warranty in place that will adequately protect your equipment and, therefore, your business. The small price you pay for consultation could save you a great deal of money if something goes wrong in the future.

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