Warranty Clause in Contracts: Key Terms and Examples

Key Takeaways

• A warranty clause guarantees certain facts, conditions, or outcomes within a contract and can be express or implied.
• These clauses can pertain to goods, services, legal compliance, ownership rights, and more.
• Standard warranty clauses often cover performance, duration, remedies, and limitations.
• Contracting parties can negotiate the scope, duration, and liability of warranty terms.
• Misuse or misunderstanding of warranty clauses can lead to disputes or unenforceability.
• Well-drafted warranty clauses should clearly define obligations, disclaimers, and available remedies for breach.

What is a warranty clause? This provision in a contract refers to the facts or matters being presented in the agreement terms.

What Are Representations and Warranties in a Contract?

Most people are familiar with warranties, which often come with products in the marketplace as a way to protect the consumer from a product that malfunctions within a certain period of time. All contracts include warranties and representations, which are the underlying facts or matters that are presented in the contract terms. Under the laws that pertain to contracts, the word “warranty” has several meanings. The most common meaning is a promise or guarantee, providing assurance by one party to another party that conditions or facts outlined in an agreement are accurate or will take place.

Regardless of the materiality, this guarantee can be legally enforced, and the remedy promised can be obtained if one party doesn't deliver on its promise. According to the definition in Black's Law Dictionary, representation refers to the statement made by one of the parties involved in a contract to the other party, either at the time of entering into the agreement or before, relating to a state of facts, single fact, or circumstance in the contract. This statement holds influence in the overall agreement.

The statements made by the parties to induce one another into entering into a contractual relationship are the representations, while the warranties include the promises made by each party that will benefit the other in the agreement. Representations often include statements from the past to the present. A warranty outlines terms for the present through the future.

A warranty might be implied or expressed. If a warranty is implied, it would fall under the Uniform Commercial Code. This code outlines that all goods sold have some type of fitness for a specific purpose. An expressed warranty refers to a promise that is specifically written into the contract. A buyer should insist upon an expressed warranty when entering into an agreement.

In contracts, for most purposes except commercial items, the express warranties included would negate any implied warranties under the Uniform Commercial Code. By using specific language to spell out the express warranty, the implied warranty applies, based on several clauses in the code:

• Warranty of Supplies of a Noncomplex Nature (52.246-17)
• Warranty of Systems and Equipment under Performance Specifications or Design Criteria (52.246-19)
• Warranty of Supplies of a Complex Nature (52.246-18)

If a contract includes references to both warranties and representations, the terms combine the past, present, and future.

Types of Warranty Clauses

There are several types of warranty clauses that can appear in commercial contracts, depending on the nature of the deal:

1. Express Warranty Clause
   • Clearly stated in the contract.
   • Provides specific guarantees about the product or service.
2. Implied Warranty Clause
   • Arises by law, particularly under the Uniform Commercial Code (UCC).
   • Includes:
     • Implied Warranty of Merchantability: Goods are fit for ordinary use.
     • Implied Warranty of Fitness for a Particular Purpose: Applies when a buyer relies on the seller’s expertise.
3. Standard Warranty Clause
   • Found frequently in software or equipment agreements.
   • Typically includes duration (e.g., 12 months), exclusions, and repair or replacement remedies.
4. Limited Warranty Clause
   • Specifies the scope and time limitations of the warranty.
   • May restrict certain types of liability (e.g., indirect or consequential damages).
5. No Warranty Clause / As-Is Clause
   • Disclaims warranties altogether.
   • Common in asset purchases or auctions.

What Is a Warranty Clause and What Does It Cover?

A warranty clause in a contract outlines the promises made by one party regarding the condition, performance, or quality of the goods or services provided. It serves to allocate risk and establish accountability for potential defects, inaccuracies, or failures.

Common subjects addressed in a warranty clause include:

• Product or service quality: Guarantees that goods or services will meet agreed standards.
• Legal compliance: Assures that the offering complies with applicable laws and regulations.
• Non-infringement: Warrants that goods or services do not infringe on third-party intellectual property.
• Title and ownership: Asserts that the seller has full rights and authority to enter the agreement.
• Accuracy of information: Confirms that representations made are true and complete.

A warranty clause may also identify remedies in the event of breach, such as repair, replacement, or refund, and whether liability is limited or excluded for certain types of damages.

What Am I Promising When I Sign this Contract?

If a contract is related to entertainment rights, the seller of those rights is the one making most of the warranties and representations. The first representation is who will own any rights being shared or sold in the agreement. The second is the idea that the seller holds the authority and right to sell or share their rights. This means that no previous commitments exist that restrict the seller from offering these rights, nor is the seller prevented or prohibited from entering into an agreement.

Most contractual agreements require the seller to represent and warrant that what they are trying to sell isn't already available in the public domain, which means it is free for use by members of the public. The seller must make a representation that using the material doesn't infringe on any property rights of another company or person, including those under copyright, patent, and trademark laws. The use of the material should not be defamatory toward another, nor should invade the privacy of another.

The final warranty and representation made by the seller is that no claims, liens, or other encumbrances on the rights or property that is being sold. A product should be free of defects and the company or individual selling it should provide a warranty that covers the product for a specific amount of time.

During that time, the seller is warranting that any defects would be repaired at no charge to the buyer. A product may even come with a warranty that lasts for its life.

Key Elements of an Effective Warranty Clause

To ensure a warranty clause is enforceable and clear, it should include the following elements:

• Warranty Scope: Define exactly what is being warranted (e.g., product features, services, legal compliance).
• Warranty Period: Indicate how long the warranty lasts.
• Remedies for Breach: State what actions the non-breaching party can take (e.g., repair, replace, refund).
• Exclusions and Limitations: List any conditions or uses not covered under the warranty.
• Disclaimer of Implied Warranties: Often included to limit liability under the UCC or similar frameworks.
• Notice Requirements: Clarify how and when the breach must be reported.
• Limitation of Liability: Set caps on damages or exclude certain types of losses, like indirect or incidental damages.

A well-drafted clause aligns expectations and reduces the likelihood of disputes.

Are These Terms Negotiable?

The representations and warranties in a contract may be negotiable to a certain extent, although it depends on the parties involved in the agreement.

Sample Language for a Standard Warranty Clause

Here is a sample of what a typical standard warranty clause might look like:

“The Seller warrants that for a period of twelve (12) months from the date of delivery, the Products shall be free from material defects in workmanship and materials and shall conform to the specifications set forth in Exhibit A. The Buyer’s sole and exclusive remedy shall be, at the Seller’s option, repair or replacement of the defective Products. This warranty does not cover damage caused by misuse, accident, or unauthorized modification.”

Such sample language can be adapted to suit various commercial contexts while ensuring that obligations and remedies are clearly defined.

Common Pitfalls in Warranty Clauses

Poorly constructed warranty clauses can lead to significant legal and financial consequences. Common pitfalls include:

• Vague or ambiguous language: Leads to differing interpretations and disputes.
• Failure to disclaim implied warranties: Results in unintended obligations under UCC or common law.
• Overly broad warranties: Increase risk exposure without sufficient legal safeguards.
• Unenforceable limitations: Clauses that try to exclude liability for gross negligence or willful misconduct may be void.
• No remedy specified: Leaves parties unclear on recourse in the event of breach.

To avoid these issues, both parties should carefully negotiate the warranty terms and consult legal counsel before finalizing the agreement.

Frequently Asked Questions

1. What is the main purpose of a warranty clause?
   A warranty clause protects parties by ensuring that goods or services meet specified standards and that remedies are available in case of failure.
2. Can warranty clauses be negotiated?
   Yes. Parties often negotiate the scope, duration, and remedies of warranty clauses to balance risk and obligations.
3. What is the difference between a representation and a warranty?
   A representation refers to past or present facts, while a warranty is a promise about the present or future, often tied to performance or quality.
4. Are warranty clauses legally binding?
   Yes. When properly drafted and included in a signed agreement, they are enforceable under contract law.
5. What happens if a warranty clause is breached?
   The non-breaching party may be entitled to remedies such as repair, replacement, refund, or damages, depending on the clause’s terms.

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