Warranties in Commercial Agreements : A Guide

What is a warranty? 
A warranty is in effect a promise made by a warrantor (the person giving the warranty) to the warrantee (the person receiving the warranty) that a particular statement made at the date of the contract is true, e.g. that a contracting party has obtained all approvals necessary for entry into a contract, or as to the condition of goods or services, etc.

What are the consequences of a breach of warranty? 
Breaching a warranty will give rise to a claim for breach of contract and will entitle the ‘innocent’ party to:

• reject the goods; and/or
• claim damages for any loss suffered.

Damages for breach of warranty aim to put the ‘innocent’ party in the position they would have been in had the warranty been true (subject to the usual common law rules).

How do you determine if a provision is a warranty? 
Statute (e.g. the Sale of Goods Act 1979 or Supply of Goods and Services Act 1982) may dictate or influence the classification of express terms. However, if the parties expressly identify a term as a warranty in a contract the courts will generally treat it as such.

How warranties different from conditions? 
You might consider conditions as the ‘cake’ of the contract and the warranties as the ‘icing’. Essentially, you can have a cake without icing (sad, we know), but you cannot have icing without a cake. Conditions are fundamental, and warranties act as an addition.

Limiting liability for warranties 
It is recommended that the warrantor limits its liability under a contract using exclusionary wording. This should always be clear and unambiguous.

Some examples of general exclusions to consider are:

• Inserting time limits: after which the warrantee can no longer claim for breach of warranty or specific time frames for different warranties (e.g. 12 months).
• Capping liability: setting a limit on the amount of damages a party will be liable for (e.g. to the value of the contract).
• Excluding additional warranties: whether express or implied, exclude any warranties other than those specifically set out in the agreement.

If you would like further advice in relation to warranties in commercial agreements, a member of our Corporate & Commercial team would be delighted to assist you.