When you buy something, you expect it to last:
Like a fridge or washing machine, you usually want a “warranty” or “guarantee.” This means the company promises it will work for a certain time.
But warranties aren’t just for things you plug in:
- They also show up in “contracts,” which are written agreements.
- Business deals often have complicated contracts, covering lots of details.
- Inside these contracts, there’s often a “warranties clause.”
Think of a warranty clause as a promise:
- It’s like someone saying, “I promise this part of the deal is true and correct.”
- It tells everyone what they’re protected against if something goes wrong.
In essence, a warranty, whether on a product or within a contract, is a form of assurance. It’s a way to provide confidence that what you’re getting is what was promised.
A warranty is typically a guarantee made by a manufacturer of a product that such product should last for a specified period and failing which shall be replaced by the manufacturer at no extra cost. A warranty clause is similar to a warranty in that one party is warranting or promising that a certain aspect of the contract is up to a certain standard. This may occur where a party wants to represent that the relationship will proceed in a certain manner or that the company is compliant with the legal requirements of certain jurisdictions.
In commercial contracts, warranties tend to act a bit differently from those of the traditional warranty clauses in consumer contracts. These clauses are commonly found in long-term loan contracts or the sale of businesses as a going concern (where a business is sold but expected to be able to satisfy its creditors should its outstanding debts be called up). The purpose of a warranty clause is to satisfy the creditors that the contracting party can satisfy the outstanding debt, or that the bank guarantee or product which they are providing can satisfy the laws of the jurisdiction within which it is being regulated.
Warranty clauses are essential to commercial contracts as they protect all parties as well as the drafters thereof. It ensures that the parties are compliant with the law and should something go wrong, it is a mechanism which protects the innocent party. This may be in the circumstance where a party wants to claim that the business is no longer compliant or where a party wants to establish that the business was never compliant. This clause will determine a timeline for compliance or the lack thereof and it would then indicate on which party responsibility, as well as liability, would fall.
Should you require any assistance with the complexities of establishing a business relationship via a contract, contact us and we will gladly assist.
Saeedah Salie
saeedah@bbplaw.attorney
Associate
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