At Newburn Law, P.C., our experienced attorneys deal in business every day, allowing us to be able to counsel our clients not only on the legal implications of their contracts but also serve as strategic business partners. When a business enters into a contract, it is sometimes making a representation that its products and services will meet a certain standard, which can have legal consequences down the line if the company fails to perform. Our business attorneys are extremely knowledgeable about contract terms like warranty clauses. Consider visiting with us to provide your business legal advice at any stage in its life cycle, whether you are a small startup or mature corporation. Call us today at 303-847-4987 to set up a free consultation.
What Is a Warranty Clause?
A warranty clause is one of many standard portions of a business contract.
Generally, a warranty is a contractual promise that can be enforced when breached. Depending on the type of contract, a warranty clause may cover the products or services to be exchanged. For example, in a sale of goods, the warranty clause will generally promise that the seller will provide goods that are free of defects, otherwise the buyer can seek a legal remedy for the breach.
A general warranty may be an unlimited promise that if the products or services do not meet the agreed-upon standard, the buyer may reject them or pursue damages.
A warranty clause may also limit the parties' liability. For example, a limited warranty may provide restrictions on the warranty. For example, a limited liability clause may set a time limit on the warranty. One example of this is a sale of a motor vehicle with a 10-year warranty. This allows the manufacturer and retailer of the car to disclaim liability for any defects arising after 10 years.
A limited warranty may also limit the types of damages a party can seek. For example, a contract may specify that in the event that a defective product is sold, the buyer's only remedy is a replacement at the seller's expense. Another limit a warranty clause may set forth is any exclusions. If there are particular situations that the seller does not want to warrant, they may be laid out in an exclusions clause. One common example is that a seller may not wish to be liable for any products that become defective because the buyer has misused, altered, or otherwise damaged them.
Some warranties do not have to be spelled out in the contract to be enforceable by law. An implied warranty means that the seller is making an unstated promise by entering into the contract, and the goods must meet certain minimum standards. Below are two of the most common implied warranties.
The Implied Warranty of Merchantability
When you are trading in goods, the Uniform Commercial Code (UCC) applies in every state. The UCC sets forth the implied warranty of merchantability, which requires all goods to meet buyers' expectations. In other words, the goods must be fit for the ordinary purpose for which they are used. This warranty applies to all contracts for the sale of goods unless the contract specifically disclaims the warranty by using a phrase such as “as is” or otherwise indicating that the seller is accepting the risk of defects. In some states, however, this warranty cannot be disclaimed by merchants who are selling consumer goods.
The Warranty of Fitness
The implied warranty of fitness deals with contracts for a particular purpose. This warranty protects buyers from receiving goods or services that, while on their face are not defective, do not meet the requirements of their intended use. For example, if a buyer tells a contractor that they want to build a structure to serve as a greenhouse, and the contractor constructs a building with no windows, then that would likely violate the warranty of fitness. This warranty is more situational than the warranty of merchantability because in this case, the vendor must have reason to know of a particular purpose or use for the product. For most off-the-shelf retail transactions or standard sales agreements, this will not apply unless the buyer has expressly made the seller aware of the particular purpose of the good or service.
What Is a Representation in a Contract?
A contract typically also makes representations, which are guarantees that the facts stated within the contract are true. If a party makes a material misrepresentation in a contract, the other party or parties to the contract may have a legal remedy against them. For example, imagine the sale of a used car. The seller of the car may represent that they are the owner of the vehicle with full title and authority to enter into the transaction. If, however, for some reason, the seller did not properly transfer title from the previous owner, then the contract may fall through and the buyer may have a cause of action against the seller.
When entering into a contract, either as the seller or the buyer, be sure to review all of the representations made by either party to ensure that they are accurate and not misleading. At Newburn Law, P.C., we understand what a warranty clause is and how it differs from a representation, and we can work to ensure your contracts accurately reflect the objectives of the transaction.
Trust Our Experienced Business Lawyers
At Newburn Law, P.C., contracts are a part of our everyday life. We have worked on contracts across many states and industries, and we have seen just about every type of contract term there is. We also know what risks and pitfalls to look out for when agreeing to a warranty clause. Regardless of which side of the transaction your business is on, a warranty clause can have serious legal consequences, so you should be sure to consider discussing the contract terms with an experienced attorney before signing an agreement. Call us today at 303-847-4987 to learn more about what a warranty clause is and how it can impact your business.