When consumers buy products with the intention of the long-term use thereof, they typically enquire as to the warranty or guarantee of a product. This typically occurs when buying products that require excessive use thereof such as household appliances. However, warranties are not exclusive to appliances. They may be used for incorporeal instruments such as contracts. The drafting of contracts related to business ventures can be a very technical process and as such covers a vast majority of aspects. Contracts commonly contain a clause known as a warranties clause which outlines what the parties are protected against.
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 that of the traditional warranty clauses in consumer contracts. These clauses are commonly found in long term loan contracts or alternatively, the sale of businesses as a going concern (where a business is sold but expected to be able to satisfy their creditors should their outstanding debts be called up). The purpose of a warranty clause is to satisfy the creditors that the contracting party is able to satisfy the outstanding debt, or alternatively that the bank guarantee or product which they are providing is able to satisfy the laws of the jurisdiction within which it is being regulated by.
Warranty clauses are essential to commercial contracts as they provide protection to 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 provides protection to the innocent party. This may be in the circumstance where a party wants to claim that the business is no longer compliant or alternatively 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.