The two meanings of warranty in law

In our last post, we tried to demystify the concept of “indemnity”. Today we are tackling another oft-misunderstood concept of “warranty”. What is a warranty?

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Unfortunately, like with many legal terms, the answer is not straightforward. The term “warranty” has a dual meaning.

The first meaning (which most people are familiar with) is that a warranty is a promise to rectify defects in any goods or services during a period of time after the supply of the goods or services. There are a few key things to remember about the warranty against defects:

  1. It is a contractual creature, ie it is an express contractual obligation for a supplier to rectify defects at its cost. If there is no such obligation in the contract, then (subject to limited exceptions related to consumer protection legislation), the supplier has no obligation to rectify defects.

  2. The warranty against defects does not replace the normal remedy for breach of contract, ie potential liability for ‘damages’ under common law. The warranty against defects is in addition to such liability (unless, of course the contract states otherwise). Please refer to our earlier post on liability for breach of contracts at www.sourcelegalonline.com.au.

  3. A standard period for the warranty against defects is 12 months after the delivery of goods or provision of services. However, it is not uncommon to find shorter periods (for example, 3 months in software or IT services contracts) or longer periods (for example, 2, 3 or even 5 years in equipment supply contracts).

  4. It is common for warranty provisions to contain exceptions (for example, fair wear or tear, unauthorised repairs or misuse by the customer) and conditions (for example, in respect of timely notifications, opportunity to inspect etc).

The second meaning of the term “warranty” is that of a non-essential term in the context of termination of contracts. You may recall our earlier post on termination of contracts where we talked about common law rights to terminate a contract for a breach of an essential term or a serious breach of a non-essential term. Please refer to our earlier post on termination of contracts at www.sourcelegalonline.com.au. It is a somewhat unfortunate choice of terminology but such non-essential terms are also called ‘warranties’, while the essential terms are known as ‘conditions’.

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To ask us about this article or for any assistance in preparing, reviewing, negotiating and advising on contracts simply contact Source Legal Online on always@sourcelegalonline.com.au  or 1300 609 450. Advice on contracts is included in every unlimited legal services monthly subscription.

 

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