“Warranty”

It’s high time I tackled warranty and the related verb to warrant. Here’s my first stab at this topic.

Background

In this Business Law Today article and this follow-up blog post I demonstrate that it’s pointless and confusing to use the phrase represents and warrants (and representations and warranties) in a contract, or at least one governed by the law of the one of the U.S. states.

That’s because there’s no modern support for the notion that if a factual statement in a contract turns out to have been inaccurate, then whether a party could bring an action for breach of warranty or an action for misrepresentation, or both, with respect to that inaccuracy depends on whether that factual statement was introduced by represents or warrants or both (or was described as a representation or warranty or both). Instead, there’s solid authority for the converse. Dropping represents and warrants (and representations and warranties) in favor of just represents (and representations) would make your contracts clearer and more concise.

But in sales contracts, it’s commonplace to encounter warrants (and warranty) on its own, without represents (and representation). How does this usage relate to my recommendation regarding represents and warrants?

Definition of “Warranty” and “To Warrant”

First, some terminology. Under common law an express warranty is a seller’s affirmation of fact to the buyer, as an inducement to sale, regarding the quality or quantity of goods, title, or restrictive covenants to real property. See Howard O. Hunter, Modern Law of Contracts § 9.5 (2004).

But section 2-303 of the Uniform Commercial Code says “Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.” So under the UCC, a statement of fact can be a warranty (as is the case under common law) but so too can an obligation.

As for the verb to warrant, Black’s Law Dictionary simply says that it means “to promise or guarantee.”

Using the Verb “To Warrant” Used to Introduce a Statement of Fact

But considering a dictionary definition in isolation isn’t helpful. Instead, to understand the role of the verb to warrant, one needs to consider it in context.

In contracts, the verb to warrant is used to introduce statements of fact, either present facts (The Vendor warrants that the Software conforms to the Specifications) or future facts (The Vendor warrants that during the six months following the date of this agreement the Software will conform to the Specifications).

Given that a statement doesn’t need to be described as a warranty in order to be a warranty, it follows that one doesn’t need to warrant as to a given statement of fact in order for that statement to constitute a warranty. Consequently, the only real function of the verb to warrant (like, in other contexts, the verb to represent) is to flag an assertion of fact and make it clear who is making the assertion.

That’s why in my Business Law Today article I recommend that instead of having a party represent and warrant as to statements of fact, you instead use only represents. By the same logic, I should also recommend that you also use represents instead of simply warrants. But I’m reluctant to do that in sales contracts—drafters would doubtless balk at using represents rather than warrants, given that in the context of goods that are the subject of sales contracts, warranties come more immediately to mind than representations.

On the other hand, I’m unwilling to stick with warrants, because that would cause me to violate one of the cardinal rules of drafting—be consistent. Using represents for some statements of fact (for instance, an assertion by a party that its entry into the agreement has been authorized by its board of directors) and warrants for those that pertain to goods would be to invite confusion. And using warrants across the board wouldn’t be a viable option either.

I’ve found a way around this quandary. As a general matter, sales contracts contain a limited number of statements of fact that pertain to goods and are introduced by the verb to warrant. (They are often grouped together in a section with the heading “Warranty.”) And such statements tend to be followed by a statement of the remedy that applies if the statement of fact is inaccurate. It would be more efficient to combine such provisions into one sentence, turning the statement of fact into a conditional clause and the remedy into the matrix clause (namely the other the part of the sentence).

Here’s an example:

Statement of Fact Followed by Remedy

The Vendor warrants that during the six months following the date of this agreement the Software will conform to the Specifications. In the event of breach of the foregoing warranty, the Vendor shall repair or replace the Software.

Conditional Clause and Matrix Clause

If during the six months following the date of this agreement the Software fails to conform to the Specifications, the Vendor shall repair or replace the Software.

Not only is this approach more efficient, it also eliminates the need for a verb, whether represents or warrants. (As such, this fix is an example of a phenomenon I’ve encountered routinely—often the best fix for a suboptimal usage is to adopt an entirely different approach.) Is the approach available in all circumstances? I don’t know—I’m still experimenting with it.

Using the Verb “To Warrant” Used to Introduce an Obligation

Unlike a representation, a warranty can constitute an obligation as well as a statement of fact. Consequently, in contracts you sometimes find warrants used to introduce an obligation, as in Acme warrants that it shall perform routine maintenance on the Hardware once every quarter.

But whereas in the case of statements of fact a verb is required to flag who is making the statement, it should always be clear who has a given obligation. And the question of whether an obligation constitutes a warranty depends on the nature of the obligation and not at all on whether it’s introduced by the verb to warrant. So in the interest of concision and avoiding confusing your readers, don’t use warrants that to introduce an obligation. For instance, eliminate it from the example in the preceding paragraph so that it reads as follows: Acme shall perform routine maintenance on the Hardware once every quarter.

Using the Word “Warranty”

In any given agreement, the noun warranty is used to refer to provisions in that agreement (as in The warranties in this section 5 will not apply if) and provisions that are not in that agreement (As in Acme makes no other warranties, express or implied).

When using the noun warranty, bear in mind that whether a given provision constitutes a warranty depends on its content, not on whether you’ve called it a warranty. That means that although you may think all the warranties in a given agreement are to be found in the section with the heading “Warranty,” a court could hold that a statement of fact or obligation located elsewhere in the contract constitutes a warranty supporting an action for breach of warranty, even though the contract doesn’t refer to it as a warranty.

Similarly, bear in mind that even if a contract refers to a provision as a warranty, a court could hold that it’s a representation supporting an action for misrepresentation.