The Difference Between Condition And Warranty In Contracts

Difference Between Condition And Warranty

Contracts are agreements that form a legal relationship between two or more parties. Included in the features of contracts are an object, an agreement, considerations, terms, conditions and warranties. While all the other elements are clear the difference between a condition and warranty can sometimes be unclear. Both being elements of a contract we can contrast and compare them to identify differences between a condition and a warranty. Firstly let us define condition and warranty.

What Is a Condition In Contract Of Sale?

A condition is a stipulation which is essential to the main purpose of the contract. A condition is essential to the makeup of a contract. This means that if a condition is breached the contract as a whole can be considered void. An example of a condition can be understood in a contract of sale of a good. A condition is a stipulation such as the parties in the contract having to meet a certain precondition such as possessing a licence to own or operate the item. Where a product is sold to a party that does not possess the licence this is a breach of condition and therefore breaks the contract.

What Is a Warranty In Contract Of Sale?

A warranty is a stipulation which is collateral to the main purpose of the contract. A warranty does not constitute an essential part of the contract. It does, however, bind the parties to the contract such that if one party is in breach of a warranty the other party may seek damages. In the case of a breach of warranty, the injured party cannot void the contract. Using the same sale of good contract example from the condition definition where a product is found deficient by no fault of the vendor, the buyer can seek damages but not void the contract of sale.

With the two definitions above we can start to see the key differences between conditions and warranties in contracts. Three main areas emerge as distinctions; status in a contract, consequences of a breach and the remedies available in the event of a breach. Let’s look at each of these in the depth to understand the difference between condition and warranty.

Status In a Contract

Conditions are stipulations in contracts while warranties represent collateral to the main purpose of the agreement. Conditions are elements of a contract that are tied to the purpose of the contract. The absence of a condition of a contract leaves the contract and therefore void. This is why the breach of a condition is considered to void a contract. Conversely, a warranty is not a necessary element of a contract but is something that is expected of the parties in the contract but does not form part of the essential elements of the contract. The breach of warranty does not amount to the contract being void or invalid but does allow the injured to seek damages for the breach. Damages in a contractual dispute can be awarded as compensatory, incidental, nominal, liquidated or punitive. The status in a contract gives us our first difference between condition and warranty.

To examine this difference between contract and warranty let us look at a standard contract of sale that requires the buying party to be 18 years or older to participate in the contract. This is a condition of the contract. If a person enters into the contractual agreement but is proven not to be 18 years or older at the time the agreement was signed the contract is automatically voided. Of course, the condition we have listed here is a statutory requirement but it also forms a very good example of a condition of a contract. A warranty example is a manufacturer’s warranty on goods. This is a tacit or implied agreement that goods sold should be in a usable condition and applies where a vendor resells goods manufactured by another party. Under such circumstances, if a good is found to be unusable for reasons to do with deficiency at manufacture the buyer is allowed to claim damages.

Consequences Of Breach

Where a breach is committed to a condition of a contract the contract is considered void or invalid. This means that the position legally is that the contract should have never existed in the first place. In the example of a condition that we used in the previous difference between condition and warranty where a contract is entered into with a minor the contract is considered to have never happened. This means that parties will need to be returned to their positions before the contract was entered into. In the case of a breach of warranty, the contract will still be in action and enforceable. However, parties can seek damages, which we shall discuss next, with respect to the extent to which the breach of warranty has affected them. The difference between condition and warranty, in this case, is the status of the contract after a breach has been discovered and steps can be taken to recover any losses due to the specific breach.

Remedies

Finally, the remedies available to injured parties are illustrative of the difference between condition and warranty in contract law. A breach of condition is also equal to a breach of a warranty in some cases. In many contracts, there is a declaration that signatories make that all the information contained therein is true. That is a warranty. If it is revealed that a condition of the contract has been breached it also amounts to a breach of warranty. The injured party in the case of a breach of condition has the option to pursue it as a breach of condition or breach of warranty. They can cancel the contract or void it as is within their rights or they can seek damages as is the case with a breach of condition. There are many types of damages available for breach of warranty and the injured party may elect which they choose to pursue based on which brings greater benefit to them.

 

In conclusion, there are differences condition and warrant that can be summarised by looking at the status in a contract, consequences of a breach and the remedies available. Conditions are essential elements and preconditions to contracts while warranties are behaviour expected of the parties. Breach of a condition voids the contract. This is another difference between condition and warranty because a breach of warranty cannot void a contract. Finally where there is a breach of a condition the injured party can treat the breach as a breach of warranty if they so choose and seek remedies under breach of warranty rather than voiding the contract under breach of condition.

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