Many contracts contain conditions, warranties, or both. They are not required elements of the contract, but frequently are inserted by the parties to clarify what each party expects of the other. While there are significant differences between conditions and warranties, they each carry important implications for the rights and duties of the parties.
In a contract of sale, a condition is an expression of facts that must be true for the contract to take effect. For example, a contract might specify that ABC Corp. will sell XYZ Corp. 500 umbrellas for $3,000 on the condition that the umbrellas are inspected by XYZ Corp. for defects and their quality approved by that company. This condition protects the purchaser from being forced to pay for inferior products.
Violating a Condition
If a condition is violated, the contract loses its force and becomes void. In the above example, if the 500 umbrellas are inspected by XYZ Corp and found by that company to be defective, the contract becomes void. ABC Corp is not required to deliver the umbrellas, and XYZ Corp is not required to pay for the umbrellas. Most real estate contracts are conditioned upon the purchaser being able to secure a mortgage within a certain period of time. If the purchaser makes a good faith effort but cannot meet the condition, the contract is void, and the purchaser is protected from being forced into a contract the terms of which he cannot meet.
A warranty is a guarantee that a particular factual claim is valid. In the umbrella contract, the manufacturer might warrant that the umbrellas won't tear, rip or break for two years after acquisition by the final consumer. This is known as an express warranty, because it is explicitly stated, and might also be contained on the printed material packaged with each umbrella. Another type of warranty is known as an implied warranty. Implied warranties are created by state law and essentially guarantee that a product will reasonably satisfy its intended purpose. If the umbrella allows water to pass right through and drip on the holder, it likely violates an implied warranty.
Breach of a Warranty
When a warranty on a contract for sale of goods is breached, the party protected by the warranty, or the party purchasing the goods, is entitled to damages which are often specifically stated in an express warranty. For example, a manufacturer may warrant that a product will last seven years or the purchaser is entitled to double her money back. Typically, however, most warranties on consumer goods provide for free repair or replacement of a faulty product, or a refund at the manufacturer's discretion.