Conditions and warranties in contracts: what's the difference?

When entering into a contract, not all terms carry the same level of importance. Two key types of contractual terms are conditions and warranties. Understanding the difference can help businesses and individuals know their rights if something goes wrong and possibly what they may be entitled to.

What is a condition?

A condition is a fundamental term of a contract. It is so important that, had the parties known it would not be fulfilled, they may never have entered into the agreement in the first place.

If a condition is breached, the innocent party usually has the right to:

• End (or "terminate") the contract; and/or
• Claim damages for any losses suffered.

Example

A company hires a supplier to deliver 500 chairs before the opening of a new office. The delivery date is stated as a key requirement of the contract. If the supplier fails to deliver on time, this could be a breach of a condition because the timing was essential to the agreement.

In this situation, the company may be entitled to cancel the contract and seek compensation for any losses caused by the delay.

What Is a warranty?

A warranty is a less important contractual term. It is still part of the contract and must be complied with, but it is not considered fundamental to the agreement.

If a warranty is breached, the innocent party can generally:

• Claim damages for any losses suffered; but 
• Cannot terminate the contract solely because of that breach

Example

Suppose a supplier agrees to deliver office chairs and promises they will arrive with a specific type of packaging. The chairs are delivered on time and are fit for purpose, but the packaging differs from what was agreed.

This may amount to a breach of warranty. The buyer might be able to recover any losses caused by the issue but would not usually be entitled to end the entire contract.

Why does the difference matter?

The distinction between conditions and warranties is important because it affects the remedies available when a contract is breached.

Summary

Not every breach of contract gives a party the right to walk away from the agreement. Whether a term is classified as a condition or a warranty can have significant consequences.

For businesses, it is often wise to identify in the contract which terms are essential, and which are less critical. Doing so can reduce disputes and provide greater certainty if problems arise later.

Understanding these concepts can help parties better manage risk and know what options may be available if contractual obligations are not met.

Here at Sewell Law, as a niche litigation practice, we have a wealth of experience in all manner of contract disputes. If you require any assistance please get in touch.