What Is a Breach of Warranty?
A breach of warranty occurs when one party to a contract breaks an agreed-upon promise related to a product or service. In most cases with this type of claim, the recognized damage will be the cost to repair or replace the faulty product or service. A breach of warranty is strictly reserved for promises that are specifically identifiable in a contract. Even if an innocent party expects a certain promise to be upheld, and a breach occurs , this is not enough for a breach of warranty claim. What is required is an identifiable promise that relates to the quality and/or nature of a product or service.
The most common example of where this type of legal claim arises is the purchase of a motor vehicle. Often, a vehicle will come with a written warranty guaranteeing it for a period of time or number of miles. If a problem occurs prior to the end of the warranty period, a breach of warranty claim may be filed even if no promises were verbally made.
What is a Breach of Contract?
There are many types of legal disputes involving allegations of breach of contract. Lawsuits might be filed because a party failed to perform a contract, or properly perform a contract, for example. A lawsuit can involve all types of contracts, including distribution agreements, licensing agreements or even employment contracts.
To prove breach of contract, a plaintiff must establish:
Example: Mary orders 5,000 widgets from Bob’s Widget Company. The contract states that the widgets will be delivered by Friday at 10:00 am. Bob calls Mary on Friday at 9:30, and informs her that the widgets will not be delivered until Monday at 8:00. Mary is constructing a new factory building in which she plans to start building widgets on Monday. Obviously, the delivery by 10:00 on Monday morning is too late, so Mary will sue Bob’s Widget Company for breach of contract.
If the Court finds that Bob was in breach, but also finds that Mary did not prove damages as a result of the breach, the Court will not award Mary any damages. In other words, if Bob had called Mary on Friday, and the widgets were delivered at 10:00 on Monday, and Mary had not yet begun construction on the building, but the delay caused her to pay more for the widgets than if they had been delivered on time, the Court will not award Mary any damages!
Where an injured party has failed to prove damages, it may still be awarded its reasonable attorneys’ fees incurred in bringing the action, provided that the party seeking recovery of attorneys’ fees proved breach of contract or breach of warranty.
Differences Between a Breach of Warranty and a Breach of Contract
Both breach of warranty and breach of contract are causes of action grounded in contract law. Both involve the nonperformance of a duty or obligations by one party which causes damages to the other under the contract. However, a breach of warranty claim cannot be brought in a contract dispute. A breach of warranty is an independent claim that is often pled in tort as well as contract. A breach of warranty claim is an expression of assurance made by a defendant regarding a product that the plaintiff subsequently relied on at the time of entering into the contract regarding that product.
A breach of contract claim is based entirely on what is stated in the four corners of the contract. The breach is a failure to comply with the terms of the contract. A breach of warranty claim in a contract case is an affirmative statement made by the defendant that induces the plaintiff to enter into the contract, which then results in damages to the plaintiff. It may be brought as an independent claim in a tort action, but if so it must be proved in accordance with tort law. The difference between the two is technical, but nonetheless worth noting.
Remedies for Breach of Warranty
The most common legal remedy for breach of warranty is general contract damages. Generally speaking, monetary damages are awarded for the loss actually suffered as a result of the breach of warranty and not the benefit of the bargain. A buyer may recover direct full measure of damages, such as the difference in value between what was warranted and what was delivered. However, consequential damages – economic losses indirectly resulting from a breach that would not have occurred in absence of a breach – are generally not available for breach of warranty unless such damages were within the contemplation of the parties at time of the contract as a probable result of breach. When a sale is made by sample, there is an implied warranty that all goods will appear to have like qualities. If a seller breaches this implied warranty, a buyer may recover compensatory damages equal to the difference in value of the bulk and the bulk as warranted. Equitable relief may also be available for breach of warranty, but this is rarely the case and is generally limited to equitable relief when money damages would be inadequate. For example, specific performance may be available when the subject matter of the contract is rare and money damages are insufficient to address the breach.
Remedies for Breach of Contract
The remedies for breach of contract are intended to compensate the injured party and make good the tone of the obligations. Both parties wish the other to perform as promised. If the defendant has justified cause or legal excuse for not performing, he should be "off the hook", or not required to pay damages. If he is not justified or excused, the aggrieved party is entitled to legal remedy or a court-ordered resolution.
Types of Remedies
There are a variety of ways to remedy a breach of contract. The following are some of the most common:
Money Damages – Money damages, sometimes called monetary compensation, is the most common legal remedy for breach of contract. Money damages require the injured party be put in the same position as if the contract had been properly performed. Money damages for breach of contract takes into account compensatory damages, consequential damages, punitive damages, and nominal damages .
Specific Performance – The court may compel a party to do what he originally agreed to do. Specific performance is an equitable remedy, not a legal remedy. "Equity" means fairness so specific performance is available only where the award of money damages is inadequate.
Rescission – Rescission puts an end to all obligations in the parties’ agreement. Rescission is appropriate when the parties have made a mistake regarding material facts of the contract.
Restitution – Restitution is an equitable remedy and refers to the restoration of property or its monetary value previously conferred upon the other party (not in exchange for the property).
Reformation – Reformation is an equitable remedy and is used to change the written terms of an agreement in order to conform the writing to the true agreement between the parties.
How to Prevent Breaches and Other Best Practices
The best way to avoid the headache and cost of a breach of warranty or a breach of contract lawsuit is to carefully draft the contract in the first place. The contract should set forth the obligations of each party with specific performance benchmarks on the part of the performing party and remedies outlined if either party fails to uphold their end of the deal. It is also advisable to review any contracts before entering into them, whether or not you are the party recommending the contract to the other party. If you are a party to the contract with the option to recommend it – for example, if you are a contractor that has the ability to determine which indemnification language to use in a subcontract – then you should always make sure that the contract as proposed by the other party is a fair agreement and includes proper deterrents and punishments for a breach. Even the most thoroughly drafted contracts may end up unclear enough to allow a party to allege a breach of warranty or breach of contract, and so it is important to ensure that your communications and actions do not make the wrongdoing look like it conceivably could be at fault. Because of this, dealing with problems as they come up is essential. If you are the party being accused of a breach, be sure to communicate during the project to clarify the terms of the contract and how the other party is attempting to twist it. If you are in charge of enforcing the contract, make sure that you address the problem and potential breach quickly by documenting the facts and reaching out to the erring party.
Final Thought: Breaches of Agreements
In conclusion, breaches of agreement are common in most industries and sectors, and the potential outcomes will vary significantly depending on the specific terms of each agreement as well as the laws in your region. Assuming that you’ve consulted with an experienced contract and commercial lawyer, you should find it fairly easy to determine what the next steps should be in a breach of agreement scenario.
As in most legal matters, the terms of the agreement — whether it’s been breached or not — tend to be complicated. What the parties considered to be a breach may not have even been deemed as such , based upon the terms of the agreement. This is why it is critical to work with a commercial contract lawyer who can ensure that your agreement is airtight and review related agreements for any loopholes, language issues, and other matters that could lead to misunderstandings, disputes, and eventually, a breach of agreement.
If your business enters into agreements as part of its daily business, you’ll want to be certain that you detail as many terms as possible to best protect it from breaches of agreement. When the time comes, you’ll know that your business is protected and will know how best to proceed when a breach of agreement is discovered.