What warranty means
A warranty is a factual promise.
The seller says the machine is in working order, the company says its accounts are accurate, the landowner says the property is free from encumbrances. Each of those is a warranty, and each carries consequences if it is false.
The remedy for a broken warranty is normally damages. The contract survives, and the injured party is compensated for the difference between what they were promised and what they got.
How it is used
Warranties do the heavy lifting in any transaction where one side knows far more than the other. Business sales are the clearest case. The buyer cannot verify everything, so the seller warrants a long list of facts about the company, and the buyer relies on them.
In property, the standard warranty is that the seller has good title and the land is free from encumbrances. In sale of goods, warranties cover quality, description and fitness for purpose.
Sellers respond by qualifying warranties, typically to the best of the seller's knowledge, and by disclosing exceptions in a disclosure letter so a known problem cannot later be claimed as a breach.
Key features
- A promise that a stated fact is true
- Breach normally gives a right to damages rather than termination
- Often qualified by knowledge, materiality or a disclosure letter
- Usually capped in amount and limited by a claims deadline
- Distinguished from a condition, which goes to the root of the contract
How this works in Nigeria
In Nigerian property transactions the covenant that land is sold free from encumbrances is the warranty buyers rely on most. It is also the one most often worth very little in practice, because a warranty is only as good as the person giving it. An individual seller who has already spent the proceeds cannot pay a claim.
That is why serious buyers combine warranties with real diligence. Searching the lands registry, inspecting the property and confirming the seller's authority protects you before the money moves. A warranty only helps afterwards, and only if the seller can pay.
Warranty vs condition vs indemnity
A condition is a fundamental term. Breaching it goes to the root of the contract, and the injured party can terminate as well as claim damages.
A warranty is a lesser term. Breach gives damages, but the contract continues.
An indemnity is different again. It is a promise to cover a specific loss if a defined event occurs, and it does not require the claimant to prove a breach or work through the usual limits on damages. That is why buyers push for indemnities on known risks and warranties on everything else.
Limits and risks
Warranties are usually heavily limited by the contract itself. Financial caps, minimum claim thresholds, time limits for bringing claims, and exclusions for anything disclosed all reduce their reach.
They also depend on the giver's solvency. A comprehensive set of warranties from a company that is dissolved shortly after completion is worth exactly nothing, which is why part of the price is sometimes held in escrow.
Worth knowing
Read the disclosure letter as carefully as the warranties. Anything properly disclosed there is generally carved out, which means the warranty no longer covers it.
Questions people ask
What is the difference between a warranty and a condition?
A condition is fundamental, so breaching it lets the injured party terminate the contract as well as claim damages. A warranty is a lesser term, and breach normally gives damages only while the contract continues.
What is the difference between a warranty and an indemnity?
A warranty is a promise that a fact is true, and a claim requires proving breach and loss subject to the usual limits. An indemnity is a promise to cover a defined loss when a specified event occurs, without needing to prove breach.
What does free from encumbrances mean?
It is a warranty that no third party claims such as mortgages, liens or easements burden the property. If it turns out to be untrue, the buyer has a claim against the seller, which is only worth what the seller can pay.
Can warranties be limited?
Yes, and they nearly always are. Contracts commonly cap the total liability, set a minimum claim threshold, impose deadlines for bringing claims, and exclude anything disclosed to the buyer before signing.
Are warranties worth anything if the seller has no money?
Practically, very little. That is why buyers rely on diligence before completion, and sometimes hold part of the price in escrow so there is a fund to claim against.