You may be asked at some time to provide a condition, warranty or indemnity on behalf of your company. What’s the difference between them and what are the implications for the directors personally when they are given?
A condition, just like a warranty, is a form of contractual assurance given by one party to another. It guarantees a particular state of affairs exist – ie – an item sold is of a particular quality and it is an integral part of the contract. If there is a breach of that condition this allows the other party to terminate the contract. If there is a breach of warranty which is an incidental part of the contract, the other party cannot terminate. They can try to recover damages if a loss has been suffered. If your company is asked to provide a warranty do make sure it is named as such in the contract – if you don’t then it will be classed as an ‘innominate’ or uncertain term and will not be seen as an integral part of the contract.
Matt Fretten, Managing Partner, says “An indemnity is a term in a contract in which the party giving the indemnity agrees to make good any loss suffered by the other party – it is in effect a promise to reimburse the other side if something happens.” The courts have made it clear that if a contractual clause is to be treated as an indemnity it must explicitly state this, as it cannot be implied later. Directors are sometimes asked to give personal indemnities in respect of their company’s failure to meet its obligations. If this should happen make sure you do not give a blanket indemnity, be quite specific about what is covered. Conditions and warranties are contractual assurances; directors should not give personal warranties as they would lose the protection of the company.
For a free initial meeting please call 01202 499255 and Matt or a member of his team will be happy to discuss any questions you may have.