Legal Definitions - collateral warranty

A collateral warranty is a secondary, separate agreement or promise that exists alongside a main contract. It provides an assurance or guarantee about a specific aspect of the subject matter of the main contract, often given by a party who is not directly involved in the main contract itself, or by a party to the main contract regarding a specific detail not fully covered by the main contract's primary terms.

It is "collateral" because it stands beside or supports the main agreement, creating a distinct legal obligation. If the promise made under the collateral warranty is broken, the injured party may have a claim for breach of that separate warranty, even if the main contract itself remains valid.

Here are some examples:

• Example 1: Property Development

  Imagine a large commercial building project where a property developer hires a main contractor to construct an office building. The main contractor, in turn, subcontracts the installation of the specialized HVAC (heating, ventilation, and air conditioning) system to an HVAC specialist company. The developer, wanting direct assurance about the quality and performance of the HVAC system, might request a collateral warranty directly from the HVAC specialist company. This warranty would promise that the HVAC system meets certain performance standards and is free from defects for a specified period. The main contract is between the developer and the main contractor, but the collateral warranty creates a direct contractual link and obligation between the developer and the HVAC specialist, separate from the subcontract between the main contractor and the HVAC specialist.

• Example 2: Software Implementation

  A company purchases a new enterprise resource planning (ERP) software system from a software vendor. During the sales process, a consultant from a third-party implementation firm, who will be responsible for integrating the software into the company's existing IT infrastructure, provides a written assurance that the new ERP system will seamlessly integrate with the company's legacy accounting software. This assurance, while not part of the primary software purchase agreement with the vendor, could be considered a collateral warranty from the implementation firm. If the integration fails due to issues with the ERP system's compatibility as assured, the company might have a claim against the implementation firm under this separate warranty, even if the main contract with the software vendor is fulfilled.

• Example 3: Custom Furniture Manufacturing

  A restaurant owner commissions a furniture maker to create custom dining tables and chairs. The main contract specifies the design, materials, and delivery schedule. However, during discussions, the furniture maker specifically assures the restaurant owner that the protective coating applied to the tabletops is highly resistant to scratches and spills and will last for at least five years under normal use. This specific assurance about the coating's durability, even if not explicitly detailed as a separate clause in the main contract, could be considered a collateral warranty. If the coating begins to fail significantly within two years due to normal use, the restaurant owner might have a claim for breach of this collateral warranty, distinct from any general warranty about the overall craftsmanship or materials of the furniture.