Warranty vs Indemnity – Know the Difference in Your Contracts

A warranty (not to be confused with a guarantee) is a contractual promise or assurance that a certain fact or condition is true. For example, a supplier might warrant that goods meet specific standards or are free from defects.

If the warranty is breached, the injured party can seek damages—but under common law, the compensation is often limited and may be significantly less than the actual loss suffered.

In contrast, an indemnity is a contractual obligation to compensate for loss or damage incurred. It typically allows the injured party to recover the full amount of the loss, without the need to prove it under strict common law rules.

Understanding this difference can be the key to effective risk management in commercial contracts.

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