Assurances: Overview, definition, and example
What are assurances?
Assurances in a contract are promises or commitments made by one party to another, guaranteeing that certain conditions, actions, or facts are true or will be fulfilled. These can be legally binding or simply statements of confidence meant to build trust in a business deal.
Assurances can take different forms, such as warranties, representations, or covenants, and they help ensure that both parties are on the same page about what is expected.
Why are assurances important?
Assurances provide certainty and protection in business agreements. They help prevent misunderstandings, build trust, and create accountability. Without clear assurances, one party might enter into a contract based on incorrect or misleading information, leading to disputes and financial losses.
For example, if a company is buying software, the seller might provide an assurance that the software is free from bugs and compatible with certain systems. If that assurance turns out to be false, the buyer could have legal grounds for compensation or contract termination.
Understanding assurances through an example
Imagine you’re acquiring a small marketing agency. The seller assures you that all their clients have signed long-term contracts and that there are no pending legal disputes. You rely on these assurances when agreeing to the purchase price.
After the deal closes, you discover that half of the clients are actually on month-to-month agreements, and one major client is suing the agency. If these assurances were written into the contract, you may have the right to seek compensation for misrepresentation.
An example of an assurances clause
Here’s an example of how an assurances clause might appear in a contract:
“Each party represents and warrants that all statements, information, and commitments made under this Agreement are true, accurate, and complete to the best of their knowledge. In the event of any material misrepresentation, the affected party shall be entitled to seek appropriate remedies, including but not limited to compensation or termination of this Agreement.”
This clause ensures that both parties are responsible for the accuracy of their assurances and outlines the consequences of false statements.
Conclusion
Assurances are a critical part of business contracts, helping to build trust and reduce risk. For SMBs, ensuring that key assurances are clearly stated in agreements can provide legal protection if things don’t go as promised.
If you’re entering into a contract, make sure to carefully review any assurances given by the other party—and consider including your own to reinforce trust in the deal. Clear, written assurances can prevent costly disputes and create a stronger foundation for business relationships.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.