Warranty of title: Overview, definition, and example
What is a warranty of title?
A warranty of title is a guarantee that the seller of an asset has full ownership and the legal right to transfer it without any undisclosed claims, liens, or legal disputes. This warranty ensures that the buyer receives clear and undisputed ownership of the asset.
For example, if a business purchases equipment from a supplier, a warranty of title clause ensures that the supplier has the legal right to sell the equipment and that no third parties can claim ownership.
Why is a warranty of title important?
A warranty of title is important because it protects buyers from legal and financial risks associated with purchasing assets that may have undisclosed claims or encumbrances. If a seller transfers an asset they do not fully own or that has existing claims against it, the buyer could face legal challenges or financial losses.
This type of warranty is especially relevant in:
- Real estate transactions – Ensuring the seller has full legal ownership of the property.
- Business acquisitions – Confirming that assets being transferred are free from liens or claims.
- Sales of goods and equipment – Protecting buyers from purchasing stolen or encumbered property.
If a seller breaches the warranty of title, the buyer may have the right to seek damages or cancel the transaction.
Understanding warranty of title through an example
Imagine a retail company purchases a fleet of delivery vans from a vehicle supplier. The supplier provides a warranty of title, guaranteeing that it has full ownership of the vans and the right to sell them. Later, the company discovers that a bank has a lien on the vans due to the supplier’s unpaid loan. Because of the warranty of title, the company can hold the supplier responsible for resolving the issue or seek compensation for any losses.
In another example, a real estate investor buys a commercial property, relying on the seller’s warranty of title. If a third party later claims ownership rights due to an unresolved legal dispute, the investor can take legal action based on the seller’s breach of the warranty.
Example of a warranty of title clause
Here’s how a warranty of title clause might appear in a contract:
“The Seller warrants and represents that it has good and marketable title to the goods being sold and that such goods are free from all liens, encumbrances, or third-party claims. The Seller further agrees to indemnify and hold harmless the Buyer from any claims arising from defects in title.”
Conclusion
A warranty of title provides buyers with confidence that the asset they are purchasing is free from undisclosed claims and that the seller has the legal right to transfer ownership. This protection is crucial in real estate, business transactions, and sales of goods, helping to prevent disputes and financial losses. Including a warranty of title clause in agreements ensures that both parties understand their rights and obligations.
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.