What are warranty reservation clauses in contracts and what are their effects?

Contractual provisions providing for contractual penalties for default or delay are well known and used in business practice.

However, it should be remembered that the obligation to pay a contractual penalty for default or delay arises when the breach of obligation has occurred as a result of circumstances for which the debtor is responsible. The Supreme Court has repeatedly ruled on this issue.

An alternative to contractual penalties for delay or non-performance are warranty reservation clauses, which bring tangible benefits to the creditor. The case law and doctrine have established the view that the parties to a contract, based on the freedom of contract principle (Article 353¹ of the Civil Code), can shape their legal relationship. This principle primarily applies to the scope of liability for non-performance or improper performance of contractual obligations.

One permissible contractual provision modifying liability for non-performance or improper performance of an obligation, based on the fault principle, is a warranty reservation clause, which is not a contractual penalty.

A warranty reservation clause involves placing an obligation on the debtor, who is required to fulfill the obligation (e.g., deliver the sold item) to pay a specified amount of money in case of non-performance or improper performance of the obligation due to circumstances for which the debtor is not responsible.

It is important to carefully formulate the warranty reservation clause in the contract. These may be clauses such as ” for failure to meet a deadline,” or “regardless of the reason.”

Introducing a warranty reservation clause into the contract means that the creditor does not have to demonstrate any circumstances other than the debtor’s non-performance of the obligation covered by the warranty reservation. The debtor cannot raise the defence of lack of fault on their part, neither may it demand to moderate the amount of the guarantee payment stipulated in the contract.

Therefore, it is worth using warranty reservation clauses in contracts as an alternative to contractual penalties.