Importance of Collateral Warranties in the Field of Construction

Abstract

The importance of collateral warranties in the field of construction is significant because it provides relief in the realm of contractual limitations. A collateral warranty protects third party rights and overcomes the restrictions on remedies that are created by the concept of privity of contract (Bailey, 2011). In fact, collateral warranty is a form of security that is collateral to the main transaction. In law, collateral warranties provide an additional cause of action to one of the parties to the transaction to secure its position in the contract.Collateral warranties came into being in the construction industry since the courts decided that defects in building did not create cause of action under torts. In fact, collateral warranties are contrary to the provisions of privity of contract as they create direct contractual relationships between parties that would have not existed under contract law (Bailey, 2011). Collateral warranties are also referred to as duty of care contracts or warranties because in the absence of such warranties there may not be any right of recourse for third parties to claim their rights (Powell, 1991).