This is part of a series of articles on transactional contracts issues by Prof. Michael L. Bloom and students in the Transactional Lab at the University of Michigan Law School.

Between sophisticated parties in a commercial transaction, warranties usually are negotiated terms that are expressly included in the contract. In a procurement context, warranties provided by the seller to the buyer typically include promises about the quality and usability of goods or services.

In these deals, a procuring party (“Buyer”) might find itself in the middle of a complex supply chain, with (1) upstream sellers (“Upstream Sellers”) providing goods or services to the seller (“Seller”) that the Seller incorporates in the goods or services it provides the Buyer and (2) other buyers (“Other Buyers”) purchasing goods or services from the Seller similar to those the Seller provides the Buyer. If so, a Buyer may seek to include in its contract with a Seller one or both of:

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  • a “pass-through” provision, seeking to obtain warranty rights provided to the Seller by Upstream Sellers; and
  • a “most-favored” provision, seeking to obtain warranty rights provided by the Seller to Other Buyers.

Pass-Through Warranties

For procurement deals occurring in the middle of a supply chain, an Upstream Seller is likely to have made warranties to a Seller regarding goods or services, or components of goods or services, that the Seller provides to a Buyer. The Buyer may wish to receive the benefit of the warranties made by the Upstream Seller—that is, for the Seller to “pass through” these warranties made by the Upstream Seller to the Buyer, such that the Buyer has these warranty rights against the Upstream Seller. Whether the Seller can effectively accomplish this turns on what rights it has under its contract with the Upstream Seller, and whether that contract states an intention to benefit the Buyer or give the Seller the right to provide warranty rights on the Upstream Seller's behalf.