What is a collateral warranty?

A collateral warranty is indeed defined as a promise made by one party in a contract that benefits a third party. This legal instrument is commonly used in various contexts, especially in construction and real estate agreements. It allows a third party, usually someone who is not a direct signatory of the contract, to claim rights or benefits from the agreement.

The concept of a collateral warranty emphasizes the importance of extending contractual protections beyond the direct parties involved. For instance, a contractor might provide a collateral warranty to a property owner, ensuring that the work meets certain standards and allowing the owner to seek recourse should problems arise, despite not being a signatory to the primary contract between the contractor and the developer.

In comparison, other options describe aspects of warranties that do not entail third-party rights or focus solely on the direct parties to the contract. Therefore, they do not capture the broad and inclusive nature of what a collateral warranty represents within legal practice.