Contract Obligations
Representations and Warranties
Also: Reps and Warranties, Reps & Warranties, R&W, Representations, Warranties · Reps and Warranties, Reps & Warranties, R&W, Representations, Warranties, Contractual Representations
Representations and warranties are statements of fact and promises that one or both parties make in a contract about the current state of affairs — such as the condition of a business, the accuracy of financial information, or the authority to enter the agreement.
If a representation or warranty turns out to be false, the other party may have the right to seek damages or other remedies.
Lawyer Explanation
Representations are statements of existing fact made to induce the other party to enter into the agreement. Warranties are promises that certain facts are true and will remain true.
In commercial agreements, the two concepts are typically grouped together in a single article or section. A breach of a representation or warranty may give rise to an indemnification claim, a right to rescind the contract, or both — depending on the contract language, the nature of the breach, and applicable law.
Representations and warranties are particularly significant in M&A transactions, where they form the basis for post-closing indemnification claims and may be backed by representations and warranties insurance.
What It Actually Does
Representations and warranties answer: "What are each party promising is true about themselves, their business, and the subject matter of this agreement?" For example, in a business acquisition, the seller typically represents and warrants that its financial statements are accurate, that it has the authority to sell the business, that there are no undisclosed liabilities, and that the business is in compliance with applicable law. If any of these statements turn out to be false, the buyer may have a claim against the seller.
Why It Matters
Representations and warranties allocate the risk of unknown or undisclosed problems between the parties.
A buyer or customer who relies on representations and warranties has a contractual basis to seek compensation if the facts turn out to be different from what was promised. Without these provisions, the party bearing the risk of unknown problems may have limited recourse.
The scope, qualifications, and survival period of representations and warranties can significantly affect the risk profile of a transaction.
Example
A company acquires a software business. The seller represents and warrants that the software does not infringe any third-party intellectual property rights.
After closing, a third party files a patent infringement claim against the acquired software. The buyer may have an indemnification claim against the seller based on the breach of the intellectual property representation.
Common Language You May See
"Each party represents and warrants that it has full authority to enter into this Agreement and that the execution and performance of this Agreement will not violate any applicable law or existing agreement."
"Seller represents and warrants that, to Seller's knowledge, the Products do not infringe any third-party intellectual property rights."
What Stewart Law Looks For
- What specific representations and warranties are made by each party?
- Are representations and warranties qualified by knowledge or materiality?
- As of what date are the representations and warranties made?
- Do the representations and warranties survive closing or termination?
- What is the survival period?
- What remedies are available for a breach?
- Are indemnification obligations tied to the representations and warranties?
- Are there caps on indemnification for rep and warranty breaches?
- Are there baskets or deductibles before indemnification obligations arise?
- Do the representations and warranties interact with a limitation-of-liability clause?
- Are there any disclosure schedules that qualify the representations?
Common Red Flags
A representations and warranties section deserves closer attention when it:
- contains broad knowledge qualifiers that significantly limit the scope of the representations
- provides a very short survival period that may expire before problems are discovered
- fails to address indemnification for breaches
- contains materiality qualifiers that effectively eliminate meaningful representations
- is silent on the effect of a breach on closing conditions
- omits standard representations about authority, compliance with law, or absence of litigation
- conflicts with indemnification or limitation-of-liability provisions elsewhere in the agreement
Perspectives
Customer / Buyer
The party relying on representations and warranties will generally want broad, unqualified statements, a long survival period, and meaningful indemnification rights for any breach.
Vendor / Seller
The party making representations and warranties will generally want appropriate knowledge and materiality qualifiers, a short survival period, caps on indemnification exposure, and disclosure schedules that limit the scope of the representations.
Florida & Federal Considerations
Florida
Florida recognizes claims for breach of contract based on false representations and warranties. Florida law also recognizes claims for fraudulent misrepresentation and negligent misrepresentation in appropriate circumstances.
The distinction between contractual and tort-based claims for misrepresentation may affect available remedies and the applicable statute of limitations.
Related Terms
Contracts Where You'll Commonly See It
Frequently Asked Questions
What is the difference between a representation and a warranty?
A representation is a statement of fact made to induce the other party to enter the contract. A warranty is a promise that a fact is true and will remain true. In practice, the two are often grouped together in commercial agreements, though the distinction can matter for remedies.
What happens if a representation or warranty turns out to be false?
A false representation or warranty may give the other party the right to seek damages, rescind the contract, or both, depending on the contract language, the nature of the misrepresentation, and applicable law.
Are representations and warranties typically limited to the date the contract is signed?
Not always. Some representations and warranties are made only as of the signing date. Others are made as of the closing date or are stated to be continuing obligations. The scope depends on the contract language.
What is a bring-down condition?
In transactions with a gap between signing and closing, a bring-down condition requires that representations and warranties remain true at closing. If they are not, the other party may have the right to refuse to close.
Can representations and warranties be qualified?
Yes. Parties frequently qualify representations and warranties with knowledge qualifiers (such as "to the best of the party's knowledge") or materiality qualifiers. These qualifications can significantly affect the scope of the obligation.
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