Representations and Warranties: Statements of Fact

What Are Representations and Warranties?

Representations and warranties are statements of fact made by one party to induce the other party to enter into the contract. They confirm that certain things are true at the time of signing and allocate the risk if those statements turn out to be false.

Representations vs. Warranties

While often lumped together, they have distinct legal meanings:

• A representation is a statement of present or past fact that one party relies on when deciding to enter the contract. A false representation may give rise to a claim for misrepresentation or rescission.
• A warranty is a promise that a statement is true, and it creates a contractual obligation. A breach of warranty gives rise to a breach of contract claim and damages.

By including both terms, parties ensure the broadest possible protection regardless of which legal theory a court applies.

Common Examples

• "The Company represents and warrants that it is duly organized and in good standing under the laws of its state of incorporation."
• "The Seller represents and warrants that it has clear title to the assets being sold."
• "Each party represents and warrants that it has the authority to enter into this Agreement."

Why They Matter

• Risk allocation. Reps and warranties assign the risk of unknown facts. If the representation is false, the party that made it bears the consequences.
• Indemnification triggers. Most indemnification clauses are triggered by breaches of representations and warranties. This is how the harmed party recovers losses.
• Due diligence backstop. In M&A transactions, reps and warranties serve as a backstop for information the buyer could not independently verify.

What to Watch For

• Knowledge qualifiers. "To the best of the Company's knowledge" narrows the representation. The warranting party is only liable for what they actually know, not for undiscovered issues.
• Materiality qualifiers. Adding "in all material respects" limits the warranty to significant facts, making minor inaccuracies non-actionable.
• Survival periods. Reps and warranties typically survive closing for a limited time (12-24 months). After that, claims for breach expire.

When to Consult a Lawyer

Consider consulting an attorney when negotiating representations and warranties, especially in M&A, investment, or complex commercial transactions. The scope and qualifiers of these provisions directly affect your ability to recover if something goes wrong.

This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.