Representations and warranties (sometimes called “Reps and Warranties”) appear in many types of agreements. Although similar, representations and warranties have important differences. Representations are statements of present or past facts, while warranties are promises that present or future facts will be true. Representations are used to obtain disclosures and warranties are used to obtain commitments.
For example, a representation may state that the books and records of a company are true and correct as of the date of the Agreement. On the other hand, a warranty may state that a widget will continue to operate as stated in the user guide for a period of 12 months after the date of purchase.
A false representation and a dishonored warranty may both result in claims for breach of the underlying contract. However, there are also important variations in the claims and remedies available for each. As an example, if a representation is intentionally false, it may result in a claim of fraud, with the additional remedy for punitive damages. Punitive damages are not available for a warranty claim.
In the United States, representations and warranties are often seen together. Some common ways to reduce the risks associated with representations and warranties include:
- Narrowly drafting the scope
- Restricting the applicable time periods
- Listing exclusions
- Excluding all implied
- Requiring materiality
- Shortening the life of the warranty
- Restricting the types of remedies available
- Capping the potential damages
- Adding “knowledge” qualifications
These important provisions are found in a variety of agreements such as acquisition, loan, licensing, and service agreements. It is always a good idea to have an attorney review these provisions before signing any contract.