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Representations and warranties: Difference between revisions
Representations and warranties (view source)
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==The short view== | ==The short view== | ||
Our view is for all intents and purposes beyond ''[[ultra vires]]'', [[representations and warranties]] boil down to ''[[warranties]]''. The giveaway is that they appear in a [[contract]], so are made rather too late in the day to be meaningful pre-contractual representations. For them to have any force ''as'' representations, your operating theory has to be that the contract, though executed, has been so compromised by the falsehoods from which these statements are woven as to fail for lack of [[Consensus ad idem|consensus]]. In which case they are little more than a handsomely-formatted | Our view is for all intents and purposes beyond ''[[ultra vires]]'', [[representations and warranties]] boil down to ''[[warranties]]''. The giveaway is that they appear in a [[contract]], so are made rather too late in the day to be meaningful pre-contractual representations. For them to have any force ''as'' representations, your operating theory has to be that the contract, though executed, has been so compromised by the falsehoods from which these statements are woven as to fail for lack of [[Consensus ad idem|consensus]]. In which case they are little more than a handsomely-formatted transcript of the dialogue that passed between merchants in the fog of commercial negotiation, before the [[contract]] got to the consummated point we now find it to be in. | ||
Since both parties have signed their name to a contract, which sets out these representations for the record in triple-tempered eleven-point Helvetica, their evidential value is unimpeachable, but they are still no more than | Since both parties have signed their name to a contract, which sets out these representations for the record in triple-tempered eleven-point Helvetica, their evidential value is unimpeachable, but they are still no more than representations: assurances given as a prelude to signing the [[contract]]. | ||
There is a further colour of logic to including representations in your contract if your counterparty is one of those rare organisations that are susceptible, in these modern time, to [[ultra vires]]. Here, a [[representation]] (as opposed to a [[warranty]]) gives you a leg to stand on should your {{t|contract}} turn out to have none, being void for [[ultra vires]]. Now that assurance, freed from the usual shackles of [[concurrent liability]] — since there is, [[Q.E.D.]] no [[contract]] — dangles fruitily before you as an open-and-shut action in [[tort]] for [[negligent misstatement]]. There is no [[ultra vires]] defence to a [[tort]]. But as a [[warranty]], being part of a contract which — as you have just learned — is void ''[[ab initio]]'' as being outside the powers of your counterparty to make.<ref>These days, [[ultra vires]] has largely receded from the corporate governance frameworks in most sensible jurisdictions so only weird counterparties like municipal councils — yes, and why are ''they'' trading tranched [[CDO]]s? — pose a serious risk.</ref> it is useless. | There is a further colour of logic to including representations in your contract if your counterparty is one of those rare organisations that are susceptible, in these modern time, to [[ultra vires]]. Here, a [[representation]] (as opposed to a [[warranty]]) gives you a leg to stand on should your {{t|contract}} turn out to have none, being void for [[ultra vires]]. Now that assurance, freed from the usual shackles of [[concurrent liability]] — since there is, [[Q.E.D.]] no [[contract]] — dangles fruitily before you as an open-and-shut action in [[tort]] for [[negligent misstatement]]. There is no [[ultra vires]] defence to a [[tort]]. But as a [[warranty]], being part of a contract which — as you have just learned — is void ''[[ab initio]]'' as being outside the powers of your counterparty to make.<ref>These days, [[ultra vires]] has largely receded from the corporate governance frameworks in most sensible jurisdictions so only weird counterparties like municipal councils — yes, and why are ''they'' trading tranched [[CDO]]s? — pose a serious risk.</ref> it is useless. | ||
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So, why have both? BECAUSE [[Chicken Licken|THE SKY MIGHT FALL IN YOUR HEAD]] IF YOU DON’T. Didn’t you learn ''anything'' at law school? Wouldn’t your client rather have the [[option]] to [[rescind]] the contract (if it made a bad bargain) or sue for [[damages]] (if it made a good one)? | So, why have both? BECAUSE [[Chicken Licken|THE SKY MIGHT FALL IN YOUR HEAD]] IF YOU DON’T. Didn’t you learn ''anything'' at law school? Wouldn’t your client rather have the [[option]] to [[rescind]] the contract (if it made a bad bargain) or sue for [[damages]] (if it made a good one)? | ||
You may wonder whether the usual rules about [[concurrent liability]] in contract and tort would have something to say about that but — and for the most part, they do — but in Casanova’s immortal words — [[if in doubt, stick it in]]. Be a lover, not a fighter. Life is short, the total entropic tedium of the commercial universe is overwhelming, and nothing is gained from arguing the toss about whether something is a [[representation]] or a [[warranty]]. Keep your eye on the hall: what | You may wonder whether the usual rules about [[concurrent liability]] in contract and tort would have something to say about that but — and for the most part, they do — but in Casanova’s immortal words — [[if in doubt, stick it in]]. Be a lover, not a fighter. Life is short, the total entropic tedium of the commercial universe is overwhelming, and nothing is gained from arguing the toss about whether something is a [[representation]] or a [[warranty]]. Keep your eye on the hall: what matters is that the ones you make are ''true''. | ||
Still, we mention for completeness that lone wolf of clarity on the prairie of dense American legal drafting, {{author|Kenneth A. Adams}} once devoted a [https://www.adamsdrafting.com/wp/wp-content/uploads/2015/06/Adams-Eliminating-the-Phrase-Represents-and-Warrants-from-Contracts.pdf 27-page scholarly monograph]<ref>Published in no less august a periodical than ''Transactions: The Tennessee Journal of Business Law'' [2015] Vol 16 at 203, if you want to read it in its original locale.</ref> to the subject — maybe a slow week in the practice — to argue the world is wrong, he is right, and the correct word is neither “[[Representation|represents]]”, nor “[[Warranty|warrants]]”, but “''states''”. | Still, we mention for completeness that lone wolf of clarity on the prairie of dense American legal drafting, {{author|Kenneth A. Adams}} once devoted a [https://www.adamsdrafting.com/wp/wp-content/uploads/2015/06/Adams-Eliminating-the-Phrase-Represents-and-Warrants-from-Contracts.pdf 27-page scholarly monograph]<ref>Published in no less august a periodical than ''Transactions: The Tennessee Journal of Business Law'' [2015] Vol 16 at 203, if you want to read it in its original locale.</ref> to the subject — maybe a slow week in the practice — to argue the world is wrong, he is right, and the correct word is neither “[[Representation|represents]]”, nor “[[Warranty|warrants]]”, but “''states''”. | ||
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:''The phrase “represents and warrants” is a fixture in English-language contracts. It’s used to introduce statements of fact, as are the verbs “represents” and “warrants” used separately. And the words “representation” and “warranty” are used to refer to statements of fact in a contract.'' | :''The phrase “represents and warrants” is a fixture in English-language contracts. It’s used to introduce statements of fact, as are the verbs “represents” and “warrants” used separately. And the words “representation” and “warranty” are used to refer to statements of fact in a contract.'' | ||
But they do a bit more than that. Mere “'' | But they do a bit more than that. Mere “''statements'' of fact” are a bit of scene-setting: “It was a dark and stormy night”. “It was bluebell time in Kent”.<ref>{{cite|Hinz|Berry|1970|2QB|40}} per the great [[Lord Denning]].</ref> They add colour and richness to the reading experience but, unless they saddle someone with a clear legal obligation, they have no place in a [[contract]]. To be sure, legal contracts are shot through with all kinds of horrific linguistic tics, but they are generally free of unnecessary editorialising about the weather or the local flora. So, a simple ''statement'' in a [[contract]] — “the vendor ''states'' that it is duly incorporated in the state of Vermont”, or “the Purchaser ''states'' that the moon is made of blue cheese” — doesn’t achieve ''anything'' of legal significance, ''unless one can infer from it that its utterer accepts responsibility for losses occasioned as a result of another party relying on that state of affairs to her detriment''. | ||
Generally, one assumes contractual responsibility for the present or past state of the world by ''warranting'' that it is so, and as to its anticipated [[future]] state by ''promising'' it will be so. | Generally, one assumes contractual responsibility for the present or past state of the world by ''warranting'' that it is so, and as to its anticipated [[future]] state by ''promising'' it will be so. | ||