In the United States, courts and most practitioners attribute no particular significance to use of the phrase represents and warrants to introduce statements of fact. By contrast, some commentators suggest that the phrase has implications for remedies or pertains to the timeframe of the facts in question. In fact, the phrase is pointless and confusing.
This article will show that to avoid confusion, you should do two things. First, use states to introduce statements of fact in a contract. And second, if you want to exclude particular remedies or make sure that they’re available, do so explicitly instead of relying on what is inscrutable and unreliable code.
In business contracts, represents or warrants or both are used to introduce statements of fact by parties – statements relating to matters that they broadly control or that fall within the scope of their operations. (A different function is served by use of the verb warrants and the noun warranty on their own, without represents and representation, regarding goods in a contract for the sale of those goods. That’s beyond the scope of this article.)
Remedies for Inaccurate Statements of Fact
Determining what represents and warrants each mean requires considering the remedies available under U.S. law for inaccurate statements of fact in a contract.
Due to how the common law has developed, if a party’s statement of fact turns out to have been inaccurate, the counterparty might be able to bring a tort-based claim for misrepresentation, a contract-based claim for breach of warranty, or both.
In that context, the simplest meaning of representation is that it’s a statement of fact that might support a claim for misrepresentation. And the simplest meaning of warranty is that it’s a statement of fact that might support a claim for breach of warranty.
The Remedies Rationale
Some U.S. commentators have attempted to attribute significance to each verb in represents and warrants. They fall into two camps, one offering what this article calls the “remedies rationale,” the other offering what this article calls the “timeframe rationale.”
Whether a contract party is able to bring a claim for misrepresentation or a claim for breach of warranty for an inaccurate statement of fact made by the other party can have significant practical implications. According to the remedies rationale, a drafter can ensure that a statement of fact is treated as a representation, as a warranty, or as both by introducing that statement of fact with represents, warrants, or both, respectively, or by identifying that statement as a representation, a warranty, or both. The most vocal advocate of the remedies rationale is Tina L. Stark, in her book Drafting Contracts: How and Why Lawyers Do What They Do 15, 137–38 (2d ed. 2014).
The remedies rationale comes in two flavors, which this article calls “permissive” and “restrictive.” Under both the permissive remedies rationale and the restrictive remedies rationale, explicitly describing a statement of fact as a representation, a warranty, or both, by means of an introductory verb or otherwise, is sufficient to make it so.
Where the permissive and restrictive rationales differ is how they treat a statement of fact that isn’t introduced by represents or warrants, or both, or otherwise explicitly characterized as a representation, a warranty, or both. Under the permissive version, such a naked statement of fact could still be deemed a representation or warranty, respectively, depending on the nature of the statement itself. By contrast, the restrictive version holds that a statement of fact will support a claim for misrepresentation only if it is introduced with represents or is referred to as a representation, and a statement of fact will support a claim for breach of warranty only if it is introduced with warrants or is referred to as a warranty. So under the restrictive version, failure to use represents, warrants, or both, or to otherwise explicitly characterize a statement of fact as a representation, a warranty, or both, should prevent that statement from being deemed a representation or a warranty, or both, respectively.
In a comment to a blog post by this author, Stark has stated that she doesn’t suggest that using represents or warrants is the only way to make something a representation or warranty. That means she in effect endorses the permissive remedies rationale.
By contrast, Bryan Garner in effect endorses the restrictive remedies rationale. In the entry for representations and warranties in Garner’s Dictionary of Legal Usage 775 (3d ed. 2011), Garner suggests that if a statement of fact is introduced by only warrants and not represents, it wouldn’t constitute a representation supporting an action for misrepresentation: the drafter would be in a position to limit what sort of claims could be brought for an inaccurate statement of fact regardless of the nature of that statement of fact.
Both flavors of the remedies rationale fall short in several respects.
It Seeks to Apply to All Kinds of Contracts
First, represents and warrants is used in every kind of contract. It’s well known that the law of warranties applies to the sale of goods, but even if you also take into account the role of the law of warranties in negotiable instruments, bank deposits and collections, letters of credit, documents of title, and investment securities, all sorts of contracts that use represents and warrants would fall outside the scope of the law of warranties as it’s generally understood. It follows that treating as a warranty any contract statement of fact introduced by warrants or referred to as a warranty would require extending the law of warranties to statements of fact to which the law of warranties as it is generally understood wouldn’t apply. There’s no principled basis for doing so.
It Seeks to Override Actual Meaning
Second, caselaw and, with respect to warranty, the Uniform Commercial Code specify the elements of a claim for misrepresentation and a claim for breach of warranty. Allowing drafters to designate what constitutes a representation or a warranty just by saying so would render those requirements irrelevant.
Imagine that a contract contains the following sentence: Acme represents that it shall promptly replace defective Equipment. Even though it uses represents, that sentence imposes an obligation, so according to caselaw on the elements of a claim for misrepresentation, it wouldn’t constitute a representation supporting a claim for misrepresentation. It would elevate form over substance to suggest that use of represents would be enough to make that sentence a representation.
It would be equally bizarre to conclude, as the restrictive remedies rationale requires, that an intended remedy isn’t available because it’s not introduced by the appropriate verb. For example, if a party’s statements of fact are introduced by neither represents nor warrants, according to the logic of the restrictive remedies rationale the counterparty would have no remedy, regardless of the nature of those statements. It would be hard to justify that.
It’s Not Supported by the Law
Third, this author has found no U.S. caselaw supporting the notion that if you use represents in a sentence, what follows will as a matter of law constitute a representation supporting an action for misrepresentation, regardless of what the sentence says, or that if you use warrants in a sentence, what follows will as a matter of law constitute a warranty supporting an action for breach of warranty, regardless of what the sentence says.
As for the restrictive version of the remedies rationale, there’s no meaningful support for the notion that to constitute a representation, a statement must be introduced by represents or referred to as a representation, and to constitute a warranty, a statement must be introduced by warrants or referred to as a warranty. Instead, there’s caselaw to the opposite effect, in that use of represents or representations in a contract hasn’t precluded some courts from holding that the statement in question is actually a warranty. And section 2-313(2) of the Uniform Commercial Code states that “[i]t is not necessary to the creation of an express warranty that the seller use formal words such as ‘warrant’ or ‘guarantee’ or that he have a specific intention to make a warranty.”
Semantically, It Makes No Sense
Fourth, the semantics of the remedies rationale makes no sense. To permit the verb to have remedies implications, or to require it do so, is to impose on the verb a semantic function it doesn’t have in standard English. It’s unreasonable to expect readers to make that connection.
It Doesn’t Explain Current Practice
And fifth, what is the simplest explanation for prevalence of use of represents and warrants outside of the context of statements of fact relating to goods? It isn’t that after considering potential remedies if a dispute occurs, contract parties opt to make it explicit that inaccurate statements of fact could give rise to an action for misrepresentation or an action for breach of warranty, or both.
Instead, if contract parties are presented with three options with ostensibly meaningful implications – represents, warrants, or represents and warrants – yet overwhelmingly opt for represents and warrants regardless of the nature of the transaction, the simplest explanation is that they don’t recognize that they’re making a choice.
That impression is reinforced by the way mergers-and-acquisitions contracts generally provide for indemnification as the exclusive remedy yet overwhelmingly use represents and warrants. If use of represents and warrants is an empty gesture there, economy of hypothesis suggests that it’s an empty gesture elsewhere. It also follows that there’s no reason to attribute significance to use of either represents or warrants alone.
So it’s reasonable to conclude that in the United States, the remedies rationale for use of represents and warrants is of no practical relevance.