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Drafting contracts

(c) Warranties, not representations and warranties

Warranties, not representations and warranties. The word warranties is very often coupled with representations, in that the parties do not merely warrant, they would represent and warrant. Using both words, however, a superfluous search for certainty. If a distinction can be made at all, it is probably best acknowledged under English law. Under English common law, a representation is a statement of fact made by one party to induce the other party to enter into the contract. As in many other legal systems, a ‘breach’ of a representation would lead to the conclusion that such other party entered into the contracts on undue grounds. Accordingly the default remedy should be (and as codified for English law in the Misrepresentation Act 1967 indeed is) that the induced or misled other party may rescind the contract in case of (significant) misreprentation. An immediate consequence would then also be that such other party would make a claim ‘in tort’ rather than a (contractually qualified and contractually limited) claim under the contract. Although one may reflect the representations in the contract, by its very nature (as an inducement to enter into the contract) such written reflection is not necessary: whether the remedy (rescission of the contract) is justified will be determined regardless of whether the representation was in writing.

The term warranty has a different meaning: it reflects the promise made by one party to the other as regards the object of the contract, and what such other party might expect from performance of the contract. In case a warranty appears to be incorrect, the remedy under common law is damages (and not rescission). Whilst representations refer to the particular facts as they are (or would be) at the time of contracting, a warranty is more likely to address a future fact, benefit or circumstance measured as of the moment such a warranty is made. On similar grounds, warranties imply a risk allocation mechanism, whilst this is less evident in case of a representation. Having pointed out these notions of warranties vs. representations, it must be admitted that many English or other common law lawyers are unaware of the distinction.

On the European continent, one would expect that representation is the preferred wording. At least from a semantic point of view, the well-known concept of a ‘juridical act’ (being something like ‘a statement or declaration, which has legal effect as such’) seems to match better with that terminology (whereas a warranty has no specific legal meaning). Regardless of this somehow arbitrary argument, European contract laws are conceptually built on notions such as the parties’ (mental) consent, their free (subjective) mutual will, or the meaning that a reasonable person will (objectively) attribute to what the parties expressed as their agreement. Because of such notions, the English-language-distinction is not so obvious that using the one word or the other is of any decisive relevance. What is relevant is that one party makes a statement of fact and that the other may or may not invoke a contractual or statutory rights when that statement happens to be incorrect.

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Drafting contracts

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