Breach of representation: Overview, definition, and example
What is a breach of representation?
A breach of representation occurs when one party in a contract fails to uphold a statement or promise made to another party regarding a material fact. Representations are statements about the truth of certain facts or conditions that are made before or during the execution of a contract. If it turns out that a representation is false or misleading, and it was relied upon by the other party in entering into the agreement, this can lead to a breach. The breach of representation often allows the injured party to seek remedies, such as contract termination or damages.
For example, if a seller of a business represents that the company has no outstanding legal disputes, and it turns out that there is an ongoing lawsuit, this would constitute a breach of representation.
Why is a breach of representation important?
A breach of representation is important because it can significantly impact the trust and integrity between the parties involved in a contract. Representations are made to ensure that both sides have accurate and reliable information to base their decisions on. If one party makes a false representation, it can affect the other party’s decision to enter into or continue the contract, leading to potential financial loss or other negative consequences.
For businesses and individuals, understanding the consequences of a breach of representation is essential for protecting their rights and ensuring fair dealings. It also underscores the importance of ensuring that all statements made during negotiations are truthful and accurate.
Understanding breach of representation through an example
Imagine that a company is selling its assets to another company. The seller represents that all equipment is in good working order, but it is later discovered that some of the equipment is broken and requires expensive repairs. The buyer relied on this representation when deciding to purchase the assets, and because the representation was false, the buyer may claim a breach of representation and seek compensation for the repair costs or, in some cases, cancel the transaction.
In another example, an individual buys a piece of real estate based on the seller’s representation that the property has no zoning violations. After closing, the buyer discovers that the property is not in compliance with zoning laws, leading to a breach of representation claim by the buyer, who may be entitled to damages or other legal remedies.
An example of a breach of representation clause
Here’s how a breach of representation clause might appear in a contract:
“The Seller represents and warrants that all statements made regarding the condition of the property are accurate and true as of the date of execution of this Agreement. If any representation is found to be false, the Buyer shall have the right to terminate the Agreement and seek damages for any resulting losses.”
Conclusion
A breach of representation occurs when one party makes a false or misleading statement about a material fact that the other party relies on in entering into a contract. This type of breach can result in legal remedies, including contract termination or damages, and underscores the importance of ensuring that all representations in a contract are truthful and accurate. For businesses and individuals, understanding how a breach of representation works helps to protect their interests and avoid potential financial losses.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.