Warranties and representations: Overview, definition, and example
What are warranties and representations?
Warranties and representations are contractual promises or statements made by one party to assure the other party of specific facts or conditions related to the agreement. Warranties are commitments that certain facts or conditions are true and will remain true over time, while representations are statements of fact made at the time of entering into the contract. These provisions provide a basis for trust and accountability between parties.
For example, in a sales contract, a seller may represent that the product being sold is free of defects and warrant that it will perform as described for a specified period.
Why are warranties and representations important?
Warranties and representations are important because they establish trust, clarify obligations, and allocate risk between the parties in a contract. For SMBs, these provisions provide protection by ensuring that critical statements about products, services, or business conditions are accurate and enforceable.
If a warranty or representation turns out to be false, the affected party may have legal recourse to seek remedies such as damages, termination of the agreement, or specific performance.
Understanding warranties and representations through an example
Imagine an SMB purchases equipment from a vendor. The vendor represents that the equipment complies with industry standards and warrants that it will be free from defects for one year. If the equipment fails due to a defect within the warranty period, the SMB can require the vendor to repair or replace the equipment.
In another scenario, a seller in a business acquisition represents that the company’s financial statements are accurate and warrants that there are no undisclosed liabilities. If the buyer later discovers hidden debts, they may claim damages based on the seller’s breach of the warranties and representations.
An example of a warranties and representations clause
Here’s how a warranties and representations clause might appear in a contract:
“The Seller represents and warrants to the Buyer that: (i) the Goods are free from defects in materials and workmanship; (ii) the Seller has good title to the Goods and the right to sell them; (iii) the Goods comply with all applicable laws and regulations; and (iv) all information provided by the Seller in connection with this Agreement is true and accurate to the best of the Seller’s knowledge.”
Conclusion
Warranties and representations are essential for creating clarity, trust, and accountability in contracts. For SMBs, these provisions protect against risks and ensure that both parties deliver on their promises. A well-drafted warranties and representations clause establishes clear expectations, allocates responsibilities, and provides remedies in case of a breach, fostering confidence and stability in business relationships.
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.