Definition and Purpose of Representations and Warranties

Posted on: Wednesday, July 18th, 2012

In order to understand the use of the terms “representations” and “warranties” we need to begin with a definition of each.

A representation is “a statement of fact made to induce another to enter into a contract”. One party provides information to the other at the time the contract is made and the other party decides whether to proceed with the contract. For instance, the seller represents that the chattels have been in good working order. This representation is relied on by the other party to enter into the agreement.

A warranty is “a promise that a proposition of fact is true”, and they are assurances as to future events indicating that certain aspects of the deal will remain “as is” up to and through the closing.

From the point of view of the purchaser, the major purpose of representations and warranties is to require the seller to reveal certain facts that, when combined with due diligence, will disclose risks that can be assessed. This allows the purchaser to make an informed decision as to whether or not to complete the purchase. If any representations or warranties made by either party prove to be incorrect or non-factual the other party is entitled to seek compensation.

You can access the full article on this topic in our July 2012 Newsletter by clicking here.

The content of this blog is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

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