However, the two terms are separate and distinct from each other having different characteristics and also different remedies under law for breach of the same. Understanding the differences between the two and using them appropriately is essential to ensure that a contract is well drafted and the interests of both parties well protected.
The theoretical distinction between representations and warranties can be understood from English law. A representation is basically an assertion of a past or existing fact, true on the date that it is made. It is generally given to induce another party to enter into a contract. A warranty on the other hand, is similar to a representation but it refers to the present or future i. Further, it is not the basis for inducing the other party to enter into the contract.
One of the utmost essential differences between Representations and Warranties, is the remedies available to the parties in case of a breach. In case of a breach of warranty, the non-breaching party has the right to claim damages in accordance with the principle of restitution.
On the other hand, a breach of representation misrepresentation gives the innocent party a right to terminate the contract and also claim damages on the basis of the principle of restitution. Furthermore, the amount of damages one can claim also varies significantly in a claim of misrepresentation vis a vis breach of warranty as the principle of remoteness of damage and the relevant date from which damage is assessed, operate differently under both the concepts.
Since the remedial rights arising out of the two are completely different, it is critical for contracting parties to draft them carefully in their contract. In the case of Idemnitsu Kosan Co Ltd v Sumitomo Co Corp , the Court was faced with the question of whether warranties can be actionable as representations. The Court answered in the negative and held that representations and warranties are different. To determine if something is a warranty or a representation, parties' intention reigns supreme.
As already pointed out above, the ICA which is the statutory law on contracts in India, does not define 'representation' and 'warranty'.
In fact, the word warranty does not see mention in the statute. This raises the obvious question about whether Indian law distinguishes between representations and warranties in normal contracts. It is clear however that Indian law does distinguish between warranties and representation in relation to certain specific contracts.
Warranties under the SOGA have been defined as a stipulation, collateral to the main purpose of the contract, meaning warranties are stipulations that do not touch upon the heart of the contract and are in some way secondary to the main purpose of the contract. Maheswari , the Madras High Court, in the context of insurance contracts, recognized the two different terms and the difference in the remedies for a breach of either. The Madras High Court states that " The duty of disclosure comes under two heads, viz.
Further the court holds " Therefore the main distinction between representation and warranty is that as a general rule answers to questions are representations and not warranties, though it is possible for persons to stipulate that answers to certain questions shall be the basis of the contract, in which case they become part of the warranties. In the case of a warranty materiality or immateriality of the fact warranted signifies nothing.
Its incorrectness constitutes a defence to an action on the policy, even though it be not material and be made in perfect good faith. But, in the case of a representation, the insurer can avoid the policy only by proving that the statement is false and fraudulent or that it was false and material to the risk.
In other words, it is only a material misrepresentation that can avoid a policy if the truth of the facts contained in the representations be not warranted by the policy. This distinction between representations and warranties adopted in the case of Life Insurance Corporation of India vs.
This difficulty exists because very often you will see the two terms grouped together. For example the terms may be familiar to corporate lawyers who may see a clause such as:. For this reason there is very often confusion as to how the terms may be differentiated when they are grouped together. However, the difference can be critical as was illustrated in the recent case of: Sycamore Bidco Ltd v Breslin and Dawson [].
After purchase, the buyer discovered errors in the sellers accounts which they had relied on when purchasing the business. The agreement had been subject to a number of express warranties in the share purchase agreement relating to the value of the accounts.
Sellers usually want to limit the number and scope of warranties and to disclaim all implied warranties in commercial real estate contracts. Buyers should examine the representations and warranties.
Sometimes, a seller also will agree to reimburse the buyer for some of its due diligence expenses. This is most common where the seller has made an intentional misrepresentation.
A covenant is a promise. Covenants also focus on the future. Some covenants are combined with representations. For instance, a contract might include a representation that says there have been and are no hazardous materials used at the property. Then, the contract might add a related covenant where the seller agrees not to use hazardous materials at the property in the future. Like warranties, there can be implied covenants, as well as express covenants.
Implied contracts may be created by statute. Contracting parties may try to disclaim or dilute covenants. Contracting parties can confuse representations, warranties, and covenants, and make contracts ambiguous.
This confusion also can leave the buyer without a remedy for breach. Common errors include:. Besides being intellectually inaccurate, the difference matters because the consequences for breach of a representation or warranty may differ from those for breach of a covenant.
Remedies for breach of warranties usually are triggered by negligent breaches. A buyer might not collect for breach of a representation unless it can demonstrate the seller intentionally misrepresented the facts and the buyer relied upon the misrepresentation. There are several ways the parties can update representations. A contract might require that the seller update representations as a condition to closing. Sometimes, the contract includes a seller covenant to provide updated information as the seller learns of it.
While representations and warranties have different meanings and different remedies under law, in the context of a loan agreement, the differences are irrelevant because the consequences of an inaccurate representation or breach of warranty are provided for contractually in the loan agreement. The seller's representations and warranties tend to be more extensive because they include information about the target company or business and the stock or assets and liabilities being transferred.
The representations and warranties allocate risk between the parties and serve as the foundation for an indemnification claim in case of a breach or inaccuracy. A breach or inaccuracy of a representation or warranty can also provide the other party with a right to terminate or refuse to close the transaction.
0コメント