LinkedIn Series Chapter 7: Representations, Warranties and Survival

January 13, 2014
Jack Walsh

Various contractual forms will go to great lengths to either require certain representations and warranties or deny that any such representations and warranties exist. Furthermore, Standard Terms and Conditions will often specify when the representations and warranties “survive.”

Understanding what all this means starts with understanding what representation, warranty, and survival mean in a contractual context. A representation is typically a statement by one party on which the other party relies in entering into a contract. For example, in a real estate contract, a party might represent that it has good title to the real estate being sold. In a context of a sale of a product, a party might represent that the products do not infringe any patents. Representations can be seen as backwards-looking. Warranties are forward-looking; they are promises. Warranties are promises that a certain state of affairs will continue for some promised time into the future. In reality, it may be difficult to tell where the representations end and the warranties start. Representations and warranties, in the simplest terms, are the factual basis on which the parties base their decision to enter into a particular contract. Survival is the general legal term for what representations and warranties can be enforced after the exchange of money for product occurs (the “survivors”) and how long those representations and warranties will last.

In Standard Terms and Conditions, parties will attempt to manipulate the warranties and representations to aid them in the event that things go wrong. Typically, sellers want to make as few representations and warranties as possible. In a seller’s perfect world, they have the buyer’s money and the buyer has their product and that is the end of it. Buyers on the other hand, being concerned about whether they will receive what they paid for, want as many representations and warranties from seller as possible for as long as possible in case whatever they receive turns out to not be all they hoped it would be.

In a Standard Terms and Conditions situation, these terms are not negotiated and the winner of the acceptance war gets his, her, or its way. This clause can be the converse to the limitation of liability since a seller can have its way by creating a tie which eliminates the conflicting terms. In negotiated contracts, much time will spent on these issues. Often the compromise between a seller’s no warranties world and a buyer’s absolute guarantee world is a contract where only certain representations and warranties survive closing for some agreed period.