What Is the Primary Function of Representations and Warranties in a Business Contract

When drafting a business contract, it is essential to include representations and warranties. These are legal terms that are often used interchangeably, but they have different meanings and functions.

Representations are statements made by one party to the other party, which may be true or false. They are an affirmation of a specific fact about the business, product, or service that is the subject of the contract. For example, a representation could be that the company is authorized to transact business in a particular state, or that the product being sold meets certain specifications.

Warranties, on the other hand, are promises made by one party to the other party. They guarantee that certain facts are true and that certain obligations will be fulfilled. If a party breaches a warranty, the other party may be entitled to damages.

The primary function of representations and warranties in a business contract is to provide the parties with assurance that the information provided is accurate and complete. They are critical in protecting each party in the transaction from potential losses due to misrepresentations or false promises.

For example, if a company sells a product and represents that it has been tested and meets certain safety standards, and the product later causes injury to a consumer, the injured party may be able to take legal action based on the misrepresentation. If the company provided a warranty that the product would perform as advertised, the injured party may be able to recover damages based on a breach of the warranty.

Representations and warranties are also important in determining whether a contract has been breached. If a party makes a representation or warranty that is false, and the other party relied on that information in entering into the contract, the contract may be rendered voidable. Additionally, if a party breaches a warranty, the other party may be entitled to remedies, including damages, specific performance, or cancellation of the contract.

In conclusion, representations and warranties serve a crucial function in business contracts. They protect parties from potential losses due to inaccurate or incomplete information, provide assurance that the information provided is accurate and complete, and serve as a basis for legal action in the event of a breach. As such, they should be carefully drafted and included in all business contracts.