Contracts for the purchase and sale of about anything, whether personal property or real property, often include representations and warranties that each of the parties, buyer and seller, make one to the other. The difference between the two is not necessarily straightforward, but there is a difference.

Representations are statements declaring to the other party that something is the case. In contracts, both parties make representations to the other. For example, a buyer may represent to the seller that it has sufficient financial means to consummate the proposed transaction, or that the buyer is in good standing with the state in which it was incorporated. A representation is a statement to the other party something is true. The implication is if the representation turns out to be false, the other party to whom the representation was made will accrue legal rights to remedy the false representation given the effect on the recipient of the false representation.

Warranties are different from representations in that warranties are contracts in and of themselves that obligate the party giving the warranty to indemnify the other party if it turns out that the risk being warranted materializes. The fact that the risk materialized is not based upon a statement by the party giving the warranty that was false. The warranting party does not know if something is in a particular condition that would necessitate a claim under the warranty. The warranty is given as part of the consideration to the other party to induce them to consummate the transaction.

At a high level, these are the differences between representations and warranties. They are somewhat subtle differences that a non-lawyer might not understand on their face. However, once you understand the two and their differences, they are quite distinct, and hopefully this high-level understanding will assist you in analyzing whether or not the representations and warranties in your contracts are reasonable or unreasonable.

Categories: Real Estate Law

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