Definitions of representations and warranties
representations are statements of present or past fact and a warranty is a promise that a fact is true
Borrower shall certify that the representations and warranties of Borrower set forth in the Loan Documents are true and correct on the date of the Loan.
Phrase Bank for representations and warranties
The representations and warranties given by the borrower are qualified in schedule 1.
The Seller’s breach of the representations and warranties resulted in the purchase price being reduced.
Representations and warranties are given as a comfort to the bank.
Additional Notes for representations and warranties
This term is often used as a heading in a contract.
Article: Representations and warranties
Although the terms are often used synonymously, there is a technical distinction between representations and warranties. A representation is simply a statement of fact upon which another party is expected to rely. However, a warranty (which can be either express or implied) is a party’s assurance as to a particular fact coupled with an implied indemnification obligation (=agreement to pay money as compensation in case of loss) if that fact is false. In a contract containing specific remedies for false representation and warranties (as is usual), this distinction is not meaningful. In fact, it is typical for an agreement to label all such statements representations and warranties. However, there are slight differences in the meanings of the terms in certain contexts, mainly those that concern the available remedies.
In the context of an acquisition of shares, representations are statements of fact made by the sellers to induce the buyer to enter into the sale and purchase agreement (SPA). If the statement is untrue but has not been incorporated into the SPA in the form of a warranty, the buyer may be able to bring a claim for misrepresentation in tort. Unlike a claim for breach of warranty, the buyer must prove that it relied upon the representation and that it induced him to enter into the SPA. Misrepresentations often enable a party to terminate a contract in its entirety.
Note that the exaggeration of the good points of a product or a business and the prospects for future rise in value, profits and growth is not illegal. Since a certain amount of puffing (=exaggeration as to the merits of a product or service) can be expected of any salesman, it cannot be the basis of a lawsuit for fraud or breach of contract unless the exaggeration exceeds the reality. However, if the puffery is an outright lie and has no basis in fact, a legal action for rescission of the contract or for fraud against the seller is possible.
However, the remedy for a breach of warranty is damages. As a contractual remedy, the damages aim to put the claimant into the position it would have been in had the warranty been true, or in other words, to compensate it for its loss of the bargain. Normally there is no automatic termination right for the buyer on a breach of warranty and only damages are recoverable.