Post by Mark Alsop on Sept 30, 2011 4:37:56 GMT 4
United Kingdom: What Does It Mean When A Person In A Commercial Contract "Warrants, Undertakes And Represents" That It Will Do Something?
1 BACKGROUND
1.1 The words "warrants", represents" and undertakes" are often used separately or together, preceding certain provisions such as:
1.1.1 capacity or ability to grant rights under the agreement in question
1.1.2 obligation to do something
1.1.3 quality of goods and services to be provided, and
1.1.4 accuracy of statements made.
1.2 The words are often used wrongly.
1.3 What does each of them mean?
1.4 Does it add anything if they are used together?
1.5 Indeed, does it detract from their effectiveness if they are used together wrongly?
2 MEANING
2.1 Undertake
2.1.1 An undertaking is an agreement to do something in the future. A contract might provide that you "undertake to" do something, or it might just say that you "shall" do it or that you "agree to" do it. These expressions all mean the same thing.
2.1.2 Contracts frequently word undertakings by saying that you "will" do something or "must" do it. Both, although often found, are wrong.
(a) "Will" denotes intention whereas "shall" denotes obligation, and this is a useful distinction that should not be obscured by sloppy use of language.
(b) "Must", although favoured by the Plain English enthusiasts, is unnecessary ("shall" always works) and ungrammatical.
2.1.3 A "covenant" is the same as an undertaking. It just sounds more grand, because it reminds people subliminally of the Raiders of the Lost Ark.
2.2 Warrant
2.2.1 A warranty is a statement of a present fact, made in such a way that the giver of the warranty may be liable to the receiver if the statement is incorrect.
2.2.2 In good English you cannot "warrant" that you will do something (a future obligation) or that something will be the case in the future (a statement of future fact). You should "undertake" that that will be the case.
2.2.3 Nevertheless, warranties are often given in commercial agreements as statements of a future fact, e.g. that goods will comply with their description for a period of time after delivery. The use of "warrants" in this sense has become commonplace and has the advantage over "undertakes" that terms as to quality etc can be easily placed in a single warranty clause and identified as such.
2.2.4 In other words "warrant" has two different meanings in English contracts.
2.2.5 As a matter of common law, a warranty is a contract term that does not go to the heart of the contract and gives rise only to damages if there is a breach. "Conditions" by contrast are core terms and entitle the innocent party to terminate on breach, as well as to claim damages. The distinction between warranties and conditions derives from the Nineteenth Century law on the sale of goods.
2.2.6 Although breach of the warranty will not entitle the customer to terminate under common law, the parties can always agree between themselves that there should be the right of termination. This is precisely what happens where there is an express right to terminate for "material breach".
2.3 Represent
2.3.1 A representation is a statement of fact or law, which may or may not be incorporated into the contract, made by one party that induces the other party to enter into a contract.
2.3.2 If the representation is untrue, under the Misrepresentation Act 1967 the innocent party will have the right to rescind the contract or claim damages in tort. The consequences vary depending on whether the misrepresentation is "innocent", "negligent" or "fraudulent". Damages will be assessed on a tortious basis, which is different from the basis of calculation for damages breach of contract.
2.4 Guarantee
2.4.1 A "guarantee" is frequently given in relation to goods. It is usually a promise to repair or replace the goods if they prove faulty within a stated period. In legal terms, it amounts to an undertaking (or a warranty as to future facts).
2.4.2 "Guarantee" is also used in relation to agreements where one person promises to make good if another person defaults. This use is different and governed by its own body of case law.
3 EFFECT
3.1 Combinations
3.1.1 "Warrant and undertake": It's wrong to use both together:
(a) as to statements of present facts – only "warrants" has meaning;
(b) as to future obligations – only "undertakes" has meaning; and ( c) as to statements of future facts – either can be used, but there is no point in using both words. If "undertakes" is used, it should be expressed as an obligation, e.g. to ensure that future facts occur.
If the words are intended to introduce a miscellany of warranties and undertakings, the warranties and undertakings should be separated into different clauses.
3.1.2 "Warrant and represent":
(a) as to existing facts - can be used together, since breach may give rise to different remedies;
(b) as to obligations – neither should be used. Both words are meaningless in relation to an obligation.
(c) as to statements of future facts – only warrants has meaning. 3.1.3 "Undertake and represent": It's wrong to use both together. They mean mutually exclusive things:
(a) as to present facts - "undertakes" is meaningless; and
(b) as to future obligations or facts - "represents" is meaningless. If they are intended to introduce a miscellany of representations and undertakings the representations and undertakings should be separated into separate clauses.
3.1.4 Using a combination of words that are consistent may be helpful. However, if they mean exactly the same thing (such as "undertakes and covenants") that may encourage a judge to find a meaning that was not intended, on the basis that if you say something more than once you must mean something slightly different the second time.
3.1.5 Using a combination of words that are not consistent is harmful because:
(a) if you use words that have a precise meaning in a meaningless context you lose the benefit of the precise meaning; and
(b) gibberish in drafting is always wrong.
3.2 Legal and practical consequences
3.2.1 Do not use "warrant" where the innocent party is to have the common law right to terminate for breach of the warranty.
3.2.2 Use "represent" where the innocent party is to have the benefit of the Misrepresentation Act.
3.2.3 Much better, specify what rights the innocent party is to have in the event of breach, and in particular whether or not the innocent party can terminate the contract. A termination for "material breach" clause will do the trick. It is always better to spell out what consequences you propose than to expect the parties to be familiar with the terminology of Nineteenth Century sale of goods law.
3.2.4 The phrase "representations and warranties" is familiar in agreements for the sale and purchase of shares in or businesses of companies. It's often shortened by corporate lawyers to the jargon phrase "reps and warranties". They also like to shorten "due diligence", which is jargon to start with, to "due dil", which is double jargon. In such sale and purchase agreements the consequences of breach are normally spelt out in detail, which makes the technical meanings of "represent and warrant" irrelevant.
1 BACKGROUND
1.1 The words "warrants", represents" and undertakes" are often used separately or together, preceding certain provisions such as:
1.1.1 capacity or ability to grant rights under the agreement in question
1.1.2 obligation to do something
1.1.3 quality of goods and services to be provided, and
1.1.4 accuracy of statements made.
1.2 The words are often used wrongly.
1.3 What does each of them mean?
1.4 Does it add anything if they are used together?
1.5 Indeed, does it detract from their effectiveness if they are used together wrongly?
2 MEANING
2.1 Undertake
2.1.1 An undertaking is an agreement to do something in the future. A contract might provide that you "undertake to" do something, or it might just say that you "shall" do it or that you "agree to" do it. These expressions all mean the same thing.
2.1.2 Contracts frequently word undertakings by saying that you "will" do something or "must" do it. Both, although often found, are wrong.
(a) "Will" denotes intention whereas "shall" denotes obligation, and this is a useful distinction that should not be obscured by sloppy use of language.
(b) "Must", although favoured by the Plain English enthusiasts, is unnecessary ("shall" always works) and ungrammatical.
2.1.3 A "covenant" is the same as an undertaking. It just sounds more grand, because it reminds people subliminally of the Raiders of the Lost Ark.
2.2 Warrant
2.2.1 A warranty is a statement of a present fact, made in such a way that the giver of the warranty may be liable to the receiver if the statement is incorrect.
2.2.2 In good English you cannot "warrant" that you will do something (a future obligation) or that something will be the case in the future (a statement of future fact). You should "undertake" that that will be the case.
2.2.3 Nevertheless, warranties are often given in commercial agreements as statements of a future fact, e.g. that goods will comply with their description for a period of time after delivery. The use of "warrants" in this sense has become commonplace and has the advantage over "undertakes" that terms as to quality etc can be easily placed in a single warranty clause and identified as such.
2.2.4 In other words "warrant" has two different meanings in English contracts.
2.2.5 As a matter of common law, a warranty is a contract term that does not go to the heart of the contract and gives rise only to damages if there is a breach. "Conditions" by contrast are core terms and entitle the innocent party to terminate on breach, as well as to claim damages. The distinction between warranties and conditions derives from the Nineteenth Century law on the sale of goods.
2.2.6 Although breach of the warranty will not entitle the customer to terminate under common law, the parties can always agree between themselves that there should be the right of termination. This is precisely what happens where there is an express right to terminate for "material breach".
2.3 Represent
2.3.1 A representation is a statement of fact or law, which may or may not be incorporated into the contract, made by one party that induces the other party to enter into a contract.
2.3.2 If the representation is untrue, under the Misrepresentation Act 1967 the innocent party will have the right to rescind the contract or claim damages in tort. The consequences vary depending on whether the misrepresentation is "innocent", "negligent" or "fraudulent". Damages will be assessed on a tortious basis, which is different from the basis of calculation for damages breach of contract.
2.4 Guarantee
2.4.1 A "guarantee" is frequently given in relation to goods. It is usually a promise to repair or replace the goods if they prove faulty within a stated period. In legal terms, it amounts to an undertaking (or a warranty as to future facts).
2.4.2 "Guarantee" is also used in relation to agreements where one person promises to make good if another person defaults. This use is different and governed by its own body of case law.
3 EFFECT
3.1 Combinations
3.1.1 "Warrant and undertake": It's wrong to use both together:
(a) as to statements of present facts – only "warrants" has meaning;
(b) as to future obligations – only "undertakes" has meaning; and ( c) as to statements of future facts – either can be used, but there is no point in using both words. If "undertakes" is used, it should be expressed as an obligation, e.g. to ensure that future facts occur.
If the words are intended to introduce a miscellany of warranties and undertakings, the warranties and undertakings should be separated into different clauses.
3.1.2 "Warrant and represent":
(a) as to existing facts - can be used together, since breach may give rise to different remedies;
(b) as to obligations – neither should be used. Both words are meaningless in relation to an obligation.
(c) as to statements of future facts – only warrants has meaning. 3.1.3 "Undertake and represent": It's wrong to use both together. They mean mutually exclusive things:
(a) as to present facts - "undertakes" is meaningless; and
(b) as to future obligations or facts - "represents" is meaningless. If they are intended to introduce a miscellany of representations and undertakings the representations and undertakings should be separated into separate clauses.
3.1.4 Using a combination of words that are consistent may be helpful. However, if they mean exactly the same thing (such as "undertakes and covenants") that may encourage a judge to find a meaning that was not intended, on the basis that if you say something more than once you must mean something slightly different the second time.
3.1.5 Using a combination of words that are not consistent is harmful because:
(a) if you use words that have a precise meaning in a meaningless context you lose the benefit of the precise meaning; and
(b) gibberish in drafting is always wrong.
3.2 Legal and practical consequences
3.2.1 Do not use "warrant" where the innocent party is to have the common law right to terminate for breach of the warranty.
3.2.2 Use "represent" where the innocent party is to have the benefit of the Misrepresentation Act.
3.2.3 Much better, specify what rights the innocent party is to have in the event of breach, and in particular whether or not the innocent party can terminate the contract. A termination for "material breach" clause will do the trick. It is always better to spell out what consequences you propose than to expect the parties to be familiar with the terminology of Nineteenth Century sale of goods law.
3.2.4 The phrase "representations and warranties" is familiar in agreements for the sale and purchase of shares in or businesses of companies. It's often shortened by corporate lawyers to the jargon phrase "reps and warranties". They also like to shorten "due diligence", which is jargon to start with, to "due dil", which is double jargon. In such sale and purchase agreements the consequences of breach are normally spelt out in detail, which makes the technical meanings of "represent and warrant" irrelevant.