Representations and Warranties Clauses in Commercial Contracts: Avoiding Drafting and Negotiation Pitfalls

Description

Reps and warranties provisions are key clauses in commercial contracts. Representations are promises that induce one party to enter the contract, while warranties give that party assurance that the representations are reliable. Reps and warranties clauses are supported by an implied promise of indemnity if the representations turn out to be false.

Drafting warranties poses challenges. Business counsel must strategically negotiate reps and warranties clauses to ensure their clients’ rights are adequately protected. Counsel needs to understand the difference between a legally operative express warranty and mere puffery that imposes no legal obligation. Counsel for the party making the representations and warranties frequently seek broad disclaimers of implied warranties and strict indemnification clauses. It is imperative that counsel recognize how to properly draft an effective disclaimer. And importantly, depending on the wording, the protections of a warranty can be extended far into the future—and the statute of limitations would not even start to run until the buyer discovers or reasonably should discover a breach. Counsel for both parties need to recognize that the words they use can drastically affect their clients’ rights.

The lawyer also needs to be concerned about what happens after contract formation—the UCC allows for post-formation warranties, and “course of performance” can “supplement” (add to) the carefully drafted terms of a contract. The attorney needs to counsel his or her client to recognize that their words and conduct can actually change the contract.

Listen as our panel of attorneys experienced in negotiating commercial contracts discusses best practices for drafting and negotiating reps and warranties clauses in the agreements. The panel will provide strategies for avoiding common negotiation and enforcement pitfalls and resolving contract disputes.