The current issue of Business Law Today, published by the ABA Section of Business Law, contains my article The Phrase Represents and Warrants Is Pointless and Confusing (here). How’s that for a direct title?
This article is a boiled-down version of my recent article in the Tennessee Journal of Business Law (here). I omitted discussion of English law, use of only warrants in the context of sale of goods, and all those juicy footnotes.
I have yet to see any meaningful criticism by commentators or academics of my position on represents and warrants. By that, I mean no one has attempted to rebut my arguments. (Reciting the conventional wisdom doesn’t count.) I fear that in the U.S. at least, scholarship of the building blocks of contract language, c’est moi. (I put Glenn West in the what-to-say camp; I’m primarily how-to-say-it.)
It’s you, readers, who don’t hesitate to set me straight. Keep it coming.
Since you ask, a few comments:
You recommend: ‘Use *states* to introduce statements of fact in a contract.’
It would be clearer to say ‘use *states* to connect declarants with declared facts in the body of a contract’. Here’s why:
(1) A naked (unattributed) statement of fact is obviously a ‘statement’ and needs no ‘introduction’ to identify it as such. The lead-in makes every naked statement of fact that follows automatically a ‘stipulation of fact’ or ‘joint statement of fact’; and
(2) Recitals often contain or consist of statements of fact ‘in a contract’ and the ‘states’ recommendation doesn’t apply to recitals, so a reference to the ‘body’ would be appropriate.
Even if modified, I disagree mildly with the recommendation since a drafter can specify consequences for falsity of stated facts without specifying a declarant for each fact. See below.
You say (paraphrase): ‘If you want to include or exclude certain consequences for the falsity of a statement of fact, do so explicitly’.
Agree fully, with three comments:
(3) ‘Consequences’ can be remedies or other non-remedial consequences. An example of the latter would be absence of duty to close if a statement of fact constituting a closing condition were false at the applicable time;
(4) References to consequences for falsity of naked statements of fact can be ‘explicit’ even if to ‘background law’ such as ‘remedies for breach of contract up the Monetary Cap’; ie, a remedy or other consequence of falsity of every statement of fact need not be spelt out in detail anywhere in the contract; and
(5) Naked statements of fact can be grouped according to the consequence of the falsity of any of them; ie, the explicit consequence of falsity of each statement of fact need not be set forth separately next to each one. The drafter can state the consequence applicable to facts in a list before the list, after the list, or elsewhere in the contract.
In sum: ‘represents’, ‘warrants’, and ‘states’ are equally unnecessary.
Traditionalists regard my take as eccentric. This eccentric regards your take as eccentric!
Eccentric, I leave to others, but efficient, I claim: Why does a drafter need (1) a declarant, (2) an introductory verb, (3) a statement of fact, and (4) a statement of remedy or other consequence of falsity, when the drafter can structure the whole thing as a party’s conditional obligation? ‘If any Widgets Widgetco delivers are not new but reconditioned, Widgetco shall, promptly upon Acme’s timely request, replace each reconditioned Widget with a new Widget’. I’m not persuaded that the rest isn’t clutter.
I’d be curious to know what percentage of contracts use these terms compared to the various alternatives. Do you know of any metrics that have been attempted on contract language?
In my book The Structure of M&A Contracts, I Iooked at the contracts (around 80) in one of the ABA Section of Business Law’s “Deal Points” studies. If I recall correctly, all but one used represents and warrants.
Ken:
I draft a lot of services contracts. In those, the things that business (and especially procurement) people think of as “warranties” are really just ordinary promises. So, my solution is to put in an article heading of “Warranties” and then fill the article with promises. Yeah, the content might not technically match the title, but it does from a business person’s perspective.
Chris
As I noted, use of warrants by itself, and references to warranties without representations, is a different matter. What you do is consistent with what I recommend in my longer article.
Exactly, Chris Lemens.
(I tell my students that a warranty is basically a conditional covenant.)
THBBPTHBPT!
Ken writes: “That’s the headscratchingest sentence on contract language I’ve heard in a while.”
A drafter’s (or reviewer’s) main interest in contract language, I submit, should be in predicting the real-world consequences of the language — what people (especially but not exclusively judges) will do, or not do, in response to the contract language. Cf. the first paragraph of Justice Holmes’s The Path of the Law: “When we study law we are …. studying what we shall want in order to appear before judges …. The object of our study, then, is prediction, the prediction of the incidence of the public force through the instrumentality of the courts” 10 Harv. L. Rev. 457 (1897), http://www.gutenberg.org/files/2373/2373-h/2373-h.htm
From that frame of reference, I’m hard-pressed to see any difference between the following:
EXAMPLE 1: Alice warrants that the car she is delivering to Bob is in good working order.
EXAMPLE 2: If Bob shows that the car Alice is delivering to him was not in working order at delivery, then Alice will reimburse Bob for [whatever the contract provides, or absent a specific provision, whatever the law provides].
Examples 1 and 2 seem equivalent to me, at least in material respects. If I’m misinformed, I’d love for someone to explain why.
Since what I wrote is immediately above, you perhaps don’t need to repeat it. But generally speaking, the approach you suggest is broadly compatible with what I propose in my longer R&W article.
So is D.C.’s example 1 language of declaration and example 2 language of obligation’?
AWB, I tend to think in terms of a different taxonomy than “language of declaration,” etc. (See, e.g., Tina Stark’s seven contract concepts in chapter 2 of her Drafting Concepts textbook: Representations. Warranties. Covenants. Rights. Conditions. Discretionary Authority. Declarations.) If Ken will indulge my thinking out loud, so to speak, I keep coming back to the thoughts that:
1) Like it or not, for the foreseeable future many drafters will continue to use terms of art such as “warrants” and, sometimes, “represents.”
Moreover, as Chris Lemens aptly points out, many business people will want to see the word “warranty” in their contracts, even if they have only a vague idea of its actual real-world implications.
2) These terms of art are serviceable shorthand expressions — but only to the extent that we’re confident that a random future reader will interpret the shorthand in the same way we do.
3) So, as I tell my students: W I D D: When In Doubt, Define.
4) In particular, as I’ve probably mentioned here before, we can restate just about any contract concept as an If-Then statement of greater- or lesser complexity; see, e.g., Examples 1 and 2 in my comment above.
Footnote: It seems to me that the covenant and the condition are the elementary particles of contract drafting: Every other contract concept, without exception, can be decomposed into covenants and, sometimes, conditions. (I hesitated to write the preceding sentence, because of my belief that “all categorical statements are bad — including this one.”)
5) That’s why the Common Draft materials include fairly-detailed definitions — as combinations of simple, understandable, If-Then statements — of the terms of art under discussion, namely, “warrant,” “represent,” and “misrepresentation”.
6) Those definitions, I submit, allow drafters to use such shorthand terms of art with increased confidence that a judge (or other future reader) will interpret them in the desired manner.
I’m afraid we share no common ground.