Don’t worry—I’m not going to get on my representations and warranties hobby-horse again.
Instead, I just want to point out some terms that are inappropriately used in relation to representations.
As I say in MSCD 3.113, one breaches an obligation, but not a representation. Instead, a representation, like any statement of fact, is either accurate or inaccurate. If I tell you that it’s Monday but it’s in fact Tuesday, I haven’t “breached” anything. Instead, I’ve made an inaccurate statement.
This distinction is worth pointing out for its own sake, but it might also help drafters avoid a further glitch, namely inappropriately lumping representations with obligations. It’s commonplace for contracts to provide for the possibility of cure of not only breached obligations but also “breached” representations. But a party cannot subsequently make accurate an inaccurate representation. One could conceivably arrange for an inaccurate representation to be accurate if it were made again at some point in the future, but even that would be awkward if the representation contained a “reference point”—a point in time as of which the representation spoke with respect to the facts asserted. (For example, “as of the date of this agreement.”)
In the same vein, a representation is either accurate or inaccurate—it cannot become inaccurate. Making this mistake would interfere with the logic underpinning the provision, commonplace in M&A contracts, allowing for termination if the bringdown condition cannot be satisfied.
This is a topic I address at slightly greater length in my article on the structure of M&A contracts. I haven’t yet decided how I’ll be publishing it.
I agree that you cannot breach a representation, but just to be clear, one can breach a contract by making an inaccurate representation. Let’s not deprive our litigation friends of their little nuggets of gold.
Next, how does this work with the pick-one idea for the terms “representation” and “warranty?” (MSCD 3.104-3.107). Having an “inaccurate warranty” doesn’t make any sense. Moreover, one can undoubtedly breach a warranty. Maybe we are now seeing some of the distinguishable features between “representations” and “warranties.”
Also, warranties are almost always coupled with specific remedy, which creates an obligation. So lumping representations and warranties together causes a representation-obligation lumping.
I don’t mean to force you back on your hobby-horse, but maybe it’s time again.
Brian: Just when I thought I was out, they pull me back in!
I agree with your thoughts on “warranty.” Any given warranty could be a statement of fact or an obligation. And a warranty will indeed generally be coupled with a remedy: The Equipment performs according to the Specifications; if it doesn’t, we’ll fix it. Those factors help explain why referring to “breach” of a warranty sounds OK.
I also agree that these nuances help distinguish “representation” and “warranty,” and that inaccurate representation = breached contract. But to tell the truth, I generally don’t refer to breach of contract; I prefer to identify the problem more specifically.
Ken
To be honest, I have always felt that the reps/warranties/obligation thing is incredibly convoluted. Let me give you an example: compliance with the law:
* Service Provider represents that it is, and will remain, in compliance with the law.
* Service Provider warrants that the services comply with the law.
* Services Provider will perform the services in compliance with the law.
Variations of the above have recently appeared in a number of contracts I’ve looked at from a number of different sources. My hunch is that, they all result in a breach if broken and have the same remedy: get your butt in compliance.
Mike: If you’re dealing with a circumstance that is known at the time of signing, it would be most economical to address it in a representation: Service Provider represents that it has provided the Services in compliance with all laws.
If you’re dealing with a future circumstance and it’s under the control of a party, it would be best to address that by means of an obligation: Service Provider shall provide the Services in compliance with all laws. It would be counterintuitive to phrase it as a representation: in effect, you’d be asking someone to look into a crystal ball and forecast future facts.
I won’t address warrants, since you’re probably familiar with my views on its role.
Ken