It involves representations. And warranties. He expected that I would freak. I can see him cackling and rubbing his hands together.
Anyone who has read this blog for a while knows that those terms can get me agitated. (For the full story, see this 2015 article.) And indeed, I did instinctively start looking for stuff to smash. But you know what? It turns out that this opinion doesn’t cause me any agita. Allow me to explain.
This dispute involved breach of contract and fraudulent inducement claims made by the plaintiff, Pivotal Payments, against the defendant, Planet Payment. Under New York law, a fraudulent inducement claim requires that the plaintiff state that there was “a knowing misrepresentation of material present fact, which [was] intended to deceive [plaintiff] and induce [plaintiff] to act on it, resulting in injury.”
The court denied Planet’s motion to dismiss. The part we’re interested involves Planet’s argument that the terms of the contract between Pivotal and Planet prevented Pivotal from bringing fraudulent inducement claims based on parol evidence. One of the provisions that Planet pointed to was the following disclaimer of warranties:
THE WARRANTIES SET FORTH IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THOSE OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
Here’s what the court said (citation omitted):
This provision does not disclaim the representations, only warranties. The MCPA uses the terms “representations” and “warranties” as distinct words, as seen in Schedule 3 ¶ 9(i). In addition, this warranties provision specifically addresses warranties related to the sale of goods: merchantability and fitness for a particular purpose. Moreover, ¶ 7 of the MCPA makes distinctions between “mutual representations and covenants” and “warranties.” Therefore, this provision also does not appear to disclaim the representations at issue in this action.
It was the first sentence of that extract in particular that Glenn thought would get me going. After all, I’ve said umpteen times that it’s loony to derive legal consequences from whether a statement of fact is described in a contract as a representation or whether it’s described as a warranty.
But the key phrase is “statement of fact.” In contracts, the word warranty appears in two separate contexts. First, it’s used, invariably with represents, to introduce statements of fact. And second, in contracts for the sale of goods (plus some other less salient contexts), it’s used to state and disclaim warranties. Under the Uniform Commercial Code, a warranty can be a statement of fact or it can be an obligation.
The provision quoted above falls within the second context. So the court in effect distinguished the disclaimer from first-context statements of fact.
The opinion was inartfully worded. And I’m not going to invest the time necessary to figure out whether the court’s decision ultimately makes sense. But because this dispute explicitly straddles the two warranty contexts, it’s very different from traditionalists seeking to attribute remedies or other occult significance to verbs used to introduce statements of fact. This opinion won’t keep me up at night.
Meanwhile, represents and warrants continues to be a zombie usage (see this 2015 post). It’s still the prevailing orthodoxy, but that’s a function of inertia and expediency; my consulting clients are happily using states. Anyone who thinks the phrase represents and warrants serves a useful function needs a sanity check.