“Representations and Warranties”—Glenn West Wades In

Following on this September 18 post and this September 20 post, the saga continues: Glenn West, partner at Weil Gotshal and author of the two most useful articles on substantive contract law that I’ve come across in a long time, agrees with me on represents and warrants and representations and warranties. Below is the email Glenn sent me in connection with the September 18 post; below that is my reply.

Ken,

By acknowledging that there was disagreement among modern commentators, I did not intend to restart the debate about whether there is a difference between representations and warranties within the context of a written agreement containing such terms. Indeed, as noted in my latest article on extra-contractual liability (page 1008), whether you represent or warrant a factual matter in a contract doesn’t matter at all—a representation incorporated into a contract is an express contractual promise-warranty-guaranty (for the purpose of applying contract rather than tort law doctrines). And in a 2007 article I co-authored, “Debunking the Myth of the Sandbagging Buyer: When Sellers Ask Buyers to Agree to Anti-Sandbagging Clauses, Who is Sandbagging Whom?,” published in the M&A Lawyer, I said “… there is no longer any distinction in contract between a warranty, a representation, and a separately indemnifiable matter in the U.S. (if there ever was) ….”

It appears that every time this issue re-emerges someone is confusing your drafting issue with the doctrinal distinctions between a breach of contract claim and a misrepresentation claim brought in tort. While the term “representations” does carry some unfortunate historical baggage, it is just that—historical baggage related to the court’s early reluctance to treat affirmation of facts as contractual at all (see discussion in my M&A Lawyer article, citing to Kwestel’s great Suffolk L.Rev. article from 1992). But I am aware of no authority that suggests that by merely calling a factual assertion a warranty and not a representation, you can thereby avoid the potential for a court to utilize tort law concepts in addressing that factual assertion. And there is lots of case law equating representations set forth within a contract as being express warranties for the purpose of applying contractual remedies for their inaccuracy (and even cases applying tort remedies to factual assertions labeled “warranties”). As indicated in my latest article, if I had my druthers, I would eliminate all representations and warranties from contracts and replace them with a list of matters that were subject to indemnification if they proved inaccurate, but I am fairly certain convention will prevent such a radical shift in drafting style—see footnote 233 of my latest article on page 1037. And that same convention continues to cause me to fail your litmus test and to continue to use both representations and warranties rather than just represents (even though I clearly know better).

The point of my latest Business Lawyer article was to actually take the remedy issue head on (as you suggested in your MSCD) with respect to all contractual assertions of fact (no matter what they are called) so that tort claims are not used to override the parties contractually agreed remedies respecting those contractual assertions of fact. The fact remains that, no matter what it is called, a contractual affirmation of a factual matter continues to confound and confuse the courts and practitioners as to whether the proper doctrinal approach to the inaccuracy of these factual assertions is contract or tort, or a combination of both. The aim of my current Business Lawyer article is to acknowledge this unfortunate state of affairs and suggest that contract is the correct approach in sophisticated transactions.

I do wish I would have read your MSCD before I made my efforts at drafting my appendix of model provisions. I look forward one day to reviewing your rewrite of the model provisions I offered.

Best wishes.

Here’s my reply:

Glenn: I’m delighted that we’re in agreement on this issue. I apologize that you had to point that out to me. It seems lame, but I have yet to read your articles closely. I’ve been saving them for when I start work on a related project, but it’s clear I need to read them now.
 
I’m OK with keeping factual assertions separate. They’re important not only for indemnification but also for purposes of the bringdown condition. I’m sure that’s something we could discuss at length at some stage.
 
Regarding what word you use, once you address the remedies issue head on, you could call factual assertions whatever outlandish name you want—it couldn’t do any harm. But I’m working to make contract language a commodity, and as part of that I want to purge contract language of any trace of misconception. So I’ll call assertions of fact representations, and I’ll have parties represent—I think that’s the path of least resistance.

Best regards,

Ken

The transactional world will doubtless out of sheer inertia continue using represents and warrants and representations and warranties for a good long while. But you couldn’t reasonably maintain that you’re accomplishing something useful by doing so. And the same rationale applies in other jurisdictions. As far as I’m concerned, case closed, game over.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.