Last week, during a session of my online course Drafting Clearer Contracts: Masterclass, out of the blue I saw this in the chat window:
I started using “states” and found nobody minds.
That’s one way real change happens—when no one notices.
I followed up with Julianne, and here’s what she said:
I had often wondered why drafters use difficult or confusing language when introducing statements of fact. Using states instead is a simple and elegant solution. I’m giving it a try, and so far no one has said anything. If anyone asks me about it, I’ll point them to MSCD or your 2015 law review article.
Julianne’s experience matches that of Kevin Heaney. I wrote about his use of states in this 2020 blog post.
Mind you, some people do have a problem with states. In an email to me last week, someone said that using states in a mergers-and-acquisitions contract instead of represents and warrants would cause all sorts of consternation. I agree—if a usage is entrenched and isn’t too annoying (and that’s the case with represents and warrants in M&A), it might be best to leave well enough alone for purposes of a one-off transaction.
They also suggested that even if parties accept states and it’s used in their contract, litigators might ultimately try to make mischief by arguing that it must mean something other than represents and warrants. And in a similar vein, in this comment to yesterday’s post, someone expressed concern that using states could preclude an action for misrepresentation. I don’t share those concerns. For one thing, represents and warrants is a fiasco, states is clear, and no U.S. court has ever decided remedies based on what verb is used to introduce statements of fact.
And if you care about remedies, you have the power, you have the responsibility, to be explicit about it, instead of indulging in addled legalistic make-believe code. For example, you could say this in your contract: The verb used to introduce a statement of fact in this agreement is not intended to affect the remedies available for inaccuracy of that statement of fact. Or you could preclude, or permit, whatever the heck remedy you’re concerned about.
States. It’s here, it’s clear, get used to it.
4 thoughts on ““States”: It’s Here, It’s Clear, Get Used to It”
We’ll see what happens when Alice and Bob litigate, e.g., whether the term “Alice states X” would result in Alice’s being strictly liable to Bob if X turned out not to be true (as would be the case with a warranty by Alice), or whether Alice can avoid liability if she can show that Bob’s reliance on her statement was unreasonable (as would be the case with a representation).
I have been translating legal stuff for 30+ years from English into Hungarian and vice versa.
When I translate a Hungarian contract into English I have instinctively used “states” instead of “represents and warrants” because in 99% of cases the client does not want a Hungarian contract to look like it was made in London (or New York)
Here’s my take:
1/ (a) Statements and (b) remedies for falsity of statements are two different things.
2/ ‘Represents’ is a foolish way to couple a statement and a remedy. It wants to mean ‘If the following statement is false, the remedies for misrepresentation will be available to Acme’.
3/ ‘Warrants’ is a foolish way to couple a statement and a remedy. It wants to mean ‘If the following statement is false, the remedies for breach of warranty will be available to Acme’.
4/ ‘Represents and warrants’ is a foolish way to couple a statement and two remedies. It wants to mean ‘If the following statement is false, the remedies for misrepresentation, breach of warranty, or both, will be available’ to Acme.
5/ Ken has adequately stated why the above usages are bad.
6/ If I understand Ken’s recommended usage, he advises using statements by a specified party, introduced by the verb ‘states’ and specifying the consequences of falsity for the stating party and the non-stating party (or not specifying the consequences because the parties tacitly rely on those provided by applicable extracontractual ‘background’ law).
7/ I would proceed slightly differently, because I see no need for free-standing statements or the attribution of such statements to a party. I would structure such provisions as conditional statements of consequences of falsity, as in ‘If any delivered Widget is rusty, Widgetco shall replace it within a day of receiving notice from Acme’. I see no need to preface such a provision with ‘Widgetco states that none of the Widgets to be delivered is rusty’.
8/ Another example: ‘The Employer shall not take any adverse employment action against the Employee on account of any criminal charges, convictions, or sentences imposed on the Employee before this agreement is effective’. No need, I think, for any prefaced statements or acknowledgments like ‘The Employee states, and the Employer acknowledges, that the Employee has spent time in the nick for fraud’.
9/ So, in sum, ‘states’ is better than ‘represents’, ‘warrants’, or both because it ditches the mashup of statement and consequence of falsity, but ‘states’ is worse than simply cutting to the chase and specifying the consequences if certain things prove false. Occam’s Razor. Omit needless words.
10/ D.C.’s comment hints at the complexity that may face the drafter in specifying what happens if ‘Alice states X’ (to Bob) and X is false. Must the drafter specify that Alice will not be liable unless Bob relied on the truth of X and Bob’s reliance was reasonable? If a ‘states’ contract doesn’t so specify, is Alice liable if Bob’s reliance on X was unreasonable? Off to the drafting races on this and many other questions.
11/ Depending on what’s at stake, the drafter (really the parties) may want to go with something like ‘If X is untrue, Acme will have all remedies available to it under applicable law, whether in contract, equity, statute, tort, or otherwise, inclusively’. That amounts, I think, to an articulated reliance on background law, with an attempt to grab background remedies that might not be available without such language. If the attempt fails, the phrasing may yield no better results than using ‘represents and warrants’.
12/ Similarly problematic would be ‘If X is false, Widgetco shall compensate Acme as in a tort case for misrepresentation or as in a contract case for breach of warranty, at Acme’s election’. Ken has previously pointed out the risk of trying to tell courts to apply tort law to contract cases and contract law to tort cases. ‘Contracting around’ background law may be futile and the attempt expensive in negotiation cost and time. –Wright
Ooooh, your point 7 doesn’t work, because it’s not a statement of fact, it’s a “future fact.” See https://www.adamsdrafting.com/future-facts-dont-use-them/.
More generally, it’s consistent with MSCD to express a statement of fact as a conditional clause associated with the consequences of that conditional clause (see the discussion of “warranty” in chapter 13), but it wouldn’t work for all statements of fact, because usually the consequence would simply be that the other party has a remedy of some sort.
And regarding your point 8, having one part disclose stuff and another party say what it will or won’t do regarding that stuff are two different things.