Key Takeaways

  • Representation in contract law involves statements of fact made before or at the time of a contract to induce agreement, forming a foundation of trust and reliance.
  • Representations differ from warranties and covenants: representations address past or present facts, warranties guarantee future conditions, and covenants outline promises of action.
  • Misrepresentation can lead to remedies such as rescission, damages, or indemnification, depending on intent and reliance.
  • Contract drafters should define representations precisely and consider including limitations on liability and indemnification provisions.
  • Courts interpret representations based on context, timing, and reliance — emphasizing careful drafting and due diligence.

Contract of Representation

Contract of representation represents truth in a contract. Each contract has warranties and representations which underscore facts and issues pertaining to agreement terms. When selling something in the form of real estate, for example, the seller represents him or herself as the owner, who is the authority to sell the property. He or she warrants that the property in question has been represented truthfully.

When you purchase a new washing machine from a store, you go through the process with certain suppositions, such as:

  • The store has a right to sell the washing machine to you
  • The washing machine works as stated in an advertisement
  • The model and manufacturer of the washing machine is true
  • The seller/manufacturer warrant that a product is free from defects for a certain period

When an agreement invokes terms such as “warranty” and “representation” together, they combine the past, present, and future within the confines of the agreement. Each agreement differs, but the language is the same. Warranties and representations are guarantees that a party issues to another within a contract. Such assurances are a statement that the buying party can purchase goods or service in good faith.

Moreover, a representation is presented as a statement of facts, arguments, or allegations. It also displays everything from past to current. A representation comprises a statement by one or several contracting parties to another at the time or before the drafting of the agreement pertaining to a circumstance or fact that’s relevant to the agreement. Also, the representation should be vital to all parties involved. In the world of insurance, representation is collateral.

Further, a distinction must be made between a representation and a warranty. The former precedes the agreement of insurance, and not part of it. Warranty comes with the agreement and must be filled as intended. When discussing the laws of descent and distribution, a representation is the principle in which the problem of the deceased person inherits or takes a share in the estate, where a relative would have inherited if living. Moreover, representation is a name of a statement or plea that’s presented to lords during court session, when a judgement is under review under Scots law.

Consequences of False Representations

False representations can have serious legal consequences, depending on the type and intent:

  1. Fraudulent Misrepresentation: Knowingly false statements made with intent to deceive. Remedies include rescission, damages, and sometimes punitive damages.
  2. Negligent Misrepresentation: Statements made carelessly without reasonable grounds for belief. Remedies often include damages.
  3. Innocent Misrepresentation: Honest but incorrect statements. Remedies may include rescission, though damages are less common.

Many commercial contracts also include indemnification clauses that allocate risk if a representation turns out to be false. These clauses may limit the damages payable, impose time limits for claims, or require specific notice procedures before legal action can be taken.

Representation vs. Warranty vs. Covenant

While closely related, representations, warranties, and covenants serve distinct legal functions and should not be used interchangeably:

  • Representation: A statement of fact made before or at the time of contracting. Its breach often gives rise to remedies for misrepresentation, including rescission and damages.
  • Warranty: A contractual promise that a statement about the present or future is true. Breach leads to a claim for damages but typically does not invalidate the contract.
  • Covenant: A binding promise to do or refrain from doing something in the future. Breach constitutes a breach of contract.

For instance, in a business acquisition agreement, a representation might confirm that “all tax filings are accurate,” a warranty might promise that “the company will remain in good standing until closing,” and a covenant might require that “the seller will not incur new debt before closing.” Each plays a unique role in defining the parties’ expectations and remedies.

Understanding Representations in Contract Law

Representation in contract law refers to a factual statement made by one party to another before or at the time of contracting, which influences the decision to enter into the agreement. These statements are not mere opinions — they are intended to be relied upon as true. They typically relate to the present or past state of affairs and can significantly affect the validity and enforceability of a contract.

For example, if a seller states that a company’s financial statements are accurate and compliant with accounting standards, that statement is a representation. If later found false, the buyer may claim misrepresentation, even if the warranty section of the contract does not address financial disclosures.

Key elements of a legally significant representation include:

  • Statement of fact: Must relate to a verifiable fact, not opinion.
  • Materiality: Must be relevant to the decision to contract.
  • Reliance: The other party must reasonably rely on the statement.
  • Intent: The representation must be made with the intent to induce the contract.

Misrepresentations — whether fraudulent, negligent, or innocent — can give rise to remedies including rescission (voiding the contract), damages, or specific performance.

Warranty Benefits

Warranties usually shift from the present to the future. The product you are getting is warranted as being new and defect-free. Also, the company will address any damage or defection for a certain time. Certain products advertise lifetime warranties.

  • Example: If you purchase headphones with a lifetime warranty, you may send them back to the business if a malfunction occurs. The warranty would obligate the seller to abide by the contract and fix the headphones.

Warranties can be implied or expressed. Expressed warranty means the terms are written into the agreement and buyers should insist all warranty claims are included in the contract. Implied warranties simply imply that a product is free of defects or damage. It’s worth noting that express contracts are better than implied ones when presenting a warranty case before a judge. 

License Agreements

When it comes to license agreements, many people fail to know the differences between representation, covenants, and warranties. Also, many believe the terms are the same and can be used interchangeably. This is not the case. Take note of the following definitions:

  • Covenant: A covenant entails a promise from a person who pledges something to be completed or will be done in the future. For instance, a licensee would pay licensors a flat royalty of 5 percent of gross revenues from the sale of the licensed product. Another example is if company A agrees not to sue company B under patents listed for infringement from any act from company B of the use, manufacturer, offer, or sale that happens after an effective date.
  • Warranty: This entails a stipulation or undertaking where a seller or manufacturer guarantees that a contract is stated as promised. For instance, a licensor warrants a licensee that it did not receive any claim and is not worried that the licensed technology misappropriated or infringed the rights of any other individual.
  • Representation: This comprises a statement from one party that a statement is factual. Moreover, warranties should be a statement from a party and will accept any financial burdens if proved to be untrue.

Drafting Best Practices for Representations

Because representations play a critical role in allocating risk and setting expectations, careful drafting is essential. Consider the following best practices:

  • Use clear, specific language: Avoid vague statements or overbroad assurances.
  • Distinguish representations from warranties and covenants: Draft each category separately to ensure clarity of remedies.
  • Include knowledge qualifiers: Phrases like “to the best of the seller’s knowledge” can limit liability.
  • Set time limits: Define how long representations survive after closing.
  • Incorporate disclosure schedules: These allow exceptions to representations, reducing potential liability.
  • Address remedies: Specify the consequences of false representations, including indemnification procedures, caps, or exclusive remedies.

Thoughtful drafting helps prevent disputes and ensures that representations serve their intended function in supporting reliance, risk allocation, and contractual certainty.

Frequently Asked Questions

  1. What is representation in contract law?
    Representation is a factual statement made by one party to another that induces the other party to enter into a contract. It forms the basis of trust and reliance between parties.
  2. How is a representation different from a warranty?
    A representation addresses past or present facts and can lead to remedies like rescission if false, while a warranty is a contractual promise about future conditions, with breach leading primarily to damages.
  3. What happens if a representation is false?
    The affected party may seek remedies such as rescission of the contract, damages, or indemnification, depending on whether the misrepresentation was fraudulent, negligent, or innocent.
  4. Can a representation be implied, or must it be written?
    While representations are often written into contracts, they can also be implied by conduct or verbal statements. However, written representations are easier to prove in court.
  5. Should representations always be included in commercial contracts?
    Yes. Including well-drafted representations clarifies the parties’ understanding, reduces the risk of disputes, and provides clear remedies if statements turn out to be false.

To learn more about contract of representation, you can post your job on UpCounsel’s website. UpCounsel’s attorneys will provide information on contract clauses and terminology that you may not understand. In addition, they will read over any questions on your behalf to see if any contract terms work to your disadvantage.