10/27/2018 Representations, Warranties and Covenants: Why They’re Different and Why It Matters

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Representations, Warranties and

Covenants: Why They’re Different
and Why It Matters
Eric Lambert Follow
Creative/proactive/techie contrac… 131 15 16

It's quite common in a contract to find representations, warranties and covenants grouped
together as if they are a single concept, for example, "ABC represents, warrants and covenants to
XYZ that ...." or "Company represents and warrants that ...."  The primary reason for this is that
many people, both attorneys and businesspersons alike, do not fully appreciate how the
differences between these terms can affect the interpretation of (and remedies for failure to
comply with) the contract, and therefore view them as interchangeable. To many, all three terms
are synonymous with “promise” and therefore can be used in any combination. In reality, each is
separate and distinct from the other, with different meanings, interpretations and remedies.
Understanding these differences, and properly using these terms in contracts, can be
critically important to ensure that you are entering into a contract relying on the right statements
and promises, establishing the right remedies, in the event a statement or promise turns out to
be untrue or incorrect. Understanding the differences between the three terms is a great place to
start.   As you read the rest of this article, use this chart to differentiate the three terms:

Representations are statements of past or present fact or circumstance. It’s a contractual

statement that a fact or circumstance is presently true, and/or has been true in the past. (A

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10/27/2018 Representations, Warranties and Covenants: Why They’re Different and Why It Matters

statement of future fact is really just an opinion, since future facts can’t be known.) 
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Representations are generally included in an agreement to induce a party to enter into an
agreement in the first place -- without the representation as to certain present circumstances
and/or past facts, the other party wouldn’t execute the agreement.  An example of a
representation is “the execution of this Agreement does not conflict with any obligation to which
the party is currently bound,” a present statement of fact that signing the agreement by that
party will not result in a breach of another agreement.

Representations are either true or not at the time the representation is made. This is why breach
of a representations gives rise to a remedy that breach of warranty or covenant does not. Breach
of a representation may give rise to a right by the non-breaching party to void the entire
agreement under such theories as fraudulent misrepresentation or fraudulent inducement to
contract, in which case the non-breaching party may be able to recover “rescission” damages to
put it in the position it was in prior to execution of the agreement, e.g., repayment of fees paid.
To succeed in a claim of fraudulent misrepresentation, the non-breaching party must prove that
it did not know the representation was false, and that the breaching party knew it was false when
it was made. It’s important to note that in the event of a breach of representation, the non-
breaching party can alternatively affirm (not void) the contract and bring an action for other
contractual (and in some cases punitive) damages.  Using “represents” too broadly in a contract
can unintentionally over-expose a company to claims that the contract is voidable. On the other
hand, if you see a contract that contains only warranties and not representations, it may be
because they are trying to control the damages available from breach.
Warranties are statements or promise of current and future condition. It’s a contractual
statement that a condition is, and/or will be, true when made and/or for a period of time, often
for the term of the agreement.  An example of a warranty is “ABC warrants that the Licensed
Software conforms in all material respect to its documentation and is free of bugs” or “ABC
warrants that the Deliverables do not infringe the intellectual property rights of any third party.” 
This is a statement of current and future condition – the software licensed in the agreement are
in conformance to the software documentation and do not contain bugs.  The software may be
conforming and free of bugs at the time the warranty is made, but the condition can change
during the course of the agreement (e.g., a maintenance release breaks something or introduces
a bug).  A warranty which is a statement of current condition is called an “affirmative warranty,”
and a warranty which is a promise of future condition is called a “promissory warranty.”

Unlike a representation, which is made to induce a party to enter into a contract, a warranty is a
core term of the contract during performance.  Further, unlike a representation, a non-breaching
party does not need to believe a warranty is true or not.  By making a statement/promise of
condition, the non-breaching party is relying on the condition to remain the same during the
warranty period, instead of relying on whether it was true when made, and requires strict
compliance by the party making the warranty. Additionally, unlike representations, some
warranties can be implied into a contract by law, such as the implied warranty of merchantability
or fitness for a particular purpose.

In the event of a breach of warranty, the non-breaching party may be entitled to damages
resulting from the breach to put them in the position they would have been in had the breach
not occurred (“benefit of the bargain” damages).  In some cases, a contract will provide for
specific remedies in connection with a breach of warranty (e.g., commercially reasonable efforts
to repair). Take the warranty example from earlier – an exclusive remedy could be to correct the
deficiencies or bugs in the Licensed Software. Some contracts also include specific disclaimers of
certain implied warranties, and/or more general warranty disclaimers. However, unlike a
representation, a breach of warranty does not give rise to a right to void the contract.  This is
why using the term “represents and warrants” can be very dangerous -- making both a
representation and a warranty can give rise to a broader range of remedies than one or the other
alone.
Covenants are promises of future action or inaction.  It’s a contractual statement that a party
will do, or will not do, something during a period of time (often the term of the agreement).  An
example of a positive contractual covenant is “Party A shall issue a press release announcing the
relationship within 30 calendar days of the Effective Date”; an example of a negative covenant is
“Party A shall not issue a press release or make any public statement regarding the terms of the
Agreement during the term of this Agreement.” A very common negative covenant is a non-
solicitation provision under which a party agrees not to solicit employees of the other party for a

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10/27/2018 Representations, Warranties and Covenants: Why They’re Different and Why It Matters

period of time. The action or inaction will occur in the future, not at the time the covenant is
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made.  It is often related to, but not key to, a party’s performance under an agreement. Like a
warranty, there are certain implied covenants read into every contract, such as the implied
covenant of good faith and fair dealing.  Unlike a warranty, some of these implied covenants
cannot be waived by the parties.

Like a warranty, a covenant is a part of the contract, and not made to induce a party to enter into
the contract. In the event of a breach of a covenant, in addition to compensatory damages for
breach of contract, if the covenant is material enough it could excuse the future performance of
the non-breaching party (e.g., the breach of covenant frustrates the purpose of the agreement
such that continued performance no longer matters), and may give rise to a right of rescission
similar to a breach of representation.  Further, unlike the breach of a representation or warranty,
the breach of a covenant may give rise to injunctive relief or specific performance.
Note that while understanding these differences is important, some courts have found that
material representations are really implied warranties.  Additionally, the Uniform Commercial
Code makes clear that a warranty can exist even if the words “warrant” or “guarantee” are not
used.  Further, the express terms of an agreement can limit the types and scope of remedies
available for breaches of representations, warranties and/or covenants.  Finally, remember that in
many contracts, one class of indemnified claims is breach of representations, warranties and/or
covenants which can result in broad indemnification of the other party, so check your
indemnification provision to ensure your usage of these terms in the indemnity aligns with your
usage in the rest of the agreement, and aligns with the third party claims for which you want to
provide indemnification coverage to the other party.
An earlier version of this post first appeared as an article on my blog, Notes from the Trenches.
Eric Lambert is Assistant General Counsel at CommerceHub, Inc., a leading cloud services
provider helping retailers and brands increase sales and delight shoppers by expanding product
assortment, promoting and selling products on the channels that perform, and enabling rapid, on-
time customer delivery. Any opinions in this post are his own. This post does not constitute, nor
should it be construed as, legal advice. Eric works primarily from his home office outside of
Minneapolis, Minnesota. He is a technophile and Internet evangelist/enthusiast. In his spare time
Eric dabbles in voice-over work and implementing and integrating connected home technologies.

Eric Eric Lambert

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15 comments

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Neal Neal Unitt-Jones

1mo
Unitt-
Jones
Nice. I'm going to put this in all the procurement contracts that I get from lazy vendors;
"LaZee Vendor represents, warrants and covenants that it knows what represents,
warrants and covenants actually means." :-)
Like Reply

Trang Nguyen T. Kim 4mo

Trang Trainee Lawyer
Nguyen
T. Kim Thanks, very helpful
Like Reply

Minh Minh NguyenDuc

4mo
NguyenDuc
Lawyer at VNLAW

It is clear and very helpful 

Like Reply

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10/27/2018 Representations, Warranties and Covenants: Why They’re Different and Why It Matters

王福 王福庆 5mo

庆 英语翻译 - Freelancer Sign in Join now

very visually clarified and clear. thank you.

Like Reply 1 Like

Pranjal Kalantri 5mo

Pranjal Associate at Clove Legal
Kalantri
Akshay Madan Yash Tripathi
Like Reply

Truc Truc Hong Viet

8mo
Hong Assistant Marketing Manager (Intern)
Viet
Very detailed. Thank you.
Like Reply 1 Like

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