You’re about to enter into a contract, and you notice a funny term: “warrant and represent.” What does that mean, and how does it affect the parties’ relationship?
It’s an important term because it opens the door to multiple ways the counterparty can sue you (and you them, if they warrant and represent things to you that turn out to be untrue or materially incomplete). Essentially, what you’re doing is promising that certain facts are as they are stated in the agreement. (So it goes without saying that you should carefully read the facts you’re promising, and make sure that none are inaccurate.) In the event that the contract is signed but it turns out that one or more of those facts were incorrect (and that incorrect fact harms the other side), they can sue you not only for the breach of contract (“warrant”) and for fraud (“represent”).
The impact of having two avenues all comes down to remedies recoverable in a lawsuit: for breach of contract claims, the plaintiff is relatively limited in what can be recovered; but for fraud claims, punitive damages are available and then all bets are off as to what your liability under the contract might be (unless you’ve negotiated a good limitation of liability term into the agreement). Further, your insurance doesn’t cover intentional torts such as fraud, so be very careful when signing up to such warranties and representations!
Greg Borman is an attorney in San Diego, California, and he advises and represents businesses of all sizes and stages, as well as their owners. He can be reached at greg@bormanlaw.com or at (858) 232-7100.
