Transactions #1-Reps and Warranties Pt.1
I believe I have not come by any attorney that doesn't know or at least hasn't heard of the famous "Representations and Warranties" in a contract. Whether you are a litigator, a tax or a corporate attorney, there is always a section in the contracts with this heading.
But what are the representations and warranties? What implications do they have in the performance and during the life of the contract? What are the consequences of breaching them? I will try to put in writing all I know and all I learn about the R&W in various posts.
In this one, I want to try to fully understand what are the representations and warranties.
Without much detail:
(a) a Representation is a statement of fact or present intention made by one party to another in which the other party relies to enter into such contract; and
(b) a Warranty is a contractual promise made by one of the parties to the other party that a particular state of affairs exist at a given time with respect to something.
Basically, one party makes an explicit statement with regards to the status of itself or the object of the contract.
In an M&A transaction, for example, the seller may represent that the charters provided to the buyer are in full force and effect and they have not been amended. In a debt transaction, the lender may request that the borrower follows the proper accounting standards.
In following posts I will analyze the objectives and effects of the "Reps & Warrants" and also the usual consequencies of breaching them.