Representations vs Warranties: The key differences

Representations and warranties are two legal concepts often included in commercial contracts to allocate risk between the parties. It is important to understand the differences between representations and warranties, both in their operation and the remedies available upon breach.

Representations are statements made to induce a party to enter into a particular contract. Representations are statements of fact made either before or at the time of entering into the contract, and may or may not be included as a term of the contract.

Warranties are statements or promises that are held out to be true, either at the present time or in the future. The subject matter of a warranty may be any fact, conduct or circumstance related to the contract. Warranties are included as terms of the contract.

Remedies

Breaches of representations and warranties gives rise to different remedies.

Remedies for breach of Representation: a breach of a representation occurs as a misrepresentation. Recission is the primary remedy for a misrepresentation and acts as a protective mechanism. The party affected by the misrepresentation can seek to rescind (cancel) the contract, with the aim of putting the parties back in their pre-contractual position, where this is possible.

Further, the innocent party may be able to claim damages, either in addition or as an alternative to rescinding the contact. Damages may be claimed through an action in tort, contract (if the representation forms part of the contact) or as part of an action under the Australian Consumer Law for misleading and deceptive conduct.

Remedies for breach of a Warranty: If a warranty is breached, the innocent party is entitled to claim for breach of contract and contractual damages. This is a compensatory remedy, with damages intended to put the party in the same position they would have been in had the contract been performed in accordance with the warranty.

Practical implications

The practical effect of a breach of a representation or a warranty will depend on the construction of the specific contract that they relate to. A contract may contain terms that mitigate or reduce liability for representations or the scope of warranties and regulate the rights and obligations of the parties where a breach occurs.

Page Seager Lawyers can assist with any contract enquires that you may have.