BY:  DOUGLAS  DONESON

Every day people sign contracts. For example, a contract must be signed at a Rent-a-car Company in order to rent a car, at a doctor’s office in order to see the doctor, and at a leasing office in order to rent an apartment. Frequently the recipients of services of the above mentioned contracts do not understand all of the terms of the contract that they are signing. Generally, all they know is that they will receive their desired service if they sign the contract.

The contract terms “representations, warranties, and covenants” are common and often overlooked in contracts, but they provide the fundamental structure of a contract and thus require understanding from both parties to a contract. One
reason the terms “representations, warranties, and covenants” are overlooked is because at first glance these three terms appear redundant; by and large, all three terms imply a promise.  The second possible reason little regard is given to these three important words is because the word “covenant” feels ancient and comes off as antiquated and irrelevant. Contrary to these misconceptions, the three terms “representations, warranties, and covenants” have individual significance. Further, today, the word “covenant” has just as much significance as it did in Jacob’s dream when God appeared and made four promises.[1]

The key difference among these three words is temporal—past and present for representations; past, present but mainly future for warranties; and mainly future for covenants.[2]  The remedies for a false representation, breach of warranty or violation of a covenant also have differed.[3]  For these basic reasons it is important to know the significance and individual meaning of these three terms in order to properly implement them.

Representations

Traditionally, a representation precedes and induces a contract.[4]  A representation is information in an express or implied statement that one party to the contract makes to the other before or at the time the contract is entered into regarding a past or existing fact.[5]  An example might be that prior to signing with a record label, an artist in a recording agreement represents that he is currently not signed to any other label.

Typically, a remedy for false representation is not a claim for damages under the contract. Instead, the proper approach for misrepresentation that induces a contract would be a claim for fraud in order to rescind the contract or for damages.[6]  In contracts, representations can function as a “condition” or as a “warranty.” If the representation functions as a condition, it would entitle the party that relied on the condition to repudiate the contract if it was discovered that the condition was false. For example, while signing a recording agreement with a record label, a person represents that he is a famous independent artist. But after signing, the label discovered that this person is a law student and not a famous independent artist. In this situation, the record label would be entitled to repudiate the contract. In contrast, if the representation in a contract functioned as a “warranty,” which was discovered to be false, it might only rise to a claim of damages. For example, while signing a recording agreement with a record label, “Hip Hop Artist” warrants that he will provide the record label with a hip hop album.  But “Hip Hop Artist” records a nu metal album instead. Here, the record label might not be entitled to repudiate the whole contract.

Warranties

Warranties are promises that appear on the face of a contract.[7]  They may include representations, agreements or promises that a proposition of fact is true at the time of the contract and will be true in the future.[8]  Although some warranties, such as a warranty of merchantability, are implied, the language creating an express warranty need not contain special phrases or formal words such as guarantee or warranty.[9]

Warranties provide for obligations that are absolute and are imposed as a matter of law irrespective of whether the seller knew or should have known of the falsity of his representations.[10]  This is significant because it serves as an assurance that a product is as promised.[11]  A warranty is equivalent in effect to a promise that the warranting party will indemnify the other if the assurances are not satisfied. For example, if an artist signed to a label warrants to provide one album of original songs, but instead delivers an album of cover songs without first clearing the licenses for those songs, then the artist would be in breach of warranty and the label would be indemnified from any copyright claim involving the covered songs, since the artist warranted to deliver to the record label, an album consisting of original songs.

A warranty is distinguishable from a representation in several different ways:

(1) a warranty is an essential part of a contract, while a representation is usually only a collateral inducement, (2) an express warranty is usually written on the fact of a contract, while a representation may be written or oral, (3) a warranty is  conclusively presumed to be material, while the burden is on the party claiming breach to show that a representation is material, and (4) a warranty must be strictly complied with, while substantial truth is the only requirement for a
representation.[12]

A key distinction, not listed above, is that justifiable reliance is an element for a misrepresentation claim.[13]  In a warranty claim, the state of mind to whom the warranty is given is not pertinent.[14]  Thus a party may enforce a warranty even if the beneficiary knows the warranty will be breached.[15]  Due to the insignificance of a beneficiary’s state of mind in a warranty claim, a seller will sometimes add a generic as-is clause to a contract to disclaim any warranties that might otherwise accompany the respective contract.[16]

Although representations and warranties are substantively distinguishable, both bridge the information gap between parties to a contract.[17]  Representations and warranties are most useful when one party is relying on information about the other party that is much more difficult for the former party to determine than it is for the latter party.[18]  

Covenants

Historically, a covenant was in a sealed document that was self authenticating, and witnesses were not required to establish the terms in the document.[19]  Today, covenants are generally formal agreements or promises in a written contract, and are usually agreements relating to property.[20]  Covenants are usually secondary to the main reason for the contract.[21]  Sometimes they arise as an undertaking to do or not to do something in the future. For example, an artist is signed to a label and the recording agreement between the two parties provides for a 360 deal. This might be considered a covenant between the record label and the artist.

Conclusion

Please be aware that a promise is not always a promise. As seen here, “representations,” “warranties” and “covenants” each have their own unique implications.

 

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