Representation: Overview, definition, and example
What is representation?
Representation refers to a statement or assertion made by one party in a contract or agreement to induce the other party to enter into the agreement. These statements are typically about facts or conditions, such as the accuracy of financial statements, ownership of assets, or compliance with laws. Representations can be express (clearly stated) or implied (understood without being directly stated).
For example, in a sales agreement, a seller might represent that they have clear title to the property being sold and that there are no undisclosed encumbrances.
Why is representation important?
Representation is important because it ensures transparency and builds trust between parties entering into a contract. It allows the receiving party to rely on the truth of the statements made, which is critical in forming the basis of the agreement.
If a representation is found to be false, it can result in claims for misrepresentation or breach of contract, potentially leading to damages or rescission of the agreement. For businesses, accurate representations help reduce the risk of disputes and establish credibility.
Understanding representation through an example
Imagine a company is being acquired. The seller represents in the purchase agreement that the company’s financial statements are accurate and that it has no pending legal disputes. If it is later discovered that the financial statements were misleading or there is an undisclosed lawsuit, the buyer could claim damages based on the false representation.
In another example, a landlord represents in a lease agreement that the property is in compliance with all applicable building codes. If the tenant discovers violations that require costly repairs, the tenant may have grounds to claim breach of the landlord’s representations.
An example of a representation clause
Here’s how a representation clause might appear in an agreement:
“The Seller represents and warrants that it has good and marketable title to the Assets, free and clear of all liens and encumbrances, and that the financial statements provided to the Buyer accurately reflect the Seller’s financial position as of the date indicated.”
Conclusion
Representation provides a foundation for trust and accountability in contracts by requiring parties to disclose accurate and relevant information. It ensures that agreements are based on truthful statements and protects parties from entering into contracts under false pretenses.
By including clear and specific representation clauses in agreements, businesses can reduce the risk of disputes, protect their interests, and establish transparency in contractual relationships.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.