Representations: Overview, definition and example
What are representations?
Representations are statements of fact made by one party in a contract to assure the other party of the truth or accuracy of certain conditions as of a specific date. These statements often concern the party’s financial condition, authority to enter into the agreement, ownership of assets, or compliance with laws. Representations provide a foundation of trust between the parties and form the basis for their contractual relationship.
For example, a seller in a business acquisition might represent that the company has no undisclosed liabilities.
Why are representations important?
Representations are important because they provide assurances that certain key facts are true, enabling the other party to make informed decisions about entering into the agreement. They protect parties from fraud or misrepresentation and provide legal grounds for remedies if a representation is later found to be false.
Including representations in a contract ensures transparency, reduces risk, and establishes accountability, making the agreement more reliable and enforceable.
Understanding representations through an example
A software company licenses its product to a client. The contract includes a representation by the software company that the product does not infringe on any third-party intellectual property rights. If the representation is later found to be false, the client may seek remedies such as damages or termination of the agreement.
An example of a representations clause
Here’s how a representations clause might appear in a contract:
“The Seller represents and warrants that: (1) it has full legal authority to enter into this Agreement; (2) the assets being sold are free and clear of any liens or encumbrances; and (3) it has complied with all applicable laws in connection with the performance of this Agreement.”
Conclusion
Representations are a critical element of contracts, providing assurances about key facts that influence the agreement. By clearly defining representations, contracts establish transparency and accountability while protecting parties from risks associated with false or misleading information. A well-drafted representations clause builds trust and ensures a stronger contractual relationship.
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.