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It is common in construction contracts for the parties to make certain “representations and warranties” regarding the existence of certain facts relevant to the agreement. For instance, each party may “represent and warrant” to the other that it has the legal capacity to enter into the agreement.

Whether the representations and warranties are consolidated into a single article or are interspersed throughout, the question arises: Is there any distinction to be made between a representation and a warranty as used in this context, such that a party to a construction contract should avoid using either term?

There are two primary schools of thought in this regard. The first view is that customary use of the phrase “representations and warranties” has over time melded the two terms into a single concept when used in reference to an assertion of a fact.

The second view is that there is a material difference between a representation and a warranty, and that a breach of a representation has different consequences from a breach of a warranty.

A representation is a statement of a past or existing fact at the time the statement is made. If a fact about which a contractual representation has been made proves to be false, then the party to whom the representation was made may have a tort claim for deceit or fraudulent misrepresentation, provided that it relied upon the false representation to its detriment.

The injured party normally has a choice of remedy for such claims; that party can either rescind the contract and sue for restitution, or affirm the contract and sue for damages. In most cases the injured party will be entitled to recover its out-of-pocket expenses incurred due to its reliance on the misrepresentation. In some cases the injured party may also recover punitive damages.

A representation concerning a fact that occurs in the future is not a true representation. Many construction contracts contain provisions that state that a representation will automatically come into existence when a party carries out an act anticipated or required by the contract.

For instance, the contract may provide that by submitting a monthly progress claim a contractor or subcontractor represents that it has paid all laborers, subcontractors and suppliers up to the date of the progress claim. Unless the representation is actually made at the time the relevant fact comes into being, it is questionable whether the injured party has a valid claim should the representation prove false.

The two schools of thought part ways when it comes to the definition of warranty and the consequences for breach of warranty when it relates to an assertion of fact. According to the first school, the term warranty has no meaning when used in concert with a representation.
Some proponents of this view argue that parties should make only representations and not warranties, because the use of the term warranty serves only to add confusion, given its different meaning when used in other contexts.

The second school of thought holds that a warranty is a promise that a fact is or will be true in the future, and an indemnity if the statement of fact turns out to be false.

The purpose of the warranty is to relieve the party receiving the warranty from having to determine the truthfulness of the fact in question. Unlike with representations, reliance is not an element of breach of warranty; the injured party may sue for breach of warranty even if it knew the statement was false (with some exceptions).

The remedy for breach of warranty is to give the injured party the benefit of its bargain. Unlike with representations, contract rescission is not usually available for a breach of warranty.
There is always some uncertainty as to how a court or arbitrator may interpret representations and warranties when they concern the existence of facts in construction contracts. Therefore, it is advisable to assume that the two terms have different meanings and consequences, even when used together.

This usually means that owners will prefer to obtain both warranties and representations, whereas contractors and consultants will prefer to give only one or the other, depending on the circumstances.

Adam Walters is an attorney in the construction and design practice group at Stoel Rives LLP. Contact him at 206-386-7675 or [email protected].