Representation and Warranties Sample Clauses

Difference between representations and warranties

Representations are the past or existing facts or statements that influence the parties to make the contract.

Warranties are promises that guarantee the parties the profit of the deal.

Both the terms seem to be synonymous. Therefore, to avoid confusion, representation and warranties must be acknowledged in a written contract, stationing any pre-contractual terms and conditions that are to be defined at the time of entering into a contract.

Most of the representations and warranties in the purchase agreement are made by the seller, and the buyer relies on those statements.

Importance of representation and warranties

Representation plays a basic role in displaying the facts and statements of the contract. Though there might be differences in the actual terms and conditions in a contract, the idea is to provide particulars and safeties against loss if the statements made in a contract are false. It tends to serve as formidable protection for the buyer.

Six main purposes of Representation & Warranties

• It allows the buyer to collect and analyze the information given in the contract to make the deal.
• It gives a closure of the agreement to be made.
• It portrays the background for penalties & consequences of misrepresentation or failure of agreement.
• It gives the freedom to the buyer to either cancel or renegotiate contract terms either before or after entering into a contract.
• It gives contract flexibility and restrictions to both parties.
• Allocate the risk of a contract between the parties.

Examples of representations and warranties

In 2011, Cameron's Lightstorm Entertainment was sued three times in 10 days regarding Avatar. The lawsuits range from Cameron copying or stealing content from books, screenplays, and even paintings of forests.

Read more on the many lawsuits Avatar attracted in this article.

The Clonus Horror observed similarities between their film and Michael Bay's 2005 sci-fi thriller The Island. Producers Robert S. Fiveson and Myrl A. Schreibman filed a copyright infringement lawsuit against DreamWorks.

In the year 2013, Douglas Jordan-Benel sued Blumhouse for copying the elements of his script Settler's Day for their film The Purge.

What do representation and warranties include?

Representation and Warranties are considered to be important in every aspect as it allows the person signing a contract to carry out a detailed investigation of claims before entering the contract. When drafting or reviewing a contract, the council should consider every possible representation or warranty to decide whether it is appropriate to include a corresponding covenant.

Some relevant legal clauses are mentioned below:

• Indemnification
• Limitation of liabilities
• Exclusive remedy
• Right of termination
• Cumulative remedies
• Equitable remedies
• Entire agreement

The seller has to provide indemnity, so in any case of breach of representation and warranties, the seller is held accountable for an indemnity claim against the buyer. The seller can limit the liability either through decreasing the provision or by having a restriction over the indemnity amount and the claim period.

In some cases of breach of tax representation and warranties, fraud, and other specific indemnity matters, the provisions of liabilities are inapplicable. Sometimes people face problems with implied warranty and its protection. Suppose in a contract; if a warranty is not mentioned, then it becomes difficult to claim for representation as it no longer remains a common law warranty.

When claimed representation turns out to be false, the warranty along with it grants the other person of the contract to either terminate or refuse the transaction. Representation and warranties help assign risks to both the parties as it provides the foundation for securing and protecting to terminate or amend the contract.

Signing the contract

In all entertainment rights deals, the seller of rights creates a set of representations and warranties.

• Ownership of the rights is being sold.
• The seller holds the authority to sell the rights in question. It means that no prior commitments are made whether to sell the rights or not, and this otherwise won't prohibit or prevent the deal from happening.
• Most of the deals demand the seller of rights to warrant and represent that no part of what's being sold is in the public domain.
• The buyer expects the seller to ensure that all represented material belonging is Non-Infringing. It applies that the buyer's use of the material will not violate the copyrights or other property rights of any person or company, nor be invasive of privacy or defamatory toward any person.
• At last, the seller has to endorse and indicate that there are no liens, claims, or other encumbrances on the property being sold.

Possibilities of negotiating the terms

Up to a certain extent, the above terms of warranties and representations are negotiable. However, it partially depends on the flexibility and restrictions of the agreement. It also considers the understanding of the parties within the terms.

Study the agreement and trust your representatives

The parties should read all the sections of the agreement carefully and understand what they're signing. Convey all the important and required information to the lawyers because they negotiate a deal only based on known information which they're provided or discover during a typical investigation. If you're signing a rights deal that involves anything but your own original creation, it's incumbent on you to let your representatives know what other rights may be involved in the deal. This avoids misunderstandings and ensures a smooth deal.

Representation and Warranties apply to both parties, which play a vital role in every contract. It acts as an underlying matter of facts to be presented as a part of the terms of a contract. When terms "Representation & Warranties" are used in a contract, they act as a connecting link, which brings together the past claims and future consequences together in case of a contract. Each contract is different in every aspect but, some regulations and nomenclature remain similar in terms of language. Simple and clear language leads to better understanding in every agreement.

The common expected law principle related to the representation & warranties clause remains as a base foundation to many rights of both parties. It's important to mention all the terms and conditions to avoid vagueness and contradictions.