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Lovitch and Rachel E. Ryu and Connor J. Leahy and Stacey A. Fehling and Michael S. Updates from the Fifth Circuit and Yuengert and J. Once again, the term 'Warranty' is not defined under the ICA. One common example of a warranty provided by parties in commercial contracts is with respect to infringement of intellectual property. Conceptually, 'representations' and 'warranties' are different; however, in practice, they have often been bundled together and used interchangeably.
This is especially true in India, where the terms have not been defined under the ICA, thereby leaving room for ambiguity. However, the two terms are separate and distinct from each other having different characteristics and also different remedies under law for breach of the same.
Understanding the differences between the two and using them appropriately is essential to ensure that a contract is well drafted and the interests of both parties well protected.
The theoretical distinction between representations and warranties can be understood from English law. A representation is basically an assertion of a past or existing fact, true on the date that it is made. It is generally given to induce another party to enter into a contract. A warranty on the other hand, is similar to a representation but it refers to the present or future i. Further, it is not the basis for inducing the other party to enter into the contract.
One of the utmost essential differences between Representations and Warranties, is the remedies available to the parties in case of a breach. In case of a breach of warranty, the non-breaching party has the right to claim damages in accordance with the principle of restitution.
On the other hand, a breach of representation misrepresentation gives the innocent party a right to terminate the contract and also claim damages on the basis of the principle of restitution. Furthermore, the amount of damages one can claim also varies significantly in a claim of misrepresentation vis a vis breach of warranty as the principle of remoteness of damage and the relevant date from which damage is assessed, operate differently under both the concepts.
Since the remedial rights arising out of the two are completely different, it is critical for contracting parties to draft them carefully in their contract. In the case of Idemnitsu Kosan Co Ltd v Sumitomo Co Corp , the Court was faced with the question of whether warranties can be actionable as representations. The Court answered in the negative and held that representations and warranties are different.
To determine if something is a warranty or a representation, parties' intention reigns supreme. As already pointed out above, the ICA which is the statutory law on contracts in India, does not define 'representation' and 'warranty'.
In fact, the word warranty does not see mention in the statute. This raises the obvious question about whether Indian law distinguishes between representations and warranties in normal contracts. It is clear however that Indian law does distinguish between warranties and representation in relation to certain specific contracts. Warranties under the SOGA have been defined as a stipulation, collateral to the main purpose of the contract, meaning warranties are stipulations that do not touch upon the heart of the contract and are in some way secondary to the main purpose of the contract.
Maheswari , the Madras High Court, in the context of insurance contracts, recognized the two different terms and the difference in the remedies for a breach of either. The Madras High Court states that " The duty of disclosure comes under two heads, viz. Further the court holds " Therefore the main distinction between representation and warranty is that as a general rule answers to questions are representations and not warranties, though it is possible for persons to stipulate that answers to certain questions shall be the basis of the contract, in which case they become part of the warranties.
In the case of a warranty materiality or immateriality of the fact warranted signifies nothing. Its incorrectness constitutes a defence to an action on the policy, even though it be not material and be made in perfect good faith. But, in the case of a representation, the insurer can avoid the policy only by proving that the statement is false and fraudulent or that it was false and material to the risk.
In other words, it is only a material misrepresentation that can avoid a policy if the truth of the facts contained in the representations be not warranted by the policy. This distinction between representations and warranties adopted in the case of Life Insurance Corporation of India vs.
Permanent Lok Adalat and Ors. The breach of a warranty gives rise to claim for damages but does not give the right to repudiate the contract.
On the other hand, misrepresentation is defined under the ICA, and the remedies are provided therein. A simple illustration which beautifully sets forth the distinction between Representations and Warranties is as provided below:. While Courts in India have demarcated the difference between representations and warranties in the context of insurance contracts, the same distinction has not been elucidated upon for other types of contracts. Parties should understand the meaning and context of such clauses before executing the contract.
Representations and warranties are two separate and distinct legal concepts. However, these two legal concepts are often combined under a single clause heading in most, if not all, commercial contracts. It is important to note that representations and warranties differ from each other as they have their respective remedies in the event of a breach. A representation is an assertion of fact which is supposed to be true on the date the representation is made.
A representation is made to induce another party to enter into a contract. An example of a mutual representation in an agreement is as follows:. In the event the representation is untrue, and the other party has entered into a contract upon reliance on such representation, the aggrieved party is entitled to rescind the contract and claim damages.
Section 19 of the Contracts Act provides for the voidability and rescission of contracts:. Voidability of agreements without free consent.
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