Representations, Warranties, Covenants, Rights, and Conditions

by Practical Law Commercial Transactions

A Practice Note explaining the key components, or building blocks, of commercial contracts: representations, warranties, covenants, rights, and conditions. This Note describes how each component functions to allocate risk and achieve the intended goals of the contracting parties. It explores the functional differences between representations and warranties, and outlines common methods for limiting their scope and effect, such as materiality and knowledge qualifiers, survival periods, and anti-sandbagging provisions. This Note also examines the specific application of these principles in different contexts, including M&A transactions, finance agreements, and contracts for the sale of goods under the model Uniform Commercial Code (UCC). Furthermore, it distinguishes between covenants and conditions, clarifying the differing legal consequences of a breach of a covenant versus the nonoccurrence of a condition, and discusses available contractual and judicial remedies. This Note also includes examples of contractual language as well as drafting and negotiating tips.