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Word choice carries consequences

Adam Walters
Dolan Media Newswires

Portland, OR — It is common in construction contracts to make certain representations and warranties.

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. The first is that customary use of the phrase “representations and warranties” has melded the two terms into a single concept when used in reference to an assertion of fact.

The second view is that there is a material difference between a representation and a warranty, and 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 it relied on the false representation to its detriment.

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.

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.

The second school 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.

There is always some uncertainty as to how a court or arbitrator will interpret representations and warranties in construction contracts. Therefore, assume the two terms have different meanings and consequences, even when used together.

Adam Walters is an attorney in the construction and design practice group at Stoel Rives LLP.

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