Differences between Representation,

Warranties and Covenants

Introduction
Representation, warranties and covenants are intensely debated during negotiation of
M&A contracts. Serious consequences can arise due to a poorly negotiated
representation, warranties and covenants package. In the context of a typical M&A
transaction, representations, warranties and covenants contain statements made by the
seller as to the quality, condition, value or nature of the business/ entity that the buyer
is acquiring from the seller. These terms, although not defined in the Indian Contract
Act, 1872, makeup the most important part of any commercial agreements.

Warranties
Warranties generally are promises that appear on the face of the contract. They are
important parts of the contract, requiring strict compliance. A warranty provides that
something in furtherance of the contract is guaranteed by a contracting party, often to
give assurances that a product is as promised.

According to Section 12 of Sale of Goods Act, 1930, Warranty has been defined
as “a stipulation collateral to the main purpose of the contract, the breach of which
gives rise to a claim for damages but not a right to reject the goods and treat the
contract as repudiated.”

Remedy for Breach of Warranty

As per Section 59 of Sale of Goods Act, 1930, a breach of warranty does
not entitle the buyer to reject the goods and his only remedy would be
those provided in s. 59 namely, to set up against the seller the breach of
warranty in diminution or extinction of the price or to sue the seller for
damages for breach of warranty.
It must be noted here that in such cases, damages are assessed in accordance
with the provisions contained in section 73 of Indian Contract Act, 1872.
It is necessary that the buyer should rely on the warranty, and act reasonably,
that is to say, he should take reasonable steps to minimise the damages.
Representations
In the case of In Behn V/s Burness1, a Representation is an assertion of past or
exiting fact, made by one party to contract to the other, before or at the time of the
contract, relating to the subject matter of the contract
In traditional usage, a representation precedes and induces a contract. It is
information by which a contracting party decides whether to proceed with the
contract.
Remedies in case of Misrepresentation:
The Indian Contract Act, 1882 provides for consequences in case of
misrepresentation. Section 19 of the Act states that in the event an agreement
has been entered into by coercion, fraud or misrepresentation, the aggrieved
party has the following remedies:
1. The contract shall be voidable at the option of the aggrieved party.

2. The aggrieved party may require specific performance.

3. There shall be a restitution for unjust enrichment by the parties.

Covenants
A covenant in a contract traditionally has been a solemn promise in writing, signed,
sealed and delivered, by which a party pledges that something has been or will be
done or that certain facts are true.
Covenants in or related to a contract usually are secondary to the main reason for the
contract.
They are an undertaking to do or not do something in the future; for example, that
conditions will be maintained between the signing of a contract and the closing of the
transaction, or while a loan is unpaid, or that a party will not compete or sue.

1
(163) 3 B&S 751 as per William J at 753 quoted in Indian Contract Act by Pollock and Mulla {(12th Edition)
p506
Remedy in case of Breach of Covenant
Since Covenants do not come under the purview of Contracts per se, the only
possible remedy this could be of Equitable relief/Specific Performance/Injunction.

The practice of granting equitable remedies came about to compensate for the
inadequacies of the common law courts which could not grant remedy if the affected
party wanted the performance of the contract or wanted to prevent the commission of
a wrong threatened.

However, in the case of Wolverhampton Corp v Emmons2 it was held that

performance was granted in cases where damages will be insufficient
because something about the contract is unique, the court will award specific
performance.

Difference between Representation, Warranties and

Covenants can be summed up as:

2
[1901] 1 KB 515