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Definition of Representations and Warranties

Representations and warranties are key components in contracts, particularly in business transactions, mergers, acquisitions, and finance agreements. A representation is a factual assertion by one party that induces another party to enter into a contract. A warranty, on the other hand, is a promise that a certain fact or condition is as described in the contract, and often carries with it an implied assurance that the fact or condition will continue to be as described for a certain period of time.

Together, representations and warranties provide assurances about the state of affairs, and they can serve as a basis for legal remedies if the facts represented turn out not to be true. During a transaction like a merger or acquisition, the buyer will want the seller to make detailed representations and warranties about the business being sold, and if any of these are untrue, the buyer could potentially sue the seller for breach of contract.