16.2 The Specifications of the Object 467England. In English M&A practice, sellers resist giving representations in addition to
warranties. (a) According to the traditional approach, a contract term is either a condition or
a warranty. If it is a condition, any breach of the condition gives the aggrieved party a right
to rescind the contract. (b) If it is a warranty, the injured party is entitled to damages.^12 (c)
On the other hand, the distinction between conditions and warranties has fallen out of fa-
vour. There is also a flexible category of intermediate (or innominate) terms.^13 In this case,
the right to rescind the contract depends on the gravity of the breach. In the modern law, the
main rule is that any term of a contract can be classified as an intermediate term.^14 (d) In the
past, the consequences of misrepresentations depended on the misrepresentation. Apart
from the Hedley Byrne principle,^15 damages were not recoverable for a non-fraudulent mis-
reprensation. However, the Misrepresentation Act of 1967 increased the liability for non-
fraudulent and fraudulent misrepresentations.
Germany. In German contract law, the seller will try to avoid “guaranteed characteris-
tics”. The main distinction is that between general conformity requirements (the absence of
defects, Mängel) and guaranteed characteristics (Beschaffenheitsgarantie, Haltbarkeitsga-
rantie). In the latter case, contractual limitation of liability clauses do not apply.^16
In purely domestic transactions, the benefit of classifying contract terms as be-
longing to certain categories can be that of legal certainty. In cross-border transac-
tions, however, the certainty may be lost. The acquirer can mitigate legal risk by
using representations and warranties jointly. The acquirer will then receive both
“representations and warranties”. The vendor should understand the classification
of contract terms under the governing law in order to mitigate risk. Both parties
can mitigate risk by agreeing on detailed sanctions for breach of the terms of the
contract.
Generally, representations and warranties lay down mere moral obligations
unless they are complemented by sufficient sanctions for their breach (section
16.4). The acquirer should always investigate whether each representation and
warranty is complemented by clear sanctions. For example, it may be difficult for
the acquirer to show the exact amount of loss caused by breach of warranty. The
contract should therefore contain an express term on liquidated damages and/or a
term setting out the effect of the breach on price.
There is also the question of time. It goes without saying that the acquirer will
not be protected by any undertakings of the vendor or any security for the fulfil-
ment of the vendor’s obligations to the extent that the acquirer’s right to invoke
those obligations has expired because of a statute of limitation or otherwise. The
parties often agree that representations and warranties survive the closing for a
certion period of time during which the acquirer may make indemnification
claims. The acquirer often seeks to ensure that the survival period will run through
at least one audit cycle. Some core representations (such as title to shares being
(^12) Bettini v Gye (1876) 1 QBD 183.
(^13) Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26; Cehave
N.V. v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44.
(^14) Beatson J, Anson’s Law of Contract. 27th Edition, OUP, Oxford (1998) pp 138–141.
(^15) Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465.
(^16) § 444 BGB.