News & Noteworthy

Authored - NJ Contract Law Update - Complex Contractual Remedies For Business Purchases
FEBRUARY 10, 2014 | Windels Marx - Commercial Litigation

Donovan v. Dragados, 2012 WL 3336755 (D.N.J. June 28, 2013), illuminates a 'world' of representations, warranties, covenants and other structural elements to a significant commercial acquisition or other transaction. Both the Donovan case and the above-referenced concepts are highly complex. Suffice it to say that representations, usually as to current facts, and warranties, usually as to legal or future factual matters, guarantee certain facts or states of affairs. They can yield remedies akin to near-strict liability when breached; and they 'fill in the gaps' as to future performance or benchmarks needed, legality of activities, and similar matters.

There are somewhat weaker versions of "representations and warranties" expressly tied to a party's knowledge, rather than the simple question of whether certain facts or circumstances do or will exist at applicable times. Also to be considered are 'conditions', though not of central concern in Donovan.

Leaving aside the specific facts of Donovan, remedies for violations of representations, warranties, and/or covenants often include: (1) damages; (2) holdbacks from any unpaid balances (or earn-outs, etc.); (3) attorneys fees; (4) indemnification for claims or settlements; and more. Sometimes there are thresholds or "buckets" before monies actually have to change hands for any breaches.

As noted, these issues can be highly complex and involve 'high stakes'. Accordingly, the contract practitioner should consult experienced counsel both (1) in drafting any such provisions and agreements; and (2) in evaluating (a) breaches, and (b) litigation/arbitration (whichever may apply--or sometimes both).

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education and now in its third edition. His updates on New Jersey contract law are based on recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

Windels Marx helps you harness opportunity and mitigate risk with a team that provides your business with the service, quality and value essential to a trusted relationship.