The Hill of Proof for representations and warranties in a contract

A claim for breach of warranty has a shorter proof checklist than a claim for fraudulent inducement or negligent misrepresentation, but the former also has a more-limited set of remedies available. Think in terms of the American Ninja Warrior TV show, but with a “Hill of Proof” that a plaintiff “Bob” must climb in making a claim against a defendant “Alice”: The Hill of Proof has evidentiary checkpoints along the way up the hill; the “prizes,” i.e., the remedies available to our plaintiff Bob, are positioned at different points up the hill.

(“Hill of Proof” sounds like something from a Harry Potter novel, no?)

Suppose that in our Alice-and-Bob case, Alice only warranted a fact, but she did not represent it; for example, suppose that Alice sold her car to Bob, and she suspected, but didn’t know for sure, that the engine was going to need work. In that case, she might (i) warrant, but not represent, that the car was in good working order, and (ii) limit Bob’s remedy to Alice’s reimbursing Bob for up to, say, $200 in repair costs. In that situation, the first three checkpoints that Bob must hit, in trying to climb the Hill of Proof, would be the following:

(1) Alice warranted a statement of past or present fact, to use Tina Stark’s formulation [I’ll leave out future facts for now]. Here, Alice’s statement is “the car is in good working order.”

(2) Alice’s statement was false: Her car, as delivered to Bob, turned out to need some significant work. and

(3) Bob incurred damages as a result, i.e., repair costs.

If, at the trial, Bob can successfully hit those three checkpoints in climbing up the Hill of Proof, then he will be entitled to recover benefit-of-the-bargain damages for Alice’s breach of warranty — in this case, limited by contract to $200 in repair costs. And that’s it; without more, Bob doesn’t get tort-like remedies for fraudulent inducement or negligent misrepresentation, such punitive damages and/or rescission.

But now suppose that Alice represented and warranted the statement of fact, i.e., that her car was in good working order. In that case, after Bob makes it to the first three evidentiary checkpoints on the Hill of Proof, he can try to keep going to hit still more checkpoints, namely:

(4) Alice intended for Bob to rely on Alice’s representation — that will probably be almost a given, of course, by virtue of the representation’s being expressly set forth in the contract;

(5) Bob did in fact so rely — ditto; and

(6) Alice made the false representation intentionally (or possibly, in some jurisdictions, was negligent or reckless in doing so). This is usually the biggie, from a proof perspective.

If Bob can successfully make it to all of these additional checkpoints as he climbs up the Hill of Proof (and if Alice fails to show that Bob’s reliance on her representation was unreasonable), then Bob would be additionally entitled to more “prizes,” namely tort-like remedies such as rescission and perhaps punitive damages. See, e.g., this blog post summarizing California law.

At trial, Bob might well assert both breach of warranty and fraudulent inducement; if he proves unable to show scienter on Alice’s part, then he can still fall back on his warranty claim. The same would be true if Alice could persuade the factfinder that Bob’s reliance on her (mis)representation was unreasonable: Bob’s fraudulent-inducement claim would fail, but his warranty claim would still be viable.

[ADDED:] Now let’s change up the hypothetical: Suppose that Alice had no reason to think her car had any problems, but she also didn’t want to bear any risk that it did have problems. In that case, Alice might represent, but not warrant, that the car was in good working order. In that situation, if the car did turn out to have problems, then Bob would have to hit all six checkpoints on the Hill of Proof to recover from Alice; the first three alone would not be enough, even though the first three would be enough if Alice had warranted the car’s good condition.

In effect, the Hill of Proof has two different paths up its slopes. The shorter path is for breach of warranty and leads only to benefit-of-the-bargain remedies; the longer path, for misrepresentation, leads to tort-like remedies.

Drafting lessons:

• If your client is being asked to represent and warrant some fact, then consider whether the client should only represent the fact, or whether the client should only warrant the fact. As a matter of negotiation strategy the client might end up agreeing to do both, but as a drafter it’s worth giving some thought to the question.
• On the other hand, if your client is asking someone else to represent and warrant a fact, then you’ll want to ask for the contract language to include both a representation and a warranty. Your client might not have the bargaining power to insist on getting both, but if it does, then having both will give the client more flexibility if litigation should come to pass.