Representation clauses are usually left out in contract negotiation. Some believe that they are a boilerplate clause, set out by industry standard. My experience told me that in certain transaction, properly drafted representation clauses saved them from legal pitfalls:
– purpose of representation clause is to create a “legal snapshot” of facts that are important to the recipient’s business decision to enter into transaction
– representation also a tool to “smoking out the facts”. in general commercial transaction, the parties are under no legal obligation to make any disclosure.
– we can make representation as a tool to allocate legal risk. the party making a representation assumes the risk that if the representation is untrue, the other party may have a claim against it.
– when a party has issued a disclosure schedule or other party has conducted a due diligence, that party may be relieved from an obligation to provide representations.
The four above function of representation clause are drafted and negotiated by lawyer simultaneously with lawyer’s main task, keeping the transaction organized and moving forward.