More On

Litigation: Drafting lessons from the Delaware Court of Chancery

Four unique ways a contract can outline representations and warranties

In a recent opinion—GRT, Inc. v. Marathon GTF Technology, Ltd., et al.—Delaware Chancellor Leo E. Strine, Jr., addressed the question of whether a provision in a joint venture agreement, which stated that particular representations would survive for one year and thereafter terminate along with any remedy for breach, effectively operated to shorten the statute of limitations with respect to claims relating to those representations. The court’s answer is “yes,” and there are some drafting lessons to be learned from the decision in order to both ensure that a client’s intent and expectations will be satisfied, and to avoid having to litigate unnecessarily over the issue.

The subject provision in the joint venture agreement stated that certain “representations and warranties ... will survive for twelve (12) months after the Closing Date, and will thereafter terminate, together with any associated right of indemnification ... or the remedies provided ...”  The plaintiff-investor argued that this ”Survival Clause” should not be read as shortening the time period in which a claim for breach must be brought, but instead only as shortening the period of time in which a breach may occur subject to the ordinarily applicable three-year statute of limitations. The court rejected the argument and held that “the contract plainly shortened the three-year statute of limitations applicable to breach of contract claims to one year.” 

2. The second possibility is where the contract is silent as to whether the representations and warranties survive or expire upon closing. This scenario creates the most doubt, but the Chancellor observed that most authorities suggest a hard and fast rule that “[u]nless the parties agree to a survival clause extending the representations and warranties in the agreement past the closing date, the breaching party cannot be sued for damages post-closing for their later discovered breach.”

3. The third situation is where the contract contains a discrete survival period during which the representations and warranties will continue to be binding on the party who made them. That is the situation the court addressed in GRT. Despite his ruling, the Chancellor stated the following: “Admittedly, there is some commentary that does not view a contractual survival clause as unambiguously establishing a contractual limitations period.


author image

John Reed

John Reed is a partner the Delaware office of DLA Piper, where he concentrates his practice on corporate litigation and counseling. He can be contacted...

Bio and more articles

Join the Conversation

Advertisement. Closing in 15 seconds.