This Wisdom of the Crowd (ACC member discussion), compiled from responses posted on the Nonprofit Organizations Forum*, discusses whether it is common for non-profit entities to refuse to agree to representations & warranties in a contract.
(*Permission was received from ACC members quoted below prior to publishing their Forum Comments in this Wisdom of the Crowd Resource.)
This Wisdom of the Crowd was initially published October 27, 2016, and republished September 27, 2023.
Question
For the first time, another not-for-profit company has rejected the standard "Company represents and warrants it will do only what the contract allows and nothing else" language stating it is not a commercial entity and therefore it does not warrant. I didn't think that language was tied to being a commercial entity, but it stumped me. Have you seen this before? If so, how do you respond? Just accept the change, or offer alternate language? Wisdom of the Crowd
Response #1: A warranty is a promise that something in a contract is true, and guaranteed by one of the parties to the contract. To my knowledge it has absolutely nothing to do with whether an entity is commercial or nonprofit. An individual person can make warranties as well, so I cannot understand why they are making that argument.Thus far, I've never had another party come back to us and say that they don't make warranties in contracts. I would push back on this, particularly if they are not willing to promise that they will adhere to the contract, and not take actions outside of the scope of the contract.1Response #2: I completely agree and share with what the anonymous colleague wrote.2Response #3: I agree with the comments above. They have no non-profit basis for making this argument, it's just a negotiating stance.3Response #4: Agree that it is not tied to being a commercial entity, but I have seen parties increasingly pushing back on the "warrant" obligation. They do not want the liability that comes with providing a warranty. In cases of an intellectual property warranty, the other party has stated that it cannot warrant exclusivity in real time, as they have no way of knowing what other individuals/entities are coming up with, at that moment. Not sure I buy that argument entirely but if it becomes a sticking point, you have to make sure your remedies under the contract are up-to-snuff. In my experience, the end result is the same; you get a representation from the other party, and if it doesn't pan out, you have the remedies to address that.4Response #5: All sorts of entities warrant things all the time; even governments in appropriate situations. I think they are just hoping you will give in and tried to confuse you. You might ask whomever you are talking with if he/she has read the lease they have with their landlord. There are almost certainly various warranties that the non-profit gives as a tenant.5
1Response from: Anonymous (8/24/2016)
2Response from: Monica Boccia, General Counsel, Biesse America, Inc (8/25/2016)
3Response from: Kevin Mooney, Senior Counsel/Chair IT Practice Group, Cleveland Clinic Foundation (8/25/2016)
4Response from: Anonymous (8/24/2016)
5Response from: Harold Federow, Contract, Vendor & IP Manager, Port of Seattle (8/24/2016)
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