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Posted: July 3, 2020

Specific Representations and Warranties Control Over General “As Is” Clause

On June 12, 2020, Justice Friedman of the New York County Commercial Division issued a decision in Valero Refining-Meraux LLC v Murphy Oil Corp., 2020 NY Slip Op. 31835(U), holding that specific representations and warranties control over a general “as is” clause, explaining:

As a threshold matter, the court rejects defendant’s contention that the action is barred by the “as is” clause in the Asset Purchase Agreement, dated as of September 1, 2011, between the parties (the APA or Agreement). This clause provides in pertinent part:

Buyer acknowledges and agrees that the Purchased Assets are sold “as is,” “where is” and “with all faults” and Buyer agrees to accept the Purchased Assets and the Business in the condition they are in on the Closing Date based on its own inspection, examination and determination with respect to all matters, including environmental matters, and without reliance upon any express or implied representations or warranties of any nature made by or on behalf of or imputed to Seller, except as expressly set forth in this Agreement, the Transition Services Agreement and any other certificate delivered hereunder by Seller to Buyer at Closing.

Elsewhere in the Agreement, Murphy as Seller made the representations and warranties that are the subject of this action. In section 3.16 (c), the Environmental Law Representation, Murphy represented in pertinent part that, except as disclosed in identified sections of the APA or attached Schedules, “neither Seller nor any of its Subsidiaries is in material violation of…, with respect to the operation of the Purchased Assets…, any applicable Environmental Law…” In section 3.10 (c), Murphy represented in pertinent part: “… [T]he Purchased Assets… are generally adequate for the conduct of the Business as currently conducted.”

The contention that the “as is” clause bars this action effectively reads these representations and warranties out of the APA. In interpreting a contract, however, the court should construe the agreement so as to give full meaning and effect to the material provisions. A reading of the contract should not render any portion meaningless. Further, a contract should be read as a whole, and every part will be interpreted with reference to the whole; and if possible it will be so interpreted as to give effect to its general purpose. The court accordingly holds that the “as is” clause is subject to the representations and warranties expressly referenced in that clause.

(Internal quotations and citations omitted).

One reason that commercial parties all over the world choose to have their contracts governed by New York law is that the general rule in New York is if the contract is unambiguous, it is enforced as written despite what someone might later argue in a lawsuit. And, there are–as shown here–rules that help a court interpret contracts.
Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.

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Posted in Commercial, Contracts
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