Agreements, especially acquisition agreements, typically contain representations and warranties by one party to the other. The agreements also typically prescribe the duration of those representations and warranties in so-called survival clauses. The treatment of these clauses under Delaware law may surprise many practitioners. In GRT v. Marathon GTF Technology Ltd., C.A. No. 5571-CS (Del. Ch. Jul. 11, 2011), Delaware Chancery Court Chancellor Leo E. Strine Jr. held that a clause limiting the period of time in which contractual representations and warranties survive closing acts as a statute of limitations on the buyer’s ability to commence litigation for breach.
The facts of the case were not unusual. The parties entered into a series of contracts in order to form a joint venture to promote a new technology. GRT granted a license to use certain of its intellectual property in exchange for access to a demonstration facility that had been designed but was still under construction by Marathon and which Marathon represented would meet certain design objectives. The contract provided that the design representations “will survive for 12 months after the closing date, and will thereafter terminate, together with any associated right of indemnification [under certain provisions of the contract] or the remedies provided [in certain provisions of the contract].” The contract provided that other representations would survive the closing indefinitely or would survive until the expiration of the applicable statutes of limitations.
