This article has been contributed by Darrell Gold LLB with Robins Appleby & Taub LLP.
Almost every agreement, including many leases, contain clauses that purport to be representations and/or warranties. In many cases the parties may not understand the differences between them, including the rights and remedies that flow from a breach of either one.
The Apparent Distinction: In the 2000 Ontario Superior Court decision in Anne of Green Gables Licensing Authority Inc. v. Avonlea Traditions, the Court said:
A warranty may be distinguished from a representation….
A warranty is a promise that a proposition of fact is true. A warranty is intended to relieve the promisee of any duty to ascertain the truth of facts herself and is tantamount to a promise to indemnify the promisee for any loss if the fact warranted proves to be untrue.
A representation, on the other hand, is an express or implied statement made before or at the time the contract was executed, in regard to some past or existing fact, circumstances, or state of facts pertinent to the contract, which is influential in bringing about the agreement.”
Essentially a representation is a statement made by a party to an agreement, intended to influence another party to enter the agreement but does not relieve the induced party of determining whether or not the representation is true. For example: “The Vendor represents that the 2013 calendar year rents for the property are as shown on the rent roll attached to this Agreement”.”
On the other hand, as the Court in the Anne of Green Gables case noted, a warranty relieves the recipient from inquiring into its accuracy. For example: “The Landlord warrants that the premises comply with all applicable laws and are zoned for the intended use by the Tenant“.
Remedies for Breach of a Warranty:
Unless the breach of warranty is determined to be a “fundamental breach”, a breach of warranty will not result in the innocent party being entitled to rescind the contract, but may result in an action for damages.
Remedies for Breach of a Representation:
A claim for misrepresentation can result in damages as well as rescission of the agreement.
A Caveat: In some instances the parties’ use of wording may not be determinative as the distinction is not simple. For example, in the 1999 case of 1018429 Ontario Inc. v. Fea Investments Ltd., the parties entered an agreement that contained express “warranties” including the lawfulness of residential rents for a rental complex. It also provided rescission as the sole remedy for a warranty breach (rescission being a remedy to restore the parties to the positions they would have occupied if no contract had ever been entered). The clause stated in part: “The Purchaser shall have no remedy with respect to any breach of any warranty or any misrepresentation other than rescission“. After closing, the rent warranty was determined to be wrong and the purchaser sued for damages notwithstanding the rescission remedy limitation in the agreement.
The Court found that the rent warranty was in fact a “fraudulent misrepresentation” and those types of misrepresentations were not caught by the rescission remedy clause in the contract and damages were awarded to the purchaser.
The Lessons: 1. Under current law, if you can ascertain the truth of the representation and you failed to do so (e.g. during due diligence) then that can be a defence to a claim for misrepresentation. For a warranty, you may have no obligation to ascertain the veracity of it and you can rely on it and sue for damages (possibly rescission if it is a fundamental breach). 2. Understand what you expect to give or get when drafting representations and warranties including the remedies arising if a breach occurs – damages/rescission/both. 3. It is better to clearly provide what the remedies will be for a breach of a representation or warranty although a Court may determine otherwise. 4. Some lawyers in Canada and the U.S.A. have posited that the distinction between representations and warranties is not necessary as case law shows that the use of the words themselves may not affect the remedies available. Some suggest that the better way to address the issue is to call everything a representation and provide a clause for the remedies for breach – whether it be a negligent, fraudulent or an honest misrepresentation.
Disclaimer: This article is for general information purposes only and not intended as or to be relied upon for legal advice. Consult with a lawyer for your unique situation.
[*If there is a general real estate or leasing related question you would like to see addressed in a future article in “The Legal Corner”, please contact me directly by e-mail at [email protected] with your suggestion. Not all requests can be accommodated.]