Classification of Contractual Provisions

Employment Contracts Fundamentals in Canadian Law

There are three types of terms in an agreement:

  1. conditions,
  2. warranties, and
  3. representations.

With conditions, the remedy is that the agreement becomes null and void ab initio (from the beginning). They are “deal breakers”.

This is not the result with warranties and representations, where the remedy is only damages. The transaction must be completed, but there may be an abatement in the purchase price or damages to follow closing. The understanding with warranties is that the deal will go ahead.

Representations are statements believed to be true, but the Court may or may not award damages. It depends upon how serious they may happen to be.

Representations may also exist under the law of torts, and for serious misrepresentations there will likely be an award of damages.

There’s no such thing as a warranty in tort. It is a contract term.

The “entire agreement” clause seeks to limit representations to those included in the agreement, but the Courts have recently held that this clause does not always have that effect.

Conditions and warranties are to be reproduced in writing as part of the agreement.

Representations may be found in the agreement but they can also be verbal.

That’s obviously dangerous. So, it is very important for agents, and vendors to be cautious about what they say to the buyers and their agents. The remedy here may be rescission or termination of the agreement.

Brian Madigan LL.B., Broker

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