D. Contractual Representations

• Author: John D. McCamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 696-699

Page 696

Under the foregoing analysis, a pre-contractual misrepresentation may be characterized as a warranty that is either enforceable as a term of a unilateral collateral contract that is ancillary to the main contract or,

Page 697

indeed, as a term of the main contract itself. Representations may also appear as explicit warranties in an agreement. Indeed, it is a commonplace drafting technique to set out "representations" in commercial agreements. In a typical transaction for the sale of a business involving a sale of the assets of the business, for example, there will be a provision, perhaps titled "Representations and Warranties," providing more or less the following: "The Vendor represents and warrants to the Purchaser as follows and acknowledges that the Purchaser is relying on such representations and warranties in connection with its purchase of the Purchased Assets."

The provision will then go on to stipulate numerous representations and warranties dealing with such matters as the fact that the vendor is validly incorporated, that the annexed financial statements are accurate, that the vendor has title to the purchased assets, and so on. As these few examples suggest, many of the subparagraphs will consist of simple statements of fact rather than promises. If the agreement is carefully drawn, it will further stipulate, perhaps elsewhere in the agreement, the remedial consequences that arise, if any of the "representations and warranties" should prove to be false. Thus, it may be stipulated that the purchaser’s obligation to close the transaction is conditioned upon the "representations and warranties of the vendor contained in this agreement being true and correct." The vendor’s solicitor may insist that the phrase "in all material respects" be added in an attempt to confine the vendor’s obligation to serious and important inaccuracies. The agreement may go on to provide explicitly that non-compliance by the vendor enables the purchaser to refuse to close the transaction and to terminate the contractual relationship of the parties.

Use of the verb "represents" in such provisions does not lead to the conclusion that the representations are mere representations and not proper terms (i.e., undertakings) of the contract. Such representations are terms of the contract in the sense that they are the subject of a promise that they are true, and accordingly, when the statements prove to be false, they give rise to the normal remedies...