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Illegal Substances Clause: Sellers’ Representation and Warranty Held To Be Limited To Their Knowledge and Belief When They Executed the Agreement of Purchase and Sale

Beatty v. Wei 2018 Ont CA

The vendor warranted and represented, in an agreement of purchase and sale, that he never used the property as a grow-op of illegal substances and that, to the best of his knowledge and belief, the property had never been used as a grow-op. The purchaser’s real estate agent, through some investigative work, then determined that the property had been used as a grow-op before the vendor purchased it. The purchaser refused to close the transaction. The motions judge held that the warranty was given as of the date of the agreement of purchase and sale – so that there was no breach of the warranty. However, he held that the representation bound the vendor up to closing – so that there was a breach of the representation. The Court of Appeal reversed. It noted that the representation was not a pre-contractual representation; it was a contractual representation, to be interpreted according to contractual interpretation rules. It also noted that a contractual representation is a statement of present or past fact, while a warranty is a contractual undertaking or guarantee that the fact is true. It held that the 2 concepts were bound up within the same clause, which did not reference the closing. After noting that other clauses in the agreement referenced the date of closing, the court interpreted the clause as taking effect as of the date it was given, not the closing date. Accordingly, the purchaser breached the contract and forfeited his deposit.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.