- " If a representation is false when made, the other party may have a claim based on misrepresentation, separate from an ordinary breach of contract claim.
- Even though the two are often combined, the underlying legal theories can lead to different outcomes: - Misrepresentation claims can sometimes support a remedy of rescission — unwinding…
"Representations and warranties" gets tossed around as one phrase so often that most business owners treat it as a single concept. It isn't. Representations and warranties are two distinct legal promises, with different histories, different remedies, and different consequences if they turn out to be false — and the difference can genuinely matter if a deal goes wrong.
Whether you're signing a services agreement, a supply contract, or a share purchase agreement, understanding what you're actually promising — and what you're relying on the other side to promise — is worth the extra ten minutes it takes to read that section of the contract carefully.
The Legal Difference
- A representation is a statement of fact made to induce the other party to enter the contract — "this equipment has never been in an accident," "our financial statements fairly present the company's condition." If a representation is false when made, the other party may have a claim based on misrepresentation, separate from an ordinary breach of contract claim.
- A warranty is a contractual promise that a particular fact is, or will be, true. If a warranty turns out to be false, that is a breach of contract, and the other party's remedy generally flows from ordinary contract-breach principles (typically damages that put the injured party in the position they would have been in had the warranty been true).
In practice, most modern commercial contracts bundle the two together into a single "representations and warranties" section and treat a false statement as both — giving the injured party access to remedies under both doctrines rather than forcing a choice.
Why the Distinction Still Matters
Even though the two are often combined, the underlying legal theories can lead to different outcomes:
- Misrepresentation claims can sometimes support a remedy of rescission — unwinding the contract entirely — in addition to or instead of damages, particularly for a fraudulent or seriously misleading misrepresentation.
- Breach of warranty claims generally keep the contract in place and compensate the injured party financially for the gap between what was promised and what was actually true.
- The type of misrepresentation matters. Ontario law generally distinguishes between innocent, negligent, and fraudulent misrepresentation, with the available remedies and the difficulty of proving the claim differing across the three.
This is why experienced drafters don't just rely on generic boilerplate — the specific wording of each representation and warranty, and how the remedies clause interacts with them, genuinely changes what happens if something turns out to be false.
Common Categories in Commercial Contracts
| Category | What's Typically Promised |
|---|---|
| Corporate status and authority | The party is validly existing and has the authority to enter the contract |
| Financial statements | Statements fairly and accurately present the business's financial condition |
| Title and ownership | The party actually owns the assets, shares, or intellectual property being dealt with |
| Compliance with law | The business operates in compliance with applicable laws and holds necessary licences |
| No undisclosed liabilities | There are no material liabilities beyond what's been disclosed |
| Litigation | There is no undisclosed pending or threatened litigation against the business |
These categories appear constantly in share purchase agreements and larger commercial deals, where the buyer relies heavily on the seller's representations and warranties because much of the relevant information is only in the seller's hands.
What Happens When a Representation or Warranty Turns Out to Be False
The consequences generally depend on several factors: how the contract's remedies are structured, whether the false statement was innocent, negligent, or fraudulent, whether it was "material" to the deal, and what the contract says about indemnification for a breach. Many negotiated commercial agreements — especially business sale agreements — pair representations and warranties with a specific indemnification clause spelling out caps, time limits, and procedures for making a claim, rather than leaving the parties to rely on general contract-law remedies alone.
This is also why due diligence exists: a buyer doesn't just rely on the seller's representations and warranties on faith — thorough diligence is meant to independently verify as much as practically possible before closing, with the representations and warranties acting as a backstop for what diligence couldn't fully confirm.
Practical Guidance for Negotiating These Clauses
- Read every representation as a promise you may have to prove true later — don't sign off on a statement you aren't confident is accurate.
- Push back on overly broad language. A representation phrased "to the best of the seller's knowledge" is meaningfully narrower than an unqualified statement, and the difference matters if something later proves false.
- Understand how the indemnity clause interacts with reps and warranties in the same agreement — a breach without a workable remedy attached is much less useful.
- Ask what "materiality" thresholds apply. Some contracts only trigger remedies for a "material" breach, which limits claims over minor inaccuracies.
- Get a lawyer to review the survival period — how long after closing a claim can still be made for a breach of a representation or warranty.
Frequently asked questions
Is a false representation the same thing as a broken warranty?
They're related but legally distinct — a false representation can support a misrepresentation claim (sometimes including rescission), while a broken warranty is a breach-of-contract claim seeking damages. Many contracts now treat a false statement as triggering both types of remedy.
Can I sue for misrepresentation even if the contract has already been signed and performed?
It depends on the type of misrepresentation and the specific facts, including whether the contract's language limits available remedies. This is genuinely fact-specific territory, and general assumptions shouldn't substitute for advice on your situation.
Do representations and warranties expire after closing?
In many commercial agreements, yes — the contract will typically set a "survival period" after which a claim for breach of a representation or warranty can no longer be made, though certain fundamental representations are sometimes carved out and survive longer.
Why do buyers rely so heavily on representations and warranties instead of just doing more due diligence?
Because due diligence, however thorough, can never uncover everything — representations and warranties shift some of that residual risk back onto the party (usually the seller) who actually has the underlying information, and give the buyer a contractual remedy if something later proves untrue.
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