October 13th - 2009

LEGAL BEAT: Warranty merged on completion

The sellers sold commercial condominium premises and a business used as a party hall primarily for Hindu wedding receptions.

The sellers sold commercial condominium premises and a business used as a party hall primarily for Hindu wedding receptions.

Three clauses in the offer stated: FUTURE USE: Vendor and purchaser agree that there is no representation or warranty of any kind that the future intended use of the property by Purchaser is or will be lawful except as may be specifically provided for in this Agreement.

The second clause stated: The Vendor warrants that the property is presently zoned for a Party Hall and that the property can be used as a Party Hall providing accommodation to three hundred people.

The third clause concerning Urea Formaldehyde Foam Insulation has a warranty that this has never been used on this building. That clause goes on to read: “The Vendors further warrant that this warranty shall not merge on completion of this transaction but shall survive the closing and will continue in full force and effect after the closing.”

After the deal was closed the Buyers discovered that they could not use it for that warranted purpose. The Buyers sued the Sellers for damages for breach of the warranty. One of the major issues is whether a warranty survives closing or not. The Judge said: "The question of whether or not a warranty innocently given merges on the closing of the transaction, therefore, becomes one of the intentions of the parties. In my opinion, the wording of the clause in the agreement of purchase and sale dealing with the potential use of the Urea Formaldehyde Foam Insulation stating that it would not merge on closing indicates that the parties turned their minds to the fact of possible merger upon closing of the transaction. Their failure to provide that the warranty for zoning of the premises was not to merge on closing establishes that this provision did merge when the transaction was completed and the deed transferred. Thus, it cannot now be relied on."

Sellathurai v. Sriskanda, 2007 CanLII 25664

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