Preserving Your Warranty Rights in a Court Settlement
Imagine this: You’re a contractor, knee-deep in a project, when a subcontractor sues you for breach of contract. After tough negotiations, you agree on a monetary settlement, and opposing counsel sends over a Full and Final Release to sign. You breathe a sigh of relief, thinking the dispute is resolved. But months later, you discover shoddy workmanship or defective materials from that subcontractor’s work. You try to pursue a warranty claim, only to learn you’ve signed away your rights in the settlement.
Settlements are a powerful tool to resolve disputes, but without careful scrutiny, they can strip away your ability to enforce warranties for defective work or materials. Below, we break down what you need to know to protect your warranty rights, drawing on key legal precedents and practical steps to safeguard your interests.
The Hidden Risks of Broad Release Clauses
A Full and Final Release is a contract, and its language can have far-reaching consequences. A broadly worded release, such as one covering “any and all claims,” can extinguish future claims you didn’t even know existed at the time of signing. This includes warranty claims for defective construction or workmanship that only become apparent later.
Two landmark Canadian cases illustrate these risks:
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Biancaniello v. DMCT LLP, 2017 ONCA 386: The Ontario Court of Appeal held that a release covering “any and all claims” for services rendered up to a specific date was intended to “wipe the slate clean.” This included a negligence claim discovered years later, as the language was clear and unambiguous. The court emphasized that parties signing broad releases may be bound by them for unforeseen issues unless specific exclusions are negotiated.
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Corner Brook (City) v. Bailey, 2021 SCC 29, [2021] 2 SCR 540: The Supreme Court of Canada clarified that releases are interpreted like any other contract, following general principles from Sattva Capital Corp. v. Creston Moly Corp. A release can cover unknown claims if the language is sufficiently broad, but courts may interpret it narrowly if the wording conflicts with the surrounding circumstances.
These cases underscore a critical lesson: vague or overly broad release clauses can and will jeopardize your ability to pursue warranty claims.
Key Steps to Protect Your Warranty Rights
To avoid waiving your warranty rights in a settlement, take these proactive steps:
1. Negotiate Specific Exclusions for Warranty Claims
If you’re involved in an ongoing project, instruct your lawyer to negotiate clauses that explicitly preserve your warranty rights for workmanship, defective construction, or materials. This ensures you can address future issues without being barred by the settlement.
2. Clarify Mutual vs. Unilateral Releases
In disputes involving multiple parties, ensure the release is unilateral—applying only to the party bringing the claim. Some mutual releases contain broad language that inadvertently releases co-defendants from all liability, limiting your recourse against them in future disputes.
3. Document Warranty Terms
Before signing, confirm the scope of any warranties in the original contract. Are they express (e.g., a written guarantee for quality) or implied (e.g., statutory protections)? Ensure the settlement agreement acknowledges these warranties and doesn’t waive them. Keep detailed records of the contract, correspondence, and settlement terms to support future claims.
4. Seek Expert Guidance
Settlement agreements are nuanced, and overlooking a single clause can have costly consequences. Work with a lawyer who understands the interplay of contract law and warranties. At Rozek & Co, we tap into our network of specialists to address your specific needs, whether it’s construction law or complex commercial disputes.
Contact Us Today
Don’t let a settlement agreement compromise your warranty rights. If you’re facing a commercial dispute or need guidance on a settlement, reach out to Rozek & Co. Our innovative, client-focused approach ensures you get the expertise and attention you deserve. Contact us today to discuss your case!
