The Taschereau and Fuller lawsuit is a case concerning false representations in a Property Condition Statement (PCS). The purchaser Mr. Tashereau brought an action before the Court of Queen's Bench in Manitoba against the vendors of a residential property which he purchased. The vendors in turn took third party proceedings against their own agent for negligence concerning his advice related to the completion of the PCS
The PCS was completed by the vendors, the Fullers on 14 May 2001 and delivered to the purchasers on 17 May 2001.
Here was a question contained in the Form:
‘To your knowledge has there ever been any flooding or leakage affecting any portion of the property (into the house or garage or into low-lying areas of the yards or other part of the property) and from any cause or source (rainwater, snow melt, sewer backup or other cause or source)?'
to which it was indicated "yes" and the following handwritten answer added: "Minor water seepage thru bsmt window during a heavy rain."
An Offer was submitted providing that the "seller's property condition statement would be incorporated into, and form part of, the contract". The offer was accepted on May 15, 2001.
Mr. Tashereau arranged to have the property inspected by his own home inspector. A note was made about a repair to the window wells in the basement to prevent water from the surface contacting with the wood.
The purchasers took possession on July 5, 2001. On July 16th, a substantial amount of rain fell and water leaked into the basement.
The plaintiffs' position at trial was that the comment in the seller's property condition statement that only minor water seepage had occurred through a window was inaccurate given the amount of leakage evidenced on July 16th.
The defendants' position is that the comment in the seller's property condition statement was inaccurate only as to the use of the singular rather than of the plural, and that in their experience, only minor water seepage had occurred through the windows at any time during their possession of the premises.
Once the parties have completed the transaction, the title has registered in the name of the purchasers and the purchase price has been paid to the vendors, the remedies available to an aggrieved party are severely limited.
The doctrine of merger is basically set forth in Anson and Honsberger, Real Property Law is as follows:
1. After closing, the doctrine of merger may apply.
2. The doctrine of merger is that, upon the completion of an agreement for the sale of land, the agreement and the parties' rights thereunder are merged in the deed of conveyance, so that after closing they can no longer rely on the terms of the contract, but must look to the deed for any remedy.
3. The purpose of the doctrine of merger is to bring finality and certainty to business affairs, as it would be unfair to allow a party to seek to set aside the transaction or to obtain damages for an indefinite period after closing.
4. It is the general rule that the acceptance of a deed is prima facie full execution of the agreement to convey, and preliminary agreements and understandings related to the sale of land become merged in the conveyance.
5. The doctrine of merger does not apply to independent covenants or collateral stipulations in an agreement of sale.
6. Where the agreement of sale creates rights or imposes obligations or stipulations collateral to or independent of the conveyance, the question of whether those stipulations are extinguished by merger is one of intention.
7. The proper inquiry should be to determine whether the facts disclose a common intention to merge the warranty in the deed; absent proof of such intention, there is no merger.
8. The exceptions to the doctrine of merger are as follows:
(i) fraudulent misrepresentation;
(ii) mutual mistake resulting in a total failure of consideration or a deficiency in the land conveyed amounting to error in substantialibus;
(iii) a contractual condition; or
(iv) a warranty collateral to the contract which survives the closing (as referred to above).
The trial Judge commented as follows:
"As a result, the doctrine of merger will apply to the comment unless it falls within any of the exceptions:
(a) fraudulent misrepresentation:
I accept Mr. Fuller's evidence that he did not deliberately intend to mislead. I believe that he was being truthful. He indicated that while there had been some seepage in the basement, there was nothing that he would have considered of a major issue. Furthermore, I accept his evidence that he did not deliberately attempt to mislead by the fact that the comment refers to the word "window", and not "windows".
(b) error in substantialibus:
Even if there was an error as to the reference of a "window" as opposed to "windows", I do not see this error as one of substance or as one that would change the substance of the subject matter of the contract. There is no indication that the vendors took steps to hide the problems caused by the water seepage. In fact, the purchasers' home inspector noted them. While the inspector did not note the larger problem found in the wall behind the boxes, there is no indication that the boxes were laid in such a way as to prevent the wall from being viewed. In fact, Mr. Fuller readily agreed to move boxes on another occasion to allow the view of the attic. Had he been asked to do the same in the basement, there is no indication that he would not have agreed. Furthermore, according to the purchasers' own expert, it would appear that the problem can be remedied fairly simply. In his view, the problem is with the window wells and not with the foundation. It can be remedied by a simple alternative procedure rather than by an expensive one, which the purchasers propose.
(c) contractual condition:
There are no conditions in the contract that would entitle the purchasers to recover damages.
(d) collateral warranty:
As I have indicated, I do not find that the representation amounted to a collateral warranty.
In summary, I find that the principle of caveat emptor does apply."
Accordingly, the purchasers case was dismissed and it was not necessary to consider to the merits of the third party proceedings.
COMMENT:
This particular case was determined on the basis of basic real property law and contract law. This involves the strict application of traditional legal principles to the case.
Other cases, where liability is found, the determining factors will be misrepresentation and the law of deceit in accordance with basic tort principles. When viewed from a vendor's perspective, traditional real estate and contract law provide the greatest level of protection. It is tort law which essentially opens up the opportunity for increased liability.
It should be noted that most other cases have not followed this very traditional approach.
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty 905-796-8888 www.OntarioRealEstateSource.com
The Bond and Richardson lawsuit is a case in the province of New Brunswick involving the use of the Property Condition Statement and the liability of the agent who assisted the vendor in the completion of the document.
The case is interesting from a procedural perspective. Mr. Bond purchased a property which was subject to certain deferred taxes under the Farm Lands identification Program (FLIP). If Mr. Bond changed the use of the property, these deferred taxes would become payable.
So, he sued his own lawyer Ms. Richardson, for negligence. His lawyer then sued the vendor for improperly completing the Property Condition Statement. The vendor then sued his own agent for improper advice concerning the completion of the document. All matters were heard in one proceeding.
The purchaser grew up on the property which is the subject of the sale. His family sold the property in 1975 and he saw it advertised in 2003. He contacted the agent, Paul Langlais who agreed to act in a dual agency capacity for purchaser and the vendors, Mr. and Mrs. Kerr.
The FLIP program is designed to keep property as farming lands. If the use changes, the owner is responsible for the current taxes and 15 years of deferred taxes. Mr. Bond wishes to use some of the lands for a commercial auction which is his business. This change in use would trigger 15 years of back taxes. In the interim, Mr. Bond leased out the land for farming.
Liability of the Purchaser's solicitor
The Court concluded that the purchaser's solicitor had failed to properly check the taxes prior to closing and this constituted negligence. Mr. Bond has suffered damages as a result of that negligence in that he is restricted in the use he can make of his property without incurring a cost and, by her failure to advise him of the deferred taxes, Ms. Richardson deprived him of the opportunity to reduce, eliminate or even negotiate those costs prior to closing.
Liability of the Vendors
There is also the matter of the vendor's liability, since the purchaser's solicitor claimed over as against them.
James Kerr, the vendor testified that he and his wife lived on the property for 15 years. It was registered in the FLIP when they bought it in 1988 and it was still in the program when they sold it in 2003. He regarded it as a tax break. He testified that all he knew about the program was that it resulted in lower taxes for him and that he was not aware that he would have to pay taxes back if the use of the property changed. He further testified that at the time of the sale to Mr. Bond he was not aware that Mr. Bond may have to pay the deferred taxes.
As part of the agreement, the vendors agreed to sign a Property Condition Statement.
In the first section of the Property Condition Statement, which deals with general information about the property, the vendors answered "no" to the following two questions:
4. Are you aware of or have you been charged any local improvement levies/charges?
5. Have you received any other notice or claim affecting the property from any person or public body?
The trial Judge said " the purpose of that Statement is disclosure. If they didn't have a duty to answer the questions both honestly and accurately that purpose would be defeated and the Statement would be meaningless."
And, the Judge made the following comment:
"It is clear......, James and Carole Kerr, made misrepresentations to Mr. Bond when they completed the Property Condition Statement. Mr. Kerr was aware of the FLIP taxes and while he regarded them as a benefit as opposed to an encumbrance, that did not excuse him from disclosing their existence, particularly when he answered the questions on the Property Condition Statement about whether or not he had received any notices from a public body affecting the property and whether or not the property was under the jurisdiction of any Conservation Authority. Both of those answers were clearly wrong and Mr. Kerr knew or ought to have known they were wrong since he knew from the time they bought the property that it was registered in the FLIP and he executed a document in 1997 in which he opted to continue to have the property registered in the FLIP."
The trial Judge determined that there was no intention to deceive, it was an oversight. So, even though there was no finding of fraud, there was still a negligent statement. This statement met the 5 part test set out by the Supreme Court of Canada in Queen and Cognos to establish liability.
The Judge also commented that there was a special relationship between the parties, that is, they were negotiating an agreement, and that gave rise to a positive duty to provide honest and accurate answers:
"The representor's belief in the truth of his or her representations is irrelevant to the standard of care."
On the issue of the completion of the PCS, the Judge observed the following:
"In my view, if Mr. Kerr, in completing the Property Condition Statement, had given some thought to those questions he answered incorrectly, it is more likely than not that he would have realized that the FLIP should be disclosed in answering them.
I find that he did not exercise the care that an objective, reasonable person would have exercised in order to ensure the answers he gave were accurate and he was therefore negligent.
Mrs. Kerr was also negligent because she merely relied on the answers given by Mr. Kerr in signing the statement and made no effort on her own to ensure that the answers were accurate."
Liability of the Real Estate Agent
Paul Langlais had only been an agent for 2 years when he came across this situation. He was unfamiliar with farm properties, and although he obtained a tax statement referring to the FLIP, he knew nothing of the program or its deferred tax provisions.
The Court concluded:
· By failing to make himself and his clients aware of this essential and pertinent fact in a timely manner I find that Mr. Langlais failed to write the agreement in compliance with Article 6 of the Standards as it is not clear and understandable because it does not set out whose obligation it is to pay the deferred taxes.
· It follows, and I find, that Mr. Langlais failed to comply with the standard of care required of a realtor as set out in the Canadian Real Estate Association's Standards of Business Practice and thereby breached the duty he owed to Mr. Bond.
· I further find that Mr. Bond has sustained damages as a result of that breach. It follows, and I find, that Mr. Langlais was negligent.
Accordingly, the Court awarded a judgment in favour of the full amount of the deferred taxes to the purchaser. On the third party claim, the purchaser's solicitor was entitled to claim two thirds from the vendors and the real estate agent, the result being that the solicitor, the vendors and the vendors' agent each bore one third of the loss.
COMMENT:
This case again stresses the importance of the PCS. Be careful, when you arte providing responses. If you are a real estate agent, you must counsel your client in terms of its execution. And, the mere fact the purchaser's lawyer made a mistake was not enough to relieve the vendors or the real estate agent from liability.
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty 905-796-8888 www.OntarioRealEstateSource.com
The lawsuit Alevizos and Nirula is another Property Condition Disclosure Statement case. This case came before the Manitoba Court of Appeal for consideration in 2003. It is the highest Court yet to discuss this document, since no cases have reached the Supreme Court of Canada.
The comments made by the Justices are noteworthy. Originally, this was a claim that was heard in Small claims Court due to the monetary size of the dispute, but under appeal it was considered sufficiently important for the Court of Appeal to offer some guidance.
The Alevizos purchased from the Nirulas a substantial home in the Tuxedo area in Winnipeg. During the initial negotiations, and after a first offer to purchase had been made, a request was made by the purchasers for the vendors to complete a PCS. Mr. Alevizos had noticed a gap in a window and had expressed a concern to his real estate agent who in turn suggested that a PCS be obtained from the vendors.
Pertinent for our purposes is question H and the answer noted directly underneath:
"To your knowledge has there ever been any flooding or leakage affecting any portion of the property (into the house or garage or into low-lying areas of the yards or other part of the property) and from any cause or source (rainwater, snow melt, sewer backup or other cause or source)?
[Answer] Exterior water tap froze and broke - caused some flooding in the rec rm. - thus all doors, flooring & carpeting, & lower 3 ft. of all walls replaced 1998."
But a frozen water tap was not what the purchasers were worried about. Rather, their concern was about the potential difficulties with some of the windows.
Analysis by the Court:
· There can be no doubt that caveat emptor is alive and well.
· mere silence without more on the part of the vendor with respect to a defect subsequently discovered by a purchaser will not normally found a cause of action against the vendor by the purchaser for misrepresentation or for fraud.
· A distinction must be made between a failure to disclose which in effect renders what has been stated a misrepresentation, and a failure to disclose which leaves anything said or written as true, but results in some misconceptions since the whole truth has not been told. The former kind of non-disclosure if fraudulent is fraudulent misrepresentation.
· A half a truth will sometimes amount to a real falsehood
· A representation might be literally true but practically false, not because of what it said, but because of what it left unsaid. In short, because of what it implied. This is as true of an innocent misrepresentation as it is of a fraudulent misrepresentation.
· To state a thing which is true only with qualifications or additions known to, but studiously withheld by, the representor, is to say the thing which is not. Such a statement is a "lie", and one of the most dangerous and insidious forms of lie.
· Any active concealment by the vendor of defects which otherwise would be patent is treated as fraudulent, and the contract is voidable by the purchaser if he has been deceived by it. Any conduct calculated to mislead a purchaser or lull his suspicions with regard to a defect known to the vendor has the same effect.
· The purpose of active concealment, of course, is to make latent that which would otherwise be patent.
· Where there is an active concealment of an otherwise patent defect, the general rule of caveat emptor will not apply.
· .... the question is whether the Mr. Nirula deliberately omitted to say something which was required to render completely true his response to question numbered H on the PCS, namely, whether there had "ever been any flooding or leakage affecting any portion of the property."
· Assuming the statement made by Mr. Nirula about the frozen water tap as far as it went was true, does it also represent a positive statement that no other leakage occurred?
· Viewed in this way, confirmation that the frozen water tap was the only leakage is a fraudulent misrepresentation within the classic definition contained in Peek, earlier referred to, since, "the withholding of that which is not stated makes that which is stated absolutely false". (Derry and Peek)
· ....the misrepresentation, .... runs afoul of yet another exception to caveat emptor, namely, because there was a duty to disclose such a material fact pursuant to the terms of the PCS document itself? In addition to the nature of a contract (uberrimae fidei for example), such a duty may arise "from circumstances which occur during the negotiation".
· ..... a contracting party who is entitled to remain silent once the decision is made to say anything at all during negotiations on a particular subject that is relevant "must say everything, that is, everything material to the topic in question; by breaking silence, he impliedly ‘undertakes' a duty which otherwise the law would not have prescribed".
· by speaking there is an implied undertaking in the circumstances to speak fully.
· The vendors' response was not merely a "half truth," it was a positive falsehood. Once the vendors voluntarily undertook to complete the PCS, they were obliged - indeed they were under a duty "in the circumstances" - to do so honestly and completely. This they did not do.
The Court on The PCS itself:
· Declarations made in a PCS are representations as opposed to terms of the contract.
· Such statements do not constitute a warranty, rather the purpose of a PCS is to put purchasers on notice, to make purchasers aware of a problem if there is one.
· Since the purpose of the PCS is to give the purchasers a "heads up" with respect to potential problems, liability will ordinarily be disallowed when the problem in question is obvious. This is because purchasers in such circumstances should not have been misled by the disclosure statement.
· If the vendor answers the PCS honestly and does not deliberately intend to mislead, then liability will not follow even if the representation turns out to be inaccurate
· Based on the experience of those provinces that have employed the PCS, it seems to present a ripe ground for litigation. Doubtless this is due in no small measure to the problems inherent in an informal "fill in the blank" form which can have such serious legal consequences when problems subsequently develop in a real estate transaction. The wisdom of maintaining in use a form fraught with such inherent difficulties, exacerbated by the conflicting statements within the form concerning its purpose and effect, should be addressed by lawyers and real estate agents alike.
Mr. Justice Kroft, another Justice of the Court of Appeal offered his own comments about the use of the PCS:
· "My purpose in writing these brief separate reasons is to emphasize an aspect of this case which should be of particular interest to members of the public who are buyers or sellers of homes and to the agents and lawyers who represent them. I am referring to the risks, well demonstrated here, which are inherent in the recently introduced "form" document described as a property condition statement or PCS.
· The Chief Justice, in paragraph 36 of his judgment, sets forth five "general statements" which describe the nature of the PCS. He explains both the intent and the difficulties related to its use. In his fifth statement, he observes that based on the experience of other provinces, the form creates "a ripe ground for litigation." He attributes at least part of the problem as being due to the frailties of a practice which encourages important representations about the condition of real property to be asked and answered on a short pre-printed form comprised of standard questions and answers which are given by filling in boxes and blanks.
· This judgment should, in my view, be taken as a warning about the routine use of the PCS. The purchase and sale of a home is for many people the most significant business transaction they will ever enter into. Representations as to the condition of the property are inevitably going to be requested and given. I do not believe that these concerns are ever going to be safely dealt with by filling in the blanks on a short form carried in the real estate agent's briefcase with his or her other supplies.
· It is my concern that the use of the PCS is likely to increase the number of disputes in circumstances similar to those which existed here. That view causes me to emphasize the suggestion of Chief Justice Scott that the continued use of the PCS "should be addressed by lawyers and real estate agents alike." A more careful and traditional way of making important representations about the condition of property is surely better than incurring the risk of costly and uncertain litigation."
COMMENT:
So, you might wonder whether to use this document at all? The Court emphasized that should the vendor choose to answer the document which was otherwise voluntary, then there were certain conditions and limitations placed upon the vendor in terms of responses.
No half truths, no concealments. There was now a duty to be fully forthright and provide detailed and accurate answers. Anything that might trick a purchaser is a deceit. Answering questions in a clever way is really not allowed. That is just a little too "cute".
Adding additional information is sometimes distracting and is intended to placate the purchaser into the false belief that full and complete disclosure has been provided, when really it's just a "curve ball" calculated to deceive.
Remember... "the truth, the Whole truth, and NOTHING but the truth!
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty 905-796-8888 www.OntarioRealEstateSource.com
The Zadegan and Zadegan matter is a very unusual case involving the use of a Seller Property Information Statement. Actually, the SPIS formed part of the evidence in a contempt of court matter in Superior Court of Justice (Family Division) before Justice Mackinnon in Ottawa in October 2003.
Briefly, the Zadegans were involved in a series of legal proceedings that arose out of the breakup of their marriage. Issues of child support, the division of net family property and the sale of the family home were brought before the Court and resulted in a number of Court Orders.
The Court directed that the family home be sold. Mrs. Zadegan occupied the house with the children and she was basically opposed to the sale. It appeared that she did everything in her power to frustrate the potential sale.
She refused to appoint a real estate agent, but finally did so when threatened with another court application; she refused signs in the neighbourhood, she refused showings unless they were very convenient to her schedule. All in all she was quite uncooperative.
The matter came on for hearing to determine whether or not she was in contempt of Court, for it was the Court which had ordered the sale of the house. This was not simply a request by her husband.
Mrs. Zadegan took the position that the property was unsaleable. There were leaks in the basement which would cost $20,000 to repair and she didn't have the money to do those repairs. She took the property off the market and failed to lower the price into the range that had been established in the proceedings. The failure to sell suited her own convenience since she continued to occupy the premises in the meantime. The more she could do to thwart the sale the better.
Obviously, in determining whether she was in contempt of Court, her credibility and her motivation were factors that were taken into consideration.
Court Review
Here is the review by the Court of the execution of the Seller Property Information Statement signed by Mrs. Zadegan:
"[39] Exhibit 13 is the Ontario Real Estate Association Seller Property Information Statement that was completed and signed by Mrs. Zadegan on 1 November 2002 with respect to 1667 Marronier Court. The instructions state that the answers must be complete and accurate for the purpose of establishing that correct information is being provided to buyers. In completing the form, Mrs. Zadegan noted two problems with flooding in the basement: one caused by an outside pipe rupturing, which was repaired in December 2001 by adding a second sump pump; and, the second caused by the float in the sump pump being burnt and replaced on 28 October 2002.
[40] In cross-examination, it was suggested to her that this information was quite different from that set out in her affidavit filed in the present proceedings. She was asked these questions and gave these answers:
Q. Okay, so would you agree with me that by the time you wrote this on November 1st, 2002, what happened was: 1) a ruptured outside pipe and 2) a burnt sump pump. A. These were two occasions that happened, yes. Q. Were there more? A. And there were much more. Q. There were much more? A. Yeah, the builder said to me if we write that down... Q. I don't want to know what the builder said to you. A. Okay. Q. That's hearsay. A. Okay, I tell you that if I put everything down there, I could not sell the house at that price. I didn't mention all of them, I just said this and I thought the problem was solved but it's not solved. . . . Q. You just admitted that this document may not be quite true. A. There was a small amount of water there, I wasn't going to tell people that this house has problems, not to get the fair amount of price for it.
[41] Thus, there are many contradictions in Mrs. Zadegan's evidence with respect to the water problem in the basement. These contradictions affect her credibility."
Significance of SPIS
Please note that Mrs. Zadegan said about the SPIS: "....I wasn't going to tell people that this house has problems, not to get the fair amount of price for it." Clearly, she lied, and she was prepared to lie in order to get her way.
Court Decision
As you probably can imagine, the trial Judge concluded that she was in contempt of Court.
COMMENT:
This is a rather new and novel use of the SPIS. If you decide to make false statements, it is not only the purchaser who may sue you. These same false statements can effect your credibility in other legal proceedings. Basically, it's just the same as if the statements were sworn under oath. While, there was no criminal charge of perjury, there was a finding of contempt of Court in a civil matter, which still can result in sentencing and confinement.
This raises a new level of obligations for real estate agents. You may have to point out risks associated with the completion of the SPIS that go beyond potential liability to the prospective purchaser.
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty 905-796-8888 www.OntarioRealEstateSource.com
The Macdonald and Robson matter was an application in the Superior Court of Justice of Ontario for an order rescinding an agreement of purchase and sale.
The purchaser Mr. Macdonald had submitted an offer to acquire certain property owned by the vendor Robson. The transaction was to close on 28 April 2008 and the matter proceeded to Court 3 days before closing.
The property comprised 2 acres of rather picturesque property backing onto conservation lands in Flamborough, Ontario.
As it turned out, there was an easement in favour of the Township over one half of one acre or 25% of the property.
The vendor had completed a Seller Property Information Statement (SPIS) indicating:
"in response to a question inquiring whether there were any easements, the answer given was "unknown, on survey".
In another question asking if the survey showed the location of all easements, the response was "yes, written location of sunroom".
A survey was produced ......, but it made no reference to any easements."
The motions Court Judge said:
"There was no suggestion that the vendor's were aware of the existence of the easement or that any misrepresentation was made. Rather, the vendor's argument before me was that the existence of the easement did not materially affect the purchaser's use of the property, principally because there are other areas on the property where Mr. Macdonald would be permitted to build his drive shed and other structures. The respondent relies on the decision of Stefanovska v. Kok reflex, (1990), 73 O.R. (2nd) 368, arguing that Ms. Robson, the vendor can convey substantially what Mr. Macdonald contracted to get.
Justice Forestell in Ridgely v. Nielson, [2007] O.J. No. 1699, noted that there are four factors to be considered in determining whether an easement is material:
1) the location of it;
2) the size of the easement;
3) the point of access; and
4) the owner's enjoyment of the property."
Consequently, the Court determined that the purchaser was entitled to rescind the agreement.
COMMENT:
Although there was a SPIS completed in this case and although it was incorrect, the decision of the motions Court Judge was made on the basis of contract alone.
In all likelihood, should the matter of misrepresentation have been made an issue, then the Court would probably have directed the trial of an issue. The important matter to bear in mind in this case, is the issue of costs. Such a proceeding would have been substantially more costly than an application in motions Court. In this case, the Judge saved both litigants some expense, by disposing of the matter summarily.
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty 905-796-8888 www.OntarioRealEstateSource.com
Mr. and Mrs. Whaley purchased a small house from the vendors Mr. and Mrs. Dennis in 2002 . The property was located in the Niagara Peninsula and was intended to be the retirement home of the purchasers.
The case of Whaley vs. Dennis came on for trial in the Superior Court of Justice in October 2005 before the Honourable Mr. Justice Quinn. A matters in issue were false statements made pursuant to the Seller property Information Statement.
Mr. and Mrs. Dennis purchased this property in 2002. They decided to list the property for sale and in that connection executed a Seller Property Information Statement.
Earlier, in the Summer of 2001, Mr. Dennis obtained two quotations for work to the septic system. He retained one company to dig a trench but not complete the connection. He decided to do this himself, because otherwise he would require a permit. Also, Mr. Dennis constructed some drywall in the basement.
Specifically, they made certain representations which are the subject of this lawsuit: "Are you aware of any problems with the septic system?" Answer, "Unknown."
"Are you aware of any moisture and/or water problems in the basement or crawl space?" Answer, "No."
An agreement of purchase and sale was executed and was conditional upon both a home inspection report and a septic inspection satisfactory to the purchasers.
The trial Judge stated:
"The plaintiffs waived the conditions in the agreement of purchase and sale regarding both the home inspection and the septic tank inspection. I was never told why. In respect of the latter, which had not yet been carried out, it certainly was an unwise move and probably prompted by the realtor representing the plaintiffs. I doubt whether the plaintiffs understood what they were doing. However, by executing the waiver, I conclude that the plaintiffs cannot be said to have relied on the septic-system inspection in deciding to complete their purchase of the Property."
The Spring of 2003 was the first wet season encountered by the plaintiffs at the Property. They began experiencing a strong odour of sewage. In addition, the basement flooded. The leakage (or most of it, at least) seemed to originate from the front side of the house as opposed to the rear where the septic tank was situated. It was the testimony of Mr. Dennis that, while he and his wife owned the property, they did not experience moisture in the basement.
During the exterior remedial work subsequently carried out by Robson (the purchasers' contractor) a crack was discovered in the front basement wall about one-quarter inch in width. Robson testified that the crack seemed to be an old one: it was discoloured and had a growth of moss. When Mr. and Mrs. Dennis purchased the Property they removed the existing drywall in the basement and replaced it with new drywall. The crack would have been visible to them then and they concealed it with the new drywall. It is also curious that, while they occupied the property, Mr. and Mrs. Dennis did not place coverings of any kind on the basement floor and they did not use the basement as a living area. In a home having less than 700 square feet of living space, would they not occupy the basement, if it were habitable?
The seriousness of the sewage-system failure is abundantly clear from the fact that, following the inspection by Murray on May 2nd, Regional Niagara Public Health Department issued an order to the plaintiffs regarding sewage escaping "from your sewage system or septic tank onto the ground or into a water source."
The relevant parts of the order state: "....immediately stop the discharge of sewage escaping onto the surface of the ground."
Discussion by the Court
"patent and latent defects
[19] There can be no question that the problems with the septic system and the basement are defects. But, are they patent or latent defects?
[20] A latent defect is "some fault which one would not expect an ordinary purchaser to discover during a routine inspection"
[21] A patent defect is "something which an unsophisticated purchaser can discover on cursory inspection"
[22] Whether a purchaser should be taken to have been aware of a defect involves the application of an objective test.
[23] The defect in the septic system at bar is a latent defect. If it was not noticed by [the septic system inspector], it certainly is not something the plaintiffs would be expected to discover during a routine inspection of the Property.
[24] Where a vendor actively conceals a latent defect he or she can take no protection from the doctrine of caveat emptor ("let the buyer beware") and the purchaser is entitled to sue for rescission or damages. In other words, a latent defect known to a vendor must be disclosed to a purchaser.
[25] On behalf of Mr. and Mrs. Dennis, it is argued that the answer "Unknown" recorded on the Seller Property Information Statement should have put the plaintiffs, or at least their realtor, on notice to the possibility of septic-system problems. I respectfully disagree. At the time, had the plaintiffs inquired of Mr. and Mrs. Dennis, it is likely (based on the testimony of Mr. Dennis) that the conversation would have gone something like this:
Plaintiffs: We notice that you checked ‘Unknown' in response to the question ‘Are you aware of any problems with the septic system?' What does that mean?
Mr. and Mrs. Dennis: Well, the septic system is very old, 40 years old in fact, and we do not know what condition it is in.
Plaintiffs: But, you were not asked to describe the condition of the system. The question relates to ‘problems with the septic system.' So, will you say whether, during the time that you have lived on the Property, you experienced any problems with the septic system? You would know that, correct?
Mr. and Mrs. Dennis: Yes, we would. And, during the time that we have lived here, we have not had any problems with the septic system.
Therefore, it is somewhat Machiavellian to suggest that the plaintiffs should have used the answer "Unknown" as a basis for further inquiry of Mr. and Mrs. Dennis.
[26] As I am persuaded by the evidence of Giroux and Zwierschke that Mr. Dennis (and, undoubtedly, Mrs. Dennis, as well) knew the septic system was defective, I easily find that those defendants actively concealed the existence of the defect by not bringing it to the attention of the plaintiffs. Therefore, Mr. and Mrs. Dennis are liable to the plaintiffs for their septic-system damages.
[27] Regarding the basement leak, I also find that it would not have been discoverable by the plaintiffs during a routine inspection of the Property. It was actively concealed behind the drywall installed by Mr. and Mrs. Dennis."
Consequently, the trial judge found in favour of the purchasers and awarded damages against in the vendors for misrepresentation.
COMMENT:
This is a case involving actual concealment of known problems. To say "no" to the septic system issues when the vendor had sought to repair the system does not make any sense. Further to say "unknown" when the vendors concealed the water leak by drywall also causes problems. The statement "unknown" is a further act of concealment.
A substantial difficulty for vendors and septic systems is often that the same contractors will be called by the purchasers later on to repair a problem. Invariably, they will say, "we've been here before..... there were all kinds of problems.... the vendors decided it was too expensive to repair".
That kind of response is very difficult to disprove and offers the very best evidence for a plaintiff. When there is clear evidence of deliberate false statements the Court will take steps to ensure that the plaintiff is compensated.
You will note the fabricated conversation between the parties that was speculated by the Court. Obviously, if the trial Judge feels that way, about the vendors' conduct, then they are going to be found responsible.
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty 905-796-8888 www.OntarioRealEstateSource.com
The Miersma and Pembridge case was an application brought in October 2005 before the Superior Court of Justice of Ontario to determine whether a policy of insurance covered a false statement under a Seller Property Information Statement (SPIS) pursuant to an agreement of purchase and sale.
Mr. and Mrs. Pinkerton bought certain property in Picton, Ontario from Mr. and Mrs. Miersma. Pursuant to that agreement, there was a SPIS which included representations alleged to be false concerning a septic system and an underground storage tank.
The purchasers sued the vendors for false representations in the SPIS, both in contract and tort. Upon receipt of the claim, the vendors reported the matter to their insurer, Pembridge Insurance Company. The insurer took the position that the insurance policy did not cover this claim, since it was a claim in contract.
The purpose of this application was to determine whether the insurer had a "duty to defend" under the insurance policy. The actual merits of the lawsuit are not in question, just the issue of coverage under the policy.
The Court observed:
The duty of a liability insurer to defend will be triggered if, on a reasonable reading of the pleadings, they allege facts, which, if true, would require the insurer to indemnify the insured for the claim.
The mere possibility that a claim falling within the policy may succeed will suffice.
In its decision in BG Checo International Ltd. v. British Columbia Hydro and Power Authority, 1993 CanLII 145 (S.C.C.), [1993] 1 S.C.R. 12, the Supreme Court of Canada stated that where a given wrong prima facie supports an action in contract and in tort, the party may sue in either or both, subject to any limit the parties themselves have placed on that right by their contract.
The statement of claim:
The particulars of the negligence pleaded against the defendants are as follows:
(a) they represented that they did not know of any underground fuel oil storage tank when they had themselves disconnected the tank some years previously and left it in the ground;
(b) they represented that the septic system was constructed in conformity with applicable laws and was in good working order when they knew or ought to have known that there was an unlawful effluent line allowing leachate to move into the Bay of Quinte;
(c) they represented that all environmental laws and regulations had been complied with when they knew or ought to have known that they had not complied with the shutdown and removal requirements relating to the underground fuel oil storage tank in accordance with the provisions of the Technical Standards and Safety Act 2000;
(d) they represented to the best of their knowledge no hazardous condition or substance existed on the premises when they knew or ought to have known that their failure to properly decommission and remove the underground fuel oil storage tank left a hazardous condition or substance on the land.
Further, and in the alternative, the plaintiffs state that the defendants are liable for damages for breach of contract by reason of the breach of the express warranties contained in the Agreement of Purchase and Sale.
Decision of the Court
"In my view, the present case is similar to that in BG Checo, supra, where the court held that a pre-contractual representation which becomes a contractual term could found liability in negligent misrepresentation. This is the situation referred to in BG Checo where it was held that the duty in contract and the common law duty in tort are co-extensive."
COMMENT:
This imposes an additional burden upon insurers if they are to provide insurance coverage for this type of claim. You might quickly see that general homeowners' liability policies will soon begin to exclude coverage for this type of claim. You might be able to purchase it, but you will have to buy it and pay a premium related to its risk.
The case is important because it means that the vendor will have money to pay any judgment. Why? There's insurance! Also, the proceedings will become somewhat more costly. Why? There's insurance, and a professional litigant will incur greater expense. Further, a lawsuit like this is more likely. Why? There's insurance! The first insurer pays the loss to the purchaser. It then determines whether it can sue anyone to recover. Now, it can sue the vendor for negligent statements under the SPIS. So, it initiates proceedings, and just hopes that it is not also the insurer for the vendors.
Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty 905-796-8888 www.OntarioRealEstateSource.com
The Riley and Langfield lawsuit is another interesting Seller Property Information Statement (SPIS) case.
The purchasers sought to recover damages in the Superior Court of Justice of Ontario for fraudulent and negligent misrepresentations made by the vendors concerning their property.
The Langfileds purchased a rural property in Tavistock in 1997 and decided to list it for sale in 2003. As part of the listing they executed a Seller Property Information Statement.
The Rileys submitted an Offer on 31 December 2003 and the transaction was closed on 1 April 2004. Subsequently, they found a number of difficulties concerning the operation of several chattels, a crack in the swimming pool, an abandoned well on the property and a water leak in the basement. To say the least, they were extremely disappointed.
The agreement was not conditional upon the purchasers obtaining a satisfactory building inspection report, which is a common provision with respect to re-sale homes. Ms. Riley was aware such an inspection could have been obtained and understood it was their responsibility to inspect. The purchasers' agent, Mr. Korchensky was not asked to explain the absence of an inspection report condition.
In fact, the SPIS document completed by the vendors was reviewed with the purchasers by their agent before an Offer on the property was prepared.
Here are some of the relevant responses provided:
"STRUCTURAL:
7. Are you aware of any moisture and/or water problems in the basement or crawl space? YES
16. Is there a home inspection report available? Date of report. NO"
The purchasers attended at the premises and were guided through by Mr. Langfield. There was some discussion of the presence of water in the basement and Mr. Langfield had constructed a trench and installed a sump pump to alleviate the problem. He described the basement as being "dry as a bone", to the Rileys and their agent.
The entire attendance at the premises lasted the duration of one hour, and about twenty minutes were spent in the basement itself. The purchasers were aware of the SPIS, and were aware of the water problem before they submitted an Offer. They were also aware of their right to obtain an inspection of the property.
Following the closing, there was extensive water flooding in the basement, and repairs were required both inside the home and outside in respect to the foundation.
The Rileys allege they were induced into the agreement by the fraudulent misrepresentations of Mr. Langfield. According to the Trial Judge in order to succeed, the Rileys must establish:
(a) the representations were made by Mr. Langfield;
(b) the representations were false;
(c) Mr. Langfield knew the representations were false or such were recklessly made without caring;
(d) the representations did, in fact, induce the Rileys to enter into the agreement to their prejudice.
According to the trial Judge:
"As the basis of the claim is fraudulent or negligent misrepresentation, the plaintiffs must establish statements attributed to Mr. Langfield were false, inaccurate or misleading. In essence, a pre-existing problem is a necessary finding. This is particularly the case when there is disclosure in the SPIS and observations of the plaintiffs as to some water issues. There can be no dispute, water has been present in the basement in the past. Indeed, such is hardly unexpected in an older, rural residence. The claim, however, is for something much greater and is said to be flooding."
And, further,
"[114] .... As the basis of the claim is fraudulent or negligent misrepresentation, the plaintiffs must establish statements attributed to Mr. Langfield were false, inaccurate or misleading. In essence, a pre-existing problem is a necessary finding. This is particularly the case when there is disclosure in the SPIS and observations of the plaintiffs as to some water issues.
[115] I am satisfied Mr. Langfield made the comment "dry as a bone" with reference to the basement. Such a statement cannot be considered "mere trade puffery" ..... However, the statement must be considered within the context in which it was made. In this regard, observations of the Rileys, disclosure in the SPIS and other comments of Mr. Langfield are relevant.
[116] The starting point is the Rileys' inspection of the property, of which only twenty minutes was spent in the basement. It is difficult to understand how or why a purchaser would contemplate an investment of $184,900.00 after only one visit to the property. More perplexing is that their realtor allowed or, perhaps, encouraged the Rileys to submit an offer to purchase without a further viewing of the property. The SPIS was ignored. A professional home inspection was not requested.
[117] During this limited viewing, the Rileys observed several water problems, including water stains on the recreation room wall and the fruit cellar floor. There was a sump pump in the laundry room. The Rileys knew its purpose was to pump water to the outside of the residence. The sump pump and trenching in the shop was not seen. Mr. Riley was informed of water issues at the rear of the house under the deck which was adjacent to the shop.
[118] At the very least, this limited viewing should have resulted in further inquiry and a more detailed inspection. In this regard, both realtors acknowledged an examination for water or moisture is common practice in older homes.
[119] The SPIS disclosed "moisture and/or water problems in the basement". I agree with the criticism of such a form as stated by Scott C.J. and Kroft J.A. in Alevizos v. Nirula, supra. Nevertheless, such disclosure is, in essence, a warning to a purchaser that should not be ignored. The SPIS was provided to the Rileys prior to submitting the offer to purchase. The SPIS along with the Rileys' observations should have resulted in further steps being taken. Yet no due diligence was undertaken by the Rileys or their realtor. The Rileys knew it was their obligation to follow up on the SPIS disclosure and that they had the right of further inspection.
[120] As previously mentioned, it is clear that water has been present in the basement but the evidence does not establish such was as extensive in the past. If there was a defect, I am satisfied it was patent. It was observable. I do not accept the suggestion of concealment as advanced on behalf of the plaintiffs. The sump pump and trench in the shop may not have been seen, hardly unexpected on such a brief viewing. With minimal effort, such would have been observed.
[122] The evidence tendered falls well short of establishing either fraudulent or negligent misrepresentation. The absence of evidence compounds the situation and prevents the evidentiary findings required by the plaintiffs. In the totality of the evidence, therefore, caveat emptor applies. The plaintiffs cannot recover damages with respect to the basement."
(sections omitted)
The trial Judge specifically reviewed the involvement of the realtors in this case, and I set out his comments verbatim:
"[131] I pause at this point to consider the involvement of the two real estate representatives in this transaction. They are not defendants and, hence, no evidence was tendered as to the standard of care they were required to perform.
[132] The realtors are said to be professional. They received a commission in some unknown amount on closing of the transaction. There can be no doubt they owed a duty of care. Mr. Korchensky and Mr. Rhodes made reference to the importance of checking for water problems, particularly in older homes. Nevertheless, on the evidence presented it appears neither realtor conducted any due diligence inquiry.
[133] Mr. Rhodes said he conducted a "cursory inspection" of the property when preparing the listing agreement. He met with the Langfields to complete the SPIS. Despite the stated disclosure in this document, Mr. Rhodes made no further inquiry.
[134] Mr. Korchensky saw the water or moisture disclosure in the SPIS. Despite his stated concern with this reference, he was content to rely on Mr. Langfield's limited comments. Mr. Korchensky, it appears, did not recommend a second viewing nor did he suggest a professional home inspection.
[135] Realtors are expected to provide advice and direction to their clients. They are paid to act as professionals. They are not simply tour guides walking through a residence. The cavalier attitude of both realtors with respect to the SPIS is troubling. The purpose of the SPIS is not to protect realtors from liability. They have a due diligence obligation."
The case was allowed in part with respect to some minor matters which required attention and for which a specific warranty had been included in the agreement, however, by and large the trial Judge dismissed the purchasers' case.
COMMENT:
In this case, the execution of the SPIS was to the substantial advantage of the vendors. It proved that there was disclosure. It shifted the onus to the purchasers. The purchasers could have made arrangements to protect themselves by:
1) making further inquiries,
2) inspecting the premises,
3) securing certain warranties from the vendors.
The problem here is that the purchasers took no such steps when all the warning signs were there. The Judge looked at the SPIS document in the context of the other statements and comments that had been made by the vendor, and although the vendor had in error described the basement as being "dry as a bone", this was simply a misstatement. It was a comment made by mistake, when the SPIS disclosure was considered.
The trial Judge was rather critical of the real estate agents and the lawyers in the presentation of the case. There was simply insufficient evidence called by counsel to prove fraud or negligence. The trial Judge speculated about the notes made by the purchasers' agent at the time of the inspection. He thought that they might have been produced in evidence.
However, I suspect that there weren't any. And, the warning to real estate agents in such circumstances: there should be notes. This is just as important as a police officer investigating an accident. Make notes! Make careful notes! And, make them as soon as possible after the inspection. Obviously, a camera or video-recording would be an excellent way to assist the Court in understanding what took place.
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty 905-796-8888 www.OntarioRealEstateSource.com
This case of Morrill and Bourgeois came on for trial in Superior Court of Justice at Thunder Bay in 2007.
Matthew Morrill purchased a property in Thunder Bay from Mr. and Mrs. Bourgeois. They acquired the residence in 2004 from Mrs. Bourgeois' grandmother who bought it in 1957.
The residence was relatively small consisting of about 680 to 700 square feet plus the basement.
The case is based on water damage and water leakage in the basement. The action is based on misrepresentations as the condition of the premises at the time of sale. It is alleged that the Seller Property Information Statement contained either fraudulent or negligent representations.
The Bourgeois decided to move to a larger home in September 2005. They listed their home for sale with two agents, being Mr. and Mrs. Ferris. At the time of the listing a Seller Property Information Statement (SPIS) was completed and it disclosed the following under the heading "Improvements and Structural":
· that they had not made any renovations, additions or improvements to the property;
· that they were not aware of any moisture and/or water problems;
· that they were not aware of any damage due to wind, fire, water, insects, termites, rodents, pets or wood rot;
· that they were not aware of any problems with the plumbing system.
Mr. Morrill viewed the property in early October and submitted an Offer on 22 October 2005. Prior to submitting the Offer he saw and reviewed the SPIS document. He again viewed the premises on 2 November 2005 with a home inspector, and closed the deal on 5 December 2005.
As you might imagine shortly after he obtained possession he discovered water problems in the basement. He smelled "mildew" and upon investigation found mould behind the panelling in the basement. He found cracks in the concrete blocks. In fact, some blocks could be removed by hand.
Mr. Morrill obtained estimates for the repair which exceeded $30,000.
Analysis by the Court:
· "Mr. Bourgeois testified that while he and his family resided in the home, he was in the basement daily. He said that he never noticed any mildew, odours or water problems. He stated that he knew a purchaser would read the Seller Property Information Statement before buying the home. He agreed that a portion of the Seller Property Information Statement, which indicated that the vendors had not made any renovations, additions or improvements to the property, was not accurate. He agreed that the master bedroom, and a deck that he had constructed at the rear of the home, were improvements. He explained that he and his wife had not acknowledged these improvements because the wording of the question indicated to him that it was in reference to those improvements for which a building permit had been obtained. He stated that he and Mrs. Bourgeois had not got building permits for the master bedroom or the deck.
· I am satisfied that there are serious water problems with the basement, including leaking, moisture and mildew. It is clear that the south wall has buckled and that a number of the concrete blocks are loose.
· The Seller Property Information Statement is not a warranty. To succeed in his action, Mr. Morrill must therefore prove misrepresentation.
· Weighing the evidence as a whole, with the proof commensurate with the gravity of the allegations, I am not satisfied that Mr. Morrill has proved on the balance of probability that Mr. and Mrs. Bourgeois, or either of them, were guilty of fraudulent misrepresentation concerning the problems with the basement.
· I accept that the basement walls had been a problem long before Mr. Morrill purchased the home.
· There was no evidence of any act of concealment (in fact, the vendors occupied part as the master bedroom and stored both their food and clothing in the basement).
· I do have some concerns about the fact that the Seller Property Information Statement was not accurate with respect to improvements. The explanation given by the Defendants was somewhat unclear. However, Mrs. Bourgeois did testify that the realtor was fully aware that the master bedroom was new to the home. In any event, it is difficult to see any perceived advantage to the Defendants in denying that they had made improvements to the home. I therefore do not place a lot of weight on this inaccuracy.
· The two real estate agents and the home inspector failed to detect the presence of a mildew smell or moisture."
The trial Judge concluded:
"While I have sympathy for Mr. Morrill, who has purchased a home with problems that will be very expensive to remedy, there is not sufficient evidence before me, commensurate with the gravity of the allegations, to conclude on the balance of probabilities that Mr. and Mrs. Bourgeois, or either of them, fraudulently, or negligently, misrepresented the condition of the basement."
COMMENT:
It would certainly seem that in this particular case that the vendors were quite fortunate. They were able to escape liability in part because they must have lived with he mildew smell and the moisture without notice. The fact the two realtors and the home inspector were similarly unaware, allowed the trial Judge to find in favour of the vendors. There was obviously "evidence", just not a sufficient amount of "evidence".
Although, they themselves had undertaken the finishing of the master bedroom in the basement, and their SPIS reference in that regard was inaccurate, it did not really relate to the specific matter in issue.
You will also note that there was no evidence of any egregious act on the part of the vendors like painting, hiding or concealing the problem in any way.
So, on the basis of contract, the SPIS did not amount to a warranty, and on the basis of tort there was no evidence of fraud or negligence.
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty 905-796-8888 www.OntarioRealEstateSource.com
The Karwandy and Sebastien case is another in the series of improperly completed Property Condition Statements.
This was an action heard in the Small Claims Court at Regina, Saskatchewan in 2002.
In the spring of 2001, Albert Sebastien, sold a quarter section of land with a dwelling on it to the plaintiffs. The purchasers claim that Albert and Lorraine Sebastien failed to disclose deficiencies in:
a) the electrical system in the dwelling, and b) the existence of a garbage dump on the property.
The plaintiffs claim $5,000.00 as damages for correcting the deficiencies in the electrical system and cleaning up environmentally hazardous and other material in the garbage dump.
There were several conditions attached to the offer. These are set out in Schedule "A" of the Contract of Purchase and Sale. Three of the conditions are relevant to this claim.
Conditions 1 and 2 related to a Water Quantity and Quality Report and a Furnace and Chimney Inspection Report, respectively.
Condition 5 read as follows: "Buyers are aware and accept the condition of surrounding yard site".
On June 7, 2001, the plaintiffs signed a document entitled "Amendment to Contract of Purchase and Sale And/Or Notice To Remove Conditions" the effect of which was to remove all the conditions.
This amendment was signed by Albert and Lorraine Sebastien on June 8, 2001, and the sale was complete.
The plaintiffs received a Property Condition Disclosure Statement signed by the Sebastiens and dated May 25, 2001. The Disclosure Statement specifically provided that it did not form part of the Contract of Purchase and Sale.
The offer was subject to the buyers obtaining mortgage financing. As part of the application process, Farm Credit Corporation (the first mortgagee) required that the sellers or purchasers complete an Environmental Assessment. This form was signed by the Sebastiens on June 6, 2001 and the financing condition in the offer was removed on June 7, 2001, by the purchasers.
It should be noted that the purchasers' own real estate agent provided them with a document entitled "Ancillary Services In The Purchase Of A Home".
This document advised was of a general nature and advised purchasers of the "more common reports or inspections usually requested" by buyers of property.
The document listed 12 types of reports or inspections that the buyers should consider, including:
· a Property Condition Disclosure Statement
· a Water Quantity and Quality Inspection
· a Furnace and Chimney Inspection
· a Home Inspection, and
· an Electrical Inspection
Claim for electrical deficiencies
Here was the question in the PCS:
"Are you aware of any problems with the electrical system?" The answer provided was "No".
Obviously, there were some electrical problems.
The Court concluded:
"I find that the statement made by the Sebastiens in the Property Condition Disclosure Statement with respect to the electrical system was in fact misleading. As the Property Condition Disclosure Statement was not made part of the Contract of Purchase and Sale, the defendant is not liable on the basis of a breach of contract. However, I find that the defendant is liable for making a negligent misrepresentation as to the facts which was relied upon by the plaintiffs. It is part of our common law that an action for negligence based on negligent misrepresentation lies if damage results."
The Court went further to provide the following commentary:
· "While I find the defendant liable to the plaintiffs for the negligent misrepresentation, the plaintiffs must also take part of the responsibility for their loss.
· The SaskPower inspector testified that many of the electrical deficiencies were clearly visible.
· The 12 pages of photographs confirm that an inspection by the plaintiffs themselves would have revealed that there were problems with the electrical system.
· The plaintiff, Bernard Bedard, makes his living installing and repairing electronics. He did concede he saw some problems with the electrical system the one time he visited the yard but testified the deficiencies were much more extensive.
· The Property Condition Disclosure Statement advised buyers to make their "own inquires after receiving the disclosure statement".
· The Ancillary Services document, as noted in paragraph 4, suggested to the plaintiffs that they should consider obtaining an "Electrical Inspection".
· I find that a prudent and reasonable buyer, given the circumstances of this case, would have retained an expert to do an electrical inspection prior to purchasing the property.
· I find the plaintiffs were negligent in failing to do so. As a result, I find the plaintiffs are 30% at fault for their damages respecting repairs to the electrical system.
Claim for the presence of the garbage dump
Here was a question in the PCS:
"Are you aware of any additions or alterations made without a required permit?" Answer "No".
The Judge stated:
"Further, I find that the Sebastiens' answer to the question was not a negligent misrepresentation. The question is simply not specific enough as to the existence of the garbage dump to constitute a basis for the tort of negligent misrepresentation. As a result, the defendant is not liable in either contract or negligence with respect to this statement.
There was one other possible claim for the garbage dump.
The plaintiffs also rely on the Environmental Assessment form completed for the Farm Credit Corporation mortgage application by the sellers as a basis for the defendant's liability.
This form was actually filled out by Belinda Ferguson, the sellers' realtor, by asking questions of Mr. and Mrs. Sebastien. The purchasers rely on the "No" answers given to questions with respect to whether chemical waste, waste oil, pesticides, herbicides or fertilizers were ever used, dumped, stored or disposed of on the property.
Clearly, the answer to these questions would be yes in nearly every farm in Saskatchewan. Ms. Ferguson testified she found some of the questions on the form very confusing. It was the first time she had used the form.
The Court concluded as follows:
"Although the signatures of both Albert Sebastien and Lorraine Sebastien were on the FCC form, in the circumstances of the case, I find their answers to Ms. Ferguson's questions do not constitute a basis for the tort of negligent misrepresentation. It was the responsibility of the buyers to properly inspect the property before making an offer to purchase. The responsibility for cleaning up the garbage dump is that of the plaintiff buyers."
COMMENT:
This case ends up being split. The answers under the PCS relating the electrical system were clear and established liability. However, there was no liability in contract, the liability was in tort. And, that means that the trial Judge could assess contributory negligence as against the purchasers. This finding cannot be made unless it is set out in the pleadings. Obviously, it was, and the trial Judge found that the buyers were 30% responsible for their own loss.
However, when it came to the garbage dump claim, the PCS form was just not specific enough. It is interesting that there was a possibility that the mortgage application statements completed by the vendors could have given rise to liability.
Another point worth noting is the fact that the Ancillary Services Document provided to the purchasers even before they put in an Offer came back to haunt them. This was a document they received from their own real estate agent. It said get an inspection. They didn't and the trial Judge ended up dismissing this part ot their claim.
So, what should the purchasers' agent do? What should the vendor's agent do? Not supply this document? Would this not lower the level of service to their client? Fortunately, in this case, the agents were not sued.
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty 905-796-8888 www.OntarioRealEstateSource.com
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