Buyers Assessed Partial Responsibility for Sellers' False Disclosure Statement

 

By Brian Madigan LL.B.

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