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Brian Madigan LL.B.

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Active Concealment of Damage Eliminates "Caveat Emptor"

11-07-09
Brian Madigan LL.B.

Active Concealment of Damage Eliminates "Caveat Emptor"


By Brian Madigan LL.B.

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

6 Comments
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Insurance Backs Up Disclosure Statements

11-05-09
Brian Madigan LL.B.

Insurance Backs Up Disclosure Statements


By Brian Madigan LL.B.

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

8 Comments
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Detrimental Reliance Necessary ~ False Disclosure Insufficient for Liability

11-05-09
Brian Madigan LL.B.

Detrimental Reliance Necessary ~ False SPIS Insufficient for Liability


By Brian Madigan LL.B.

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

4 Comments
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False Disclosure: No Warranty for Water Damage

11-05-09
Brian Madigan LL.B.

False Disclosure: No Warranty for Water Damage


By Brian Madigan LL.B.

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

4 Comments
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Buyers Assessed Partial Responsibility for Seller's False Disclosure Statement

11-04-09
Brian Madigan LL.B.

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

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