COURT
FILE NO.: 06-CV-034131
DATE:
2009/02/24
ONTARIO
SUPERIOR COURT OF JUSTICE
|
B E T W E E N: |
) |
|
|
|
) |
|
|
MARIA LUNNEY |
)
)
) |
Robert J. De Toni, for the Plaintiff |
|
|
) |
|
|
Plaintiff |
) |
|
|
|
) |
|
|
- and - |
) |
|
|
|
) |
|
|
|
) |
|
|
JANA KUNTOVA, MASOUD BADRE and
RE/MAX METRO-CITY LTD. |
)))))) |
Mark W. Smith, for the Defendant, Jana Kuntova
and
Adam Stephens, for the Defendants, Masoud Badre
and Re/Max Metro-City Ltd.
|
|
|
) |
|
|
Defendants |
)
) |
|
|
|
) |
|
|
|
) |
HEARD: October 7, 8, 9, 10, and 17,
2008 |
Power J.
Introduction
[1]
In her Amended Statement of Claim the plaintiff seeks
damages in the amount of $300,000 against all defendants for fraudulent
and/or negligent misrepresentation in connection with her 2002 purchase
of a duplex known as 558 Melbourne Avenue, Ottawa, from the defendant
Kuntova. In addition, she seeks punitive damages in the amount of
$25,000.
[2]
The defendant Badre acted as the vendor’s real estate
agent. Mr. Badre was employed at all relevant times by the third
defendant, Re/Max Metro-City Ltd., a real estate broker. Ms. Kuntova
has delivered a cross-claim against her co-defendants seeking
contribution and indemnity should the plaintiff be successful in her
claim against Ms. Kuntova. In addition, Mr. Badre and Re/Max have
cross-claimed against Ms. Kuntova.
[3]
The plaintiff’s claim, in its essence, is that the
defendants, at the time of the sale and purchase, were aware that the
foundation of the house had deteriorated to such an extent that it was
virtually useless. The main building and its foundation appear to have
been constructed more than 90 years prior to the property being listed
for sale in 2001. The plaintiff alleges that the defendants
deliberately concealed the condition of the foundation from her with
intent to induce her into purchasing the property.
[4]
The foundation had, in fact, reached the end of its useful
lifespan by 2001 and, indeed, some time before 2001.
[5]
The defendants deny that they were aware of the extent of
the deterioration of the foundation and, in particular, deny any
attempts to conceal its condition from the plaintiff.
Findings of Fact and Discussion
[6]
Ms. Kuntova purchased the Melbourne property in 1993 or
1994. She lived in it until the time of the sale to the plaintiff. Mr.
Badre acted as her agent at the time she purchased the property and
again at the time it was listed for sale in 2001 and sold in 2002. Mr.
Badre is an experienced real estate agent.
[7]
Notwithstanding that there are circumstances that give rise
to a suspicion of misrepresentations by the defendants, I have concluded
that the plaintiff has failed to meet the burden on her to prove
misrepresentation and/or concealment. In my opinion, the inferences
from the facts which the plaintiff wants me to make are not warranted by
the evidence. I have not been persuaded on a balance of probabilities
that any or all defendants knew that the foundation had become useless
or that they were guilty of concealment or reckless disregard for the
truth or falsity of any representations. Neither Ms. Kuntova nor Mr.
Badre was shaken in the giving of their testimony. I accept as credible
Ms. Kuntova’s testimony that she listed and sold the property for
financial reasons and that she was not aware of nor did she misrepresent
the condition of the foundation. Similarly, I find that Mr. Badre was
not aware of the condition of the foundation and that he too did nothing
to misrepresent its condition nor did he in any way attempt to conceal
it from the plaintiff.
[8]
In other words, I have not been satisfied beyond a
reasonable doubt that the plaintiff has made out a case of
misrepresentation against Ms. Kuntova or Mr. Badre. In the light of
this conclusion, it goes without saying that the plaintiff has not met
the higher burden on her to prove misrepresentation by fraud. There is
no reason to suggest any liability on behalf of Re/Max because the
validity of the claim against it depends on the validity of the claim
against Mr. Badre.
[9]
The Melbourne property was listed by Ms. Kuntova through Mr.
Badre in 2001. The information supplied through the Ottawa Real Estate
Board to prospective purchasers described the property as having a
“stone, stucco” exterior with a “stone” foundation. The house is a
2-storey home of wood framed construction with a brick veneer covering
the stucco. The foundation was, and still is, known as a “rubble”
foundation with some parging on its interior sides. The evidence
establishes that a rubble foundation is also known as a stone
foundation. This type of foundation is commonly found in homes of more
than 70 years of age. The lifespan of such foundations is lengthy and
depends on several factors. I find that by 2001 this rubble or stone
foundation would, most likely, have required some attention but that the
need for such attention would not necessarily be obvious to the average
homeowner unless there was some sort of structural failure that was
obvious. I find that none of the defendants were aware of any
structural failure attributable to the foundation. There is no
negligent or deliberate misrepresentation in the above-mentioned Ottawa
Real Estate Board information.
[10]
The experts do not seriously disagree that, as a result of
evidence that became available approximately three years after the
completion of the real estate transaction, the foundation had come to
the end of its useful life. In particular, I accept the evidence of Mr.
Bottriell P. Eng. RHI that “this foundation has reached the end of its
lifespan and has actually failed in a few locations” and that “this
failure has caused the parging and brick to come off the wall which is
unsupported and starting to collapse.” I also accept Mr. Bottriell’s
conclusion that “this house needs immediate structural repair.”
[11]
It is important to note that there is an old addition at the
back of the main building. This addition was constructed by partially
enclosing a wooden porch at the rear of the main building. This
addition has no foundation as such – i.e. other than the original
porch supporting posts. When the property was listed there was a crawl
space under this addition which was accessible through a small access
door on the side of the “skirt” wall that surrounded the addition.
[12]
I accept as truthful Ms. Kuntova’s testimony wherein she said
that, just prior to listing her property, she personally inspected the
outside of the house and observed some cracks on the outside walls and
that she repaired them herself. I accept her testimony that this was
not an attempt to cover up any foundation problems. As aforesaid, she
was not aware of the foundation problems even though she was aware that
the foundation was very old. Age alone does not justify a conclusion
that the foundation had failed completely.
[13]
At the time Ms. Kuntova listed the property for sale through the
defendants she, with Mr. Badre’s assistance, completed a Seller Property
Information Statement. I will hereinafter refer to this document as an
“Information Statement.” This Information Statement is a form prepared
by the Ontario Real Estate Association for use throughout Ontario. It
was a relevantly new device in 2001. While Mr. Badre could not
specifically recall doing so on this particular occasion, I accept his
testimony that his usual practice was to tell the vendor that, when the
Information Statement was completed, it was necessary for the vendor to
be honest and that a copy would be supplied to prospective purchasers.
[14]
The Information Statement form contains the following noteworthy
provisions beginning with the following which appears at the top of the
first page:
ANSWERS MUST BE COMPLETE AND
ACCURATE. This Statement is designed in part to protect Sellers
by establishing that correct information concerning the property is
being provided to buyers. All of the information contained herein is
provided by the Sellers to the broker/sales representative. Any person
who is in receipt of and utilizes this Statement acknowledges and agrees
that the information is being provided for information purposes only and
is not a warranty as to the matters recited hereinafter. The
broker/sales representative shall not be held responsible for the
accuracy of any information contained herein.
BUYERS MUST STILL MAKE THEIR OWN
ENQUIRIES. Buyers must still make their own enquiries
notwithstanding the information contained on this statement. Each
question and answer must be considered and where necessary, keeping in
mind the Sellers’ knowledge of the property may be incomplete,
additional information can be requested from the Sellers or from an
independent source such as the municipality. Buyers can hire an
independent inspector to examine the property to determine whether
defects exist and to provide an estimate of the cost of repairing
problems that have been identified.
[15]
Below the two above quoted paragraphs there is a series of
questions. The following are quotes of some of the relevant questions:
|
|
SELLER(S) TO INITIAL EACH
APPLICABLE BOX |
|
|
YES |
NO |
UNK
(unknown) |
N/A |
|
GENERAL: |
|
|
|
|
|
15. Do you
know the approximate age of the building(s)? Age …… Any additions:
Age ……… |
|
|
√ |
|
|
WATER
SUPPLY AND WASTE DISPOSAL:
(there is nothing of
relevance under this heading |
|
|
|
|
|
ENVIRONMENTAL: (again,
there is nothing of relevance here) |
|
|
|
|
|
PAGE 2 |
|
|
|
|
|
STRUCTURAL: |
|
|
|
|
|
1. Are you
aware of any structural problems? |
|
√ |
|
|
|
2. (a) Have
you made any renovations, additions or improvements to the property? |
|
√ |
|
|
|
(b) Was a
building permit obtained? |
|
|
|
√ |
|
(c)
Has the final building inspection been approved or has a final
occupancy permit been obtained? |
|
|
|
√ |
|
7. Are you
aware of any moisture and/or water problems in the basement or crawl
space? |
|
√ |
|
|
|
16. Is there
a home inspection report available? Date of Report ………. |
|
√ |
|
|
|
CONDOMINIUM: (not
applicable) |
|
|
|
|
|
RENTAL
INFORMATION: (not
applicable) |
|
|
|
|
[16]
Following the questions and answers portion the form provides a
space for “ADDITIONAL COMMENTS”. The following appears:
THE SELLERS
STATE THAT THE ABOVE INFORMATION IS TRUE, BASED ON THEIR CURRENT ACTUAL
KNOWLEDGE AS OF THE DATE BELOW. ANY IMPORTANT CHANGES TO THIS
INFORMATION KNOWN TO THE SELLERS WILL BE DISCLOSED BY THE SELLERS PRIOR
TO CLOSING. THE SELLERS HEREBY AUTHORIZE THAT A COPY OF THIS SELLER
PROPERTY INFORMATION STATEMENT BE DELIVERED BY THEIR AGENT OR
REPRESENTATIVE TO PROSPECTIVE BUYERS OR THEIR AGENTS OR
REPRESENTATIVES. THE SELLERS HEREBY ACKNOWLEDGE RECEIPT OF A TRUE COPY
OF THIS STATEMENT.
NOTE:
SELLERS ARE RESPONSIBLE FOR THE ACCURACY OF ALL ANSWERS.
[17]
Ms. Kuntova signed this document.
[18]
I pause to note that Information Statements are not mandated by
law.
[19]
In October 2001 Ms. Kuntova accepted an offer to purchase the
property from Mr. Marque Laflamme. The agreement was conditional on an
inspection. The inspector retained by Mr. Laflamme, David Glennie,
noted in his report and advised Mr. Laflamme that the basement walls (in
the main building, not the addition), were “all covered on the interior”
(meaning that they could not be seen). He made the following relevant
comments at pp. 9, 12, and 22 of his report and advised Mr. Laflamme of
these during the inspection: (Note: the underlining is substituted for
circling that was done on the report format employed by Mr. Glennie)
Age: the main building was constructed
about 1920’s, with one/two/no old additions/renovations
rear
Class: Substandard Economy
Average Custom Luxury
Limitations:
√ basement walls are all /
mostly / partly covered on the interior
√ interior finish has been
recently painted: basement / first floor / second floor /
third floor
SUMMARY
IV) This SUMMARY CHART OF
DEFICIENCIES is to be used as a guide only and should not be considered
as fully inclusive of all repair items. Description of the systems and
detailed notes are on the following report sheets.
SYSTEM Col. *1
* 2 * 3
|
1.0 General Exterior (not relevant) |
|
|
|
|
|
|
|
|
|
|
|
2.0 Structural |
|
|
|
|
|
main foundation |
X |
X |
X |
advanced crumbling of
rubble-stone material noted under rear extension (above grade)
|
|
|
|
|
|
- walls are completely covered
in the basement |
|
|
|
|
|
removal of drywall required for
better determination |
|
rear extension |
X |
X |
X |
bowing of skirt wall and no structural
piers found |
*Column 1:
Major Deficiency
*Column 2:
More Info Req’d
*Column 3:
Monitor
STRUCTURAL SYSTEM
|
DESCRIPTION |
PROCEDURE - DEFICIENCIES |
SUMMARY ITEM |
|
2.1 Foundation |
√ Foundation walls visually checked –
where visible (closed space) |
√ Major
√ MR
√ Monitor
|
|
√ Stone/rubble (F) main |
significant crumbling and weakness of
foundation wall at rear – crumbling, scaling, bowing, old
|
|
|
Details
√ exterior parging |
exterior parging loose, cracks (other
than the handwritten comment about significant crumbling, the other
comments relate to the
addition at the rear) |
|
|
2.2 Basement Moisture
Considerations |
√ Visually Inspected, Limitations as
per 2.1 |
|
|
Details |
√ Moisture Readings taken on finish
materials |
√ MR
√ Monitor |
|
√ Interior wall finish 100% |
√ Not accessible |
|
|
|
seepage
- occurring near window (sides) |
|
[20]
Mr. Glennie advised Mr. Laflamme that to be thorough he would
have to perform a much more detailed inspection than the type contracted
for in order to give a detailed report on the foundation. He also
pointed out other deficiencies which he ranked as major. However, the
main deficiency was the foundation.
[21]
Mr. Glennie did not have any personal recollection of the
inspection. His testimony was based on his written report. He
testified that, notwithstanding that in the interior the walls were
covered with drywall, they were able to see part of the foundation walls
from a crawlspace area. Mr. Glennie also recalls seeing some evidence
of leakage near the basement windows where there was evidence of water
penetrating from the exterior. He concluded that the house was at least
80 years old and that rubble/stone foundations, such as the one here,
have a lifespan of 55 to 100 years. He said it would be reasonable to
assume that the foundation was nearing the end of its useful life. Mr.
Laflamme backed out of the transaction.
[22]
It is not clear from the evidence just what information was
passed on by Mr. Laflamme to his agent or by his agent to the vendor.
Notwithstanding this uncertainty, I find that neither Ms. Kuntova nor
Mr. Badre was told that the reason for Mr. Laflamme’s backing out of the
transaction was the state of the old rubble foundation.
[23]
It is important to note that the Melbourne property was the only
real estate ever owned by Ms. Kuntova. During her plus or minus 7 years
occupancy of the premises she was married for a short period of time.
Her husband was knowledgeable about construction and made a number of
repairs; however, she was/is not sophisticated in real property or
construction issues. Her husband constructed the drywall in the
basement during 1996 or 1997. The purpose of putting up the drywall,
according to Ms. Kuntova, was to improve the look of the basement and to
keep down the dirt. Ms. Kuntova described the basement as dark and
dusty. I accept Ms. Kuntova’s testimony that she never saw any water on
the basement floor at any time during her habitation of the premises.
Indeed, she painted the floors and ceilings in the basement around the
time of the drywall installation. As I found earlier, Ms. Kuntova did
not intend to hide the defective foundation behind the drywall.
[24]
Ms. Kuntova testified, and I accept her testimony as truthful,
that, during her habitation, there were no smells in the basement
emanating from water or dampness. She found an old sump pump in the
basement; however, she threw it out because it was not working and it
was not needed. She said that no water had accumulated in the sump pump
hole and that she was never advised by anyone of any problems with her
foundation prior to completing the transaction of purchase and sale with
Ms. Lunney.
[25]
Ms. Kuntova also testified that she had no specific recollection
of completing the Information Statement; however, she acknowledged
completing it. She also said that she did not know that she had an
option with respect to completing the document but that she understood
it was the usual practice to complete such a statement. She could not
recall Mr. Badre telling her what he intended to do with the
questionnaire. However, she insisted that she would have answered the
questions honestly. It will be observed that none of the questions in
the Information Statement relates specifically to a “foundation”.
[26]
Mr. Laflamme, whose testimony I accept as credible, testified
that he was present during the inspection and was advised by Mr. Glennie
that the foundation was in very bad shape and would cost a “lot of
money” to fix. As a result, Mr. Laflamme decided forthwith not to
complete the purchase of the property. Neither Ms. Kuntova nor Mr.
Badre was present at the inspection. I should add, as well, that the
foundation walls were not visible, or were just barely visible, from the
exterior of the building. At no time did Mr. Laflamme, his wife, or Mr.
Glennie speak with Ms. Kuntova or Mr. Badre about what they had seen and
discussed between themselves. However, they, or one of them, did
discuss what they saw with their real estate agent who was with them
during the inspection. That real estate agent did not give evidence at
trial. This is significant. Mr. Laflamme testified that he personally
saw some crumbling in the walls in the basement. However, he could not
recall which wall it was. He did, however, recall Mr. Glennie pulling
stones or earth from the foundation walls while in the basement.
[27]
Following the notification to Mr. Badre by Mr. Laflamme’s agent
that the transaction would not be completed, Mr. Badre advised Ms.
Kuntova that there was a problem in the exterior back wall near the
kitchen and pointed out to her some areas where stucco was peeling. He
advised her to fix it which she did. All of the work done by her
flowing from this conversation was done to the addition, not the main
building. I pause to observe that, because of the passage of time, all
witnesses at trial suffered from memory loss.
[28]
Notwithstanding that I do have some concerns with the
reasonableness of the testimony of both Ms. Kuntova and Mr. Badre, the
evidence at trial, taken as a whole, is such that I cannot and do not
reject the testimony of either of them as being untruthful.
Notwithstanding the efforts of Mr. De Toni, counsel for the plaintiff,
he was not able to shake or seriously question their veracity.
[29]
It was Ms. Kuntova’s testimony that Mr. Badre told her that Mr.
Laflamme had backed out of the transaction because of the peeling stucco
at the rear of the premises. While Mr. Badre could not recall this, I
accept, as aforesaid, Ms. Kuntova’s evidence as credible.
[30]
Mr. De Toni, in his cross-examination and during argument,
raised a number of questions about the veracity of the testimony of the
defendants. I am left with a request by the plaintiff to draw
inferences in the face of evidence to the contrary that appears to be
credible. Ms. Kuntova’s evidence about the work she did following the
collapse of the Laflamme agreement is corroborated by the contractor
which she hired to effect some repairs to the addition, Mr. Heafy.
[31]
During his repair work, which was prior to Ms. Lunney agreeing
to purchase the property, Mr. Heafy closed off the earlier mentioned
hatch at the side of the addition. His testimony was that it was his
idea to do so and that he was not instructed to do so by Ms. Kuntova. I
observe that if Ms. Kuntova’s intent was to have Mr. Heafy cover-up the
foundation, it would have been unwise to continue to show the property
to prospective purchasers, which she did, while Mr. Heafy carried out
his work. Therefore, this is strong evidence in favour of the
defendants in contradiction of the allegation that, by closing the
hatch, their intent was to make it impossible to view the interior of
the foundation from the rear of the property. Mr. Heafy testified that,
when working at the site, he did not see the main foundation wall and
saw nothing abnormal.
[32]
While I did not agree with the substance of all of Mr.
Heafy’s testimony, there is no justification for rejecting his testimony
as incredible. In my opinion, the nature of the information received by
the defendants following the Laflamme/Glennie inspection, was not such
as to convey that the foundation was useless. Therefore, I conclude
that there was no reason compelling the defendants to complete a
revised, or new, Information Statement. Indeed, when Ms. Kuntova became
aware of what she understood to be some concerns about the addition, she
undertook to remedy those concerns, not hide them. After the Laflamme
deal fell through, according to Ms. Kuntova, Mr. Badre spoke with her
and told her there was a problem in the back of the house – i.e., in the
kitchen area. He took her outside and showed her places on the back
wall where stucco was peeling off and told her that it should be fixed.
Ms. Kuntova acknowledged that she did indeed see stucco crumbling or
peeling off. There was one large spot in particular. She testified
that she assumed that this was the reason Mr. Laflamme had backed out of
the transaction and, indeed, her recollection was that Mr. Badre told
her that that was the reason. Mr. Badre does not recall these events.
[33]
Ms. Lunney, a 45 year old teacher, began her search for a house
in the Westboro area of Ottawa, the area in question, in 2001. She had
never before owned a home. She was looking for an older home. In early
January of 2002 she came across the listing for the subject property
whereupon she contacted her uncle, Pat Smith, a real estate agent. She
asked him to accompany her on a site visit which he did. After the
first visit she returned again with Mr. Smith and her parents for a
second visit. After those two visits she had no real concerns with what
she observed. Indeed, her few concerns about which she testified at
trial were related to minor items of décor.
[34]
With the assistance of Mr. Smith an offer to purchase was
prepared with a house inspection clause. Ms. Lunney knew that, because
she was buying an old house, there would be wear and tear issues. The
inspection clause reads as follows:
This Offer is conditional upon the
inspection of the subject property by a home inspector at the Buyer’s
own expense, and the obtaining of a report satisfactory to the Buyer in
the Buyer’s sole and absolute discretion. Unless the Buyer gives notice
in writing delivered to the Seller not later than 11:59 p.m. on the 18th
day of January, 2002, that this condition is fulfilled, this Offer shall
be null and void and the deposit shall be returned to the Buyer in full
without deduction. The Seller agrees to co-operate in providing access
to the property for the purpose of this inspection. This condition is
included for the benefit of the Buyer and may be waived at the Buyer’s
sole option by notice in writing to the Seller within the time period
stated herein.
[35]
The agreed upon purchase price was $180,000. Neither Ms. Lunney
nor Mr. Smith had any contact with Messrs Laflamme and Glennie nor did
they see Mr. Glennie’s report. There was no evidence given at trial
regarding whether Ms. Lunney even knew about Mr. Laflamme’s offer and
his withdrawal from the transaction.
[36]
Prior to the expiration of the time limit for compliance with
conditions in the agreement, Ms. Lunney was, through Mr. Smith, provided
with a copy of the aforementioned Information Statement. A new
statement was not prepared notwithstanding the above-described repairs.
Mr. Badre could not recall why a new statement was not prepared.
[37]
I pause here to note that I have no concerns with the
credibility of either Ms. Lunney or Mr. Smith. Indeed, Ms. Lunney did
not at any time overstate her case in any significant respect. On a
couple of occasions Ms. Lunney did contradict the answers she gave on
her examination for discovery; however, in my opinion, these
contradictions were not significant. In the end, I am satisfied that
she received a copy of the Information Statement prior to the expiry of
the conditions and that she read it and relied on it. I observe,
however, that the contents of the Information Statement quoted earlier
in these reasons contain a warning that it should not be relied on as a
warranty.
[38]
Mr. Chalmers, the inspector retained by Ms. Lunney, provided her
with a copy of his inspection on the spot. Under the heading “History
of Home Improvements” Mr. Chalmers made the following observation:
“Foundation parging loose, missing behind the surface in some areas.”
He then checked the blocks or boxes opposite the following pre-typed
language: “Remove loose parging. Install parging where missing or
removed in future – caulk around openings as required.” These comments
related to the exterior of the building. Item D1 of his report is
entitled “Foundation Walls.” At the bottom of the first page under
section D1, Mr. Chalmers wrote “Other – not able to view, completely
finished, covered.” Under section D2 entitled “Foundation Walls –
General” he checked the following pre-printed language “Normal condition
(humidity)” and added “No action required.” He again noted on this page
that the foundation walls were completely covered. In D3 he described
the basement floor as being in normal condition with no action required.
[39]
Under the heading E3 entitled “Insulation – General” he made the
following comment concerning the basement walls: “none visible behind
dry wall.”
[40]
Mr. Chalmers possesses considerable experience with house
inspections and was a credible witness. He stressed that an inspector
cannot comment on things he/she cannot see and that an inspector is
precluded from damaging the premises to gain access to things that are
not visible to the naked eye. As his report indicates, he was not able
to observe the foundation wall at all because it was completely covered
with drywall. He said that, therefore, he could not comment on the
foundation’s condition and did not comment. However, he did say that he
was not alerted by any problems with the foundation when in the
basement. He did not observe any unusual dampness, humidity, or water
in connection with the walls and floor. He was not sure what type of
foundation was in/under the house. He said that he saw nothing unusual
that would suggest foundation issues – i.e. there were no “flags”
even though he was well aware that the house was an old one.
[41]
His testimony was that, because he observed no problems, he did
not specifically tell Ms. Lunney to pursue further inquiries about the
foundation. For the record, I observe that it is not my function to
make findings concerning the competence or scope of the advice given to
Ms. Lunney by Mr. Chalmers. My task is to make findings concerning the
allegations of misrepresentation by the defendants. I do, however, find
it strange that Mr. Chalmers would not have, at least, warned Ms. Lunney
of possible dangers given the age of the house. On the other hand,
there was compelling professional opinion evidence given at the trial
regarding the scope of duty owed to a client by an inspector under a
contract such as existed between Mr. Chalmers and Ms. Lunney that might
explain or answer my query. In his testimony, when asked why he did not
say something about the possibility of problems with the foundation he
said, “if there was a foundation problems, there would be something to
suggest them and there wasn’t.” (This is a paraphrase rather than a
direct quote). He also said, “I have been surprised to find out there
was a problem.” On the evidence before me, I cannot, and do not reach a
finding that Mr. Chalmers acted negligently.
[42]
He added that he usually looks for mold, smells of mold, and
staining, but found none of these in the basement.
[43]
Ms. Lunney testified that, as a result of the Chalmers’
inspection, she was inclined (getting ready) to waive the inspection
condition in the agreement of purchase and sale. Before doing so, Mr.
Smith received a copy of the Information Statement from Mr. Badre and
gave it to Ms. Lunney. She went through the Information Statement,
observed that there was information in it to the effect that there were
no renovations, additions or improvements. She said that, and I believe
her, she, therefore, decided to go ahead with the purchase – she relied
on the Information Statement in reaching her decision to waive the
condition.
[44]
Ms. Lunney did not discover the serious problem with the
foundation until 2005 even though she resided in the property for
several months following the closing of the purchase and sale
transaction in early 2002. She travelled abroad from August 2002 until
some time in 2005 when she returned. During that period of time the
premises were leased to a tenant through a property manager. The
evidence discloses that the tenant encountered no relevant problems
during her tenure. In the spring of 2002 there was some water seepage
in the basement; however, there is evidence to indicate that it followed
a major rainstorm. Ms. Lunney removed the water with rags and a pail –
the area covered was not large.
[45]
Mr. Bottriell was retained in September 2005 to inspect the
property. By this time part of the drywall had been removed in the
basement. He, at that time, discovered the serious foundation
deficiencies. Mr. Bottriell advised Ms. Lunney that the property would
either have to be demolished or raised to permit the construction of a
new foundation under it – i.e. that an entirely new foundation
would have to be installed. Ms. Lunney testified that she did not have
sufficient financial resources available to do either and, therefore,
has continued to reside in the house pending the outcome of this
litigation.
[46]
Ms. Lunney testified that had she known of the substance of the
Glennie report or the work done by Mr. Heafy she would not have
completed the transaction.
[47]
During the inspection carried out by Ms. Lunney and later by Mr.
Chalmers prior to closing, neither was denied access to the house other
than, of course, to those areas in the basement behind the drywall. Ms.
Lunney, at no time, spoke to any of the defendants regarding the
condition of the property nor did anyone else on her behalf. She knew
the house was an old one but had no concerns about its age.
[48]
The agreement of purchase and sale contains the usual “entire
agreement” clause. It reads as follows:
AGREEMENT IN WRITING: if there is
conflict or discrepancy between any provision added to this Agreement
(including any Schedule attached hereto) and any provision in the
standard pre-set portion hereof, the added provision shall supersede the
standard pre-set provision to the extent of such conflict or
discrepancy. This Agreement including any Schedule attached hereto,
shall constitute the entire Agreement between Buyer and Seller. There
is no representation, warranty, collateral agreement or condition, which
affects this Agreement other than as expressed herein. For the purposes
of this Agreement, Seller means vendor and Buyer means purchaser. This
Agreement shall be read with all changes of gender or number required by
the context.
[49]
It is clear from the wording of the Information Statement that
it is not a warranty upon which reliance can be placed. Ms. Lunney did,
however, rely on it. Schedule A to the agreement contains a clause that
says that the Seller agrees to provide, at the Seller’s own expense,
upon acceptance, a Seller Property Information Statement among other
things. I do not accept as compelling the plaintiff’s argument that the
effect of Schedule A is to incorporate the Information Statement as an
integral part of the agreement of purchase and sale.
In my opinion, there is nothing in the Information Statement that
can be classified as a fraudulent misrepresentation nor is there
anything that constitutes a negligent misrepresentation. In other
words, I can find no fraudulent or negligent misrepresentations in the
Information Statement that could be considered as an attempt by the
defendants to hide information that they knew might lead Ms. Lunney to
walk away from the transaction. It is also noteworthy that, in
cross-examination by Mr. Smith, Ms. Lunney specifically stated that she
was not misled by the answer concerning renovations, additions or
improvements.
[50]
There is no evidence before the Court to indicate that any of
the defendants has specific knowledge of the reasons why Mr. Laflamme
did not complete his agreement of purchase and sale or upon which I
should infer knowledge on the defendants’ part. If they knew anything,
they knew only that he was not satisfied with the premises. In
particular, there is no evidence to warrant a finding that the
defendants were aware of the serious issues with the foundation.
Counsel for the plaintiff urges me to draw an inference. As aforesaid,
I cannot do that in the circumstances.
[51]
Mr. Bottriell who, as aforesaid, testified on behalf of the
plaintiff, estimated the normal lifespan of a rubble and stone
foundation to be between 80 and 100 years. When he examined the
premises in 2005 he noticed that there was some rot at the bottom of the
basement studs to which the drywall was attached. He concluded that the
rot was the result of water. However, I do not consider this as
evidence of a cover-up. He concluded that the foundation had probably
ended its useful life at least 3 years before his inspection and
“probably 20 years before.” He said that this was one of the “worse
I’ve ever seen” and concluded by saying that nothing could be done to
extend the life of the foundation. Mr. Bottriell agreed on
cross-examination that it was possible that the water penetration he
noticed in 2005 could have been a problem for as little as 2 or 3 years
prior to that time.
[52]
The evidence at trial was that a series of listing agreements
were entered into between the defendants. In my opinion, the fact that
a new Information Statement was not completed on each of these occasions
is an irrelevant fact in determining liability in this case. I also
consider as irrelevant the uncertainty and changes that took place with
respect to the cost of Mr. Heafy’s work to repair the addition. As
well, and as mentioned earlier, I consider irrelevant Ms. Kuntova’s
failure to deliver a new Information Statement because the work done by
Mr. Heafy was not, in my opinion, material. The work has nothing to do
with the foundation issue with which we are concerned in this action
and, in any event, the work done by Mr. Heafy benefited the property
even though Mr. Bottriell was somewhat critical of Mr. Heafy’s work.
While I can understand Ms. Lunney’s reliance on the Information
Statement, I cannot understand her position that Mr. Heafy’s work would
have caused her to abandon the agreement. As aforesaid, Mr. Heafy’s
work had nothing to do with the foundation issue.
[53]
The relevant law concerning the purchase and sale of real estate
begins with the proposition that, generally speaking, a purchaser of
real estate takes the property as he/she finds it. However, where there
is proven fraudulent or other misrepresentation, the general rule ceases
to apply. Material defects known to the vendor cannot be concealed nor
can the vendor remain silent about them – they must be disclosed. In
this regard see V. DiCastri (Carswell, 1998, The Law of Vendor and
Purchaser).
[54]
As aforesaid, the defendants did not act fraudulently. As well,
there is no negligent misrepresentation as that term has been defined in
our law.
[55]
Professor Bora Laskin, as he then was, in a 1960 Law Society of
Upper Canada Special Lectures’ paper entitled Caveat Emptor and
the Vendor’s Duty of Disclosure had the following to say: “… A latent
defect of quality going to fitness for habitation and which is either
unknown to the Vendor or such as not to make him chargeable with
concealment or reckless disregard of its truth or falsity will not
support any claim of redress by the Purchaser. He must find his
protection in warranty.” There is no evidence in this case, as I have
already stated, whereby the defendants can be held to possess knowledge
of the defective foundation. Therefore, without such knowledge, they
cannot be held liable to the plaintiff for a negligent
misrepresentation. A vendor, prior to selling real estate, is not
obliged to perform a detailed inspection of his/her property. In
addition, there is no warranty upon which the plaintiff can support her
claim. Notwithstanding that the plaintiff may have relied on the
Information Statement, it does not constitute a warranty.
[56]
An “Entire Agreement” provision such as was used in this matter
is enforceable. In this case, it is not vitiated by any
misrepresentation or other wrongful conduct on the part of the
defendants and, therefore, they are entitled to rely on the provision
especially, in this case, given the forceful and highlighted limitations
spelled out in the Information Statement. See, among other cases,
1261687 Ontario Inc. v. DiVincenzo, [2005] O.J. No. 1057 (S.C.).
[57]
The defendants rely on the decision of R. Smith J. in
Gallagher v. Pettinger, [2003] O.J. No. 409 (S.C.) for the
proposition that where a home inspection report is relied on by a
purchaser any reliance he or she may have had on representations by the
vendor disappears. Smith J. quoted from Hoy v. Lozanovski
(1987), 43 R.P.R. 296 (Ontario District Court) as follows:
However, if the purchaser chooses to not
rely on the vendor and requests inspections, including professional
inspectors (i.e. Home Inspection Service) then reliance for completion
of the deal (the waver [sic, waiver] in this case) is shifted to
the inspector whom the purchaser has chosen. The purchaser has relied
on the inspection [sic, inspector’s] report not, the vendor’s
silence, to formulate his decision whether or not to complete the deal.
…
Of course, as stated, if the vendor made
representations to the purchaser or the purchaser’s inspection [sic,
inspector] that were fraudulent, then the responsibility for disclosing
the latent defect would remain with the vendor.
[58]
Smith J. went on to add: “Absent fraudulent representations or
concealment, when a professional home inspector’s report is obtained
then reliance has shifted to the home inspector.”
[59]
While these principles appear to apply in this case, I wish to
make it clear that I rely on them only as an alternative reason for
dismissing the plaintiff’s claim.
[60]
Fraud is a serious complaint. The evidence required to sustain
such an allegation must be clear and convincing. Here, it is not clear
and convincing.
Damages
[61]
Regardless of the fact that I have found no liability on the
part of the defendants to compensate the plaintiff for her misfortune, I
did hear considerable evidence on the issue of damages. Therefore, I
believe that it is appropriate for me to express an opinion on damages.
[62]
I agree with counsel for the defendants that the usual measure
of damages in cases like this is the diminution in property value test.
For example, in Wood v. Hungerford, 2004 CarswellOnt 4432 (S.C.)
(varied on appeal but approved as to damages) a purchaser brought a tort
action against a vendor of a property and others in respect of an
unsound foundation. The Court found for the plaintiff and awarded
damages based upon the difference between what was paid for the property
and what it was worth at the time. Hackland J. held as follows:
Clearly, the general rule is that a
purchaser should recover the diminution in value of the property
resulting from the undisclosed or undiscovered defect. As Doherty J.A.
observed in Toronto Industrial Leaseholds at p. 23-24 (O.R.):
In accepting the approach in
Messineo as the norm, I do not mean to suggest that the Messineo
formula provides the only method of assessing damages in cases where
clients have entered into real estate transactions as a result of
negligent advice from their solicitors. As the English cases
demonstrate, there will be instances where other approaches
more effectively achieve a full restoration: County Personnel Ltd.
v. Alan R. Pulver & Co., [1987] 1 All E.R. 289 at p. 297, [1987] 1
W.L.R. 916 (C.A.); Hayes v. James & Charles Dodd, [1990] 2 All
E.R. 815 (C.A.) at p. 819. These cases, however, establish that
the measure of damages used in Messineo is the appropriate
one absent some basis in the evidence for holding that some
other means more effectively restores the wronged party to the
position he or she would have been in but for the solicitor's error.
As predictability in the
assessment of damages fosters early and fair settlements of
claims, I see great value in promoting that certainty. The
Messineo approach to damages has been widely accepted as a proper
measure of damages in cases like this one and should be
applied unless the party promoting a different approach can
demonstrate that the alternative approach more effectively achieves
the restitutionary goal underlying the law of damages.
[63]
It is clear that, even without the house on the property, the
lands have a substantial market value because of the location of the
property. Indeed, the parties are in agreement that the market value of
the land at the time of the trial was $275,000. There was no evidence
led concerning the value of the land in 2002. Therefore, I find that
its market value at that time was the amount of $180,000, which sum was
the sum of the arms-length negotiations between the parties on the
assumption that the foundation was a good one. There is no evidence
upon which I should find that, when she purchased the property in 2002,
Ms. Lunney actually paid more than it was worth.
[64]
The expert evidence of Mr. Bottriell establishes that to fix the
foundation, the house would have to be raised and a foundation built
under it. The cost of doing this would be approximately $275,000.
[65]
The plaintiff’s appraiser, Mr. Beauregard, whose evidence I
accept, testified that the property with the house on it would, at the
time of trial, have a market value of $340,000. He opined that, as a
vacant lot, the land had a value of $275,000. My understanding of his
evidence was that, in arriving at this figure, he assumed that the
foundation would be a good one. In my opinion, the betterment principle
does not apply in these circumstances because both Ms. Lunney and the
vendor thought that she was purchasing a property with a good
foundation.
[66]
Damages must be assessed on a reasonable basis. In the
circumstances of this case, in my opinion, it would make no sense
whatsoever to spend approximately $275,000 to fix the foundation. That
would be, quite simply, a waste of money.
[67]
Therefore, it seems to me that, had liability been found, the
proper assessment of damages would be the difference between $275,000,
the land value, and $340,000, the land and house value. While the
defendants’ expert opined that the building has no value makes sense
from a valuation point, it does not, in my opinion, make sense from an
assessment of damages’ point. The fact of the matter is that Ms. Lunney
lived in the house, and still lives in the house and, therefore, it has
a value to her. Therefore, I would assess her damages at $65,000 plus
her proven out-of-pocket expenses which I will not detail in these
reasons. Given my findings of fact, no case has been made out to
justify an award of punitive damages.
Result
[68]
In the result, therefore, the plaintiff’s claim is dismissed as
are the cross-claims between the defendants.
Costs
[69]
In the event that within 60 days following the release of these
Reasons for Decision the parties cannot conclude an agreement with
respect to legal costs, they may make brief written submissions to me.
The defendants’ submissions should initiate the process following which
the plaintiff shall have 21 days to respond. Following the plaintiff’s
response, the defendants may, if they wish, file further submissions
within 10 days.
___________________________
Power J.
Released: February 24, 2009
PDF Format