The case of Fraser-Reid v. Droumtsekas in the Supreme Court of Canada (1980) dealt with several important legal principles including, caveat emptor, the doctrine of merger, implied and express warranties.
Dr. Fraser-Reid purchased a house recently built by Ken Droumtsekas. Ken said that he was a “good builder” and the house was a “good house”. The Court concluded that these statements were just trade puffery and not express warranties. And, there were no implied warranties in law.
The agreement contained the following provision:
“This transaction of purchase and sale is to be completed on or before the 1st day of November, 1969, on which date vacant possession of the Real Property is to be given to the Purchaser, unless otherwise provided herein.
Providing that the Vendor has disclosed to the Purchaser all outstanding infractions and orders requiring work to be done on the premises issued by any Municipal or Provincial or Federal Authority in respect to the premises referred to herein. (Emphasis added.)”
It is noteworthy that at the time:
“s. 13B of the building by-law of the City of Waterloo provided:
Unless otherwise permitted by the authority having jurisdiction, all exterior foundation walls shall be drained by drainage tile or pipe laid around the exterior of the foundation so that the top of the tile or pipe is below the bottom of the floor slab or crawl space floor.”
Specifically, here is the analysis of Chief Justice Dickson concerning the express warranty issue:
- The provision in the agreement in the case at bar is, in my opinion, neither a representation nor innocent.
- It was a promise as to a certain state of affairs
- and collateral to the main purpose of the contract, which was the transfer of the property in the land.
- It was knowingly breached by the builder.
- There was an infraction of the building by-law, affecting a vital part of the building, the foundation.
- The breach was one which could not possibly have been discovered by ordinary inspection for the foundation had been covered up, and the defect hidden, before the sale agreement was entered into.
- The infraction was not disclosed to the purchaser.
- The words in question, in my view, constituted a warranty.
In conclusion, the Court held the builder liable in damages to the purchaser. This was an “express warranty”.
It is noteworthy that the agreement was struck in 1969, but the case did not reach the Supreme Court of Canada until 1979. An entire decade is a long time to wait for a decision, and expensive too.
The obligation for disclosure placed upon the seller appears to be:
- Latent defects which are known to the seller and which render the premises unfit for human habitation or make the building structurally unsound, and
- Patent defects which have been actively hidden or concealed.
This case is also well known for its enforcement of the doctrine of caveat emptor and the doctrine of merger.
The Honourable Mr. Justice Dickson J. of the Supreme Court of Canada summarized the law in Fraser-Reid v. Droumtsekas [1980] 1 S.C.R. 720:
“…..Notwithstanding new methods of house merchandising and, in general, increased concern for consumer protection, caveat emptor remains a force to be reckoned with by the credulous or indolent purchaser of housing property.
Lacking express warranties, he may be in difficulty because there is no implied warranty of fitness for human habitation upon the purchase of a house already completed at the time of sale.
The rationale stems from the laissez-faire attitudes of the eighteenth and nineteenth centuries and the notion that a purchaser must fend for himself, seeking protection by express warranty or by independent examination of the premises.
If he fails to do either, he is without remedy either at law or in equity, in the absence of fraud or fundamental difference between that which was bargained for and that obtained.”
You will see that in this case, the Supreme Court of Canada outlines to the buyer (and the buyer’s agent) the correct method to protect himself:
- Obtain a warranty, or
- Conduct an inspection.
Under the circumstances, going forward, any agent would be hard-pressed to explain why he did neither, without the informed consent of the buyer.
Brian Madigan LL.B., Broker