When Dr. and Mrs. Fraser-Reid bought a brand new home in Waterloo, they thought everything was done right. The house looked finished, but soon after moving in, the basement flooded. It turned out that the builder had never installed weeping tiles, a clear violation of the local building by-law.
The buyers sued the builder, Ken Droumtsekas Construction Ltd., for breach of contract. The issue went all the way to the Supreme Court of Canada, which released its decision in Fraser-Reid v. Droumtsekas, [1980] 1 S.C.R. 720.
The Contract
The agreement contained two key provisions:
- The builder promised that all building infractions had been disclosed.
- It also said that no other representations or warranties existed beyond what was written in the contract.
The builder argued that once title was transferred, all promises “merged” in the deed and disappeared. He also relied on the exclusion clause to say there were no warranties at all.
The Supreme Court’s Decision
The Supreme Court found for the buyers.
The builder’s statement that there were no outstanding infractions was an express warranty, a clear contractual promise that the house complied with building requirements. Since that was false, the builder was liable.
The Court awarded damages for the cost of proper drainage repairs.
The Broader Rule : Caveat Emptor
The Court confirmed that the traditional rule of “buyer beware” still applies to completed houses. There is no implied warranty that a finished home is built properly or fit for habitation.
Justice Dickson, however, recognized that this rule was out of date and left it to the legislature to modernize the law. In Ontario, that change later came through the Ontario New Home Warranties Plan Act (Tarion).
Merger and Survival
Even though title was transferred, the warranty to disclose building infractions did not merge in the deed. The promise survived closing because the parties did not intend otherwise.
This point remains important today. Warranties or promises in an Agreement of Purchase and Sale can survive closing if the parties intend them to, even after title changes hands.
Impications for Realtors and Consumers
- A written statement about compliance can amount to an express warranty.
- Merger doesn’t automatically cancel warranties at closing.
- For completed homes, no implied warranty of quality or fitness exists.
- The rule of caveat emptor still governs, except where legislation or express warranties apply.
- Always confirm compliance with building codes, by-laws, and permits, don’t assume a new house means a perfect house.
Fraser-Reid v. Droumtsekas reminds us that written promises matter. A builder who guarantees compliance can’t later hide behind fine print.
Brian Madigan LL.B., Broker
www.OntarioRealEstateSource.com