I would have thought that was fairly straightforward, but apparently not for a mother and son (the Browns) living near Sarnia, Ontario.
Rather than simply accept the age old adage of caveat emptor (let the buyer beware), when it comes to real estate, they decided to challenge the issue. They thought that they might fall within one of the exceptions. The Court ruled that they didn’t and denied their claim.
They bought a bungalow with a partially finished basement on 14 October 2011. The Browns sought damages from the Cassidys for the costs to remediate mold and water damage discovered in the home soon after their purchase, to replace the perimeter drainage system and for repair of the rear deck.
The Browns’ claim was framed in fraudulent misrepresentation and latent defect. This is difficult to prove.
The Cassidys had found some water in the basement and had the repair work undertaken professionally. The purpose of the installation of this drainage system was to move water, be it groundwater or rainfall, away from the house. According to Mr. Cassidy, this solution worked. They had no further problems with water coming into the basement of the house.
It should be noted that for a period of 18 months, Eric Brown worked as a real estate agent in the Province of Alberta.
Eric Brown recognized Mr. Cassidy as a fellow Mason, and accepted what he told him at face value.
Brown went to the Cassidy house and they struck a deal at $170,000. The Cassidys decided after the Browns left that they were going to accept the $170,000 offer and contacted their real estate lawyer, to prepare the agreement.
The Possible Problem
At this point we know about the water, the trench and the cistern. Brown is acting on his own using his best instincts to protect himself. This seems a little foolhardy. If something goes wrong, he has no one to sue but himself.
What does the Supreme Court of Canada say? The Decision of the Supreme Court of Canada remains intact. The Court in Fraser-Reid (1981) gave Buyers two options in order to protect themselves:
1) put something in the contract, and/or
2) have an inspection conducted.
Eric Brown is just about to commit three fatal errors:
- He trusts Mr. Cassidy because they are kindred spirits, they are both Masons.
- He doesn’t draft the contract, he permits the Cassidys’ lawyer to prepare it,
- He forgoes an inspection.
All three represent significant and fatal errors. Don’t trust someone just because they come from the same country as you, speak the same language, profess to have the same religion, went to the same high school, live on the same street, drive the same type of car. This is all nonsense and has nothing to do with credibility or trustworthiness. You really don’t need to trust anyone, THIS IS BUSINESS. Do your due diligence. Take reasonable precautions to protect yourself.
The contract was drafted by the Seller’s lawyer. Have it reviewed by your own lawyer. Perhaps you should have your own real estate agent there to draft the agreement and draft some protections for you. Tough call in this case. Brown had been an agent himself.
The Supreme Court of Canada wants an inspection. That’s a good protective “due diligence” step.
Well, if you are over the age of 18 and have your mental faculties, then you are free to make your own mistakes and no one is going to:
- Step in ahead of time and prevent you, or
- Step in afterwards and save you from your mess.
As noted by the Trial Judge:
- None of the closing documents before the court make reference to the condition of the home, past water problems, mold contamination, or the fitness of the house and deck for habitation. There are no documents that touch upon Mr. Brown’s stated concern about a dry basement or that confirm alleged pre-contractual statements made by the defendants (Cassidys) on these subjects.
- No pre-closing inspection was done by the defendants or anyone engaged for that purpose.
The Applicable Law
The trial Judge stated the law to be as follows: The doctrine of caveat emptor [ “let the buyer beware” ] applies to residential real estate transactions in Ontario. The underlying rationale for the doctrine rests on a policy decision as to which party should bear the risk of any deficiencies in property purchased. In general, that risk is to be borne by the purchaser unless the circumstances fall within recognized exceptions. The buyer may otherwise protect him or herself by contractual terms.  The courts have recognized four exceptions to the rule of caveat emptor:
1) where the vendor fraudulently misrepresents or conceals;
2) where the vendor knows of a latent defect rendering the house unfit for habitation;
3) where the vendor is reckless as to the truth or falsity of the statements relating to the fitness of the house for habitation; and
4) where the vendor has breached his or her duty to disclose a latent defect that renders the premises dangerous: McCluskie v. Reynolds, 1998 Carswell BC 1543 (B.C. S.C.) at para 53. The plaintiff must prove the following to establish a fraudulent misrepresentation was made by the vendor:
1) the vendor made a representation of fact;
2) the representation was false;
3) the vendor knew the representation was false or made it recklessly; and
4) the representation did, in fact, induce the plaintiff to enter into the agreement to his or her prejudice: Cartwright v. Benke, 2011 ONSC 2011 (CanLII) at para 25. The law distinguishes between latent and patent defects. A patent defect is one that would be apparent to a purchaser without further inquiry or inspection. A purchaser does not need the vendor to point out a patent defect because it is plain to the senses. A purchaser is expected to protect himself from patent defects by ordinary inspection or inquiry: Cardwell v. Perthen,  BCSC 333 at para 122. A purchaser can also protect himself by including contractual warranties that survive closing.  A latent defect is a defect not readily apparent to an ordinary purchaser during a routine inspection of the property. A vendor can be liable to a purchaser if he or she knows of a latent defect that renders the premises unfit for habitation. The onus rests on the purchaser to show that the vendor knew of the latent defect, concealed the latent defect or made representations with reckless disregard for the truth: Cotton v. Monahan, 2011 ONCA 697 (CanLII) at para 3. See also Swayze v. Robertson, 2001 Carswell Ont 818 at para 27; and Jung v. Ip,  Carswell Ont 643 (Ont. S.C.) at paras 16 and 18.  “Concealment” in the context of a latent defect connotes an act done with an intention to hide from view some defect of which the vendor is aware or wilfully blind: Cotton v. Monahan, supra, at para 6. Silence about a known major latent defect is the equivalent of an intention to deceive: Jung v. Ip, supra, para 18.
Applying the law to the facts in this case, the Trial Judge, Raikes concluded that the Plaintiff was unsuccessful. Caveat Emptor applies. The Cassidys didn’t have knowledge of any defects and fail to disclose them.
This was a tough case to lose. The Browns spent over $85,000 fixing problems. That’s about one half of the purchase price. Ordinarily, a Court would be sympathetic to their plight. However, it was just too late.
Brian Madigan LL.B., Broker