Caveat emptor
This is a case concerning false representations in a Property Condition Statement (PCS). The purchaser Mr. Tashereau brought an action before the Court of Queen’s bench in Manitoba against the vendors of a residential property which he purchased. The vendors in turn took third party proceedings against their own agent for negligence concerning his advice related to the completion of the PCS
The PCS was completed by the vendors, the Fullers on 14 May 2001 and delivered to the purchasers on 17 May 2001.
Here was a question contained in the Form:
‘To your knowledge has there ever been any flooding or leakage affecting any portion of the property (into the house or garage or into low-lying areas of the yards or other part of the property) and from any cause or source (rainwater, snow melt, sewer backup or other cause or source)?’
to which it was indicated “yes” and the following handwritten answer added: “Minor water seepage thru bsmt window during a heavy rain.”
An Offer was submitted providing that the “seller’s property condition statement would be incorporated into, and form part of, the contract”. The offer was accepted on May 15, 2001.
Mr. Tashereau arranged to have the property inspected by his own home inspector. A note was made about a repair to the window wells in the basement to prevent water from the surface contacting with the wood.
The purchasers took possession on July 5, 2001. On July 16th, a substantial amount of rain fell and water leaked into the basement.
The plaintiffs’ position at trial was that the comment in the seller’s property condition statement that only minor water seepage had occurred through a window was inaccurate given the amount of leakage evidenced on July 16th.
The defendants’ position is that the comment in the seller’s property condition statement was inaccurate only as to the use of the singular rather than of the plural, and that in their experience, only minor water seepage had occurred through the windows at any time during their possession of the premises.
Once the parties have completed the transaction, the title has registered in the name of the purchasers and the purchase price has been paid to the vendors, the remedies available to an aggrieved party are severely limited.
The doctrine of merger is basically set forth in Anson and Honsberger, Real Property Law is as follows:
1. After closing, the doctrine of merger may apply.
2. The doctrine of merger is that, upon the completion of an agreement for the sale of land, the agreement and the parties’ rights thereunder are merged in the deed of conveyance, so that after closing they can no longer rely on the terms of the contract, but must look to the deed for any remedy.
3. The purpose of the doctrine of merger is to bring finality and certainty to business affairs, as it would be unfair to allow a party to seek to set aside the transaction or to obtain damages for an indefinite period after closing.
4. It is the general rule that the acceptance of a deed is prima facie full execution of the agreement to convey, and preliminary agreements and understandings related to the sale of land become merged in the conveyance.
5. The doctrine of merger does not apply to independent covenants or collateral stipulations in an agreement of sale.
6. Where the agreement of sale creates rights or imposes obligations or stipulations collateral to or independent of the conveyance, the question of whether those stipulations are extinguished by merger is one of intention.
7. The proper inquiry should be to determine whether the facts disclose a common intention to merge the warranty in the deed; absent proof of such intention, there is no merger.
8. The exceptions to the doctrine of merger are as follows:
(i) fraudulent misrepresentation;
(ii) mutual mistake resulting in a total failure of consideration or a deficiency in the land conveyed amounting to error in substantialibus;
(iii) a contractual condition; or
(iv) a warranty collateral to the contract which survives the closing (as referred to above).
The trial Judge commented as follows:
“As a result, the doctrine of merger will apply to the comment unless it falls within any of the exceptions:
(a) fraudulent misrepresentation:
I accept Mr. Fuller’s evidence that he did not deliberately intend to mislead. I believe that he was being truthful. He indicated that while there had been some seepage in the basement, there was nothing that he would have considered of a major issue. Furthermore, I accept his evidence that he did not deliberately attempt to mislead by the fact that the comment refers to the word “window”, and not “windows”.
(b) error in substantialibus:
Even if there was an error as to the reference of a “window” as opposed to “windows”, I do not see this error as one of substance or as one that would change the substance of the subject matter of the contract. There is no indication that the vendors took steps to hide the problems caused by the water seepage. In fact, the purchasers’ home inspector noted them. While the inspector did not note the larger problem found in the wall behind the boxes, there is no indication that the boxes were laid in such a way as to prevent the wall from being viewed. In fact, Mr. Fuller readily agreed to move boxes on another occasion to allow the view of the attic. Had he been asked to do the same in the basement, there is no indication that he would not have agreed. Furthermore, according to the purchasers’ own expert, it would appear that the problem can be remedied fairly simply. In his view, the problem is with the window wells and not with the foundation. It can be remedied by a simple alternative procedure rather than by an expensive one, which the purchasers propose.
(c) contractual condition:
There are no conditions in the contract that would entitle the purchasers to recover damages.
(d) collateral warranty:
As I have indicated, I do not find that the representation amounted to a collateral warranty.
In summary, I find that the principle of caveat emptor does apply.”
Accordingly, the purchasers’ case was dismissed and it was not necessary to consider to the merits of the third party proceedings.
COMMENT:
This particular case was determined on the basis of basic real property law and contract law. This involves the strict application of traditional legal principles to the case.
Other cases, where liability is found, the determining factors will be misrepresentation and the law of deceit in accordance with basic tort principles. When viewed from a vendor’s perspective, traditional real estate and contract law provide the greatest level of protection. It is tort law which essentially opens up the opportunity for increased liability.
It should be noted that most other cases have not followed this very traditional approach.
Brian Madigan LL.B., Broker