MISREPRESENTATIONS, WARRANTIES, AND DEFECTS IN QUALITY
- Getting Around "Caveat Emptor" on Completed Houses
This paper will deal with means of circumventing pr inciple
of
"Caveat
completed house. house,
in
Emptor"
It will
which
event
after
closing
the
purchase
the of
not deal with the purchase of a the
common
law
will
imply
a
new
certain
warranties to the effect that the house has been built in a good and workmanlike manner with proper materials.
Completed Houses
With respect to the sale of a house already completed when the Agreement of Purchase and Sale is signed, implication of
law and
no
implied contract
that
there is no the house
is
built in a good and workmanlike manner and is reasonably fit for human habitation. contract,
the
In the absence of an express provision in the
vendor
does
not
undertake
any
regard to the condition of a completed house. by
the
Supreme
Droumtsekas, builder.
Court
(1979),
29
of
Canada
N.R.
425,
in
obligation
This was affirmed
Fraser-Reid,
even where
with
the
et
ale
vendor
is
v. a
The purchaser's best protection is accordingly found in a well-drafted agreement, which will set out express warranties in
respect
of
matters
of
importance
to
the
purchaser.
Where
appropriate, the agreement should also expressly state that such warranties are to survive the closing and are not to merge in the conveyance.
unfortunately,
many
agreements are
not
drafted
solicitors and no agreement can foresee every matter of
which
a
warranty
would
be
desirable.
The
by
in respect
common
law
has
developed a number of principles, however, which may provide the purchaser
with
a
remedy
even
in
the
absence
of
an
express
contractual provision dealing with the matter.
Caveat Emptor To what
extent
is a
vendor
bound to point
purchaser the demerits or defects of the property? rule is "Caveat Emptor", dingly
inspect
a
out
to
a
The general
and a prudent purchaser should accor-
property
carefully
before
entering
into
an
agreement for its purchase.
Patent and Latent Defects
The law differs somewhat with regards to patent defects of quality as opposed to latent defects of quality. Laws of England, 4th Ed., Vol. the law as follows:
Halsbury's
42, page 47, para. 51 summarizes
"Defects of quality may be either patent or latent. Patent defects are such as are discoverable by inspection and ordinary vigilance on the part of a purchaser, and latent defects are such as would not be revealed by any inquiry which a purchaser is in a position to make before entering into the contract for purchase. The vendor is not bound to call attention to patent defects; the rule is 'caveat emptor'. Therefore a purchaser should make inspection and inquiry as to what he is proposing to buy. If he omits to ascertain whether the land is such as he desires to acquire, he cannot complain afterwards on discovering defects of which he would have been aware if he had taken ordinary steps to ascertain its physical condition; and, although as a general rule a vendor must deliver property corresponding to the description contained in the contract, yet an error in the particulars or description of the property in the contract is not a ground of object ion if it is readily cor rected on inspection." And at p. 49, para. 54: "Prima facie the rule 'caveat emptor' applies also to latent defects of quality or other matters (not being defects of title) which affect the value of the property sold, and the vendor, even if he is aware of any such matters, is under no general obligation to disclose them. There is no implied warranty that land agreed to be sold is of any particular quality or suitable for any particular purpose." problems
Most defects.
These
may
arise
include
with
moth
or
regard
termite
to
infested
ser ious structural faults such as foundation cracks, water
supply
culvert, purchaser
or
sewage
defective had
to
disposal
siding, take
and
property
system, the
a
like.
subject
to
hidden
latent houses,
inadequate underground
At
common
law,
a
any
latent
defects
which subsequently appeared.
But this is no longer necessarily
the law so far as concerns latent defects of which the vendor is aware.
A vendor
affect ing
the
is
not
value of
purchaser's judgment.
obliged
to
disclose
all
known
property which may be mater ial
facts to
the
However, having said that, there may be a
duty on the vendor to disclose latent defects which render
the
premises dangerous in themselves, or where the circumstances are such as to disclose the likelihood of such danger, or which would render
the property useless to the purchaser for
a purpose for
which to the vendor's knowledge the purchaser wishes to acquire it, or where a work order or notice has been served in respect of the
property
which
fundamentally
affects
the
value
of
the
property (although in this latter case the defect may be treated as
a
defect
McGrath v.
of
title
McLean
rather
(1979),
than
95 D.L.R.
a
defect (3d)
144
of
quality).
(Ont.
C.A.);
See and
Carlish v. Salt, [1906] 1 Ch. 335.
In strict law, the obligation of disclosure exists only as
regards
latent defects of title and,
with
regard to
latent
defects of quality, the duty of disclosure does not arise merely out of the relation of vendor and purchaser without some further special circumstance. vendor
and
purchaser
Purchase and Sale.
There is no fiduciary relationship between in
the
negotiation
of
an
Agreement
of
Executory v. Executed Agreement
While executory,
an
Agreement
of
Purchase
and
the usual contractual remedies apply.
Sale
remains
However,
once
the agreement is executed and the deed delivered, the purchaser's remedies are considerably curtailed because of the doctr ine of merger.
Under the doctrine of merger, a purchaser's rights are
considered
to
have
merged
in
the
deed
of
conveyance
so
that
thereafter he can no longer rely on the terms and conditions of the agreement, deed
for
but only on the covenants and warranties in the
his
remedy.
misrepresentation, discovered
after
posi tion of approaches
fraud, the
may
many
mistake,
closing.
the purchaser which
In
not
or
latent
This
after
enable
if
a
most
paper
closing,
defect focuses
is
I
to
get
the only
upon
and suggests
purchaser
pr inciples of caveat emptor and merger.
cases,
the
var ious
around
the
have not focused on
the particular remedy which may be available, which may vary from damages to rescission and rectification.
Howland, Glassco;
DeCenzo
(1978),90 D.L.R. the law as follows:
C.J.O.,
in DiCenzo Construction Co.
Construction
Co.
Ltd.
v.
City
of
Ltd.
v.
Hamilton
(3d) 127 (Ont. C.A.) at pp. 139-40 summarized
"After the closing of a transaction, a purchaser is generally restricted to the covenants, conditions and warranties set forth in the conveyance. Apart from the conveyance, relief can only be obtained in the case of (1) fraud, (2) a mutual mistake resulting in a total failure of consideration or a deficiency in the land conveyed amounting to error in substantialibus, (3) a contractual condition, or (4) a warranty collateral to the contract which survives the closing ... Apart from these exceptional cases caveat emptor applies."
Puffing v. Misrepresentation
It tions
on
is necessary to distinguish between misrepresentathe
one
hand
and
puffing
on
the
other
hand.
Representations of fact as to the quality of the property must be distinguished
from
desirability
which
fact. "puff"
The and
convenient"
expressions
following not
do
not
of
opinion as
involve
descriptions
have
to
its
value
or
representation
any been
actionable misrepresentations:
held
to
be
of mere
"substantial
(but not "substant ial and well bui 1 t" );
and
"fit for
a
respectable family": "uncommonly rich water meadow": "fertile and improvable". been
held
On the other hand, the following descriptions have to
involve
commendation or puff: repair":
representations
going
beyond
mere
"not damp": "has lately undergone thorough
"brick-built":
"let to a most desirable tenant"
(where
the tenant was too poor to pay the rent); "clears a net value of 90 pounds per annum"
(where the repai rs amounted every year
about half the stated value);
"first-rate building plot"
to
(where
the
property
was
unsuitable
for
that
existence of a right-of-way over it);
purpose
owing
to
the
"suitable for development"
(where land filled in with refuse and unfit for building purposes without incurring substantial expense in digging out the refuse and
filling
premises"
in with suitable material);
and "valuable business
(where leasehold property was held under a lease which
limited the lessee to the making and sale of ladies' clothing).
Other misrepresentations as to the quality of property were found where the vendor described the land to a listing agent as an apartment site when it was zoned residential; was
represented as compr ising "legal building plots"
where land when
they
lacked sufficient fill and properly established shorelines;
and
where the vendor represented that there was a "good well" on the property when the water supply was in fact inadequate.
Fraudulent Misrepresentation
Where the vendor makes a fraudulent representation upon which a person relies, the purchaser may claim damages either in ~
tort or breach of contract and, in certain cases, rectification. Herschell, (1889),
This
is
true
before
or
after
rescission or closing.
Lord
in Derry, Wakefield, Moore, Pethick and Wilde v. Peek
14 App.
Cas.
337
(H.L.)
at p. 374 defined fraud as
"a
false representation ... made (1) knowingly or (2) without belief
in its truth, or or
false".
(3) recklessly, careless of whether it be true
Thus,
there
is
no
fraud
if
the
vendor
believes in the truth of his misrepresentation. that
where
a
vendor
makes
a
representation
honestly
It would appear of
fact
for
the
purpose of inducing a purchaser to enter into an agreement,
this
is a representation of belief in the existence of the fact and, even if the vendor has no knowledge of the falsehood of the fact, his
representation
is
fraudulent
if it
turns out
to be
false.
[See Redican v. Nesbitt, [1924] 1 D.L.R. 536 (S.C.C.)]
In
order
to
succeed,
the
plaintiff
must
prove
that
representations false in fact were made to him by the defendant, that when made they were known to be false or were made,
wi thout knowing whether they were false or
reason of
recklessly
true,
such misrepresentations the plaintiff was
that by
induced
to
enter into the contract, and that he brought his action within a reasonable time after discovering the falsity of the misrepresentation.
While a vendor
in many circumstances may be under
no
positive obligation to disclose to a purchaser latent defects of which
he
is
questioned as inquiries
by
aware,
it
is
clear
that
if
the
vendor
being
to defects or other mater ial matters avoids evasive
or
ambiguous
replies,
purchaser's suspicions with regard to a defect,
or
lulls
the the
a purchaser may
obtain
damages
or
rescission
if
a
correct answer
deterred him from proceeding with the purchase.
might
have
Fraud need not
be found solely in the written or oral representations of the vendor. and
It is clear that conduct can also give rise to fraud,
the Courts have been quite creative
in circumventing
the
principle of caveat emptor and the doctrine of merger by finding fraud where there has been an act of concealment of a material fact or
of
a
defect
in a
building with intent
to deceive a
potential purchaser.
The decision of the Court in Gornau v. Schlamp Investments Ltd.
(1974),
illustration
of
52 D.L.R.
this
(3d)
approach.
In
631
(Man. O.B.)
that
case,
the
is a
good
defendant
vendor of an apartment building was advised by an engineer of the appropr iate means of wall
of
the
repai ring a ser ious crack in the eastern
building.
Instead
of, following
the
engineer's
advice, the defendant patched the crack in the wall with matching bricks and, five days after the patching job had been completed, listed
the
apartment
for
sale.
The
plaintiff
purchaser
discovered the hidden cracks only after closing and successfully sued for rescission.
Solomon, J., at p. 36, stated as follows:
"If latent defects are actively concealed by the vendor, the rule of caveat emptor does not apply and the purchaser can, at his option, ask for rescission of contract and/or compensation for damages resulting therefrom. Halsbury's [Laws of
England, p. 212, states:
3rd ed., Vol. 34 1 , in pa r a . dealing with concealment by
354, at vendor,
any act of concealment by the vendor of defects which would otherwise be patent is treated as fraudulent, and the contract is voidable by the purchaser, if he has been deceived thereby. Any conduct calculated to mislead a purchaser or lull his suspicions with regard to a defect known to the vendor has the same effect.' " Similar statements are to be found in other cases.
In
Rowley v. Isley, et al., [195113 D.L.R. 766 (B.C.S.C.), Cody, J. at p. 767 found against the vendor in the following language: "The failure to disclose to the plaintiff, however, the true condition of the house, as to the infestation by cockroaches and to the prior fumigation, rendered necessary by reason of the prior excessive cockroach infestation, was, I think, a fraudulent misrepresentation arising from a suppression of the truth." The Nova Scotia Supreme Court, Trial Division in King and Bowser v. Kesebi and Kesebi (1985), 68 N.S.R.
(2d) 175, dealt
with the sale of a house that had a structural defect in that the siding prematurely deteriorated.
The Court found that the vendor
knew of the defect, because he had previously received a sett1ement in a claim against the manufacturer of the siding, although he
did
siding.
not
use
the
set tlement
monies
received
to
replace
the
The vendor argued that the defects were patent, but the
Court in awarding damages to the purchaser, stated at p. 177 as follows:
" the defendant •.• intentionally concealed latent deterioration of the siding of which he was well aware and, insofar as the condition of the siding had become manifest, he lulled the suspicions of the plaintiffs (1) by alluding to his knowledge and expertise, (2) by representing that the house was of sound construction and (3) by stating that the brown spots were of no importance and were due to normal wear and tear. My view is that such conduct went beyond mere puffery and amounted to fraudulent misrepresentation." In Unrau and Unrau v. Gay (1983), 61 N.S.R.
(2d),
Nova Scotia Supreme Court, Tr ial Division awarded damages plaintiff
to
foundation
compensate
of
a
him
house.
for
The
the
costs
property
of
had
a
to a
repairing cement
the
the block
foundation which was in a bad state of repair and leaking,
and
the
the
vendor
employed
basement walls. exterior
a
workman
to
repair
and
waterproof
The workman was in the process of applying an
coating
of
a
cement-like
substance
to
the
wall,
attaching it to chicken wire which separated it from the wall, when
the purchaser
inspected
the premises.
The purchaser
knew
the walls were of concrete blocks, and that there was a problem with water leakage;
he in fact negotiated a $1,500.00 reduction
in the purchase price of the property "in full settlement of the cost to fix the drain in the basement and the basement floor". The purchaser subsequently sued alleging concealment of a latent defect.
Clarke,
J.,
while not finding
held at p. 262 as follows:
fraud by the defendant,
"The conduct of the defendant .•• had the effect of lulling the SUsp1c1ons of the plaintiffs with regard to the defects in the foundation walls, of which the defendant must be deemed to know ••• The work which he undertook made the walls look good, but it failed to grapple wi th the reasons for their deterioration. It resulted in the concealment of a patent defect which gives rise to the recovery of damages in the same way as though there was a fraudulent misrepresentation." In Ferguson and Ferguson v. Stright and Stright (1979), 37 N.S.R.
(2d) 41, the Nova Scotia Supreme Court, Trial Division
dealt with a representation by the vendors that the well on the property was adequate
for
domestic needs.
The Court
preferred
the evidence of the purchasers and found that the vendors were having difficulty in selling their home and failed to properly advise
the purchasers of
the difficulty with the well and
the
fact that the well was not the main source of supply (there being a cistern as
well)~
By
contrast,
in
a
number
of
cases,
the
declined
to find a
Dugas v.
Boutilier and Boutilier (1981), 45 N.S.R.
Nova
Scotia
fraudulent misrepresentation.
Supreme
Court,
Tr ial
Division
Courts In Dugas (2d)
98,
dismissed
have and the the
purchaser's action for damages for fraudulent misrepresentation. The Court found that the vendors had accurately represented that they had always had an adequate water supply, and that the water supply proved needs.
inadequat~
only because of the purchasers' greater
The vendors were a husband and wife living alone, whereas
the purchasers comprised a husband, wife, and child as well as
horses which they wished to pasture on the property.
In finding
for the vendors, the Court noted that the purchasers had not made clear to the vendors the additional demands made upon the water supply by reason of the fact that they had a family as well as requiring water for the horses; and that if the adequacy of the water supply was so critical to the purchasers, it could easily have been included as a specific written clause in the Agreement of Purchase and Sale which was not done.
See also Martin and Martin v. MacDonald and MacDonald (1983), Court,
61
N.S.R.
Tr ial
(2d)
26,
Division and
performance
in which
granted a
rejected
misrepresentations wi th
the
regard
water supply to the house.
to
the
vendor
Nova
an
Scotia
order
Supreme
for
specific
purchasers'
allegations
of
the quali ty
and quanti ty
of
For a similar decision dealing with
water supply and septic systems, see Richardson v. MacGillivray et al.
(1988), 86 N.S.R.
In fraudulent,
(2d) 273 (N.S.S.C., T.D.).
determining
whether
or
not
a
representation
was
the Courts will pay great attention not only to what \
was
said
or
purchaser' s
done
by
a
vendor,
but
to
what
he
intended use of and requirements for
knew the
of
the
property.
It would appear that the more a purchaser tells a vendor in this regard,
the greater the duty of disclosure that will be imposed
on the vendor.
Innocent Misrepresentation
An
innocent
misrepresentation,
fraudulently
but negligently,
believes
be
to
true,
does
being
one
not
or one which the vendor
not
unless the representation is a
entitle a
purchaser
honestly
to
term of the contract.
made
damages Pr ior
to
closing, an innocent misrepresentation may in certain circumstances allow a purchaser to seek rescission, but once the closing has
taken
limited
place
rescission
circumstances.
is
These
not
available
circumstances
except are
in
a
very
complete
failure of consideration and error in substantialibus.
Negligent Misrepresentation
I note in passing that where an innocent misrepresentation is negligent, a purchaser might in certain circumstances be able to avoid the effects of the doctrine of merger by a tort action on the basis of the Hedley Byrne principle. may apply even where contract
if
the
the parties I
negligence
relationship
constitutes
an
Hedley Byrne
is governed
"independent
by
tort"
unconnected with the performance of the contract, as where there is a
pre-contractual
negligent
misrepresentation which
induced
the plaintiff to enter into the contract.
This approach has been
taken
Corp.
in
Canada;
see
for
example
Sodd
(1977), 79 D.L.R.
(3d) 632 (Ont. C.A.); Smith v.
[1970]
(3d)
13 D.L.R.
437
Inc.
v.
Tessis
Mattacchione,
(Ont. Co. Ct.), and Bango v.
Holt,
A.
Austin
E.
&
Co. Ltd., Third Party
(1971), 21 D.L.R.
66 (B.C.S.C.), where the principle was applied to a agent.
However,
I
am
unaware
of
any
Nova
(3d)
real estate
Scotia
decisions
dealing with the purchase of completed houses in which an award has
been
made
against
a
vendor
on
the
basis
misrepresentation or negligent misstatement.
of
negligent
Palmeter, C.J.C.C.,
in Bresson and Bresson v. Ward et ale (1987), 78 N.S.R.
(2d) 156
in this regard stated as follows:
"The third alternative claim raised by the plaintiffs is based on negligent misrepresentation or negligent misstatement. Counsel for the plaintiffs has not directed this Court to any caselaw substantiating a claim under these circumstances for this type of allegation, nor am I aware of the basis for such a claim. It would seem to me that this would fall within the category of false or fraudulent misrepresentation where the representor either knew the representation was wrong or made the representation recklessly, without knowing whether it was true or false or perhaps suspecting that something was wrong but saying nothing."
It may
be
that
in appropriate
circumstances
a
Court
would attempt to find a remedy in tort for negligent misrepresentation. paper.
I
have not explored developments in this area in this
Complete Failure of Consideration
As innocent been
a
cases
noted
above,
misrepresentation complete
of
failure
mutual
mistake,
equity even of
may
after
intervene closing
consideration.
where
neither
in
where
This
party
cases there
may knew
of has
occur that
in the
subject matter of the contract did not exist at the time of the contract, as in the case of Cole v.
Pope (1898), 29 S.C.R. 291,
in which a purchaser bought an interest in a mining claim which both parties believed was owned by the vendor, but which in fact was
known
by
others.
Another
example
would
be
where
nei ther
party knew that the property was already owned by the purchaser.
Error in substantialibus
Secondly, the Court may provide a remedy after closing in cases of innocent misrepresentation where there has been an "error
in
substantialibus".
This
is
a
doctrine
of
somewhat
uncertain extent.
The leading modern Canadian case is
Hyrsky v.
[1960]
Smith,
2 O.R.
360,
5 D.L.R.
(3d)
perhaps
385
(Ont.
H.C.), where the purchaser acquired a parcel of land believed to measure 160 feet by 1000 feet but which in fact measured only 84 feet
by 1000 feet,
or slightly more than one-half of what
been agreed to by the parties.
had
The Court held that where there
was a mutual fundamental mistake as to the quality of the subject
matter of the contract, the Court could grant rescission and that in
this case
the common fundamental misapprehension as
to
the
facts went to the very root of the contract, although there was not a total failure of consideration.
A similar (1973),
42 D.L.R.
was
result (3d)
reached
(Alta.
242
in
S.C.,
Alessio
App. Div.),
v.
Jovica
where
the
Court allowed rescission of a completed contract for the sale of a parcel of land upon which the purchaser intended to construct a duplex
where
the
building permit
could
not
be
obtained
until
sewage facilities were installed at a substantial cost.
However, Division
the
declined
to
Supreme apply
(1979), 36 N.S.R. (2d) 56. buy
Court
the
but
after
in
Scotia,
Aberg
v.
Trial Rafuse
In that case, the purchaser agreed to
innocent misrepresentation, acreage,
Nova
principle
land containing 374 acres for
this
of
reforestation.
There was an
in that the vendor's deed indicated
closing
vendor owned only 58 acres.
the
purchaser
discovered
the
The Court distinguished the cases
dealing with complete failure of consideration and with error in substantialibus, While
the
and
decision
applied appears
the
principle
harsh,
the
of
Court
caveat may
emptor.
have
been
influenced by the fact that a survey plan was available, although the purchaser failed to ask for it, that the purchaser got some land on
which
he
planted seedlings,
and
that
counsel
for
the
vendor explained pr ior to closing that he could not ver ify the boundaries.
Collateral Warranties and Contractual Terms that Survive Closing
Another approach which may be used to circumvent
the
doctrine of merger and the principle of caveat emptor is to plead a
collateral
contractual effect,
term has
the
collateral
warranty,
Court
not
may
contract.
or
alternatively
merged and has
characterize
The
a
pr inciple was
to
argue
survived
that
closing.
misrepresentation set out
a In
as
in Gilmour
a v.
Trustee Company of Winnipeg, [1923] 3 W.W.R. 177, cited by Jones, J.
of
the
Nova
Scotia
Supreme
Court,
Charpentier v. Slauenwhite (1971), 3 N.S.R.
Trial
Division
in
(2d) 42 at p. 47:
"If a representation is made by the vendor at the time of negotiations, and antecedent to the written contract with the intention of inducing the purchaser to execute the contract, it amounts to a warranty, and if the purchaser executes the contract on the faith of the warranty and the facts represented are afterwards found to have been innocently misrepresented the purchaser's remedy, where the contract has been fully performed, is an action for damages for breach of warranty." Where an oral statement by the vendor is classified as a
warranty,
it will likely be found to be collateral and
will survive closing.
thus
If on the other hand the statement is made
an express term of the contract, the Court is less likely to find
that the term is collateral and may hold that the term merged at closing.
It is difficult to rationalize the cases in this area,
since decisions go in different directions. the
intention of
the
parties,
but
The proper test is
the Courts
appear
to allow
themselves considerable latitude in ascertaining the intention.
In Registrar vendor
for
made
Gilmour
v.
Winnipeg, an
oral
Trustee [1923]
Co. 4
of
Winnipeg
D.L.R.
representation
as
purchaser discovered was substantially
344 to
and
Distr ict
(Man. C.A.),
acreage
which
in error after
the the
closing.
The Court found that the representation, though innocent, constituted
a
collateral
warranty
and
was
purchaser to enter into the contract.
intended
to
induce
the
The purchaser was awarded
damages.
On the other hand,
Palmeter, C.J.C.C.,
in Bresson and
Bresson v. Ward et al. (1987), 79 N.S.R. (2d) 156, dealt with the argument that the vendors'
representation that they experienced
no water problems was a collateral warranty. was
not
satisfied
that
there
was any
Palmeter, C.J.C.C.
collateral
warranty
stated at p. 168 as follows: "[The vendors] did not, and I so find that they did not, intend to give a warranty and that any representations made did not constitute a warranty collateral to the Agreement of Purchase and Sale."
and
-
"'u
-
The Court in effect held that the vendors had only been relating their own experience and that such representations were not intended to induce the purchasers to enter into the agreement of sale.
The Court may have been influenced by the fact that the
purchasers had had tuni ty
to satisfy
free
access
to
the property and an oppor-
themselves with regard to the water
supply.
The Court found in favour of the vendors notwithstanding the fact that on 23 July 1985 the vendors had certain work done on the pump, less than a month prior to the execution of the Agreement of Purchase and Sale on 20 August 1985. repair work, that
the
At the time of doing the
the repairman appears to have advised the vendors
problem
they
were
having
with
the
pump
attributable in part to a lack of water in the well.
might
be
Ultimately,
both a new pump and well repair work was necessary.
The Court reached a different conclusion in A.-G. Can. v.
Corrie
vendor
(1951),
orally
3 W.W.R.
represented
(N.S.) to
the
207
(Man. K.B.),
purchaser
at
where
the
time
the
the
agreement was made that the well water was "suitable for consumption".
The purchaser
discovered after
closing
human
that
the
water was unfit to drink and obtained damages for breach of the warranty.
The decision of the Supreme Court of Canada in FraserReid v.
Droumtsekas
(1979),
103 D.L.R.
(3d)
385,
has
been of
assistance to purchasers in reducing the scope of the doctrine of merger.
The
Court
held
that
there
was
no
presumption
that
warranties in an Agreement of Purchase and Sale are merged in the deed,
and that the proper approach was to enquire "whether the
facts disclose a common intention to merge the warranty in the absent
deed~
(p. 397).
proof
of
such
intention,
there
is
no
merger"
Based upon this decision, it is much easier to argue
that the onus is on a vendor to prove a common intention to merge a warranty in the
deed~
this may be difficult as for example with
regard to the standard warranty that a property does not contain ureaformaldehyde foam insulation.
However, and
the
because of the lack of certainty in the law
fine distinctions
possible,
between cases,
one should,
whenever
expressly state in an Agreement of Purchase and Sale
that a specific warranty is intended to survive the closing. This is often done in Agreements of Purchase and Sale with respect to UFFI
warranties,
matters.
but
is
far
less
common with
regard
to
other
Where the term relates to a matter which could easily
be checked by the purchaser prior to closing, such as a warranty dealing with rents approved by the Rent Review Commission or with zoning, merge
the Courts may be more willing to find an intention to such warranties
in
the
stipulation to the contrary. Ontario Court
of
Appeal
conveyance
in
the
absence
of
a
See for example the decision of the
in Richview Construction Co.
Ltd.
v.
Raspa (1975), 66 D.L.R. (3d) 193, where the agreement stated with regard
to
the
purchaser
property
discovered
"Being
after
a
fully
closing
connections had not been installed.
serviced
that
the
Lot".
lateral
The sewer
The Court held that the term
constituted a warranty, but denied damages on the ground that the parties
did
purchaser
not
could
intend easily
that
it
should
have
ascertained
survive the
closing;
facts
prior
the to
closing from the Municipal Engineering Department.
Conclusion
In summary, a purchaser cannot after closing complain with regard to patent defects, or with regard to latent defects of which the vendor was unaware. latent defect of quality,
I f the vendor was aware of a
there mayor may not have been a duty
on him to disclose the existence of the latent defect.
The Court
will take into consideration a number of factors in determining whether
or
not
there
was
such
an
obligation,
such
as
the
seriousness or materiality of the latent defect, and the vendor's knowledge of the purchaser's intended use of the property.
The best way to protect a purchaser
is of course
to
insert appropr iate provisions in the Agreement of Purchase and Sale.
One
should
discuss
thoroughly
with
the
purchaser
his
intended use of the property, and draft the Agreement of Purchase and Sale accordingly.
If properly drafted, essential warranties
should survive the closing.
If there is nothing in the agreement upon which you can rely,
you
should
discussions
and
review
with
negotiations
the
purchaser
preceding
Agreement of Purchase and Sale.
the
in
detail
execution
any
of
the
You may then be able to argue
that oral statements or conduct of the vendor constituted either a
fraudulent
purchaser fraudulent
may
misrepresentation or obtain
rescission
misrepresentation,
collateral warranty.
or
a or
collateral warranty. damages
damages
in
in the
the
The
case
case
of
of a
If you are only able to find an innocent
misrepresentation, you may still have a remedy if there was a complete lack of consideration, an error in substantialibus, or (perhaps) a negligent misstatement.
