Breach of Duty and Fraudulent Misrepresentation #129

By Gerry Neely
B.A. LL.B

Termites, latent defect, non-disclosure, breach of duty, fraudulent misrepresentation, and all occurring in Toronto. A young couple purchased a home in an area of termite infestation which had started about five years prior to their purchase. They were aware of this problem because an earlier conditional offer made by them for another home in this same area, had collapsed when it was found to be riddled with termites.

The house they purchased was one whose owners had omitted to tell the listing salesman that the drywall in the basement concealed termite damage drawn to the owners' attention two years earlier by a termite inspector. Hardwood on the second floor had been replaced by plywood, and a small wooden beam installed, to repair other termite damage. The listing salesman failed to see any evidence of the infestation, within the period of fifteen minutes he took to examine the garden, measure eight rooms on the ground floor, check out a second floor kitchen, and left. The listing he filed with MLS stated that the house was in a move in condition.

On their first visit with the selling agent, the young couple asked the selling agent whether the house was termite free, to which the salesperson responded by saying she would inquire. On the second visit when the selling salesperson was again asked whether there were any termites she said there were none. In fact, the selling salesperson had neither asked the vendors this question nor had she examined the house for termite damage. Both visits by the young couple and the selling agent to the premises were short and made at night. The young couple asked the selling salesperson to insert a termite clause, a request the selling salesperson deflected by saying that she had never heard of one.

An offer was made and accepted and when the young couple took occupancy of Termite Towers the damage they found was so extensive that it took them eight months to put the house in livable condition. They sued the vendors, the listing and selling agents and salespersons with the following results.

The vendors were liable for their failure to disclose latent defects of which they were aware. Silence about a known major latent defect is the equivalent of an intention to deceive. They were held to be responsible for 50% of the damages.

The listing salesperson's liability was fixed at 20%. There was evidence from two experienced real estate agents who qualified as expert witnesses that a reasonably competent real estate salesperson should have spent 30 minutes to an hour upon an inspection, rather than 15 minutes. That inspection would have made the salesperson suspect that a problem existed. The judge stated the duty of the listing agent as follows: "The listing agent must take the time and trouble to inspect the property so that major damage or major defects can be known to him, and knowing that other members of the buying public will either see or be told about his description, he must exercise a very high duty of care, which does not go so far as to say he must be a qualified building inspector." The judge held that the listing salesperson's performance and inspection fell short of the normal practice one could expect of a real estate sales person.

The listing agent was held to be liable for his salesperson's breach of duty. In addition, liability would have been imposed upon the listing agent in any event, because the judge said that the listing agent had a duty to know of the termite infestation in the area. Further, he had a duty to instruct his sales staff concerning important trends in the area. The failure to do this was a breach of the standard required of the listing agent.

The liability of the selling agent and selling salesperson for the remaining 30% of the damage, arose out of the selling salesperson's failure to make the inquiries requested by the young couple. As the judge said, "The selling agent has a strict obligation to pursue questions asked by the purchasers diligently until she is satisfied she has correct and honest answers. She is not entitled to ignore or make light of their questions." In addition, she untruthfully said that there were no problems, a statement "made recklessly by her not caring whether they were true or not." This was a fraudulent misrepresentation for which both she and her employer were liable.¹

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