Fraudulent Misrepresentation Made Against Sellers #238

May 01, 1995

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By Gerry Neely
B.A., LL.B.

The Property Condition Disclosure Statement, (PCDS), was the basis for proof of a claim of fraudulent misrepresentation made against sellers, by buyers, when the buyers had to pay approximately $4,000 to correct the septic system problems they found when they took possession of the property. The sellers stated in the PCDS that they were unaware of any problems in the septic system.

The buyers discovered that the septic tank had a broken concrete lid, a temporary plywood cover, and the sewage flowed back from the field into the tank to the point of overflowing. None of this would have been visible or known to the buyers whose inspection was made in the winter when the ground was covered with snow.

The contract was subject to the condition that the buyers must approve the disclosure statement, a condition which the buyers removed. It does not appear from the Reasons for Judgment, that the clause containing the condition, was the type referred to in the Malenfant case discussed in Column #230, which made the PCDS and its contents part of the Contract of Purchase and Sale.

The provincial court judge followed the Malenfant decision to decide that the only purpose of the PCDS, as used in this transaction, was to disclose what the sellers knew about the property, but not to constitute warranties, the breach of which might give rise to damages.

The judge concluded that the sellers had known of the problem, were untruthful in denying that there was a problem, and that the buyers relied upon the representations contained in the PCDS in deciding to complete their purchase. He held that the purchasers were victims of a fraudulent misrepresentation and awarded damages equal to the cost of replacement of the septic system.1

***

A purchaser who did not have the money to complete his purchase on the date fixed for completion was successfully able to recover his deposit because of the seller's default. The property the purchaser had agreed to buy was registered in the name of a husband and wife. The contract, however, was made between the husband and the purchaser.

Section 6 of the Property Law Act requires any person who has entered into an agreement for the sale of land, to register that land in that person's name before the transfer is made. Section 6 further provides that anyone failing to comply with Section 6 cannot sue to enforce the agreement.

In this case, the court held that the effect of Section 6 was to require the husband to have his wife transfer her one-half interest to him, on or before the date of completion, to preserve any right he might have had to sue the purchaser for the deposit.2

***

A licensee who made an offer on his behalf to purchase property listed with another agent, gave to the listing agent an offer to purchase, which contained an acknowledgment that the buyer was licensed under the Real Estate Act. The Section 28 disclosure form, which stated that the licensee was to receive one-half of the commission, was incorrectly completed. In addition, it was delivered after the offer was made, but before it was accepted.

The licensee resold the property before the completion date and the transfer was made directly from the owners to the second purchaser. When the owners discovered that the licensee had made a gross profit of $16,000 on the resale, they complained to the Real Estate Council and then sued for the return of the profit, on the basis that the licensee was a sub-agent who owed a fiduciary duty to them.

At no time had the licensee any direct dealing with the owners, or made any representations, or offered any inducements to them.

The licensee was held to be in breach of Section 28 of the Real Estate Act; however, the judge found in the licensee's favour in the action brought by the owners. The judge determined that it was clear the licensee was never the agent of the owners and that no fiduciary duty could arise from these facts.3

***

Legally Speaking column #237 incorrectly stated in the fourth paragraph that "The judge decided that her disclosure was substantially, if not fully in compliance with the Act, and that the purchaser, who was a very sophisticated owner and trader of commercial property, was not misled." This should have read "the seller, who was a very sophisticated owner and trader of commercial property, was not misled."

We are sony for any confusion this effor may have caused.

  1. Parrot v. Schafer, Provincial Court of British Columbia, Williams Lake Registry 9419240, Reasons for Judgment, January 23, 1995.
  2. Taylor v. Aramenko, B.C. C.A. Vancouver, Reasons for Judgment, December 20, 1994.
  3. Stacey v. Signmud, S.C.B.C., Nanaimo Registry #04902, Reasons for Judgment, March 28th, 1995.

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