Protection for a Licensee #199

Mar 01, 1993

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

The benefit of the Property Condition Disclosure Statement in avoiding or minimizing a licensees liability is illustrated by a case in which the vendors tried to shift, to a licensee, their liability for a fraudulent misrepresentation made to a purchaser. The representation concerned a roof that was four years old, made of aluminium shingles and accompanied by a fifty year warranty.

Unhappily, the purchasers discovered only two months after they took possession that the roof leaked in a number of rooms. They then discovered that the company which had installed the roof and given the warranty was insolvent.

The judge was satisfied on the basis of the evidence called by the purchasers that the vendors had to have been aware that the roof must have been leaking after it was replaced. The purchasers obtained judgment for the cost of repairing the roof and this led to an examination of the vendors claims against the licensees that they had been responsible for the misrepresentation.

The vendors said they relied entirely on the licensees in the sale of their home and that if any false representations had been made to the purchasers, the licensees made them without the vendors knowledge or approval.

The information concerning the roof was contained in a fact sheet prepared by the licensees on the basis of statements made to them by the vendors.

The judge, in a decision which the licensees must have found very satisfactory, gave the following reason for rejecting the vendors claim against them:

"I am satisfied that the licensees did not make any representations to the purchasers, through any of the documents they prepared or otherwise, which they were not expressly or impliedly authorized to make by the vendors. I am also satisfied that the licensees believed that any representations contained in the documents which they prepared in relation to this transaction were true, on the basis of what they were told by the vendors and also on the basis of their own inspection of the property.

That being the case, the vendors cannot look to the licensees for indemnification for damages arising out of their own fraudulent misrepresentations. Further, the vendors are not able to point to anything which the licensees should have done which they did not do, or anything which the licensees did which they should not have done, in relation to this transaction."

You will note the reference to the licensees own inspection of the property, an obligation for licensees which is more fully discussed in Column #179.1

***

Question 2 (a), (b), (c)and (d) of the Property Condition Disclosure Statement ask a vendor to answer the questions referred to in the subparagraphs "to the best of your knowledge." This phrase was interpreted in an Ontario case in which the contract contained the following clause:

"The vendor herein covenants that, to the best of his knowledge, there are not now, nor shall be at time of closing, any contaminated waste material in or on the said lands."

Testing by consultants hired by the purchaser disclosed contaminates which made the land unacceptable for residential use, but satisfied the criteria for the purchasers intended commercial use. The judge accepted the evidence of the vendor that he had no knowledge of any such contamination, nor did he suspect that any existed.

The clause placed a duty upon the vendor to disclose any contaminated waste material of which he knew. Itdid not however impose a duty to make inquiries or tests to determine the actual existence of contaminates. The purchaser on the other hand, remained responsible for determining whether or not there were contaminate waste materials in the soil that would affect the purchaser's use of the property.

If the clause had not contained the phrase "to be the best of your knowledge" then it would have been an absolute warranty by the vendor that the land was free of contaminates. The presence of contaminates would then have entitled the purchaser to declare the contract void. Instead, the addition of the phrase qualified the warranty which resulted in a judgment for damages in favor of the vendor.2

  1. Ross v. Hobbis, 27 R.P.R. (2d).
  2. John Levy Holdings Inc. v. Cameron & Johnstone Ltd.,26 R.P.R. (2d) 130.

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