Supreme Court Judgments

Supreme Court of Canada

Fraser-Reid v. Droumtsekas, [1980] 1 S.C.R. 720

Date: 1979-11-20

Bertram Oliver Fraser-Reid and Lillian Fraser-Reid (Plaintiffs) Appellants;

and

Ken Droumtsekas, Ken Droumtsekas Construction Limited and Ken Droumtsekas Investments Central Limited (Defendants) Respondents.

1979: March 28, 29; 1979: November 20.

Present: Martland, Ritchie, Dickson, Estey and Mclntyre JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Real property—Purchase of house—Whether house “completed”—Serious defects in construction—Non-compliance with Building By Law standards—Express warranty—Extinction of warranty—Warranty not fulfilled by delivery of conveyance—Warranty unaffected by exclusion clause.

On October 1, 1969, the plaintiffs purchased a newly completed house in the City of Waterloo from the respondent Ken Droumtsekas Construction Limited, a builder-vendor. The following spring serious basement flooding occurred. Thereafter every heavy rain brought more water into the basement. The agreement of purchase and sale contained the following provision:

This transaction of purchase and sale is to be completed on or before the 1st day of November, 1969, on which date vacant possession of the Real Property is to be given to the Purchaser, unless otherwise provided herein.

Providing that the Vendor has disclosed to the Purchaser all outstanding infractions and orders requiring work to be done on the premises issued by any Municipal or Provincial or Federal Authority in respect to the premises referred to herein.

At the material time the building by-law of the City of Waterloo provided “Unless otherwise permitted by the authority having jurisdiction, all exterior foundation walls shall be drained by drainage tile or pipe laid around the exterior of the foundation so that the top of the tile or pipe is below the bottom of the floor slab or crawl space floor”. There was an exclusion clause in the agreement of purchase and sale, “It is agreed that there is no representation, warranty, collateral agreement or condition affecting this agreement or the real property

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or supported hereby other than as expressed herein in writing”.

The trial judge found that a statement made by Droumtsekas—that he built good houses and the house was a good house—did not amount to an express warranty that the house would not leak and ruled that as the house purchased was a completed house there was no implied warranty as to construction. However had there been a warranty there would have been a breach. Much water had entered the basement and weeping tiles had not been laid around the footings. Damages were assessed at $4,412.78, but in view of the absence of warranty, the claim was dismissed. The plaintiff’s subsequent appeal raised a number of issues: express warranty, implied warranty, the application of English authorities and the failure of the builder to obtain an exemption from the by-law obligation to lay weeping tiles. The Court of Appeal, however, dismissed the appeal without written reasons.

Held: The appeal should be allowed.

Per Martland, Dickson, Estey and Mclntyre JJ.: Two grounds of appeal can be disposed of without difficulty. First, the claim of express warranty, that the house was built in good and workmanlike manner, rested only on an oral statement of the builder, a statement found at trial to be mere trade puffery. Second, the appellants alleged negligence, in the breach of the obligation imposed on the builder to install drainage tile under the City of Waterloo building by-law. Negligence was not, however, argued at trial where the trial judge dealt with breach of the by-law duty in the context only of contract and implied warranty. The defendants did not have to meet a claim in negligence. The issues are narrowed to (i) implied warranty, and (ii) express warranty in the provision of the sale agreement. As to implied warranty there was no reason to alter the finding at trial that the house purchased was a completed house. The appellants therefore fell on the wrong side of the line drawn in English cases between completed and incomplete houses. However, the clause in the agreement of purchase and sale, as a proviso to the provision as to closing date, constituted an express warranty. The builder promised or undertook to disclose (a) all outstanding infractions and (b) all orders requiring work to be done on the premises. The builder had knowingly breached a by-law as to a vital part of the building, the foundation, and the breach was one which could not have been discovered by ordinary inspection as the foundation had been covered up, and the defect hidden before the sale agreement was entered into. The infraction was not disclosed to the

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purchasers. On the question of merger, the proper enquiry should be to determine whether the facts disclose a common intention to merge the warranty with the deed. In this case, there was nothing to indicate any intention of vendor or purchaser that the conveyance should be taken as performance or satisfaction of the warranty in the sale agreement. It would be illogical to enter a contract containing an express warranty that the building being purchased complied with all applicable building regulations and, at the same time, intend the extinction of that warranty on taking possession of the building. The warranty here in question was not fulfilled by delivery of the conveyance and was still subsisting unaffected by the exclusion clause in the contract.

Per Ritchie J.: The respondents were in breach of a warranty contained in the agreement for sale of the house and the subsequent delivery and acceptance of the deed did not discharge that warranty obligation.

Anns v. London Borough of Merton, [1977] 2 All E.R. 492; Batty v. Metropolitan Property Realizations Ltd., [1978] 2 All E.R. 445 (C.A.); Dutton v. Bognor Regis United Building Co. Ltd., [1972] 1 All E.R. 462; Miller v. Cannon Hill Estates, Ltd., [1931] 2 K.B. 113; Hoskins v. Woodham, [1938] 1 All E.R. 692; Croft v. Prendergast, [1949] O.R. 282; Scott-Polson v. Hope (1958), 14 D.L.R. (2d) 333; Smith v. Melançon, [1976] 4 W.W.R. 9; Schipper v. Levitt & Sons Inc., 207 A. 2d 314 (1965, S.C. of New Jersey); Carpenter v. Donohoe, 388 P. 2d 399 (1964, S.C. of Col.); Loraso v. Custom Built Homes, Inc., 144 So. 2d 459 (1962, C.A. of La.); Bethlahmy v. Bechtel, 415 P. 2d 698 (1966, S.C. of Idaho); Rothberg v. Olenik, 262 A. 2d 461 (1970, S.C. of Vermont); Perry v. Sharon Development Co. Ltd., [1937] 4 All E.R. 390; Pasley v. Freeman (1789), 3 T.R. 51; De Lassalle v. Guildford, [1901] 2 K.B. 215; Heilbut, Symons & Co. v. Buckleton, [1913] A.C. 30; Richview Construction Co. Ltd. v. Raspa (1975), 11 O.R. (2d) 377; Hashman v. Anjulin Farms Ltd., [1973] S.C.R. 268; Brennan v. Schellhamer, 13 N.Y. Supp. 558 (1891); Goodspeed v. Nicholls, 204 N.W. 122 (1925); Levin v. Cook, 47 A. 2d 505 (1946); Redican v. Nesbitt, [1924] S.C.R. 135; Barak v. Langtry (1954), 12 W.W.R. (N.S.) 691, referred to.

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APPEAL from a judgment of the Court of Appeal for Ontario affirming without written reasons a judgment at trial dismissing an action for damages on warranty by the purchasers of a newly completed home. Appeal allowed.

F.S. Finch and D.C. Downie, for the appellants.

D.A. Mclntyre and J.D. Sutton, for the respondents.

The judgment of Martland, Dickson, Estey and Mclntyre JJ. was delivered by

DICKSON J.—Although the common law doctrine of caveat emptor has long since ceased to play any significant part in the sale of goods, it has lost little of its pristine force in the sale of land. In 1931, a breach was created in the doctrine that the buyer must beware, with recognition by an English court of an implied warranty of fitness for habitation in the sale of an uncompleted house. The breach has since been opened a little wider in some of the states of the United States by extending the warranty to completed houses when the seller is the builder and the defect is latent. Otherwise, notwithstanding new methods of house merchandising and, in general, increased concern for consumer protection, caveat emptor remains a force to be reckoned with by the credulous or indolent purchaser of housing property. Lacking express warranties, he may be in difficulty because there is no implied warranty of fitness for human habitation upon the purchase of a house already completed at the time of sale. The rationale stems from the laissez-faire attitudes of the eighteenth and nineteenth centuries and the notion that a purchaser must fend for himself, seeking protection by express warranty or by independent examination of the premises. If he fails to do either, he is without remedy either at law or in equity, in the absence of fraud or fundamental difference between that which was bargained for and that obtained.

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I

The facts are unremarkable. On October 1, 1969, the plaintiffs, Doctor and Mrs. Fraser-Reid, purchased a newly completed house in the City of Waterloo from Ken Droumtsekas Construction Limited, a builder-vendor. The following spring, serious basement flooding occurred. Thereafter, every heavy rain brought more water into the basement.

The agreement of purchase and sale contained the following provision:

This transaction of purchase and sale is to be completed on or before the 1st day of November, 1969, on which date vacant possession of the Real Property is to be given to the Purchaser, unless otherwise provided herein.

Providing that the Vendor has disclosed to the Purchaser all outstanding infractions and orders requiring work to be done on the premises issued by any Municipal or Provincial or Federal Authority in respect to the premises referred to herein. (Emphasis added.)

At the material time, s. 13B of the building by-law of the City of Waterloo provided:

Unless otherwise permitted by the authority having jurisdiction, all exterior foundation walls shall be drained by drainage tile or pipe laid around the exterior of the foundation so that the top of the tile or pipe is below the bottom of the floor slab or crawl space floor.

The agreement of purchase and sale contained an exclusion clause in these terms:

It is agreed that there is no representation, warranty, collateral agreement or condition affecting this agreement or the real property or supported hereby other than as expressed herein in writing.

II

The trial judge found that a statement made by Mr. Droumtsekas—that he built good houses and the house was a good house—did not amount to an express warranty that the house would not leak. As for implied warranty, the judge applied the English jurisprudence to which I have referred, which distinguishes between completed and uncompleted

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houses. The judge ruled that the plaintiffs had purchased a completed house and there was, therefore, no implied warranty as to construction; the doctrine of caveat emptor applied and the action failed.

The judge made certain findings. If there had been a warranty, there would have been a breach by defendants. Considerable amounts of water had entered the basement. No weeping tiles had been laid around the footings. Except in very sandy or gravel soil, weeping tiles are necessary in order to drain the area around the house and keep water from entering. This view, the judge said, was reinforced by the City of Waterloo building by-law incorporating the provisions of the National Building Code which required weeping tiles to be installed around the house unless an exemption were granted by the building inspector. The trial judge held that no exemption had been granted in this case. The judge found that if weeping tiles had been installed, there was a very strong probability that water would not have entered the basement. Damages were assessed at $4,412.78, but in view of the absence of warranty, plaintiffs’ claim was dismissed with costs.

III

Plaintiffs appealed to the Court of Appeal for Ontario and raised a number of issues: express warranty, implied warranty, the application of the English authorities to the case at bar, and negligence. One of the grounds of the appeal was based upon the failure of the builder to obtain from the building inspector an exemption from the obligation to lay weeping tiles. Plaintiffs submitted that the trial judge, having found that the builder was not granted such an exemption, erred in failing to find that the defendants breached the express terms of the agreement of purchase and sale to disclose to the plaintiffs all outstanding infractions.

The Court of Appeal dismissed the appeal without written reasons.

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IV

Two grounds of appeal may be disposed of without difficulty. First, it is submitted that the trial judge, and thus the Court of Appeal, erred in holding that there was no express warranty that the house was built in a good and workmanlike manner. This submission rests upon the oral statement, or opinion, of the builder. That statement was mere trade puffery. The trial judge made a finding on the point, adverse to the appellants, and I do not think the finding is open to attack at this stage. Second, the appellants allege negligence, grounded on breach of the statutory duty of the builder to install drainage tile, as required by the City of Waterloo building by-law.

The House of Lords has held that an action will lie, apart from any contractual warranty, against a builder for breach of statutory duty imposed by a building by-law, by any person for whose benefit or protection the by-law was passed. Anns v. London Borough of Merton[1]. The English Court of Appeal has held that a duty of care is owed by a builder to prospective buyers, and the issue of whether or not there has been breach of the duty will depend on all relevant considerations going to the question: “Did the builder act as a competent and careful builder would have acted in what he did or did not do?” Batty v. Metropolitan Property Realizations Ltd.[2] See also Dutton v. Bognor Regis United Building Co. Ltd.[3]

In the present case, the plaintiffs face difficulty in predicating a cause of action upon negligence. The trial judge dealt with breach of the statutory duty to install drainage tile in the context of contract and implied warranty. Negligence was not argued at trial nor in the Court of Appeal, nor on the motion for leave to appeal to this Court. In short, the defendants did not have to meet a claim in negligence. The trial judge made no findings as

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to duty, standard of care, or breach. And there is a more formidable obstacle. Three expert witnesses testified at trial. For some reason, not clear, the evidence of those witnesses was not transcribed and is not before us. The absence of the testimony of the expert witnesses renders it quite impossible to make findings of the nature required to be made in a negligence action. I do not think, therefore, that a claim in negligence is available to the appellants.

V

The case is accordingly narrowed to (i) implied warranty, and (ii) express warranty, in the provision of the sale agreement quoted earlier. As to implied warranty, the appellants argue that the house was not, in fact, completed at the time of purchase. This runs counter to the explicit finding of the judge at trial, who found the deficiencies in the construction of the house to be “evidence of faulty workmanship, not of incompleteness” and thus “the house which was purchased on October 1, 1969 was a completed house”. The sale agreement does not mention any work to be completed other than sodding. I would not be prepared to alter the judge’s finding.

As a consequence, the appellants fall on the wrong side of the line drawn in the English cases between completed and incomplete houses: see Miller v. Cannon Hill Estates, Ltd.[4]; Hoskins v. Woodham[5]; Dworkin, “Consumer Protection and the Problems of Substandard New Houses” (1964), 28 Conv. (N.S.) 276, 385 and 478. See also, Croft v. Prendergast[6]; Scott‑Polson v. Hope[7]; and Smith v. Melançon[8].

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The appellants must rest their case for implied warranty upon the novel proposition stated in their factum:

It is respectfully submitted that there is implied by law, in the sale of a new, unoccupied home, where the vendor is also the builder with special knowledge of the method of construction, that the home: (1) was built in compliance with all applicable building by‑laws, (2) was built in a good and workmanlike manner, (3) would be fit for human habitation.

To support this proposition, the appellants look to American authority.

American case law has tended to give recognition to the change in the housing market from the pre-war situation in which a prospective house owner bought a lot, engaged an architect, and then hired a contractor to construct, to the post-war position in which the great bulk of housing is mass-produced, according to sample or “show-house”, and sold by the builder‑vendor: see 7 Williston on Contracts (1963), paras. 926 and 926A. See also Dunham, “Vendor’s Obligation as to Fitness of Land for a Particular Purpose (1953), 37 Minn. L. Rev. 108; Bearman, “Caveat Emptor in Sales of Realty—Recent Assaults Upon the Rule (1961)”, 14 Vand. L. Rev. 541.

The American case law upon which the appellants must rely, however, is far from consistent, even ten years after the decision in Schipper v. Levitt & Sons Inc.[9], (S.C. of New Jersey). There is, however, a distinct trend toward convergence of traditional products liability principles and those applying to new homes. The shift countenanced in the American courts has been to take the English principles applicable to a home under construction and to extend those principles to completed houses, but only where the seller of the house is also the developer or builder and the house is a new unoccupied house: Carpenter v. Donohoe[10] (S.C. of Col.); Loraso v. Custom Built Homes, Inc.[11] (C.A.

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of La.); Bethlahmy v. Bechtel[12] (S.C. of Idaho); Rothberg v. Olenik[13] (S.C. of Vermont). It has specifically not been extended to the case of an unoccupied home sold by one owner to a new owner.

There has been some criticism of the resulting confusion of the American courts in handling these cases. In a useful review of the trend up to 1966 by Roberts, “The Case of the Unwary Home Buyer: the Housing Merchant Did It” (1967), 52 Cornell L. Rev. 835, the author points up the simple fact that the courts have found it easier to abolish the rule of caveat emptor in new home sales than to elaborate a new set of rules to guarantee some predictability in the ambit and content of the warranties applicable to the industry. In the result, Roberts argues that the complexity of the warranty required necessitates legislative intervention, and warns of the impact upon the structure of the housing industry, and the cost of homes, of a wide‑ranging warranty in such situations.

At the same time, it must be observed that the decided English and Canadian cases in this area point up the irrationality and odd results derived from the rigid “completed/incomplete” distinction. Take the case of the prospective home buyer who views a model home in a sub‑division development and decides to buy a house yet to be built on a lot in that subdivision. In his case, the courts will be willing to imply a warranty as to fitness for habitation and workmanship. But the unfortunate who buys the “show” home is without warranty even if both models reveal the same structural defects. Or, take the case of the buyer who enters into a contract for a home that is “99 per cent complete”. The courts will imply a warranty: Perry v. Sharon Development Co. Ltd.[14] Had the contract been entered into the next day, when the work was completed, there is no warranty. One

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can easily multiply the incongruities.

In Ontario, the Legislature has moved on this problem, with the passage of The Ontario New Home Warranties Plan Act, 1976, 1976 (Ont.) (2d Sess.), c. 52. A public corporation is established to administer the plan and all vendor-builders must register and take part in the plan. Section 13 creates a warranty in the following terms:

13. (1) Every vendor of a home warrants to the owner,

(a) that the home

(i) is constructed in a workmanlike manner and is free from defects in material,

(ii) is fit for habitation, and

(iii) is constructed in accordance with the Ontario Building Code;

(b) that the home is free of major structural defects as defined by the regulations; and

(c) such other warranties as are prescribed by the regulations.

Section 13(2) details twelve exceptions to the warranty coverage. Section 13(4) provides that the warranty extends to claims “made thereunder within one year after the warranty takes effect, or such longer time under such conditions as are prescribed”. Subsection (6) renders the statutory warranty impossible of exclusion. The section contains a detailed code. This new statutory scheme does not, of course, apply to the house here, purchased in October, 1969.

The only real question for debate in the present case is whether removal of the irrational distinction between completed and incomplete houses is better left to legislative intervention. One can argue that caveat emptor was a judicial creation and what the courts created, the courts can delimit. But the complexities of the problem, the difficulties of spelling out the ambit of a court-imposed warranty, the major cost impact upon the construction industry and, in due course, upon

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consumers through increased house prices, all counsel judicial restraint.

I would be inclined to reject the proposition advanced on behalf of the appellants for an extended implied warranty. It appears to me at this time that if the sale of a completed house by a vendor-builder is to carry a non-contractual warranty, it should be of statutory origin, and spelled out in detail. Even if the Court were to recognize an implied warranty of the amplitude urged by the appellants, here the exclusion clause contained in the agreement they signed is of such breadth that they might well be unable to avail themselves of the warranty. In the circumstances, it is unnecessary to canvass this point.

VI

Finally, it is submitted that the proviso in the agreement of sale which states that the vendor has disclosed to the purchaser all outstanding infractions in respect of the premises constitutes an express warranty, breach of which entitles the plaintiffs to succeed. Two questions must be answered: (i) do the words constitute an express warranty? and if so (ii) was the warranty “merged” in the conveyance and thereby extinguished?

The words “providing that” ordinarily signify or denote a limitation upon something preceding, or a condition on the performance or non-performance of which the validity of the instrument may depend. That is not invariably so. It may also affirm that a proposition of fact is true and take effect as a warranty. The mere use of a technical word should not obscure its true nature. A warranty is a term in a contract which does not go to the root of the agreement between the parties but simply expresses some lesser obligation, the failure to perform which can give rise to an action for damages, but never to the right to rescind or repudiate the contract: Fridman, The Law of Contract in Canada (1976), p. 285. An affirmation at the time of sale is a warranty provided it appears on the evidence to have been so intended: per

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Buller J. in Pasley v. Freeman[15]. No special form of words is necessary. In De Lassalle v. Guildford[16], at p. 221, A.L. Smith, M.R., said:

It must be a collateral undertaking forming part of the contract by agreement of the parties express or implied, and must be given during the course of the dealing which leads to the bargain, and should then enter into the bargain as part of it.

The assertion by the vendor of a fact of which the buyer is ignorant is a criterion of value in determining whether a warranty was intended: Heilbut, Symons & Co. v. Buckleton[17]. In the present agreement, I would read the proviso as an undertaking or promise on the part of the vendor to disclose to the purchaser, in respect of the premises, (a) all outstanding infractions, and (b) all orders requiring work to be done on the premises issued by any municipal, or provincial, or federal authority. The clause is an assurance of compliance with statutory duty. It is an affirmation of fact and not merely a matter of opinion. The word “infractions” obviously refers to infractions of applicable building by-laws, rules, or regulations.

The respondents submit that the words “issued by any municipal…authority” modify not only “orders requiring work to be done”, but also “infractions”, and that the plaintiffs must therefore show that the infraction was issued by a municipal authority. Such a construction would be a plain distortion of language. An infraction is a breach, or violation, or infringement of a law, or duty, or contract. It is not something “issued”.

The clause in question here is a proviso to the provision made as to the closing date. The closing is to occur on or before November 1, 1969, providing the Vendor has disclosed to the Purchaser all infractions, etc. This is a legal duty imposed by the agreement upon the Vendor, and which he failed to perform.

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In the result, because of the Vendor’s silence, the closing proceeded and title passed to the Purchaser, but the Purchaser was deprived of his opportunity to refuse to close. Had he been aware of the infraction he could have insisted upon the Vendor complying with the by-law before the agreement was closed. He has, therefore, suffered damage and in the amount assessed by the trial judge.

It was also contended that the words in question constituted a representation, not a warranty, and that the misrepresentation was innocently made and, therefore, not actionable. The distinction between representation and warranty is often tenuous. It is said that a representation is that which precedes and induces the contract, whereas a warranty is embodied in, and is given contemporaneously with, the contract. In Richview Construction Co. Ltd. v. Raspa[18], Arnup J.A. had occasion to consider what was required in order to elevate a “mere representation” to a “warranty”. Following a comprehensive review of the authorities, repetition of which would be otiose, he concluded that the following clause:

It is understood and agreed that this is a vacant lot and purchaser has the privilege to erect a single family dwelling on plans approved by the borough of Etobicoke. Being a fully serviced Lot.

in an agreement of purchase and sale of a vacant lot in a residential subdivision was a warranty, to be interpreted as if it had been expressed:

I warrant, and I acknowledge that you understand, that this is a fully serviced lot.

The provision in the agreement in the case at bar is, in my opinion, neither a representation nor innocent. It was a promise as to a certain state of affairs and collateral to the main purpose of the contract, which was the transfer of the property in the land. It was knowingly breached by the builder. There was an infraction of the building by-law, affecting a vital part of the building, the foundation. The breach was one which could not possibly

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have been discovered by ordinary inspection for the foundation had been covered up, and the defect hidden, before the sale agreement was entered into. The infraction was not disclosed to the purchaser. The words in question, in my view, constituted a warranty.

Turning then to the question of merger, in real estate law merger occurs when two estates coalesce through a vesting in the same person at the same time in the same right. For example, when a tenant for years acquires the reversion in fee simple the term of years is merged or, more colourfully phrased, it is “annihilated” or “drowned”.

Although 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 relating to the sale of land become merged in the conveyance, such a rule is not applicable to independent convenants or collateral stipulations in an agreement of sale not intended by the parties to be incorporated in the conveyance. Delivery and acceptance of the conveyance in such circumstances is merely a part performance of the obligations of the vendor under the contract.

Essentially, a deed of conveyance is a mere transfer of title, and it is not to be supposed that the whole contract between the parties is incorporated in the deed. Many provisions found in a contract of sale are not repeated in the deed; for example, an obligation to construct or finish a house in the future, or to install fixtures, or to make improvements or repairs. Where the sale agreement 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 to be treated as one of intention: Hashman v. Anjulin Farms Ltd.[19] In the absence of evidence on the point, there is no presumption that the purchaser intended to surrender or abandon the rights acquired by

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him under the sale agreement.

No case has been cited in which a Canadian or English court has been called upon to consider whether a stipulation of compliance with municipal by-laws contained in a sale agreement merged in the deed of conveyance. There is an early New York case, Brennan v. Schellhamer[20], in which the unanimous Court of Common Pleas of New York City and County held that a provision in a contract for the sale of certain premises, that the building thereon was completed in accordance with the requirements of the municipal laws, was not merged in a subsequently executed deed silent on the matter, although at the time of accepting the deed the purchaser knew that the drainage was defective and did not comply with the municipal regulations. In Goodspeed v. Nicholls[21], the Michigan Supreme Court held that an assurance by a vendor that the plumbing, heating, and lighting systems in the structure to be conveyed were in proper useable condition was not merged in the deed. And in Levin v. Cook[22], the Court of Appeals of Maryland held that although a prima facie presumption of law arises from acceptance of a deed that it is in execution of the whole contract, a covenant in an agreement of sale of land that the heating plant is in good condition is a covenant collateral to the deed containing no reference to the heating plant, and the deed is only a partial execution of the agreement between the parties.

The respondents rely upon Redican v. Nesbitt[23] where, in obiter, Duff J. had this to say:

The whole point is: At what stage does caveat emptor apply?

The vendee may rely after completion upon warranty, contractual condition, error in substantialibus, or fraud. Once the conveyance is settled and the estate has passed,

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it seems a reasonable application of the rule to hold that as to warranty or contractual condition resort must be had to the deed unless there has been a stipulation at an earlier stage which was not to be superseded by the deed, as in the case of a contract for compensation. Bos v. Helsham. Representation which is not fraudulent, and does not give rise to error in substantialibus, could only operate after completion as creating a contractual condition or a warranty. Finality and certainty in business affairs seem to require that as a rule, when there is a formal conveyance, such a condition or warranty should be therein expressed, and that the acceptance of the conveyance by the vendee as finally vesting the property in him is the act which for this purpose marks the transition from contract in fieri to contract executed; and this appears to fit in with the general reasoning of the authorities. (at pp. 146-7)

The facts in the Redican case bear no resemblance to those in the case at bar and intention was not in issue. In Redican, the purchaser received an executed conveyance, giving a cheque for the purchase price. She stopped payment of the cheque before presentment, alleging fraudulent misrepresentation, and the question before the court was whether the trial judge erred in charging the jury that an intention to deceive was essential to support the plea of fraudulent misrepresentation, and in refusing to submit to them the question of whether or not the vendor made the representations without caring whether they were true or not. In Barak v. Langtry[24], Davey J. noted that Duff J. carefully confined his language to cases in which it was intended that the conveyance should supersede the preliminary agreement. Davey J. observed:

The Court of Appeal of England in Lawrence v. Cassel, [1930] 2 K.B. 83, 99 L.J.K.B. 525, and the Court of Appeal of Ontario in Croft v. Prendergast, [1949] O.R. 282, held, respectively, in the former case that an express warranty, and in the latter, that an express or, alternatively, an implied warranty similar to those relied upon in this case, were collateral to the main contract and were not merged in the conveyance; that the conveyance was not intended to occupy the whole

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ground covered by the preliminary agreement, (at p. 698)

I have earlier referred to the Richview Construction case in which the agreement contained a warranty that the lot being sold was fully serviced. Six months after closing the transaction the plaintiff discovered that there were no lateral services to the trunk services, and sued. The question of merger was material. Because the Richview decision was urged by respondents in this Court, I am constrained to quote several passages of importance in the judgment. After observing that merger depends upon the intention of the parties, expressed or presumed, and is not automatic, and referring to the obvious cases where covenants survive the closing, Mr. Justice Arnup, for the Court, said:

There is not to be found in this agreement any language which expressly provides that the parties intended the warranty to survive the closing. The vendor (through her agent) thought the warranty was true, or fulfilled, when the agreement was executed. The purchaser expected to get on closing a deed in proper form conveying the fee simple to it. This it received.

Its solicitor, or Mr. Grella himself, could have ascertained the true facts by a routine inquiry to the Borough engineering department (which Mr. Grella eventually made). On ascertaining the facts, prior to closing, the purchaser could then have said to the vendor: “Make good your warranty to me, or give me an undertaking to do so, else I will refuse to close.”

I cannot find, on these facts, circumstances compelling us to find a presumed intention of the parties—which I think must be an intention of both parties—that anything further was to be done by the vendor after closing. The purchaser could have protected itself by searches which careful conveyancing required, or by express wording in the deed, or by a warranty or undertaking clearly expressed as surviving the closing. It did none of these things.

With some regret, I conclude that in the absence of fraud by the vendor, the purchaser had no rights after its purchase was closed, (at pp. 386-7)

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Intention is a question of fact, and a decision on one set of facts offers little guidance to decision on a different set of facts. In Richview, the true facts could have been ascertained by a routine inquiry. If that is the point of the case then, of course, the case at bar is readily distinguishable. If Richview, however, stands for the proposition that warranties in the sale agreement are merged in the deed in the absence of circumstances compelling the Court to find the contrary, i.e. if the courts cannot find an intention on the part of both parties that the warranty survive, then, with all due respect, I am of the view that Richview should not be followed. There is no presumption of merger. 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.

VII

In the case at bar it is difficult to credit the parties with the intention of extinguishing, by the conveyance, the responsibility of the respondents for the improper workmanship represented by wilful infraction of the municipal building by-law. This is particularly true as to a defect not reasonably discoverable at, or prior to the time of, closing. Who would enter into a contract containing an express warranty that the building he was purchasing complied with all applicable building regulations and, at the same time, intend the extinction of that warranty upon taking possession of the building? Is the cause of action extinguished at the moment it is created? The law does not fashion such a trap for the unwary.

I find nothing in the evidence to indicate an intention on the part of either vendor or purchaser that the conveyance should be taken as performance or satisfaction of the warranty in the sale agreement. That warranty was not fulfilled by delivery of the conveyance and, in my view, must be regarded as still subsisting, unaffected by the exclusion clause contained in the contract. The exclusion clause expressly excludes from its reach

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warranties expressed in writing. Express warranties written into the contract are protected. The plaintiffs suffered injury of a kind against which the warranty was designed to give protection. The defendants must make good on their promise and pay sufficient in damages to set things right.

I would accordingly allow the appeal, set aside the judgment of the trial court and the order of the Court of Appeal, and enter judgment in favour of the appellants in the amount of $4,412.78 with costs in all courts.

The following are the reasons delivered by

RITCHIE J.—I agree with Mr. Justice Dickson that the respondents were in breach of a warranty contained in the agreement for sale of the house here in question and that the subsequent delivery and acceptance of the deed to that house did not serve to relieve them of the obligation represented by that warranty.

I would accordingly dispose of the appeal as proposed by my brother Dickson.

Appeal allowed with costs.

Solicitors for the appellants: Clement, Eastman, Dreger, Martin & Meunier, Kitchener, Ontario.

Solicitors for the respondents: Harper, Villemaire, Nowak, Kitchener, Ontario.