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Sale Made at Your Own Risk: Is It Really Without Legal Guarantee?

The Honourable Steve J. Reimnitz of the Superior Court recently revisited the rules regarding fraud and the warranty for latent defects in the case of St-Pierre c. Benoit, 2021 QCCS 5491.

The Facts

In 2015, the plaintiffs purchased a property from the defendant built by the latter in 1993–1994. This contract was concluded following the plaintiffs’ visit and that of a pre-purchase inspector, at the end of which no anomalies were noted. The seller’s declaration also did not mention any particular problem with the building. The parties therefore agreed to the sale of the building by including a clause excluding the legal warranty: the sale was therefore at the buyers’ risk.

In September 2017, the plaintiffs observed unsettling issues in the building. When they removed the hardwood floor in the basement, they discovered cracks, as well as evidence of the concrete floor being unlevelled. The cracks were previously repaired with mortar and the concrete subsequently cracked at the same location.

The plaintiffs applied to the Court to have the sale of the building annulled, and also requested an award of damages from their seller.

The Latent Defect

There was evidence that the building was sinking into the ground due to a backfill problem and lack of soil compacting at the time of initial construction. Piling was required to stabilize the building. Furthermore, it was established that the defendant observed the subsidence phenomenon during the patching and repair of cracks in the basement in 2006.

The Court concluded that at the time of the sale, the building had latent defects that rendered it unfit for the use for which it was intended and that these defects existed at the time of the sale in 2015, but were then unknown to the buyers.

The Court found that the plaintiffs acted prudently and took the necessary and reasonable steps before purchasing the building, including retaining an experienced pre-purchase inspector. The report of the latter did not raise any need for further investigation. Thus, considering the age of the building and the nature of the work done to establish the defect, namely the verification of the backfill and the degree of compacting, the defect was considered hidden to the plaintiffs.

The Court also considered the concept of self-construction recently analyzed by the Court of Appeal in Blais c. Duchesne, 2021 QCCA 978. In this case, the defendant acted as the project manager for the construction of the building, more specifically for the backfill and for the compacting of the soil. The Court also noted that the latter was not a neophyte in the field of construction, having worked for two years in this field, as well as one year in excavation.

Accordingly, the Court held that the defendant could not be considered as a simple seller and must be treated as a manufacturer under article 1730 of the Civil Code of Québec [CCQ]. As the Court mentioned, the fact that the defendant was unaware of the defect in question could not exonerate him from the presumption of knowledge of the defect applicable to the manufacturer. As the presumption applies, the defendant was condemned, not only to the restitution of the sale price, but also to pay the damages sustained by the purchasers and resulting from the latent defects affecting the building.

The Fraud

According to the Court, the only real evidence of the defect was the subsidence of the slab and the cracks found in the basement, which were repaired by the defendant. However, according to the evidence, this indication was not disclosed to the purchasers. The Court concludes that the pre-purchase investigation by the plaintiffs and their inspector might have been different if the defendant had advised them of these problems and the work he had done while owning the building.

According to the Court, this information was of paramount importance and the defendant thus violated his duty to inform by not transmitting the information to the plaintiffs. This contractual breach cannot be covered by the mere addition of the mention “at your own risk”. In view of the defendant’s knowledge and failure to transmit the information to the plaintiffs, the Court concluded that the defendant had committed fraud within the meaning of article 1401 CCQ.

At Your Own Risk” Clause

As for the “at your own risk” clause, the Court concluded that the defendant also violated the principles of good faith given the non-disclosure of information. The Court held that this information was essential to the plaintiffs in their decision to purchase. According to article 1401 CCQ, the defendant’s silence constitutes a breach of the obligation to provide information, which must therefore be qualified as fraud vitiating the consent of the buyers. Pursuant to article 1733 CCQ, the clause is inapplicable because of the fraud committed by the defendant and the fact that he knew or could not ignore the defect.

The Court concluded that under the concept of fraud and the warranty against latent defects, the plaintiffs were entitled to the annulment of the sale, as well as the damages claimed. This case is a reminder that a sale made “at your own risk” does not leave buyers without recourse.

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