Lamontagne v. Andersen, et al

2005 BCSC 343 Lamontagne v. Andersen et al

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Lamontagne v. Andersen, et al, 2005 BCSC 343 Date: 20050310 Docket: 03/0796 Registry: Victoria Between: Joseph Lucien Jean Andre Lamontagne Plaintiff And: Eric Emil Andersen, Letha Darlene Andersen, Darrell Saby carrying on business as Homeguard Building Inspections Inc. and Homeguard House and Building Inspection Services Homeguard Building Inspections Inc. and Peter Willing Defendants Before: The Honourable Mr. Justice Bouck Reasons for Judgment Counsel for the Plaintiff: D. L. Armstrong Counsel for the Defendants: Eric Emil Andersen and Letha Darlene Andersen A. Berns Date and Place of Trial: 20050107-20050110 Victoria, B.C.

INTRODUCTION [1] Sooke, B.C., lies just west of Victoria. It contains many beautiful and idyllic home-sites. This action concerns the sale of one of those homes on 18 May 2002. The plaintiff purchaser alleges that the defendant sellers knew about serious defects in the home at the date of the sale. He says the defendants made representations to him that the home had only minor defects when the defects were far worse. He claims he acted on those representations to his detriment and he seeks an award of damages. [2] The defendants deny making false or fraudulent misrepresentations to the plaintiff at the time of the sale. They contend the plaintiff relied on his building inspector's report when he decided to complete the transaction. [3] Both the Lamontagnes and the Andersens are hard working people with young families and are a credit to their community.

FACTS [4] Mr. Andersen is 40 years old. He and his wife purchased the property at issue in September 1999. He is now the shop supervisor of a stonemason business in Victoria. He is married to his co-defendant Letha Andersen. They have three children, a daughter age ten and twin boys age eight. [5] The property covers an area of about four acres. It is heavily wooded but has a cleared area containing a garden, a pond and fruit trees. A gravel driveway connects the house to Michelson Road. [6] The home itself is a three story building. The ground floor is poured concrete block with 8 inch joists. The second floor is the living area. Its walls and interior beams are of log construction. The third floor is the bedroom area. It is of wood framed construction, covered over with an asphalt roof. [7] At the second level, there is a deck around the front of the house and part of one side. Access to the second floor level is by way of a stairway from the outside to the deck. There is also a deck on the front of the house at the third level. [8] Before they bought the property, the defendants lived in Calgary. Mr. Andersen decided to sell his Calgary business and retire or semi-retire in the Victoria area. Several months before the purchase, the previous owners had moved out to live in the United Kingdom. As sellers, they refused to sign a "Property Condition Disclosure Statement". They

specifically stated that, "no warranties or representations are given". The defendants elected not to hire a building inspector because of the expense. [9] On 3 September 1999, the Andersens entered into a contract to purchase the home at 3070 Michelson Road, Sooke, B.C., for the price of $205,000. During 1999, they experienced some water leakage in the northeast corner. In the summer of 2000, they spray-painted the logs on the outside of the home and the leakage stopped. [10] In 2001, Mr. Andersen noticed that the bottom two logs extending out from the southeast corner of the house were rotting. He removed them and replaced them with new endings. He painted the new ends to match the colour of the other logs. [11] In September 2001 the defendants found they could no longer afford to live on the property so they put it up for sale. At that time, Mr. Andersen knew there were problems with the log extensions on the northeast and southeast corners at the second level. He knew that two logs on the outside southeast corner had suffered water damage. [12] The previous owners built plexi-glass extensions over those corners to protect the logs from rain since the roof overhang on the third level was inadequate for that purpose. When the defendant replaced the two log extensions on the southeast corner, a portion of a remaining log end was rotten. He did not know how far back the rot

extended into the total length of the log. In 2002, Mr. Andersen repaired and extended the length of one plexi-glass piece extension located above the second level on the northeast corner. [13] While he lived in the house, Mr. Andersen noticed insects or beetles from time to time in the second floor area. He saw them coming out of the logs. He also observed sawdust piles coming from beetle holes inside and outside the house. They came and went sporadically throughout the house. Termites came once a year for a few days. The defendants knew that termites eat wood. Somehow or other the defendants say they got their chickens to eat the termites. At one point, Mr. Andersen contacted a pest control official and then decided there was nothing he could do about the insects. [14] Mr. Lamontangne is 36 years old. He is a member of the Royal Canadian Navy and serves as an engineering Chief Petty Officer on a submarine. He is married to Jenna Lamontagne. They have three children, ages three, seven and ten. [15] In the spring of 2002, the Navy transferred Mr. Lamontagne from Halifax to Victoria. He and his wife flew out here with a plan to purchase a home. The last one they considered was the defendants' Michelson Road property. It seemed ideal. On 27 April 2002, the defendants provided the plaintiff with a Property Disclosure Statement (Disclosure Statement). Its terms and those of the

Contract of Purchase and Sale (the Selling Contract) made the parties' representations contained in the Disclosure Statement part of the Selling Contract. Those representations survived the completion of the Selling Contract. [16] The term in the Disclosure Statement reads: ... This Disclosure Statement constitutes a representation under any contract of purchase and sale if so agreed, in writing, by the seller and the buyer. [17] Paragraph 11 of Addendum I to the Selling Contract reads: 11. PROPERTY DISCLOSURE (Buyer & Seller) The attached Property Disclosure Statement dated 27 April 2002 is incorporated into, and forms a part of the Contract. [18] The following items in the Disclosure Statement are in issue: The seller is responsible for the accuracy of the answers on this disclosure statement and where uncertain should reply "do not know." ...

2. STRUCTURAL ... H. Are you aware of any additions or alterations made in the last sixty days? Answer - Yes I. Are you aware of any structural problems with the premises or other buildings on the property? Answer ‑ No. ... L. Are you aware of any damage due to wind, fire or water? Answer - Yes M. Are you aware of any infestation by insects or rodents? Answer - No. ...

3. ADDITIONAL COMMENTS OR EXPLANATIONS ...

2. H&L replaced portions of weather damaged logs. S.E. corner (bottom 2 logs) extended overhang & added eaves to N.E. corner to prevent water intrusion. [19] The Disclosure Statement signed by the defendants on 27 April 2002 and acknowledged by the plaintiff on 18 May 2002 contains this admission by the defendants and advice to the plaintiff: The seller states that the information provided is true, based on the seller's current actual knowledge as of the date on page 1 (27 April 2002). ... The buyer acknowledges that the buyer has received, read and understood a signed copy of this disclosure statement from the seller or the seller's agent on the 18th day of May 2002. The prudent buyer will use this disclosure statement as the starting point for the buyer's own inquiries. The buyer is urged to carefully inspect the property and, if desired, to have the property inspected by an inspection service of the buyer's choice. [20] Paragraph 18 of the Contract of Purchase and Sale reads: 18. REPRESENTATIONS AND WARRANTIES: There are no representations, warranties, guarantees, promises or agreements other than those set out in this Contract and the representations contained in the Property Disclosure Statement if incorporated into and forming part of the Contract, all of which will survive the completion of the sale. [21] Paragraph 19 of the Contract of Purchase and Sale (the Selling

Contract) dated 18 May 2002, indicates that both parties agreed to have one real estate agent act for both of them in a "dual agency relationship". The agent appointed two salespersons as its representatives. [22] Acting on the advice in the Disclosure Statement to make his own inquiries, Mr. Lamontagne asked his agent for a reference to a building inspection service. Either the plaintiff or the agent then commissioned Homeguard Building Inspection Services (Homeguard) to do such an inspection. While waiting for its report, the plaintiff signed a contract to buy the property on 18 May 2002. It had a "subject to" condition that read: Subject to the Buyer obtaining and approving an inspection report of the Property on or before 27 May 2002. Upon first receiving reasonable notice, the Seller will permit the Buyer and the Buyer's agent to have access to the Property to conduct such inspections. This condition is for the sole benefit of the Buyer. [23] On or about 21 May 2002, the plaintiff received a copy of the inspection report from Homeguard. It contained the following relevant information at page 7: For a comprehensive examination of the foundation and structural components of this building the reader is referred to the services of a structural engineer. An examination for the presence of wood boring insects was conducted The presence or absence of a wood deteriorating organism

or other pest is not confirmed. While there was no such evidence, the status of this issue can only be verified through consultation with a certified pest control specialist. [24] Evidently, the plaintiff was content with the inspection report and withdrew the "subject to" condition. The sale completed on 31 July 2002. [25] Mrs. Lamontagne works as a Lab technician at the Royal Jubilee Hospital in Victoria. Shortly after completing the sale, she was inside the house removing some carpeting. In the northwest corner of the second level, she bent down and touched one of the logs. Her right hand went into the log up to the second knuckle. She called Mrs. Andersen and asked her if she knew there was rot in the logs. Mrs. Andersen said yes. [26] Mr. Michael Herold, P. Eng., filed a report and gave evidence about the condition of the house as of 19 June 2003. He found the exterior logs in various locations were experiencing moderate to severe rot. He identified the most severe rot in their northwest corner. At the trial, the parties agreed that his northwest location was their northeast location. He also found there was a lesser degree of rot in the parties' northwest location. [27] He mentioned that it is difficult to remove sections of wall logs and replace them with new logs due to the nature of log wall construction. In his opinion, the most cost-effective solution for repair was

to replace the log walls with conventional frame walls. [28] The photographs accompanying Mr. Herold's report show significant sideways slippage of the logs at the southeast and northeast corners. They also reveal substantial decay of the logs on the inside and outside of those corners. [29] Mr. Larry Alexander is a building contractor. He first saw the home in September 2003. He testified that the economic way to repair the damaged logs would be to remove all the logs and replace them with conventional framing. On 15 November 2003, he estimated the cost for these repairs at $158,000. [30] The other defendants in this action did not appear at the trial. Apparently, they are either out of business or are bankrupt

ISSUES [31] 1. Before the defendants signed the Selling Contract on 27 April 2002, did the defendants fraudulently misrepresent the structural condition of the house?

2. Before the defendants signed the Selling Contract on 27 April 2002, did the defendants negligently misrepresent the structural condition of the house?

3. Even if the defendants negligently misrepresented the structural condition of the house, did the plaintiff rely upon their misrepresentations when he decided to complete the sale?

4. Can the plaintiff recover damages for breach of a condition set out in the Selling Contract dated 18 May 2002?

ANALYSIS [32] The defendants signed the Disclosure Statement on 27 April 2002. Both parties later signed the Selling Contract on 18 May 2002 and on that date, the plaintiff also acknowledged receipt of the Disclosure Statement. [33] The effect of these two documents was to incorporate the pre-contract representations made by the defendants in the Disclosure Statement into the Selling Contract. That exercise may be analyzed using two contractual legal models. The first legal model is concerned with situations where one party makes pre-contractual representations designed to induce the other party into signing a contract. The second legal model is concerned with situations where pre-contractual statements made by one party become incorporated into the final contract as terms of that contract. [34] I will first deal with the law on the legal model that applies to pre-contractual representations. In this case, the facts involve representations the defendants made in the 27 April 2002 Disclosure Statement as set out above. Then I will discuss the legal model that applies to these representations as contractual terms incorporated in the 18 May 2002 Selling Contact. [35] To begin, it may be helpful to review the general legal principles that apply cases like the present one where the plaintiff seeks damages arising out of alleged pre-contractual misrepresentations. In Kingu v. Walmar

Ventures Ltd. (1986), 10 B.C.L.R. (2d) 15 (B.C.C.A.), McLachlin J.A., speaking for the court, discussed the principles at pages 22-23. Here is a brief summary. [36] At one time, the law confined a plaintiff who sued on pre-contractual representations to remedies available in contract law. If the representation was fraudulent, the plaintiff could obtain rescission and damages. Here, the plaintiff only asks for damages. Today, the law does not confine Mr. Lamontagne to remedies in contract. He may now bring an action in tort for damages based on pre-contractual negligent misrepresentation: Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465 (H.L.). [37] Black's Law Dictionary, 7th ed., page 1016, defines a misrepresentation in these words: 1. The Act of making a false or misleading statement about something, (usually) with the intent to deceive.

2. The Statement so made; an assertion that does not accord with the facts.

1. Fraudulent Misrepresentation [38] Fraudulent misrepresentation has been defined as follows: Black's, supra, at 1016: A false statement that is known to be false or is made recklessly - without knowing or caring whether it is true or false - and that is intended to induce a party to detrimentally rely on it. Chitty on Contracts, vol. 1, 29th ed. (London: Sweet & Maxwell, 2004), paragraph 6‑04: To succeed in a claim for fraudulent misrepresentation, a plaintiff must prove that: a.) The defendants made false representations knowingly or; b.) Without belief in their truth or; c.) They did so recklessly and were careless in whether the representations made were true or false. [39] However negligent they may be, the defendants cannot be liable for fraud, provided that their belief is honest; mere carelessness is not sufficient, although gross negligence may justify an inference that they were not honest: Chitty, supra, at 6-043. [40] Persons who make a statement honestly believing it to be true in the sense they understand it, such as the defendants, are not guilty of fraud because the other party, such as the plaintiff, understands it in a different sense which is false to the defendant's knowledge: Chitty, supra, paragraph 6-047. [41] In answer to Question I under the heading "Structural", the defendants answered "No" to the question of whether they were aware of any structural

problems to the premises or other buildings on the property. The plaintiff contends that the effect of the water and insect damage to the logs made the logs structurally unsound. Hence, the plaintiff says the defendants answered the question fraudulently because their answer constituted a false statement that they knew to be false or they made it recklessly - without knowing or caring whether it was true or false, and they intended to induce the plaintiff to rely on it to his detriment. [42] On 27 April 2002, there is no doubt that the defendants knew about damage to the ends of two exterior logs in the southeast corner. In the short time they lived in the house, they knew of the potential damage that water could cause to the southeast and northeast corner logs on the outside of the building. That is why they put in place the plexi-glass covers over those corners. They also knew about the presence of insects. However, the question is, on 27 April 2002, did they have actual knowledge of structural problems to the house arising from insect infestation and exterior water damage? [43] The Shorter Oxford English Dictionary, at page 2156, defines the word "structural" as meaning: "pertaining to the structure of a building as distinct from its decoration or fittings". Mr. Andersen testified that he did not believe the water damage to the log ends affected the structure of the house.

He only realized after the sale that wood rot comes from water damage. That may seem strange to people living on the west coast, but it may not be unusual for people who spent most of their lives in Alberta. [44] Before the plaintiff and his wife occupied the house, the defendants knew about water damage sustained by some of the exterior logs at the northeast and southeast corners. The defendants knew that the two outside log ends they repaired in the southeast corner had rot in them. They mentioned the log defects in their "Additional Comments or Explanations". [45] The structural problems became visible after the defendants completed the sale of the house to the plaintiff. A few days following the closing, Ms. Lamontagne put her fingers into one of the lower logs in the interior northwest corner indicating excessive rot at one spot in that log. During the time the defendants lived in the house, they had a two hundred pound desk with a computer on it placed in the northwest corner. It blocked out the interior view of the logs in the corner up to the height of the desk. [46] The defendants say they did not notice any sign of rot on the inside of the northeast corner while they lived in the house because the kitchen cupboards blocked out a view of those logs. There is no evidence that the defendants knew about the condition of the one spot in the decayed log Ms. Lamontagne

discovered, or that it represented a "structural" problem. One witness testified that wood rot takes a long time to develop and visual inspection will not disclose the problem. [47] Even the plaintiff's inspector did not find structural damage to the house when he inspected it on 21 May 2002. At page 5 the report read: It is impossible to detect the degree of damp deterioration or if structural deterioration has occurred in a framing assembly without removing the interior or exterior finishes. ... [48] It was some months after the sale, when serious structural problems become visible. Recent pictures indicate a gross infestation of beetles in the logs and severe structural damage to the northeast and southeast corners of the residence. [49] The Disclosure Statement required the defendants to state "that the information provided is true, based on the seller's current actual knowledge as of (27 April 2002)". From the evidence, I cannot conclude the defendants knowingly made false or misleading statements about the structural condition of the house with the intent to deceive the plaintiff on 27 April 2002. They truly believed that the house was structurally sound. They may or may not have held that belief negligently, but they held it honestly. That is enough to excuse them from the allegation of fraudulent misrepresentation.

2. Negligent Misrepresentation [50] The law defines negligent misrepresentation as follows: Black's, supra, at 1016: A careless or inadvertent false statement in circumstances where care should have been taken. Chitty, supra, at paragraph 6-066: A negligent misrepresentation is one which is made carelessly, or without reasonable grounds for believing it to be true. [51] I now turn to the test for negligent misrepresentation. Kingu v. Walmar Ventures Ltd., supra, at page 23, helpfully sets out the requirements that plaintiffs must meet before they can succeed in a claim for the tort of negligent misrepresentation: (1) A false statement negligently made; (2) A duty of care on the person making the statement to the recipient. A duty of care does not arise unless (a) the person making the statement is possessed of special skill or knowledge on the matter in question, and (b) the circumstances establish that a reasonable person making that statement would know that the recipient is relying on his skill or judgment; (3) Reasonable reliance on the statement by its recipient; (4) Loss suffered as a consequence of the reliance. [52] Did the defendants negligently misrepresent the structural problems? To prove negligent misrepresentation, the plaintiff must show that the defendants made the comments in the Disclosure Statement carelessly or without reasonable grounds for believing them

to be true. [53] In other words, did the defendants have reasonable grounds to believe that the insects and the water damage to the two log ends in the southeast and northeast corners were affecting the structure of the house? It seems to me they did not. The Shorter Oxford Dictionary at page 1066, defines the word "infest" as: To trouble (a country or place) with hostile attacks; to visit persistently or in large numbers (or even singly) with evil intent; to swarm in or about, so as to be troublesome. The word "infestation" means: The action of infesting: now used esp. of insects which attack plants, grain, etc. usually in large swarms. Also an attack or assault of this kind. [54] Apparently, the plaintiff and his wife did not notice any insect infestation or structural damage to the house on their examination before they made their offer to purchase. Presumably, both sales persons, who were "dual agents" for the plaintiff and the defendants, would have seen it and disclosed it to the plaintiff if these problems were visible. They did not testify. [55] There was no evidence showing that on 27 April 2002, the defendants constantly experienced insects in large swarms or in large persistent numbers. Yet, they did see some beetles, insects and their boring holes from time to time. In my view that does not amount to an infestation. With no current actual knowledge of structural

damage to the residence by reason of water soaked logs and/or beetle infestation, they did not commit the tort of negligent misrepresentation in their answer to Question I. [56] With respect to Question M - infestation by insects or rodents, the defendants answered "No". In other words, they said they had no current actual knowledge of insect infestation. Support for this comes from the plaintiff's expert report of 21 May 2002. At page 7, it states: ... The presence or absence of a wood deteriorating organism or other pest is not confirmed. While there was no such evidence, the status of this issue can only be verified through consultation with a certified pest control specialist. [57] For the reasons set out above concerning Question I - the structural condition of the house, I cannot find the defendants' answer to Question M - insect infestation amounted to fraudulent or negligent misrepresentation. Innocent Misrepresentation [58] The plaintiff does not seek rescission, so the law involving innocent misrepresentation does not apply. For completeness, I mention the relevant authorities: Black's, supra, at 1018 defines an innocent misrepresentation as: A false statement not known to be false; a misrepresentation that, though false, was not made fraudulently. Kingu v. Walmar Ventures Ltd., supra, at page 23 states: If (the representation) was not fraudulent but "innocent" the plaintiff could obtain rescission if the conditions discussed earlier were established but could not obtain damages. The only way for the plaintiff to obtain damages for a non-fraudulent or innocent representation was on the basis of a collateral warranty, or a separate contract collateral to the main contract. ...

3. Reliance [59] If I am wrong on the conclusion with respect to negligent misrepresentation, then reliance by the plaintiff on the defendants' representations is a pivotal question. In Kingu v. Walmar Ventures Ltd., supra, at 24 states: before a duty of care arises with respect to a gratuitous statement, it must be established that the maker is possessed of special skill or knowledge and that a reasonable person in his position would have realized that the recipient of the statement was relying on it. [60] Here, the plaintiff knew the external ends of two logs in the southeast corner had rotted away. He did not know this would cause structural damage to the house. The plaintiff failed to prove that the defendants had special skills or knowledge concerning the possible structural damage to the premises arising from the rain harming the external log ends and/or the effects of insect infestation. [61] The evidence indicates that the plaintiff did not rely on the defendants' statements because he hired his own inspector to examine the property. His inspector's report recommended that he employ a structural engineer for a "comprehensive examination of the foundation and the structural components". The report drew the plaintiff's attention to the wood boring insects and again recommended he consult a certified pest control officer. [62] The plaintiff decided to do neither. He then withdrew the "subject to" condition on or before 27 May 2002 and completed the sale on 31 July 2002. When he withdrew the "subject to" clause, he took a chance by relying on his own inspector's inconclusive report and not the defendants' Disclosure Statement. Hence, the claim for negligent misrepresentation must also fail on this account.

4. Contractual Representations [63] As mentioned before, the Disclosure Statement and the Selling Contract converted the pre-contract provisions and representations into contractual terms attached to the Selling Contract. Hence, the Selling Contract provisions include all the defendants' Disclosure Statement's representations. In other words, the Disclosure Statement's pre-contract representations as of 27 April 2002 became contractual representations when the parties completed the sale on 31 July 2002. [64] In order to determine the remedy available to a successful plaintiff in a claim for pre-contractual misrepresentations, the law invented three categories of fault. First is fraudulent misrepresentation. It can result in the remedy of damages or rescission. Second is negligent misrepresentation. It can only result in the tortuous remedy of damages. Third is innocent misrepresentation. It can only result in the remedy of rescission: Kingu v. Walmar Ventures Ltd., supra, at 22‑23. [65] When alleged pre-contract terms and misrepresentations merge into the final contract, it is not clear what analytical test the law applies and what remedy is available to the aggrieved party. Generally speaking, the law classifies contractual terms as either conditions or warranties. A condition is a term that is so important, the failure by the party who was bound to perform it entitles the

other party to treat the contract at an end and pursue available remedies. A warranty is a term that does not have such drastic effect. It entitles the injured party to claim damages for the amount lost by the breach although leaving the contract in force: Fridman, The Law of Contract in Canada, 4th ed. (Scarborough: Carswell, 1999) at pages 516-517. [66] In this case, I will assume the plaintiff had the post-contract right to claim damages from the defendants for breach of a condition arising out of the alleged misrepresentations described in the Disclosure Statement. Before the parties signed the Selling Contract on 18 May 2002, the Disclosure Statement only required the defendants to state, "that the information provided is true, based on the seller's actual knowledge as of (27 April 2002)." [67] Earlier I found the plaintiff failed to prove on a balance of probabilities that the information the defendants provided in the Disclosure Statement was untrue. It seems to follow that the plaintiff does not have a claim in contract for damages because the defendants are not in breach of any contractual conditions or warranties.

JUDGMENT [68] The action must be dismissed. Costs follow the event. "J.C. Bouck, J." The Honourable Mr. Justice J.C. Bouck