Chapter 2 Theoretical Background 23
3.4 Discussion
Ratio: Parties to K may limit a remedy by express terms in K to rescission for breach of warranty, but courts may choose not enforce such a Kual prov where innocent party has established claim for tort of deceit
Swavze v Robertson (2001)
duty to disclose still triggered IF it only renders part of sale property unfit for habitation Facts PU (doctor) of home that underwent many renovations. PU receives inspection report indicating a potential
water leakage prob. PU asks whether there are any water leakage problems. V discloses house is
structurally sound (misrepresentation; failure to disclose). Transact closes. 6 months later, water leakage affects one room. P called company to fix problem, and discovers company had been to house before to fix such a problem. APS contained an EC.
Ratio: V gave false representation that house is structurally sound despite basement’s water leakage problem. This was made with an intention to mislead P, and thus EC will not shield liability for misrepresentation here.
Held: V liable for fraudulent misrepresentation. PU entitled to damages
Kaufmann v. Gibson, [2007] ONSC 0 PU can rely on SPIS if in APS to rescind if it contains misreps
Facts Vs are suing PUs , retired elderly married couple. The sale ppty had water damage which V had restored. In SPIS, Vs answered no to clause" are you aware of any moisture or water problems / any roof leaked or unrepaired damages. SPIS was made part of APS. PU withdrew to misrep of the disclosure statements. V sold house at 380K and original sale ppty @ time house was put on market was 500K. V sues for
expectancy damages
Anal One of the Vs testified that he should have made disclosure about water leakage issue but agent advised him against doing so because the wording of the clause was in the present tense, only requiring disclosure of probs as of July 8
Ratio: SPIS, if within 4 corners of APS, can be relied upon to withdraw from transact if it contains misrepresentations in relation to matters that PU raised.
Held: V is NOT entitled to compensatory damages for BOK. He could not hide behind
Agent’s advice not to disclose. PU was entitled to rely on inaccuracy of statements as reason for rescinding transaction.
Krawchuk v. Scherbak (2011) ONCA 352-PUs rely on SPIS w/o inspection, V held liable for misrep
Facts PU closed transact and waived cond of offer cond on inspection. V did not disclose defects relating to foundation and plumbing. Defects were misrepresented in SPIS, incorporated into APS. P sues V for fraud.
Analysis V was not found liable for failure to disclose latent defects resulting in BOK. (1)It contained no
warranties/guarantees as to fitness of the home, (2) Defects were too latent to impose liability on V to know about them/disclose, would not have been revealed by a reasonable careful inspection, (3) V did not conceal w/ purpose of deceiving PUs - children played/ storage space near plumbing issue, (4) No Kual implied duty on V to disclose defect - did not experience probs w foundation and raised children there/
plumbing did not render ppty uninhabitable, dang, potentially dang
No fraud misrep: (1) false statement - SPIS part of listing agreement, V made false statements in sense they were incomplete re structural integrity of home & plumbing issues, (2) V knew these statements were false, reckless to their truth; (3) did not make misrep to induce PU into K - disclosed other defects, was meant to inform not mislead
Neg misrep Yes - (1) DOC from buyer to seller in circumstances, (2) false statement, (3) negligence on part of D as to truth of statements - reasonably prudent person would have made full frank and accurate
disclosure insofar as possible, (4) P relied on accuracy of statements contained in SPIS , made enquiries and content with answers ; would not have made P had she known about plumbing & structural defects After closing, V was liable for negligent misrep, not fraudulent misrep. PU entitled to damages
Reason: Vs were reckless as to truth of statements relating to foundation and plumbing in SPIS attached to APS. PUS did not do an inspection but relied on SPIS, and could successful do so.
Cotton v. Monahan (2011), ONCA- PU not liable for cost of repairs, SPIS was truthful Fact P gave uncond offer to purchase sale ppty despite agent's advice inserting cond to allow for a home
inspection. Before submitting offer, PU reviewed SPIS disclosing no building permit / inspection obtained re:
extensive renovations to home, done personally, house over 50 yrs old. After move, PU noticed
plumbing/electrical issues. Inspection reveal 16 infractions.. P sues V for damages for repairing defects , aggravated damages and damages for mental distress.
Reasoning: CE applies. PUS should have bargained for an express warranty to guarantee equality of repairs and did not do so. V was unaware of building codes/
standards ; Husband V was a prudent and careful person who would not have knowingly exposed his family to risk; PU were aware V had done extensive renovations w/o permit or inspection
Held: PU recovers for value of diminution of property resulting from defect. No mental injury damages (not within reasonable contemplation of parties @ time K was formed)
Fraser Jewellers v. Dominion Electric Protection (1997)- EC enforced against jewellery store
Facts H and W had jewellery store. They could not afford insurance so purchased an alarm system. In purchase agreement, it read that consumers would receive a response if alarm was triggered. Comp was robbed, P triggered alarm & ADT did not response. Agreement contained EC/limited liability clause - if neg, only liable to pay 1 yr prem.
Ratio: A sophisticated party is not entitled to they did not assent to an EC if lang of prov is clear /unambiguous unless pressured/rushed into signing K
Held: EC clause in agreement w Dominion Electric enforced. PU cannot recover damages in excess of limited liability cause
Analysis: In K, EC was highlighted in bold letters on the K, it's lang was clear and
unambigious, nothing was done to mislead the reader, P was not rushed/pressured into signing K. ; fact that P is a small business is not enough to warrant court intervention
Tercon Contractors Ltd. v. BC (Minister of Transportation &Highways (2010), (S.C.C.) Facts Tercon bid on a contract tendered by the Prov of BC awarded contract to another bidder. Tercon sued
Province for breach of terms of the bidding contract.. Province attempted to rely on exculpatory clause Ratio Cts have no discretion to invalidate a valid Kual exclusion unless, (i) unconscionable based on the circumstances of the case, OR ii) establishing, overriding paramount public policy consideration sufficient to trump FOK and defeat otherwise K rights of parties.
Rule of interpretation: If ambiguity of EC cannot be resolved using construction rule, contra preferentem applies, and it is interpreted against party who benefits from it.
Analysi Tercon points to the public interest in the transparency and integrity of the government tendering process (in this case for a highway construction contract)
SC Obligations
Rule 2 of the Rules of Professional Conduct - Relationship to Clients (Relates to mortgages)
2.01 -
Competence
“competent lawyer” means a lawyer who has and applies relevant skills, attributes, and values in
a manner appropriate to each matter undertaken on behalf of a client 2.02 - Quality of
Service
The Act provides that a lawyer fails to meet standards of prof competence if there are deficiencies in (1)L'ss knowledge, skill or judgement, (2)L's attention to KL's interest, (c) records, systems or procedures L's business, or (d) other aspects of L's prof business, AND deficiencies given rise to a reasonable apprehension that quality of service to KLs may be adversely affected.
2.03
Confidentiality
L shall at all times hold in strict confidence all info re busines and affairs of client acquired in course of prof relaitonship and shall not divulege such info unless impliedly or expressly auth by KL or required by law to do so.
2.04 - Avoid of Conflicts of Interest
(2) L shall not advise or rep more than side of dispute, (3) Lnshall not act or continue to act in a matter when there is or is likely to be a conflicting interest, unless after disclosure adequate to make an informed decision, the client or prospective KL consents. (12) L may act for /represent lender & borrower if (a)L practises in remote location/ no other Ls could
conveniently be retained, (b) lender is selling real ppty to borrowr and mortgage represents part of purchase price (c) lender is a bank/trust comp/insurance comp/ CR union or finance comp that lends money in course of its business, (d) consideration for mortgage does not exceed $50,000, (e)lender and borrower not at arms length as defined in Income Tax Act 2.05 Conflicts
from Transfer bt/w Law Firms
L or firm is disqualified from representing a client where transferring lawyer actually
possesses relevant info re: a former client that is confidential, and if disclosed to a member of the new la frim shall prejudice former client, exceptions in sub 4 like client consents or in the interests of justice
2.06 Doing Business w a Client
(2) where a client intends to enter into trans with L or corp or other entity in which L has interest - (a) full disclosure, b) ILA, c) obtain client's written consent, (4) (a)L shall not worry money from client unless client is a lend/financial institution/trust or insurance, or similar lending comp, (b)KL related person as defined by Income Tax Act and L discharges onus of showing client's interest were fully protected. (6) - Ls in Loan/Mortgage transactions - (a)L shall not hold a syndicated morrg/loan in trust for investlor unless each client receives (i) complete reporting letter on transact, ii) trust delcaration signed by legal tite holder of mortgage/security intrstument, iii) copy of duplicate registered mortg/security instrument, (b) arrange recommend client's participation as investor in syndicated mortgage unless ILA, (c) sell mortgages or loans to or arrange them for clients except in accordance with skill, competence, integrity usually expected of a L in dealing with KL.
2.07, L cares for ppty as would prudent careful owner
Preservation of KL ppty - L shall care for a client's ppty as would a prudent and careful owner, must observe all rules
2.08 Fees, Interest according to SC Act
Fees & Disbursements - cannot charge interest except as permitted by Solicitors Act
2.09 Withdrawal from representation
- except for justifiable cause and upon notice to KL appropriate in the circumstances
RECTIFICATION
Strategeas v. Lloyd Parish Holdings Limited (1991)
duty to bring mistake to attention of L acting for other side (Glasner)
Facts PU buys resto from V, who was also lessor. APS also provided for PU to lease from V the premises of resto.5 yr lease was negotiated w/ 3 five year options - tenant could exercise each option so that it would be entitled to a a 20 year lease min ; LE/V's lawyer prepared lease on standard forms, contained sale &
demolition clause giving landlord right to terminate lease; V’s lawyer crossed this out but a later version of the lease still had the clause; PUs lawyer saw the lease b4close, but did not notice sale and demolition clause; deal closed; later, LE wanted to sell the premises, and tenant was given notice of termination, tenant goes to lawyer who notices clause
RECTIFICATION principle for cases of mistake: “essence of rectification is to bring the document which was intended to be in pursuance of a prior agreement into harmony with the prior agreement”, courts will apply if i) King parties having reduced into writing the negotiated agreement but , ii) a mistake was made in the wording of the final written K altering the effect of the agreement
Analysi
s V's lawyer should have known tenant’ s L made a mistake & had a duty to point out the clause as it was a significant change - was negligent in not reviewing lease agreeent
Look to what was the real deal b/tw parties ? - In this case crts altered doc to give effect to the real deal i.e. without sale and demolition clause
Ratio Even if L is negligent in not noticing a significant change to the original agreement, the party/lawyer making the change has an obligation to bring it to the attention of the other, or court may apply rectification
Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd. (2002), S.C.C. 22 (Principles of rectification)
Facts sale of golf course to limited co (PU). V included future option to buy back a piece of land 480 yards x 110 yards to build two rows of houses; His L did not notice that final agreement read 110 feet vs. 110 yards; PU saw the mistake, told lawyer not to say anything and knew the V had not seen the mistake prior to close; V tried to exercise option to buy this property to start development and noticed mistake
Purpose of rectification: to prevent a written document from being used as an engine for fraud
Rectification is an available remedy FOR (i) unilateral mistake (or mutual mistake) if PL shows, with convincing proof (slightly higher than BOP):
a) Oral agreement not written down properly,
b) D (ought) to know of the error, AND taking advantage of such error would amount to
"fraud or equivalent “
c) P must show "precise form" in which written agreement can be made to express prior intention
d) crt's task is corrective (to restore bargain), not speculative;
e) Punitive damages only awarded if (1) compensatory damages are insufficient, and (2) denunciation is necessary
Held: D PU liable for damages. (He instructed his L not to raise mistake) Court ordered rectification and compensatory, not punitive damages. Corporate veil was pierced to hold the principals of the P personally liable..
Duty when retained after APS is signed
Wong v. 407327 Ontario Ltd. (1999) (L not liable for closing transact with shell co. V) Fact
s L was retained during a transact where APS from P that was already signed. There was a warranty in APS whereby V warranted business made a certain amount of money. L turned the case over to law clerk, after close, the warranty was not fulfilled – business made much less money. But Vs Company was ltd and had no
assets. P sued lawyer on the basis that he should have acquired some security in the event that there would be a breach of warranty
Rul
e A knowledgeable lawyer would explain to client the risk of an unsecured warranty from a numbered company.
A lawyer’s duty to a client will vary depending on 1) client’s instructions and 2) limits on the lawyer’s retainer – 3)the sophistication of the client also has role in determining what advice lawyer should be giving to client (business, legal – where to draw the line).
HERE: L was not negligent in not attempting to renegotiate security; his retainer was to close the deal
Ratio Retainer of L before APS is signed triggers obligation to negotiate security for warranty;
No such duty arises if retained after APS is signed. The instruction is to conclude transaction
Enns v. Panju (1978) (B.C.S.C.) (L liable for not explaining deficiencies of signed APS) Facts A young lawyer was retained by PU after APS was signed APS - very deficient in financial protections
but b/c it was already signed, L felt he couldn’t add reps/warranties. L did not advise PU of the risks she was exposing herself to by completing transaction. He closed the transaction. The business turned out to be a disaster. Enns sues her lawyer. Lawyer argues: had to close, as APS was already signed.
Analysis L should have advised client of the risks associated with closing the transaction without the appropriate clause(s) in the agreement. ; KL left exposed, to great risk, with none of the usual clauses of devices to protect her with regard to financial result, if she closed transact
If L had fought or attacked validity of APS, then it would probably have been unenforceable. Lshould’ve advised her risks of not closing vs. closing (possible win)
Burden on the lawyer was beyond his expertise at the time but…
One who holds himself out as competent practitioner and undertakes the responsibilities of representing the interests of clients in respect of transactions of vital importance, cannot be excused because he/she fails to command or exercise the standards of professional skill and conduct on which those clients are entitled to rely.
Ratio: (1) SC has duty to exercise reasonable skill and care to advise client, that includes a duty to warn clients of risks involved in a course of action contemplated by the client; (2)IF SC fails to warn client, AND to warn of risk AND p probable that client would not take risk had he been warned, SC will be liable
Held: D L liable for negligence. Client’s agreement was missing usual clauses or devices to protect client.
Graham v. Diamond (2010) – no duty to negotiate better deal for client absent serious risk Facts Motion brought for summary judgment by D lawyer dismissing the action against him. DSC had acted
for the PLs in connection w closing of a residential ppty. SC received APS after all conditions had been removed incl financing, home inspection or environmental inspection. After PUs moved in, discover ppty was contaminated and are suing L claiming he failed to inform them about need for env/house inspection.
Analysis no evidence that KL ever raised env concerns to L; advising PU not to close would have subjected them to damages/SP; no law to suggest that PUs were entitled to env/home inspection unless in APS PUS asking the court to find that D should have closed the barn door some days after the horse had bolted the stable. (did not instruct him to get better deal, even if so instructed - deal was already signed)
Ratio When a L is acting PU regarding a signed APS, SC does not have duty to negotiate a better deal for clients unless APS discloses serious deficiencies/risks
Held: Action against L dismissed on SJ. L found to have no duty to inform client about need for env inspection
835039 Ontario Limited v. Fram Development Corp. (1994) duty to take care proper care re time is of the essence provs
Facts Developer PU is buying parcel of land from a builder V for 6.8 million on cond th that V service land prior to closing date, July 27 1990. V & P a right to extend cond for 6 months (on the vendor’s side--in case the market declines). The market does decline, and V instructs L to extend cond. L dictated notice and left it on secretary's desk. Notice is not received in time by PU, so cond never extended, so PU exercised option to rescind from transact. V sues his L
Ratio: V has a duty to ensure proper fulfillment of duties pursuant to time sensitive K provisions
Held: L liable for negligence. V awarded nominal damages b/c chances of successfully fulfilling condition in question would have been minimal He took no steps to ensure receipt of fax to ensure other side received notice of extension of provision, and could have done so without impeding himself.
Gunraj v. Cyr (2012), Ont. – duty to discuss alternatives to signed APS arises sometimes Facts Ps brought a ppty they intended to buy and resell. They waived APS conditions of inspection. Before
closing however, PUs became aware that there could be erosion problems that could affect ppty development, and retained a L after signing. PUs close on advise of their counsel. They could not develop ppty due to erosion and sold at a $4000 loss. PUs sue lawyers for BFD/BOK. Ls bring a motion for summary judgement to dismiss action. . A
Analysis No evidence (like reporting or opinion letter or memos) that L had discussed all of client's options PU testified that L had directed them to close transact - were any reps made outside of agreement? Risks of closing vs. not closing?.
Ratio : Lawyer may have a duty under certain circumstances to discuss alternative options even after a signed APS, depends on the nature of the sale property. “Law is clear. L is not a client’s insurer. Just something goes wrong doesn't mean it's our fault."
Held: Action for negligence dismissed on SJ. L not liable for negligence. APS contained nothing about erosion problems to trigger L’s duty to discuss alternatives so PU instructed to close. PU had waived inspection cond
669283 Ontario Ltd. v. Reilly (1996)– L liable for negligence on limited retainer
669283 Ontario Ltd. v. Reilly (1996)– L liable for negligence on limited retainer