CITATION: Molerovic v. Pye, 2017 ONSC 4251
DIVISIONAL COURT FILE NO.: 487/16
DATE: 20170710
SUPERIOR COURT OF JUSTICE – ONTARIO
DIVISIONAL COURT
RE: MILOS MOLEROVIC, Appellant
AND:
DAVID PYE, ann pye – P.O.A. DAVID PYE, ORYSIA SOZANSKI and RE/MAX PROFESSIONALS INC., Respondents
BEFORE: H.J. Wilton-Siegel J.
COUNSEL: David Seed, for the Appellant
Robert Dowhan, for the Respondents David Pye and Ann Pye
HEARD at Toronto: May 16, 2017
ENDORSEMENT
[1] The appellant, Milos Molerovic (the “appellant”), appeals a judgment of Deputy Judge C.M. Buie of the Toronto Small Claims Court dated July 18, 2016 (the “Judgment”). Pursuant to the Judgment, the Deputy Judge dismissed the appellant’s claim for the return of a deposit in the amount of $10,000 held by the respondent Re/Max Professionals Inc. (“Remax”) and awarded costs in favour of the respondents.
Factual Background
[2] The respondents David Pye (“Pye”) and Ann Pye (collectively, the “Pyes”) owned a home at 33 Leland Avenue, Etobicoke, Ontario (the “Property”). They listed the Property for sale, engaging the respondent Orysia Sozanski (“Sozanski”) of Remax as their real estate agent.
[3] The appellant and his wife, Milica Molerovic, (collectively, the “Molerovics”) visited an open house at 33 Leland Avenue on July 23, 2014. The appellant then submitted an offer to purchase that was accepted by the Pyes that same day (as accepted, the “Agreement”). The offer of the appellant was accompanied by a deposit of $40,000, of which Remax currently retains $10,000.
[4] The Agreement provided for two pre-closing home visits by the Molerovics. They visited the Property on July 27, 2014. The appellant testified that during the visit, he became concerned that the Property had experienced water infiltration into the basement and resulting water damage during heavy rainfall that had occurred in the area in July 2013.
[5] On the following day, July 28, 2014, the appellant wrote the following letter to the Pyes purporting to cancel the Agreement:
David Pye and Ann Pye – P.O.A. David Pye
Re: Agreement of Purchase and Sale dated July 23, 2014
Please note that I wish to cancel this contract immediately. Upon visiting the premises last week (Buyer’s 1st Visit) and speaking with the Seller, we have decided to cancel this agreement due to the fact that we learned of previous water damage to the basement.
We are frightened that there may be more damage that we cannot see and do not feel comfortable in continuing with this purchase.
I have enclosed a mutual release, please have it signed and refund my deposit.
I am sorry we cannot do business[.]
As noted in the letter, the appellant also enclosed a form of mutual release between the parties signed by the appellant (the “Release”).
[6] On August 28, 2014, the Pyes’ solicitor wrote a letter to the solicitor for the appellant advising the appellant of the Pyes’ damages from the appellant’s repudiation of the Agreement. That letter reads, in relevant part, as follows:
Further to our telephone conversation of August 7, 2014 I have not received your promised correspondence setting out your client’s position on termination of the [Pyes’ sale to Molerovic of 33 Leland Avenue].
Mr. Molcrovic [sic] signed an unconditional contract for the purchase of this property. He could have had the property inspected and request representations and warranties prior to signing the contract, however he chose not to. Your self-serving oral statement that disclosure by Mr. and Mrs. Pye of a minor water infiltration through a basement window is a defect that must be disclosed prior to signing the contract is rejected.
Mr. Molcrovic’s letter to Mr. and Mrs. Pye of July 28, 2014 advising that “I wish to cancel this contract immediately” and delivering a Release of the contract is an anticipatory breach of the Agreement of Purchase and Sale. Mr. and Mrs. Pye have accepted Mr. Molcrovic’s anticipatory breach of the Agreement of Purchase and Sale and have relisted the property.
The property has been sold to an alternate buyer for a purchase price of $955,000.00, resulting in an $8,000.00 loss to Mr. and Mrs. Pye over what would have been received from Mr. Molcrovic. Additionally, Mr. and Mrs. Pye have incurred $2,000.00 in legal fees and disbursements relating to the Molcrovic transaction.
In an attempt to resolve this matter without litigation, Mr. and Mrs. Pye are prepared to deliver a Release of the Molcrovic transaction on receipt of a direction to the broker to pay $30,000.00 of the deposit to Mr. Molcrovic and $10,000.00 of the deposit to Mr. and Mrs. Pye.
[7] As mentioned in the foregoing letter, the Pyes sold the Property to Sorin Jalba (“Jalba”), a real estate agent, in a transaction that closed in the early fall of 2014.
[8] The appellant commenced an action in the Superior Court for the recovery of the deposit. The parties subsequently agreed that, on the return of $30,000 of the deposit to the Molerovics, the action would be transferred to the Small Claims Court. Accordingly, a new statement of claim was issued on April 27, 2015.
The Judgment
[9] In the Judgment, the Deputy Judge began by stating the factual and procedural background to the action. She then summarized the pleadings of the parties and summarized the testimony of each of the witnesses at the trial, being the appellant, Milan Bauk, the appellant’s real estate agent in the transaction (“Bauk”), Sozanski and Pye.
[10] The Deputy Judge then set out the law pertaining to latent and patent defects. The Deputy Judge quoted from the decision in Ricchio v. Rota, 2011 ONSC 6192, 12 R.P.R. (5th) 310, in which the trial judge reviewed the law on latent and patent defects and in the course of that review quoted with approval the following statement of LaForme J. (as he then was) in Swayze v. Robertson (2001), 39 R.P.R. (3d) 114, [2001] O.J. No. 968 (Sup. Ct.), at para. 27:
A “latent defect” as it relates to the case at bar is in effect some fault in the structure that is not readily apparent to an ordinary purchaser during a routine inspection. And, ordinarily, if a vendor actively conceals a latent defect, the rule of caveat emptor no longer applies and the purchaser is entitled, at their option, to ask for a rescission of the contract or compensation for damages.
[11] The Deputy Judge then addressed the disposition of the action. The Deputy Judge appears to have proceeded on the basis that the issue before her was whether there was a latent defect in the form of a leaky basement that was known to the Pyes. The Deputy Judge correctly noted that the onus of proof lay with the appellant. She concluded that the appellant had failed to prove his case.
[12] In the Judgment, however, the Deputy Judge also held that: (1) there was no evidence that Pye misrepresented the Property; (2) there was no evidence that Sozanski was aware of information that differed from what was provided to the Molerovics and Bauk; and (3) the evidence of Pye and the home inspection report that the Pyes had obtained prior to the listing of the Property supported the conclusion that there was no water damage to the basement.
[13] In addition, the Deputy Judge noted that Jalba’s offering price of $8,000 less than the Molerovics’ offer was not due to any water problem. Further, she concluded that, in the absence of Jalba’s testimony at trial, she could not find, on a balance of probabilities, that photographs of the basement submitted in evidence, which were taken in November 2015, reflected the state of the basement in July 2013 or the reason for removal of the drywall shown in the photographs.
[14] Lastly, the Deputy Judge accepted that, given their financial situation and Mrs. Pye’s health, the Pyes had discharged the onus on them to mitigate their loss upon the appellant’s repudiation of the Agreement.
[15] Accordingly, the Deputy Judge found the Pyes’ damages to be $8,000 plus legal fees of $2,000 and ordered the remaining amount of the deposit to be paid to the Pyes. The Deputy Judge dismissed the claims against Sozanski and Remax. The Deputy Judge also awarded costs in favour of Pye, Remax and Sozanski, which aspect of the Judgment is not being appealed.
Applicable Standard on the Appeal
[16] The appeal is brought pursuant to s. 31 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The applicable standard of review is set out in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 at paras. 7-10 and 36-37. On a pure question of law, the standard of review is correctness. The standard of review for findings of fact is that such findings are not to be reversed unless it can be established that the trial judge made a “palpable and overriding error”. Questions of mixed fact and law are subject to the palpable and overriding error standard, unless it is clear that the trial judge made an error of law or principle that can be identified independently in the judge’s application of the law to the facts of the case.
Grounds of Appeal
[17] The appellant raises four grounds of appeal, which I will address in turn. On this appeal, the Court does not have a copy of the transcript of the trial with the result that the Court must rely on the description of the evidence at trial set out in the Judgment.
[18] First, the appellant says that the Deputy Judge failed to address the question of whether the Pyes had misrepresented the history of the Property, specifically whether they had failed to disclose “any history of prior water infiltration into the basement … that would have been material to a diligent buyer”. The appellant submits that he was entitled to rescind the Agreement on the basis that there was a failure to disclose a history of prior water infiltration into the basement that was material to a diligent buyer regardless of whether the Pyes had knowledge of any latent defect that had caused the water infiltration and, therefore, regardless of whether he was able to establish the presence of a latent defect entitling him to terminate the Agreement on that ground.
[19] The appellant’s position is that concealment, whether or not it involves dishonesty, is an exception to the general principle of caveat emptor and that an alteration to improve appearances that prevents a purchaser from seeing the true state of a property can constitute concealment. The appellant says that, in this case, the Pyes’ attempt to cover over water damage to the basement constitutes concealment and thereby a misrepresentation that, having been discovered before closing, permits rescission. The appellant’s position is that, even if the Deputy Judge was correct in finding that Pye had no knowledge of the latent defect, the evidence establishes an innocent or negligent misrepresentation in the form of a non-disclosure made before execution of the Agreement that entitles the appellant to rescind the contract. The appellant says that, in limiting her reasons to the appellant’s failure to establish a latent defect, the Deputy Judge erred as a matter of law in failing to address his right to rescission based on the aforesaid misrepresentation.
[20] I do not agree with the appellant’s position regarding the entitlement of a purchaser to rescind an agreement for the purchase of property on the basis of non-disclosure of an unknown latent defect. However, it is not necessary to definitively resolve this issue in this case for the following reasons.
[21] To succeed in his claim of misrepresentation, the appellant must first demonstrate that the Pyes made a representation that was false and upon which the appellant relied in entering into the Agreement. The appellant asserts a misrepresentation by omission. The appellant believes there was significant flooding of the basement in or about July 8, 2013 that caused material damage to the basement drywall at that time requiring replacement of the basement drywall – that is, the appellant believes that there was a history of water infiltration into the basement causing material damage that required repairs. The Pyes deny that this was the case and, consistent with this position, made no mention of any such history of water infiltration at the time of entering into the Agreement. The appellant has the onus of proving that there was such a history of water infiltration in order to establish that the Pyes misrepresented this history. In the absence of such a finding, there is no representation by omission that was false – i.e., there was no misrepresentation – and therefore no valid claim for misrepresentation, innocent or otherwise.
[22] The Deputy Judge addressed this issue directly in paragraphs 58 and 60 of the Judgment. She found that the appellant had not established that there was any water damage either in 2013 or at the time of the Agreement. This is a purely factual determination. It is irrelevant that the Deputy Judge made this finding in connection with her consideration of the application of the law of latent defects. The finding of the Deputy Judge is an absolute bar to the appellant’s claim of misrepresentation unless such finding constituted a palpable and overriding error. This is addressed in respect of the second ground of appeal.
[23] Second, as mentioned, the evidence does not establish, and the Deputy Judge did not find, that the appellant asked the Pyes about any water damage prior to entering into the Agreement. As is suggested by the letter of the Pyes’ counsel set out above, given the existence of the “entire agreement” clause in paragraph 26 of the Agreement, even if there had been undisclosed water damage, it was necessary to establish a breach of a written representation that had been expressly agreed to by the parties,. However, the appellant did not require an express representation in the Agreement. Moreover, there was no disclosure statement prepared with respect to the Property and therefore no written document that addressed any history of water damage that could have constituted a written representation.
[24] Accordingly, the appellant’s first ground of appeal fails.
[25] The appellant’s second ground of appeal is that the Deputy Judge misapprehended the evidence regarding the existence of water infiltration that caused damage to the basement. The appellant asserts that there was evidence of water infiltration in 2013 and that the circumstances giving rise to such infiltration and associated water damage continued up to the time of the Agreement. In particular, the appellant asserts that there was a flood in the basement of the Property as a result of the heavy rains on July 8, 2013. He alleges that the repairs to the drywall in the basement were undertaken as a result of the alleged flooding.
[26] As evidence for his position, the appellant relies on: (1) Pye’s testimony that he repaired the drywall in the basement in 2013, although he does not accept Pye’s explanation for doing so; (2) Pye’s admission that some amount of water seeped into the basement in July 2013, although he does not accept that the water seepage occurred through the window wells rather than through the basement walls; (3) the evidence of a small amount of water present in the basement on July 27, 2014; (4) an affidavit of Jalba sworn April 17, 2015 (the “Jalba Affidavit”); (5) the testimony of Bauk; and (6) a number of photographs of the basement walls that were taken in 2015.
[27] At the trial, Pye acknowledged that he replaced the drywall on the lower part of the walls and the baseboards in the basement during 2013. In fact, he acknowledged that he was in the course of doing repair work in the basement on July 8, 2013. However, he said that this work was undertaken to repair wear and tear that had occurred during the use of part of the basement as a bedroom by his son while a teenager and as the family “rec” room. He said the repairs were made in order to sell the Property, rather than in response to a flood in 2013. Pye also testified that the appellant asked him during the site visit on July 27, 2014 whether there had been any flooding on July 8, 2013 and that he replied that, on the day following the rainfall, he discovered some water on the basement floor, which he mopped up with a towel and which he assumed had come through the window wells. Pye further testified that the volume of water present in the basement on July 27, 2014 was only two to three ounces.
[28] The Deputy Judge presided over a trial of seven days. As mentioned, the Deputy Judge held that the appellant had failed to prove water damage either in 2013 or at the time of the Agreement. In reaching that conclusion, the Deputy Judge implicitly accepted Pye’s evidence. There was considerable evidence upon which the Deputy Judge could base her finding in this respect.
[29] First, as mentioned, the Deputy Judge found Pye to be credible and accepted his evidence. In particular, Pye’s evidence regarding his statements on July 23 and July 27, 2014 was not contradicted by Bauk’s testimony. Moreover, while Bauk stated that Pye had told him that he had to replace three feet of drywall and flooring as a result of water coming in through three windows, the Deputy Judge found that Pye did not tell Bauk when this occurred, nor did she find that Pye had said that this occurred in 2013. I note as well that Bauk’s evidence in his affidavit sworn April 21, 2015 is not consistent with Bauk’s evidence at trial. The Deputy Judge was entitled to reject Bauk’s testimony as evidence of the alleged flooding in 2013 in the absence of other supporting evidence as described below.
[30] Second, while not determinative on its own, it is relevant that the Pyes did not make any claim under their insurance policy on the Property in respect of any water damage in July 2013.
[31] Third, it is my understanding that the appellant does not suggest that any mould has been found in the basement, although that was the appellant’s ostensible concern in terminating the Agreement. In particular, the Pyes’ home inspection report did not identify any mould. After the appellant’s letter of July 28, 2014, this inspection was also redone specifically looking for mould on the inside wall of the basement area. No indication of mould was found.
[32] Fourth, the Jalba Affidavit does not state that Jalba has seen any evidence of water infiltration through the basement walls during his period of ownership of the Property. It merely establishes that drywall was previously replaced in the basement, which Pye does not deny. It is also noteworthy that the appellant did not subpoena Jalba to appear as a witness at the trial, from which the Deputy Judge could infer that Jalba had no evidence that would support the appellant’s position.
[33] Fifth, the photographic evidence of the state of the basement wall in 2015 is not, by itself, probative of water damage in 2013 or, more generally, of the state of the basement walls in July 2013, as the Deputy Judge noted. The photographs merely confirm that basement drywall had been replaced as Pye himself testified. Further, while the appellant referred to discolouration of the basement walls, there is no evidence as to what this discolouration represents, much less any evidence of a causal connection with the alleged water infiltration in July 2013.
[34] In summary, on the basis of the foregoing evidence, the Deputy Judge could reasonably find that the appellant had failed to establish, on a balance of probabilities, that there had been water infiltration into the basement that had caused water damage to the drywall requiring its replacement and that the circumstances giving rise to such infiltration and associated water damage continued up to the time of the Agreement. Accordingly, the second ground of appeal also fails.
[35] The appellant’s third ground of appeal pertains to the Release. The Pyes entered into an agreement to sell the Property to Jalba without signing the Release. The appellant argues that, in listing the Property for re-sale when it was subject to the Agreement, the Pyes must be taken to have assented to the Release. Otherwise, according to the appellant, the Pyes could not have delivered clear title to the Property.
[36] However, this ground of appeal fails to recognize that the appellant’s letter of July 28, 2014 constituted the appellant’s anticipatory breach of the Agreement. As such, the Pyes were free to accept the appellant’s repudiation of the Agreement and to sell the Property to Jalba free and clear of the appellant’s interest under the Agreement. This ground of appeal is rejected for this reason.
[37] The appellant’s fourth ground of appeal is that, in the appellant’s view, the reasons of the Deputy Judge were insufficient. In this respect, the appellant says that the Deputy Judge failed to address the inconsistencies in the evidence established by the photographic evidence and the evidence of Bauk. I do not agree. At paragraph 60 of the Judgment, the Deputy Judge explained her reasons for rejecting the probative value of the photographs. The probative value of the evidence of Bauk has been addressed above.
[38] In addition, the appellant says that it is not clear whether the Deputy Judge appreciated that a different evidentiary standard applies in respect of a claim for innocent misrepresentation as opposed to a claim based on a latent defect. I do not think that the appellant is correct in his assertion that different evidentiary standards apply in respect of these two issues. Certainly, the elements of innocent misrepresentation are different from the elements of a claim based on a latent defect. However, the evidentiary standard for findings of fact is the same – a balance of probabilities. The standard of review on this appeal with respect to findings of fact is that of palpable and overriding error. As discussed above, the appellant has not established that the Deputy Judge erred in finding that the appellant had failed to establish that there had been water damage in 2013 and that the circumstances giving rise to the alleged water infiltration and associated water damage continued up to the time of the Agreement.
[39] The only aspect of this fourth ground of appeal not already dealt with in these reasons is the argument that the Deputy Judge failed to provide reasons supporting her finding that the Pyes suffered damages of $10,000. This argument is also rejected.
[40] The evidence before the Deputy Judge was that the sale price under the agreement with Jalba was $8,000 less than the sale price under the Agreement and that the commission arrangement under each agreement was identical. The appellant says that, because Jalba was a real estate broker, somehow the Pyes’ net proceeds of the sale to Jalba were greater than their net proceeds would have been under the Agreement if it had not been terminated. However, the appellant offered no proof of this assertion. The fact that Jalba may have received a portion of the real estate commission paid to Remax may mean that Jalba effectively paid something less than the full purchase price but it does not mean that the Pyes received more. The Deputy Judge accepted that the Pyes incurred damages in the amount of $8,000, being the difference in the purchase price between the two agreements. This finding was eminently reasonable given the evidence before the Deputy Judge. She also accepted the further damage claim of $2,000 for legal expenses, for which there was a bill from the Pyes’ solicitor, as foreseeable damage arising from the anticipatory breach. This was also a reasonable finding on the evidence before the Deputy Judge.
[41] Accordingly, the fourth ground of appeal is also rejected.
Conclusion
[42] Based on the foregoing, the appeal is dismissed. At the hearing, the respondents provided a costs outline. The appellant indicated, however, that he wished to provide the Court with an offer to settle of the appellant. Accordingly, the appellant has ten days from the date of release of this decision to deliver written submissions not exceeding three pages, together with the written offer, and the respondent shall have a further ten days to provide any response, also limited to three pages.
Wilton-Siegel J.
Date: July 10, 2017