ONTARIO

SUPERIOR COURT OF JUSTICE

Court File No.: 62544
Date: 2013/03/28

B E T W E E N:

GABIE’S PAINT & AUTO SALES LIMITED

Ondrej Sabo, for the Plaintiffs

Plaintiff

• and -

1301767 ONTARIO INC. operating as FYNE CARS and PETER REICH

The Defendants, unrepresented

Defendants

HEARD: November 20, 2012

LEITCH J.

[1] The plaintiff seeks damages from the defendants for a negligent misrepresentation made when the plaintiff purchased a 2001 black Dodge Ram VIN 3B7HF13Y31M531538 (the “Vehicle”) for a wholesale purchase price of $11,100 plus taxes of $777.

[2] The plaintiff claims damages of $17,354.71 as the amount of credit extended by its related company to a third party purchaser that remained unpaid when the plaintiff took the car back from the third party purchaser.

[3] As a preliminary matter, the corporate defendant was not represented by counsel; however, leave was granted to Mr. Peter Reich, the principal of the corporate defendant, to act as agent for the corporate defendant pursuant to rule 15.01(2).

The Evidence of Mr. Gabriel and Mr. Reich

[4] There is no dispute that the plaintiff purchased the Vehicle on June 1, 2006 on an “as is” basis.

[5] The plaintiff is experienced in the used car business. Between 1991 and 2006, it had purchased about 10,000 cars wholesale and resold them to consumers.

[6] Both the plaintiff and the defendant’s place of business are on York Street. Mr. Gabriel, the owner and principle of the plaintiff, testified that one of his customers was interested in a Dodge Ram and had seen the Vehicle on the defendant’s lot.

[7] The plaintiff’s customer was interested in purchasing the Vehicle through the plaintiff because he wanted financing. Mr. Gabriel also owns a company which offers consumer financing, VFC Inc.

[8] The plaintiff’s business manager at the time, Mr. Davy, contacted Mr. Reich by telephone and asked questions about the condition of the Vehicle in the presence of Mr. Gabriel.

[9] Mr. Davy’s and Mr. Reich’s conversation was audible to Mr. Gabriel over the speaker phone in Mr. Gabriel’s office. Mr. Gabriel testified that Mr. Davy specifically asked about the condition of the Vehicle, whether there had been any accidents and whether there were any engine or transmission problems. Mr. Gabriel also testified that he heard Mr. Reich state that the Vehicle was in excellent condition, the transmission was good and the Vehicle had never been involved in an accident.

[10] Mr. Gabriel testified that, based on these representations from Mr. Reich, the plaintiff purchased the Vehicle from the corporate defendant and obtained a Bill of Sale (Exhibit #1).

[11] Thereafter, the plaintiff’s customer, James Maw, was approved for financing by VFC Inc. Mr. Maw agreed to purchase the Vehicle for $14,000; and amount representing “top dollar” according to Mr. Gabriel.

[12] A company related to the plaintiff, Marins Auto Ltd., entered into a Conditional Sales Contract with James Maw in relation to the Vehicle, dated May 30, 2006 (Exhibit #2).

[13] Mr. Gabriel testified that, as a result of this sale, the plaintiff realized a $2,900 gross profit. The net profit was about half of that amount with 25 percent representing the cost of sales and 25 percent representing other expenses. Therefore, the net profit to the plaintiff on the transaction was approximately $1,500.

[14] As set out in the Conditional Sales Contract, the financing obtained by Mr. Maw also paid out a lien of $5,256.23. Therefore, Mr. Maw’s loan was increased by the lien amount with the result that, with the administration fee paid to VFC Inc. and registration fees, the total amount financed by Mr. Maw was $23,056.06.

[15] After the transaction was completed, Mr. Gabriel testified that Mr. Maw complained to the plaintiff that the Vehicle had been involved in a motor vehicle accident on August 6, 2005. Mr. Maw threatened to stop making payments pursuant to the Conditional Sales Contract and wanted the plaintiff to take the Vehicle back.

[16] Mr. Gabriel testified that, as a result of Mr. Maw’s position, the plaintiff paid VFC Inc. $17,354.71 on June 10, 2008, in exchange for the Vehicle. It is this amount that the plaintiff seeks in damages. Mr. Gabriel stated that VFC Inc. repossessed the vehicle because of the customer’s complaint and not because of Mr. Maw’s non-payment.

[17] In May 2008, the plaintiff obtained a CarProof claims report for the Vehicle which indicated that the Vehicle had been involved in an accident in Michigan that was described as “right front impact with an animal”. This accident had been reported to the police according to the report.

[18] The plaintiff also conducted a vehicle history report pursuant to AutoCheck which reflected the same accident.

[19] According to Mr. Gabriel, the plaintiff was obliged to take the Vehicle back from Mr. Maw on the basis that it had sold a car involved in a motor vehicle accident without the appropriate disclosure.

[20] Mr. Gabriel indicated that he expected the defendant to stand behind what it sells. As he indicated, he sells about 100 cars a month and stands behind all of his car sales.

[21] Mr. Gabriel wrote to the defendant on June 15, 2008, August 13, 2008, September 17, 2008 and November 20, 2008 indicating that his customer, “[j]ust found out that the vehicle was in an accident and we had to return his money. As you did not declare this to us, we request either you purchase the vehicle back for the same price or contact me and we can make arrangements for a suitable remuneration”.

[22] Mr. Gabriel testified that the defendant did not respond to any of his four letters.

[23] Mr. Gabriel then advertised the Vehicle for sale in 2008 but was unable to sell it. When he advertised it for sale in the Auto Trader, he disclosed that it had been involved in a motor vehicle accident in Michigan.

[24] Mr. Gabriel testified that he does not buy cars which have been involved in a motor vehicle accident because they are too hard to sell. It is necessary to inform customers when cars have been involved in an accident and 90 percent of customers are not interested in such vehicles.

[25] The car was not driven from 2008 until 2012. Mr. Gabriel testified that throughout the time when he had the Vehicle for sale, he disclosed the Vehicle’s accident history, noted it as part of his disclosures in relation to the vehicle, and provided the search reports. Mr. Gabriel sold the Vehicle on June 25, 2012 for $1,000. (Exhibit #7). The price he received on June 25, 2012 was the best offer that he could obtain for the Vehicle.

[26] Mr. Gabriel was insistent that he would not have bought the Vehicle if he had known that it was involved in an accident. Mr. Gabriel testified that the fact that a vehicle has been involved in a motor vehicle accident is always disclosed at auctions and by dealers selling such cars at wholesale and, in turn, by dealers selling the cars to consumers. According to Mr. Gabriel, sellers should always disclose and tell the truth about what the seller knows about a vehicle.

[27] Mr. Gabriel did not do a proof with Car Proof or AutoCheck at the time he purchased the vehicle and, as he put it, he took Mr. Reich’s word. Mr. Gabriel emphasized that it was appropriate to take Mr. Reich’s word about the condition of the Vehicle because in his 21 years of experience he had never had a problem with not having been told about a vehicle being involved in an accident.

[28] He agreed that the Bill of Sale between the corporate defendant and the plaintiff was the “normal” Bill of Sale used by all wholesalers. However, Mr. Gabriel was adamant that the defendants were obliged to inform the purchaser if the car was involved in an accident.

[29] The fact that the vehicle was sold as-is, according to Mr. Gabriel, means that the car was not "safetied". On cross-examination Mr. Gabriel indicated that a safety certification has nothing to do with whether or not a vehicle has been in a motor vehicle accident and a mechanic who safetied the Vehicle would not have been able to determine if the Vehicle had been in an accident or not.

[30] As Mr. Gabriel insisted on his cross-examination, he believed that disclosure of an accident was something required by a dealer but, furthermore, it was something that Mr. Reich had specifically been asked about.

[31] Mr. Reich testified on behalf of the corporate defendant and himself and indicated that the position he took with the plaintiff was “that what he saw was what he was getting” and he had no idea of the condition of the Vehicle. As a result, he sold the vehicle as-is. He was equally insistent that there was no discussion of the Vehicle’s condition and, in any event, any representations were limited to those set out in the Bill of Sale. As Mr. Reich pointed out, the plaintiff had ample time to undertake a search in relation to the Vehicle.

[32] Mr. Reich was adamant that he made no representation with respect to the Vehicle. Furthermore, he emphasized that the disclosure of an accident was not warranted and not required by law in 2006.

[33] Mr. Reich has been in the car business for 35 years. He opened his business in April 2000 and has sold 5,000 cars since then. His business is registered under the Motor Vehicle Dealers’ Act. He was aware of the Standards of Business Practice and Code of Ethics of the Ontario Motor Vehicle Industry Council (OMVIC).

[34] Mr. Reich agreed that the OMVIC Standards of Business Practice and Code of Ethics apply to him. (Exhibit #8). His attention was drawn to provision 2.5.1 in particular which provides as follows:

2.5 MOTOR VEHICLE CONDITION

2.5.1 Dealers offering a motor vehicle for sale or lease disclose in writing to purchasers all material facts about the motor vehicle’s condition known to the Dealer. In determining what material facts a Dealer knew about a motor vehicle, the Discipline Committee or Registrar shall fairly consider the individual circumstances of the motor vehicle, including the age of the motor vehicle.

Use of the “AS IS” statement does not eliminate potential liability, since a purchaser may still choose to pursue the matter against a Dealer through civil action. The “AS IS” statement is being provided to Dealers as a means of providing clear disclosure to a purchaser. If a Dealer believes that further disclosure is required, then the Dealer should be sure to make that further disclosure to the purchaser in writing on the Bill of Sale and have the disclosure signed by the purchaser.

[35] However, Mr. Reich testified that these provisions apply to contracts with retailers rather than wholesalers. As he indicated, he did not know the Vehicle had been involved in an accident and “what you do not know, you do not disclose”. He did not do any investigations because he was not selling the Vehicle at retail.

[36] Mr. Reich did not have any documentation relating to his purchase of the Vehicle but he testified that he knew it would not show that he was told about the Vehicle being involved in an accident.

[37] It was noted that the defendants have not served any Affidavit of Documents.

Plaintiff’s Submissions

[38] The plaintiff submits that, in response to its direct questions, the defendant represented that the Vehicle was in mint condition and had no prior motor vehicle history. This was a negligent misrepresentation and the misrepresentation was very material to the value of the Vehicle.

[39] The plaintiff purchased the Vehicle to make a modest profit of $1,500 and did not get what he bargained for.

[40] The plaintiff acknowledges that the 1990 version of the Motor Vehicle Dealer’s Act applies to this 2006 transaction and there was no obligation by statute to disclose a prior motor vehicle accident. However, the OMVIC Standards of Practice and Code of Ethics bind all registrants and mandates material disclosures. The plaintiff submits that it is clear, therefore, that material facts in relation to the Vehicle had to be disclosed by the seller.

[41] The plaintiff notes that the defendant has made no disclosure of the documentation it obtained in relation to the Vehicle on its purchase on May 3, 2006. There is no information of what was done in relation to the Vehicle between that date and the date the Vehicle was sold to the purchaser on June 1, 2006.

[42] The plaintiff submits that it is entitled to damages equal to the full amount it paid to VFC Inc. on June 10, 2008 ($17,354.71) on the basis that this loss would not have been sustained without the non-disclosure or mis-disclosure.

[43] Furthermore, the plaintiff submits that Mr. Reich has personal liability for such damages on the basis that he made the negligent misrepresentation.

Defence Submissions

[44] The thrust of Mr. Reich’s submissions is that the plaintiff had the obligation to inspect and to check the Vehicle itself and had sufficient opportunity to do that.

[45] He submits that the dealer was not obliged to make disclosures on a wholesale deal prior to January 2010 and the plaintiff bought the Vehicle at the price it was worth.

[46] He argues that he had no idea that the Vehicle had sustained any damage in an accident and he denied that he was asked any questions about the Vehicle until the plaintiff’s customer failed to pay and the Vehicle was repossessed.

Disposition

[47] I accept Mr. Gabriel’s evidence that he would not have purchased the Vehicle if he was aware that it had been involved in an accident, that the plaintiff did pose the questions Mr. Gabriel described to Mr. Reich, and, that based on Mr. Reich’s representations, the plaintiff did not undertake the searches which it ultimately did in 2008 that clearly showed the accident history.

[48] I make this finding because Mr. Gabriel is an experienced, high volume used car dealer, well aware of the significance of an accident history and I accept his evidence that accident history is a key factor in fixing the value of a Vehicle and a matter he would disclose to a customer.

[49] I therefore find that the seller of the Vehicle, that is, the corporate defendant, has a liability to the plaintiff. It is clear that the representation was made by Mr. Reich on behalf of the corporate defendant and not in his personal capacity. I do not find that Mr. Reich acted outside the scope of his duties or appropriate role as an employee or agent of the corporate defendant. I therefore find no basis on which Mr. Reich would be personally liable.

[50] With respect to the quantum of damages, I cannot accept the plaintiff’s submission that its damages are equal to the amount that it paid VFC Inc. Firstly, it is important to note that VFC Inc. is a company related to the plaintiff and one cannot come to any other conclusion than that plaintiff and VFC Inc. were not adversarial when the plaintiff paid the full amount Mr. Maw owed VFC Inc.

[51] In addition, the $17,354.71 which the plaintiff claims in damages includes the $5,256.23 paid to discharge Mr. Maw’s prior lien and must, therefore, be deducted from any potential consideration of damages.

[52] Furthermore, I do not find that the damages claimed by the plaintiff are a reasonably foreseeable result of the defendant’s negligent misrepresentation.

[53] I note also that some loss in value of the Vehicle leading to its modest sale price in 2012 has to be attributed to the fact that the Vehicle was not driven for such an extensive period of time. There is no evidence that the Vehicle could not be driven.

[54] Some of the most compelling evidence in relation to damages was Mr. Gabriel’s clear statement that the value of the Vehicle, after having been in an accident, was $10,000 to $10,500. In addition, Mr. Gabriel stated later in his evidence that the price of a vehicle drops 30 percent if it is involved in a motor vehicle accident.

[55] He reiterated again in his testimony that the Vehicle was worth $10,000 to $11,000 and not the $14,000 price paid by Mr. Maw, again referencing a 30 percent reduction.

[56] I find that a 30 percent reduction from the price the plaintiff paid the defendant for the Vehicle – or $3,330 – is the appropriate assessment of the damages sustained by the plaintiff as a result of the negligent misrepresentation of the corporate defendant.

[57] Accordingly, the plaintiff is awarded judgment against the corporate defendant in the amount of $3,330 plus pre-judgment interest and costs. If necessary, the parties may make brief written submissions on costs within 30 days.

Justice L. C. Leitch

Released: March 28, 2013