ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 6551/13
DATE: 2014-08-29
B E T W E E N:
RAMANJIT BRAR
Aman Sekhon, for the Applicant
Applicant
- and -
RYAN SMITH and 7467 NINTH LINE PROPERTY INC. and CENTURY 21 PEOPLE’S CHOICE REALTY INC.
Arthur MacColl, for the Respondents
Respondents
HEARD: April 24, 2014
REASONS FOR JUDGMENT
Barnes, J.
INTRODUCTION
[1] Ryan Smith and 7467 Ninth Line Property Inc. signed an Agreement of Purchase and Sale to purchase real property, municipal address 7467 Ninth Line in the City of Mississauga.
[2] The vendor was Ramanjit Brar. Pursuant to an Agreement of Purchase and Sale, a deposit was paid to Century 21 People’s Choice Realty Inc. (“Century Realty”).
[3] The Applicant vendor seeks a declaration that Ryan Smith and 7467 Ninth Line Property Inc. are in breach of an Agreement of Purchase and Sale for the property; a Declaration and Order directing the Respondent Century 21 People’s Choice Realty Inc., to release and pay to the Applicants, the deposit it holds on account of the Property; and Costs to the Applicant.
[4] The Respondent purchasers seek an Order declaring that the Applicant is in breach of contract for fraudulent misrepresentation and an Order for Century Realty to pay out the deposit to the Respondent purchasers.
[5] For a number of reasons, the Purchasers refused to honour the Agreement to purchase the property. The Vendor brings this application pursuant to Rule 14.05 (3)(d) and (h) of the Rules of Civil Procedure seeking certain relief.
BACKGROUND FACTS
[6] Ramanjit Brar is the owner of the property and the Vendor. Garry Rai of Century 21 People’s Choice Realty Inc. is his real estate agent for the sale of the property.
[7] Mr. Ryan Smith is a director of 7467 Ninth Line Property Inc. Both Mr. Smith and 7467 Ninth Line Property Inc. are Purchasers of the property. Mr. Dan Rogers is the real estate agent for the Purchasers.
[8] On July 24, 2013, Mr. Rogers informed Mr. Rai that the Purchasers were interested in the property. Mr. Rai sent Mr. Rogers a sales package, and on July 25, 2013, the parties signed an Agreement of Purchase and Sale.
[9] The sale was scheduled to be completed on September 23, 2013. As part of this agreement, the Purchasers paid a deposit of $85,000 which was held by Century Realty, in trust.
[10] September 5, 2013, was the deadline for the Purchasers to make any requisitions with respect to use and title etc. On Spetember 13, 2013, the Purchasers informed the Vendors that they had discovered that the Vendor’s use of the property was not a legal use. In effect, the Purchasers’ proposed use of the property was not legal therefore the Purchasers would not close the transaction. The transction was not completed.
[11] The Purchasers submit that they were misled by the Vendor to believe that their proposed use for the property was legal.
[12] The Vendor’s position is that he never misled the Purchasers; the Purchasers never informed him of their intended use of the property and the Purchasers failed to exercise due diligence, as contemplated under the Agreement of Purchase and Sale.
ISSUES
[13] The issues in this case are the following:
Did the Vendor make fraudulent misrepresentations to the Purchasers?
Does caveat emptor apply in this case?
Does illegal use by the Vendor constitute a defect that goes to the root of title?
CONCLUSION
[14] I have concluded that the Vendor did not mislead the Purchasers. The Purchasers failed to exercise due diligence as contemplated by the Agreement of Purchase and Sale; and waived conditions which were for their sole benefit in the Agreement of Purchase and Sale without doing their due diligence.
[15] The fact that the Vendor’s use of the property was not legal or that the Purchasers’ proposed use of the property was not legal was easily discoverable had the Purchasers exercised the appropriate due diligence. The Vendor’s illegal use of the property is not a defect going to the root of title and the principle of caveat emptor applies.
[16] In result, the Purchasers should have completed the transaction. The $85,000 deposit held in trust by Century Realty shall be forfeited to the Vendor; Century Realty is ordered to make payment to the Vendor accordingly.
REASONS
Did the Vendor make fraudulent misrepresentations to the Purchasers?
[17] I have concluded that the Vendor made no fraudulent misrepresentations to the Purchasers. I have reached this conclusion after an assessment of all of the evidence.
[18] In circumstances where there are no material facts in dispute, a proceeding can proceed by way of an application to determine the interpretation of “a deed, will, contract or other instrument…..”: Rule 14.05(3)(d)(h) Rules of Civil Procedure; See also CXL Universal Holdings Inc. v. Century Harvest Realty Ltd. 2007 2356 (O.N.S.C.).
[19] Section 3 of the Vendors and Purchaser’s Act, R.S.O., 1990 c.v.2 permits a vendor or purchaser of real property to proceed by application, to the Superior Court of Justice at any time, for the resolution of any requisition or objection; any claim for compensation or any other question arising from a contract except a question relating to the validity of the contract.
[20] The existence of an Agreement of Purchase and Sale governing the sale of the property is not in dispute. This court is asked to interpret this contract to determine the questions asked in this application.
[21] There is no dispute that an application under Rule 14.05(3)(d)(h) and s. 3 of the Vendor’s Act can resolve the outcome of the deposit.
[22] Where an Agreement of Purchase and Sale is not completed as a result of the default of the Purchaser, the Vendor is entitled to the deposit without having to prove damages: Signal Chemicals Ltd. v. Dew Man Marine Trade Inc. and Re/Max Hallmark Realty Inc. 2011 ONSC 3951 at para 13; CXL Universal Holdings Inc. v. Century Harvest Realty supra at para 26.
[23] Where the Vendor has made fraudulent misrepresentations which the Purchaser has relied on to enter into the contract, the Purchaser may be released from its obligations under the contract: Fitzpatrick v. Estevan Credit Union, 2003 SKQB 453 at p.16 of 23.
[24] Thus, if the Purchaser can show that the Vendor made fraudulent representations about the property, and the Purchaser relied on those representations to enter into the Agreement of Purchase and Sale, then the Vendor will not be entitled to the deposit as a result of the Purchaser’s default.
[25] A fraudulent misrepresentation is a representation that is made with the knowledge that it is untrue and with an intent to deceive: Friedman, G.J.L. The Law of Contract in Canada, 5th ed. Thomson Carswell; p. 285.
[26] Partial non-disclosure may constitute a misrepresentation; Petro Canada v. 366084 Ontario Ltd., 1995 7418 (ONSC) at para. 50. Failure to disclose the whole truth may constitute fraudulent misrepresentation Graham v. Legault [1951] DLR, 423 at para. 20.
[27] The Purchasers needed outside storage and wanted to buy a property that permitted outside storage. The Purchasers were introduced to the property by the Vendor’s real estate agent. This agent provided the Purchasers a copy of the property listing.
[28] The General Description on the listing states the following:
Attn: Developers, Investors & Transport Companies, Capitalize On This Parcel on Designated EZ lands In the Official Plan. Nested Between Large Development by Projects & Existing Fire Services Training Centre, And Only Mtrs Away from Proposed Extension of Argentia Road. Natural Gas & Water Available. xxxx EXTRAS xxx Transportation, Warehouse/Distribution, Church, Wholesaling, Self Storage, Animal Boarding, Rec, Amongst Other Uses Have Future Potential Here. [emphasis added]. Rented Rear Yard and Portion of Dwelling. Tenant Can Be Assumed For Income During Development process.
[29] The listing describes the Purchasers’ intended uses; warehouse/distribution and self storage, as having “future potential”. This does not suggest a definitive legal use but should have alerted the Purchasers to the fact that, at the very least, further inquiries were necessary.
[30] The Purchasers visited the property and obeserved that there was outside storage and the property was being used as a transportation centre. In addition, there is a large sign in front of the property which states:
Elite Freight Lines
“Services Beyond Expectations”
7467 Ninth Line
Mississauga, Ontario
905-824-7447
[31] This sign suggests that the Property was being used as transportation and storage area.
[32] I am satisfied that based on the observation made by the Purchasers, it was reasonable for the Purchasers to conclude that the Vendor was using the property for transportation and storage purposes, however, there was no reasonable basis for the Purchasers to conclude that this use by the Vendor was a legal use. It was the Purchasers’ obligation to use the avenues provided under the Agreement of Purchase and Sale, within the time specified in the agreement, to confirm that the Vendor’s use of the property was legal and that the Purchasers’ proposed use of the property would be legal.
[33] I am also satisfied that at least as of May 25, 2006, the Vendor was aware that his use of the property for transportation and storage purposes was illegal. On that date, the Committee of Adjustments informed the Vendor that his use of the property was illegal.
[34] The Vendor did not disclose this information to the Purchasers. The Purchasers assert that they were misled by the listing. On the evidence there is no basis for me to conclude that the Purchasers conveyed their intended use of the property to the Vendor or the Vendor’s agent, or that the Purchasers received any assurances that their intended use of the property would be a legal use. The Vendor’s agent was only informed that the property was required for “business purposes”.
[35] Despite my finding that the Purchasers believed that the Vendor was using the property for purposes that accorded with their own intended use, the circumstances of this proposed sale are replete with requests that the Purchasers verify that the Vendor’s use was legal.
[36] Paragraph 9 of the Agreement of Purchase and Sale makes it clear that the Vendor makes no representation or warranty of any kind that the use of the property was lawful.
[37] Paragragh 26 of the same agreement makes it clear that no representations, warranties and collateral agreements affect the Agreement of Purchase and Sale other than those contained in it.
[38] In the property listing in the section “Remarks for Brokerages” is the following caution “Remarks for Brokerages:…… Attach Schedule B to all offers, Buyer & Buyer Agent to Verify All Zoning, Measurements and Taxes”.
[39] In the listing, the Vendor’s agent statement stated that the property was on lands designated as E2 lands in the City of Mississauga’s Official Master Plan; Transportation and storage are designated as uses with “Future Potential Here” and Purchaser and Purchaser’s agent are advised to “Verify All Zoning”.
[40] The Vendor’s agent sent a Sales Package to the Purchasers’ agent, on July 24, 2013. When he emailed the sales package to the Purchasers’ agent the Vendor’s agent included this statement “…there is no zoning application in place and the lands are currently under “D” for zoning”.
[41] None of the representations made by the Vendor or the Vendor’s agent can be construed as a misrepresentation. Their representations were also replete with warnings to the Purchasers to verify zoning i.e. verify that the Purchasers’ proposed use was legal. The Purchasers failed to verify the legality of their proposed use within the time contemplated by the Agreement of Purchase and Sale.
Does caveat emptor apply in this case?
[42] I conclude that the principle of caveat emptor applies in this case. The Purchasers failed to exercise the appropriate due diligence. The fact that the Purchasers’ proposed use was illegal was easily discoverable if the Purchasers exercised appropriate due diligence as contemplated in the Agreement of Purchase and Sale.
[43] Defects or deficiencies in property can be described as latent or patent:
“the common law has been averse to implying conditions and warranties regarding quality and fitness into contracts for the sale of property. To such contractual claims, Purchasers are met with the doctrine of caveat emptor, save some exceptions. Under this doctrine the Purchaser takes the property as he or she finds it. Defects or deficiencies in property are often classified as either latent or patent. If, on an inspection of the property, with reasonable care, the defect is readily apparent, then it is patent: Bertrand v. Tribes [2006] O.J. No. 4510. To the extent that there is no concealment, caveat emptor applies to such patent defects: Tony’s Broadloom & Floor Covering Ltd. v. NCM Canada Inc. (1995) 1995 7153 (ON SC), OJ No. 117: 400 Wentworth Inc. v. Waterjet Machining Inc. 2007 6453 (ONSC) at para. 2.
[44] Purchasers must seek protection either by “express warranty or by independent examination of the premises”: Mautner v. Metcalfo, 2008 3969 at para.3.
[45] In this case, the Agreement for Purchase and Sale at para 13 of Schedule “A” makes it clear that the Purchaser had a period of 15 days prior to the closing date to send in any requisitions. The closing date was September 23, 2013, therefore the deadline for submitting requisitions was September 8, 2013.
[46] Paragraph 8 of the Agreement of Purchase and Sale indicates that the Purchasers could, by way of requisition, register any:
“valid objection to title or to any outstanding work order or deficiency notice, or to the fact that the said present use may not be lawfully continued….”
[47] This clause is inserted for the sole benefit of the Purchasers. The Purchasers could terminate the transaction if the Vendor failed to remedy a valid concern. Such a valid concern will include whether the current and proposed use was legal.
[48] The Purchasers sent the Vendor a letter of requisition dated September 5, 2013. This letter made no reference to the issue of use. On September 6, 2013, the Vendor’s counsel responded confirming that they acted for the Vendor and enclosed a copy of a survey. On September 9, 2013, the Purchasers’ counsel confirmed that the transaction would close on September 23, 2013.
[49] It was open to the Purchasers to make a requisition as to the use of the property; they did not do so by the requisition date of September 8, 2013. The Purchasers instead chose to exercise due diligence only after the date for requisition had past, the Purchasers contacted the Committee of Adjustments and discovered that the Vendor’s use of the property was illegal. The Purchasers’ objection to use was after the requisition deadline; this information was easily discoverable if the Purchasers had acted earlier and in accordance with the agreement.
[50] Clause 7 of the Agreement of Purchase and Sale is another clause that operated solely for the benefit of the Purchasers. This clause gave the Purchasers 20 business days from the conditional acceptance of the agreement to conduct its due diligence investigations and inquiries of the property.
[51] If within 20 business days the Purchasers did not inform the Vendor in writing that the Purchasers were satisfied with the property and were waiving all conditions [as described], the agreement was null and void. The Purchasers chose to waive this due diligence clause on August 23, 2013, without making their own inquries on the legal use for the property.
[52] The doctrine of caveat emptor applies. The Purchasers failed to exercise due diligence. The illegal use was easily discoverable.
Does the illegal use of property go to the root of title?
[53] I have concluded that the illegal use of the property by the Vendor does not affect the Vendor’s ability to transfer title to the Purchasers.
[54] If the Purchasers can demonstrate that the Vendor’s non-compliance with the zoning bylaw goes to the root of title, they will succeed in their application for a declaration that they were entitled to terminate the Agreement of Purchase and Sale.
[55] The Court in Innes et. al. v. Van de Weerdhof, 1970 O.R. 334 at para. 1 states the following:
… it was held by the Supreme Court of Canada that an objection which did not go to the root of title and which was not taken in time did not relieve the Purchaser from accepting title even a “precarious one”… with respect to the zoning bylaw, in my view this is not a matter going to the root of title. In Re Pongratz and Zubyk (1954 326 (ON SC), 1954 O.W.N., 597; Ferguson J. held that a bylaw restricting land use is not a bylaw affecting title, even though it does affect the land”.
[56] The property was zoned Developmental by the City of Mississauga. According to the City bylaw, Developmental means that the use of the property is frozen and therefore the owner of the property can only use it for the legal use that was in existence at the time of purchase.
[57] The Purchasers submit that the legal use for the property at the time of the proposed sale was “Single Family Detached”. Therefore, the Vendor’s use of the property for transportation and storage was illegal.
[58] The Purchasers explain that since the Vendor’s use was illegal, what was frozen at the time of the purchase was an “illegal use,” and an illegal use is in fact no “use,” and therefore this is a defect that goes to the root of title.
[59] This argument does not assist the Purchasers because the Purchasers’ argument is premised on the illegal use of the property by the Vendor. This is in effect a violation of the bylaw. A bylaw violation is not a matter of title: Jackson et. al. v. Nicholson et. al., 1979 1774 (ONSC).
[60] Thus the objection to “title” versus “root of title” analysis described in Armstrong supra does not apply in this case.
[61] On the facts of this case, any listing agreements or Agreements of Purchase and Sale which do not contain explicit provisions/cautions, to potential purchasers, to verify zoning by laws, in effect, to verify that exsiting and proposed uses are legal will be misleading.
[62] This court finds the Respondent Ryan Smith, and the Respondent 7467 Ninth Line Property Inc. in breach of the Agreement of Purchase and Sale for the property located at 7467 Ninth Line, Mississauga, Ontario, L5N 7C3.
[63] This court orders that:
The Respondent Purchasers shall forfeit the $85,000 deposit that was in place for the Subject Property;
Century 21 People’s Choice Realty Inc. shall release to the Applicant’s Counsel in trust, the $85,000 deposit that was for the subject property; and
Should the parties be unable to agree on costs the parties shall file a Bill of Costs, no more than two pages, no later than 30 days from the date of this Order.
Barnes, J.
Released: August 29, 2014
COURT FILE NO.: 6551/13
DATE: 2014-08-29
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
RAMANJIT BRAR
Applicant
- and –
RYAN SMITH and 7467 NINTH LINE PROPERTY INC. and CENTURY 21 PEOPLE’S CHOICE REALTY INC.
Respondents
REASONS FOR JUDGMENT
Barnes, J.
Released: August 29, 2014