Dudley v. Schartner, 2011 ABQB 362

Court of Queen ’ s Bench of Alberta Citation: Dudley v. Schartner, 2011 ABQB 362 Date: 20110603 Docket: 1001 02663 Registry: Calgary Between: Brock Dudley and Chelsey Dudley Appellants - and - Karen Schartner Respondent _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice P.M. Clark _______________________________________________________ Appeal from the Judgment by The Honourable Judge B.K. O’Ferrall Dated the 20 th day of January, 2011 Docket: 1001 02663

I. Introduction [ 1 ] The Applicant, Brock Dudley (“Mr. Dudley”), who was the Defendant at trial, sold a truck to the Respondent, Karen Schartner (“Ms. Schartner”), who was the Plaintiff at trial. Mr. Dudley told Ms. Schartner that the truck had been in a minor accident, whereas in fact it was a salvage vehicle. Mr. Dudley appeals the damage award made against him. II. Facts [ 2 ] Ms. Schartner purchased a 2005 Toyota Tundra from Mr. Dudley on December 1, 2006 (the “Purchase Date”) through a private sale, for the amount of $32,000. Judge O'Ferrall (as he then was) found Mr.

Dudley liable for fraudulent or negligent misrepresentation. He found that Mr. Dudley made the following misrepresentations, on which Ms. Schartner relied: 1) that the vehicle was active, when it was a salvage vehicle; 2) that the vehicle had only been involved in a minor accident; and 3) that the vehicle was still covered by the manufacturer's (Toyota'

s) warranty. [ 3 ] Mr. Dudley does not appeal the finding of liability, but rather appeals the damage award. As well, Mr. Dudley appeals the finding that he misrepresented that the vehicle was covered by the manufacturer's warranty, as that finding relates to quantum of damages. [ 4 ] Regarding the manufacturer’s warranty misrepresentation, Judge O’Ferrall stated his findings as follows: Finally, the defendant represented that the vehicle was still covered by the manufacturer’s warranty, and he made this representation to the plaintiff.

He made this representation even though he signed a document when he purchased the vehicle that indicated in no uncertain terms that there were no warranties made with respect to the vehicle. Mr. Dudley argues that the document referred to is the Vehicle “As-is” Agreement No Implied Warranty that he signed when he purchased the truck. That agreement states that the buyer waives all warranties “EXCEPT FOR WARRANTY OF THE MANUFACTURER, IF ANY.” He argues that there was a manufacturer’s warranty given the year of the vehicle, and that warranty was not waived.

Therefore, he argues that Judge O’Ferrall’s finding regarding that manufacturer’s warranty misrepresentation is incorrect. [ 5 ] Judge O'Ferrall held that the measure of Ms. Schartner's damages was the difference between the price paid and the value of the truck. He found the price to be $32,000 and the value to be $10,000, awarding $22,000 in damages.

As a supporting rationale, Judge O'Ferrall noted the cost of repairs of known defects was approximately $13,000, noted that there may be other costs associated with the misrepresentations that have not yet been discovered, and noted that the plaintiff also had some consequential damages. [ 6 ] Mr. Dudley disputes the use of the $10,000 figure for the value of the truck. He points out that the $10,000 figure comes from a valuation of the vehicle conducted in November 2009 (the "2009 Valuation").

The 2009 Valuation states that the truck had 36,932 miles on the odometer, whereas it only had 12,305 miles on its odometer when the sale was registered on the Purchase Date. Therefore, Mr. Dudley argues that the $10,000 improperly penalizes him for the decrease in the value of the truck that occurred between December 2006 and November 2009 as Ms. Shartner drove it. [ 7 ] Mr. Dudley argues there is no evidence before the Court of the value of the truck as reclaimed salvage in 2006. As a result,

he argues that the Court should use Ms. Schartner’s repair costs to assess damages. [ 8 ] While there may not be evidence of the value of the truck as reclaimed salvage in 2006, there is evidence from which the Court can place a value on the benefit Ms. Schartner gained from use of the vehicle (the "Use Discount"). The 2009 Valuation suggests that the vehicle would be worth $23,000 - $24,000 if in good condition, and clearly takes into account the miles driven. Ms. Schartner paid $32,000 for the vehicle initially, assuming it was in good condition.

Taking the difference between what the vehicle was worth at 12,000 miles in apparently good condition, and what it would have been worth at approximately 37,000 miles in good condition yields a Use Discount of $8,000. [ 9 ] As regards repair costs, Ms. Scharter has put in receipts for $3,416.01 for expenses already incurred, and another $9,988.20 for repairs still needed. Mr. Dudley argues that the only repairs for which damages should be awarded are those that were caused by the undisclosed accident that rendered the vehicle a salvage vehicle, and not covered by the manufacturer’s warranty.

He invites the Court to go through the repair costs one by one and make that determination. [ 10 ] Ms. Schartner has also put evidence before the court of other expenses that fall into the category of consequential damages. In particular, she claims $4,902.97 as her costs for retaining her van for a period of one year and four months after she bought the truck, in order to have a reliable vehicle. III. Issue [ 11 ] What is the proper measure of damages? IV. Standard of Review [ 12 ] The standard of review for findings of fact is palpable and overriding error.

The standard of review for questions of law is correctness. See R.W. v. Alberta (Child, Youth and Family Enhancement Act) , 2011 ABCA 139 ; Housen v. Nikolaisen , 2002 SCC 33 , [2002] 2 S.C.R. 235. V.

Analysis [ 13 ] The authorities, which were not provided by counsel, make it clear that the proper measure of damages in the case of a sale of property induced by negligent or fraudulent misrepresentation is the difference between the amount paid for the property (the "price") and the value of the property (the "value"), plus consequential damages. [ 14 ] In the current case, the court does not have clear evidence of the value of this truck at the date of the sale from the defendant to the plaintiff.

Case law suggests two approaches, given the evidence available here, to the calculation of the value: 1) price - use discount + repair costs incurred - current value; and 2) total repair costs. A. Law

i) The Measure of Damages for Fraudulent or Negligent Misrepresentation [ 15 ] Damages for fraudulent misrepresentation are tort damages, and not contract damages: S. M. Waddams, The Law of Damages (Toronto:Canada Law Books Inc., Looseleaf, Dec. 1998) at §5.460:

The English and Canadian cases have consistently held that the proper measure is the tortious measure, that is the amount of money required to put the plaintiff in the position that would have been occupied not if the statement had been true but if the statement had not been made. The point was made clearly in McConnel v.

Wright : It is not an action for breach of contract, and, therefore, no damages in respect of prospective gains which the person contracting was entitled by his contract to expect come in, but it is an action of tort - it is an action for a wrong done whereby the plaintiff was tricked out of certain money in his pocket; and therefore, prima facie, the highest limit of his damages is the whole extent of his loss, and that loss is measured by the money which was in his pocket and is now in the pocket of the company. That is the ultimate, final, highest standard of his loss.

This quote has been cited with approval by the Alberta Court of Appeal in Xerex Exploration Ltd. v. Petro-Canada , 2005 ABCA 224 , 367 A.R. 201 at para. 95 . [ 16 ] However, compensation for consequential damages is allowed, subject to the rules of mitigation and remoteness.

Waddams at §5.590 notes: ...The position seems to be not that the rules of remoteness and mitigation are entirely excluded, but that the defendant will not be permitted to claim as too remote or to say that the plaintiff should have avoided loss arising from reasonable attempts (even if unsuccessful) to salvage something out of the financial difficulties the defendant had caused. [ 17 ] Out of pocket loss is also the measure of damages for negligent misrepresentation, as per Waddams at §5.610: Since the decision of the House of Lords in 1963 in Hedley Byrne Ltd. v.

Heller & Partners Ltd. , it has been established that an action lies for negligent misrepresentation causing economic loss.

It naturally follows from acceptance of out-of-pocket loss rather than the contractual measure as the basic measure of damages for fraud, that the same basic measure applies to negligent misrepresentation. [ 18 ] The measure of damages is the difference between the price and the value, plus any consequential damages the plaintiff was forced to incur as a result of attempting to salvage something out of the contract she was induced to enter into by the fraudulent or negligent misrepresentation.

These damages are subject to the rules of remoteness and mitigation. ii) Motor Vehicle Cases Valuing Damages Based on Difference Between Price and Value [ 19 ] In Parsons v. Ploen , 2009 ABPC 3 , Shriar J. found that the defendant had induced the plaintiff to buy a vehicle through a negligent misrepresentation. The defendant had represented that the vehicle was a great car in good condition, but an inspection revealed that the car would need $2,500 in repairs before it could be certified for registration. In addition, the front axle broke within a short time of the purchase.

The plaintiff subsequently returned the vehicle to the defendant. Shriar J. awarded the plaintiff the purchase price of the car ($1,000), as well as the price of an inspection, temporary registration, and a tow truck. The judge refused to award the cost of alternative vehicle rental to the Plaintiff, holding that she would have incurred that expense in any event. [ 20 ] Arjomandi v. Singh and BMW Canada , 2010 ONSC 5664 has facts similar to the present case.

In Arjomandi , the son of the defendant vendor Singh, who acted as Singh's agent, was found to have fraudulently or negligently misrepresented to the plaintiff that the car had never been involved in an accident, and still had a warranty. In fact, the car had been written off and rebuilt, and the warranty was void. Snowie J. awarded general damages of $26,750 calculated as follows: $49,000 paid for vehicle - $11,000 trade-in value - $11,250 compensation for use = $26,750. As well, Snowie J. awarded special damages of $4,079.14 for the repairs done to the vehicle.

The judge also awarded $5,000 in punitive damages against the "unscrupulous vendor": at para. 63. [ 21 ] In Casillan v. 565204 B.C. Ltd. , 2009 BCSC 1335 , Dillon J. found that the defendant dealership had fraudulently and negligently misrepresented to the plaintiff that a warranty existed on the car the plaintiff had bought from the dealership. The car subsequently required engine replacement. Dillon J. awarded the plaintiff the entire purchase price, as well as costs for repairs, and ordered the plaintiff to return the car to the dealership.

The costs for repairs consisted of "$13,512.61 replacement costs for the engine, plus $663.34 inspection costs of engine failure, plus $109.14 and $346.62 for towing and repair costs of the fuel pump": at para. 31.

Dillon J. made no deduction for the benefit the plaintiff derived from driving the vehicle as there was no evidence of the value of thatbenefit. [22] In Vieira v. Prestige Auto Sales Inc. (2004), 12 M.V.R. (5th) 297 (O.N.S.C.J.), Stinson J. dealt with a case where thedefendant had purchased a vehicle at auction. The vehicle had been in a serious accident. The defendant extensively repaired it, thenfraudulently misrepresented the vehicle's history and origin to the plaintiff.

The judge calculated the plaintiff's damages as the purchaseprice for the car, less an imputed value for use at $150/month for 30 months, less the imputed proceeds of sale. He allowed the plaintiffmitigation expenses for one month's use of a rental car and six months of lease expenses for the time period when she could not drive thecar because it had been discovered that the frame did not meet specifications. Stinson J. denied the plaintiff expenses for a further monthand a half of rental car use, holding that it was not reasonable to have a rental car for that long. [23] In Keilty v.

East-Court Lincoln Mercury Sales Ltd. (1996), 7 O.T.C. 45 (Gen. Div.), the fraudulent misrepresentationconsisted of an inaccurate recounting of the car's history. A salesman stated that the car had been driven by an executive, whereas it hadin fact belonged to a rental company. After the plaintiff had driven the car for nine months, it suddenly swerved, then could not besteered due to a mechanical problem. The plaintiff eventually received free repairs from the manufacturer, and traded the car in.

SoutheyJ. assessed the fair value of the vehicle at the time of sale to the plaintiff by the trade-in allowance, after allowing for depreciation. Thejudge also allowed expenses for towing and advertisement. Southey J. allowed part of the plaintiff's costs for a rental vehicle,disallowing the rest of the costs because the plaintiff had not acted with reasonable promptness. [24] In Handjiev v.

Aviscar Inc., 2003 ABPC 170, Ingram J. held that, where a plaintiff bought two vehicles at auction through anagent, with no representations made, and the vehicles later had their status change from "active" to "written off", the measure of damageswas the difference between the purchase price and the closest competing bids. In the result, Ingram J. declined to find that the plaintiffhad a claim, but stated the following regarding damages, at para. 24: Notwithstanding the above conclusion, it is desirable that I deal with the amount of the Plaintiff's damages.

The measure of damages formisrepresentation is not the same as damages for breach of contract. For an actionable misrepresentation, a Plaintiff is entitled to suchdamages as are required to put him in the position he would have been in if the representation had not been made. For breach of acontract, a Plaintiff is entitled to damages in an amount as what would put him in the position he would have been in if the representationhad been true. This is a misrepresentation action, not one for breach of contract.

The proper measure of damages is the differencebetween the price paid by the Plaintiff for the vehicles and the fair value of the vehicles at the time of purchase. The damages are notmeasured by the difference between the value of the vehicles if the vehicles were of "active" status and the value of the vehicles as aresult of the vehicles being of "repaired" status. (See Amar [S]ethi v. Marvette Dawnne 2002 ABQB 736).

While Ingram J. would not have included in damages the diminution in value flowing from the cars' change in status, the status was not aterm of the sale to the plaintiff. iii) Cases Valuing Damages as Cost of Repairs [25] Repair costs have been used to assess damages for actionable misrepresentation, to the extent that the repairs have put theproperty in the condition that it was represented to be in: see Domokos v. Phillips (1996), 176 N.B.R. (2d) (Supp.), citing MacDonald v.Gerristen (1994), (AB KB), 156 A.R. 219 (Q.B.), both cases of actionable misrepresentation relating to a sale of ahouse.

This valuation approach has also been used in motor vehicle cases. [26] For example, in Butler v. McNamara, 2003 SKPC 182, the private seller was found to have fraudulently concealed the factthat the frame of the vehicle was bent. Bogdasavich J. awarded the plaintiffs the monetary jurisdictional limit of the court, $5,000, inview of the fact that the frame would take $6,947.70 to straighten. The plaintiffs had not driven the vehicle. [27] Similarly, in Halliday v.

Westminster Volkswagen Ltd., 2001 BCPC 3, Dossa J. held that the defendants had misrepresentedto the plaintiff that the vehicle transmission had been rebuilt. The transmission subsequently required major repairs. Dossa J. awardeddamages in the amount of the cost to fix the transmission. [28] In both Butler and Halliday, there is no suggestion of a loss of value greater than the amount of the repairs. More difficult isthe case of MacNutt v. Brown Bros. Ford Sales & Service, [1985] B.C.W.L.D. 984 (C.A.). Macfarlane J.A. gave oral reasons upholding

the trial judge's finding that fraudulent misrepresentation had occurred, but reducing damages. The plaintiff had been told that the car in question was an estate car, which he took to mean it had been carefully driven and was in good condition, when in fact, the car had been acquired from a used car dealer called Estate Auto Sales. The plaintiff spent approximately $2,500 in repairs on the car, driving it some 13,000 miles, before a connecting rod broke and did such major damage that the car ceased to have any value.

The trial judge had awarded the plaintiff the cost of repairs plus the purchase price, but the Court of Appeal limited the damages to the cost of repairs. Unfortunately, Macfarlane J.A. did not explain his assessment for damages. However, the appeal judge commented that the plaintiff had the car checked over, took it for a drive, and requested repairs (which had been done) before his purchase. Perhaps Macfarlane J.A.'s result can be explained by an inference that the possibility of such major damage was too remote. B. Application [ 29 ] In order to put Ms.

Schartner back into the place she would have been in had the defendant's fraudulent or negligent misrepresentations not induced her to enter into the contract, prima facie the damages are the difference between the price paid and the value of the vehicle. [ 30 ] The difficulty with using the total repair costs here is that it is not clear whether the repair costs reflect the difference between the price and the value of the truck at the Purchase Date.

Further deficiencies which are not too remote may arise. [ 31 ] The better valuation option given the evidence before the Court is to award damages based on: price - use discount + repair costs - current value + consequential damages. This approach addresses the defendant's concern that there was no discount for the plaintiff's use of the vehicle. This would lead prima facie to a calculation of $32,000 - 8,000 + 3,416.01 - 10,000 + 4,902.97 = $22,318.98.

This amount is very close to the $22,000 awarded by Judge O’Ferrall. [ 32 ] I find that Judge O’Ferrall made no error of law in his approach to damages, given the paucity of evidence before the Court. While it is true that he did not apply a Use Discount, there was very little evidence before the Court on which a Use Discount could be calculated. Certainly, Mr. Dudley at no point introduced any such evidence.

Furthermore, Judge O’Ferrall tested the reasonableness of the amount he had arrived at by noting the current total repair costs, the consequential damages, and the possibility of future compensable repairs arising, and checking that amount against his total. The approach used by Judge O’Ferrall was in accordance with the measure of damages for fraudulent or negligent misrepresentation found in the case law. [ 33 ] Mr. Dudley also asked me to consider whether the trial judge erred in finding that Mr.

Dudley fraudulently or negligently misrepresented the existence of a manufacturer’s warranty, but only as related to damages. I find I do not need to decide this issue for, even if I decided it in Mr. Dudley’s favour, the damages would not change. The finding that Mr. Dudley misrepresented that the vehicle had been in a catastrophic accident and had been salvaged remains unchallenged. The vehicle does not have a manufacturer’s warranty because of the catastrophic accident. Any damages related to the lack of a manufacturer’s warranty would continue to flow from this misrepresentation, even if Mr.

Dudley had not misrepresented that the vehicle had a manufacturer’s warranty. VI. Conclusion [ 34 ] The judgment of Judge O’Ferrall in the amount of $22,000 is affirmed. Ms. Schartner shall have her costs to travel from Grande Prairie to Calgary for the appeal, as well as all costs actually incurred in Calgary. Heard on the 25 th day of March, 2011. Dated at the City of Calgary, Alberta this 3 rd day of June, 2011.

P.M. Clark J.C.Q.B.A. Appearances: A. Robert Anderson, Q.C. Osler, Hoskin & Harcourt LLP for the Appellants Karen Schartner Self-Represented