Janet Lysyk (Plaintiff) - v. -, 2019 SKPC 9

IN THE PROVINCIAL COURT OF SASKATCHEWAN CIVIL DIVISION Citation: 2019 SKPC 9 Date: January 29, 2019 File: 74/18 Location: Regina _____________________________________________________________________________ Between: Janet Lysyk (Plaintiff) - and - Madhur Sharma (Defendant) -and- Myrna Hamilton (Third Party) Janet Lysyk For the Plaintiff Madhur Sharma For the Defendant No One appearing For the Third Party _____________________________________________________________________________ JUDGMENT D EMONG, J _____________________________________________________________________________

Introduction [ 1 ] This action deals with the private sale of a motor vehicle. The facts are not in dispute. The central issue for the Court’s consideration pits the legal doctrine of Caveat Emptor against the implied warranty set out under

section 14 (

c) of The Sale of Goods Act, RSS 1978, c S-1 , (hereafter the Act ) which, subject to certain exceptions, imports an implied warranty into a contract of sale to the effect that goods sold to a buyer shall be free from any charge or encumbrance in favour of a third party not declared or known to the buyer before or at the time when the contract is made.

Summary of Facts [ 2 ] The facts which give rise to this matter are not complex. [ 3 ] On or about May 25, 2017, the defendant Madhur Sharma purchased a 2009 Mercedes Benz C230 from Myrna Hamilton by way of private sale for the sum of $9,000.00. That sale, for the most part, was facilitated by an agent/friend of Myrna Hamilton known as Mothanna Dawoud. There was no written sales agreement. It is clear that Mr. Sharma purchased the vehicle on an ‘as is’ basis and that the transfer was effected when Mr. Sharma paid $9,000.00 to Ms. Hamilton’s agent, and when Mr.

Sharma, in turn, received the Transfer of Ownership portion of the Saskatchewan Certificate of Registration purportedly signed by Ms. Hamilton. [ 4 ] Mr. Sharma came to Canada from India in 2013. He presented at trial as thoughtful and articulate. Prior to purchasing this vehicle he did not search the Personal Property Registry to determine whether or not a security interest had been registered against the vehicle. He asserted at trial that he was unfamiliar with the existence of that registry. It is clear that Mr.

Sharma did not ask about the existence of any charge or encumbrance against the vehicle, nor did Ms. Hamilton or her agent advise him that one might exist. [ 5 ] Sometime in the early fall of 2017, Janet Lysyk decided that she would help her son, Edward Brian Lysyk, obtain personal transportation. It was her intention to purchase a vehicle, register it in her name, and make it available to her son for his use. Ms. Lysyk left it up to her son to search for, and eventually negotiate for, the purchase of that vehicle on her behalf. [ 6 ] Mr. Lysyk saw an advertisement online in which Mr.

Sharma was seeking to sell the Mercedes that he had purchased in May. Mr. Lysyk met with Mr. Sharma to view the vehicle and to take it for a test drive. Subject to having it inspected by a mechanic, which was done, Mr. Lysyk agreed, on his mother’s behalf, to purchase the vehicle for the sum of $12,500.00. There was no written sales agreement. Mr. Sharma asserts that the only conversation regarding the terms of the sale occurred when, upon first viewing the vehicle, Mr. Lysyk noted that one of the car seats had a rip in it. Mr.

Sharma’s response, to the very best of his recollection, was that ‘it is what it is and as you see it now’. Mr. Lysyk does not dispute that this rather limited characterization of the overall status of the vehicle was made. [ 7 ] It is clear that Mr. Sharma never mentioned the existence of an outstanding charge or encumbrance on the vehicle and I am satisfied that he was unaware that one existed. It is also clear that Mr. Lysyk never asked about any liens or encumbrances, and it is clear that Janet Lysyk never made such an inquiry.

That said, Janet Lysyk stated at trial that she was familiar with the existence of the personal property registry and that she could have searched the registry but simply did not think to do so. Transfer of ownership was, again, affected when Ms. Lysyk paid the sum of $12,500.00 and Mr. Sharma executed the Transfer of Ownership portion of the Saskatchewan Certificate of Registration. The sale occurred on October 23, 2017. [ 8 ] Ms. Lysyk registered the vehicle in her name.

Shortly after being purchased, this vehicle was involved in an accident and Saskatchewan Government Insurance (‘SGI’) concluded that the cost of repair exceeded its actual cash value. Determining that the vehicle was a ‘total loss’, the parties acknowledged the actual cash value of the vehicle prior to the accident, and therefore the appropriate insurance payout amount, should equate to the sum of $13,900.00. After payment of Ms.

Lysyk’s $200.00 insurance deductible, the payout was reduced to $13,700.00. [ 9 ] In accordance with its procedural due diligence, SGI conducted a search of the Personal Property Registry. That search confirmed that the Bank of Nova Scotia had registered a personal property security interest against the vehicle on September 10, 2016, naming the debtor as Jessica Batty.

Since the value of that security interest met or exceeded the amount of the insurance payout, the entire sum of $13,700.00 was forwarded to the Bank of Nova Scotia in satisfaction of its security interest. [ 10 ] Janet Lysyk then commenced action against Mr. Sharma seeking to recover the sum of $13,700.00, alleging that the vehicle was sold to her by the defendant ‘without having clear title’. While the claim lacks the detail that might be required if filed in the Court of Queen’s Bench, it is clear to all concerned that Ms. Lysyk is relying on the implied warranty that arises by virtue of

section 14(

c) of the Act. [ 11 ] Mr. Sharma filed a reply alleging that the vehicle was sold ‘as is’. He asserts, pursuant to the doctrine of Caveat Emptor , that Ms. Lysyk took the vehicle as it was presented to her (or her agent) without the benefit of any warranty, express or implied. He argues that it was Ms. Lysyk‘s responsibility to ‘do her due diligence before buying the vehicle’. [ 12 ] Mr. Sharma also brought a third party claim against Myrna Hamilton. Again, the claim is not as clear as what would have been hoped for, but it is clear that Mr.

Sharma seeks recovery of the sum of $9,000.00 that he paid for the vehicle by virtue of the fact that Ms. Hamilton failed to ensure that he received the vehicle free and clear of any charges or encumbrances. As previously stated, the evidence at trial confirms that Mr. Sharma did, in fact, pay $9,000.00 for the vehicle. [ 13 ] Mr. Sharma had significant difficulty in attempting to locate and serve Ms. Hamilton. He eventually sought and obtained a Substitutional Service Order from this Court, and service was made in accordance with that Order. Ms.

Hamilton failed to file a reply to the third party claim and she failed to attend at trial. In consequence, no evidence was presented to explain how, or in what circumstances, it came to be that the vehicle was transferred from Jessica Batty to Myrna Hamilton.

Issues [ 14 ] The Court is called upon to address three issues: 1. On the main action, in the absence of any other contractual terms entered into between the parties (other than the purchase price), was Mr. Sharma’s caveat, that the vehicle was to be sold as ‘what it is and as you see it now’, sufficient to displace the implied warranty under

section 14(

c) of the Act ? 2. On the third party claim, in the absence of any other contractual terms entered into between the parties (other than the purchase price) was Ms. Hamilton’s caveat that the vehicle was to be sold ‘as is’ sufficient to displace that same implied warranty? 3. If the answer is no to each of questions 1 and 2, are the parties entitled to damages and if so, in what amount? The Law and its Application to the Facts [ 15 ] These issues demand a consideration of the wording of each of

section 14 and 54 of the Act. The relevant portions of the Act read: Implied undertaking as to title 14 In a contract of sale unless the circumstances of the contract are such as to show a different intention there is: …

c) an implied warranty that the goods shall be free from any charge or encumbrance in favour of a third party not declared or known to the buyer before or at the time when the contract was made . … Exclusion of implied terms and conditions 54 Where a right, duty or liability would arise under a contract of sale by implication of law it may be negatived or varied by express agreement or by the course of dealing between the parties or by usage if the usage be such as to bind both parties to the contract . [Underlining for emphasis added] [ 16 ] I start with the obvious acknowledgment that the arrangement entered into between Mr.

Sharma and Ms. Lysyk (and equally as between Ms. Hamilton and Mr. Sharma) were contracts of sale as defined by the Act.

Section 3 of the Act defines a contract of sale of goods as ‘a contract whereby the seller transfers or agrees to transfer the property in goods to a buyer for a money consideration called the price’. It is equally obvious that vehicles are ‘goods’ within the meaning of the Act .

Section 2(

h) defines goods as including ‘all chattels personal’. Simply put, the contracts of sale entered into between each of the respective parties in this dispute come within the confines of the Act and are, therefore, subject to the statutory provisions set forth in the Act. [ 17 ] I have highlighted certain portions of

section 14 and

section 54 because, in my view, these phrases have the effect of qualifying what would otherwise be an unqualified imposition of the warranty referred to in

section 14(

c) of the Act. Put another way: (

a) unless the circumstances of the contract are such as to show a different intention; and (

b) unless the charge or encumbrance was either declared or known to the buyer before or at the time when the contract was made; and (

c) unless the implied warranty was negatived or varied by express agreement; or (

d) by the course of dealing between the parties; or (

e) by usage if the usage be such as to bind both parties to the contract; then (

f) the implied warranty operates as if it were an express term of the contract. [ 18 ] On the facts presented to the Court, it is clear and obvious that the existence of the encumbrance was not declared or made known to either of Mr. Sharma, when he purchased the vehicle, or to Ms. Lysyk when she purchased the vehicle from Mr. Sharma. [ 19 ] Mr. Sharma has argued that because Ms. Lysyk knew of the existence of the Personal Property Registry, she should have taken steps to search that registry, and therefore she should have known, or if she had searched it, she would then have known, of the encumbrance.

While I have some sympathy for this line of argument I cannot accept it. First, I would refer to

section 47 of The Personal Property Security Act, 1993 , SS 1993, c P-6.2 which reads: 47 Registration of a financing statement in the registry is not constructive notice or knowledge of its existence or contents to any person.

This provision effectively negates any suggestion that persons in Ms. Lysyk’s position are to be presumed to know, constructively, of theexistence of the encumbrance. In addition, existing case law from the Ontario High Court of Justice dispels any argument that ThePersonal Property Security Act confers a benefit on a vendor. [20] In Zuker v Paul (1982), (ON SCDC), 135 DLR (3d) 481, Ont H Ct J (Div Ct), leave to appeal refused (1982),38 OR (2d) 220 (CA), that Court heard an appeal from the decision given by the Ontario Small Claims Court. The plaintiff had bought acar from the defendant.

At the time, neither party knew that the Bank of Nova Scotia had registered a security interest against thevehicle. The plaintiff brought an action in the Small Claims Court against the defendant for damages for breach of an implied warrantyon the sale to her by the defendant of the vehicle in question. The lower court accepted the defendant’s argument that registration by thebank constituted notice to the plaintiff and dismissed the plaintiff’s claim because she had failed to search the Registry. The learnedappeal judge disagreed.

At para 8 Justice Smith stated: [8] In my view, The Personal Property Security Act is designed for the protection of buyers and of encumbrancers. I accept theargument that is does not confer a benefit upon vendors. Caveat emptor does not apply. And if it does, it cannot provide the vendor withan answer to the claim. The purchaser should have searched but so should the vendor when he purchased himself. By her failure tosearch, the buyer became at risk, the risk of losing the goods she bargained for to an encumbrancer with a valid interest, leaving her onlywith a recourse against the seller.

In this case, fortunately for her, the security had become unperfected and the vendor turned out to besolvent. There does not appear to be any valid reason to deny her claim. … The “deemed notice” provision of the Personal PropertySecurity Act has nothing to do with the contractual arrangements between the buyer and the seller.

The rights and obligations of theimmediate parties to this transaction are defined by the common law and by its subsequent codification in the area of sale of goods. [21] I read Justice Smith’s decision as concluding that in the absence of providing actual notice of an encumbrance, a vendor of goodscannot avoid his obligation to sell goods free of a charge or encumbrance simply because a purchaser either could have, or should have,searched the registry. On that basis, caveat emptor does not apply in so far as it attempts to insulate a vendor from the statutory warrantyset out under

section 14(

c) of the Act. An appeal of the decision of Justice Smith was refused leave. That decision is from a SuperiorCourt in Ontario on facts somewhat similar to those presented to this court. While not binding upon this court, I find the reasoning andthe conclusion persuasive. [22] In the result, the qualification set out in

section 14(

c) of the Act - ‘unless the charge or encumbrance was either declared orknown to the buyer before or at the time when the contract was made’ - does not assist Mr. Sharma in his defence of Ms. Lysyk’s claim,nor does it assist Ms. Hamilton in respect of the third party claim brought by Mr. Sharma. [23] Can Mr. Sharma nevertheless argue that the caveat he placed on the sale of the vehicle, to the effect that ‘it is what it is and asyou see it now’ negated the implied warranty because, to use the wording set forth in

section 14, ‘the circumstances of the contract aresuch as to show a different intention’? I do not think so. A contract is nothing more than an agreement between certain parties. Anagreement in turn anticipates that there is a meeting of the minds as to a particular set of circumstances. In the instant circumstances, it isclear that Mr. Sharma did not know that there was an encumbrance on the vehicle and there is certainly nothing to suggest that at anypertinent time he turned his mind to the possibility that there might have been an encumbrance on the vehicle. Certainly Ms. Lysyk didnot turn her mind to it.

If neither party contemplated that an encumbrance might have been a concern, how can it be argued that thecontract contemplated an intention different than that the vehicle would be sold free of any encumbrance?

There is no question thatparties are free to expressly contract out of the implied warranties set out under the Act, but it seems rather basic that if that is the intentof the parties, then that intention should either be expressed with sufficient clarity so that the parties are each aware of what preciselythey are contracting away, or alternatively, the circumstances of the contract should evince an intention of the parties to speak to theissue of a charge or encumbrance. Put another way, since the Act imports the warranty in

section 14(

c) into the contract, then, in order topull that warranty back outside of the agreement, a court must be satisfied that both of the parties are expressing a different intention –that there can be found to exist a meeting of the minds to that effect. I do not find that the words used by Mr. Sharma, and presumablyaccepted by Ms. Lysyk, are sufficiently clear to express that different intention, nor do I find that the circumstances surrounding theformation of the contract have like effect. The caveat was made in direct response to the existence of a tear in the car seat.

While thisphrase may have the effect of speaking to the overall quality or fitness of the vehicle, I do not think it is sufficiently clear to extend to anegation of the warranty that the vehicle is free of charges or encumbrances. The argument smacks of an ex poste facto justification fornon-compliance with the warranty that is prima facie imported into the contract. [24] In my view, Deonanan v Wingate, [1994] OJ No 1916 (QL) (Ct J (Gen Div)) supports that conclusion.

In that case, a seller of amotor home (in which he did not have legal title) prepared a bill of sale which stated that the property was ‘[s]old as is, no warranty.Unfit’. While the seller attempted to argue that the phrase related to title, Justice Morrisey rejected that

interpretation and found as a factthat the endorsement, related to the mechanical fitness of the property and not to legal title. It did not, therefore, negate the statutorywarranty of good title. Justice Morrisey concluded that even though the seller was unaware of the defect in title, the seller remainedresponsible for ensuring that good title passed to the purchaser. When I consider the circumstances under which Mr.

Sharma’s caveatwas made to the effect that the vehicle ‘is what it is and as it is’, I am of the view that a reasonable person would conclude that the caveatwas intended to refer to the vehicle’s quality and fitness and not to negate any warranty that the vehicle was free of any charge orencumbrance. It does not, therefore, assist Mr. Sharma. In like measure, the slightly less wordy ‘as is’ caveat upon which Ms. Hamiltonwould presumably rely upon in her dealings with Mr. Sharma would likewise not suffice to negate the implied warranty under section14(c). [25] Can Mr.

Sharma nevertheless rely on the exclusion of implied terms and conditions set forth in

section 54 of the Act? I thinknot. The first exclusion set forth in

section 54 can be dealt with summarily. It reads: ‘may be negatived or varied by express agreement’.It is absolutely clear to me that there was no express agreement that the vehicle would be sold subject to an existing charge orencumbrance. In Hunter Engineering Co. v Syncrude Canada Ltd., (SCC), [1989] 1 SCR 426 (SCC) Chief JusticeDickson made it clear at pages 449-50 that ‘[i]f one wishes to contract out of statutory protections, this must be done by clear and direct

language, particularly where the parties are two large, commercially sophisticated companies.’ While the present case does not involvetwo large sophisticated companies, I do not think that this obligation is only required when dealing with sophisticated companies, butonly that is has even more particular application in that event. [26] The second and third exclusionary clauses in

section 54 speaks to ‘the course of dealing between the parties or by usage if theusage be such to bind both parties to the contract’. These exclusions are dealt with by Professor Fridman in his text Sale of Goods in Canada 6th ed. (Toronto: Carswell, 2013) at p 147-48: A custom or usage, to have such effect, most be notorious, certain and reasonable and must not offend against the intention of anylegislative enactment.

Nor must it be inconsistent with “the tenor of the document as a whole”. … The theoretical basis of theincorporation of customs as implied terms of a contract of sale is that by not expressly contracting in a manner to exclude such customs,the parties may be taken to have tacitly agreed to be bound contractually by any custom of the trade, business or market which may besaid to be known to them by virtue of their general dealings therein.

This will be operative largely where the parties are familiar with thetrade and in the same walk of life. … Second, where the parties have previously transacted contracts of a similar type to the one the construction of which is in question, andhave included certain terms which are not expressly agreed to in such latter contract, it may be possible to infer, as a matter of fact, thatthey must have intended to contract on the same basis as the earlier contracts. [27] At trial, no evidence was led as to any notorious, certain and reasonable custom or usage that would normally govern sales ofprivate vehicles, and which might prove to be operative in the instant circumstances.

Nor am I able to give judicial consideration to anysuch custom or usage. Simply put, in the absence of evidence to the contrary, I am unable to assume that every sale of a private vehicle‘notoriously, certainly and reasonably anticipates that the implied warranty under

section 14(

c) of the Act is negatived. In addition, it isclear to me that, on the evidence, these parties have dealt with each other on precisely one occasion, the one that brings them to thisCourt. As such they have not ‘transacted contracts of a similar type’ so as to invite me to infer that, based on past agreements, theyintended to negative the implied warranty set out under

section 14(c). In the result, Mr. Sharma cannot rely on any of the latterexclusionary clauses in

section 54 nor, I so find, could Ms. Hamilton so rely, in so far as her dealings related to Mr. Sharma areconcerned. Conclusion [28] For all of the foregoing reasons, I am satisfied that when Mr. Sharma sold the vehicle to Ms. Lysyk, the implied warranty setout in

section 14(

c) of the Act was operative, and I conclude that the same implied warranty was operative when Ms. Hamilton sold thevehicle to Mr. Sharma. [29] Ms. Lysyk has sought damages in the sum of $13,700.00 which equates not only to the contract price, but also to what might bedescribed as her expectation interest under the contract. That is to say, she is relying on the general principle that where a breach ofcontract has been proven, an innocent party should be put into the same position, in so far as money can do, that she would have been inhad the contract not been breached.

I see no reason to depart from that general principle in the instant circumstances, and I find comfortfor that conclusion when I consider our Court of Appeal’s decision in Bozsik v Kaufmann (1963), (SK CA), 45 WWR(ns) 316, (Sask Ca). In that case, the plaintiff had purchased a used vehicle from the defendant which was later seized by a third partyunder a chattel mortgage. On appeal Justice Maguire asserted, at para 16, that ‘the remedy is in damages, namely, the actual loss sufferedby the plaintiff as at the date of seizure’. In the case before me, as at the date of seizure, Ms.

Lysyk’s loss equated to the actual value ofthe vehicle and not simply the purchase price. She is entitled to judgment in the sum of $13,700.00. [30] Ms. Lysyk is also entitled to her costs, pursuant to section 36(1) and 36(3) of The Small Claims Act, 2016, SS 2016, c S-50.12. Iaward her the cost of issuing the claim in the sum of $100.00 together with 5% of the judgment amount which equates to the further sumof $685.00.

I decline to award her the full 10% that she might otherwise receive under the regulations as, in my opinion, there are noconvincing reasons why any special consideration should be given to any of the enumerated factors set forth under section 36(3). [31] Ms. Lysyk is also awarded prejudgment interest on her damages, from January 5th, 2018, which is the date when the monies shewas deprived of the money she would otherwise have been entitled to receive. This equates to the further sum of $183.13. [32] Mr. Sharma has also been successful on his third party claim.

He has sought damages in the sum of $9,000.00 which is theprice he paid for the vehicle. He is awarded that amount together with his costs of issuance of the third party claim in the sum of$100.00. He is also awarded further costs under section 36(3) at the rate of 5% for the same reasons that this percentage was awarded toMs. Lysyk. This equates to the sum of $450.00. He is entitled to prejudgment interest on the sum of $9,000.00 from his date of purchaseof the vehicle, which is May 25, 2017. This equates to the sum of $163.35. [33] Ms. Lysyk is entitled to judgment against Mr.

Sharma in the sum totaling $14,668.13. Mr. Sharma is entitled to judgmentagainst Ms. Hamilton in the sum totaling $9,713.35. _______________________Demong, J