Martell v. Reed and Surcess Date:, 2012 BCPC 201

Citation: Martell v. Reed and Surcess Date: 20120620 2012 BCPC 0201 File No: 67509 Registry: Surrey IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: SHERRY ANN MARTELL CLAIMANT AND: JOHN SELDEN REED and SHERRY LYNN SURCESS DEFENDANTS REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE K. D. SKILNICK Counsel for the Claimant: R. Pawliuk Appearing for the Defendants: J. S. Reed Place of Hearing: Surrey , B.C.

Date of Hearing: June 12, 13, 2012 Date of Judgment: June 20, 2012 Introduction [ 1 ] The Claimant’s husband Terry Beck purchased a home from the Defendants and took possession of it in October of 2009. (On September 16, 2009, Mr. Beck assigned his interest under the contract of purchase and sale he made with the Defendants to the Claimant.) Shortly after taking possession of the home, Mr. Beck became suspicious that there may be problems beneath the floor of the ensuite shower.

Being a skilled tradesman, he removed the shower floor and discovered considerable water damage, rot and mould to the support beams and joists beneath the shower floor. The damage was significant enough to cause legitimate concern about the structural integrity of the home. Mr.

Beck and the Claimant moved out of the home and repairs were conducted at a cost in excess of $25,000 (the limit of this court’s jurisdiction.) The Claimant has brought this Claim to recover those costs and has agreed to abandon any excess amount over $25,000. [ 2 ] The Claimant argues that the Defendants are liable for these damages both in contract and in tort. It is her position that the Defendants knew or ought to have known about this deficiency and that they have either made a fraudulent or a negligent misrepresentation that they were unaware of the problems discovered by Mr. Beck.

In the alternative, the Claimant argues that the Defendants have breached the contract of purchase and sale. The property disclosure statement made by the Defendants did not disclose the problems discovered by Mr. Beck and the Claimant argues that by making a false statement that they were unaware of these problems, they have breached the contract. [ 3 ] The Defendants deny that they have made any fraudulent or negligent misrepresentation. They maintain that they were completely unaware of the problems discovered by Mr. Beck.

They rely on the doctrine of caveat emptor (“let the buyer beware”) and also argue that the Claimant agreed to purchase the house as it was in return for a reduction in price, which they agreed to. The Defendants say that it is the Claimant who is in breach of the contract by not agreeing to take the house as she found it, after receiving a reduction in the purchase price and after having conducted a home inspection.

Summary of Evidence [ 4 ] In 2009, the Defendants were in the course of a marital separation. According to their evidence, the Supreme Court of British Columbia had made an order requiring them to sell their matrimonial home located at 1483-136 th Street in Surrey, BC. The home was listed for sale and in the course of selling the home the Defendants completed a property disclosure statement. In the disclosure statement, the Defendants answered “no” to the following questions: 2. C. Are you aware of any additions or alterations made without a required permit? D.

Are you aware of any structural problems with any of the buildings on the property? F. Are you aware of any damage due to wind, fire or water? G. Are you aware of any infestation or unrepaired damage by insects or rodents? H. Are you aware of any leakage or unrepaired damage? J. Are you aware of any problems with the plumbing system? [ 5 ] In July, Mr. Beck and the Defendants signed a Contract of Purchase and Sale of the Defendant’s home, agreeing on a purchase price of $520,000. Possession was originally scheduled to take place on August 27 th .

The contract also provided that the transaction was “subject to the buyer completing a building inspection to his complete satisfaction.” Paragraph 18 of the contract also provided as follows: “18. REPRESENTATIONS AND WARRANTIES: There are no representations, warranties, guarantees, promises or agreements other than those set out in this contract and the representations contained in the Property Disclosure statement incorporated into and forming part of this contract, all of which will survive the completion of this sale.” [ 6 ] A home inspection was conducted by Randy Douville of Douville and Company.

In his home inspection report, Mr. Douville noted a number of concerns about the home. These included the following: (

a) Loose and cracked tiles; (

b) Water staining on the ceiling (Mr. Douville recommended that a leak or repair history be obtained); (

c) A leaking water heater; (

d) A bathtub with a slow drain;

(

e) Rodent droppings in the garage attic, and a rodent carcass in the crawl space (he recommended that a pest inspection history be obtained from the owner and that a pest specialist be consulted); (

f) Rot and suspected damage to the flooring sills, and rot damage to joists (he recommended repair of rot damage to framing components at the east crawl space behind the front porch and an upgrade of the front porch, as well as sealing the foundation wall, noting possible problems caused by rats); (

g) Advanced deterioration to the roof. [ 7 ] Mr. Douville concluded his report with the suggestion that a leak and repair history of the house be obtained, as this was the likely cause of a ceiling stain in the laundry room. He added that the “possibility of concealed damage exists.” [ 8 ] On August 3, 2009, Mr. Beck emailed the Defendants’ realtor setting out a list of deficiencies and his estimate of what it would cost to repair them. He estimated the cost to repair the deficiencies at $45,100. He concluded his email by saying “I am willing to go $500,000 and take care of the problems myself.

I will not negotiate this number.” [ 9 ] The Defendants, in the words of Mr. Reed, “accepted this ‘take it or leave it’ number” and the price was reduced to $500,000. The Contract of Purchase and sale was amended to change the price and possession date. An addendum dated August 8, 2009, provided as follows: Property Condition Disclosure Statement forms a part of this contract. Buyer and seller agree to the purchase price being adjusted to $500,000 (five hundred thousand dollars) in lieu of deficiencies revealed by the building inspection report. [ 10 ] The Claimant and Mr. Beck took possession of the home. Mr.

Beck testified that before concluding the transaction, he inquired of Mr. Reed about the water staining on the ceiling and that Mr. Reed told him that the stain had been caused from an overflowing toilet. He accepted the explanation as being reasonable and this was the extent of his obtaining a “leak or repair history” as recommended by Mr. Douville. No other investigation of possible concealed water damage was undertaken. Mr. Reed denied giving this explanation. [ 11 ] Mr.

Beck testified that very early on in his occupancy of the house, he was using the shower in the ensuite when he noticed that the floor underneath the shower was not solid. He was concerned about this and he later removed the shower floor. He discovered that someone had cut a hole in the shower floor, likely to accommodate the moving of the shower drain. The workmanship was very poor. Among other things, the workman had cut unto a main beam, completely eliminating its structural integrity. Mr.

Beck noticed black rot on some of the wood below the floor and on further inspection discovered that the entire support beam was rotten. Pictures entered into evidence show extensive rotting and mould on the support beam and floor joists. The damage was so extensive as to raise serious concerns about the floor structure and its safety. [ 12 ] A

section of the shower base contained a manufacturer’s inspection sticker showing that it had been inspected in 2002, which led Mr. Beck to conclude that the shower had been replaced sometime after, likely in 2003. It also appeared as if someone had tried to reinforce the rotting beams using lumber that matched the colour of lumber used in the construction of the deck to the property. These efforts were completely useless in providing any support. [ 13 ] Mr. Beck wrote to the Defendants informing them of what he had discovered. In the letter he accused “the homeowner” of trying to “band-aid the problem”.

He pointed out that the disclosure statement failed to mention any work done to the shower or to the rotting structure. [ 14 ] Mr. Reed replied to Mr. Beck on November 30, 2009, stating that he did not know anything about these problems, that he was “not a plumber and did no plumbing to the house”, and that since he had already dropped the price of the house following the home inspection, he was not prepared to discuss any further price reduction. [ 15 ] Mr. Beck hired Firstonsite Restoration to examine the extent of the damage.

Their report concluded as follows: “In conclusion, it appears as though a layperson tried to make repairs to the rotted and mould affected areas by using small pieces of wood and nails to reinforce the beams. It appears as though water has run down plastic applied to a beam to an outside wall thereby affecting it. All insulation in the kitchen, dining room areas have mould spores. It is recommended that all electrical, plumbing, drywall and paint, moldings, tile and other flooring be replaced. Roofing materials and beams in affected areas to be removed and replaced.

At this time, without further investigation, we would estimate cost to repair between $30,000 to $40,000.” [ 16 ] Jason Cole, the author of this report, described what he observed as being “late stage dry rot”, in which the structure of the beams has been compromised and can not be repaired. It was his opinion that this problem did not occur during the initial construction of the home because the problem was localized and did not appear anywhere else in the house.

He also concluded that the portion of the construction that he concluded to be amateurish was likely not done by the original builder, because the quality of construction appears to be quite professional in the remainder of the home. [ 17 ] Mr. Beck and the Claimant moved out of the house because they believed the structure to be unsafe. Part of the claim is for the rental of new premises which the Claimant and Mr. Beck lived in while repairs to the house were completed. The Claimant has provided receipts totalling $46,297.14 for repairs and $9,250 for five months rent of alternate accommodation.

The Defendants take issue with some of these invoices. Specifically, the Claimant did not furnish proof of payment of an estimate from a contracting company

for a significant portion of the repairs, although Mr. Beck testified that he paid that amount to the contractor. [18] Linda Brock is a retired architect with considerable expertise in the field of building envelope leaks. She is the author ofDesigning the Exterior Wall: An Architectural Guide to the Vertical Enclosure, (2005, John Wiley & Sons, New York) and is anacquaintance of the Defendants. She did not inspect the subject premises, but offered an opinion based on photographs taken afterdiscovery of the problem by Mr. Beck, but prior to repair.

It was her opinion that a home built in 2002 (when this home was built) wouldexperience some problems with leakage because of contemporary construction standards at that time. From not having inspected thepremises, she was unable to offer an opinion as to why the damage may have been localised to the areas where the rot was found. [19] Each of the Defendants testified that they were unaware of any problem of leakage or water damage in the home prior tobeing informed of the problem by Mr. Beck. They were the only occupants of the home prior to the Claimant and Mr. Beck.

Ms.Surcess testified that she very early on in her occupancy in the house, the shower in the ensuite off of the master bedroom was replacedbecause she wanted a larger shower. She testified that an installer was hired for the job, but that she is unable to recall who that personwas. Neither she nor Mr. Reed felt qualified to replace the shower they hired someone else to do the job. It was her evidence that shenever observed any water damage, mould or other problems, adding that she had separated from her husband and did not reside in thehome for a year prior to the sale.

She was also unaware of any rodent problems. [20] Ms. Surcess does have a recollection of going to Venco Industries to purchase the new shower stall. Mr. Beck doubts that thisis the case because, in his experience, Venco is a wholesale vendor that would not sell its products to retail customers. [21] Mr. Reed also testified that he was unaware of any structural damage or water damage to the home and that the statementsmade in the disclosure statement were true to the best of his knowledge.

He testified that in the time that he resided in the home, he hiredothers to install hardwood flooring and to replace the shower in the ensuite bathroom. He testified that despite his best efforts to locatethe name of the person who installed the new shower, he has been unable to do so. He testified that he never looked under the flooringwhen the shower was being replaced and to his recollection the work was completed rather quickly. Both he and his ex-wife are retiredteachers and, in his words, “we don’t know about this stuff.” [22] Since 2002 Mr.

Reed has had a problem with seizures and he testified that his doctor has warned him that mould toxicity maytrigger a seizure and therefore had he known of a problem with rot and mould in his house, he would have immediately addressed itbecause of the serious health risk it posed for him. He also points out that in the contract of purchase and sale he negotiated an option torent the premises for up to three months, something he would not have done if he had known about the problems which weresubsequently discovered. More directly, in his evidence he denied that he had ever attempted to do any repairs himself.

He concluded hisevidence by saying that he felt “taken” by the person he had hired to install the new shower. [23] The Defendants question some of the expenses claimed by the Claimant, but it is acknowledged by everyone that thestructural damage to the home is serious and extensive. Without itemizing every board and nail, I am satisfied that the cost of repairingthe damage was in excess of $25,000. Applicable Law [24] The burden of proof in a civil case rests with the Claimant to prove her case on a balance of probabilities. As the SupremeCourt of Canada stated in F. H. V.

McDougall 2008 SCC 53 , [2008] 3 S.C.R. 41, at para. [49]: “[I]n civil cases there is only one standard of proof and that is proof on a balance of probabilities. In all civil cases, the trial judge mustscrutinize the relevant evidence with care to determine whether it is more likely than not that an alleged event occurred.” [25] In this case the Defendant relies on the doctrine of caveat emptor (or “buyer beware”). The Supreme Court of Canada, inFraser-Reid v. Droumtsekas (SCC), [1980] 1 S.C.R. 720 held that the doctrine of caveat emptor continues to apply tohouse purchases in Canada. Mr.

Justice Dickson (later Chief Justice) began his reasons as follows: Although the common law doctrine of caveat emptor has long since ceased to play any significant

part in the sale of goods, it has lostlittle of its pristine force in the sale of land. In 1931, a breach was created in the doctrine that the buyer must beware, with recognition byan English court of an implied warranty of fitness for habitation in the sale of an uncompleted house. The breach has since been opened alittle wider in some of the states of the United States by extending the warranty to completed houses when the seller is the builder andthe defect is latent.

Otherwise, notwithstanding new methods of house merchandising and, in general, increased concern for consumerprotection, caveat emptor remains a force to be reckoned with by the credulous or indolent purchaser of housing property. Lackingexpress warranties, he may be in difficulty because there is no implied warranty of fitness for human habitation upon the purchase of ahouse already completed at the time of sale.

The rationale stems from the laissez-faire attitudes of the eighteenth and nineteenthcenturies and the notion that a purchaser must fend for himself, seeking protection by express warranty or by independent examination ofthe premises. If he fails to do either, he is without remedy either at law or in equity, in the absence of fraud or fundamental differencebetween that which was bargained for and that obtained. [26] There are some exceptions to the doctrine of caveat emptor as it applies to purchases of real estate. These are set out in greaterdetail in Hanslo v. Barry 2011 BCSC 1624, a decision of Mr.

Justice Joyce of the British Columbia Supreme Court. These exceptionsinclude: 1. Fraud 2. Negligent Misrepresentation

3. Breach of Contract [27] These exceptions were summarized by Madam Justice Bennett, then a member of the British Columbia Supreme Court, inMcCluskie v.

Reynolds (BC SC), [1998] 65 B.C.L.R. (3d) 191 at para. 53 as follows: 53 In conclusion on this point, the authorities with which I have been presented suggest that the doctrine of caveat emptor will notoperate to deny the plaintiff's recovery in the following situations: 1. where the vendor fraudulently misrepresents or conceals; 2. where the vendor knows of a latent defect rendering the house unfit for human habitation; 3. where the vendor is reckless as to the truth or falsity of statements relating to the fitness of the house for habitation; 4. where the vendor has breached his duty to disclose a latent defect which renders the premises dangerous. (

a) Fraudulent Misrepresentation [28] In Hanslo v. Barry, Justice Joyce describes “the classic and most obvious form of fraud” as being one on which “the vendorpositively misstates to the purchaser facts, which he knows to be false, for the purpose of deceiving the purchaser.” He goes on to statethat fraud can also include the vendor showing reckless disregard for the truth of representations, where latent defects which render thepremises dangerous are concealed by the vendor or where the vendor fails to disclose such defects to the vendor of which the vendor hasknowledge. Latent defects are those which are not discoverable by observation and reasonable inquiry. (

b) Negligent Misrepresentation [29] A second exception to the doctrine of caveat emptor may be found in cases where the misrepresentation by the vendor is not afraudulent one, but is a negligent one. The Supreme Court of Canada set out the elements of negligent misrepresentation in Queen v.Cognos Inc. (SCC), [1993] 1 S.C.R. 87, 99 D.L.R. (4th) 626.

They are as follows: (1) there must be a duty of care based on a "special relationship" between the representor and the representee; (2) the representation in question must be untrue, inaccurate, or misleading; (3) the representor must have acted negligently in making said representation; (4) the representee must have relied, in a reasonable manner, on the said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damages resulted. [30] In order for a negligent misrepresentation to be found in the case of non-disclosure of a latent defect which renders thepremises dangerous, the law imposes a duty on the vendor to disclose these defects even where he or she is not subjectively aware ofthem, but where he or she is reckless as to whether or not they exist.

In McCluskie v. Reynolds, supra, Madam Justice Bennett held (atpara. 54) that it is up to the plaintiff to prove that the defendant has been reckless as to the existence of such defects. (

c) Breach of Contract [31] Finally, the doctrine of caveat emptor may not apply where the vendor is in breach of the Contract of Purchase and Sale. Inthis case, paragraph 18 of the Contract of Purchase and Sale provided that “the representations contained in the Property Disclosurestatement [are] incorporated into and forming part of this contract, all of which will survive the completion of this sale.” [32] In Hanslo v. Barry, supra, Mr. Justice Joyce considered the meaning of this clause and of how the representations in theProperty Disclosure Statement (PDS) are to be considered.

He explained as follows: [96] Based on these authorities, it is my view that in this case, the incorporation of the PDS into the contract did not turn therepresentations contained in the PDS into contractual warranties. There was no warranty that the circumstances referred to in thequestions, which were answered in the negative, did not exist. They are representations as to the true state of knowledge of the vendorand may support a claim in breach of contract if the statement was untrue and did not accord with the vendor’s true belief at the time.

Itis my view that insofar as a claim is based on breach of contract, it is not necessary that the representations relate to latent defects that aredangerous or that render the premises uninhabitable. It is sufficient if there is a breach of contract which caused damage. [33] In

summary, by making the representations made in the Property Disclosure Statement, the vendor does not guarantee that theproperty is free of the defects mentioned. The vendor is making representations about the state of his or her knowledge at the time thosestatements were made. If the statements made can be shown to be contrary to the knowledge of the vendors at the time they were made, abreach of contract may be proven. Analysis

[ 34 ] Counsel for the Claimant takes the position that the Defendants are liable under all three causes of action: fraud, negligent misrepresentation and breach of contract. To succeed on these causes of action, the Claimant must prove that the Defendants had knowledge of the latent defects in the home (i.e. the water damage beneath the shower floor) or at the very least was reckless as the existence of such damage.

The burden of proof rests with the Claimant to prove that the Defendants had such knowledge, and I must be satisfied of this on a balance of probabilities. [ 35 ] Such knowledge may be proven by direct evidence or by circumstantial evidence. For example, if the Defendants or either of them had admitted that they knew that this damage existed prior to the sale of the home, this would constitute direct evidence of such knowledge on their part.

Similarly, if a credible witness had testified that the Defendants admitted in the presence of the witness that they knew about the latent defects, this may serve to prove the knowledge on the part of the Defendants necessary for these causes of action. [ 36 ] The Defendants have both testified that they did not have knowledge of the latent defects and that when they signed the Property Disclosure Statement, they were unaware of any water damage or of the existence of any of the problems found by Mr. Beck.

There is no admission of knowledge on their part and no other witness has testified that the Defendants have admitted to such knowledge, not even the Claimant. [ 37 ] Counsel for the Claimant argues that knowledge on the part of the Defendants has been proven through circumstantial evidence. Circumstantial evidence is proof by inference. An inference is a conclusion that logically flows from proven facts. Inferences must be reasonable. They must take into account reasonable probabilities and must also factor in any reasonable possibility of contrary conclusions which may be drawn from the same facts.

An inference is not the same thing as a suspicion. Suspecting that the Defendants had knowledge and proving that they had knowledge are different things. [ 38 ] Counsel for the Claimant asks that I disbelieve the Defendants’ evidence that the replacement of their shower was conducted for reasons of personal preference as opposed to awareness of a specific leakage problem.

She also argues that the presence of lumber similar in colour to that of the deck supports the inference that a patch job was clumsily and ineffectively attempted and that this was not the work of a skilled tradesman, but rather more likely the work of an unskilled person such as Mr. Reed. She also suggests that from the failure of the Defendants to recall the name of the person who replaced the shower floor, coupled with their convenient memory of other details, the evidence of the Defendants lacks a ring of truth.

In essence, counsel for the Claimant asks that I find the evidence of the Defendants to be lacking in credibility and that I should infer that the Defendants had knowledge of the defect because it was Mr. Reed who attempted the clumsy repair of it. [ 39 ] Mr. Reed denies any knowledge on his part or on the part of Ms. Surcess about the latent defects that existed in their home.

He states that it is unreasonable to conclude that he would have permitted an unsafe condition such as this to exist over the years, placing himself and his family in jeopardy, especially in light of his medical condition, and especially knowing that being exposed to mould or fungus could exacerbate it. He points out that the sale of the house was not an attempt to unload a lemon, but was one forced by court order. He adds that he had negotiated an option to rent the house for several months after the sale, something inconsistent with his having knowledge of a dangerous structural problem.

He points out that he and his Co-Defendant are retired teachers, unskilled in matters of home repair. A reasonable inference to be drawn from these facts is that the workman he hired to replace his shower was unskilled and caused all of these problems without the knowledge of the Defendants. [ 40 ] On a consideration of the evidence, I am unable to conclude, on a balance of probabilities, that the Defendants had knowledge of the latent defects. I agree with counsel for the Claimant that there are aspects of the Defendants’ evidence that are suspicious.

But I am unable to find that the Defendants are being untruthful in their testimony that they had no knowledge of the problems beneath the ensuite shower. I find that a clumsy effort on the part of the homeowner is not the only inference which can be reasonably drawn from the evidence. [ 41 ] Mr. Beck and Mr. Cole have testified that they do not believe that the person who cut into the support beam and who patched the floor supports was any sort of professional tradesman. They are certainly correct that there is nothing professional about the quality of the work performed, and both Mr. Beck and Mr.

Cole are to be commended for the standard of professionalism which both of them apply to themselves and expect of others in the trades. Regrettably, it has been the experience of the Small Claims Courts of this province that many persons calling themselves professional tradesmen or holding themselves out to unsuspecting members of the public as such will often perform negligent and substandard work for customers lacking knowledge in the field of home repair. In this case, the theory put forth by counsel for the Claimant that the work was performed by the homeowner is one possibility.

Equally possible or even more likely is that the Defendants hired a workman unconcerned about the quality of work performed or of the consequences of shoddy workmanship. For these reasons I find that the Claimant has not proven, on a balance of probabilities, that the Defendants had knowledge of, or were reckless as to the existence of the latent defects found to exist in this case. [ 42 ] I also find that the Defendants are not liable to the Claimant on another ground, that being the terms of the contract that was made between the parties.

Specifically, the parties agreed that the purchase price would be “adjusted to $500,000 (five hundred thousand dollars) in lieu of deficiencies revealed by the building inspection report.” In other words, the Claimant agreed to purchase the home with the deficiencies revealed in the home inspection report, in return for a reduction in the purchase price of $20,000. The inspection report revealed the “possibility of concealed damage” and the Claimant in turn agreed to purchase a home with possible concealed damage.

The Claimant made an inquiry of the knowledge of the Defendants and was content to limit any further investigation accordingly. The Claimant agreed to accept the possibility of concealed damage in return for the price reduction given by the Defendants. An order of damages against the Defendants to compensate for this concealed damage would contradict the agreement which the parties have made and deny the Defendants the benefit of their contract with the Claimant.

Order [ 43 ] For the foregoing reasons I find that the Claimant has not proven her Claim against the Defendants and therefore the Claim is dismissed. [ 44 ] Ordinarily, costs are awarded in favour of the successful party. In this case an unfortunate situation has been visited on parties

who are blameless and have done nothing wrong. An order of costs against the Claimant under these circumstances would amount to adding insult to injury and therefore no order as to costs will be made. Dated at the City of Surrey, in the Province of British Columbia this 20 th day of June, 2012. ______________________________________ The Honourable Judge K. D. Skilnick