Gerald Howard Schiltroth v. Jonathan James Aschenbrener, 2010 SKPC 47

IN THE PROVINCIAL COURT OF SASKATCHEWAN CIVIL DIVISION Citation: 2010 SKPC 047 Date: April 30, 2010 File: SC#302 of 2008 Location: Saskatoon _____________________________________________________________________________ Between: Gerald Howard Schiltroth and Jonathan James Aschenbrener - and - RDS Enterprises o/a “Home-Alyze” and Ray Sperling Mr. Gerald Schiltroth For the Plaintiffs Mr. Ray Sperling For the Defendants _____________________________________________________________________________ JUDGMENT D.C.

SCOTT J. _____________________________________________________________________________ Introduction [ 1 ] The plaintiffs Gerald Schiltroth (“Schiltroth) and Jonathan Aschenbrener (“Aschenbrener”) engaged the services of the defendant RDS Enterprises Ltd. o/a Home-Analyze to conduct a home inspection of property which they subsequently purchased. The principal of the defendant company is the defendant Ray Sperling (“Sperling”), who actually performed the home inspection. The

plaintiffs state that the defendant breached the contract or was negligent in failing to identify certain deficiencies with respect to the roof and eaves troughs and claim damages related to the cost to repair those deficiencies. [ 2 ] The defendant says the home inspection was intended to be a visual inspection only and not a warranty against future problems.

Further, the contract contained an exclusion clause which purports to limit the damages to which the plaintiffs might be entitled. [ 3 ] This Court must determine whether the defendant breached its contract with the plaintiffs or was negligent and if so, the effect of the exclusion clause on the plaintiffs’ damages. Background [ 4 ] The plaintiffs first viewed the property at 632 – 7 th Avenue North in Saskatoon in mid-September 2006. The 2 ½ storey house is 3,000 square feet in size and at that time contained four suites. It was built in 1912.

The plaintiffs made an offer to purchase the property for $196,000, subject to financing approval and the completion of a home inspection. The plaintiffs’ realtor arranged for the defendant to inspect the house. [ 5 ] The defendant Sperling, a registered home inspector, performed the inspection on September 28, 2006 from 1:00 p.m. to 5:00 p.m. The plaintiffs were present for the last ½ hour of the inspection and accompanied Sperling to view the attic suite. This was the occasion on which the plaintiffs and Sperling first met.

They signed the contract at that time and were provided with a copy of the inspection report. In other words, the contract was signed after the inspection was completed. The plaintiffs and Sperling reviewed the report together. Details of the inspection are set out later in this judgment. [ 6 ] The plaintiffs removed conditions, completed the purchase and took possession on November 1, 2006. [ 7 ] In March 2007, one of their tenants informed the plaintiffs that pieces of fascia boards and soffits were beginning to fall from the house exposing horse hair insulation.

Corners of shingles were breaking off and some were badly rotten. [ 8 ] The plaintiffs engaged the services of another home inspector who went on the roof. As a result of the second inspection, the plaintiffs discovered a flat portion of the roof approximately 8 ft. x 8 ft. in size between two dormer peaks, which had not been identified by the defendant. This portion of the roof was covered with sheets of asphalt and tar. The flat portion of the roof was not visible from the street. [ 9 ] In addition, the flashings needed to be repaired.

And, there appeared to be some moisture building up in the attic and running into the back porch. [ 10 ] The plaintiffs hired Assured Roofing to make changes and repairs to the roof, soffits, fascia and eaves troughs. The cost was $24,277.18 including GST, for the roof and eaves trough repairs. The plaintiffs claim a portion of this cost. Defendant’s home inspection report [ 11 ] The defendant’s report includes (1) a copy of the agreement between the parties;

(2) Canadian Association of Home & Property Inspectors (CAHPI) standards of practice; (3) the profile and assessment report; (4) maintenance guide; (5) life cycles and costs; and (6) environmental information. [ 12 ] The CAHPI standards, which appear to have followed standards of the American Society of Home Inspectors (ASHI), provide in part that: 4. EXTERIOR 4.1 The inspector shall: A. inspect: 1. the exterior wall covering, flashing and trim. … 4. the eaves, soffits, and fascias where accessible from the ground level. … 5. ROOF SYSTEM 5.1 The inspector shall: A. inspect:

1. the roof covering. 2. the roof drainage systems. 3. the flashings. 8. [sic] the skylights, chimneys, and roof penetrations. B. describe the roof covering and report the methods used to inspect the roof. [ 13 ] The standards provide that the inspection is not intended to identify concealed conditions or latent defects or to determine the condition of systems or components not readily accessible. This point is emphasized throughout the defendant’s report. [ 14 ] Codes are assigned to each component or system inspected.

The following codes are relevant to this case [underlining in the original]: Degrees of Normally Acceptable Conditions A1 – Appears acceptable or in normal condition for its approximate age, but needs periodic monitoring/maintenance to ensure continued serviceability. A2 – Not fully examined due to random sampling, concealment or inaccessibility , but no evidence was observed to indicate a concern at the time of inspection. May need periodic monitoring/maintenance to ensure continued serviceability.

A4 – Does not meet normal standards but is a condition commonly found. [ 15 ] The defendant’s report identified problems with the garage, foundation, front sidewalk and driveway, plumbing, electrical service, fireplace Although the plaintiffs were only partially successful in their claim against the defendants, the indemnification clause in the contract, which makes the plaintiffs liable for the defendants’ costs including legal fees, is not enforceable for the same reasons that the limitation of liability clause is not enforceable. and chimney, and boiler. [ 16 ] The defendant assessed the roof as follows: 1. the estimated age to be 9 years; 2. asphalt shingles; 3. no seal on 2 nd floor deck; 4. roof surface/fasteners were coded as A2; 5. tree branches coded as A1; 6. flashings were coded as A2; 7.

Attic cavity coded as A2. [ 17 ] The report indicated that Sperling observed the roof using binoculars and “at edge”. Other possible methods of observing the roof, included “from ground level”, “partially walked over” and “from above” but none of these was checked off by Sperling. The defendant also had the option of specifically pointing out limitations to observing the roof, including “not accessed”, “height”, “steep slope”, but none was checked. [ 18 ] Regarding other portions of the exterior, the defendant found: 1. Flashings coded as A4;

2. Soffit was identified as made of wood and coded as A2; 3. Fascia was identified as made of wood and coded as A2; 4. Eave troughs were identified as galvanized and coded as A2. Issues 1. Did the defendant breach its contract with the plaintiffs in failing to report the flat roof between the dormers and other problemswith the exterior of the house? 2. Alternatively, is the defendant liable in negligence? 3. What is the effect of the exclusion clause in the contract? 4. To what damages, if any, are the plaintiffs entitled?

Analysis [19] The purpose of a home inspection and the responsibility of home inspectors are matters discussed by Stansfield A.C.J. (as hethen was) in Brownjohn v. Ramsay, 2003 BCPC 2 , [2003] B.C.J. No. 43 (Prov. Ct.).

He stated at para. 17: The broad purpose of securing a residential home inspection is to provide to a lay purchaser expert advice about any substantialdeficiencies in the property which can be discerned upon a visual inspection, and which are of a type or magnitude that reasonably can beexpected to have some bearing upon the purchaser’s decision-making regarding whether they wish to purchase the property at all, orwhether there is some basis upon which they should negotiate a variation in price.

Broadly speaking, it is a risk-assessment tool. [20] A potential purchaser engages the services of a home inspector so as to rely upon their expertise when deciding whether topurchase property. [21] In this case, the defendant’s contract and report emphasized that there are limits to what can be expected from a brief visualinspection and it is not intended to be exhaustive. [22] With that in mind, this Court will consider whether the defendant breached its contract with the plaintiffs and whether it wasnegligent in performing the inspection or representing the condition of the roof and eaves troughs. 1.

Did the defendant breach its contract with the plaintiffs? [23] In the spring of 2007, the plaintiffs were made aware of a flat area on the roof hidden by two dormers after a second inspectorviewed the roof. The dormers’ peaks were visible, and the plaintiffs assumed they met and shed water. In fact, water flowed down theslopes of the dormers and settled on the flat roof section, which did not shed water. It was covered with roll-out sheets of asphalt andwas tarred. Underneath the flat roof

section the roof boards were rotting. The shingles were also badly rotten and broken on certain areasof the roof. The flat portion of the roof and the condition of the shingles were not identified by the defendant.

[ 24 ] There was an implied term of the contract between the parties that the defendant would inspect the property according to the normal standards applicable to building inspectors and would identify significant defects that a person knowledgeable about buildings would observe through a careful inspection and about which a purchaser would want to know prior to buying property ( Fraser v. Knox , [1998] O.J. No. 4379 para. 36 (Ont. S.C.J.) . [ 25 ] No expert was called to testify as to the industry standard for conducting a home inspection.

However, expert evidence is not always necessary to establish professional breach of contract or negligence ( Blake v. Chen , [2009] O.J. No. 3967 (Ont. S.C.J.) . The contract in this case sets out the standards for conducting a home inspection. [ 26 ] The defendant’s contract states that the inspection is to be a visual inspection of accessible elements of the house.

The CAHPI and ASHI standards of practice require the inspector to inspect the roof covering, drainage systems, flashings, eaves, soffits and fascia and to report the method used to inspect the roof. [ 27 ] No particular method for viewing the roof is prescribed in the contract. However, several options appear to be available to the inspector, including from ground level, by walking on it or from above.

The report also contemplates limitations to observing the roof; it allows the inspector to inform the customer that the roof could not be accessed because of height or steep slope, for example. [ 28 ] The defendant Sperling reported that he had viewed the roof with binoculars and “at edge”. According to the plaintiff Schiltroth, Sperling told them at the time of the inspection that he had used binoculars to view the front of the roof and used his ladder at the back over the garage. [ 29 ] Sperling testified that because of the height and slope of the roof, he was not able to walk on it to inspect it.

He used binoculars to view the roof and used a step ladder on the 2 nd floor walk-out. As such he was able to see only a portion of the roof. He testified that he did not use a ladder above the garage roof because he thought the garage roof was unstable. [ 30 ] The contract does not require the inspector to actually walk on the roof. However, on a 2 ½ storey house, it is unlikely that use of binoculars from the ground, without the benefit of a ladder, would be sufficient to adequately inspect the entire roof and its covering.

As Sperling admitted to Schiltroth had he used the ladder from the garage deck he would have discovered the flat surface of the roof hidden between the dormers. [ 31 ] According to the contract, the inspector shall inspect only those elements of the house that are accessible and is not required to engage in intrusive or invasive techniques to inspect the house. In this case, it cannot be said that the flat portion of the roof was not accessible. While it may not have been observable from the ground or with the use of binoculars, another inspector was able to walk the roof and identify it.

Sperling told the plaintiffs that had he used the ladder he would have been able to see the flat portion of the roof. Had he done so, he would have been able to report this finding to the plaintiffs. [ 32 ] The defendant argued that because of the height and slope of the roof, the flat portion was not visible or accessible. Yet, he did not bring to the attention of the plaintiffs these particular limitations or check off “not accessed”, “height” or “steep slope” in the report. [ 33 ] In Cresswell-Jones v. Segouin , [2008] O.J. No. 1110 (Ont.

S.C.J.) , a home inspector was found liable for failing to properly inspect the roof. The Court stated: 136. ...It is not the function of this Court to declare what method(

s) a home inspector should generally use on an inspection or what methods should have been used in this case. 137.

I prefer to find that it was an implied term of this contract that it required Segouin [the inspector] to chose [sic] one that was a careful and critical examination of the essential elements of the home and one that had the best chance of discovering apparent defects or clues which could have led to such discovery or which could have cautioned the prospective homeowner of potential problems. [ 34 ] This Court agrees that an inspector must employ a method that will result in a careful and critical examination of the essential elements that may be reached in a home. [ 35 ] The defendant Sperling was required to inspect the roof of a 2 ½ storey home.

He was obliged to select a method that would allow him to accurately report the condition of the visible and accessible areas of the roof. However, by using only binoculars from the ground and a step ladder on the garage roof, he was unable to conduct a careful and critical examination of the roof so as to thoroughly and accurately report to the plaintiffs the condition of the roof. He was unable to report on the structure of the roof and the condition of the shingles.

In failing to properly inspect the roof the defendant breached the contract. [ 36 ] The defendant Sperling rated the roof as A2, which means it was not fully examined due to “concealment or inaccessibility.” However, this cannot be accurate because he told the plaintiffs he would have been able to view the entire roof had he used his ladder on the garage deck. [ 37 ] This Court accepts that the inspector could not be expected to identify rotting boards under the shingles. But the design and configuration of the roof and its covering ought to have been carefully and critically examined.

[38] With regard to the eaves, soffits and fascia the Court finds there is insufficient evidence to establish that the defendantbreached the contract. The plaintiffs had observed some problems with these areas of the exterior, such as the soffits, at the time theyviewed the house, so already had clues that there might be future problems. The defendant’s assessment of these elements was A2 andA4. However, it is not clear to the Court that the underlying problems with the eaves, soffits and fascia were visible at the time of theinspection.

The defendant was not required to remove boards or dismantle portions of the exterior to inspect further. [39] The Court finds the defendant breached the contract by failing to carefully inspect the roof. 2.

Alternatively, is the defendant liable in negligence? [40] To prove negligent misrepresentation, the evidence must establish that (1) there was a duty of care based upon a specialrelationship between the parties; (2) the representation made by the defendant was false, inaccurate or misleading; (3) the representationwas made negligently; (4) the plaintiff must have reasonably relied on the representation; and (5) the reliance must have beendetrimental to the plaintiff such that he suffered damages (Queen v. Cognos Inc., (SCC), [1993] 1 S.C.R. 87). [41] This Court analyzes each of these factors as follows.

(1) The defendant Sperling agreed to perform professional services for the plaintiffs and held himself out as an expert. He washired because of his special knowledge and he knew his advice would be relied upon. As such there was a special relationship betweenthe parties. The defendant owed a duty of care in completing his inspection and preparing his report.

(2) The defendant’s representation was that he could accurately report the condition of the roof, eaves, soffits and fascia. However,the assessment of the roof was inaccurate and incomplete, in that it did not identify the flat portion of the roof covered with asphalt andtar or the condition of the shingles. The plaintiffs claim the defendant also misrepresented the remaining life expectancy of the roof as 9 years. The report states “EstimatedAge (Years) – 9”. The Court finds that the wording in the report is clear that “9 years” referred to the age of the roof and not its expectedlongevity.

The Court finds there was no misrepresentation regarding this item. There is insufficient evidence that the defendant’s report regarding the eaves, fascia and soffits was inaccurate.

(3) The defendant’s representation that the inspection was accurate was made negligently because he did not use a method of observationwhich would allow him to provide an accurate assessment of the roof.

(4) The plaintiffs relied on the representation made by the defendant. The purpose of the inspection was to inform the plaintiffs of thehome’s condition so that they could decide whether to purchase it. The plaintiff Schiltroth testified that had he known about thecondition of the roof, he would not have purchased the house or would have negotiated a lower price.

(5) The plaintiffs relied upon the defendant’s inspection and purchased the house. They later discovered the roof needed significantrepair. The Court finds that the plaintiffs’ reliance upon the defendant’s report regarding the condition of the roof resulted in anadditional cost to repair the roof. [42] In the present case, the Court has found that the defects with the roof would have been readily apparent had the defendantselected an appropriate method for viewing the roof. His failure to do so was negligent. 3.

What is the effect of the exclusion clause? [43] The contract contains a clause which purports to limit the defendant’s liability, and states in part: …you agree that an exclusion of liability of the Inspector, the Company, and its officers…is reasonable in the circumstances,irrespective that you suffer any loss or damage or liability to others arising out of the negligence of the Company or its inspector, or from

its or her or his or their errors, omissions, breach of contract, breach of warranty, misrepresentation, fundamental breach, strict liability,or otherwise. …the Company and its inspectors…assume no liability, whether in contract or in tort and including negligence, for: (

a) statements, comments, suggestions or representations made in the Report or made orally; or (

b) any deficiencies to the Property not noted whether such liability arises from negligence, errors, omissions, breach of contract, breach of warranty, misrepresentation, fundamentalbreach, strict liability or otherwise, and whether such claim is for consequential damage, property damage, personal injury of any nature,or otherwise. …If we do not report on a condition which, in our sole discretion, was apparent at the time of the original Inspection, then we may, atour sole discretion, and upon execution of a release form satisfactory to the Company, refund to you the full price of the Inspection andReport, provided that we shall have no legal obligation to do so and shall have no other liability to you. … [44] The contract purports to limit the defendant’s liability arising from breach of contract, negligence and misrepresentation fordamages to an amount no greater than the full price of the inspection and report, in this case $350 plus GST. [45] In deciding whether to give effect to a limitation or exclusion clause the Court must consider (1) whether the parties intendedat the time of contract that the exclusion clause would apply in these circumstances; (2) whether the clause was unconscionable at thetime the contract was made; and (3) whether an overriding public policy would preclude its enforcement (Tercon Contractors Ltd. v.British Columbia, 2010 SCC 4 , [2010] S.C.J.

No. 4).

(1) Did the parties intend that the exclusion clause would apply in these circumstances? [46] The wording of the limitation clause is sufficiently broad to apply in circumstances where the defendant has been found tohave breached the contract or to have been liable in negligence, even where the inspector has failed to report the apparent condition of theproperty.

It was certainly the intention of the defendant that the clause would apply in circumstances such as this, so as to limit theamount of damages a customer could recover. [47] However, the plaintiffs did not have an opportunity to turn their minds to and fully appreciate the nature of the exclusionclause. They were asked to sign the contract after the inspection was completed.

The clause was not explained to them. [48] This Court has no doubt the plaintiffs were unaware, and therefore did not intend when they signed the contract, that theywere agreeing to limit the defendant’s liability to a mere $350, no matter what type of loss or damage the plaintiffs might suffer from thedefendant’s breach or negligence and no matter how serious.

(2) Was the clause unconscionable at the time the contract was made? [49] The plaintiffs were new to home buying and their realtor arranged for the home inspector. The plaintiffs signed the contractafter the work was completed. They were asked to initial a box opposite the exclusion clause, which they did. Sperling admitted he didnot explain the clause to the plaintiffs. He had been advised by legal counsel not to attempt to explain the nature of this provision, but tosimply bring it to the customer’s attention.

The plaintiffs testified they did not read it, but simply initialled the box opposite it. [50] The plaintiffs and the defendant were not in an equal bargaining position. The plaintiffs required the services of a homeinspector. Potential home buyers, who require an inspection to satisfy conditions of an offer to purchase, are not in a position tonegotiate specific terms of the contract with the inspector.

As in this case, they were presented with the inspector’s standard formcontract and expected to sign. [51] In circumstances such as these, the defendant must in the clearest way bring the nature and effect of the exclusions to theattention of the plaintiffs (Brownjohn). This is particularly so where the clause is in a standard form contract.

The defendant Sperlingdid not do so. [52] In Fraser, an exclusion clause which limited the inspector’s liability was found not to form part of the parties’ agreementbecause the contract was not signed until after the home inspection was completed. [53] In the present case, the plaintiffs had no opportunity to negotiate the terms of a standard form contract and were at an obviousdisadvantage in bargaining power. In these circumstances, a clause which purports to severely limit the plaintiffs’ remedies isunconscionable and will not be enforced.

(3) Is there an overriding public policy that would preclude its enforcement? [ 54 ] In deciding whether the exclusion clause is contrary to public policy, the Court must consider whether the plaintiffs have identified an overriding public policy that outweighs the public interest in enforcing contracts. The plaintiffs did not present evidence of an overriding public policy as such. However, other authorities have held that similar clauses in home inspection contracts are unenforceable on what appear to be policy grounds.

This Court finds it is contrary to public policy to uphold an exclusion clause whereby a home inspector can be “incompetent, or reckless, or incompetent and reckless, and express any opinion he likes regarding major structural aspects of the house, and have no responsibility to the client beyond” the cost of the inspection ( Brownjohn , para. 92 ). [ 55 ] In Brownjohn , the Court found that a similar contractual exclusion of liability beyond the cost of the contract, in the absence of being specifically drawn to the attention of the plaintiff and being specifically acknowledged by her, to be “sufficiently divergent from community standards of commercial morality that it should be rescinded” (para. 96; Tilden Rent a Car. v.

Chandra , [1983] B.C.J. No. 1233 (B.C. Co.Ct) ). [ 56 ] This Court agrees and therefore declines to enforce the exclusion clause in this case. 4. To what damages are the plaintiffs entitled? [ 57 ] The plaintiffs paid to Assured Roofing the amount of $24,277.18, including GST, to repair the roof and eaves troughs. This represents the cost to have the entire roof re-done, including installation of 35-year shingles, soffit and fascia boards and eaves troughs, including materials and labour.

Of that cost, $3,510 refers to the re-surfacing and repair of the flat roof. [ 58 ] The plaintiffs claim a portion of the cost of the new shingles applied to the entire roof. The defendant estimated the age of the shingles at the time of inspection as 9 years. The plaintiffs installed 35-year asphalt shingles. The cost according to the Assured Roofing invoice was $5,800. [ 59 ] The plaintiffs recognize they are not entitled to the entire cost of the new shingles, because of the betterment principle.

Their claim is for a portion or 9/35 of the cost, because they purchased 35-year shingles and the age of the shingles on the house at the time of its purchase as estimated by the defendant was 9 years. The Court will allow 9/35 of the cost of the shingles in the amount of $5,800 or $1,491. [ 60 ] The Court will allow the full cost of the flat roof in the amount of $3,510.

Had the plaintiffs been aware of this area of the roof and its condition, the cost of repair could have been negotiated into the price of the house. [ 61 ] The other amounts claimed for soffits, fascia boards and eaves troughs are not allowed because the plaintiffs were unable to prove the deficiencies with these elements were readily visible to the defendant. [ 62 ] Therefore, the plaintiffs will have judgment in the amount of $5,001, along with pre-judgment interest from February 28, 2008, which is the date of their demand to the defendant for reimbursement of their loss.

The plaintiffs are also awarded the cost of issuing their claim. [ 63 ] Although the plaintiffs were only partially successful in their claim against the defendants, the indemnification clause in the contract, which makes the plaintiffs liable for the defendants’ costs including legal fees, is not enforceable for the same reasons that the limitation of liability clause is not enforceable. [ 64 ] This Court finds the defendants jointly and severally liable for the judgment. __________________________ D.C. Scott J.