Negligent Misrepresentations and the Law

In Ontario, there are two bodies of law which must be considered in respect to misrepresentations: contract and tort.

 

Contract

If the misrepresentation is serious enough, then the victim may be able to repudiate the contract and have it either declared void (from the outset) or terminated. 

This is the case with innocent, negligent and fraudulent representations.

The appropriate measure of damages is the amount necessary to place the injured party in the same position as if the contract had been performed.

There are no punitive damages or special damages.

 

Tort

If the misrepresentation is serious enough, then the victim may be able to claim damages, but only in the case of negligent and fraudulent misrepresentations. There is no remedy in the case of innocent misrepresentations (unlike the law of contracts).

Damages here are designed to rectify, repair or replace the loss sustained by the injured party.

Punitive damages and special damages may be awarded.

 

Plaintiff’s Election

In any given fact situation, a plaintiff must now sue in both contract and tort. A plaintiff will be put to their election as to whether they wish damages to be measured on the basis of either contract or tort (but, not both). This election takes place at the end of the trial. This principle was established by the Supreme Court of Canada in BG. Checo v. B.C. Hydro (1993).

 

Negligent Misrepresentation

The law here is quite clear. The Supreme Court of Canada considered this matter in Queen v. Cognos (1993). The Court established a 5 part test in terms of the criteria for negligent misrepresentations:

 

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 said negligent misrepresentation;

5. The reliance must have been detrimental to the representee in the sense that damages resulted.

 

Comment

So, without a special relationship, there is no duty. And, if there is no duty, then there can be no actionable wrong.

 

The statement needs to be factually wrong. 

 

The person needs to act negligently. That means falling below the standard of care expected of a person in that capacity.

 

From the victim’s perspective, they must have believed such a statement to be true and they must have relied on it.

 

In addition, there had to be a bad or unfortunate result. Otherwise, there is no actionable wrong. We have a “mis-step”, but we don’t have negligence until there is an injury or damage of some kind.

 

Courts have determined that a vendor has a duty and is in a special relationship with a purchaser in respect to the sale of a property under an agreement of purchase and sale. In addition, both agents have statutory and common law duties. Consequently, they have a special relationship too.

 

Let’s assume that the vendor conceals or misrepresents the matter of water leakage in the basement. This is clearly wrong. But, since the vendor knew that there may have been some leakage but failed to properly investigate, this representation is made carelessly. However, a careless statement is not a negligent statement until all 5 criteria are established.

 

Let’s assume further that the purchaser had his own home inspector examine the premises. The home inspector says that there is water leakage.

 

Courts at this point will likely say to the purchaser (victim of the false statement), that it was unreasonable to have accepted the uninformed view of the vendor rather than the independent third party opinion of the professional home inspector. Since there was no reliance, then there is no remedy.

 

Also, the purchaser in order to have a claim, must sustain damages. That means he must buy the property and then discover that there is water leakage. If nothing happens, then there is no “negligent misrepresentation”.

 

This area of the law can be tricky, so it would be wise to contact a lawyer or a solicitor practising in the real estate for advice in these situations.

 

Brian Madigan LL.B., Broker is a Manager at  RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

 

 



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