Between
Stephen Wemyss, plaintiff, and
John Moldenhauer and Sutton Group Fox Realty Inc., defendants
[2003] O.J. No. 38
Court File No. 99-CV-172459
Ontario Superior Court of Justice
Molloy J.
Heard: November 26-29, 2002.
Judgment: January 7, 2003.
(39 paras.)
Agency - Relations between principal and agent - Particular agencies - Real estate agents - Agent's duty of care - Torts - - Defences - Contributory negligence, particular cases - Failure to question or recognize error - Failure to take preventative or remedial action.
Action by Wemyss against Moldenhauer and Sutton Group Fox Reality for damages in negligence and for a breach of fiduciary duty arising from a real estate transaction. Wemyss wanted to purchase a home and hired Moldenhauer as his real estate agent. Moldenhauer was employed by Sutton. Wemyss became interested in a particular property, but was concerned about a possible problem with the septic system. Moldenhauer drafted an agreement which contained an inspection clause. Offers were exchanged between Wemyss and the vendor. Eventually, Wemyss accepted an offer of $980,000 and, at Moldenhauer's direction, initialled all of the handwritten changes made to the agreement by the vendor. The inspection revealed a problem with the septic system which would cost approximately $10,000 to repair. When he sought to terminate the deal and recover his $50,000 deposit, Wemyss discovered that the inspection clause had been amended to limit its application to structural defects. He argued that Moldenhauer had not brought this amendment to his attention when he was asked to initial the changes to the agreement. Moldenhauer maintained that he had specifically drawn Wemyss's attention to the clause and had explained what it meant.
HELD: Action allowed. Moldenhauer was liable to pay Wemyss the $50,000 deposit lost by Wemyss. He did not meet the standard of care expected of a real estate agent. His evidence was not credible or reliable, while any discrepancies in Wemyss's evidence were lapses of memory and not crucial to his case. Moldenhauer had failed to mention the amendment of the inspection clause to Wemyss. He was obligated to specifically advise Wemyss that the clause had been fundamentally altered and that he may not be able to get out of the transaction if the inspection revealed a problem with the septic system. Considering the contractual relationship between Wemyss and Moldenhauer, contributory negligence principles were not applicable to this situation. In any event, Wemyss was not negligent for having failed to read the inspection clause, nor for not having obtained legal advice before signing the agreement. In the circumstances, he was entitled to rely upon Moldenhauer's expertise. Wemyss did not fail in his duty to mitigate his damages. He made extensive efforts to persuade the vendor to return the deposit and was not obligated to pursue litigation. It was also not unreasonable for Wemyss to have decided not to close the deal and pay for the repairs.
Statutes, Regulations and Rules Cited:
Courts of Justice Act.
Counsel:Désirée D.E. Lessard, for the plaintiff.
Bryan B. Skolnik, for the defendants.MOLLOY J.:-
A. INTRODUCTION
1 The plaintiff Stephen Wemyss brings this action against the defendants for negligence and breach of fiduciary duty in a real estate transaction. Mr. Wemyss was interested in purchasing a home and engaged the defendant John Moldenhauer as his real estate agent. Mr. Moldenhauer was employed at the time with the defendant Sutton Fox Realty Inc. Mr. Wemyss alleges that Mr. Moldenhauer failed to protect his interests and, in particular failed to advise him with respect to a critical amendment to an agreement of purchase and sale, as a result of which he was unable to extricate himself from the deal and lost his $50,000.00 deposit.
B. FACTUAL ANALYSIS
2 In April 1998, Mr. Wemyss and his wife, with the assistance of Mr. Moldenhauer, found a home they liked ("the property") and instructed Mr. Moldenhauer to prepare an offer. The property is in Markham and has a septic system. Before making the offer, Mr. and Mrs. Wemyss toured the property. They noticed a large area in the back yard near the septic tank which was wet and soggy, even though it had not rained for days. They were concerned and discussed this with Mr. Moldenhauer. Mr. Wemyss wanted to be able to get out of any deal if there was a problem with the septic system.
3 Mr. Moldenhauer drafted an agreement of purchase and sale ("the first offer"). He acknowledges that he was aware of Mr. Wemyss' concern about possible problems with the septic system and that he put an inspection condition clause in the offer at the specific request of Mr. Wemyss. That clause provided as follows:
This Offer is conditional upon the inspection of the subject property by the Purchaser or the Purchaser's Inspector at his own expense and the obtaining of a report satisfactory to the Purchaser. Unless the Purchaser gives notice in writing delivered to the Vendor or the Vendor's agent within five (5) days after acceptance that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Purchaser in full without interest or deductions.
4 The first offer was for a purchase price of $900,000.00 and was submitted to the vendor on April 20, 1998. It was signed back by the vendor at $1,050,000.00 and Mr. Wemyss countered with a further offer at $950,000.00. The vendor simply let that offer expire.
5 On May 4, 1998, Mr. Moldenhauer submitted a new offer, on essentially the same terms as the first, but for a purchase price of $975,000.00. The vendor signed that offer back on May 5, 1998 at $980,000.00. Mr. Wemyss accepted the counter-offer by initialing all of the handwritten changes the vendor had made to his May 4 offer. These changes included the price, the exclusion of a rented hot water heater, and a stipulation that the dimensions of the property were "as per survey". None of these are controversial. However, there was one other change, which turned out to be very controversial, and ultimately led to the deal falling apart. That change related to a limitation on the inspection clause so that it now only included structural defects.
6 The offer made by Mr. Wemyss on May 4 contained exactly the same inspection condition clause as had been inserted in his first offer in April. That clause had not been touched in any of the sign backs on the first offer. However, when the vendor signed the offer back on May 5, he added an amendment to the inspection condition limiting its application to structural defects. The clause as amended provided as follows:
This Offer is conditional upon the inspection of the subject property by the Purchaser or the Purchaser's Inspector at his own expense and the obtaining of a report satisfactory to the Purchaser that there are no structural defects. (Emphasis added to show handwritten amendment)
7 The rest of the clause was essentially unchanged. The offer would become null and void unless the purchaser took the positive step of confirming in writing that the condition was fulfilled or waived within the specified time period.
8 Mr. Wemyss testified that he was present in the offices of Re/Max, the agents for the vendor, at the time the final terms were being negotiated. He said he was left alone in a room while Mr. Moldenhauer, the vendor's agent (Mrs. Houghton) and the vendor discussed the matter. He further testified that when Mr. Moldenhauer brought the amended offer to him he said nothing about the amendment to the inspection condition, but merely told him to initial at various places, which he did. The only change that was discussed was the price, and Mr. Wemyss was prepared to accept the vendor's price.
9 Mr. Moldenhauer denies Mr. Wemyss' version of this discussion. He testified that he does not recall being in the Re/Max office with Mr. Wemyss. He believes that he went over the offer with Mr. Wemyss at Mr. Wemyss' office. At first he said that Govi (Mr. Wemyss' assistant) was also present, but he later withdrew that and said that although Govi was often present for such meetings, he couldn't recall if he was there for that specific meeting. Mr. Wemyss was unable to recall the exact words he used but he said he specifically drew the change in the inspection condition clause to Mr. Wemyss' attention and fully explained what it meant.
10 I find as a fact that Mr. Moldenhauer failed to advise Mr. Wemyss that if the inspection revealed a problem with the septic system, the amended inspection condition would not enable him to get out of the transaction. Even on Mr. Moldenhauer's own evidence, his advice to his client did not include this warning.
11 I further find as a fact that Mr. Moldenhauer failed to give an adequate explanation of the amendment to Mr. Wemyss. Again, even if I were to accept Mr. Moldenhauer's evidence (which I do not), his explanation of the clause is not adequate. The following evidence is from Mr. Moldenhauer's examination in chief:
Q. Now, in terms of the change that there are no structural defects, what discussions if any did you have with Mr. Wemyss about that?A. I explained to Mr. Wemyss. I went over the changes that there were no structural defects, and that basically, when you say what did I explain to him about it? Well do you mean - are you saying ...
Q. Do you recall the exact words that you used?
A. No, I don't. I don't recall the exact words that I used.
Q. You do recall discussing it with him?
A. Yes. Well I certainly discussed it with him, and had him initial it.
Q. And what, or how would you have explained it to him? What did it mean to you?
A. That if there are structural defects on the home cause that would, that would be - that is now your conditional, part of your condition, as opposed to inspection of the subject property. It has been changed to structural defects to the property, which could have meant anything structural, you know, foundations, the walls, the roofs, or a combination of all those things. I mean that's basically the way I explained structural defects.
Q. Do you recall whether Mr. Wemyss had any discussions, or any questions of you about the structural defects clause?
A. I asked him. I mean I - when we went over things, I mean is there any questions regarding this. I mean if we are - I mean we had a deal here if everything is satisfactory. Are you happy with the way everything is? And he was completely satisfied.
12 In my view, that explanation falls far short of what a purchaser is entitled to expect from his real estate agent. Even at trial, where the significance of this issue was very apparent, Mr. Moldenhauer did not include in his explanation a clear statement that the only defects that would enable the purchaser to cancel the transaction would be defects in the actual structure or foundation of the building.
13 Finally, I find as a fact that Mr. Moldenhauer failed to even mention the amendment of the inspection clause to Mr. Wemyss. I believe Mr. Moldenhauer did not appreciate the nature of the change at the time and only realized its significance some time later. In preferring Mr. Wemyss' evidence on this point to that of Mr. Moldenhauer, I am influenced by the following factors:
| (a) | Mr. Wemyss struck me as an honest witness. His evidence was not always reliable as to chronology, i.e. when particular events happened, but he appeared to me to be an honest historian with a good recall of the salient facts. |
| (b) | Mr. Moldenhauer has very poor recall of details. He has of course done many, many real estate deals both before and after this one and the details of every discussion with every client cannot possibly be recalled. For Mr. Wemyss, buying a million-dollar home is not an everyday occurrence. He therefore would be more likely to remember the details than would Mr. Moldenhauer. Although Mr. Moldenhauer's inability to remember specific details is perhaps understandable, it is nevertheless a weakness in his evidence. |
| (c) | I found Mr. Moldenhauer to be evasive and uncertain in his evidence. The area in which he was most uncertain was the crucial one involving the advice he gave to his client about the amendment to the inspection condition. In my view, his testimony on this point was driven by his belief that he must have drawn the clause to his client's attention and explained it, because he knows that he should have done so. It is not based on his actual recollection of the event. I therefore do not find his evidence to be reliable. |
| (d) | The inspection condition was of vital importance to Mr. Wemyss. If Mr. Moldenhauer had told him about the limitation of that clause to structural defects and the likelihood that the septic system would not be covered, I am confident that there would at least have been some further discussion of it, some attempted re-negotiation or revision of the clause to include the septic system. The absence of any such discussion or reaction by Mr. Wemyss supports my conclusion that he was completely unaware of the limitation inserted in the inspection condition. |
| (e) | The initial inspection was carried out by Mr. Balshin of Majestic Home Inspection. He delivered a report which listed a number of defects. He did not indicate whether those defects were structural in nature, nor was he asked to do so at the time. He noted that there was "possible water leeching at rear yard area" and suggested that the septic tank be pumped out and inspected by an expert in septic systems. Mr. Moldenhauer was involved in arranging for the additional inspection of the septic system and obtained an extension of the time for the inspection condition for that purpose. He made no comment to his client about the advisability of incurring such an expense or about the possibility of any such defect being outside the scope of the inspection condition. Nor did he review either of the reports with Mr. Wemyss to consider whether any of the problems noted would fall within the "structural defect" limitation in the inspection clause. I find this conduct to be consistent with Mr. Wemyss' evidence that Mr. Moldenhauer was unaware of the amendment to the inspection condition until after Mr. Wemyss attempted to obtain the release of his deposit. |
| (f) | Mr. Wemyss testified that when the inspection report disclosed problems with the septic system he instructed Mr. Moldenhauer to cancel the transaction and get his deposit back. Mr. Moldenhauer did not advise him at that point that there would be any problem doing this and, in particular, did not tell him that this might not be covered by the condition as it was not a "structural defect". If Mr. Moldenhauer had in fact advised Mr. Wemyss about the structural defect limitation when the agreement was signed, it is logical to assume that he would at least alert Mr. Wemyss to the potential difficulty in getting out of the deal based on the septic system problem. The absence of any discussion at that time as to whether the problems were "structural" reinforces my conclusion that Mr. Moldenhauer was unaware of the structural defect limitation. |
| (g) | Mr. Wemyss said it was only when the vendor refused to return the deposit based on the structural defect limit in the inspection clause, that either he or Mr. Moldenhauer realized there had been an amendment to that clause. He further testified that Mr. Moldenhauer admitted to him then that he had missed seeing this amendment on the vendor's May 5th sign-back. He quoted Mr. Moldenhauer's specific words (referring to the vendor's agent), "The bitch slipped it past me". Mr. Wemyss' evidence has the ring of truth to it. Quite simply, I believe him and I find that Mr. Moldenhauer did make that remark. |
| (h) | Mr. Wemyss further testified that Mr.Moldenhauer said at the time that he felt responsible for the problem in getting back the deposit and promised to make it up to him if the vendor refused to return the $50,000.00. Mr. Moldenhauer acknowledged that he told Mr. Wemyss he would see that he got his $50,000.00 back by reducing or eliminating his commission in future transactions, but denied he had accepted responsibility for any error. Mr. Wemyss, however, was clear in his recollection that Mr. Moldenhauer candidly admitted being at fault because he was impressed that he "was man enough" to admit it. Mr. Wemyss was very specific about this recollection. I do not think he could have simply mis-remembered what was said. Either he is telling the truth, or he has lied. As I had already indicated, I found Mr. Wemyss to be an honest witness. I do not believe he lied. |
| (i) | Further, this is not simply a situation where it is Mr. Wemyss' word against Mr.Moldenhauer's. Mr. Wemyss had retained a solicitor, Mr. Ceresney, to assist in getting his deposit back from the vendor. After Mr. Moldenhauer admitted liability, Mr. Wemyss asked Mr. Moldenhauer if he would be prepared to repeat to Mr. Ceresney what he had said to him and Mr. Moldenhauer agreed to do so. Mr. Ceresney testified at trial that Mr. Wemyss and Mr. Moldenhauer came to his office on June 11, 1998 and Mr. Moldenhauer stated to him, "I screwed up" and said that he would pay Mr. Wemyss $50,000.00 if the vendor would not give back the deposit. Mr. Ceresney said those were the actual words used. He testified that he has a specific recall of the meeting because it was unusual for an agent to admit a mistake like that and he thought at the time that this was "commendable". |
| (j) | Mr. Moldenhauer testified that he made no admission of liability to either Mr. Wemyss or Mr. Ceresney. He said that he did advise Mr. Ceresney that he was prepared to pay back $50,000.00 in whole or in part, to Mr. Wemyss by foregoing commissions in future deals. However, he said that he proposed this only to keep Mr. Wemyss as a client and not because he felt he had done anything wrong. He vehemently denied having told Mr. Ceresney that he "screwed up". Mr. Moldenhauer conceded that he did not question Mr. Ceresney's honesty. However, he felt that Mr. Ceresney must have misunderstood what he said. |
| (k) | I do not believe Mr. Ceresney misunderstood what Mr. Moldenhauer said at the meeting. On the contrary, his recollection on the point was quite clear. Further, Mr. Ceresney confirmed his understanding of this discussion to Mr. Moldenhauer in a letter to him dated August 6, 1998, stating inter alia:
In dealing with Mr. Wemyss, you clearly stated, in my presence, that if Steve did not get back his deposit from the vendor, Tsui, you personally would give him back his money. You admitted that you had not adequately protected his interests in the amendment of the Offer. Originally, the offer let Steve have the choice of aborting the deal if the inspection report was not to his satisfaction. The amendment limited him to the occurrence of structural defects. (Emphasis added) |
| (l) | Mr. Moldenhauer did not respond to this letter and did not advise Mr. Ceresney or Mr. Wemyss that he disputed the allegation that he had admitted liability. His explanation is that he discussed the letter with Mr. Wemyss and got the impression that it was sent without authority. That, in my view, is simply not plausible. I think it entirely possible that Mr. Wemyss told him not to worry about being sued as Mr. Wemyss was himself not interested in litigation but would have preferred a business solution. However, that is as far as it went. If Mr. Moldenhauer had not in fact admitted making a mistake, it is very odd that he would not at least have corrected that impression at the time. Instead, he never denied having admitted liability until after he was sued. |
| (m) | I have no hesitation in accepting the evidence of Mr. Ceresney and Mr. Wemyss that Mr. Moldenhauer did admit at the June 11, 1998 meeting in Mr. Ceresney's office that he had "screwed up". Mr. Moldenhauer insisted in his evidence that he had merely offered to make up some or all of the loss of the deposit by reducing his commission in future deals with Mr. Wemyss. He was vehement in his denial that he had never admitted any mistake on his part. I do not believe his evidence on this point. Further, I do not believe he has simply forgotten having made the admission. I believe he has lied in an attempt to avoid liability. This undermines the credibility of his evidence generally, not just on this point but on any point where his evidence conflicts with that of Mr. Wemyss. |
14 Accordingly, I conclude that Mr. Moldenhauer failed to tell Mr. Wemyss about the nature of the "structural defect" amendment. He subsequently admitted his mistake to both Mr. Wemyss and Mr. Ceresney. Mr. Moldenhauer's vehement denial of this admission undermines the credibility of the rest of his evidence as well. The evidence of Mr. Wemyss was not always consistent with the dates, and chronology of events. However these discrepancies are, in my view, merely lapses of memory. There has been no attempt by Mr. Wemyss to mislead the court. Regrettably the same cannot be said for Mr. Moldenhauer who has tailored his evidence to avoid liability. Where Mr. Moldenhauer's evidence conflicts with that of Mr. Wemyss', I prefer the evidence of Mr. Wemyss.
15 Counsel for the defendant argues that Mr. Wemyss' evidence is unreliable and should be rejected. There were certainly some aspects of Mr. Wemyss' evidence that I do not accept. For example, he testified that he had a discussion with Mr. Moldenhauer in the summer about why Mr. Moldenhauer was not showing him properties and that Mr. Moldenhauer responded with a vulgar comment it is not necessary to repeat here, except to say that it was sufficiently offensive that it is understandable it brought an end to their relationship. I agree with Mr. Skolnik's argument that the discussion could not have happened in the summer as that is inconsistent with the documentary records. However, that does not mean the discussion did not happen. I believe it likely occurred in the early part of 1999, rather than the summer of 1998. However, I note that Mr. Moldenhauer did not address the point in his evidence and has not denied having said the words Mr. Wemyss quoted him as saying. This is a discrepancy as to timing only, and not something that undermines Mr. Wemyss' credibility.
16 Mr. Skolnik also points to Mr. Wemyss' evidence that Mr. Moldenhauer originally told him at the time of the first offer that the effect of the inspection clause was that he could get out of the agreement for any reason at all, including a reason unrelated to any defect disclosed by the inspection. I do not believe that Mr. Moldenhauer would have said that. He certainly would have known that the purchaser could only get out of the deal if there was a bona fide concern arising from the inspection and that the purchaser could not simply abandon the deal because he changed his mind. It follows that I do not accept Mr. Wemyss' evidence on this point. That is not necessarily fatal to his case however. It is open to me to reject some aspects of his evidence and to accept others. If, however, I believed that Mr. Wemyss had fabricated his evidence on this I would be more concerned. I do not think he did. Mr. Moldenhauer did not explicitly tell him that the inspection clause could only be invoked for a valid reason connected to the inspection, although he did (at the time of the first offer) review the inspection clause with him. The way the clause is worded could, in my view, lead Mr. Wemyss to understand that if he did not take some positive step to waive the inspection clause, the agreement would be at an end. It is possible that, having come to that conclusion at the time based on the explanation of the clause given to him and the literal construction of the clause, he has now mis-remembered the extent of the specific explanation given by Mr. Moldenhauer. In any event, even though there are some discrepancies in Mr. Wemyss' evidence, I found him on the whole to be a truthful witness and I accept his evidence on the key points.
17 The defendant argues that Mr. Wemyss did not reject the deal because of problems with the septic system, but rather simply wanted to avoid the deal for undisclosed reasons of his own and used the septic problem issue as an excuse. Mr. Skolnik points to the fact that Mr. Wemyss intended to do extensive renovations, including landscaping, and that he therefore would not have been legitimately concerned about a relatively minor problem with the septic system. There is no evidence to support this theory. I accept Mr. Wemyss' evidence that he was indeed concerned about the possible septic problems and that he had no other reason for wanting to abandon the deal. The conduct of the parties at the time supports that position. Mr. Wemyss raised his concern at the outset, reviewed it with the first inspector and then paid extra to have the septic tank pumped out and a second inspection done by an expert in septic systems. The septic inspection disclosed no problem with the tank itself and suggested that the water ponding in the mantle area could be caused by excessive water consumption in the house. At the time, there was only one full time occupant of the house, and another person who was there some of the time. Mr. Wemyss was therefore understandably concerned that this was not the actual cause of the problem. He did not want to buy a property with a problem the solution for which was so uncertain. I find as a fact that his concern about problems with the property was what motivated him to seek the return of his deposit and that he had no other or ulterior motive.
C. NEGLIGENCE AND BREACH OF FIDUCIARY DUTY
18 A real estate agent has a duty to act with reasonable care and skill in reviewing the terms of a purchase agreement with his client. That duty includes the obligation to specifically draw to the client's attention, any provisions in the agreement that are contrary to the client's interest or instructions given by the client: Sanhart Holdings Ltd. v. Chassis Service & Hydraulics Ltd. (1997), 36 O.R. (3d) 328 at 341 (Ont. Ct. J. Gen. Div.).
19 In this case, Mr. Moldenhauer knew that a key concern for Mr. Wemyss was a possible problem with the septic system. He also knew that Mr. Wemyss wanted an inspection clause and that one of the reasons for the inspection clause was the septic system. Mr. Moldenhauer acknowledges that the amendment to the condition probably meant that a problem with the septic system would not be covered as it was not a "structural defect". At the very least, it was debatable whether the septic system would be covered.
20 In this context, it was incumbent upon Mr. Moldenhauer not only to show his client the change, but to specifically advise him that the inspection clause had been fundamentally altered. He should also have specifically explained to him that this amendment could mean that he might not be able to get out of the deal even if the inspection disclosed a problem with the septic system.
21 Mr. Wemyss relied on Mr. Moldenhauer to act as his agent in this transaction. In my view, Mr. Moldenhauer did not meet the standard of the reasonable care and skill expected of a real estate agent in these circumstances. He is therefore liable to Mr. Wemyss for any damages sustained as a result of that breach of duty.
22 Given my conclusion of liability for negligence, it is not necessary for me to consider whether the same facts might also give rise to liability for breach of fiduciary duty.
D. CONTRIBUTORY NEGLIGENCE
23 The defendant submits that I should find Mr. Wemyss entirely responsible for his predicament because he read the amendment to the inspection condition, understood it, and signed the agreement anyway. As I have discussed above, the facts to not support that theory. I accept Mr. Wemyss' evidence that he did not read the entire agreement again at the time of accepting the vendor's sign-back and that he did not realize there had been a change to the inspection clause. He merely initialed in various places indicated by Mr. Moldenhauer.
24 The defendant further submits that Mr. Wemyss was contributorily negligent in failing to read the agreement for himself and in not seeking advice on the nature of the changes.
25 A purchaser is entitled to rely on the expertise of his real estate agent in entering into an agreement of purchase and sale. Obviously, Mr. Wemyss could have sought legal advice before signing the agreement. However, there was nothing complex about this transaction and it was clearly within the scope of the real estate agent's duties to advise him as to the terms of the agreement. Mr. Wemyss' failure to obtain legal advice does not excuse Mr. Moldenhauer from liability for negligence and does not constitute contributory negligence.
26 I am also of the view that Mr. Wemyss' own failure to carefully read the amendments to the agreement is not a basis for reducing the liability of his agent. As between Mr. Wemyss and the vendor there is no question that Mr. Wemyss' failure to read the agreement before he signed it is no answer to a claim by the vendor based on the agreement. However, as between Mr. Wemyss and his professional adviser the situation is quite different. Mr. Wemyss relied on his agent. It was the agent's job to review any changes to the agreement and advise his client accordingly. It certainly would be wiser for a client to read the agreement carefully before signing, rather than to simply trust the agent to have protected his interest. However, that does not change the duty of the professional adviser. Further, I do not accept the argument that the adviser can reduce his liability by saying that if the client had been more careful he would have caught the adviser's mistake. In this situation, Mr. Wemyss did actually rely on his real estate agent to have read and understood any changes in the agreement he was being asked to sign. Further, in my view, it was reasonable for him to have relied on Mr. Moldenhauer in this manner. I therefore do not consider Mr. Wemyss to have been negligent in this situation.
27 I have been directed to only one case in which a plaintiff's damages for negligence against a professional adviser have been reduced based on the plaintiff's own contributory negligence: Winsham Fabrik Canada Ltd. v. Re/Max All Stars Realty Inc., [2001] O.J. No. 1478 (S.C.J.). In that case, the plaintiff retained an agent to find a warehouse property of approximately 50,000 square feet. With the assistance of that agent he entered into an agreement to purchase a property which was represented to be 46,600 square feet. The purchaser's agent relied on the vendor's agents' representations as to the size of the property and did not verify the size himself, nor did he advise the purchaser that the agreement should be conditional upon size being verified. When the purchaser toured the building after the agreement of purchase and sale had been signed, he expressed a belief that the building appeared to be smaller than 46,600 square feet but was assured that the architect's drawings would prove the accuracy of the represented size. An inspection of the property was carried out, but the dimensions were not reviewed. By the time stipulated for the waiver of the inspection condition the architectural drawings had not yet been produced. The purchaser waived the condition. Subsequently, the drawings were produced and they revealed that the building was 3000 square feet smaller than it had been represented to be. The purchaser closed the deal but sued his own real estate agent and the agents for the vendor for damages.
28 Trafford J. determined the plaintiff's damages to be approximately $142,000.00. He found that the listing agents had negligently misrepresented the size of the property. He further found that the plaintiff's own agent was negligent for not having properly advised his client and not having verified the size of the building, which he knew was an important factor for his client. However, he also held that the purchaser's legal position changed significantly when he perceived at the time of the tour of the building that there was an actual risk of the building being smaller than represented. He apportioned liability for the plaintiff's agent at 50%, for the listing agents at 30% and the plaintiff at 20%. There is no discussion of the legal foundation for a finding of contributory negligence in this context, apart from the following reference in dealing with the issue of the listing agent's liability for negligent misrepresentation (at the end of paragraph 55):
Even where reasonable reliance on a misrepresentation has been proven, the representee may be contributorily negligent. See Grand Restaurants Limited v. City of Toronto (1981), 32 O.R. (2d) 757; (1982), 39 O.R. (2d) 752 (C.A.).
29 In Grand Restaurants Limited v. City of Toronto, the plaintiff was the purchaser of a restaurant business. The plaintiff contacted the City to determine whether there was an "active file" in connection with the property and in particular whether there had been any work orders. The City replied that there was no file. This advice was wrong. There were outstanding work orders. The trial judge, Trainor J., found that the City was liable to the plaintiff for negligent misrepresentation, applying the principles established in Hedley Byrne & Co., Ltd. v. Heller & Partners, Ltd., [1963] 2 All E.R. 575. One of the components of that cause of action is reasonable reliance by the plaintiff on the representation of the defendant. Trainor J. found that the plaintiff was reasonable in relying on the City's representation. However, he went on to hold that the plaintiff's own conduct also contributed to the damages it sustained because it was aware of prior work orders stemming from a liquor licence application since withdrawn and failed to make appropriate inquiries to follow up on that information. He drew a distinction between the reasonable reliance required to ground liability in the first place and the extent to which that reliance was excessive in the circumstances. Of key importance in the decision is the specific finding by Trainor J. that there was no contractual relationship between the plaintiff and the City: see page **. His decision on liability was founded entirely on Hedley Byrne. He also specifically noted, immediately before turning to a consideration of contributory negligence, that he was mindful of Supreme Court of Canada's direction in Nunes Diamonds v. Dominion Electric Protection Co., [1972] S.C.R. 769 at 777-8, 26 D.L.R. (3d) 699 at pp. 727-8 that the basis of tort liability in Hedley Byrne is inapplicable to a situation where the relationship between the parties is governed by contract.
30 In applying the decision in Grand Restaurants of Canada to the facts of the case before him in Winsham Fabrik Canada Ltd. v. Re/Max, Trafford J. does not appear to have addressed the distinction between the claim against the listing agents (which was based on Hedley Byrne principles) and the claim against the plaintiff's own agent (with whom the plaintiff had a contractual relationship). In respect of the claim against the listing agents, it would have been in keeping with the principle relied upon in Grand Restaurants to reduce the damages recoverable against the listing agent (the representor) for negligent misrepresentation based on the representee's failure to take reasonable steps to protect its own interest. Thus, as between the listing agent and the purchaser's agent, there may have been misrepresentations by the listing agent, which the purchaser's agent relied upon to his detriment. However, the purchaser's agent also had a duty (which he breached) to independently verify the accuracy of the representations made. One can therefore appreciate the logic of dividing liability as between the two agents, rather than putting 100% of the liability on the listing agent.
31 The same logic does not apply in determining liability as between the client and his professional adviser. Here, the plaintiff had a contractual relationship with the defendant. Part of the defendant's obligation under the contract was to protect the interest of Mr. Wemyss in the purchase of the subject property, including (as specifically instructed) to ensure he could get out of the agreement if there was a problem with the septic system. It is also part of the real estate agent's obligation under the contract to advise the client as to the terms of the agreement, including any amendments to the agreement. The client, in this case Mr. Wemyss, is entitled to assume that the agent (Mr. Moldenhauer) will perform his obligations under the contract. In particular, he is entitled to assume that the agent will read and understand any amendments to the agreement and will draw to his attention anything of substance that will affect his interest. It cannot be said in this context that Mr. Wemyss is himself negligent for relying upon Mr. Moldenhauer to do his job. In particular, it cannot be said that Mr. Wemyss is negligent for not noticing that there had been a substantial change to the protection he would be getting under the amended inspection clause. It may not be wise to put so much trust in the agent to perform his job properly, just as it may not be wise to undertake risky surgery based solely on the advice of one doctor. However, if the advice of the doctor turns out to be negligent, the doctor is liable in damages. It would not be correct to reduce the patient's damages for his own contributory negligence on the theory that he would have been wiser to get a second opinion. Likewise, in this case, it would have been wiser for Mr. Wemyss to read carefully every word of the amended agreement placed before him for his signature. However, he was entitled to rely, and did rely, upon Mr. Moldenhauer to carry out that function. His damages should not be reduced because he relied on Mr. Moldenhauer to act competently.
32 The trial decision in the Grand Restaurants case was upheld on appeal with a brief endorsement. It is therefore binding on me. It is, however, an unusual case. There will not be many situations in which the facts will support a finding that the plaintiff was reasonable to have relied on the representation made by the defendant (thus establishing the cause of action) and yet that the plaintiff was also negligent and contributed to his own damages. Typically, the cases which have considered Grand Restaurants have noted the possibility of contributory negligence but found on the facts that there was no such negligence: see e.g. HongKong Bank of Canada v. Touche Ross Ltd. (1989) 36 B.C.L.R. (2d) 381, 74 C.B.R. (N.S.) 164 (B.C. C.A.); Kripps v. Touche Ross & Co., [1999] 3 W.W.R. 629, 56 B.C.L.R. (3d) 160, 41 B.L.R. (2d) 124 (B.C. S.C.); Canada (Federal Business Development Bank) v. Morris, Burk, Luborsky (1988), 38 B.L.R. 1 (Ont. H.C.J.). In one case, Perry v. Clintar, [1995] O.J. No. 42 (Gen. Div.) there was a finding of contributory negligence similar to the finding made in Grand Restaurants. However, in all of these cases, the cause of action was negligent misrepresentation outside of any contractual relationship between the parties.
33 In my opinion, Grand Restaurants is authority for the application of principles of contributory negligence in a negligent misrepresentation case. It therefore has no application to the case before me, which is not based on a Hedley Byrne type negligent misrepresentation. Even though the cause of action before me is pleaded as negligence rather than breach of contract, there clearly was a contractual relationship between Mr. Wemyss and Mr. Moldenhauer. The existence of that contractual relationship is an important element to take into account in determining their respective duties. In my view, contributory negligence principles have no application to this situation.
34 Apart from Winsham Fabrik Canada Ltd. v. Re/Max All Stars Realty Inc., I am not aware of any case in which principles of contributory negligence have been applied in an action for damages for professional negligence. Further, that is the only case I have found which has applied Grand Restaurants in a context outside of negligent misrepresentation. The court in Winsham Fabrik does not appear to have considered whether the contributory negligence principles which applied against the listing agent (against whom the cause of action was negligent misrepresentation) should also be applied in the claim for professional negligence against the plaintiff's own agent. The decision is not binding on me. In these circumstances, I must, with respect, decline to follow it.
35 Accordingly, I conclude that there is no legal foundation to reduce Mr. Wemyss' damages based on contributory negligence. Further, even if the rationale expressed in Grand Restaurants did apply, I find on the facts that it was reasonable in the circumstances for Mr. Wemyss to rely on Mr. Moldenhauer and that he was not contributorily negligent.
E. MITIGATION
36 The defendant also argues that the plaintiff's damages should be reduced based on his failure to mitigate. The argument is two-pronged. First, it is said the plaintiff was entitled to the return of his deposit and should have pursued the vendor for it. Alternatively, the defendant argues that the plaintiff should have closed the deal and made the necessary repairs, thus limiting his damages to the cost of the repairs.
37 The plaintiff made extensive efforts to persuade the vendor to return the deposit, including retaining a solicitor to negotiate same with the vendor's solicitor. The vendor remained adamant that none of the defects disclosed in the inspection, including the problem with the septic system, were structural in nature. The only way the plaintiff could get the deposit back from the vendor would have been to sue the vendor. The plaintiff took legal advice on the matter. He was advised that he probably would not be successful in such an action and that, if he did sue, the vendor would likely counterclaim for damages based on his failure to close the transaction. It is not necessary for me to decide whether or not such an action would have been successful. It is at the very least unclear that Mr. Wemyss would prevail. In any event, there is no obligation on the plaintiff to pursue litigation against the vendor in order to mitigate his damages as against Mr. Moldenhauer. The duty to mitigate simply does not extend that far.
38 The report Mr. Wemyss obtained concerning the septic system provided an estimate of $10,000.00 to correct the problem. There were also other problems disclosed in the main inspection report, which were estimated to cost about $6600.00 to repair. These problems would have been sufficient to let him out of the deal if the original inspection clause in the first offer had been in the final agreement. But for Mr. Moldenhauer's negligence, he would have done that. In my view, it is not appropriate for the defendant to now argue that he must take the house anyway in order to reduce Mr. Moldenhauer's liability. First of all, if Mr. Wemyss had closed the deal and undertaken the repairs, there is no guarantee that the cost would be under $50,000.00. Secondly, Mr. Wemyss was uneasy about the reliability of the report he had on the septic system. The problem was attributed to excessive water consumption, which Mr. Wemyss reasonably believed was not likely. He was worried that the problem might be more extensive and he was generally unhappy about the mess and inconvenience involved in digging up an entire septic system. I find that to be reasonable as well. Again, in my opinion, the duty to mitigate does not extend that far.
F. JUDGMENT AND COSTS
39 Mr. Wemyss seeks the return of his deposit. The negligence of Mr. Moldenhauer clearly caused that loss and it is therefore recoverable in damages. There shall be no reduction for contributory damages or failure to mitigate. Judgment shall issue in favour of the plaintiff in the amount of $50,000.00 plus interest under the Courts of Justice Act from June 30, 1998. Costs are to be addressed in writing in accordance with the schedule previously set.
MOLLOY J.
