Warranties

Warranties

-may be express or implied

-express warranty: one that is explicitly stated in the contract

-a court may employ a concept called a collateral warranty: one associated with, but outside of, a particular agreement
→ main contract + side promise = collateral warranty

-important for a licensee who represents a buyer to protect the buyer by recording every assurance by the seller upon which the buyer wishes to rely after completion, e.g. The Seller warrants that the roof is in excellent condition.

-necessary to preserve a party’s right to sue after the sale completes.

-Clause 18 is designed, in part, with the doctrine of merger in mind. This clause preserves the right of a party to sue on certain assurances written into the contract after the deal completes, despite the doctrine of merger.

The Doctrine of Merger

-After the completion of a real estate conveyance, the doctrine of merger severely limits the remedies available to the parties.

-A seller who today executes a prescribed transfer form is deemed to promise the buyer, among other things, that:

• the seller has the right to convey title to the land;

• the buyer will have quiet possession;

• the title is free from encumbrances (an encumbrance is a judgment, mortgage, lien, Crown debt, or other claim to or on land less than a fee simple. An encumbrance functions to encumber (i.e., restrict or burden) title to the property against which it is registered);

• the seller will sign all necessary further documents;

• upon request, the seller will produce documents that support the seller’s title; and

• the seller releases any claim in the land.

-With a few exceptions, the doctrine of merger provides that, upon completion of a contract for purchase and the sale of land by delivery of a deed (or, in the case of British Columbia, delivery of a transfer form), the agreement and the parties’ rights under it are merged in the conveyance so that they can no longer rely on the terms of any contract preceding delivery of the deed, but must look to the deed itself for any remedy.

-Exceptions:

(1) fraud,

(2) a mutual mistake resulting in a total failure of consideration or a deficiency in the land conveyed amounting to an error in substantialibus,

(3) a contractual condition,

(4) a warranty collateral to the contract which survives the closing,

(5) an innocent misrepresentation that amounts to error in substantialibus, and
-more than substantial error; there was a misrepresentation, or a mistake, about some fundamental aspect of the thing sold; a fundamental error that goes to the actual identity, or character, of the thing sold.

(6) any warranties created by statute.

-the buyer’s best interests to incorporate a Property Disclosure Statement (PDS) into the standard contract

-a licensee should attach the PDS to the contract and use the following clause to incorporate the PDS into the contract:

The attached Property Disclosure Statement dated (date) is incorporated into and forms part of this contract.

-the buyer can treat the statements in the PDS as warranties, the breach of which enables the buyer (by virtue of clause 18 of the standard form contract) to disregard the doctrine of merger and sue for damages

Deficiencies

-A party may always bring a claim for innocent misrepresentation while a contract is executory (i.e., between contract formation and completion). → If successful, the claimant may obtain rescission.

-If, however, the parties have executed the contract by completing the transaction, the doctrine of merger severely curtails the buyer’s remedies, including any claim for innocent misrepresentation.

Remuneration

-a licensee should include a statement about the licensee’s remuneration in the contract of purchase and sale

-at least two sources of a licensee’s duty to disclose information about the licensee’s compensation: the law governing fiduciaries and sections 54 and 56 of the Rules

-fiduciaries: a person who holds a position of trust with respect to someone else and is obliged, by virtue of the relationship of trust, to act solely in the other person’s benefit

-The licensee cannot sue based on the contract because the licensee is not a party to it due to privity of contract

Builders Liens

-The Builders Lien Act protects contractors, subcontractors and workers who supply work or materials to an improvement for the unpaid price of their work and materials.

-The Act permits a qualified claimant to register a builders lien for the unpaid price of work and materials against title to the land where the construction occurred.

-A claimant has 45 days from the issuance of a certificate of completion to file the claim, or from the completion, abandonment, or termination of the contract under which the work or materials were supplied

-builders lien: a claim registered against the title to land by a contractor, supplier of materials or workman with respect to work done or materials supplied to improve that land

-the courts have read the definition of owner to include a buyer

-As owners, the buyers might have protected themselves by creating a holdback fund, the owner’s liability is restricted to the amount in the holdback account. If the owner fails to comply, the owner risks virtually unlimited liability to unpaid lien claimants.

-With one exception, where a buyer purchases a newly built property, or the property contains recent renovations, a licensee must protect the buyer against the risk of claims under the Builders Lien Act.

-Exception: the purchase of a strata lot from an owner developer → No holdback clause is necessary because legislation makes the holdback mandatory in any event; The buyer must retain the holdback until the earlier of the last date for filing a lien claim, or 55 days after the strata lot is conveyed to the buyer.

-liens can also be filed if the strata corporation hires contractors to work on common property. Until discharged, the owner does not have “clear title”

Norfolk v. Aikens, 1989 CanLII 245 (BCCA)

-Because a lender would not make the mortgage proceeds available until after the transfer and mortgage were registered, the purchaser would have to attempt to arrange interim financing until registration occurred.

-Conversely, the purchaser was able to insist that the vendor pay it out and remove it from title before the purchaser paid the balance of the purchase price. The vendor would then have to borrow the money to pay off the mortgage, rather than being able to use the sale proceeds.

-to avoid this, the standard form contract of purchase and sale allows the registration of the transfer and mortgage documents to take place on the basis of exchanged conveyancers’ undertakings.