Jurisprudential trend in sales without legal warranty

Without legal warranty at the risk and peril of the buyer

Whether you are buying your first property or have been through the process many times, buying a home is an investment that cannot be taken lightly.

In order to protect buyers, the legislator has established provisions such as the legal warranty found in the Civil Code of Québec.

Under article 1716 of the Civil Code of Quebec, the seller is required to guarantee the right of ownership, but also to guarantee that the property is free of latent defects as stipulated by article 1726 of the Civil Code of Quebec.

 

1. Definition of legal warranty of quality

A legal warranty includes the warranty of ownership and the warranty of quality, which we can define respectively as the protection granted by law to a buyer intended to provide him with a title to the property acquired and the protection granted by law to the buyer of a property against the discovery, after purchase, of latent defects. The base principle is well known: the seller must warrant to the buyer that the property is free from latent defects[1].

A latent defect is defined as a “defect, imperfection which a simple and ordinary examination does not allow to detect and which makes the good unfit for the use for which it was intended or which considerably reduces its utility[2]“.

2. Definition of legal warranty at the buyer’s risk

However, the buyer can waive the legal guarantees if the sales contract contains a clause stipulating that the goods are sold without legal guarantee at the buyer’s risk. Such a clause excludes both the legal warranty of quality and the legal warranty of ownership[3].

The effect of this clause and all its possible variations is therefore not only to exempt the non-professional seller from the warranty against hidden defects[4]  but also to show the buyer’s intention to acquire the property without the legal warranty[5].

In principle, considering the absence of a legal guarantee, the buyer cannot sue the seller for hidden defects because the contract was concluded “at the risk and peril” of the buyer.

Nevertheless, there are exceptions to this principle where, under certain circumstances, allowing the buyer to be compensated.

These remedies are:

1) Fraudulent maneuvers and lack of good faith and;

2) Unwillingness to provide information and failure to comply with the obligation to provide information

 

• Deception and lack of good faith:

A sale made without the legal warranty of quality “at the risk and peril” of the buyer does not prevent the obligation of good faith, which governs contracts.

Thus, both the buyer and the seller, being parties to the contract, must respect the principle of good faith found in article 6 of the Civil Code of Quebec, from the formation of the contract to its extinction, including its execution, as specified in article 1375 of the Civil Code of Quebec[6].

This principle of good faith is particularly well rooted in the jurisprudence. Indeed, in a recent judgment, confirmed by the Court of Appeal, the Superior Court[7] noted that:

[…] même lors d’une vente où la garantie légale est expressément exclue, le vendeur doit agir de bonne foi, coopérer avec l’acheteur et lui fournir tous les renseignements nécessaires pour qu’il puisse décider, en toute connaissance de cause, d’acheter ou non le bien.

 

1. Remedies for the buyer

It is essential to define the concept of fraud in order to know whether a buyer can take this route to bring a legal action against a seller.

According to the Honourable Justice Simon Ruel[8], fraud involves “the act of deliberately causing an error in the mind of another person in order to induce him to enter into the contract or to enter into it on different terms.

This means that dishonest statements can constitute fraud, as can lies and misleading or false explanations given in bad faith.

Specifically, the Civil Code of Quebec provides in Article 1401 paragraph 1 that:

The error of a party, caused by the fraud of the other party or with the knowledge of the latter, vitiates consent in all cases where, without it, the party would not have contracted or would have contracted on different terms.

Equally, article 1407 CcQ provides that;

A person whose consent is vitiated has the right to ask for the nullity of the contract; in the case of error caused by fraud, fear or injury, he may ask, in addition to nullity, for damages or, if he prefers that the contract be maintained, ask for a reduction of his obligation equivalent to the damages which he would have been justified in claiming

In view of the principle of good faith, as soon as the seller uses fraudulent manoeuvres before the sale, with the intention of knowingly concealing the existence of an important defect affecting the property, his liability may be engaged.

1. Burden of proof

In addition, although a broader field of application is an advantage for the buyer, the recourse for error caused by fraud is not without difficulty.

According to the articles of the Civil Code of Québec :

Article 2803 CcQ: A person who wishes to assert a right must prove the facts which support their claim.

A person who claims that a right is void, has been modified or is extinguished must prove the facts on which their claim is based.

Thus, it is up to the buyer, the person claiming fraud, to “(…) demonstrate the existence of the error of which he was the victim, its determining character, the intention to deceive, and the fact that the fraud emanated from the contracting party or was known to him[9]“.

But again, in terms of evidence, “(t)he rule of preponderance of evidence applies in such matters and fraud may be proved by any means, including the testimony of the victim, without the need for corroboration[10]“.

Article 2804 CcQ: Evidence that makes the existence of a fact more probable than its non-existence is sufficient, unless the law requires more compelling evidence.

Although this route has some tedious aspects, it nevertheless offers the buyer who has accepted a clause exempting the seller from liability for latent defects the possibility of seeking either the nullity of the contract, damages, or a reduction of his obligation equivalent to the damages he would have been justified in claiming.

 

1. Sellers defence

As for the seller’s defense, the best possible strategy would be to estab;ish the absence of characteristics that qualify a latent defect as postulated in article 1726 of the Civil Code of Quebec, such as:

1. The fact that the defect in question was apparent
2. That the purchasers were aware of the defect

iii.        That the defect was not present at the time the property was sold

1. That the defect is not of substantial gravity
2. The fact that the sale of the property was made without a legal warranty
3. The buyer must act with prudence and diligence considering that the contract was made without legal warranty and at the buyer’s risk

This notion of prudent and diligent buyer was defined in a 1999[11] Superior Court decision in the following terms:

« L’acheteur prudent et diligent d’un immeuble procède à un examen visuel attentif et complet du bâtiment. Il est à l’affût d’indice[s] pouvant laisser soupçonner un vice. Si un doute sérieux se forme dans son esprit, il doit pousser plus loin sa recherche. D’une part, on ne peut exiger d’un acheteur prudent et diligent une connaissance particulière dans le domaine immobilier. D’autre part, on ne peut conclure au vice caché si le résultat d’un examen attentif aurait amené une personne prudente et diligente à s’interroger ou à soupçonner un problème. À partir de ce point, l’acheteur prudent et diligent doit prendre des mesures raisonnables, selon les circonstances, pour connaître l’état réel du bâtiment. Il ne saurait se replier sur son manque de connaissance si son examen lui permet de soupçonner une anomalie quelconque. »

This is a landmark decision in the field. Even after more than twenty years, this case still defines the concept of a prudent and diligent buyer and is regularly cited in current case law.

In terms of buyer behavior, it is necessary to make an interpretation along the following two lines:

1) an objective test of a reasonable purchaser placed in the same circumstances[12],

2) from a more subjective angle, which deals with the identity of the purchasers, their training, and their experience, insofar as these characteristics are relevant to the facts in the legal proceedings and dispute […][13] .

 

While the malleable nature of the concept allows the judge wide discretion, what we should understand by “reasonable purchaser” is someone who would act in a manner that would be considered reasonable from a societal perspective.

Thus, if the buyer did not act in a prudent and diligent manner, the seller could assert this defense.

• Holding back information and the obligation to provide information;

 

Beyond the fraudulent maneuvers that imply an action on the part of the seller, as well as a lie, there is also what is called a negative fraud.

1. Recourse for the buyer;

As indicated by article 1401 paragraph 2 of the Civil Code of Quebec “Fraud may result from silence or reticence”. This means not only that dishonest statements can constitute fraud, but also that withholding information that would have affected the buyer’s decision is sanctioned by the Civil Code of Quebec. As Jeffrey Edwards points out:

« Les tribunaux ont souvent reconnu que le vendeur connaissant un fait important qui pourrait influencer la décision de l’acheteur de contracter ou les conditions auxquels l’acheteur accepterait de contracter, et sachant pertinemment que l’acheteur ignore ce fait, doit le dénoncer à l’acheteur avant la vente : faire autrement constituerait un dol négatif[14] »

In other words, the seller must respect his obligation to inform the buyer, failing which, the latter may bring an action for damages. Once again, this is a fundamental principle, that of the general obligation to inform[15]. In a recent decision of the Superior Court of Quebec, the Honourable Claude Dallaire wrote:

[…] pour que [l]a décision de renoncer soit reconnue comme étant valide, il faut que l’acheteur ait un consentement éclairé[16].

Le vendeur ne doit pas cacher d’information pertinente et importante (faute d’omission) à l’acheteur, et il doit encore moins lui représenter des faits susceptibles d’induire un faux sentiment de sécurité susceptible d’inciter ce dernier à renoncer à la garantie (faute d’action) ou à lui faire payer plus cher que ce que l’immeuble vaut, si l’on tient compte de ses réelles caractéristiques plutôt que celle que le vendeur tente de lui attribuer[17]

The Quebec Court of Appeal had the opportunity in December 2018 to render a judgment describing a clear distinction between the concepts of latent defect and fraud. The Court held that an exclusion from the legal warranty against latent defects does not relieve the seller of its obligation of good faith in the context of entering into a contract of sale[18].

The Court held that “The warranty against latent defects is limited to the integrity of the property sold by the respondents” and that “The duty to inform is broader. It can therefore be concluded that the presence of fraud must be determined by examining the influence of the undisclosed information on the buyer’s choice to enter into the contract, rather than his direct contact with the property sold“.

1. Sellers’s defense

To defend an action brought against him for latent defects, the defendant has several options that can be followed.

If it is stipulated in the contract that the seller is exempt from liability for hidden defects and is not a professional, he is indeed in a good position to argue that the buyer has voluntarily and in full knowledge of the clause accepted the contract and must therefore bear the consequences.

If this does not work, another defense may be to argue that the severity of the defect is not so severe as to reduce the use of the property, as the gravity of the defect is an important factor in deciding whether the buyer is entitled to compensation.

Conclusion

It can be concluded that in the case of latent defects, a contract with the seller that contains the disclaimer “without legal warranty and at the buyer’s risk and peril” is certainly a dangerous clause that potential buyers should be careful about before agreeing.

However, this provision does not indicate that the seller is relieved of liability in all cases. Indeed, as we have demonstrated, if the seller is a professional, this clause may be challenged and declared null and void. The notion of a professional seller has an impact on several of the criteria for identifying a latent defect. A professional seller is presumed to know of the existence of a latent defect. (1728 C.C.Q.) Therefore, if a latent defect is discovered, the professional seller is presumed to be acting in bad faith.

Nevertheless, it is important to note that the outcome of each case is determined based on facts, circumstances and evidence of the ordinary and expert witnesses at hand.

For these reasons, the outcome of each case is evaluated by the judge who will decide the probative value of the credibility of witnesses and the preponderance of evidence.

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[1] Article 1726 al 1 CcQ

[2] Reed Legal Dictionnary

[3] Placements Richard Beaudoin inc. c. Bernier 2011 QCCS 2556, Par. 60 et ss

[4] Art 1733 al 2 CcQ

[5] Ouellette c. Blais (C.S., 2021-03-25), 2021 QCCS 1084, SOQUIJ AZ-51755220 par. 43

[6] Coulombe c. Latulippe (2021) QCCS 2300 au par. 54.

[7] Savaria c. Davignon (C.S., 2010-12-13), 2010 QCCA 6443

[8] Girard c. Dufour (2015 QCCS 340)

[9] Jean-Louis Beaudoin et Pierre Gabriel Jobin, Les obligations, 7^e éd., par P.-G. Jobin et N. Vézina, Cowansville, Éditions Yvon Blais, 2013, p.323, no 348.

[10] Didier Lluelles et Benoît Moore, Droit des obligations, Éditions Thémis,3^e éd. 2018, no 661, page 336.

[11] Lavoie c. Comtois (REJB 1999-16081)

[12] ABB inc. c. Domtar inc., 2007 CSC 50, aux para 50 et 51.

[13] Friedman c. Shnirelman, 2020 QCCS 1814, au para 142.

[14] Jeffrey Edwards, La garantie de qualité du vendeur en droit québécois, 2^e éd, Montréal, Wilson Lafleur, 2008, nos 214, p95.

[15] Banque de Montréal c. Bail Ltér, (1992) 2 RCS 554

[16] Friedman c. Shnirelman, 2020 QCCS 1814, au para 100

[17] Friedman c. Shnirelman, 2020 QCCS 1814, au para 100.

[18] Monarque du Richelieu inc. c. Boisé Richelieu inc., 2018 QCCA 2168

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