Post-Closing Problems Warranty and Merger General Rule: Rescission is not available for a breach of warranty, the case law sometimes seems that way, but basically the courts are finding that the breach led to an error in substantialibus A breach of warranty generally gives rise to damages (eg. Fraiser-Reid; Roberts) Warranty: When V knows something that P does not, and P relies on the V for that knowledge (Fraser-Reid) Implied Warranty: Historically there is an implied warranty as to the fitness of the home if the K was signed before the home was finished being built Express Warranty: Written into the K specifically – generally induce the purchaser to enter into the K (eg. PDS) Homeowner Protection Act BC Requires that all new homes have an approved home owner insurance from an approved provider that covers: 1. Defects for material labour – 3 years 2. Building envelope defects – 5 years 3. Structural defects – 10 years Clause 18 – Standard Form Contract – Entire Agreement Clause No representations or warranties exist outside of the K, and the written representations and warranties will survive the closing of the contract Expressly does away with merger Fraser-Reid v. Droumtsekas (SCC 1979) – Removes the doctrine of Merger P buying from V builder; 6 months later there’s serious flooding due to lack of drain tiles on exterior K required that V disclose any municipal/provincial permits and whether the work was done for them Trial judge found no express warranty that the house would not leak Issue: Was there an implied/express warranty about the quality of the house?
Mitigation was carried out appropriately: V did seek interim financing; she was 71 year old lady In the circumstances, units were dropping fast and the common practice was to sell below FMV Closing / Completion Undertakings Enable complex transactions to occur based on lawyer’s integrity and professional standing What are Undertakings? Professional promise to do something based on a lawyer’s status in the legal profession Sanctity of undertakings are a cornerstone of the legal profession Used to simplify cumbersome and complex transactions in Real Estate Does not require explicit use of the word “undertaking” to exists Purpose: To deal with matters of process – settle immediate logistics of exchange of docs, etc To agree on how to return parties to the originally position if transaction fails Who Can Give and Release Undertakings? Only lawyers or notaries can give undertakings; staff can be found to have given undertaking on their behalf Can only be released by the person to whom it has been given Professional standards handbook: lawyers must report other lawyers who have breached obligations under their undertakings Professional Responsibility: Professional Conduct Handbook Chapter 11 Rule 7 – Lawyer must not give an undertaking that cannot be fulfilled; must fulfill every undertaking; and must scrupulously honour any trust condition once accepted Rule 7.1 – Undertakings/trusts should be written/confirmed in writing and unambiguous in their terms Rule 8 – Lawyer who withdraws or authorizes the withdrawal of funds from a trust account by cheque, undertakes that the cheque will be paid and is capable of being certified