Racicot et al. v. Bertrand et al.

Racicot et al. v. Bertrand et al.
Collection
Supreme Court Judgments
Date
1978-10-31
Report
[1979] 1 SCR 441
Judges
Martland, Ronald; Pigeon, Louis-Philippe; Dickson, Robert George Brian; Beetz, Jean; Pratte, Yves
On appeal from
Quebec
Subjects
Sale
Decision Content
Supreme Court of Canada
Racicot et al. v. Bertrand et al., [1979] 1 S.C.R. 441
Date: 1978-10-31
Jules Racicot and Jean-Paul Couture (Defendants) Appellants;
and
Guy Bertrand and Marcel Laverdière (Plaintiffs) Respondents.
Guy Bertrand and Marcel Laverdière (Plaintiffs) Appellants;
and
Jules Racicot, Jean-Paul Couture, Les Immeubles d’Aubigny Enr., Henri Abel, Quebec Land and Realty Inc., Gédéon Rouleau and F.G. Rouleau Inc. (Defendants) Respondents;
and
Quebec City and the Registrar of the Registry Division of Quebec Mis en cause.
1977: November 2 and 3; 1978: October 31.
Present: Martland, Pigeon, Dickson, Beetz and Pratte JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR QUEBEC
Sale—Apartment building—Misrepresentations as to profitability—Tacit confirmation of the sale—Non-compliance with municipal by-law and provincial regulations—Latent defects—Cause for eviction—Purchaser disturbed in law or in fact—Civil Code, arts. 992, 1242, 1508, 1522, 1526, 1527, 1528, 1530.
On September 19, 1973 Bertrand and Laverdière (the “purchasers”) brought an action against Racicot and Couture (the “vendors”), seeking cancellation of the sale of an apartment building which they had purchased from the latter on December 29, 1970. The purchasers alleged that their consent had been vitiated by fraud and also that the building failed to comply with certain provincial and municipal regulations. In the same action, the purchasers sought a joint and several condemnation against the vendors, their predecessors in title, the real estate agent and his employer (the other respondents) for the damages they claimed to have suffered as a result of the same sale. The Superior Court dismissed plaintiffs’ action against all defendants. The Court of Appeal, on the other hand, cancelled the sale on the ground that the building failed to comply with the regulations, but it affirmed the dismissal of the claim for damages against all defendants. In this Court the vendors are appealing against that part of the decision of the Court of Appeal allowing the action for cancellation. At the same time, the purchasers are cross-appealing against that part of the decision dismissing the action in damages.
This Court is called on to resolve the following four issues: (a) should the sale be cancelled because the consent of the purchasers was allegedly vitiated by fraud? (b) should the sale be rescinded because the building failed to comply with the regulations? (c) should the sale be cancelled as a result of the unilateral error that allegedly vitiated the consent (a point raised for the first time in this Court)? (d) do the circumstances surrounding the sale justify the claim for damages?
Held: The appeal should be allowed and the cross-appeal dismissed.
(1) Even if it were assumed that there was fraud as to the profitability of the building without which the purchasers would not have contracted, the purchasers’ conduct up until their action was brought implied tacit confirmation of the sale. Two conditions are necessary for the confirmation of an act which is voidable, knowledge of the defect and intent to rectify it. In the case of tacit confirmation, the evidence of these two aspects must be indirect or by presumption “du fait de l’homme”. As regards presumption, the trial judge has the same discretion as he has with respect to proof by testimony. In the case at bar, nothing in the record indicates that the assessment of the evidence by the trial judge was incorrect: quite the contrary. The proven facts necessarily lead to the conviction that the purchasers were aware of the misrepresentations shortly after the sale and that their subsequent actions necessarily imply a waiver of their right to take advantage of their defective consent. The conduct of the purchasers, added to their complete silence towards the vendors, clearly implied confirmation of the deed of sale.
(2) If the evidence shows that the building sold failed to comply with the standards prescribed by the provincial Regulation on dwellings, does this failure to comply make the vendors liable either under the warranty against eviction or under the warranty against latent defects? Whichever warranty is involved, it could not be due unless the purchaser were disturbed in law or in fact. At the time of the sale, the fact that the building failed to comply with the Regulation in the case at bar entailed no consequences for the purchasers or the public authority. The latter could not prevent the build- ing from being occupied or have it demolished or altered; the former could continue to operate it without committing any offence. Furthermore, the difficulties allegedly encountered by the purchasers in the operation of the building in its present state must be considered not in the context of current laws or the existing factual situation, but of the laws in effect at the date of the sale and the situation as it was at that time. In short, at the time of the sale, the building’s failure to comply, of which the purchasers are complaining, was not a cause for eviction or a latent defect.
(3) The unilateral error committed by the purchasers, independent of any fraud, does not entitle them to cancellation of the sale either. If the error regarding the profitability of the building was not provoked by misrepresentation, it is equivalent to lesion which, with certain exceptions that are not applicable here, is not a cause of nullity in contracts. As for the error concerning the building’s failure to comply with the regulations, this cannot have been for plaintiffs a principal consideration for making the contract, as required by art. 992 C.C.
(4) Since the purchasers were not entitled to have the sale cancelled or rescinded, they are even less entitled to damages.
Montreal Investment and Realty Co. v. Sarault (1918), 57 S.C.R. 464; United Shoe Machinery Co. of Canada v. Brunet, [1909] A.C. 330; Gosselin v. Péloquin et al., [1957] S.C.R. 15; Touchette v. Pizzagalli, [1938] S.C.R. 433; Lortie v. Bouchard, [1952] 1 S.C.R. 508; Latouche v. Lehouillier, [1959] Que. Q.B. 26; Rousseau v. Bennett, [1956] S.C.R. 89; Lambert v. Lévis Automobiles Inc. et al., [1957] S.C.R. 621; Piersanti v. Laporte, [1956] Que. Q.B. 210; Marchal v. époux Laxenaire, D.P. 78.1.162; Bessy v. Robertson, S. 1914.1.78, referred to.
APPEAL and CROSS-APPEAL from a decision of the Court of Appeal of Quebec[1] setting aside in part a judgment of the Superior Court. Appeal allowed, cross-appeal dismissed and the judgment of the Superior Court restored.
Raynold Bélanger, Q.C., for Jules Racicot, Jean-Paul Couture and Les Immeubles d’Aubigny Enr.
Guy Bertrand, on his own behalf.
Guy Pépin, Q.C., for Marcel Laverdière. Roger Vallières, for Henri Abel and Quebec Land and Realty Inc.
The judgment of the Court was delivered by
PRATTE J.—On December 29, 1970, the two respondents, Bertrand, an attorney, and Laverdière, a dental surgeon (the “purchasers”), purchased from two of the appellants, Racicot and Couture, both medical doctors (the “vendors”), for the price of $240,000 of which $28,000 was payable cash, an apartment building located in the old part of Quebec City at the corner of rue St-Jean and rue St-Stanislas, which had previously been owned by Gédéon Rouleau and by F.G. Rouleau Inc. This sale was made through a real estate agent by the name of Abel, an employee of Quebec Land and Realty Inc., real estate brokers, which had been authorized by the vendors to sell the building.
On September 19, 1973, the purchasers brought the action whose validity is at issue here. In this action they sought against the vendors cancellation of the sale of December 29, 1970, on the grounds that their consent had been vitiated by fraud and also that the building failed to comply with certain provincial and municipal health, safety and building regulations (the “regulations”). In the same action, the purchasers sought a joint and several condemnation against the vendors, their predecessors in title F.G. Rouleau Inc. and Gédéon Rouleau, the real estate agent Abel and his employer Quebec Land and Realty Inc., in the amount of $128,603.28, in payment of the damages they claimed to have suffered as a result of the sale sought to be cancelled.
The Superior Court (Lesage J.) dismissed plaintiffs’ action against all defendants.
In a decision dated April 2, 1976, the Court of Appeal of the province of Quebec allowed the appeal in part: it cancelled the sale on the ground that the building failed to comply with the regulations, but it referred the record back to the Superior Court for a determination of the amount to be paid to the purchasers by the vendors as a result of this cancellation. As to the damages, the Court of Appeal affirmed the dismissal of the action against all defendants.
In this Court the vendors are appealing against that part of the decision of the Court of Appeal that set aside the judgment of the Superior Court and allowed the action for cancellation brought against them by the purchasers. At the same time, the purchasers are cross‑appealing against that part of the decision of the Court of Appeal that affirmed the dismissal of their action in damages against all defendants.
This appeal and cross-appeal raise the following four main questions: (a) Should the sale of December 29, 1970 be cancelled because the consent of the purchasers was allegedly vitiated by fraud? (b) Should the sale of December 29, 1970 be rescinded because the building failed to comply with the regulations? (c) Should the sale of December 29, 1970 be cancelled as a result of the unilateral error that allegedly vitiated the consent of the purchasers? (d) Do the circumstances surrounding the sale of December 29, 1970 justify the claim for damages brought by the purchasers?
I
The purchasers’ first contention is that they were deceived about the profitability of the building by the representations made to them by the real estate agent Abel.
Abel was in a position to know the facts regarding the building since he had previously acted as agent in the sale by F.G. Rouleau Inc. to appellants Racicot and Couture, and, during the year they owned the building, Abel managed it for his employer Quebec Land and Realty Inc.
During the negotiations that lead to the sale of December 29, 1970, Abel allegedly told the purchasers on several occasions that the purchase would be a good investment for them and that it would bring in a net annual income of at least $5,000, since that was the amount made by the then owners, the vendors. At the beginning of his testimony Bertrand said the following:
[TRANSLATION] When the building on St-Jean Street was mentioned by Mr. Abel, I asked him how much cash was required in comparison with the other buildings and he told me: “That is the building that costs the least; it costs $28,000.00, you can have it for $28,000.00 cash and I know it brings in $5,000.00 because we manage it”.
I then asked Mr. Abel to prepare the relevant figures and told him that when he had the figures we could talk seriously.
Subsequently, towards the middle of November 1970, Abel gave the purchasers a document purporting to confirm the verbal representations he had made to them. This document is Exhibit P-4, which is at most a summary statement of receipts and disbursements but which the parties have, throughout the proceedings, referred to very inaccurately as a “profitability analysis”. This statement shows a “net income” of $5,417.63 on an annual income of $42,762 and expenditures (including “mortgage payments”) of $37,344.37.
Abel claimed to have subsequently given the purchasers another statement of receipts and disbursements (Exhibit DA-1), showing a net income of $3,768.01 owing to a slight reduction of $42 in income and an increase of $1,607.62 in expenditures. The two purchasers, however, flatly denied having seen this statement before the sale. For the purposes of the appeal it may be assumed that it was on the strength of the original document, Exhibit P-4, and the corresponding oral representations made to the purchasers by Abel, that the purchasers decided to buy the building.
On December 10, 1970, the purchasers gave the vendors a written offer to purchase wherein the only item relating to profitability was the following:
[TRANSLATION] 5. The purchaser undertakes to respect the current lease(s), which is (are) guaranteed by the vendor to be for rent(s) not less than $42,700.00 per year and which expire(s) on April 30, 1971.
The deed of sale was signed on December 29, 1970; it contained no stipulation regarding the profitability of the building. It did, however, con- tain the following provisions which indicated that the building was in fact a revenue-producing property:
[TRANSLATION] This sale is made subject to the following terms and conditions, namely:
…
3. The purchasers shall be entitled to collect the rents in respect to the apartments located in the building in question as from December 1 last (1970), and the vendors hereby transfer to the purchasers all their rights in the said leases.
4. The parties appearing state that they have made between them all the required adjustments concerning taxes, fire insurance, interest, heating oil, leases or other similar matters, these adjustments having all been made as of December 1 of the current year (1970), and they give each other final release therefor.
5. The purchasers shall take possession of the building sold herewith retroactively to December 1 last (1970), and they accept it in its current condition, declaring that they have seen and examined it and found it satisfactory.
The adjustments mentioned in para. 4 of the deed of sale were made between the parties and a statement was given to the purchasers when the deed was signed. With regard to income, the statement is in conformity with the guarantee stipulated in the offer to purchase. With regard to expenditure and the mortgage situation, however, it is not completely consistent with the information contained in Exhibit P-4, the “profitability analysis”.
The purchasers said nothing until June 18, 1973, when Bertrand, acting both on his own behalf and as attorney for his co-owner Laverdière, sent the vendors a letter of formal notice which read as follows:
[TRANSLATION] Quebec City, June 18, 1973
Doctor Jean Paul Couture, 17, Charles Edouard Street, Lévis, Quebec
Doctor Jules Racicot, 47 Déziel, Lévis, Quebec
Re: GUY BERTRAND and MARCEL LAVER-DIERE v. YOURSELF
Sir:
On December 29, 1970, you sold us a property located at the corner of rue St-Stanislas and rue St-Jean in Quebec City. You are aware of the price for which this building was sold so there is no need to mention it in this letter.
Before entering into the above transaction you made to us, either directly or indirectly, certain representations regarding the value of the property and in particular the return it produced.
Unfortunately, we find that some of the representations made to us were definitely false, to say the least. You indicated a net profit of $5,000.00 when in fact this is not the case, and this building has operated at a deficit ever since we purchased it. We are justified in stating that at year’s end it must have returned you not a profit of $5,000.00 but a deficit of several thousand dollars.
In the circumstances, we are justified in seeking to have this sale cancelled. It is understood that we must also be reimbursed for the repairs we have made to the building since December 1970.
Unless we receive a reply from you within eight (8) days, rest assured that we will not hesitate to begin legal proceedings in order to clear up this whole matter.
Yours truly,
(Signed) Guy Bertrand, Attorney
GB/hp
On August 22, 1973, another formal notice was sent to each of the vendors:
[TRANSLATION]
PHILIPPON, GARNEAU, TOURIGNY et ASSOCIÉS BARRISTERS * SOLICITORS
…
Quebec City, August 22, 1973
“REGISTERED”
RE: Marcel Laverdière and Guy Bertrand
Dear Sir:
We represent Messrs. Marcel Laverdière and Guy Bertrand, who consulted us regarding the building located at 1075 and 1085 St-Jean Street, East and 25 and 27 St-Stanislas Street in Quebec City, which they purchased from you and Mr. Jean-Paul Couture on December 29, 1970, at a cost of $240,000.00. According to our information, our clients would not have agreed to purchase this property if they had been given accurate information concerning, in particular, the profitability of the building.
Representations were made to them guaranteeing a minimum annual income of $42,700.00, whereas in fact the income was much lower than this amount. It further appears that the list of current tenants given to our clients at the time of the negotiations was not accurate and that the rentals listed for several of the tenants were higher than the actual rentals.
It therefore appears that misrepresentations were made and that our clients were the victims of fraud.
We have advised our clients that in the circumstances they are entitled to the cancellation of the sale, reimbursement of the amount paid and compensation for all resulting damages, including interest.
In view of this advice we were instructed to institute the necessary proceedings to exercise all our clients’ rights against all those responsible, including yourself. Moreover, our instructions are to proceed with diligence and the necessary proceedings are being drawn up. You should be served with them very shortly.
Our clients are not required to send you this letter in view of the nature of the complaints. We realize, however, that you may be interested in agreeing to the requests of our clients before the proceedings are served. If this is the case, we invite you to contact the undersigned immediately since we expect to give the proceedings to the bailiffs within two days of the date of this letter.
Finally, we would point out that the urgency and importance of this problem have increased because the City of Quebec has claimed that the building does not comply with the municipal by-laws and demanded that it be made to comply. With regard to this point, our clients reserve all their remedies in damages against you resulting from the work they may be required to do under the municipal by-laws.
You are therefore hereby given formal notice to agree to cancel this sale to our clients, to reimburse all sums paid at the time of the sale and subsequently, and to pay all damages and interests. The amount to be reimbursed to our clients is approximately $122,000.00 plus interest; we will provide you with full details concerning these amounts and all the specific figures upon request. Otherwise, details of the claim will be contained in the proceedings.
If you agree, please contact us and we will let you know the name of the notary before whom you should appear in order to give effect to this formal notice.
This letter is sent to you without prejudice and subject to all the rights of our clients.
Yours truly,
PHILIPPON GARNEAU TOURIGNY & ASSOCIÉS
(signed) Jacques Philippon JACQUES PHILIPPON
JP/ostl
In mid-September 1973, the purchasers brought an action against the vendors seeking, inter alia, cancellation of the sale of December 29, 1970 in view of the fraudulent acts allegedly committed against them by Abel, and summarized in the above letter of formal notice dated August 22, 1973.
The Superior Court did not express its opinion as to the existence or importance of the misrepresentations that are the basis of the action. It held that even if there had been misrepresentations entailing a defective consent on the part of the purchasers, the latter were precluded from availing themselves of this ground of cancellation since by their conduct they had confirmed the sale of December 29, 1970.
In the Court of Appeal Crête J.A. held, as did the trial judge, that the purchasers had confirmed the sale, and he expressly approved the following passage from the reasons of the trial judge:
[TRANSLATION] The main grounds of fraud advanced by plaintiffs concern primarily the profitability of the building. They argued that misrepresentations were made to them concerning the income and expenditures, receipts and disbursements of this real estate operation. The deed of sale is dated December 29, 1970. It was preceded by an offer to purchase. In fact, plaintiffs’ management began on December 1, 1970. It was not until September 18, 1973, that is more than two and three-quarter years (2 3/4 years) later, that they took action against defendants. In their action they claimed operating deficits for 1971, 1972 and 1973. Whatever method is used to calculate the profitability of a real estate undertaking -for the parties do not agree at all on this point - the evidence clearly shows that the plaintiffs had been well aware of the situation in this regard since 1971. If in fact the building did produce nothing but deficits, contrary to the alleged representations which plaintiffs characterized as false and fraudulent, they definitely ratified the deed of sale, which they now seek to have cancelled, by continuing to manage the building for more than thirty-three (33) months after the purchase and more than twenty (20) months after the end of 1971.
Plaintiffs have even spent more than $20,000.00 on alterations to the building. They offered the building for sale at a higher price than they had paid for it. It is definitely too late to seek to have the sale cancelled on the ground of misrepresentations regarding the management of the building.
As for Kaufman J.A., he did not share his brother’s point of view as to the confirmation of the sale, but rather held that the inaccuracy of Abel’s representations was not of sufficient importance to justify the cancellation:
After a careful review of the evidence, I have come to the conclusion that while Respondent Abel may have overstated the potential of the property, the proof is not preponderant that he so misled the Appellants by false representations that, without them, they would not have bought.
Lajoie J.A. stated that he concurred in the opinions of his two brothers.
I do not feel that I have to express an opinion on the question of the existence and importance of the misrepresentations that Abel might have made to the purchasers. In fact, even if it were assumed that there was fraud on the part of Abel as to the profitability of the building without which the purchasers would not have contracted, the purchasers’ conduct up until their action was brought in mid-September 1973 implied tacit confirmation of the sale.
Two conditions are necessary for the confirmation of an act which is voidable, knowledge of the defect and intent to rectify it: [TRANSLATION] Confirmation whose objective is to eliminate the defect inherent in the obligation requires, by its very nature, that the person from whom it emanates fulfil the two conditions of knowledge of the defect and intent to rectify it. This is true of tacit confirmation as well as of express confirmation.
Aubry and Rau, 5th ed., v. 4, No. 337, p. 438.
The two factors of confirmation, knowledge of the defect and intent to eliminate it, are facts which can be proved by ordinary means. In the case of tacit confirmation, the evidence clearly cannot be direct but must be indirect or by presumption “du fait de l’homme”. In this case, the Court infers the existence of the facts to be established from the facts that have been proven. Thus, as Aubry and Rau observe (ibid. No. 337, p. 443):
[TRANSLATION] … tacit confirmation may be inferred from any act whatever involving intent on the part of the person who could bring an action in nullity or rescission to waive such action and cause the voidable or rescindable agreement to take effect, provided that this intent is certain and not ambiguous.
See also Demolombe, v. 29, No. 774, p. 668; Larombière, v. 6, art. 1338, No. 39 Solon, Théorie sur la nullité, vol. 2, No. 410 et seq.
In Montreal Investment and Realty Co. v. Sarault[2], Anglin J. examined this question of evidence by presumption of the tacit confirmation of a voidable obligation, and even though he was only expressing his personal opinion on this point, the following passage from his reasons is worth citing (at p. 481):
The requisites of an effectual confirmation may be established by presumptions as well as by direct testimony. These presumptions may be founded on the nature of the vice or defect in the principal obligation and the character of the act preferred as confirmation.
…
Whether knowledge of voidability will be presumed or inferred depends upon the nature of the facts of which it appears that the obligor was cognisant, i.e. whether they are such that a person knowing them would be likely to be aware of the consequent right of rescission, Dalloz, 1853, 2, 223. The presumption of the intention to confirm will likewise depend upon the degree of significance which attaches to the act of execution, 29 Demolombe, No. 774. Laurent, Vol. 18, No. 620, says that execution by a person having capacity to renounce the right of rescission, with knowledge of the vice or defect which gives him that right, necessarily implies the intention to confirm. See also 2 Solon, op. cit. Nos. 415, 418, 420; Rolland de Villargues, Notariat, Vbo. Ratification, art. 3, No. 58.
Previously, the Privy Council had held in United Shoe Machinery Company of Canada v. Brunet[3], that the lessees of certain rented machinery who wished to have the lease cancelled for misrepresentation had tacitly confirmed the lease because they had paid the rent and used the machinery for no more than a period of a few weeks after discovering the misrepresentations of which they were complaining. At p. 339 Lord Atkinson said:
A contract into which a person may have been induced to enter by false and fraudulent representation is not void, but merely voidable at the election of the person defrauded, after he has had notice of the fraud. Unless and until he makes his election, and by word or act repudiates the contract, or expresses his determination not to be bound by it (which is but a form of repudiation), the contract remains as valid and binding as if it had not been tainted with fraud at all;
…
In the present case it was proved in evidence, and not disputed, that, though the respondents had on May 15, 1905, if not before, so satisfied themselves that they had been defrauded that they called upon the appellants to remove the “allied machines”, yet they retained in their hands, and continued to work, the machines demised by the “leases sued on” up to July 21, 1905, the date of the interlocutory injunction, and paid in respect of this period the royalties reserved by these leases. In no more emphatic, or unequivocal, way could the respondents have shown their intention to treat the leases as subsisting.
In Gosselin v. Péloquin et al.[4], Fauteux J., with Taschereau, Rand and Abbott JJ. concurring, said the following at p. 17: [TRANSLATION] Fraud and error are not, however, causes of absolute nullity, only of relative nullity, and the agreement thus vitiated may be confirmed, either expressly or just tacitly, by the party entitled to complain of it. Such confirmation clearly presupposes that the person giving it is aware of the defect in the contract. It may then result from voluntary performance, total or even partial, or from the exercise of the rights acquired under the agreement, or even under contracts with third parties. In some cases knowledge of the defect, once established, will entail a presumption of fact of the intent to confirm: this is so if there is performance strictly speaking or exercise of the rights acquired by the transaction: Planiol and Ripert, Droit Civil, 1952, 2nd ed., vol. 6, No. 201 and Nos. 303 et seq.
Finally, it should be said that the trial judge has the same discretion as regards proof by “présomption du fait de l’homme” as he has with respect to proof by testimony (Decottignies, Les présomptions en droit privé, p. 282). Knowledge of the defect and intent to cover it are therefore questions of fact that are essentially the responsibility of the trial judge (J. Cl. Civil, art. 1338-1340, Perrot, “Confirmation des actes nuls”, No. 60; Touchette v. Pizzagalli[5]; Lortie v. Bouchard[6]; Latouche v. Lehouillier[7]. In Rousseau v. Bennett[8], Taschereau J. expressed the opinion of the Court as follows (at p. 92):
[TRANSLATION] … Evidence may, however, establish presumptions of fact and art. 1242 of the Civil Code states how these presumptions should be weighed. This article reads as follows:
Presumptions not established by law are left to the discretion and judgment of the court.
The intent of this legislation is that these presumptions be left to the discretion of the judge who sees and hears the witnesses, and in order for a Court of Appeal to intervene in the exercise of this discretion it must find an error on the part of the trial judge. No such error was found in the case at bar.
In the case at bar the trial judge clearly stated his opinion: respondents were aware of the defect and their conduct necessarily implies the intent to waive it.
Nothing in the record indicates that this assessment of the evidence by the trial judge was incorrect: quite the contrary. In my view, the proven facts necessarily lead to the conviction that the purchasers were aware of the misrepresentations shortly after the sale and that their subsequent actions necessarily imply a waiver of their right to take advantage of their defective consent.
The purchasers were complaining essentially that Abel told them that the building produced a net annual income of $5,000 when this was not the case; that Abel inflated the income and omitted expenditures.
In fact, the management of the building by the purchasers always resulted in a deficit, and this was known to them soon after the sale. In his testimony Bertrand said of the building:
[TRANSLATION] It always showed a deficit, not just for half but for the whole of 1971, because at the beginning of the year - in January and February - if you didn’t have the taxes, even if you had an income of $3,000.00, the taxes came at the end of the year; if you spread them over twelve months, taxes of slightly more than eight thousand dollars, the building always showed a deficit from the first month we owned it.
This statement is consistent with the statement made in the above-mentioned letter of formal notice, dated June 18, 1973, in which he said:
[TRANSLATION] YOU indicated a net profit of $5,000.00 when in fact this is not the case, and this building has operated at a deficit ever since we purchased it. We are justified in stating that at year’s end it must have returned you not a profit of $5,000.00 but a deficit of several thousand dollars.
For the years 1971, 1972 and 1973 the building incurred cash deficits of $5,339.76, $17,258.35 and $17,451.70 respectively, which the purchasers had to make up. The deficit for 1971 was paid in January or February of 1972, while the deficit for 1972 was paid in part during the year with the balance being paid at the beginning of 1973. There is no doubt that the purchasers became aware in the first year that the financial results were far different from those allegedly represented to them. Moreover, in an application to be heard by preference made to the Superior Court on February 25, 1974, and supported by Bertrand’s affidavit, the purchasers stated that the deficit [TRANSLATION] “had been noted in the first year and had continued to the present time”.
The purchasers submitted that their management had been good, at least as good as that of their predecessors in title, and also maintained that the discrepancy could not be explained by a change in market conditions in the area in which the building was located. Furthermore, as Crête J.A. pointed out in his reasons, the gross receipts from the building during the period mentioned in the offer to purchase, from December 1, 1970 to May 1, 1971, were higher than the guaranteed amount of $42,700.
If these submissions of the purchasers are accepted, the only possible explanation for the considerable discrepancy between the alleged representations and the results obtained is the falsity of the representations, and plaintiffs suggested no other.
Kaufman J.A., who did not accept the vendors’ argument based on the confirmation of the sale, did not deny that the purchasers became aware of the misrepresentations long before the action was instituted. He expressed the opinion that the delay in bringing the action showed a great deal of caution on the part of the purchasers:
I have cited this extract from the evidence at length because it summarizes the Appellants’ pretensions on this point. It also explains, to a large extent, why proceedings to annul the sale were not taken sooner, and while it would have been better from every point of view if the matter could have been aired within a few months after the sale, I would not lightly deny the right of action to a plaintiff who exercises initial caution instead of rushing into court on the strength of suspicion and mistrust.
The important passage from this part of Bertrand’s testimony to which Kaufman J.A. referred is as follows: [TRANSLATION] At that time, therefore, in order to avoid repeating words, there was a search warrant and we were able to find—I went to the Clerk of the Court of Sessions of the Peace with Mr. Potvin the accountant, and it was there that we discovered that instead of a net profit of $5,000.00—in 1970 at least, during the year that they owned it—the doctors had a deficit of around $9,000.00.
It should be stated that during August 1973, Bertrand laid an information for fraud against Abel (which, from what we were told at the hearing, was dismissed) in connection with the sale at issue here. Previously, a search warrant had been issued at Bertrand’s request and the documents relating to the management of the building while it was owned by the vendors were seized. According to Bertrand, it was when these documents were examined at the office of the court, in August 1973, that the purchasers “discovered that instead of a net profit of $5,000—in 1970 at least, during the year that they owned it—the doctors had a deficit of around $9,000”.
It is probably true that examination of the documents that were seized provided the purchasers with irrefutable documentary evidence of the falsity of the representations made to them by Abel, but obtaining knowledge of a fact must not be confused with obtaining direct proof of that fact.
The question is not whether the purchasers had direct material evidence of the misrepresentations but whether they knew of them. A contracting party who knows that the representations made to him were false but waits for direct irrefutable proof of this falsity before seeking to have the contract cancelled loses the right to exercise this remedy if in the meantime his acts imply a denial of the precariousness of his title and are not compatible with the intent to seek cancellation.
Kaufman J.A. appears to me to have misdirected himself as to the question to be answered. The issue is not whether the purchasers were cautious, but rather whether they were aware of the defect of which they are now complaining. In my view, the presumptions arising from the proven facts are convincing evidence that the purchasers had been aware of the misrepresentations alleged against Abel, at least since the beginning of 1972.
It now remains to be seen whether the purchasers’ conduct implied confirmation, or more specifically, whether their actions necessarily implied an intent to rectify the defect in their consent.
There are certain acts that are incompatible with the existence of a precarious or vitiated title. One cannot at the same time claim to have a voidable and a good and valid title to a property. A person who, being aware of the defect of his title to a property, nevertheless acts in all respects and for several months as an absolute owner and exercises all the rights of such an owner, demonstrates an unambiguous intent not to avail himself of the defect of his title.
In Lambert v. Lévis Automobiles Inc. et al.[9], this Court held that an action for the cancellation of the sale of an automobile on the ground of misrepresentation by the vendor, was late when it had been instituted a little more than thirteen months after the sale. Taschereau J., speaking for the Court, said at p. 623:
[TRANSLATION] … Actions of this type must be instituted within a reasonable length of time, and in the case at bar no action was brought until more than a year after the contract of sale was signed.
The commentator of Marchal v. époux Laxenaire[10] (notes 2 and 3 at p. 162), wrote: [TRANSLATION] “to act under a vitiated or suspect deed after ascertaining the facts is clearly to waive the right to contest it”.
In the case at bar the purchasers not merely remained silent for more than two years: after becoming aware of the defect in their consent, they paid the balance owing on the purchase price. They also made full use of their rights as owners by taking actions that went well beyond the limits of ordinary management. As already mentioned, the sale price of December 29, 1970 was not all paid cash. There remained a balance outstanding of $212,000, which the purchasers undertook to pay on behalf of the vendors to the three mortgagees who each held a mortgage on the building that had been sold:
Creditors
Capital
Interest
Le Crédit Foncier Franco-Canadien
$100,000.
12%
Dame Ernest Côté
$ 25,000.
15%
F.G. Rouleau Inc.
$ 87,000.
8%
Over the course of 1972 the purchasers completely paid off this debt of $212,000.
The debt of $25,000 owed to Dame Ernest Côté was paid in May 1972 and the debts owing to F.G. Rouleau Inc. and Crédit Foncier Franco-Canadian were paid during the fall of the same year. In the case of Rouleau the purchasers obtained a reduction of $5,000, whereas in the case of Crédit Foncier they had to pay a penalty of $8,000 in order to be allowed to prepay the debt.
In making these three payments the purchasers paid off the balance of the sale price which they still owed to the vendors; they performed their obligation under the deed of sale.
As they were paying off the mortgages due to Crédit Foncier Franco-Canadien and F.G. Rouleau Inc., the purchasers were taking out new mortgages on the security of the building, one for $140,000 with Sauvegarde Compagnie d’assurance sur la Vie and two, one for $45,000 and another for $8,000, with Caisse Populaire Notre-Dame de Québec. In each one of the three deeds of loan and mortgage the purchasers affirmed the validity of their title to the property. In the deed in favour of Sauvegarde, they stated that they owned the building outright [TRANSLATION] “by good registered title”. In each of the other two deeds in favour of the Caisse Populaire Notre-Dame de Québec, they stated that they were the absolute owners of the building. The purpose of this operation in favour of these two new mortgagees was, according to Bertrand, to reduce the cash deficit of the building by reducing the amount of the payments to be made every month or every year in repayment of the mortgage debt.
Prior to this, during the summer, the purchasers had decided to sell the building in view of the unsatisfactory financial results. Initially they asked a higher price than the one they had paid. Only one person showed an interest, but he wished to pay only the amount of the mortgages then on the building, that is $187,000. The purchasers thought the offer to be unacceptable although they said they were prepared to accept a price lower than their purchase price. The negotiations broke down and t