Owners wait too long to collect fees from developer; judge declares bylaw issue moot; Strata Corporation loses $65,000

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Smith v. The Owners, Strata Plan VIS4673,

 

2008 BCSC 28

Date: 20080121
Docket: S48655
Registry: Nanaimo

Between:

Dennis Walter Smith, Devina Villafor Smith, Harry Wenngatz, Trudy Wenngatz,
Ernst Adolf Grecht, Maureen Elizabeth Grecht, Kenneth Malcolm Ally,
Michaela Daria Ally, Oliver Board, Kristiane Board, Alan Graham Courtice,
Phyllis Mae Courtice, Alan David Kirkup, Vera Kirkup and Barbara Jean Lemoine

Petitioners

And

The Owners, Strata Plan No. VIS4673 and 528872 B.C. Ltd.

Respondents


Before: The Honourable Mr. Justice D.A. Halfyard

Reasons for Judgment

Counsel for the Petitioners

W.A. MacEwen

T. Peligren appeared as the representative of the Respondent 528872 B.C. Ltd.

No One appeared for the respondent The Owners, Strata Plan No. VIS4673, although duly served

 

 

Date and Place of Hearing:

December 19, 2007

 

Nanaimo, B.C.

Introduction

[1]                The petitioners sought the following relief, when they filed their petition on November 15, 2006:

1.         An order that By-law 144(1) of the respondent strata corporation is ultra vires the Strata Property Act, S.B.C. 1998, c.43 and the former Condominium Act, R.S.B.C. 1996, c.64;

2.         An order directing the Strata Council to collect strata fees that were not collected due to the existence of By-law 144(1)….

[2]                At the commencement of the hearing, counsel for the petitioners informed the court that the first two named petitioners, Dennis Walter Smith and Devina Villafor Smith had sold their strata lot and were no longer pursuing the claim.  Counsel also advised that paragraph 2 of the relief sought in the petition is no longer being applied for. 

[3]                The remaining 13 petitioners are the registered owners of seven strata lots of the Strata Plan No. VIS4673.

The Facts

[4]                The respondent, The Owners, Strata Plan No. VIS4673 are the owners of lots of the Strata Plan No. VIS4673. 

[5]                The respondent 528872 B.C. Ltd. does business as “Home Tec,” and is the owner/developer of the residential strata development located at Qualicum Beach B.C. which was established by Strata Plan No. VIS4673.

[6]                The said residential strata development consists of 286 strata lots.  Strata Plan No. VIS4673 (“the Strata Plan”) was registered in the Land Title Office in October 1998 pursuant to the Condominium Act.  In or about 1999, Home Tec began marketing and selling the strata lots.

[7]                The first Annual General Meeting of the Owners of the Strata Plan was held on December 3, 1999.  The minutes of the meeting show that it was attended by the owners of 25 strata lots and by Tim Peligren, representative of the owner/developer which was stated to be “the owner of the balance of the 286 strata lots.”  It is apparent that the owner/developer then owned 261 of the 286 strata lots.

[8]                The minutes of the meeting of December 3, 1999, state, among other things, that a unanimous resolution was passed by the owners adopting certain amendments to the bylaws of the Strata Corporation.  One of the bylaws adopted at the first Annual General Meeting was the bylaw which is challenged by the petitioners, namely, Bylaw 144(1).  The relevant part of that bylaw reads as follows:

144(1)  Notwithstanding the provisions of Bylaw 128, any Owner, including the Developer, that is the registered owner of three (3) or more Strata Lots that have unimproved Private Yard Areas, shall be entitled to a 50% reduction of the semi-annual assessment for any such Strata Lot.

[9]                It is apparent from the minutes of the meeting of December 3, 1999 that, except for the owner/developer, there were only three other owners who owned three or more strata lots.

[10]            Also at the meeting of December 3, 1999, the owners accepted the offer of the owner/developer to pay all strata maintenance fees up to May 31, 2000.  As it turned out, the owner/developer paid all strata maintenance fees up to December 31, 2000, and each owner of a strata lot only became responsible for the payment of strata fees after January 1, 2001.

[11]            The second Annual General Meeting of the Owners was held on December 2, 2000.  At that time, the owner/developer was the owner of 223 of the 286 strata lots.  The minutes indicate that only two other owners who attended the meeting, owned three or more strata lots.

[12]            The “Consolidated Disclosure Statement” issued by the owner/developer and dated December 14, 2001, under the headings “Executive Summary” and “Strata Corporation Bylaws” (at page 2) contained the following paragraph:

In particular, the Strata Council intends to consider Bylaw 144(1) which may conflict with ss.99 and 100 of the Act, Bylaw 144(2) which may conflict with Regulation 6.8 and Bylaw 144(4) which may conflict with Regulation 7.1(3) and, as such, may be unenforceable.

[13]            In his affidavit sworn November 17, 2007, Timothy Peligren deposes (in paragraph 11) that only three owners other than the owner/developer had been the registered owners of three or more strata lots with unimproved private yard areas, since Bylaw 144(1) was passed.

[14]            Subject to the reductions authorized by Bylaw 144(1), the strata fees that have been assessed on each strata lot since January 1, 2001, have been in the following annual amounts:

2001

$245.50

2002

$330.00

2003

$330.00

2004

$395.00

2005

$395.00

2006

$380.00

 

[15]            The eighth Annual General Meeting of the Strata Corporation was held on December 2, 2006.  This meeting included much discussion of Bylaw 144(1).  A motion “that council is directed to initiate proceedings to obtain a court decision regarding the enforceability of Bylaw 144(1),” was defeated.  A motion that “. . . binding arbitration be sought with the mutual consent of Mr. Peligren … on the matter of any alleged debt of the owner developer and/or his companies before any legal proceedings are taken through the courts,” was tabled.

[16]            At that same meeting, a motion “that Bylaw 144(1) be rescinded” was carried.  But a motion “that council be directed to pursue the alleged issue of under-paid strata fees” was defeated.

[17]            It should be noted that the present petition was filed on November 15, 2006.  The resolution rescinding Bylaw 144(1) was passed just over two weeks later.

[18]            The facts which I have summarized above are established by the affidavits of Alan David Kirkup, sworn November 15, 2006, and August 24, 2007, and the affidavit of Timothy Peligren, sworn November 17, 2007.  None of the facts were in controversy.  Counsel for the petitioners did argue that the minutes of the first Annual General Meeting of the owners (December 3, 1999) were wrong in referring to the resolutions passed at that meeting as being “unanimous” resolutions.  I would not accede to this argument.

The Substantive Issue

[19]            For convenience, I repeat Bylaw 144(1):

144(1)  Notwithstanding the provisions of Bylaw 128, any Owner, including the Developer, that is the registered owner of three (3) or more Strata Lots that have unimproved Private Yard Areas, shall be entitled to a 50% reduction of the semi-annual assessment for any such Strata Lot.

[20]            Bylaw 133(29) defines “Private Yard Area” as being that part of a Strata Lot illustrated as “Private Yard Areas on the Strata Plan.”  Bylaw 133(43) states:

(43)      Strata Lot or Strata Lots shall mean and include any one or more of the 286 Strata Lots included in the Strata Plan.

[21]            There is no definition in the bylaws or the statute for the word “unimproved.”  I took it to be common ground that “unimproved” meant that there had been no residence constructed on a Strata Lot, in whole or in part.  That was apparently the meaning adopted by the strata council. 

[22]            The substantive issue is whether the Strata Council had power to pass Bylaw 144(1).

[23]            Counsel for the petitioners begins with the undisputed point that each Strata Lot within the development has a “unit entitlement” of one (see paragraph 7.3 of the Owner/Developer’s disclosure statement).  Next, counsel refers to the definition of “unit entitlement” in s.1(1) of the Condominium Act, which states:

Unit Entitlement means the unit entitlement of a Strata Lot and indicates the share of an owner in the common property, common facilities and other assets of the Strata Corporation and is the figure by reference to which the owners’ contribution to the common expenses of a Strata Corporation is calculated.  (My underlining)

[24]            Counsel next refers to s.128 of the Condominium Act, and I set out the relevant subsections: 

128(1)  The Strata Lot owner’s contribution to the common expenses of the Strata Corporation must be levied in accordance with this bylaw. 

(2)   If a strata plan consists of more than one type of strata lot, the common expenses must be apportioned in the following manner: 

(a)      common expenses attributable to one or more type of strata lot must be allocated to that type of strata lot and must be borne by the owners of that type of strata lot in the proportion that the unit entitlement of that strata lot bears to the aggregate unit entitlement of all types of strata lots concerned; 

(b)      common expenses not attributable to a particular type or types of strata lot must be allocated to all strata lots and must be borne by the owners in proportion to the unit entitlement of their strata lots. 

...

(9)   After the period referred to in subsection (8), all owners, including the owner developer, must, subject to subsections (2) and (3), pay a monthly assessment based on that budget determined in accordance with their unit entitlements. 

...

(11)At each annual general meeting after the first annual general meeting, the strata corporation must prepare an annual budget for the following 12 month period and, after that, all owners must, subject to subsections (2) and (3), pay a monthly assessment in accordance with their unit entitlement. 

[25]            Counsel then argues that Section 128 makes it plain that:

all owners, including the owner developer, must … pay a monthly assessment in accordance with … their unit entitlements.

[26]            It was implicit in counsel’s argument that Bylaw 144(1) could only purport to negate the requirements of Section 128, if lots having “unimproved private yard areas” were different types of strata lots than those which had “improved private yard areas”.  It was submitted that the exception in Section 128(2) could not apply because the Strata Plan did not consist of more than one “type of Strata Lot”.  Counsel maintained that constructing an improvement on a strata lot could not transform it into a different type of strata lot within the meaning of Bylaw 128(2). 

[27]              Mr. McEwan contended that, because there was only one type of Strata Lot in the Strata Plan, the common expenses “must be allocated to all Strata Lots and must be borne by the owners in proportion to the unit entitlement of their Strata Lots.”

[28]            By operation of law, the bylaws in question continued in effect until January 1, 2002.  After that date, a bylaw which conflicted with the Strata Property Act (which came into force on July 1, 2000) ceased to have effect to the extent of the conflict.  Counsel for the petitioners referred me to ss.99 and 100 of the Strata Property Act, and submitted that Bylaw 144(1) was clearly in conflict with these provisions.  Those two sections state: 

99  (1)      Subject to section 100, owners must contribute to the strata corporation their strata lots' shares of the total contributions budgeted for the operating fund and contingency reserve fund by means of strata fees calculated in accordance with this section and the regulations.

(2)            Subject to the regulations, the strata fees for a strata lot's share of the contribution to the operating fund and contingency reserve fund are calculated as follows:

unit entitlement of strata lot

 x total contribution


total unit entitlement of all strata lots

100  (1)    At an annual or special general meeting held after the first annual general meeting, the strata corporation may, by a resolution passed by a unanimous vote, agree to use one or more different formulas, other than the formulas set out in section 99 and the regulations, for the calculation of a strata lot's share of the contribution to the operating fund and contingency reserve fund.

(2)            An agreement under subsection (1) may be revoked or changed by a resolution passed by a unanimous vote at an annual or special general meeting.

(3)            A resolution passed under subsection (1) or (2) has no effect until it is filed in the land title office, with a Certificate of Strata Corporation in the prescribed form stating that the resolution has been passed by a unanimous vote.

[29]            It seems to me that section 99 requires all owners to contribute equally to the common expenses (“the operating fund and contingency reserve fund”), unless the Strata Corporation at a general meeting passes a resolution by unanimous vote to use a different formula for calculating such contribution, pursuant to section 100.  The definition of “unit entitlement” in s.1(1) of the Strata Property Act is worded differently than in the Condominium Act, but in my opinion, the effect is the same.

[30]            On behalf of the respondent owner/developer Home Tec, Mr. Peligren submitted that Bylaw 144(1) was valid.  He argued that the discount given to owners of three or more unimproved lots was justified because strata lots which have “unimproved Private Yard Areas” were a different type of Strata Lot than those having “improved Private Yard Areas”.  He relied on the case of Smith v. G.C. (Goldie) Read [1993] B.C.J. No.1348, a decision of Mr. Justice Davies.

[31]            In the Smith case, an issue arose as to whether s.128 of the Condominium Act allowed for differing maintenance fees to be charged for particular types of units in a strata complex, where different types of units existed within the complex.  At paragraph 10, Davies J. noted that the Act did not define the word “type,” but said that “type should be taken to denote the character or form of structure.”  As I read this case, it refers to particular types of units within a strata complex, which differ in structure in significant ways from each other.  I do not find this case of assistance in relation to the present issue.

[32]            I think the argument that there are not two different types of strata lots, is a strong one.  It seems to me that the bylaw purports to fix the amount of contributions based on the number of strata lots owned by a particular owner, rather than on the “type” of strata lots owned.  If that is right, then Bylaw 144(1) would conflict with Section 128 of the Condominium Act and Section 99 of the Strata Property Act

[33]            The second argument advanced by the owner/developer was that Bylaw 144(1) was passed by unanimous resolution, it was relied on by the owners for more than five years and reaffirmed each year with the approval of the budget, and there has been a long and unexplained delay in the bringing of this application.  It was further submitted that if Bylaw 144(1) conflicted with the Strata Property Act, then the repeal of the Condominium Act did not affect the valid operation of the bylaw, up to January 1, 2002.  This latter point was based on the assumption that the bylaw was not ultra vires the Condominium Act.

The Procedural Issue

[34]            The primary position of the owner/developer, however, was that the issue of the validity of Bylaw 144(1) should not be decided by the court, because the issue is now moot.  Mr. Peligren pointed out that Bylaw 144(1) was rescinded on December 2, 2006, and that the petitioners have abandoned the claim for relief contained in paragraph 2 of the petition.  Reliance was placed on Borowski v. The Attorney General of Canada [1989] 1 S.C.R. 242.

[35]            In Borowski, Sopinka J., speaking for a seven-member court, defined the doctrine of mootness at page 352, in the following terms:

Mootness

            The doctrine of mootness is an aspect of a general policy or practice that a court may decline to decide a case which raises merely a hypothetical or abstract question.  The general principle applies when the decision of the court will not have the effect of resolving some controversy which affects or may affect the rights of the parties.  If the decision of the court will have no practical effect on such rights, the court will decline to decide the case.  This essential ingredient must be present not only when the action or proceeding is commenced but at the time when the court is called upon to reach a decision.  Accordingly if, subsequent to the initiation of the action or proceeding, events occur which affect the relationship of the parties so that no present live controversy exists which affects the rights of the parties, the case is said to be moot.  The general policy or practice is enforced in moot cases unless the court exercises its discretion to depart from its policy or practice.  The relevant factors relating to the exercise of the court’s discretion are discussed hereinafter.

            The approach in recent cases involves a two-step analysis.  First it is necessary to determine whether the required tangible and concrete dispute has disappeared and the issues have become academic.  Second, if the response to the first question is affirmative, it is necessary to decide if the court should exercise its discretion to hear the case.  The cases do not always make it clear whether the term “moot” applies to cases that do not present a concrete controversy or whether the term applies only to such of those cases as the court declines to hear.  In the interest of clarity, I consider that a case is moot if it fails to meet the “live controversy” test.  A court may nonetheless elect to address a moot issue if the circumstances warrant.

[36]            Counsel for the petitioners contended that there was still a live controversy between the parties, because the Strata Council might in the future decide to sue the owner/developer for payment of the 50% of common expenses not paid by the owner/developer as a consequence of Bylaw 144(1), in the event that the court decides this application in favour of the petitioners.  Counsel submitted that the present application should be considered as being a proper and necessary precondition to such an action by the Strata Council.

[37]            Mr. MacEwen did not address the two motions that were advanced and defeated at the annual general meeting on December 2, 2006.  It will be recalled that those motions proposed:

That Council is directed to initiate proceedings to obtain a court decision regarding the enforceability of Bylaw 144(1).

. . .

That Council be directed to pursue the issue of alleged underpaid strata fees.

[38]            No evidence was presented to show that the attitude of the majority of the owners has changed since that meeting.  In his affidavit, Mr. Kirkup estimated that more than $61,000 of strata fees had wrongly been discounted under Bylaw 144(1).  That figure was not accepted by the owner/developer but I infer that the total amount of the discounts was substantial.  Yet the owners in general meeting voted not to pursue the matter. 

[39]            Applying the first branch of the test in Borowski to the facts of this case, it is my opinion that “. . . the decision of the court will not have the effect of resolving some controversy which affects or may affect the rights of the parties.”  The petitioners did not argue that, if the case was moot, the court should nevertheless exercise its discretion in favour of deciding the case.  I have considered the factors discussed by Mr. Justice Sopinka at pages 358-363 of Borowski.  I am not persuaded that the discretion of the court should be exercised in favour of the petitioners, and I decline to do so.

Disposition

[40]            It will be apparent from my discussion of the merits of this application that I consider the interpretations advanced by the petitioners with respect to the statutes and the bylaws to be preferable to the meanings contended for by the owner/developer.  However, it is my opinion that this application should be dismissed on the ground that the issue of the validity of Bylaw 144(1) has been rendered moot.  Accordingly, the petition is dismissed.

Costs

[41]            The parties did not address the issue of costs.  I think it is arguable that full costs should not follow the event in this case.  The events which rendered the issue moot, did not occur until after the petition had been filed.  The case for the petitioners on the issue of whether Bylaw 144(1) was ultra vires, was a strong one, and I do not think that it was plain and obvious that the case was moot.  To my mind, these matters are relevant to the issue of costs, and these comments may assist the parties in settling costs.

[42]            If it is necessary to speak to costs, a date may be arranged with the Trial Coordinator.

“D.A. Halfyard, J.”

Nanaimo: Court awards purchase price to purchasers of leaky rotten uninhabitable mobile home

 

 

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Gee et al v. Gordon's Home Sales Ltd.,

 

2007 BCSC 634

Date: 20070507
Docket: S46198
Registry: Nanaimo

Between:

Henry Julius Oliver Gee, Janet Anne Le Patourel

Plaintiffs

And

Gordon’s Homes Sales Ltd.

Defendant


Before: The Honourable Mr. Justice C.R. Lander

Reasons for Judgment

Counsel for the plaintiffs:

P. Avis

Counsel for the defendant:

W.A. Scott

Date and Place of Hearing in Chambers:

February 26, 2007

 

Nanaimo, B.C.

[1]                The plaintiffs, Dr. Gee and Ms. Le Patourel, apply under Rule 18A for damages in regard to the sale of a faulty mobile home.  The plaintiffs’ primary claim is for breach of contract, with alternative claims in negligence, deceit, and statutory breach of warranty or condition.

[2]                The defendant, Gordon’s Mobile Homes, owns and operates a manufactured home dealership in Nanaimo, B.C.  The defendant’s dealership sells both new and used mobile homes. 

[3]                On March 28, 2005, the plaintiffs purchased from the defendant a used Glen River Parkland mobile home (the “mobile home”) for $34,500.00.   

[4]                The plaintiffs took delivery of the mobile home in May 2005 at a vacant lot they owned in Errington, British Columbia.  The plaintiffs were living elsewhere at the time, and did not move in immediately.  

[5]                In August 2005, in the course of removing the carpet, Dr. Gee discovered what appeared to be water damage to the living room floor.  Upon further inspection, Dr. Gee discovered more damage to the mobile home, including what he characterized as “insect infestation, black mould, [and] white mould.”

[6]                Dr. Gee immediately contacted the defendant to attend and inspect the damage to the mobile home.  One of the defendant’s principals, Wayne Cumin, inspected the mobile home.  Following his inspection, the plaintiffs sought to have the defendant remove the mobile home from their lot and to refund the mobile home’s purchase price.  The defendant declined.

[7]                 Negotiations between the two parties ensued for several months, but were ultimately unsuccessful.  After the two parties failed to reach an agreement, the plaintiffs demolished the mobile home and purchased a trailer as a temporary home for his family.

[8]                The plaintiffs claim damages on the following four causes of action:

1.         Damages for fundamental breach of contract;

2.         Damages in negligence;

3.         Damages in deceit; and

4.         Damages pursuant to the Sale of Goods Act for breach of an implied term, fitness for purpose

Each cause of action will be examined in turn.

[9]                In general, I found Dr. Gee to be more credible than the witnesses put forward for the defendant.  Where their evidence conflicts, I prefer that of Dr. Gee.

[10]            The plaintiffs claim that the defendant committed a fundamental breach of their contract by selling and delivering a good that was not the good for which the two parties had bargained.

[11]            An overall summary of the law on fundamental breach was provided by Professor Fridman in his The Law of Contract in Canada, 5th ed. (cite) at 588-89:

In every instance, it is a question of fact whether the breach complained of by the innocent party amounts to a fundamental breach.  That question, in turn, depends upon: the terms of the contract; the intended benefit to the innocent party; the purpose of the contract; the material consequences of the breach; and, perhaps, though this has never been discussed in the cases, the extent to which the loss incurred by the innocent party can be remedied adequately by an award of damages.  One point is clear.  Whether a breach is fundamental does not appear to depend upon any express terms of the contract.  The determination of a fundamental breach is a teleological question not one that involves construction of the contract in the narrow, literal sense.  The concept of fundamental breach seems to transcend the normal issues of contractual interpretation.  It involves investigation of the underlying nature and purpose of the contract into which the parties have entered, and the respective benefits designed to be obtained or ensured by the agreement.

[12]            I find this to be a correct overview of the law.  In short, Professor Fridman suggests that the court must consider both the contract itself and the individual circumstances before it in considering whether a fundamental breach occurred.

[13]            There seems little question that a fundamental breach occurred here.  The plaintiffs bought the mobile home with the intention of living in it, an intention conceded by the defendant in its written submissions.   The plaintiffs, in the course of removing and replacing carpet (a reasonable action, considering that the former owner had smoked in the Mobile Home), found water damage that began an investigation that found the house was uninhabitable for numerous reasons (mould, dry rot, ants, all duly documented).  Clearly, purchasing a habitable house was a fundamental term of this agreement.  Clearly, this fundamental term was breached.

[14]            It is quite clear that the mobile home was defective at the time of purchase.  I find that the photographs submitted by the plaintiffs prove that the mobile home was in extreme disrepair, and I can only conclude that this was the case at the time of purchase.  It would defy logic for such gross disrepair to occur within only five months.

[15]            Also, I find that the defective nature of the mobile home appeared within a reasonable time.  The plaintiffs concede that the mobile home was delivered in May 2005, yet the defects were not discovered until August 2005.  However, Dr. Gee, in his testimony, explained that the family did not live in the mobile home immediately after delivery.  In fact, he had little to do with it until August, when he began improvements to the home, specifically to remove the smoke-filled carpeting to make the home habitable for his young family.

[16]            In summary, the plaintiffs discovered the inherent defects within a reasonable time.  Further, following discovery, the plaintiffs did not sit on their rights.  Rather, they immediately contacted the defendant to object and seek redress for what they perceived to be a breach of contract on the part of the defendant.  The history of these negotiations, as outlined above, suggests that the plaintiffs were more than reasonable in their attempts to settle this disagreement short of litigation.

[17]            However, the courts have found that even fundamental breaches may be excused where the defendant has the benefit of a properly drawn exclusion clause.  Were the exclusion clauses included in the contract here (the “Contract”) expressed so clearly that the Defendant was not liable even for fundamental breaches?  Again, both the contract itself and the circumstances of the agreement must be considered.

[18]            The defendant relies on three exclusion clauses in the contract.  The first such clause is contained on the face of the contract, and reads:

The Purchaser expressly agrees that, except as specifically set out in the front and back of this agreement, there is no other warranty, representation, condition, agreement or understanding of any nature in respect of this transaction; that any warranty herein is in place of all other conditions or warranties, express or implied, by Statute or otherwise, and that this agreement specifically relates to any condition, representation or warranty whether the same is fundamental to this agreement or fundamental to a term thereof.

[19]            The second clause is also on the face of the contract, at the bottom, and reads:

This agreement contains the entire understanding between us and no other representation or inducement, verbal or written, has been made which is not set forth herein.

[20]            The third clause is on the back of the contract and reads:

7.         It is mutually agreed there are no warranties, either expressed or implied, made by the dealer on the trailer, mobile home, or the parts furnished hereunder.  However;

The purchaser further represents that he has examined the trailer, mobile home or other vehicle, and found it suitable for his particular needs, that it is of acceptable quality, and that he did rely on his own judgment and inspections, when making the purchase.

A used motor vehicle, trailer or mobile home, is sold as is without guaranty or warranty, either expressed or implied, as to its condition, or the condition of any part thereof, including its quality, suitability for purchase, the year of manufacture, its size or the particular model it may be, unless such exceptions are specifically mentioned, in writing on the face of this order, or in a separate instrument, furnished to the buyer by the dealer.

[21]            Of the three clauses, only the second might provoke the attention of a casual reader of the contract, as it is set out within a green box at the bottom of the front page.  The other two clauses are not prominent.  The entire standard form contract is printed in green ink.  All three clauses are in green ink, and are in the same type face as the rest of the document.

[22]            In particular, the first clause does not stand out.  Despite its imperative heading demanding that viewer “read this paragraph”, the paragraph is set out in a smaller font than the rest of the page.

[23]            Similar, the third clause on which the defendant relies is not prominent.  The back page of the document consists of ten typed paragraphs, all in the same small green font.  No bold font or other distinguishing mark sets out paragraph 7 from the rest.

[24]            Plaintiffs’ counsel directs the court to its recent decision in Road King v. Farr Fabricating, 2005 BCSC 911.  In Road King, this court also considered an argument for fundamental breach, having this to say at para. 71:

The concept of fundamental breach is not new to this court.  If such a situation is found upon a construction of the sales contract as a whole and the presumed intentions of the parties then there is no exempting clause that can save the contract.  If such a situation is found on a consideration of all of the circumstances surrounding the contract and the presumed intentions of the parties then the exclusion clause found in the sales agreement cannot apply.

[25]            In the circumstances, the representations given by each party must be considered.  The contract, of course, provides that there are no representations other than those contained in the agreement itself.  The defendant claims that none of its employees made any representations regarding the condition of the mobile home.  The defendant goes so far as to state in its statement of defence that it specifically warned the plaintiffs that the mobile home was being sold “as is.” 

[26]            The plaintiffs, on the other hand, claim that the defendant’s employees made verbal representations that the mobile home was in good condition.  It is not contested that the plaintiffs had advised the defendant’s employees that the mobile home would be used to house the plaintiffs’ family while they built their new house on the Errington lot.

[27]             Finally, there is no evidence to suggest that the defendant’s agents brought the exclusion clauses in the contract to the plaintiffs’ attention.  As mentioned above, none of these clauses would have come to the immediate attention of a reader untrained in the law. 

[28]            The main question here then becomes Main question – exclusion clauses clearly attempted to include fundamental breach – can this happen where there has in fact been a fundamental breach, where plaintiffs did not get what they bargained for?

[29]            This court held in Davidson v. Three Spruces Realty Ltd. (1977), 79 D.L.R. (3d) 481 (B.C.S.C.) that:

I would hold, therefore, that the doctrine of fundamental breach, as it was enunciated by this court in many cases, still applies in standard form contracts where there is inequality of bargaining power. If a party uses his superior power to impose an exemption or limitation clause on the weaker party, he will not be allowed to rely on it if he has himself been guilty of a breach going to the root of the contract. In other cases, the court will, whenever it can, construe the contract so that an exemption or limitation clause only avails the party when he is carrying out the contract in substance: and not when he is breaking it in a manner which goes to the very root of the contract: see United Fresh Meat Co. Ltd. v. Charterhouse Cold Storage Ltd. [1974] 2 Lloyd's Rep. 286; and this is so, even though the injured party has not repudiated the contract for the breach, but has affirmed it afterwards; see Wathes (Western) Ltd. v. Austins (Menswear) Ltd. [1976] 1 Lloyd's Rep. 14.

[30]            This is clearly the case here.  The defendant failed to provide a habitable mobile home, which constitutes a failure of performance that goes to the very root of the contract.  The very thing bargained for was a mobile home that the plaintiffs could live in.  The defendant has not carried out the substance of this contract, and cannot now seek relief behind the aegis of the exclusion clause.

[31]            Here, the evidence suggests that the exclusion clause would not apply.  The wording of the clause itself would probably be satisfactory, as it specifically attempts to bring “fundamental” terms within the ambit of the clause.  However, the court must also look to the circumstances surrounding the making of the contract.  Specifically, what was the intent of the parties?  Did both parties intend for the mobile home to be sold on an “as is, where is” basis?

[32]            The evidence suggests otherwise.  The defendant must clearly assert this clause, which suggests that it must clearly bring the clause to the plaintiffs’ attention.  For instance, had the defendant asserted that it knew absolutely nothing about the condition of the mobile home and would sell it to the plaintiffs solely on an “as is, where is” basis (an assertion also included in the contract itself), the clause would likely hold and the defendant would escape liability.  However, that did not happen here.  Here, the defendant’s agents represented to the plaintiffs that the mobile home was in good condition.  The agents probably believed this, based on their own inspections of the mobile home.  On its face, the mobile home appeared to be in good condition.  Further, there is no evidence that the defendant’s agents directed the plaintiffs’ attention to the exclusion clauses. 

[33]            In conclusion, I find that the defendant breached a fundamental term of the contract (habitability) and is not excused from liability by way of the exclusion clause.

[34]            The cause of action of negligence has no merit.  The plaintiffs base this claim on the assertion that the defendant should have been aware that the house was not habitable, presumably by performing a proper inspection prior to sale. 

[35]            The plaintiffs’ argument is fatally flawed because the plaintiffs have not proven the proper standard of care.  Such an assertion, in these circumstances, must be based on the industry standard rather than the action of a single mobile home dealer.  The plaintiffs’ counsel himself admitted, during his examination for discovery of Mr. Cumin, that the determination of industry standard required expert evidence.  As no expert evidence was brought forward, there is no way to make a determination on whether the standard of care was met or not.  In the absence of such a determination, the cause of action cannot stand.

[36]            The plaintiffs, in the alternative, claim that they were deceived by the defendant or the defendant’s representatives into purchasing the mobile home.  This claim is completely without merit.  Among the elements that the plaintiffs are required to prove are that the defendant or its agents made a false representation which was knowingly false, and that was made with the intention of deceiving the plaintiffs.

[37]            The evidence bears out none of this.  On the contrary, the evidence suggests that Mr. Cumin and the rest of the defendant’s agents were as surprised as the plaintiffs were to find out that the mobile home was rotten to its core. 

[38]            It seems clear on the evidence that, at the very least, the Defendant’s agents did not make statements regarding the Mobile Home’s condition that they knew to be false or with the intention of deceiving the plaintiffs.  Although the Mobile Home was clearly uninhabitable following the plaintiffs’ investigation, this fact was not clear at the time of sale.

[39]            Further, a claim of deceit (or fraudulent misrepresentation, as the tort is more commonly known) is a serious attack on the other party’s character, and thus requires the plaintiffs to particularize the events giving rise to the claim.  This the plaintiffs did not do either in the statement of claim or on the evidence put forward at trial.  I note that unmeritorious fraud claims may attract cost consequences.

[40]            Finally, the plaintiffs also claim a breach of condition or warranty under s. 18 of the Sale of Goods Act (the “Act”).  They argue that the sales contract included an implied condition that the mobile home was reasonably fit for the purpose of the plaintiffs’ family living in it.

[41]            Although the conditions under s. 18(a) are met, this argument must fail because s. 20(2) of the Act allows the defendant to contract out of s. 18 in the case of used goods.  Again, the language of the exclusion clauses must be clear in asserting that the defendant is excused from liability.  As the exclusion clauses in the sales contract are expressly drawn to allow the defendant to escape liability under the Act, the plaintiffs’ claim must fail.

[42]            The plaintiffs are entitled to a remedy for fundamental breach.  The normal remedy in such circumstances is rescission – the plaintiffs would return the Mobile Home to the defendant (or allow the defendant to come get it), and the defendant would return the plaintiffs’ money.  Both parties would be returned to their relative positions prior to entering into the Contract.

[43]            However, this case presents unique challenges to the court’s crafting of the appropriate remedy.  As noted by defendant’s counsel, it is obvious that rescission is impossible here because the plaintiffs have destroyed the mobile home.  There is nothing for them to return to the defendant [in exchange for the $34,500.00 they spent to purchase the mobile home].

[44]            Essentially, the plaintiffs chose to treat the property as their own, rather than repudiate the contract and pursue their legal rights in other ways.

[45]            Although the plaintiffs essentially converted the mobile home to their own use, this caused no loss to the defendants because the mobile home, at that point, I find, had no value.  In fact, it would have had a negative cost to the defendant, because it would have had to remove the mobile home from the plaintiffs’ lot.

[46]            In summary, despite their demolition of the mobile home, the plaintiffs are entitled to damages in the amount of the purchase price.  I award them $34,500.00.

[47]            The plaintiffs also claim consequential damages for temporary housing, inspection costs of the mobile home, and their costs to demolish the mobile home and remove its debris.  All three of these claims must fail.

[48]            With regard to the cost of temporary housing, the plaintiffs had an obligation to mitigate their damages by finding alternative housing as soon as reasonably possible.  This they did by acquiring the fifth wheel trailer.  Thus, the plaintiffs have not demonstrated any loss and cannot receive any damages under this head.

[49]            The claim for inspection is not merited.  The plaintiffs, had they been cautious purchasers, would have paid for an inspection prior to the purchase.  Their failure to do so, although it has no impact on their fundamental breach claim, should not be compensated by the defendant after the fact.

[50]            Finally, the costs of demolishing the house can certainly not be allowed, for the reasons given above.  To reiterate, the plaintiffs’ primary claim is that the defendants fundamentally breached the contract by selling them a mobile home that was not habitable.  Upon discovering the mobile home was uninhabitable or, at the very latest, once it was clear that settlement efforts would not succeed, the plaintiffs should have opted to repudiate the contract.  At that point, the contract would have been at an end and the plaintiffs would have been obligated to abandon the mobile home, allowing the defendants to retake possession of it.     The plaintiffs’ actions thus amounted to a conversion of the defendant’s property. 

[51]            I award the plaintiffs damages for fundamental breach of $34,500.00.

[52]            There will be costs to the plaintiffs: the costs will be set at one-half the amount that would have ordinarily been awarded under Scale B.  This determination is made, in that, the plaintiffs’ alleged deceit on the part of the defendant and there absolutely was no evidence to support this cause of action.

“C.R. Lander, J.”
The Honourable Mr. Justice C.R. Lander