The Rural Voice, 2005-05, Page 40Paul G.
Vogel, a
partner in the
London law
firm of Cohen
Highley LLP.
By Paul Vogel
A vendor of a farm property has a
legal obligation not to misrepresent to
a prospective purchaser the quality or
productive capacity of the farm.
What is the liability of a vendor who
breaches this obligation and what can
the purchaser expect to recover?
The British Columbia Court of
Appeal recently considered an appeal
by a vendor who had induced a
purchaser to buy a cattle ranch on the
basis of misrepresentations
concerning the capacity and water
quality of an irrigation well and the
profitability of livestock sales and
hay production. While the plaintiff
purchasers had paid $750,000 for the
property, the trial judge awarded
damages in excess of $1 million
reflecting a difference between the
purchase price and the true value of
the property as well as out-of-pocket
expenses and loss of profits. The
defendants appealed.
Although allowing the appeal and
reducing the trial judgment to
approximately $690,000, the
appellate court agreed with the
principles underlying the trial judge's
damage award. Based on the
evidence at trial, the trial judge had
concluded that the vendors'
misrepresentations had induced the
plaintiffs to purchase the property
following which they incurred
expenses in excess of $90,000 in an
unsuccessful attempt to develop other
irrigation facilities and grow alternate
crops.
The appellate court adopted the
reasoning in earlier English cases
which have held that:
"The defendant is bound to make
reparation for all the actual
damages directly flowing from the
fraudulent inducement. The
36 THE RURAL VOICE
Agrilaw
Misrepresenting the farm
person who has been defrauded is
entitled to say:
I would not have entered into this
bargain at all but for your
representation. Owing to your
fraud, I have not only lost all the
money I paid you, but what is
more, I have been pdt to a large
amount of extra expense as well
and suffered this or that extra
damages".
In the result, the court determined
that the defrauded purchasers should
recover not only the difference
between the price paid and the actual
value of the property but also most of
their out-of-pocket expenses and loss
of profit. In this regard, the court
stated:
"In assessing damages for a
fraudulently induced purchase of a
(theoretically) profit -producing
property, both the plaintiff's
capital loss and loss of profits are
recoverable, the latter as a type of
consequential loss ... The trend in
Canada and elsewhere is to de-
emphasize one particular
'measure' or another to strive for
an award that in broad and
practical terms compensates the
plaintiff for all aspects of his or
her loss flowing from the fraud ...
I will therefore proceed on the
basis that the plaintiffs here may
claim, and the court may award,
damages to compensate for lost
profits to the extent they are
proven to have resulted directly
from the defendants' fraud, and
subject to the usual rules of
mitigation. The overarching
question is what amount of money
represents the financial loss
suffered by the plaintiff as a direct
result of the alteration of his or her
position under the inducement of
the defendants' fraudulent
representations".
The trial judge's award to the
purchasers of $500,000 for loss of
profit was reduced on appeal to
$250,000 because of the failure of the
purchasers to undertake timely
mitigation of their damages. The trial
judge had expressed the view that
"the concept of mitigation is not
one to be used to strip recovery
away from plaintiffs who have
taken the best advice they had
available to them and struggled on
in the face of gradually emerging
facts, in an attempt to mitigate
their losses by making the ranch
productive". However, the appellate
court held that:
"...Care must be taken to
differentiate between the date on
which the plaintiffs became aware
of the full extent of the
defendants' perfidy, and the date
on which they became aware they
faced serious difficulties in terms
of water capacity and quality
(giving rise to soil quality
problems). In my view, the
(purchasers) did not need to be
aware of the misrepresentations
made to them with respect to calf
weights and hay production before
they became obligated to mitigate
their losses in respect of the water
and soil conditions. ...In all the
circumstances, I am of the view
that the plaintiffs were aware of
the basic difficulties facing them
by the fall of 1997 at the latest,
and that accordingly, a duty to
mitigate arose at that time. The
trial judge characterized (the
purchaser) as a person who
'attempts to carry on' and sees the
good in people and trusts them. As
admirable as these traits may be,
and as sympathetic as a court
might be to the victims of a clear
fraud, the law imposes a more
objective standard and required
reasonable steps to be taken
shortly after the fraud had been
discovered".
A farm vendor must ensure that he
does not misrepresent what he is
selling. Subject to the purchaser's
duty to take reasonable measures to
mitigate their loss, breach of this
obligation will render the vendor
liable to the purchaser for the while
of the purchaser's financial Toss
including the excess purchase price,
expenses incurred to remedy
deficiencies, and lost profits.0
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