The Rural Voice, 2003-04, Page 65Agrilaw
The risk of "Knowledge and Belief'
Paul G.
Vogel, a
partner in the
London law
firm of Cohen
Highley LLP.
By Paul G. Vogel
What does it mean when the
vendor of a property provides
warranties about the property in the
agreement of purchase and sale to the
best of his "knowledge and belief'?
Do such representations provide a
purchaser with a right to
compensation if the purchaser
subsequently discovers that the
condition of the property is other then
as warranted by the vendor?
In a recent case in the Supreme
Court of Ontario, the court was
required to consider the effect of
vendors warranting in an agreement
of purchase and sale that to the best
of their "knowledge and belief' a
septic system had been constructed
within the limits of the property in
accordance with appropriate
certificates and use permits. In
addition to further provision in the
agreement that such representations
and warranties would survive the
closing of the transaction, the
vendors also provided a statutory
declaration to similar effect on the
closing of the transaction
"conscientiously believing it to be
true". The vendors' parents had
previously obtained municipal
approval for severance of an
adjoining lot on condition that the
septic system servicing the subject
property be entirely located within its
boundaries. Shortly after the closing
of the transaction, however, the
purchasers discovered that the septic
bed servicing the property was in fact
located on the adjoining severed lot.
The municipality required the
purchasers to relocate the septic
system on their property at a cost of
approximately $16, 000.
The purchasers sued the vendors
for the costs of constructing their new
septic system on the basis of the
representations provided by the
vendors in the agreement of purchase
and sale and statutory declaration
concerning the location of the septic
bed and compliance of the septic
system with appropriate certificates
and use permits. In dismissing the
purchasers' claim, the court relied
upon earlier judicial authority with
respect to the limitation on
representations qualified by
"knowledge and belief':
"In my view, the use of the words
'to the best of my knowledge and
belief' did not warrant the absolute
truth of the statement... but
qualified the statement by the use
of those words. I find that the
warranty and representation made
by (the vendor) was reasonably
fair and'truthful to the best of his
knowledge and belief, and
therefore not a breach that would
justify the defendant to refuse to
close the transaction or to rescind
the contract."
Similarly, in the case under
consideration, the court held:
"In determining this issue, I am
satisfied that the defendants, in
signing the warranty clause in the
offer, honestly believed in the
truth of the statements they made.
"(The defendant) testified that he
remembered that his father told
him about the need to put a septic
bed on the retained lot, and that he
saw a back hoe in the backyard in
1983. Although he cannot actually
recall seeing what work was done,
I am satisfied that he, `to the best
of his knowledge and belief',
thought his father had completed
the work required. I therefore
conclude that (the vendor) was not
reckless in signing since he relied
on the information he had before
him."
Although the court held "that the
wording in the Statutory Declaration
in effect changed the effect of the
warranty from one being to the best
of his knowledge and belief' to one
which warranted the absolute truth of
the statement", again relying on
earlier judicial authority, the court
held that, in the absence of fresh
consideration, the representations in
the Statutory Declaration were
unenforceable after closing.
Provided that the vendor has an
honest belief in the representation
provided concerning the condition of
the property, the limitation of such
representations in the Agreement of
Purchase and Sale by the words
"knowledge and belief" may well
preclude a purchaser from
subsequently recovering
compensation where the condition of
the property is other than as
represented. Purchasers must ensure
either that such representations are
not qualified by the vendors'
"knowledge and belief' or they must
exercise due diligence to satisfy
themselves with respect to the
condition of the property before
purchase.0
Agrilaw is a syndicated column
produced by the full service London
law firm of Cohen Highley LLP. Paul
G. Vogel, a partner in the firm,
practices in the area of commercial
litigation and environmental law.
Agrilaw is intended to provide
information to farm operators on
topics of interest and importance.
The opinions expressed are not
intended as legal advice. Before
acting on any information contained
in this column, readers should obtain
legal advice with respect to their own
particular circumstances and
geographical area.
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The Rural Voice,
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APRIL 2003 61