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Reproduced with permission of Maritime Law Book Ltd.,
which claims copyright in the headnote and indexing.

Maritime Law Book Ltd. Summary:

This case arose out of the plaintiffs' action for rescission of a contract for the sale of a used car and for damages. The New Brunswick Court of Queen's Bench, Trial Division, allowed the action, ordered rescission and also awarded damages, where the contract was induced by fraudulent misrepresentations.

Contracts -- Topic 4028

Remedies for breach -- Damages -- In addition to rescission -- The New Brunswick Court of Queen's Bench, Trial Division, awarded the plaintiffs damages in addition to rescission, where the defendant induced a sale to the plaintiffs by fraud -- See paragraphs 41 to 45.

Contracts -- Topic 4193

Remedies for breach -- Rescission -- Grounds -- Fraudulent representation -- The New Brunswick Court of Queen's Bench, Trial Division, set aside a contract for the sale of a used sports car, where the car was fraudulently misrepresented and had serious defects -- See paragraphs 1 to 40.

Words and Phrases

-- MAJOR BREACH -- The New Brunswick Court of Queen's Bench, Trial Division, held that the phrase "major breach" in s. 14(1)(b) of the Consumer Product Warranty and Liability Act, R.S.N.B. 1973, c. C-18.1, meant a breach going to the root of the contract -- See paragraphs 30 to 32.

Cases Judicially Noticed:

Jones v. Just (1868), 3 Q.B. 197, appld. [para. 26].

Robertson v. Norton, 44 N.B.R. 49, appld. [para. 27].

Harden v. Treleaven, [1948] 2 W.W.R. 267, appld. [para. 28].

Statutes Judicially Noticed:

Consumer Product Warranty and Liability Act, R.S.N.B. 1973, c. C-18.1, ss. 4(1), 4(2)(a), 9, 10(1)(a), 11, 12, 14(1), 16, 17(1) (2), 18(1), 19, 28 [para. 23].

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Authors and Works Judicially Noticed:

Halsbury's Laws of England (3rd Ed.), vol. 26, para. 1571 [para. 42]; vol. 34, para. 67 [para. 32].

Counsel:

Peter M. Wright, for plaintiffs;

George Cooper, Q.C., for defendant.

This case was heard on March 27, 1981, at Moncton, N.B., before MELDRUM, J., of the New Brunswick Court of Queen's Bench, Trial Division, Judicial District of Moncton, who delivered the following judgment on April 6, 1981:

[1] MELDRUM, J.: This is an action for rescission of a contract of sale and for damages. It arises out of the sale by the defendant to the plaintiffs of a 1980 Z-28 Camaro. The sale was completed between the plaintiffs and one of the defendant's salesmen and its credit manager on June 20, 1980. Plaintiffs sought rescission on June 24.

[2] The history of the car leading up to the sale is material. The car is a specially loaded and trimmed two door Camaro. The computer print-out on the car lists sixty-six individual items of equipment and trim. They include a 350 cubic inch V-8, four barrel carburetor, Z-28 stripes, blue cloth, etc. The list includes both equipment for car performance and comfort and esthetic additions valuable only for pride of possession. Both aspects were stressed to the buyers by the defendant's salesman and were stressed as important factors by the plaintiffs as buyers in reaching their purchase decision.

[3] On December 6, 1979, the car was sold, new, by Admiral Transportation Services Limited, Ottawa, to Gordon Lesage. He paid $11,500.00 for the car, new.

[4] Mr. Lesage kept the car for about six months. In that time he had serious trouble with leaking of the T-bar roof. He had more serious trouble with the rear wheel. It led to a vibration which could not be corrected after several attempts and which made it dangerous to drive the car over 50 m.p.h. During the warranty period Lesage tried to get the defects corrected, without success.

[5] On June 5, 1980, before expiration of the warranty period, Lesage traded the Camaro to Southbank Dodge Chrysler (1979) Ltd. of Ottawa for a 1980 Dodge Omni and $850.00. The trade-in allowance was $8,400.00. Lesage had cut a hole

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in the rear of the glove compartment to receive a C.B. radio set. He took the set out and the hole remained, visible when the compartment was opened. Southbank knew of the trouble with the wheels and the difficulty in repairing them.

[6] Alexander MacDowell, a principal of Southbank, had worked in Ottawa with a principal of the defendant. They traded used cars back and forth. MacDowell says he kept the Camaro two days and sold it to the defendant. In fact the sale order is dated June 6, 1980.

[7] Dryden Motors shows its cost of the car at $9512.80. They listed it at a retail price on their internal documents at $11,600.00.

[8] On June 19, defendant listed the car for sale. The ad commences, "Dryden Wants You to Save so they are offering you huge discounts. Hurry in! 1st come 1st served. Savings up to $3000.00 -- Offer ends June 21."

[9] The first car listed was the Camaro. "SN7085 1980 Z28 Camaro Loaded Save $3000.00" This is the only car in the ad which lists a possible "saving" of $3000.00.

[10] Plaintiffs at the time were living together. She was a clerk at the Co-operators, aged 20. He was a lens grinder at Imperial Optical, aged 21. Neither knew much about cars.

[11] At the time she owned a 1979 Camaro. He had a 1976 Chrysler. They wanted to trade both cars for one. They looked at cars at the local Chevrolet dealer, but found none fancy enough. Driving by Dryden Motors they saw the present car on display and stopped in to look at it.

[12] Henry Skjerven, defendant's salesman, saw them looking at the car, came to discuss a deal and describe the car.

[13] He showed them Dryden's "list price" -- note -- $14,995.00. He described the car as a demonstrator. He told them it was "one of a kind", with a 400 cc turbocharged engine. It was made in the U.S.A., and because GM "did not make a 400 cc turbo in Canada, "it was something special in looks and performance."

[14] Plaintiffs knew little about cars, but they knew they liked this one. Its description, and the very special nature of the car would give them pride of ownership.

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[15] Plaintiff LeBlanc did know that a friend had a car with a T-bar roof. It leaked. He asked Skjerven about the roof. Skjerven told him it was tight. They had just put it through the car wash across the street. There were no leaks.

[16] The car was taken from the pedestal on which it was displayed. Plaintiffs were shown under the hood which was "pretty full". They were taken on a short test drive. They were not allowed to drive the car without the presence of defendant's employee -- "company policy".

[17] Skjerven told them they were in luck. Because of the $3000.00 saving on the Camaro they might be able to trade even. After several abortive offers and some presumed "conferences" between Skjerven and the sales manager this failed. The final transaction was a purchase for $14,995.00, trade-ins of $11,495.00 and financing totalling $17,411.52 made up of unpaid balance of selling price (after trade-ins, payouts, sales tax, etc.) $12,629.00 plus $4782.52 interest at 16.75%.

[18] On June 21, Friday, plaintiffs took delivery of the car. On Saturday they put it through the carwash. It leaked badly. On Sunday they went to the beach. It shook so badly they could not go over 50 m.p.h.

[19] By now they were a little disappointed in their one of a kind, special, high performance sports car.

[20] By Monday, after comments from friends who knew more, or thought they did, about cars, and after having the car examined by the Chevrolet dealer, the plaintiffs were convinced that the car was not as described to them.

[21] On Tuesday they asked the defendant to cancel the deal. He refused. They saw a lawyer. He wrote on Friday demanding rescission under the Consumer Product Warranty and Liability Act, R.S.N.B. 1973, c. C-18.1.

[22] There is just one more comment necessary with regard to the facts. The description of the conversation between plaintiffs and defendant's salesman come from the plaintiffs. Miss Gauvin returned from Calgary to testify. Two witnesses came from Ottawa. The salesman is apparently somewhere in Western Canada. He did not testify. I accept plaintiffs' evidence with regard to the conversation. It is not denied in any material way and is not unreasonable.

[23] Twelve sections of the Act seem to apply in some or all

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respects. Since the Act is only twenty-eight sections long I have elected not to quote the twelve verbatim. They are sections 4(1), 4(2)(a), 9, 10(1)(a), 11, 12, 14(1), 16, 17(1) (2), 18(1), 19 and 28. Where necessary, I shall paraphrase the appropriate section.

[24] The Act does not form a self-contained code between buyer and seller. Section 28 preserves existing rights and remedies.

[25] The principle of the old rules of caveat emptor still would not have saved the defendant in this case. The seller was not obliged to disclose defects, but if he did make specific statements the buyer was entitled to rely on the truth of those statements.

[26] See Jones v. Just (1868), 3 Q.B. 197, at 202, per Mellor, L.J.,

First, where goods are in esse, and may be inspected by the buyer, and there is no fraud on the part of the seller, the maxim caveat emptor applies, even though the defect which exists in them is latent, and not discoverable on examination, at least where the seller is neither the grower nor the manufacturer: Parkinson v. Lee. The buyer in such a case has the opportunity of exercising his judgment upon the matter; and if the result of the inspection be unsatisfactory, of [sic] if he distrusts his own judgment he may if he chooses require a warranty.

[27] Also Robertson v. Norton, 44 N.B.R. 49, at p. 64,

As to the first ground stated: The sale was of a specific ascertained article, not manufactured by the plaintiff, and was inspected by the defendant before the purchase. Therefore, at least in the absence of any fraudulent concealment, there could be no implied warrantee of fitness, and the maxim caveat emptor applies: Jordon v. Leonard. The effect of fraud upon the contract I will discuss later.

. . . . .

It is clear that the jury have not found fraud; but it is, I think, likewise clear that they have not negatived it. If the plaintiff made the representations alleged as to the age of the mill and the time it had been in

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use, asserting thereby to be true that which he did not know to be true, and the representation was designed and intended to induce the defendant to enter into the contract which the plaintiff sought to make with him, that may be a fraudulent representation even though the plaintiff when he made it did not know it was untrue. For in such case the fraud consists in representing, for the purpose of effecting a sale, that the assertor knows that to be true which in fact is not true.

[28] And also Harden v. Treleaven, [1948] 2 W.W.R. 267, at p. 271,

Generally, it would seem to me that if a purchaser of a second-hand car does not inspect the car, but relies upon the representations made, that he is entitled to a rescission, but if he is not satisfied to accept such representation and proceeds to inspect the car, and where there is no fraud as in this case, the maxim "caveat emptor" must apply.

[29] Here the seller made specific statements about the car. Those statements were relied on by the buyers. The statements were false. Even under the old law the buyer would have a remedy.

[30] The Act does not use the old terms, "conditions" and "warranties". For the purposes of laymen the terms now used may be more meaningful. Section 14(1) is an example both of the language and the remedy,

14(1) Where the seller is in breach of a warranty provided by this Act, the buyer shall give him a reasonable opportunity to rectify the breach, unless

(a) the buyer is unable to do so, or is unable to do so without significant inconvenience; or

(b) the breach is a major breach.

[31] For the purposes of this action I treat "major breach" as "going to the root of the contract."

[32] See Halsbury (3rd Ed.), vol. 34, paragraph 67,

Whether a stipulation in a contract of sale is a condition, the breach of which may give rise to a right

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to treat the contract as repudiated, or a warranty, the breach of which may give rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated, depends in each case on the construction of the contract. Broadly speaking the test is whether the performance of the stipulation goes to the whole consideration of the other party; if it does, the stipulation is a condition. A stipulation may be a condition though called a warranty in the contract.

[33] The representations, all false, as to previous use, size and type of motor, quality of vehicle and condition of roof, even if some individually might have been termed warranties, combined make the vehicle totally unfit for the purpose for which it was bought, and in fact for which it was sold. They constitute a major breach.

[34] The plaintiffs demanded rescission on June 24th. They are entitled to rescission and their request should have been granted then.

[35] The remedy is that which they would have received had the defendant complied with their proper demand then.

[36] The contract is set aside. Plaintiffs will have judgment for the difference in the value of their vehicles at that date, and the payment against them.

[37] Defendant will protect the plaintiffs and save them harmless from the conditions of the conditional sales contract drawn by the defendant on June 20, between the plaintiffs, the defendant and The Bank of Nova Scotia. On discharge of the plaintiffs by the bank and the defendant from the conditional sales contract, the defendant will have the Camaro returned.

[38] Plaintiffs were allowed a net value after payment on the vehicles traded in of $2889.00. They will have judgment for this sum.

[39] Plaintiffs paid $725.48 to The Bank of Nova Scotia on the price of the contract. They will have judgment for that amount under section 17(1) of the Act.

[40] Plaintiffs used the car from June 20th to November 14th when they separated. It has been stored since. No evidence was presented to me as to the value of that use. I have arbitrarily taken the value both set on the car, $15,000.00,

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allowed the interest rate of 16.75% on that figure. That produced monthly interest of $209.37 for a high quality sports car. The quality was not there. I have again reduced the figure by one-third and arrived at five months use by plaintiffs $698.00 which will be allowed as a set off.

[41] The plaintiffs claimed that the representations were made fraudulently and claim damages.

[42] Halsbury (3rd Ed.), vol, 26, paragraph 1571, gives the standard definition of fraud:

It has never been questioned that a misrepresentation, known or believed by the representor to be false when made, is fraudulent. . . . and it may now be taken as established beyond all question that, whenever a man makes a false statement which he does not actually and honestly believe to be true, that statement is, for purposes of civil liability, as fraudulent as if he had stated that which he did not know to be true, or knew or believed to be false.

[43] It is hard to escape the conclusion that Skjerven for the defendant knew his statements to be false. For example -- that the car had been put through the car wash the night before and had not leaked, could not possibly have been true and Skjerven could not possibly have believed it to be true; that the car was a demonstrator was not true, the defendant knew it was not true.

[44] Plaintiffs, on cross-examination, admitted that their pride was hurt. With this vehicle pride was what defendant was selling. The fancy Z28 stripe did not make it better transportation. It made it a more "special" vehicle. The white car with blue trim was not better for the colour and trim, it showed up more. The defendant and the manufacturers trim and advertise cars for pride of ownership. To some buyers that pride is as important as quality. For them it is part of the consideration offered by the dealer and paid for by the buyer.

[45] While, having granted rescission, I can not award damages for the reduced value of the vehicle, plaintiffs are entitled to damages for fraud. In that figure I have taken into account the fraud itself and the total effect on the plaintiffs. I set general damages at $1000.00.

[46] Plaintiffs will have judgment for rescission and for

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total damages of $4614.48 less $698.00 use of car, $3916.48.

[47] Defendant will have the return of the car.

[48] Defendant will be responsible for the debt to The Bank of Nova Scotia.

[49] Plaintiffs will have their costs as one bill on a party and party basis.

Judgment for plaintiffs.

Editor: David C.R. Olmstead

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