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Consideration

Posted on October 1, 2004 | Posted in Lawyers' Issues

Do you remember the concept of consideration from law school days? It seems that one of the lawyers in Melko v. Estate of Lloyd (2002) 61 O.R. (4th) 151 (S.C.J.) did not.

Warranty

The vendor warranted in the agreement of purchase and sale “to the best of his knowledge and belief that all sewage systems are wholly within the limits of the said property…”

On closing, the vendor signed a warranty stating that “all sewage systems serving the property are wholly within the limits of the said property…” There was no qualifier regarding knowledge and belief.

Unfortunately, the septic system had been built on the adjacent, previously severed, lands. The purchasers had to install their own septic system at a cost of $16,300 and looked to the vendor for compensation. Another case involving big bucks.

Which One

The purchasers relied on the declaration that they received on closing. The vendor produced a long line of cases stating that unless there was fresh consideration to support the more onerous declaration on closing than what was set out in the agreement of purchase and sale, the declaration on closing would be unenforceable. Since there was no fresh consideration, the judge agreed that the closing declaration was meaningless.

The judge then reviewed the evidence and determined that, in signing the warranty in the agreement, the vendor honestly believed that the sewage system was on the lands he sold to the purchasers and had not recklessly relied on that belief.

Accordingly, the judge dismissed the action.

Damages

In any case, accounting for betterment, the judge assessed damages at 50% of the cost of the new septic system. The purchasers had expected to receive a septic system that had been installed in 1953; that system would have been significantly less valuable than the new one they had just installed.

Moral

While it is important to battle for appropriate closing documents, in some cases it just will not matter. Do not waste your energy on meaningless disputes.

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