Parna v. G. & S. Properties Ltd., [1971] SCR 306

Supreme Court of Canada

Parna v. G. & S. Properties Ltd., [1971] S.C.R. 306

Date: 1970-10-06

August Parna and Reta Parna (Plaintiffs) Appellants;

and

G. & S. Properties Limited, and Frank Albert and William Harvie (Defendants) Respondents.

1970: May 22, 25; 1970: October 6.

Present: Martland, Judson, Hall, Spence and Pigeon JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Fraud—Deceit—Purchase of apartment house—Vendors’ representations as to income and expenses—Alleged misrepresentations as to certain disbursements—Failure to prove necessary ingredients in action for deceit.

The personal respondents, who owned and controlled the respondent company, offered to sell to the appellants (AP and his wife) an apartment house, which the company had built in 1965. The asking price was $255,000. The respondents furnished to AP a document which purported to be a statement as to receipts and disbursements for the year 1966. Subsequently, the appellants made an offer in writing to purchase the building for $251,000. Attached to the offer and forming part thereof was a Schedule “A” setting out the details of income and expenses as shown in the statement given to AP. The offer contained a provision that it was subject to satisfactory evidence being provided as to the accuracy of the representations as regards income and expenses.

AP’s solicitor requisitioned an auditor’s report supporting the amounts set forth in Schedule “A”. He received a reply that such a report was not available but that he could satisfy himself as to the income and expenses. On the day set for closing the personal respondents made a statutory declaration that Schedule “A” was a financial statement setting out to the best of their knowledge and ability an accurate and fair estimate of the yearly revenue and yearly expenditure of the corporate respondent. The appellants accepted the statutory declaration “as a substitute” and closed the transaction.

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Two weeks later AP attended his solicitor to illustrate that the representations made in the first statement, repeated in Schedule “A”, and confirmed in the statutory declaration were false. Shortly thereafter the appellants brought an action claiming damages in the amount of $35,000 because of false and fraudulent representations as to three disbursements, i.e., the cost of fuel, light and water.

The trial judge found in favour of the appellants and awarded damages in the amount of $24,790. On appeal, the Court of Appal varied the trial judgment by reducing the damages to $4,000. The appellants then appealed and the respondents cross-appealed to this Court.

Held: The appeal should be dismissed and the cross-appeal allowed dismissing the action.

In order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Fraud is “a false representation of fact, made with a knowledge of its falsehood, or recklessly, without belief in its truth, with the intention that it should be acted upon by the complaining party, and actually inducing him to act upon it.” Here the appellants failed to prove false representation of fact made with a knowledge of its falsehood or recklessly, without belief in its truth, and that they actually were induced by any such representation.

AP failed to prove, and the burden of proof was upon him, that the statement was not to the best of the knowledge and ability of the personal respondents an accurate and fair estimate. AP was not misled in any way by the representations even if they had been false to the knowledge of the respondents. As a shrewd and intelligent apartment house operator, he figured he could pay $251,000 for the property in question and obtain a satisfactory percentage of net profit.

Derry v. Peek (1889), 14 App. Cas. 337, applied.

APPEAL from a judgment of the Court of Appeal for Ontario[1], allowing in part an appeal by the defendants (respondents) from the judg-

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ment of Ferguson J. in favour of the plaintiffs (appellants) in an action for deceit. Appeal dismissed; cross-appeal allowed dismissing the action.

August Parna and Reta Parna, in person, plaintiffs, appellants.

D F. O’Leary, Q.C., for the defendants, respondents.

The judgment of the Court was delivered by

SPENCE J.—This appeal concerns an action for damages for fraud instituted under the following circumstances.

The plaintiff August Parna was an Estonian by birth who came to Canada in 1948. The plaintiff Reta Parna is the wife of the plaintiff August Parna but took no active part in any of the negotiations in reference to this transaction. I shall use the word “plaintiff” hereafter to refer to August Parna.

August Parna was by no means an uneducated man. He had a university education in Estonia; in addition, he had attended a law course in Heidelberg, Germany, but because of the intervention of the war he had not a university degree nor was he a graduate lawyer. However, only four years after he arrived in Canada he purchased his first apartment house and up to the date of the offer to purchase the apartment house with which this action is concerned he had purchased four other apartment houses and later sold some of them and he had been for the year previous operating a 29-suite apartment house.

It would appear from these facts as well as from the manner in which Mr. Parna carried on his appeal in this Court, appearing in person, that he was a shrewd and intelligent business man.

The apartment house in question consisted of 24 suites and was built by the defendant G. & S. Properties Limited in the year 1965. G. & S. Properties Limited, a respondent, is a company owned and controlled by the other respondents, Frank Albert and William Harvie, who were, respectively, its president and secretary. Before the apartment house was completed, the plaintiff

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approached the latter respondents and attempted to buy the property but these respondents informed the plaintiff that it was their intention to retain ownership and operate the apartment as a business, although they had not previously owned or operated apartment buildings. The two respondents, Frank Albert and William Harvie, who conducted a plumbing business, during the course of the next year determined that too much of their capital was tied up in the apartment building and therefore they decided to sell it.

The respondents first offered the apartment through a realtor for the sum of $262,500. The only offer which materialized was one for the sum of $262,000 which, however, provided for a small amount of cash to be paid on closing. The respondents desired to have the whole balance between the two mortgages of $180,000 and $19,000 respectively, and the purchase price paid in cash upon closing and they, therefore, approached the appellant Parna and offered to sell the property to him. The respondents then were asking the price of $255,000. The respondents at this time furnished to the appellant Parna a document produced at trial as ex. 6 which purported to be a statement as to receipts and disbursements for the year 1966. The appellant examined the figures set out in this statement and took the position that some of the disbursements were at an amount too low to reflect the true operating costs. The respondents Albert and Harvie offered to produce for the appellant Parna’s inspection any of the vouchers he desired to see but Parna asked only for the voucher for the cost of fuel for the month of January 1967, and he was shown an invoice for the amount of $345.53. The appellant Parna still insisted that the operating costs as set out in the statement (ex. 6) were too low, and he took the position that the property could not justify a price of more than $241,000.

Very shortly after the appellant Parna was given ex. 6, he was given also another statement (ex. 7) purporting to be applicable to the year

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1967. This statement, although it did not vary the amounts as to the expenses for fuel, light and water, did have significant changes from its predecessor. The rental revenue was increased from $36,564 to $39,444, an increase of $2,880, representing $10 per apartment per month. The respondents Albert and Harvie informed the appellant Parna that notice of an intention to increase the rental of each apartment by $10 per month had already been sent to tenants and that these increases would take effect as soon as the lease dates permitted. The taxes shown in ex. 6 at $8,250 were shown in ex. 7 at $8,450.

The appellant Parna attended his solicitor, Mr. John S. Miller, and gave to him ex. 6. Mr. Miller, who testified on behalf of the appellant Parna at the trial, did not remember having seen ex. 7 prior to the closing of the transaction although the appellant Parna testified that he had received it very shortly after he received ex. 6.

The appellant Parna testified that although the respondents were asking a price of $255,000 and although it was his opinion that the property, in order to obtain a net income prior to mortgage payments of 10 per cent, could only be worth $241,000, he surmised that the vendors would sell for $252,000 and he therefore instructed his solicitor to draw an offer for an amount slightly less, i.e., $251,000.

Throughout his testimony, the appellant Parna insisted that his sole gauge as to the price he would pay for an apartment building was that the property had to return about 10 per cent, prior to payment of mortgages, upon the purchase price. The testimony which I have outlined above would seem to indicate that the appellant Parna did not engage in any such accurate calculations at all but simply entered into the usual buyer and seller bargaining. The proposed vendors asked $255,000. The proposed purchaser thought he should offer up to $241,000 but that the proposed vendors would sell for $252,000 and so he instructed his solicitor to offer $251,000. The procedure is one which occurs on practically every occasion when real property is sold.

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The solicitor drafted the offer to purchase, which was produced at trial as ex. 1. One provision in that offer was as follows:

…and it is further subject to satisfactory evidence being provided as to the accuracy of representations as regards income and expenses as contained in Schedule “A” attached hereto. Upon the non-fulfilment or non-performance of any or all of the conditions aforementioned, this offer shall be null and void and the deposit moneys returned to the purchasers. Schedule “A” attached hereto is to be part of this contract of purchase and sale.

Schedule “A” was attached. I set it out in full:

SCHEDULE “A”
FINANCIAL STATEMENT

101 King Street East Dundas, Ontario
24-Suite Apartment Building

All tenants are on one-year leases that mature from May 1st on during 1967.

WITNESS:

“AP”

                    G. & S. PROPERTIES LIMITED

                    Per:

(Signed)     William A. Harvie

                    Frank Albert

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It is to be noted that that schedule used the figures set out in the statement of receipts and disbursements as to 1966 (ex. 6) and did not make or use any reference to the altered situation as shown in ex. 7, although the appellant Parna had ex. 7 in his possession shortly after he received ex. 6 and some time before he instructed his solicitor to prepare and present the offer to purchase (ex. 1). The offer to purchase was presented to the respondents and was accepted by the respondents; the date of acceptance is not completed on ex. 1 but it would appear to have been on February 17, 1967, at which time the offer, by its terms, expired. The date for closing as set out in the offer was April 1, 1967.

The appellant Parna’s solicitor, Mr. Miller, testified that about March 15, 1967, he wrote to the vendor’s solicitor with the usual requirements on title including a requisition reading as follows:

6. REQUIRED auditor’s report for the period of ownership of your clients supporting the rental income and operating expenses as set forth in Schedule “A” of the Agreement of Purchase and Sale.

and that he received in reply a letter from the vendor’s solicitor dated March 28, 1967, which read in reference to that requisition:

6. We do not have an auditor’s report but you can satisfy yourself as to income and expenses.

The learned trial judge characterized that answer as “one of those brush-off answers”.

In his testimony, Mr. Miller testified that upon receipt of the latter letter he immediately telephoned to his client, the appellant Parna, and told the appellant that he was not prepared to close the transaction on that basis requesting that the appellant attend him. Mr. Miller testified that he then telephoned the vendors’ solicitor informing him that many of the answers to the requisitions were unsatisfactory and that he would not be closing the transaction unless very much more material was forthcoming, “particularly as regards the support for Schedule ‘A’ attached to the offer,

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that I would not be closing unless some satisfactory evidence were produced to support the schedule”.

On the morning of March 31st, which date the solicitors had fixed for closing as April 1st was a Saturday, the vendors’ solicitor attended Mr. Miller and presented to him a statutory declaration produced at trial as ex. 4. The declaration is brief and I quote it in full:

I, Frank Albert

of the Town of Dundas in the County of

Wentworth

DO SOLEMNLY DECLARE THAT:

1. I am the President of G. & S. Properties Limited and have knowledge of the facts

hereinafter declared.

2. Schedule “A” to the Offer to Purchase is a Financial Statement setting out to the best of my knowledge and ability an accurate and fair estimate of the yearly revenue and yearly expenditures of G. & S. Properties bearing in mind the increase in rentals from time to time and the increase in expenditures such as taxes from time to time.

3. No actual sources of revenue and no actual disbursements have been omitted in arriving at the estimates.

4. New one year leases have been given to some of the tenants with the approval of the purchasers.

AND I make this solemn Declaration conscientiously believing it to be true, and knowing that it is of the same force and effect as if made under oath, and by virtue of “The Canada Evidence Act”.

DECLARED before me at the City of Hamilton in the County of Wentworth this 31st day of March A.D. 1967
(Signed)                                       Alec Z. Beasley                                       A Commissioner, etc.
	(Signed) Frank Albert
	William Harvie

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Within an hour after receipt of that document, Mr. Miller testified, the appellants August and Reta Parna attended him. He showed them this statutory declaration and they discussed the matter. It must be noted that under the exact terms of the offer for sale if the vendor did not produce

satisfactory evidence... as to the accuracy of the representations as regards income and expenses as contained in Schedule “A” attached hereto the offer should be considered null and void and the deposit returned.

Yet Mr. Miller testified that the appellants August and Reta Parna having inspected the statutory declaration elected to accept it “as a substitute” and closed the transaction. It would appear, in fact, from Mr. Miller’s testimony that he stressed the additional values of having a statutory declaration. Mr. Miller was not asked to explain what additional values he found in that form of evidence but it would certainly occur to one that what the appellants were then concerned with was to obtain evidence to support just such an action as they subsequently instituted. The transaction was closed on that same day, March 31, 1967, and within two weeks the appellant Parna attended Mr. Miller to illustrate to Mr. Miller that the representations made in the first statement (ex. 6), repeated in Schedule “A” to the offer to purchase, and confirmed in the statutory declaration given on closing were false.

On May 18, 1967, the appellants issued a writ in this action claiming damages in the amount of $35,000 because of false and fraudulent representations as to three disbursements, i.e., the cost of fuel, light and water. The action proceeded to trial before Ferguson J. The appellant sought to add other alleged misrepresentations both at trial and before this Court but the consideration of this action has always been confined to the representation as to these three items. The learned trial judge found in favour of the plaintiffs (appellants in this Court) and awarded to them damages in the amount of $24,790. He calculated these damages in this fashion: he accepted the evidence of the appellant August

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Parna that he only made the offer to purchase on the basis that the net annual profits from the property before payment of interest or principal on the mortgages would yield 9.64 per cent on the purchase price. He found that such net profits instead of amounting to $24,193 per annum amounted only to $21,807 and since that amount would represent 9.64 per cent of only $226,910, the learned trial judge found the difference between that sum and the actual purchase price of $251,000, i.e., $24,790, to be the damages suffered by the plaintiffs in the action, the present appellants.

The defendants, here respondents, appealed to the Court of Appeal and the judgment of that Court was given by Evans J.A.[2] at the conclusion of the argument. One paragraph of that judgment reads as follows:

The learned trial judge found that the defendants knowlingly made a false representation as to the operating expenses with the intention that the plaintiffs should act upon such false representation; he further found that the plaintiffs did in fact act upon the false representation to their detriment. There is ample evidence to support such findings, and the appeal in so far as it affects them must be dismissed.

That paragraph contained the whole of the reasons given in the Court of Appeal on the issue of liability. The Court of Appeal differed from the assessment of damages made by the learned trial judge. That assessment, as would appear from the above, was upon the basis of damages for loss of a bargain. The Court of Appeal was of the opinion that by the award of damages the plaintiffs, here appellants, were entitled to be put in the same position they would have been if the representations had not been made but not in the same position they would have been if the representations had been true. Evans J.A. continued:

The evidence as to actual value led at trial is rather fragile; proceeding as he did, the learned trial judge made no finding as to the actual value of the property as at 1st April 1967. In my opinion

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the evidence does support an assessment of damages, on the proper basis I have outlined above, at $4,000.

The Court of Appeal, therefore, varied the judgment given at trial by reducing the damages awarded to the plaintiffs to $4,000.

The appellants appealed to this Court and in their factum asked that damages be awarded in the amount of $48,163 and other damages designated as “continuous damages” and interest at the rate of 15 per cent and large amounts for costs. As I have stated, the statement of claim asked only for $35,000 damages.

The respondents cross-appealed asking that the judgment as given by the learned trial judge be vacated and that the action should be dismissed with costs throughout.

Although it would appear that a great deal of the argument in the Court of Appeal, and certainly in this Court, was devoted to the interesting question as to the proper measure for damages, I am of the opinion that the appeal must be disposed of upon the question of liability. The learned trial judge cited two brief passages; the first, from the judgment of Lord Herschell in Derry v. Peek[3], at p. 374, reads as follows:

I think the authorities establish the following propositions.: First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice…

The second, from Anson on Contract, where “fraud” has been defined, reads:

Fraud is a false representation of fact, made with a knowledge of its falsehood, or recklessly, without belief in its truth, with the intention that it should be acted upon by the complaining party, and actually inducing him to act upon it.

I am content to adopt these two short passages as being sufficient to dispose of this appeal. I am of the opinion that, firstly, the plaintiffs failed to prove false representation of fact made with a

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knowledge of its falsehood or recklessly, without belief in its truth and, secondly, that the plaintiffs actually were induced by any such representation. It must be remembered that the appellant Parna was, as I have said, a shrewd and experienced apartment house operator, having engaged in the business continuously from 1952 until 1967, and at the time he made the offer to purchase he had been for a full year operating a very similar apartment house in the same Metropolitan Hamilton area. It must also be remembered that the personal respondents Albert and Harvie were not apartment house operators but were plumbers, the property in question here having been the only apartment house which they had built or owned. In my view, the appellant Parna knew much more about the apartment house operating business than did the personal respondents. The appellant Parna, as I have pointed out, had sought to buy the building even before it was completed and knew the exact state of the progress of construction and the progress of the renting. The appellant knew that on February 16, 1967, when he submitted the offer to purchase, the building had not been fully rented for a year and, in fact, that the first tenants had moved in only about eight months before. The appellant, therefore, knew that the amounts set out in ex. 6, and taken from that document into the schedule to the offer to purchase, were mere estimates and that they were not accurate statements as to either receipts or disbursements. As to the disbursements, the appellant had pointed out that those estimates, and he admitted at the trial that he knew they were estimates, had to be low and the appellant very shrewdly picked the month in which the highest amount for heat costs would be incurred, i.e., January 1967, to illustrate that the estimated disbursements were low. Upon inspecting the invoice for $345.50 for that month, the appellant must have known that the annual heating costs would be in excess of the $1,500 set out in ex. 6. If one only allowed for heating during the months of February, March, April and October, November and December, in addition to that month of January, in order to keep within an estimate of $1,500 the average amounts expended in those other months would be $192.50—a graphic illustration that the appellant Parna could not

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have been deceived by the estimate of $1,500. As to revenue, ex. 6 was incorrect, to the knowledge of the appellant Parna, because he knew that notice had already been given of an increase in rentals amounting to $10 per month per apartment and that the revenue had therefore been increased by $2,880.

During the argument of the appeal, counsel for the respondents illustrated that the true excess of the disbursements over the estimates as to the three items only of which the appellant Parna complained in his action, i.e., heat, light and water, was not the $2,386 per year taken by the trial judge but only $1,868.94 per year. It was the appellant Parna’s argument that basing his calculations on the estimates given in ex. 6 and repeated in the schedule to the offer to purchase he found that he would get a net return on his investment before payment of interest or principal on mortgage of 9.64 per cent. Taking the disbursements at $1,868.94 in excess of those estimated and making allowance for the increased revenue of $2,880 due to the proposed rental increase, of which the appellant Parna had knowledge, his net return would amount to almost 10 per cent. The appellant, as I have said, admitted in his testimony that he knew the figures as to light, heat and water given in ex. 6 and in the schedule to the offer to purchase were mere estimates.

Under these circumstances, the exact terms of the statutory declaration which the appellant Parna accepted as being a substitute for the proof he was entitled to in the offer to purchase become important. The personal respondents declared that Schedule “A” to the offer to purchase was a financial statement setting out to the best of their knowledge and ability an accurate and fair estimate of the yearly revenue and yearly expenditure of the corporate respondent “bearing in mind the increase in rentals from time to time and the increase in expenses such as taxes from time to time” and further that no actual sources of revenue and no actual disbursements had been omitted in arriving at the estimate.

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I am of the opinion, from the circumstances which I have outlined above, that the appellant failed to prove, and the burden of proof was upon him, that the statement was not to the best of the knowledge and ability of the personal respondents an accurate and fair estimate, and I am further of the opinion that the appellant Parna has failed to prove that any actual disbursements had been omitted. It is true that in ex. 5, the statement produced at trial by the respondents as to the operation of the property, there are disbursements which do not appear in those estimates but those disbursements would appear to have been largely disbursements which were not properly part of the operation of an apartment house, for instance, the purchases which were part of the construction costs, although the purchases were made from the same companies which sold the fuel, and the difference between net and gross bills. It is difficult to understand how the representations could be considered false to the knowledge of the personal respondents when both parties knew that the figures set out were merely estimates and could be nothing else since they purported to be for the operation of an apartment house for a full year when not even one tenant had been in the apartment for more than eight months.

I have come to the conclusion that the evidence given by the appellant Parna himself and by the solicitor who acted for him in the purchase proves that the appellant Parna was not misled in any way by the representations even if they had been false to the knowledge of the respondents, but that a shrewd and intelligent apartment house operator figured that he could pay $251,000 for the property in question and obtain a satisfactory percentage of net profit. A rather graphic confirmation of this conclusion is that even at the trial, which took place in November 1967, the appellant Parna refused to reconvey the property thus confirming the decision which he had made on March 31, 1967, when he had elected to close the transaction without obtaining the proof of the statement to which he was entitled by the very terms of the offer to purchase.

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I, therefore, have come to the conclusion that the plaintiff has failed to prove the necessary ingredients in an action for deceit and that is the basis upon which the appellant has framed his action.

I would dismiss the appeal and allow the cross-appeal dismissing the action. The respondents are entitled to their costs throughout.

Appeal dismissed and cross-appeal allowed with costs.

August Parna and Reta Parna, plaintiffs, appellants.

Solicitors for the defendants, respondents: O’Leary & Zimmerman, Hamilton.