Recha and Klein v. Yeamans and Gere, (1992) 126 N.B.R.(2d) 136 (TD)

• Judge: Russell, J.
• Court: Court of Queen's Bench of New Brunswick (Canada)
• Case Date: May 22, 1992
• Jurisdiction: New Brunswick
• Citations: (1992), 126 N.B.R.(2d) 136 (TD)

Recha v. Yeamans (1992), 126 N.B.R.(2d) 136 (TD);

    126 R.N.-B.(2e) 136; 317 A.P.R. 136

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Klaus-Peter Recha and Gabrielle Klein (plaintiffs) v. George T. Yeamans, Kalman Gere and Katerina Gere (defendants)

(F/C/257/91)

Indexed As: Recha and Klein v. Yeamans and Gere

New Brunswick Court of Queen's Bench

Trial Division

Judicial District of Fredericton

Russell, J.

May 22, 1992.

Summary:

Recha and Klein were citizens of the Federal Republic of Germany. Recha and Klein purchased a New Brunswick restaurant property from the Geres. The same lawyer acted for both sides. The lawyer failed to inform Recha and Klein that he had given a personal guarantee on a collateral mortgage given to the bank by the Geres or that he had been given a second mortgage as con­sideration for that guarantee. Following the closing, Recha and Klein brought an action for damages against the Geres for deceit, fraudulent misrepresentation, negligent mis­representation, negligence and fundamental breach of contract. They also sued the law­yer on the grounds of breach of fiduciary duty, negligence and breach of contract.

The New Brunswick Court of Queen's Bench, Trial Division, held that the lawyer was liable for damages on the ground of breach of fiduciary duty.

Barristers and Solicitors - Topic 1548

Relationship with client - Duty to client - General - Fiduciary duty - The Geres owned a restaurant property - A lawyer gave a personal guarantee on an $85,000 collateral mortgage given to the bank by the Geres - As consideration, the Geres gave the lawyer a $6,000 second mortgage on the property - Two Germans agreed to purchase the property - The lawyer agreed to represent both sides in the transaction - The lawyer failed to disclose the guarantee and his interest in the second mortgage to the purchasers - The lawyer also failed to inform the purchasers that the price was greater than the appraised value - The New Brunswick Court of Queen's Bench, Trial Division, held that the lawyer breached the fiduciary duty owed to the purchasers - See paragraphs 50 to 64.

Barristers and Solicitors - Topic 1548

Relationship with client - Duty to client - General - Fiduciary duty - Damages - Calculation of - Two Germans agreed to purchase a restaurant business located in New Brunswick - The appraised value was $155,000 - The purchase price was $220,000 - The same lawyer represented both the vendors and purchasers - The lawyer failed to inform the purchasers that he guaranteed one mortgage and held a second mortgage on the prop­erty - Also, he failed to inform the pur­chasers of the lower appraised value - The purchasers sued the lawyer for damages on the ground of breach of fiduciary duty - The New Brunswick Court of Queen's Bench, Trial Division, assessed damages against the lawyer in the amount of $65,000 and costs - See paragraphs 69 to 80.

Barristers and Solicitors - Topic 1604

Relationship with client - Conflict of interest - Acting for both sides - Under the Code of Professional Conduct, a law­yer could represent both sides in a trans­action provided there was full disclosure and no conflict of interest - A lawyer gave a personal guarantee on a collateral mort­gage granted to the bank by the owners of a restaurant - The owners informed the lawyer of the property's appraised value - Three years later, two Germans agreed to purchase the property at a price 25% in excess of the appraised value - The lawyer represented both sides - The lawyer failed to inform the purchasers of the property's appraised value - The New Brunswick Court of Queen's Bench, Trial Division, held that the lawyer breached the fiduciary duty owed to the purchasers - See para­graph 60.

Barristers and Solicitors - Topic 2599.3

Negligence - Particular negligent acts - Re purchase of business by client - Two Germans agreed to purchase a restaurant business located in New Brunswick - The same lawyer represented the Germans as well as the vendors in the transaction - The lawyer treated the transaction as the sale of a residential property, not a com­mercial transaction - The purchasers requested further financial information concerning the business - The lawyer failed to provide such material prior to the closing - The New Brunswick Court of Queen's Bench, Trial Division, held that even in the absence of a request from the purchasers, the lawyer was obliged to provide those financial details in a com­mercial transaction - See paragraphs 64 to 67.

Practice - Topic 7040

Costs - Party and party costs - Entitle­ment - Unsuccessful party - Two Ger­mans agreed to purchase a restaurant busi­ness - The same lawyer represented both the pur­chasers and the vendors - Follow­ing the closing, the purchasers sued the vendors on the grounds of inter alia deceit and fraud­ulent misrepresentation - Also, they sued the lawyer on the basis of inter alia breach of fiduciary duty - The pur­chasers were successful only against the lawyer - The New Brunswick Court of Queen's Bench, Trial Division, ordered the plaintiffs to pay the successful defendants' (the vendors') costs - The court went on to direct the unsuccessful defendant (the lawyer) to compensate the plain­tiffs for the successful defendants' (the vendors') costs as well as the costs in the successful action against him - See paragraphs 82 and 83.

Sale of Land - Topic 8626

Remedies of purchaser - For quality defects - Patent defects - The plaintiffs purchased a restaurant property from the Geres - Prior to agreeing to purchase, the plaintiffs visited the property and spent one and a half hours inspecting the prop­erty and talking with the Geres - After the closing, the plaintiffs discovered problems with the dishwasher, cabinets, shelving, wiring, heating system, etc. - The plain­tiffs sued the Geres for damages on the grounds of failure to disclose latent defects, concealment of patent defects and active nondisclosure of defects - The New Brunswick Court of Queen's Bench, Trial Division, ruled that an inspection by a competent person would have revealed all of the deficiencies and dismissed the plaintiffs' claim against the Geres - See paragraphs 29 to 36.

Sale of Land - Topic 8758

Remedies of purchaser - Damages - Neg­ligent misrepresentation - The owner of a New Brunswick restaurant supplied incor­rect financial data concerning the business to their agent in Germany - The agent used some of the data when representing the property to prospective purchasers - Prior to the closing of the sale of the business, the German purchasers asked for more financial data - The purchasers completed the transaction even though further financial data was not provided - Following the closing, the purchasers sued the vendors for damages in deceit, fraudu­lent misrepresentation and negligence in providing the false financial data - The New Brunswick Court of Queen's Bench, Trial Division, dismissed the action against the vendors because the purchasers had not relied on the false data when they made their decision to purchase - See para­graphs 38 to 49.

Cases Noticed:

McGrath v. MacLean (1979), 95 D.L.R. (3d) 144, consd. [para. 32].

Spencer et al. v. Villarroel et al. (1992), 123 N.B.R.(2d) 44; 310 A.P.R. 44, dist. [para. 34].

Gronau v. Schlamp Investments (1974), 52 D.L.R.(3d) 631, consd. [para. 36].

Enns v. Panju, [1978] 5 W.W.R. 244; 5 R.P.R. 248, dist. [para. 43].

Siametis v. Trojan Horse (Burlington) Inc. (1979), 104 D.L.R.(3d) 556, dist. [para. 43].

Parallels Restaurant Ltd., Re (1990), 4 C.C.L.T.(2d) 59, dist. [para. 43].

Nocton v. Lord Ashburton, [1914] A.C. 932, refd to. [para. 57].

Commerce Capital Trust Co. v. Berk, Walls, Chadwick et al. (1989), 35 O.A.C. 319; 68 O.R.(2d) 257, consd. [para. 58].

Jacks v. Davis (1980), 12 C.C.L.T. 298, consd. [para. 60].

Burns v. Kelly Peters and Associates (1987), 16 B.C.L.R.(2d) 1, consd. [para. 63].

Canson Enterprises Ltd. et al. v. Boughton & Co. et al. (1989), 39 B.C.L.R.(2d) 177 (B.C.C.A.), affd. [1991] 3 S.C.R. 534; 131 N.R. 321, consd. [para. 68].

Doyle v. Olby (Ironmongers) Ltd., [1969] 2 Q.B. 158, consd. [para. 77].

Authors and Works Noticed:

Gautreau, J.R. Maurice, Demystifing the Fiduciary Mystique (1989), 68 Can. Bar Rev. 1, p. 7 [para. 54].

Counsel:

Brent R. Hancox, for the plaintiffs;

David T. Hashey, Q.C., for the defendant George T. Yeamans;

Robert W. MacPherson, for the defend­ants Kalman and Katerina Gere.

This action was heard on April 6 to 10, 1992, in Fredericton, New Brunswick, by Russell, J., of the New Brunswick Court of Queen's Bench, Trial Division, who delivered the following decision on May 22, 1992.