All You Need to Know About Latent Defects, Presumptions and Legal Warranties

This article was co-written with Frédérique Cartier-Côté.

Québec stands out in many respects, particularly with regard to its legal framework. Whether you are a non-professional seller, a professional seller or a manufacturer, it is essential to understand how the notions of latent defect, presumption and legal warranty might apply.

Latent Defects

According to the Civil Code of Québec, to qualify as a latent defect, the defect must have certain specific characteristics:

1.      Firstly, the defect must result in a loss of use, i.e., the defect must be serious enough to render the property unfit for its intended use.[1]

2.      The defect must also be hidden, a criterion that is assessed according to an objective standard: the buyer’s examination of the property must be reviewed in light of what a prudent and diligent buyer of identical expertise would have done.[2]

3.      Additionally, the defect must be serious and grave, as the loss of use does not suffice on its own. The defect must render the property unfit for its intended use or so diminish its usefulness that the buyer would note have purchased it at the price paid.[3]

4.      Finally, the defect must have existed at the time of sale while being unknown to the buyer.[4]

Here, it is important to point out that there is no presumption of knowledge on the part of the buyer, who is always presumed to be acting in good faith. Thus, the burden of proving actual knowledge of the defect lies with the seller.

To this end, the standard laid down in the Civil Code is that of a prudent and diligent buyer according to article 1726 in fine CCQ. In a case involving water infiltration, the Court of Appeal indicated that it is necessary to consider only the behaviour of the buyers and their personal characteristics, which can demonstrate that they behaved prudently and diligently. In particular, when they use the services of an expert, the assessment of the latter’s conduct should therefore be set aside so as not to hold the buyers liable for a lack of caution or a breach of the rules of the art on the part of the expert.[5]

In another case, the Superior Court dismissed a motion to institute proceedings in which the plaintiffs were claiming nearly $75,000 for latent defects affecting their home. After analyzing the various reports in the file and the expert testimony, the Court concluded that none of the deficiencies presented by the plaintiffs constituted a latent defect within the meaning of the law, as they did not meet the requirements of article 1726 CCQ. Among the deficiencies presented, the Court focused in particular on the condition of a vapour barrier, which was affected by mould not apparent to any reasonable buyer, but whose severity was not sufficient to conclude to the presence of a latent defect.[6]

Legal Warranty and Presumption of Knowledge

In Québec, the seller is bound to deliver the property and to warrant its quality.[7] More specifically, the legal warranty provided for in article 1726 CCQ acts as a protection granted by law to buyers. This warranty covers both the property and its accessories,[8] and covers several aspects, including the warranty of quality, the warranty of conformity and the warranty against latent defects. The legal warranty is mandatory and automatically applies to all sales transactions, whether or not there is a written contract, and whether or not it is expressly mentioned in the contract.[9]

In essence, both the professional seller and the manufacturer must understand that the purpose of this warranty is to protect the rights of consumers by ensuring that the properties purchased are of satisfactory quality, conform to the descriptions provided and are free from latent defects; however, the parties may agree to additional warranties, going beyond the legal warranty, without being able to reduce the rights and protections granted by law.[10]

The legal warranty gives rise to the presumption of knowledge on the part of the professional seller or manufacturer, an important legal concept in Québec law. This is provided for in article 1729 CCQ and is based on various principles, notably the fact that the professional seller or manufacturer generally carries on a commercial activity in a specific or specialized field. Consequently, the professional seller or manufacturer is presumed to have in-depth knowledge of the products they sell, their characteristics and functionalities, and the standards and regulations applicable to these products in the context of their professional activities.

In practice, article 1729 CCQ creates a triple presumption:

• The presumption of the existence of a defect;
• Its precedence in relation to the sales contract;
• The causal link between the defect and the deterioration or malfunction.[11]

A buyer who discovers a defect and wishes to benefit from the effects of article 1729 CCQ must establish by a preponderance of evidence that they have acquired the property from a professional seller or manufacturer and that the property has deteriorated prematurely in comparison with an identical property or property of the same type.[12]

However, as this presumption is rebuttable, it may be overturned by the professional seller or manufacturer if the defect is due to improper use of the property by the buyer or a third party.[13] Here, the conduct of the buyer or third party is assessed according to the objective standard of the prudent and diligent person, placed in the circumstances of the case.[14] The presumption can also be rebutted in cases of superior force.[15]

In the light of case law, it is clear that this presumption is rather difficult to rebut; however, there are examples where the professional seller or manufacturer has succeeded in rebutting the presumption. For example, in a case involving the installation of paving slabs, the Court of Québec recognized that the defendant had met its burden and rebutted the presumption by demonstrating misuse of the property by the buyer, and by showing that this misuse was the cause of the premature deterioration of the paving slabs.[16]

This presumption, which weighs on the professional seller and the manufacturer, has three important consequences:

1.      It makes limitation of liability clauses unenforceable;

2.      It prevents the professional seller or manufacturer from invoking the tardiness of a late notice for the defect;

3.      It allows the buyer to claim damages.

Exclusion Clauses

In Québec, legislation governs exclusion clauses in sales contracts. Although exclusion clauses may be included in sales contracts by professional sellers and manufacturers, their validity and applicability are subject to certain limitations and conditions.

As the presumption of knowledge plays a decisive role in the ability of a professional seller or manufacturer to limit its liability, a limitation of liability clause may not be set up against the buyer if the professional seller or the manufacturer knew or was legally presumed to have known about the defect.[17] Indeed, the Civil Code of Québec contains certain provisions specific to latent defects, stating that any clause excluding or limiting the liability of the professional seller or manufacturer for latent defects is deemed unwritten, unless the buyer had knowledge of it or the defect was apparent at the time of sale.[18] The courts have developed this tendency to interpret limitation of liability clauses strictly, especially in the case of latent defects.

In a Superior Court case, where the quality of a bleach bottle filling and capping system was at the heart of the dispute, the Court ruled out the application of a limitation clause on the grounds that the equipment in question was affected by a latent defect of which the seller was aware or should have been aware. Thus, having been unable to rebut the presumption of knowledge, the seller could not invoke in its favour the limitation clause provided for in the contract, and the buyer was entitled to obtain rescission of the sale and restitution of the sale price.[19]

That said, and more generally, exclusion clauses must be clear, precise and unambiguous to be considered valid. In transactions involving consumers, it is important to understand that Québec legislation gives greater protection to buyers, particularly with regard to contractual clauses deemed unfair or unjust. Exclusion clauses that attempt to restrict consumers’ rights with regard to latent defects may be invalidated by the courts.

In summary, although professional sellers and manufacturers may include exclusion clauses in their sales contracts, it is important to bear in mind that these clauses may be limited in their validity and applicability when it comes to latent defects. The validity of an exclusion clause will depend on various factors, including its compliance with the relevant legal provisions and the courts’ interpretation.

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[1] ABB Inc. v. Domtar Inc., 2007 SCC 50 (CanLII), para. 47.
[2] ABB Inc. v. Domtar Inc., 2007 SCC 50 (CanLII), para. 51.
[3] ABB Inc. v. Domtar Inc., 2007 SCC 50 (CanLII), para. 52.
[4] Torres-Ceyte, Jérémie, “Livre 5 – Des obligations”, in Code civil du Québec : Annotation – Commentaires, 8e éd., Yvon Blais, art. 1726, p. 1102.
[5] St-Louis c. Morin, 2006 QCCA 1643 (CanLII), para. 28-29.
[6] Audet c. Payette, 2017 QCCS 4155 (CanLII), affirmed on appeal 2018 QCCA 309 (CanLII).
[7] CCQ, art. 1716, al. 1.
[8] Baudouin, Jean-Louis and Renaud, Yvon, Code civil du Québec annoté, 26e éd. (Montréal: Wilson & Lafleur, 2023), art. 1726.
[9] CCQ, art. 1716, al. 2.
[10] CCQ, art. 1733, al. 1.
[11] Baudouin, Jean-Louis and Renaud, Yvon, Code civil du Québec annoté, 26e éd. (Montréal: Wilson & Lafleur, 2023), art. 1729.
[12] CNH Industrial Canada Ltd. c. Promutuel Verchères, société mutuelle d’assurances générales, 2017 QCCA 154 (CanLII), para. 30.
[13] CCQ, art. 1729.
[14] Baudouin, Jean-Louis and Renaud, Yvon, Code civil du Québec annoté, 26e éd. (Montréal: Wilson & Lafleur, 2023), art. 1726.
[15] Torres-Ceyte, Jérémie, “Livre 5 – Des obligations”, in Code civil du Québec : Annotation – Commentaires, 8e éd., Yvon Blais, art. 1729, p. 1106.
[16] 9417-3150 Québec inc. (Conspec) c. 9116-8799 Québec inc. (Jardins Zeillinger), 2023 QCCQ 8904 (CanLII).
[17] ABB Inc. v. Domtar Inc., 2007 SCC 50, para. 56.
[18] CCQ, art. 1733, al. 2.
[19] American Brands, s.a. c. Capmatic Ltd., 2016 QCCS 5092 (CanLII), para. 164-166.