The Buyer of a Corporation’s Shares May Not Sue the Seller on the Grounds of the Legal Warranty of Quality if there is a Latent Defect in the Main Asset of the Corporation’s Patrimony

This post, published on Éditions Yvon Blais’ blog on latent defects on October 31, 2017 (FR), discusses the judgment in Villa Royale inc. v. Roy, (Full text), in which the Superior Court reiterated that a corporation’s shares may not be the subject of a recourse for latent defects in virtue of the legal warranty of quality.

In this judgement rendered in November 2016, the Court, presided by Judge Clément Samson, j.s.c., reminds us that a share is an incorporeal title, which is neither a title of ownership nor a claim on a corporation’s assets, but rather a unit of its share capital.

The Court pointed out that the rules of the legal warranty of quality do not apply to a corporation’s shares, said rules only applying to so-called corporeal property, assets, which a corporation’s shares are not.

Considering that the legal warranty of quality warrants and protects the physical use of property for which a prudent and reasonable buyer would have intended to use said property at the time of purchase, and that a corporation’s share has no physical use, a buyer of shares cannot sue the seller on the grounds of the legal warranty of quality if there is a latent defect in the main asset of the corporation’s patrimony.