QUICK HITS

 

• Anticipatory breach risk: Buyers requesting changes to a purchase agreement, such as a reduced price, may be seen as committing an “anticipatory breach,” allowing sellers to back out and even sue for damages.
• Court sides with sellers: A buyer’s demand for a $355,000 price reduction was viewed as an unwillingness to complete the deal, leading the court to rule in favour of the sellers, who remained committed to the original agreement.
• Financial consequences: The buyer was held liable for $345,121.98 in damages after failing to close the deal, illustrating the importance of framing renegotiation requests carefully to avoid breaching contracts.

When purchasing a property, buyers sometimes realize they might not be able to meet the agreed-upon terms, such as the completion date. In such cases, they may seek to extend the deadline, reduce the purchase price or make other changes to the agreement. However, buyers must be careful, as making certain demands could be seen as an “anticipatory breach,” which may allow the sellers to back out of the deal and even sue for damages.

The case of Zoleta v. Singh and Re/Max Twin City Realty illustrates this point clearly. In February 2022, a buyer agreed to purchase a home in Kitchener, Ontario, for $1,150,000, with a completion date set for June 30, 2022, and payment of a $50,000 deposit.  The Agreement of Purchase and Sale (APS) didn’t include any conditions.

Buyer requests reduced purchase price; sellers relist home for sale

Just a week before the completion date, the buyer’s lawyer informed the seller’s lawyer that the property had been appraised for $355,000 less than the agreed price and that the buyer “required” this amount to be reduced from the purchase price. The sellers refused this demand and their lawyer warned that failing to complete the purchase would breach the agreement.

Concerned about the buyer’s ability to finalize the deal, especially since they needed the sale proceeds to fund their own property purchase, the sellers relisted the home for sale. To be transparent, they informed the buyer’s real estate agent of this via text message. The buyer’s agent didn’t respond.

Nonetheless, the sellers didn’t enter into any new sale agreements before June 30, and they still showed up at their lawyer’s office on June 30, ready to close the sale if the buyer proceeded.

Buyer claims APS null and void, walks away

On the completion date, the sellers agreed to an extension if the buyer made a further non-refundable deposit of $50,000. Instead, the buyer claimed that the APS was void because the sellers had relisted the property, and he refused to finalize the purchase.

The sellers ended up reselling the property for $350,000 less than the buyer had agreed to pay (market conditions had changed). They sued the buyer for damages and moved for summary judgment.

Court rules in favour of sellers as they remained committed to completing sale

The buyer’s defense was that the sellers had “sabotaged” the transaction and his ability to get financing due to the relisting of the property before his completion date. The sellers argued that the buyer had committed anticipatory breach of the APS by demanding a $350,000 abatement.

The court ruled in favour of the sellers, stating that the buyer’s demand (by using the word “require”) for a $355,000 reduction was a clear sign they were unwilling to complete the purchase unless the price was lowered — it was not seen as a request.

The court found that the sellers remained committed to the original agreement and had not breached the contract: They gave notice to the buyer about wanting to close on the completion date but relisting the property for sale in the event that he wouldn’t close. They also agreed to an extension on terms that were not accepted.

Only once those negotiations failed, the buyer took the position that relisting the property made the APS null and void. The judge found that the sellers remained committed to completing the sale to the buyer as scheduled.

As a result, the buyer was held liable for damages, including the difference in the resale price of the property. The sellers sought damages of $345,121.98, which includes the carrying cost of the property ($9,962), costs they incurred to extend their scheduled purchase transaction ($4,934.98) and loss of sale value, net of real estate commission ($330,225).

This case serves as a warning: if your client needs to renegotiate the terms of their deal, the request can’t come across as a non-negotiable demand. Otherwise, they risk being seen as breaking the contract and facing significant financial consequences.

QUICK HITS

• In 2016, water pooling along a property line, traced back to a neighbour’s sump pump, contained harmful bacteria like E. coli. The neighbour failed to fix it due to financial constraints and lack of insurance.
• The Ontario Superior Court of Justice case highlighted the severe consequences of neglecting property maintenance, with the plaintiff’s home collapsing due to pooling water, leading to a significant legal battle.
• The neighbour was found liable for strict liability, negligence and nuisance, resulting in the plaintiff being awarded $487,211 for home replacement costs, $18,143.53 for additional expenses, $35,577.99 in pre-judgment interest and $100,000 in legal costs.

Neighbours owe each other a duty of care to avoid causing property damage, yet common sources of damage include water flooding from sump pumps, septic systems or poorly maintained eavestroughs.

The Ontario Superior Court of Justice case Warren v. Gluppe highlights the significant consequences of failing to uphold this duty.

Contaminated water encroaching on property

In 2016 in Prince Edward County, Ontario, the plaintiff noticed water pooling along the property line, traced back to his neighbour’s sump pump. The water contained harmful bacteria like E. coli. Despite acknowledging the issue, the neighbour did not fix it, claiming financial constraints and lack of insurance.

The municipality ordered the neighbour to redirect the sump pump water away from the plaintiff’s property, but the solution failed. By the end of 2016, the pooling water caused the plaintiff’s home to collapse, making it uninhabitable.

The plaintiff sued the neighbour in December 2016. The trial took place in 2023. An engineer testified that the neighbour’s failed attempts to reroute the sump pump water caused the house to collapse. The neighbour’s septic system also violated the Ontario Building Code, contributing to the problem. As well, the plaintiff showed that the neighbour failed to properly maintain his eavestroughs, resulting in further water saturation on this property and putting the property’s foundation at risk.

Neighbour liable for several reasons

The court found the neighbour liable for three reasons:

1. Strict liability (Rylands v. Fletcher): The neighbour’s sump pump and septic system were considered non-natural uses of the land (discharge of water from the basement through faulty pipes along the property), and their failure caused damage, which had nothing to do with “the laws of nature.”

2. Negligence (Alfarano v. Regina): The neighbour did not adequately reroute the sump pump water, maintain the septic system or repair the eavestroughs, all of which posed foreseeable risks to the plaintiff’s property.

3. Nuisance (Antrim Truck Centre Ltd. v. Ontario): The neighbour’s actions substantially and unreasonably interfered with the plaintiff’s use and enjoyment of his property, leading to its collapse and contamination.

The decision

The plaintiff was awarded $487,211 for the replacement cost of his home, $18,143.53 for maintenance, repair, travel and accommodation costs, $35,577.99 in pre-judgment interest and $100,000 in legal costs.

QUICK HITS

• JKSD made two loans to Jaymor – $250,000 and $125,000. Security was personal guarantee of Jaymor’s principal or a fourth mortgage’s registration against property.
• Jaymor defaulted on both loans. No fourth mortgage was registered on property, partly because Jaymor refused to execute authorization.
• First, the judge decided appellants didn’t have equitable fourth mortgage and lender’s remedy was to sue.
• Court of Appeal determined judge erred in finding terms of agreement uncertain as subsequent promissory note stated fourth mortgage would be registered on property in event of default.

 

In Greenspan v. Van Clieaf, the appellants, Greenspan and her lending company JKSD Management Inc. (JKSD), made two loans to Jaymor Securities Ltd., the first being for $250,000 secured by a third mortgage on a property in Richmond Hill, Ontario owned by Jaymor. Jaymor’s principal looked for another loan and provided an appraisal to show that the property could support a fourth mortgage.

Promissory note for second loan — default on both

On August 1, 2019, the parties executed a promissory note under which JKSD agreed to lend Jaymor a second loan of $125,000, which Jaymor was to repay within 30 days. Security for the loan was to be the personal guarantee of Jaymor’s principal, provided by a related company, and, if the loan was not paid in full on maturity and the default was not received afterward, then by a fourth mortgage’s registration against the Richmond Hill property.

Jaymor defaulted on both loans. No fourth mortgage was registered on the property, partly because Jaymor refused to execute an authorization for the mortgage registration.

Creditors obtained a judgment for $1,152,373.72 against Jaymor and registered a writ of seizure and execution against the property.

Property sold, equitable mortgage claimed

On March 12, 2021, the Richmond Hill property was sold for $1,560,000. After the payout of the first and second mortgages, tax arrears and the real estate commission, a balance of $548,437 remained that was subject to a dispute between the appellants and the respondents.

The appellants claimed an “equitable mortgage” over the property that took precedence over the respondents’ writ of execution. An equitable mortgage enforces “a common intention of the mortgagor and mortgagee to secure property for either a past debt or future advances, where that common intention is unenforceable under the strict demands of the common law.” It can be made in different ways, with the main element being the common intention of the borrower and lender to secure property for a past debt or future advances.

Lender to sue for breach of contract and/or negligent misrepresentation

At first, the Ontario Superior Court of Justice decided the appellants didn’t have an equitable fourth mortgage on the property. The application judge noted that Jaymor refused to execute the fourth mortgage and, at the time of maturity, had no intention of granting one — it wasn’t as though the parties didn’t intend to register a mortgage but formalities couldn’t be completed or a mistake was made.

The judge felt the right remedy for the lender was to sue for breach of contract and/or negligent misrepresentation rather than impose an equitable mortgage that interfered with the rights of execution creditors who had no other means to pursue and had taken all required steps (even during the COVID-19 pandemic) to solidify and register their interest.

Application judge made error of law

Once appealed, the Court of Appeal for Ontario held that the application judge erred in finding that JKSD did not have a valid equitable fourth mortgage. The decision focused on the written terms of the promissory note which indicated the parties intended that a fourth mortgage would be registered on the property if Jaymor defaulted on the loan. Nothing suggested that Jaymor had the discretion to decide whether or not the mortgage would be registered.

Based on the terms of the promissory note, the parties had a common intention when it was signed to grant a fourth mortgage to the appellants. That Jaymor refused to consent to the fourth mortgage’s registration and sought to retract from the agreement didn’t create ambiguity or uncertainty in the agreement to provide the fourth mortgage.

To consider the conduct of the parties after the formation of the promissory note without first determining whether the note was ambiguous was an error of law.

Accepting subsequent conduct gives undue power to create ambiguity

The Court of Appeal determined that the application judge made an error of law in finding that the terms of the agreement were uncertain because a subsequent promissory note also stated that a fourth mortgage would be registered on the property, in the event of default.

This involved subsequent conduct and there was never any conflict between enforcing the two promissory notes. Plus, the existence and terms of the subsequent promissory note could not create ambiguity with the earlier one if none existed when the parties entered into it.

The Court of Appeal’s view was that accepting the subsequent conduct created ambiguity and would give undue power to contracting parties to create ambiguity where none existed by refusing to follow through on their obligations in an agreement, or by acting in a self-serving manner after forming an agreement.

Finally, the Court of Appeal noted that considering the appellants had other means of enforcing their rights under the promissory note than by granting an equitable mortgage, or whether they had delayed taking steps to enforce their rights, was an error of law. The focus should instead stay on the terms of the promissory note when it was made. Based on the note, it was clear that the parties agreed that JKSD would have a mortgage on the property if Jaymor defaulted on the loan.

This decision affirms the fundamental principles involved in deciding whether an equitable mortgage may be enforced in circumstances where a charge or mortgage was not formally registered. The outcome may seem unfair to the execution creditors at first, but it doesn’t turn upon competing equitable claims between the parties.

The terms of the agreement between the appellants and Jaymor were not uncertain and later events or surrounding circumstances at the time of enforcement aren’t relevant in deciding whether there was an equitable mortgage to begin with.

QUICK HITS

• The Pennys built a home and lived in it without issue for four years. Their new neighbours got their property surveyed and found most of the Pennys’ garage and a corner of the house extended onto their property.
• With the neighbours not expecting to use the land at the time of purchase, the court gave jurisdiction to award damages instead of requiring remediation.
• All third parties were liable for contributory negligence: the builder 70 per cent, and the surveyor and the municipality each 15 per cent. The Pennys were compensated for the severed land purchase, damages for trespassing and land transfer.

A homeowners’ nightmare scenario of discovering their home had been constructed over the property line onto their neighbour’s land was brought to court, in Armstrong vs Penny.

Building a new waterfront property

In 1998, the Pennys hired a builder to create a custom-built home on their vacant waterfront property in Sturgeon Lake (what is now the city of Kawartha Lakes). The builder hired a surveyor to determine the boundary line for construction, and the municipality issued a building permit allowing construction to begin.

After the home was completed, the Pennys moved in and lived there for several years incident-free.

Survey reveals property crossed boundary line

Then, in 2002, the Armstrongs purchased the northern adjacent property and the following year, they obtained a survey of the property’s southern line and learned that most of the Pennys’ garage and a corner of the house extended onto their property.

Later on, the Armstrongs pursued legal action against the Pennys, stating they were trespassing. This caused the Pennys to make third-party claims against the builder, the surveyor and the municipality, alleging that those parties were negligent for allowing the home to be constructed over the boundary line.

2022 trial

Eventually, the litigation went to trial in 2022 (the reason it took so long is unknown). The trespass of the Pennys’ property onto the Armstrongs’ was evident and admitted in court, but it was unclear what should be done.

The Armstrongs felt that the most equitable, fair and balanced solution was to demolish and remove the Pennys’ garage while allowing the Pennys to purchase land needed to rebuild the garage. They would also leave a smaller piece of land so the corner of the Pennys’ house could stay.

How the court found a solution

The court felt that the Pennys weren’t at fault and shouldn’t go through the hardship of demolishing their property. It saw this as oppressive.

Instead, the court considered:

• section 99 of the Courts of Justice Act, which gives jurisdiction to award damages instead of an order requiring specific remediation, and
• section 37 of the Conveyancing and Law of Property Act, which states that a person may be entitled to retain land on which they have made lasting improvements under the belief that the land is the person’s own.

These sections were appropriate considering the garage had been in the location for many years. The court focused on the importance of prior knowledge during the purchase and each party’s expectations — that is, the Armstrongs did not expect to use the land the Pennys’ property sat on when they purchased their home.

The decision

The court ordered that the Pennys’ home and garage could remain as-is but they must pay the Armstrongs for the land used at $9.10 per square foot, plus the costs associated with the land transfer.

Also, the Armstrongs argued that the facts underlying an unjust enrichment claim were admitted — the Pennys had used the land under the garage since the Armstrongs purchased it, and the Armstrongs were deprived of using it. The court awarded general damages of $1,000.

Third-party claim against the builder

The Pennys argued that there was a breach of contract and negligence on the part of their builder, to which the trial judge agreed since the home was not entirely built within the property’s boundaries. As well, the builder didn’t complete the building permit application form correctly and failed to review a reporting letter received for work conducted before paying an invoice for that work.

This meant the builder failed to meet the required standard of care — had it not been negligent, the house would have been constructed in the correct location, and the Pennys would not be liable to the Armstrongs.

The surveyor

The court found it was critical to the whole construction process that the surveyor establish a correct boundary line. Despite the builder’s poor guidance, it was noted that surveyors should ensure clear instructions are being used and if they were lacking, that they be clarified before work commences.

Since no documents showed the surveyor inquired about the instructions, they were responsible for the choices made and found negligent in proceeding with the job, which contributed to the wrong location of the home’s construction.

The municipality

The trial judge found this was one of the rare cases where the plain facts were enough to meet the test of common sense of how the municipality breached the standard of care.

The municipality’s chief building inspector was responsible for getting further information before issuing a building permit and examining all documents filed in support of the building permit application for uncertainties, inconsistencies or omissions. Although municipalities cannot insure against all possible risks, ensuring that a structure is built within the correct property boundaries is one of its basic required functions.

Each party had different level of fault

In the end, all three third parties were liable for contributory negligence, but the builder was most at fault (70 per cent). It signed the construction contract with the Pennys and took on the responsibility to build their home and garage where directed. The builder’s role also required engaging the surveyor and the municipality, which were also at fault but not to the same degree (15 per cent each).

All compensation was to be awarded to the Pennys, including the costs for the severed land purchase, damages for trespassing and land transfer.

QUICK HITS

• An Ontario joint title holder sought a court order to sell a property registered in her name and her former sister-in-law’s.
• When respondent separated from her spouse and three mortgage payments were taken from the applicant’s account, the applicant first tried to be removed from title and mortgage, then applied to sell the property.
• The court found it unfair and oppressive to order a sale of the property since the applicant was not entitled to any of the sale proceeds and the respondent wanted to continue living there.

With the high cost of real estate in Ontario, homebuyers sometimes recruit assistance from friends and family members by agreeing to be registered as joint title holders for financing purposes. Depending on their particular situation and agreement,  they may be a “bare trustee” without any rights to sell the property if circumstances change later on.

In Weise v. Weise, the applicant sought a court order to sell a property in Sault Ste. Marie, Ontario that was jointly registered in her name with her former sister-in-law.

In 2006, the respondent began to rent the property, which backed onto her childhood home. She met the applicant’s brother (TW) in 2007, and he moved into the property with her. The respondent and TW married in September 2009.

In 2011, the respondent and TW sought out financing to buy the property from their landlords. However, they couldn’t get jointly approved for a mortgage due to their credit standing. The mortgage lender recommended TW ask his sister, the applicant, to assist.

Agreement made as joint owners

The applicant agreed to be the bare trustee of the property and that her sister-in-law would be the beneficial owner. The two parties entered into a written trust agreement and were registered as joint owners of the property.

The applicant and her sister-in-law also entered into a mortgage as joint mortgagors. The respondent was to be responsible for all expenses under their trust agreement.

TW and the respondent used a lawyer for the purchase. In his reporting letter, the lawyer stated that since the applicant was “a mere guarantor and not a trust owner other than for the purposes of the lender, we prepared a simple trust agreement between the parties to reflect this.”

After the purchase, the respondent and TW opened a joint bank account from which the mortgage payments were drawn during their marriage. The applicant made no financial contribution to the property during the respondent’s marriage to her brother.

A turn of events

In January 2021, the respondent and TW separated and TW vacated the property. The respondent remained responsible for the household maintenance and cost.

The applicant was unhappy after three mortgage payments were taken from her personal account by the lender when the respondent’s account had insufficient funds. She was repaid by the respondent but demanded that her name be removed from the title and mortgage.

The respondent contacted the mortgage lender about the required steps necessary to remove the applicant’s name from the mortgage and title. However, the mortgage company advised that they required a separation agreement to be drafted before such refinancing could be considered.

Not pleased with the delay, the applicant applied under the Ontario Partition Act for an order directing the sale of the property.

Bare trust formed even without signed agreement

Section 3(1) of the Partition Act states: “Any person interested in land in Ontario, or the guardian of a minor entitled to the immediate possession of an estate therein, may bring an action or make an application for the partition of such land or for the sale thereof under the directions of the court if such sale is considered by the court to be more advantageous to the parties interested”.

The respondent opposed the application as she had a connection to the property and wished to keep it. She had paid TW a “buy-out” for all joint property and had sought financing to ensure the home could be transferred into her name. She blamed the applicant for moving precipitously before a formal separation agreement and divorce from TW could be completed.

At the hearing in 2023, only an unsigned copy of the trust agreement was filed since a signed version couldn’t be found. However, the parties agreed that the trust agreement had been fully executed at the time of purchase in 2011.

Even though a signed copy of the trust agreement could not be located, the court noted that a bare trust may be formed without the requirement of a written document provided that the requirements to settle a trust are met: 1. intention to create a trust, 2. identification of the specific subject matter of the trust, 3. identified beneficiary of the trust and 4. transfer of the trust property to the trustee: White v Gicas.

Applicant not entitled to compel a sale

The court reviewed the wording of the lawyer’s reporting letter and found it was never intended for the applicant to have any beneficial ownership of the property and that her involvement was related to securing financing. The trust agreement gave no independent powers, discretion or responsibilities to the applicant, and she could not convey or encumber her interest in the property without written consent of the respondent.

The court also noted that the trust agreement provided that the respondent was the beneficial owner and the applicant would have no entitlement to possession and/or any of the proceeds of disposition concerning the property. The respondent was to be responsible for all expenses. The applicant’s relief from liability was indemnification from and to be saved harmless by the respondent only.

No term permitted her to seek partition and/or sale of the property. In the court’s view, it was the applicant’s choice to assist her brother and the respondent and she agreed to be a bare trustee rather than a joint owner with rights, powers and obligations. 

In the end, the applicant was not entitled to compel a sale since she was not entitled to the immediate possession of the property under 3(1) of the Partition Act. As well, the respondent was taking steps to resolve the issues arising from the breakdown of her marriage to TW. This was taking time, and there was no evidence provided to indicate that the time taken to date was unreasonable in the circumstances.

“Unfair and oppressive to order a sale”

The court also found that it would be unfair and oppressive to order a sale of the property in the circumstances since the applicant was not entitled to any of the proceeds of the sale and the respondent wanted to continue living in the home as she had since 2007.

The lender had advised that the applicant could be removed from title and the encumbrance once the separation with TW was finalized. In the meantime, the court did not consider a sale to be more advantageous to the parties, so the application was dismissed.

This decision demonstrates the potential issues that may arise when someone agrees to become a bare trustee. What may seem like a kind and generous gesture at the time may result in long-term commitments that are difficult to end. However, there wasn’t any evidence of incurred or anticipated harm to the applicant since no claims for indemnification were being made. In the application judge’s words, the applicant’s request for relief under the Partition Act was “putting the cart before the horse,” to potentially satisfy a judgment that did not exist.

QUICK HITS

 

• In the case of More v. 1362279 Ontario Ltd. (Seiko Homes), a real estate dispute highlighted the importance of understanding closing deadlines in property transactions. 
• When the APS lacks a specified time for closing, midnight is often assumed, but this can clash with practicalities like land registry office hours. 
• Amid the height of the pandemic, delays in closing funds became common. In this case, the court ruled in favour of the buyers, noting that a “time is of the essence” clause in the APS had limited relevance due to the APS’s silence on the closing time. 

Real estate transactions may be scheduled to be completed by a certain time of day, depending on the wording of the Agreement of Purchase and Sale (APS). When the APS is silent on the time of closing, midnight may be the deemed deadline. This may mean that the transfer of the property won’t be registered until the following day since land registry offices typically close by 5:00 p.m. 

The real estate lawyers for the buyer and seller often work cooperatively to ensure that the transaction closes the following day as soon as they are in a position to do so, even though not all of the closing documents or proceeds of sale may have been received by the deadline set out in the APS. Sometimes, however, a seller may attempt to rely on a “time is of the essence” clause in the APS and refuse to close.

Background

In More v. 1362279 Ontario Ltd. (Seiko Homes), the Ontario Court of Appeal addressed a dispute arising from a seller’s refusal to complete a transaction when the closing funds were not received until the day after the scheduled completion date.

The respondent buyers agreed to purchase three newly built townhouses in Windsor, Ont. from the appellant, a developer. The townhouses were close together and “checked off all the boxes” for the buyers due to the price and location in Windsor. Each transaction had an identical APS with the seller and agreed to a completion date of Oct. 1, 2020. No time for completion was specified in the APS.

As closing approached and real estate prices soared, the buyers grew concerned with the seller’s refusal to cooperate with issues raised by a Tarion inspection and other issues, and they requested a short extension of the closing date. This request was refused.

On the closing date, the mortgage funds arrived later than expected. The buyers’ bank, which was forwarding the mortgage funds, acknowledged that it encountered delays due to a combination of COVID-19 protocols, fewer staff, reduced hours and an end-of-month spike in the volume of transactions.

The buyers’ lawyer was in receipt of the required funds and certified them on the date of closing. However, when he tried to wire the funds to the seller’s lawyer, his attempt failed.

Just after 5:00 p.m. on the closing day, the sellers’ lawyer faxed a letter to the buyers’ lawyer terminating the APS and alleging that the buyers were unable or unwilling to close.

The funds were deposited into the trust account of the seller’s lawyer the following morning, and a closing date of either Oct. 2 or Oct. 6, 2020, was proposed. In the ensuing days, the seller refused to close the transaction and attempted to return the mortgage funds but not the deposit amounts. Litigation ensued.

Summary judgment motions were brought by the parties, with the buyers seeking specific performance and the completion of the transactions. The seller argued that the buyers were in breach of their contracts when they failed to close by 5:00 p.m. on Oct. 1, 2020.

The motion judge determined that there were no genuine issues for trial. He found that the buyers were always ready, willing, and able to close the transactions, while the seller was unwilling to close and acted unreasonably in prematurely terminating the transaction. Accordingly, he granted specific performance to the buyers with costs on a substantial indemnity basis in the amount of $17,500.

Amongst other findings, the motion judge accepted that the COVID-19 pandemic had “changed the way real estate lawyers process transactions” and that where there are minor delays in delivery of closing funds, the purchase transactions will be honoured where a lawyer has confirmed receipt of funds on the date of closing.

In the motion judge’s view, what should have been a minor glitch owing to delays that could have been expected during the pandemic appears to have been “pounced on” by the seller in an unexpected fashion. The failure of the seller to be flexible in adjusting the closing date reflected a lack of goodwill.

Midnight deadline vs. practicality

On appeal, the central issue was whether the motion judge erred in finding that the appellant seller was in anticipatory breach of the APS when it faxed the letter repudiating the transaction just after 5:00 p.m. on the Oct. 1 closing date.

The appellant’s first submission was that the motion judge erred in finding that the proper closing time was midnight on Oct. 1, 2020, since the APS contained a “time is of the essence” clause, and the Teraview System does not permit transfers to be electronically registered past 5:00 p.m. on any business day. Therefore, the seller argued, closing funds had to be tendered no later than 5:00 p.m.

The Court of Appeal agreed with the motion judge that the purported 5:00 p.m. deadline was contradicted by the Document Registration Agreement, which the seller’s lawyer delivered to the buyers’ lawyer, which provided that if the APS was silent on the time of closing, the deadline for “release” of funds from escrow would be 6:00 p.m. on closing day.

Further, as the Court of Appeal discussed in Di Millo v. 2099232 Ontario Inc., the seller could not rely on the “time is of the essence” clause to claim the APS had a 5:00 p.m. deadline since there was no specific time set out in the APS. In other words, the “time is of the essence” clause was of limited assistance in interpreting the contract since the APS was otherwise silent on the deadline to perform the obligations under the contract.

The appellant also took issue with the motion judge’s conclusion that it acted unreasonably and in bad faith. However, the Court of Appeal concluded that it was open to the motion judge to find, in the circumstances at issue, that purchase transactions would usually be honoured with the lawyers working together to close the following day despite minor delays in the delivery of closing funds, which the seller “pounced on” in a “totally unexpected fashion.”

In the Court of Appeal’s view, it was not necessary to decide as a matter of law whether a buyer could rely on the fact that their counsel was in receipt of closing funds in order to cure minor delays in delivering the funds to the seller. In this case, since the seller had clearly repudiated the APS before the deadline, the innocent parties, namely the buyers, were relieved of the requirement of tender at that point.

As held by the Court of Appeal in Di Millo, “When a party by words or conduct communicates a decision not to proceed to closing, the other party is released from any obligation to tender in order to prove he was ready, willing and able to close.”

The appeal was, therefore, dismissed.

The ‘time is of the essence’ clause in the APS

The case demonstrates that while an APS often states that time is of the essence, meaning that no extensions of time will be allowed, the courts may expect the parties to cooperate and attempt to complete a transaction in good faith, even if that entails registering the transfer of the property shortly after the agreed-upon date. 

What is generally expected of the parties is that they will have attempted to complete all the steps that were within their control by the scheduled completion date. Delays that were out of their hands should not be pounced on by the other side to terminate the transaction.

Written by James Cook & Eli Bordman

Morden v. Pasternak involved a claim by a buyer against her real estate agent arising from an aborted transaction.

Background

The buyer and her husband were experienced real estate owners and had bought at least 10 properties before the transaction at issue. In June 2016, the buyer and her husband decided to make an offer to buy a property in Maple Ridge, B.C. While they both intended to go on title, the husband was leaving for a vacation, and they decided that he would not be signing the agreement to buy the property since he would be away.

The buyer signed the contract to buy the home and entered into a firm agreement with the sellers by providing her agent with a $50,000 cheque for the deposit. That evening, however, the buyer’s husband decided to terminate the contract. He left a voicemail message with their real estate agent the following morning with instructions to cancel the deal. Further, he transferred funds out of the account upon which the deposit was to be drawn, thereby ensuring there would be insufficient funds if the cheque were cashed.

The sellers eventually re-listed the property for sale and sold it for $100,000 less than the buyer had agreed to pay. At trial, the buyer was found to be liable to the sellers in the amount of $97,800 for failing to complete the purchase, but she sought indemnity from her real estate estate for the damages awarded.

Buyer argues agent shouldn’t have taken instructions from husband

In that regard, the buyer argued that the real estate agent should not have relied on instructions from her husband since he was not her agent and had no authority to cancel the transaction. She further alleged that the real estate agent was liable for failing to ensure that she and her husband received legal advice about the potential consequences of terminating the transaction and the potential damages that could result.

The trial judge found that the buyer’s husband had actual authority to act for her, that their acquisition of the property was a joint purchase, and that she had intended for her husband to manage the transaction. The trial judge further found that the buyer’s husband had the authority to make decisions and communicate those decisions to the real estate agent, including the decision to repudiate their agreement.

The trial judge found that the agent was aware of “emotional tension” between the buyer and her husband and should have taken better care to advise the buyer on the potential consequences of failing to complete the transaction. Nevertheless, the trial judge was satisfied that the agent’s failings did not cause the buyer’s losses and her claim for indemnity was dismissed.

Court of Appeal examines causation in buyer’s lawsuit 

The buyer appealed this decision to the Court of Appeal for British Columbia.

The Court of Appeal affirmed that the trial judge had correctly identified that causation is a necessary element of an action in negligence: “Simply put, a defendant’s negligence, without more, does not make out the cause of action. Instead, a defendant’s negligent conduct must cause the plaintiff’s loss. The onus lies with the plaintiff to establish causation on a balance of probabilities and on a ‘but for’ basis.”

Given this test, the buyer had to show that, but for the agent’s allegedly negligent advice — or lack thereof — she would have chosen to complete the transaction and/or otherwise avoided liability to the sellers. In the Court of Appeal’s view, however, the evidence was to the contrary in that the buyer and her husband demonstrated a clear intention to breach the contract to buy the property without taking any steps to seek legal advice before doing so or making any attempt to revive the transaction notwithstanding that they were aware that damages could be awarded to the sellers.

Among other things, the buyer’s husband and the real estate agent exchanged an email in the days after the contract was cancelled, where the agent commented that the costs could be as much as $100,000. The buyer and her husband made no effort to try and salvage the transaction. Based on the evidence, the decision of the buyer and her husband to cancel the deal was firm and unwavering.

Shortcomings in advice had no impact on buyers’ decision

Further, the evidence was that the buyer and her husband had the real estate experience and knowledge to understand the potential consequences of “collapsed deals” and knew the importance of obtaining legal advice. It was clear that they never entertained the option of completing the transaction once the husband called the agent to cancel the deal and withdrew the funds from the deposit account.

Therefore, there was no causation on the real estate agent’s part — the buyer and her husband would have never contemplated completion of the transaction or reconsidered their decision. Any shortcomings in advice given or not given by the real estate agent to the buyer and her husband had no impact on their decision to abandon the purchase of the property. The buyer’s obligation to compensate the sellers for their losses would have crystallized regardless of the real estate agent’s actions and negligence. The appeal was therefore dismissed.

Lessons learned: Joint client instructions and the importance of written confirmation 

The decision illustrates some of the perils that may arise when an agent takes instructions from one joint client, which may be subsequently challenged by the other. Although the agent was successful, the claim may have been avoided by confirming significant instructions in writing with both clients. Ultimately, however, the buyer was bound by the decision of her husband to cancel the deal as she failed to take steps to advise the agent that she did not agree with this decision and wished to complete the transaction. 

Feature image: The BC Court of Appeal, image source: Twitter, @BCCourtofAppeal