Court File and Parties
DIVISIONAL COURT FILE NO.: 284/13
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
KARMEN TSE
Sender Herschorn for the Plaintiff/Respondent
Plaintiff/Respondent
- and -
JITENDRA KUMAR SOOD and ROYAL LEPAGE-YOUR COMMUNITY REALTY
Defendants/Appellants
Jitendra Kumar Sood, self-represented Defendant/Appellant
HEARD: January 26, 2015
PERELL J.
REASONS FOR DECISION
Overview
1This is an appeal of a decision of Deputy Judge William C. De Lucia dated June 4, 2013, in an abortive real estate action involving a condominium unit that was being sold for a purchase price of $339,900.
2In the Small Claims Court action, the Plaintiff Karmen Tse successfully sued the Defendant Jitendra Kumar Sood for the return of her deposit of $16,000, plus interest and legal costs in the amount of $3,895.
3Ms. Tse refused to close the transaction and demanded her deposit back because:
(a) under paragraph 7 of the Agreement of Purchase and Sale, Mr. Sood warranted that the common expenses for the condominium were $285.96 per month, but the Status Certificate indicated that the common expenses would be $314.56 per month (a 10% increase);
(b) under paragraph 13 of the Agreement of Purchase and Sale, Mr. Sood represented and warranted that there were no special assessments contemplated by the condominium corporation, but the Status Certificate indicated that there was a special assessment for a one-time payment of $457.87; and
(c) under paragraph 3 of Schedule “A” of the Agreement, the Agreement was conditional upon Ms. Tse’s lawyer reviewing the Status Certificate and attachments and finding them satisfactory in the lawyer's sole and absolute discretion, with Ms. Tse having three days after receiving the Status Certificate to give notice in writing that the condition was satisfied, else the agreement would be null and void and the deposit returned to Ms. Tse without deduction; however, Ms. Tse’s lawyer was not satisfied with the Status Certificate and attachments, and Ms. Tse did not give notice in writing that the condition was satisfied.
4The Deputy Judge decided that provided that Ms. Tse was acting in good faith and that it was reasonable for her to insist on the satisfaction of the condition concerning the Status Certificate and its attachments, she was entitled to the return of her deposit. Further, he decided that since Ms. Tse was acting in good faith and since she had genuine and reasonable concerns about the one-time special assessment and the increase of the monthly common expenses revealed by the Status Certificate and its attachments, she was entitled tothe return of the deposit.
5Mr. Sood now argues that the Deputy Judge’s decision was an error of law and, therefore, reviewable on the standard of correctness. Mr. Sood submits that the Deputy Judge erred in his interpretation of the provisions of the Agreement of Purchase and Sale and in the application of those provisions to the factual circumstances of the case.
6Mr. Sood submits that properly interpreted, under the Agreement of Purchase and Sale: (a) Ms. Tse had no right to rely on the non-satisfaction of the Status Certificate because there was no objective deficiency in the Status Certificate and its attachments; (b) he made no misrepresentation with respect to the monthly common expenses, because they were indeed $285.96 per month at the time when he signed the Agreement of Purchase and Sale; and (c) although there was a breach of the term of the Agreement that there was no special assessment, Ms. Tse’s remedy for that admitted breach of contract was to close the transaction and to sue for damages in the event that he were to refuse to reimburse her for the one-time special assessment.
7I disagree with Mr. Sood’s submissions, and I see no error in the law made by the Deputy Judge.
The Law
8Generally speaking, there are four main legally acceptable justifications for a purchaser refusing to close a real estate transaction, and three of the four are relevant to the case at bar.
9First, a purchaser may refuse to close because of the non-satisfaction of a condition precedent that the purchaser will not waive and that cannot be unilaterally waived by the vendor. Second, a purchaser may refuse to close if the vendor has breached a fundamental promise in the agreement of purchase and sale, a term classified as a condition as opposed to a warranty. Third, a purchaser may refuse to close if the vendor cannot perform his or her promise to convey the quality of title prescribed by the agreement of purchase and sale. Fourth, a purchaser may refuse to close if the vendor has made a false representation and the other elements of a claim for the equitable remedy of rescission are satisfied.
10The four common grounds for refusing to close are connected to four types of statements that may be found in a contract for the sale of land. The four types of statements are: (1) conditions precedent; (2) promises; (3) the vendor’s promise to convey good title; and (4) representations.
11In the case at bar, the third ground for refusing to close; i.e., the vendor’s promise to convey a “good title” is not an issue.
12“Conditions precedent” are connected to the first ground for refusing to close. Conditions precedent are not promises but rather are contingencies that must be satisfied before some or all of the promises in the contract are enforceable. It is a question of construction whether the obligations of a contract are absolute and immediately binding or are contingent on an external event: Wu Estate v. Zurich Life Insurance (2006), 268 D.L.R. (4th) 670 (Ont. C.A.), at para. 22, leave to appeal to S.C.C. ref’d [2006] S.C.C.A. No. 289; UBS Securities Canada, Inc. v. Sands Brothers Canada, Ltd., 2009 ONCA 328 at para. 90.
13In cases involving conditions precedent, a party cannot take advantage of a condition precedent, unless the party has acted in good faith: Dynamic Transport v. O.K. Detailing Ltd., [1978] 2 S.C.R. 1072; 100 Main Street Ltd. v. W.B. Sullivan Construction Ltd. (1978), 20 O.R. (2d) 401 (C.A.).
14Where the condition precedent to the performance of the contract depends upon a discretionary decision of the purchaser, as, for example, whether the purchaser is in his or her sole discretion satisfied with the physical or environmental condition of the property or with a property’s revenue generating viability or development potential, the purchaser must exercise the discretion in good faith: Greenberg v. Meffert (1985), 50 O.R. (2d) 755 (C.A.), leave to appeal to S.C.C. refused [1985] 2 S.C.R. ix.
15In the exercise of a sole discretion condition precedent beyond the constant of acting in good faith, the extent to which a party, including a purchaser, may rely on subjective reasons as opposed to objectively measured factors—that is, by factors susceptible to some objective measurement—is a matter of contract interpretation: Marshall v. Bernard Place Corp. (2002), 58 O.R. (3d) 97 (C.A.), affg. (2000), 36 R.P.R. (3d) 153 (Ont. S.C.J.); Canadian National Railway Co. v. Inglis Ltd. (1997), 36 O.R. (3d) 410 (C.A.). However, a purchaser may not capriciously or disingenuously rely on the non-satisfaction of a discretionary condition precedent, even if the contract language provides that the purchaser’s discretion may be arbitrary: Elmdale Investments Ltd. v. Myers, [2001] O.J. No. 4989 (S.C.J.).
Analysis
16In the case at bar, the Deputy Judge made no error in his application of the condition precedent about the lawyer’s review of the Status Certificate and its attachments. Ms. Tse was justified in refusing to close and entitled to the return of the deposit.
17There is, however, an additional justification available on the facts of the immediate case that disposes of Mr. Sood’s argument that Ms. Tse breached the contract by refusing to close when her only remedy was for breach of warranty, which entails closing the transaction and suing for damages after closing.
18Mr. Sood’s argument is connected to the law associated with the second ground for refusing to close, which is associated with the general principles of contract law. In the context of contracts for the sale of land, there are two types of promises: (1) conditions, which are the fundamental or essential promises, and (2) warranties, which are minor promises incidental to the purpose of the contract. See: Jorian Properties Ltd. v. Zellenrath (1984), 46 O.R. (2d) 775 (C.A.); Hongkong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd., [1962] 2 Q.B. 26 (C.A.); L. Schuler A.G. v. Wickman Machine Tool Sales Ltd., [1973] 2 All E.R. 39 (H.L.).
19In the context of the sale of land, if a condition or fundamental term is breached, the innocent party has the choice of treating the breach of contract as: (a) ground to end the contract and to claim damages, or (b) as a breach of warranty, in which case the innocent party has a right to claim damages but must perform his or her promises because they are not discharged by the guilty party’s breach: Johnson v. Agnew, [1980] A.C. 367 (H.L.).
20If a warranty is breached, then the innocent party has the remedy of damages but is not discharged from performing his or her obligations under the contract: Jorian Properties Ltd. v. Zellenrath), supra; Johnson v. Agnew, supra; 2296608 Ontario Inc. v. DHMK Properties Inc., 2014 ONSC 2875 at para. 27; Young Estate v. 503708 Ontario Ltd., [1988] O.J. No. 2048 (H.C.J.) at para. 41; Weenies Inc. v. 364558 Ontario Ltd., [1988] O.J. No. 1805 (C.A.) at para. 2.
21In the case at bar, I agree with Mr. Sood’s argument that no fundamental promises were breached giving rise to a justification for refusing to close and that the breach of the warranty found in paragraph 13 of the Agreement of Purchase and Sale about there being no special assessments would not provide Ms. Tse with a right to refuse to close because of a breach of contract.
22However, paragraph 13 is a hybrid term; it is both a warranty and a representation. As Mr. Sood notes in his factum, in general, each part of the agreement is taken to have been deliberately inserted and there is a presumption against redundant words.
23Representations are connected to the fourth ground for refusing to close and representations, in turn, are connected to the equitable remedy of rescission. The constituent elements for this remedy are: (a) a false statement; (b) materiality, which is to say that the false statement must be of a type that would influence a contracting party’s decision to enter into the contract; (c) the false and material statement must have induced the party to enter into the transaction; and (d) the innocent party must object before the closing of the transaction, unless the representation is fraudulent or an error in substantialibus. See: Kingu v. Walmar Ventures Ltd. (1986), 10 B.C.L.R. (2d) 15 (C.A.); Beer v. Townsgate I Ltd. (1997), 36 O.R. (3d) 137 (C.A.); Panzer v. Zeifman (1978), 20 O.R. (2d) 502 (C.A.); Olsen v. Poirier (1978), 21 O.R. (2d) 642 (H.C.), affd. (1980), 28 O.R. (2d) 744 (C.A.).
24In conceding that Ms. Tse breached the warranty, Mr. Sood must also be taken to concede that he misrepresented that there were no special assessment. But for some debate about the matter of the materiality of his false statement, all of the elements for a rescission claim are satisfied in the case at bar, and, in my opinion, Ms. Tse was legally justified in refusing to close.
25I acknowledge that in this case and in others, the materiality of the false statement can be contentious and the amount of the special assessment in the case at bar is trivial compared with the purchase price (0.1%) but that will always be the case when there is a large divisor like the purchase price. The ratio is higher by comparing the special assessment to the annual common expenses (13%) or the monthly charge (160%), but the point is that while these comparisons are helpful, materiality is contextual and involves both objective and subjective factors in the particular circumstances of each case, and that often makes materiality a contentious issue. See Stefanovska v. Kok (1990), 73 O.R. (2d) 297 (H.C.J.).
26In any event, Ms. Tse contracted for the protection of not only a warranty but also a representation. She contracted for the option of closing and suing for breach of warranty or of justifiably refusing to close if there was a misrepresentation about the absence of special assessments.
27I appreciate that Mr. Sood’s arguments have succeeded in other cases because materiality is often debatable, and I note that it is always a risky course to refuse to close and put one’s deposit at risk, but in the case at bar, with the combination of the condition precedent, breach of the warranty and misrepresentation, and the increase in the common area expenses, Ms. Tse was justified in refusing to close. The Deputy Judge made no error in law.
28I appreciate that before the closing Mr. Sood indicated that he would agree to pay the special assessment but that willingness was expressed in the context of the parties’ failed negotiations to extend the time period for the condition precedent and to amend the Agreement of Purchase and Sale.
Disposition
29Therefore, the appeal should be dismissed. If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with Ms. Tse’s submissions within 20 days from the release of these Reasons for Decision followed by Mr. Sood’s submissions within a further 20 days.
Perell, J.
Released: February 2, 2015
CITATION: Tse v. Sood, 2015 ONSC 755
DIVISIONAL COURT FILE NO.: 284/13
DATE: 20150202
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
KARMEN TSE
Plaintiff/Respondent
‑ and ‑
JITENDRA KUMAR and ROYAL LEPAGE-YOUR COMMUNITY REALTY
Defendants/Appellants
REASONS FOR DECISION
Perell, J.
Released: February 2, 2015