CITATION: Brampton Worship Centre v. Montgomery, 2022 ONSC 6164

DIVISIONAL COURT FILE NO. DC-22-07

DATE: 20221104

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

E.M. Stewart, S.T. Bale and S. Nishikawa JJ.

BETWEEN:

Brampton Worship Centre

Applicant (Appellant)

– and –

Bruce Donald Montgomery and Royal LePage RCR Realty

Respondents (Respondent in appeal)

Osborne Barnwell, for the appellant

Melvin Rotman and Yovindranauth Jaimangal, for Bruce Donald Montgomery

HEARD: June 13, 2022 at Brampton, by video conference

On appeal from the judgment of Justice Gisele M. Miller of the Superior Court of Justice dated January 31, 2022, with reasons reported at 2022 ONSC 739.

S.T. Bale J.:

1The appellant paid a $40,000 deposit to the respondent pursuant to the terms of an agreement of purchase and sale of land. The agreement was not completed, because the appellant was unable to finance the purchase.

2The appellant applied for a declaration that it was entitled to a return of the deposit. The application judge dismissed the application. On this appeal, the appellant asks that the decision be reversed and that this court order the release of the deposit to the appellant.

3For the reasons that follow, I would dismiss the appeal.

Background

4On July 24, 2018, Reverend Vincent Sterling, upon behalf of the appellant, entered into an agreement to purchase 443 Main Street, Shelbourne, Ontario from Bruce Donald Montgomery. The purchase price was $1,150,000. Pursuant to the terms of the agreement, the appellant paid a deposit of $40,000 to Montgomery.

5Pending completion of the agreement, the appellant leased the premises from Montgomery at a rent of $4,000 per month.

6The agreement was not completed on the scheduled closing date of January 2, 2019, because of the appellant’s inability to finance the purchase.

7On February 27, 2019, the parties entered into a second agreement of purchase and sale, with a closing date of March 29, 2019. The purchase price was $1,300,000, again with a deposit of $40,000 to be paid to Montgomery.

8After the second agreement was signed, there were discussions by email and text between Sterling and Montgomery’s real estate agent. The issues discussed included: the possibility of Montgomery providing a take-back mortgage, and whether Montgomery would release the original $40,000 deposit to cover the appellant’s ongoing lease payments or to be used as the deposit required under the second agreement. However, no agreement was reached, the required deposit was not paid, and the second agreement was abandoned. Montgomery later sold the property to a third party for the sum of $960,000.

9Following the abandonment of the second agreement, the appellant applied for a declaration that it was entitled to a return of the deposit paid under the first agreement. In a thorough and reasoned judgment, the application judge dismissed the application.

Analysis

Forfeiture of deposit

10The agreement of purchase and sale provided for the disposition of the deposit upon completion of the agreement – if the agreement were completed, the deposit would be credited to the purchase price. However, the agreement did not provide for disposition of the deposit, in the event the appellant repudiated the agreement.

11The application judge cited Azzarello v. Shawqi, 2019 ONCA 820, at paras. 42-45, to the effect that in the absence of an agreement to the contrary, where a purchaser repudiates the agreement by failing to complete the transaction, the deposit is forfeited without proof of any damage suffered by the vendor, subject to relief from forfeiture. Based upon this law, she held that Montgomery was entitled to keep the deposit.

12Appellant’s counsel argues that there was an agreement to the contrary – that Montgomery had promised Sterling that he would return the deposit if the sale failed to close. Montgomery denied that any such promise had been made.

13In rejecting that argument, the application judge held that the parol evidence rule precluded admission of Sterling’s evidence of an oral agreement that the deposit would be returned if the sale failed to close. In doing so, she cited Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at paragraph 59:

The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing. To this end, the rule precludes, among other things, evidence of the subjective intentions of the parties. The purpose of the parol evidence rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a party's ability to use fabricated or unreliable evidence to attack a written contract. [Citations omitted.]

Evidence of surrounding circumstances

14In Sattva Capital, at para. 60, the court notes that the parol evidence rule does not apply to preclude consideration of surrounding circumstances in the interpretation of contracts:

Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.

15At the hearing of the appeal, the appellant argued that the fact that it is a small congregation of 15 or so members (7 families) who used their savings and took out loans to pay the deposit is a surrounding circumstance that the court should use to interpret the agreement of purchase and sale. Counsel argued that it would not have made sense for these parishioners to risk losing their deposit. However, while it does not appear from the record that this argument was made at the hearing of the application, I would in any event reject it.

16Surrounding circumstances to be considered in interpreting a contract “must never be allowed to overwhelm the words of that agreement” and cannot be used “to deviate from the text such that the court effectively creates a new agreement”: Sattva, at para. 57. The “cardinal presumption” is that the parties have intended what they have said. The surrounding circumstances or factual matrix “cannot include evidence about the subjective intention of the parties”: Weyerhauser Co. v. Ontario (Attorney General), 2017 ONCA 1007, at para. 65, rev’d on other grounds 2019 SCC 60. See also: Prism Resources Inc. v. Detour Gold Corp., 2022 ONCA 326, at paras. 15-17.

17In my view, the evidence referred to by the appellant is not admissible as a surrounding circumstance because the appellant is asking the court to make an inference with respect to the subjective intention of the parishioners when Sterling made the agreement and because the court would then effectively be creating a new agreement. I also note that the agreement provides that it is the entire agreement and that: “There is no representation, warranty, collateral agreement or condition which affects this Agreement other than as is expressed herein.”

Subsequent conduct evidence

18In Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 52151 (ON CA), 64 OR. (3d) 533 (C.A.), at para. 49, the court held that “an exception to the parol evidence rule is the existence of any subsequent oral agreement to rescind or modify a written contract provided that the agreement in not invalid under the Statute of Frauds” (citation omitted).

19In Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, the court held:

In summary, evidence of the parties' subsequent conduct is admissible to assist in contractual interpretation only if a court concludes, after considering the contract's written text and its factual matrix, that the contract is ambiguous. The court may then make retrospectant use of the evidence, giving it appropriate weight having regard to the extent to which its inherent dangers are mitigated in the circumstances of the case at hand, to infer the parties' intentions at the time of the contract's execution.

20Relying upon Shelanu, the appellant argues that the communications between Sterling and Montgomery’s real estate agent following the signing of the second agreement of purchase and sale should be considered in support of the appellant’s position that Montgomery had promised to refund the deposit if the sale was not completed. The application judge found that even if Montgomery “offered to ‘donate’ the deposit he was entitled to keep in order to broker a new deal, that does not show that giving up the deposit was part of the original deal.” I agree and would add that the parties’ subsequent conduct was not, in any event, admissible to assist in interpreting the agreement because the agreement is not ambiguous.

Credibility

21Appellant’s counsel argues that Montgomery was not a credible witness and that the application judge erred by failing to conduct any analysis of the conflicting evidence of Sterling and Montgomery on the issue of whether there was an oral agreement that the deposit would be returned. The application judge held that, given her reasons for finding that such evidence was inadmissible, it was unnecessary for her to determine whether the conversations alleged by the appellant had occurred. She was correct in doing so.

Relief from forfeiture

22On the issue of relief from forfeiture, the application judge cited Shawqi and Signal Chemicals Ltd. v. Dew Man Marine Trade Inc., 2011 ONSC 3951.

23In Shawqi, at para. 47, the court approved a two-pronged test for relief from forfeiture: (1) whether the deposit is all out of proportion to the damages suffered; and (2) whether it would be unconscionable for the vendor to retain the deposit.

24In Dew Man Marine Trade, at para. 20, the court held that in determining whether it would be unconscionable for the vendor to retain the deposit, two factors must be examined: (1) whether there was an inequality of bargaining power between the parties; and (2) whether the impugned term or condition has a high degree of unfairness.

25The application judge found that the amount of the deposit was not disproportionate, that there was no evidence of inequality of bargaining power, and that it would not be unfair for Montgomery to retain the deposit. On the evidence before the court, it was open to her to do so.

Disposition

26For the reasons given, I would dismiss the appeal.

27The parties agreed that the costs of the appeal would be fixed in the sum of $5,500 payable to the successful party. I would therefore award costs to the respondent Bruce Donald Montgomery in that amount.

“S.T. Bale J.”

I agree “E.M. Stewart J.”

I agree “S. Nishikawa J.”