Court of Appeal for Ontario
Date: November 28, 2018 Docket: C65116
Judges: Lauwers, Hourigan and Pardu JJ.A.
Parties
Between
THMR Development Inc. Applicant (Appellant)
and
1440254 Ontario Ltd. Respondent (Respondent)
Counsel
Gregory M. Sidlofsky, for the appellant
Micheal Simaan, for the respondent
Hearing and Appeal
Heard: November 5, 2018
On appeal from: the order of Justice A. Pollak of the Superior Court of Justice, dated February 6, 2018.
Decision
By the Court:
[1] The application judge dismissed the appellant's application for specific performance of an agreement of purchase and sale between it, as the buyer, and the respondent, as the seller, of a mixed commercial/residential use property in Port Perry.
[2] For the reasons that follow, we would allow the appeal and order the specific performance of the agreement of purchase and sale.
A. The Factual Context
[3] The application judge's decision turned on her interpretation of the mortgage assumption provision in the agreement of purchase and sale, which required the approval of the mortgagee, Alterna Savings, to the assumption of the mortgage, on terms acceptable to the buyer. Because the Alterna mortgage was closed, the parties wished to keep the mortgage in place and avoid the prepayment penalty of $258,000.
[4] The mortgage assumption condition provided:
The completion of this transaction is conditional until the 40th business day following the date upon which this Agreement is fully executed (the "Assumption Approval Period") on the Buyer being approved by Alterna Savings and Credit Union Limited ("Alterna") to assume the existing first mortgage on the Property (the "Alterna Mortgage") on terms acceptable to the Buyer. The foregoing condition is a true condition precedent and cannot be waived. The buyer shall proceed diligently and expeditiously following the execution of this Agreement to seek approval of Alterna for the said assumption. … In the event that said condition precedent relating to the assumption of the Alterna Mortgage is not satisfied within the Assumption Approval Period this Agreement shall be at an end and the Deposit together without interest earned thereon shall be returned to the Buyer in full. If the Buyer at Buyer's sole and absolute discretion is not satisfied with the terms of the existing first mortgage or the terms of the said assumption of the existing first mortgage within the Assumption Approval Period this Agreement of Purchase and Sale shall become null and void… (Emphasis added.)
[5] Alterna consented to the appellant's assumption of the mortgage by letter, dated May 24, 2017. The letter was also addressed to the respondent, whose principal, William Zigomanis, denied having received it. However, he admitted he was told about Alterna's approval during a meeting with the appellant's manager, Ran Zha, on May 29, 2017.
[6] Alterna's approval letter listed a number of terms and conditions which had to be fulfilled before the closing date. The conditions were acceptable to the appellant, but there were two issues with Alterna's letter that required correction.
[7] The first, as Mr. Zigomanis admitted in cross-examination, was that the June 30 closing date in Alterna's approval letter was incorrect; he expected the agreement to close by August 2, 2017. He testified that he personally was "not in a particular rush to close the deal" and that "the closing date would not have been a deal breaker… [f]or anyone." The uncontroverted evidence of the appellant's lawyer was that "Alterna agreed to correct the closing date and simply wanted to be notified once the closing date was finalized." There was also some ambiguity as to the appropriate interest rate for the mortgage assumption. The appellant resolved both issues by direct communications with Alterna.
[8] Mr. Zigomanis admitted in cross-examination that by the middle of June, the appellant was asking for dates from the respondent to complete the final inspection of the property, although that was not required until July 2, 2017.
[9] However, on June 20, 2017, counsel for the respondent wrote to counsel for the appellant, taking the position that the agreement of purchase and sale was at an end because the appellant had not formally accepted Alterna's terms approving the mortgage assumption by signing and returning the approval letter before the end of the assumption approval period on June 6, 2017, together with the various fees that Alterna demanded.
[10] Alterna's approval letter also required the respondent and related guarantors, Mr. Zigomanis and his spouse, to sign. During oral argument counsel for the respondent raised the prospect that they might not sign because the assumption conditions left them responsible for the mortgage, which counsel suggested was not consistent with the basic concept of a mortgage assumption.
[11] The difficulty with this suggestion is that it is not consistent with the facts. Alterna had advised Mr. Zigomanis by email, in February 2017, months before the agreement of purchase and sale was signed, that: "on an assumption, Alterna does not release the existing guarantees. They will remain in place for the balance of the term." This explains why the mortgage assumption condition in the agreement of purchase and sale provided that acceptance was "at Buyer's sole and absolute discretion", referring both to satisfaction "with the terms of the existing first mortgage or the terms of the said assumption of the existing first mortgage". The respondent did not have similar protection in the agreement of purchase and sale.
B. The Decision under Appeal
[12] The application judge described the mortgage assumption condition as a "true condition precedent," which she found "had not been satisfied by the parties by June 6, 2017," rendering the agreement "null and void". She interpreted the wording of the condition:
[T]he only reasonable interpretation that the court can place on the obligations of the parties pursuant to that wording [of the mortgage assumption condition] is that, as a condition precedent, the purchaser had to have accepted in a legal way to be bound by the terms and conditions proposed by Alterna. It did not do so. I therefore find that I agree with the submissions of the respondent that the condition precedent was not satisfied and that the agreement of purchase and sale became null and void as of June 6, 2017. (Emphasis added.)
[13] This interpretation rested on the application judge's finding that "the buyer had in no way agreed to be legally bound or had legally accepted the terms of the mortgage which Alterna was giving its approval to." She based this determination on the appellant's failure to sign and return Alterna's offer to approve the assumption. "There is no evidence", she said, "that the buyers did agree to be bound in any way by those terms." The application judge added in obiter: "I would not have ordered specific performance of the agreement."
C. Issues
[14] There are two issues to be addressed on this appeal:
1. Did the application judge err in determining that the agreement of purchase and sale was null and void because the condition precedent in the mortgage assumption provision had not been satisfied?
2. Did the application judge err in finding that an order for specific performance would not be available to the appellant?
D. Analysis
(1) Did the breach of a condition precedent vitiate the contract?
[15] A true condition precedent exists where the rights and obligations of the contracting parties under the contract depend on a future uncertain event, the happening of which is beyond the control of the parties and which depends entirely on the will of a third party. Until the event occurs, neither party to the contract has a right to performance: See Zhilka v. Turney, [1959] S.C.R. 578, at pp. 583-584, and Barnett v. Harrison, [1976] 2 S.C.R. 531.
[16] The application judge found that the jurisprudence on true conditions precedent was not applicable because "the parties have clearly addressed their minds on what they want the consequences of a failure of the condition precedent to be" by agreeing "that this condition is a 'true condition precedent and cannot be waived'".
[17] In this case, the only third party was Alterna and the only true condition precedent was Alterna's approval of the appellant's assumption of the mortgage. This is the only part of the mortgage assumption provision that could properly be identified as a true condition precedent, and it was in place so that both the appellant, as buyer, and the respondent, as seller, were not penalized by the prepayment fee. The condition precedent was satisfied when Alterna sent its approval letter that was then altered slightly to the appellant's satisfaction. In our view the appellant was then bound to close the transaction with the respondent, subject to any other conditions such as the possible fallout from possible surprises revealed by the property inspection refused by the respondent. Consequently, the application judge erred in concluding that the appellant was required to confirm its acceptance formally by signing and returning the assumption approval letter to Alterna to satisfy the condition precedent.
(2) Was specific performance appropriate?
[18] The application judge stated: "I would not have ordered specific performance of the agreement as I find that, on the basis of the evidence, the applicant has not met its burden of establishing that the factors which are set out in the jurisprudence referred to by the applicant have been satisfied." She concluded that "the value of that property to the applicant was for investment purposes," so that damages would be an appropriate remedy. She referred to 801 Assets Inc. v. 605446 Ontario Ltd., 2016 ONSC 2772, 71 R.P.R. (5th) 260 and Campbell Pools Inc. v. Seville Group Inc., 2015 ONSC 2314, 44 B.L.R. (5th) 312. The application judge's obiter analysis is limited to the few words that we have quoted. She did not address the evidence or the law in any detail. Her reasons are inadequate for appellate review within the meaning of R. v. Sheppard, 2002 SCC 26, [2002] 1 S.C.R. 869.
[19] The appellant submits that the application judge misconstrued the law relating to specific performance, and points out that in both 801 Assets Inc. and Campbell Pools Inc. specific performance was granted in commercial circumstances.
[20] The evidence in this case established that there were no suitable alternative commercial properties available in the Port Perry area. This is significant to the appellant because its other properties, employees, staff and contractor are located in the town. This is why, because of its unique attributes, the appellant has been trying to purchase the property since 2015.
[21] This court is in as good a position as the application judge to deal with the issue of remedy because this case was argued on a paper basis without the involvement of live witnesses. In our view, the appellant has demonstrated the legal prerequisites for an order for specific performance and we would so order, subject to the following paragraph.
E. Disposition
[22] Alterna's mortgage assumption approval has long since lapsed. If, in light of this decision, Alterna renews its approval on terms substantially similar to those in its previous approval letter, then an order for specific performance of the agreement of purchase and sale should issue. The appellant shall advise the court of Alterna's position within 30 days of the date of release of this judgment. If Alterna refuses to approve the assumption of the mortgage by the appellant on terms substantially similar to those in its previous approval letter, then the appellant shall advise the court and make written submissions as to the appropriate disposition of this appeal, and the respondent may respond in writing within 14 days.
[23] We reserve the costs decision pending the outcome of the actions ordered in the previous paragraph.
Released: November 28, 2018
"P. Lauwers J.A."
"C.W. Hourigan J.A."
"G. Pardu J.A."
