COURT OF APPEAL FOR ONTARIO
DATE: 20230803 DOCKET: C70628
van Rensburg, Paciocco and Thorburn JJ.A.
BETWEEN
Hamidreza Rahbar and Maryam Esmaeili Applicants (Appellants)
and
Ehsan Parvizi and Samin Shokri Respondents (Respondents)
Counsel: Romesh Hettiarachchi and Rahul Soni, for the appellants Andrew Camman and Jennifer Hawn, for the respondents
Heard: April 27, 2023
On appeal from the order of Justice Markus Koehnen of the Superior Court of Justice, dated April 6, 2022, with reasons reported at 2022 ONSC 2136.
Thorburn J.A.:
A. Overview
[1] This appeal arises from a failed real estate transaction.
[2] The appellants, Hamidreza Rahbar and Maryam Esmaeili (“the buyers”), entered into an agreement to purchase a residential property in Waterloo, Ontario (the “APS”). The deal did not close by the agreed time because their financing fell through. The respondents, Ehsan Parvizi and Samin Shokri (“the sellers”), later sold the property to third parties at a higher price and kept the buyers’ deposit monies.
[3] The buyers appeal from the dismissal of their application in which they sought specific performance or in the alternative, damages, or relief from forfeiture. The application judge found that the sellers were ready, willing and able to close at the agreed time, and were entitled to terminate the APS, which contained a “time of the essence” clause. He declined to order relief from forfeiture.
[4] The buyers appeal the application judge’s decision on the grounds that he made reversible legal and factual errors, including misapplying the law of repudiation. They claim damages in the amount of $130,000 (i.e., the amount the sellers received from the sale of the property to third parties over and above the amount the buyers agreed to pay). In the alternative, they claim relief from forfeiture on the basis that it would be unconscionable to allow the sellers to retain their deposit.
[5] For the reasons that follow, I would dismiss the appeal.
B. Background Facts
Terms of the APS
[6] On September 21, 2021, the buyers entered into an APS with the sellers. The purchase price was $1,105,000, which was due on closing. The buyers paid a $50,000 deposit upon signing the APS. The agreement was not conditional on financing. Closing was to occur at 6:00 p.m. on December 15, 2021.
[7] The APS included a “time of the essence” clause:
Time shall in all respects be of the essence hereof provided that the time for doing or completing of any matter provided for herein may be extended or abridged by an agreement in writing signed by the Seller and Buyer by their respective lawyers who may be specially authorized in that regard.
[8] On December 9, 2021, the sellers’ lawyer sent the buyers’ lawyer the closing documents.
The Failure to Close the APS
[9] On December 14, 2021, one day before the sale was to close, the buyers were told by their bank that it would not extend financing to enable them to complete the purchase. Their lawyer attempted to address the financing issue.
[10] On December 15, 2021 (the day the APS was scheduled to close), at approximately 3:30 p.m., the buyers’ lawyer called the sellers’ lawyer to advise that the buyers’ financing had fallen through, and that they were requesting a “short extension” of the closing date. No further explanation was provided.
[11] The sellers’ lawyer replied that the buyers’ lawyer should put her request for an extension in writing and he would seek instructions from his clients.
[12] Approximately an hour and a half later, at 5:08 p.m., the sellers’ counsel sent another copy of the closing documents. Those documents included the statement of adjustments, trust account information, confirmation that the transfer had been sent to be signed by the buyers’ lawyer, the sellers’ closing certificate, the sellers’ counsel’s undertaking and correspondence regarding the lockbox information, and the TD mortgage discharge statement.
[13] At 5:09 p.m., the sellers’ lawyer sent an email to the buyers’ lawyer confirming that his clients were ready, willing and able to close that day as scheduled:
I write to you further to the closing of the above referenced matter, which is scheduled to be completed Today.
I confirm that the time is now approximately 5:05 pm and we have not received any funds or closing documents from your office. I also confirm that you have not completed the Transfer that was messaged to your office, as such we cannot sign for completion with respect to the same.
I also confirm that we have provided your office with all deliverables pursuant to the DRA. Our clients are ready, willing, and able to complete this transaction today . Please immediately advise as to the status of this matter and when we can expect to receive the funds and signed documents in order to complete this transaction as scheduled. [Bolded emphasis in original; underscore emphasis added.]
[14] At 5:12 p.m., 47 minutes before the closing deadline, the buyers’ lawyer finally sent a written request for an extension of the closing until January 10, 2022.
[15] At 5:16 p.m., the sellers’ counsel emailed the buyers’ lawyer to advise that he would be in touch as soon as he had instructions.
[16] At 6:33 p.m., after the stipulated closing deadline, the sellers’ lawyer sent an email to advise that the sellers were “treating [the] request for an extension as an anticipatory breach of the Agreement of Purchase and Sale thereby discharging [the sellers] of the obligation to tender”. He also confirmed that it was past 6:00 p.m. and that the buyers had failed to provide the closing funds and documents necessary to complete the transaction. His clients refused to extend the closing. Therefore, the deposit was forfeited, and the APS was terminated.
[17] At 6:35 p.m., the buyers’ lawyer asked for a further extension to January 20, 2022. That too was refused.
[18] The next day the buyers’ counsel wrote advising that her clients had obtained private financing and were now able to close.
[19] No evidence of the buyers’ financing was ever provided to the sellers.
Sale of the Property to Third Parties
[20] On December 22, 2021, the sellers entered into another agreement of purchase and sale with third parties for $1,235,000. This was $130,000 more than the buyers had agreed to pay for the property.
C. The Application Judge’s Reasons
[21] As noted, the buyers sought specific performance or damages, or relief from forfeiture of their $50,000 deposit. The buyers’ submissions included that the sellers had failed to communicate their election to terminate the APS prior to the closing deadline and failed satisfy their contractual obligations by the closing deadline, so they were not entitled to terminate the APS.
[22] In dismissing the application, the application judge made the following findings:
- When the buyers’ lawyer told the sellers’ lawyer that the buyers’ financing had fallen through, there was an anticipatory breach.
- Prior to the agreed closing deadline of 6:00 p.m. on December 15th, the sellers affirmed the contract by pressing for performance.
- The sellers’ lawyer had confirmed with the buyers’ lawyer before the closing deadline that he had provided her with all deliverables and that his clients were ready, willing and able to close.
- The buyers were not ready to close by the closing deadline, given that their financing fell through.
- Thereafter, counsel for the sellers communicated his clients’ intention to terminate the APS, which they were entitled to do.
- The sellers did not act in bad faith.
- It was not unconscionable to allow the sellers to retain the deposit after selling the property to third parties at a higher price, and so relief from forfeiture was refused.
D. Issues on Appeal
[23] The appellants claim the application judge erred in (1) concluding that the sellers were entitled to terminate the APS and (2) in refusing to grant relief from forfeiture.
E. Analysis of the Issues
(1) The First Issue: Were the Sellers Entitled to Terminate the APS?
[24] The first issue is whether the application judge erred in concluding that the sellers were entitled to terminate the APS.
[25] The buyers submit that the application judge erred in applying the law of repudiation. They note that repudiation has no legal effect if the innocent party does not accept the repudiation and instead affirms the contract by pressing for performance. In those circumstances, they submit that the contract remains in force and neither party is relieved of their contractual obligations. Thus, a key issue is whether the sellers were ready, willing and able to close by the closing deadline.
[26] The buyers contend that the sellers were not able to satisfy their contractual obligations by the closing deadline, so they were not entitled to terminate the APS. They also submit that the sellers breached their duty of honest performance by failing to inform the buyers prior to the closing deadline that their extension request was an anticipatory breach of the APS.
[27] For the reasons that follow, I agree with the application judge’s conclusion that the sellers were entitled to terminate the APS on December 15 (the day the APS was scheduled to close).
Analysis of the Issue of Repudiation
[28] As the buyers note, a repudiatory breach does not in itself terminate the contract: Ching v. Pier 27 Toronto Inc., 2021 ONCA 551, 460 D.L.R. (4th) 678, at para. 32. The consequences of a repudiation depend on the election of the innocent party. If the innocent party accepts the repudiation, the contract is terminated. Alternatively, if the innocent party treats the contract as subsisting (i.e., affirms the contract), the contract is not terminated: Ching, at para. 33.
[29] In this case, the application judge found that there was an anticipatory breach: “[t]he anticipatory breach here lay not in the request for an extension but in the communication that the vendor’s financing had fallen through.” The buyers do not challenge this finding. Rather, they dispute what flows from the anticipatory repudiation.
[30] Following the anticipatory repudiation, the sellers could elect to either affirm or disaffirm the contract. The application judge found that they affirmed:
[The buyers’ lawyer] wrote at 5:09 PM affirming the contract and stating clearly that the agreement had to close that day in accordance with its terms. [Emphasis added.]
[31] As Pepall J.A. noted in Ching, at para. 36, “[a] party who ‘presses for performance’ will be found to have affirmed the contract”.
[32] The effect of the affirmation was to keep the contract “alive” and so the sellers needed to show that they were ready, willing and able to close by the closing deadline or the rule in King v. Urban & Country Transport Ltd. (1973), 1 O.R. (2d) 449 (C.A.) would come into play. That rule was explained by Pepall J.A. in Ching, at para. 52:
In King v. Urban the purchaser was not in a position to close on the closing date; but the vendor was also in default and not entitled to rely on the time of the essence provision in the contract. Arnup J.A. resolved the stalemate by applying two propositions:
- When time is of the essence and neither party is ready to close on the agreed date the agreement remains in effect.
- Either party may reinstate time of the essence by setting a new date for closing and providing reasonable notice to the other party. [Footnote omitted.]
[33] Since the sellers needed to show they were ready willing and able to close, the application judge was incorrect in concluding that they did not need to do so. However, this error is of no moment, as the trial judge went on to find that the sellers were, in fact, ready and willing to close.
[34] The buyers submit that the application judge erred in finding that the sellers were ready, willing and able to close by the agreed time, as their lawyers failed to enter into a document registration agreement as required under the APS. They also take issue with what they say were two other deficiencies in the documents tendered by the sellers.
[35] I do not agree with the appellants’ submission that the application judge erred in finding that the sellers were ready, willing and able to close.
[36] The application judge noted that at 5:09 p.m. on the day of closing, after the sellers’ lawyer received the buyers’ request to extend the closing, he advised the buyers that they were ready, willing and able to close as scheduled. As set out above, counsel wrote:
[W]e have provided your office with all deliverables pursuant to the [document registration agreement]. Our clients are ready, willing, and able to complete this transaction today.
[37] The application judge found that the sellers provided the buyers with their closing documents and the buyers’ lawyer did not object to the documents tendered by the sellers at closing:
The [buyers] submit that the [sellers] were themselves not in a position to close on December 15 because they had not sent any tender documents to the [buyers].
[ The sellers’ lawyer ] says his firm sent copies of closing documents to [the buyers’ lawyer] by email on December 9, 2021 at 8:11 PM. A further copy was sent on December 15, 2021 at 5:08 PM . … [T]here is no dispute that [the sellers’ lawyer’s] email of 5:09 PM on December 15 was received by [the buyers’ lawyer]. That email confirmed that [the sellers’ lawyer] had provided [the buyers’ lawyer] with all deliverables and that his clients were ready willing and able to close. [The buyers’ lawyer] never contested [the sellers’ lawyer’s] statement that he had provided all deliverables for the closing .… [Emphasis added.]
[38] Nor do I accept the buyers’ submission that the sellers were not ready to close because a document registration agreement had not been signed. The application judge concluded on this issue:
A second reason for which the [buyers] say the sellers were unable to close is that they had not agreed on a document registration agreement. A document registration agreement is an agreement that addresses closing procedures and the release of documents delivered in escrow for real estate transactions that are closed electronically. The applicants submit that this is a critical document which is negotiated between the parties.
I do not find the [buyers’] argument in this respect persuasive. The [buyers] themselves had not proposed a document registration agreement to [the sellers’ lawyer]. Although [the buyers’ lawyer] thought she had sent one, and stated in her affidavit that she had, she later volunteered that she was mistaken . …
The document registration agreement is, in any event, a non-issue . …The last sentence of clause 11 [of the APS] makes it clear that the parties will be bound by the document registration agreement recommended by the Law Society of Ontario unless they agree otherwise. There was therefore nothing to negotiate . [Emphasis added.]
[39] I see no error in the application judge’s consideration of this issue, and his conclusion that the absence of a formally executed document registration agreement was not fatal in this case.
[40] Lastly, the buyers submit that the personal undertaking given by sellers’ counsel to discharge the mortgage on the property was insufficient and deficient and that the sellers’ failure to deliver a direction directing payment to the mortgagee, as required by the APS, disentitled them from terminating the APS. I agree with the sellers that those issues could have been rectified at the time of the transaction had they been raised and are insufficient to now disallow the sellers to terminate the APS.
Honest Performance
[41] The buyers also raise the issue of honest performance of the contract. They submit that the sellers were obliged to tell the buyers before the closing deadline that they were treating the extension request as an anticipatory breach. By failing to communicate their position the buyers were denied a fair opportunity to protect their interests.
[42] I disagree.
[43] The buyers asked for an extension at the last hour and sellers’ counsel could not respond to the extension request without instructions from his clients. The reason the buyers could not close was that their financing fell through.
[44] From a legal perspective, there were two repudiations and the sellers had an election to make after each repudiation. After the anticipatory repudiation (the first repudiation), the sellers elected to affirm the contract, and as explained, were ready, willing and able to close at the closing deadline. The buyers were unable to close by the closing deadline because they did not have the funds, not because of anything the sellers did. They were in breach when they could not close. The sellers then elected to accept this second repudiation. Counsel for the sellers sent the following email at 6:33 p.m., informing the buyers that they were terminating the agreement:
I acknowledge receipt of your correspondence of today’s date, received at 5:12pm, in which you have conveyed your client's request for an extension of the closing date of the above referenced transaction from today (Wednesday, December 15, 2021) to Monday, January 10, 2022. We hereby confirm that we are treating your request for an extension as an anticipatory breach of the Agreement of Purchase and Sale thereby discharging us of the obligation to tender. I also confirm that the time is now past 6:00 pm and, pursuant to the terms of the Agreement of Purchase and Sale as between our respective clients, your clients have failed to provide the closing funds and documents necessary to complete this transaction.
Please be advised that our clients are not in agreement to extend the closing date. Your clients' deposit is therefore forfeited to our clients and the Agreement hereby terminated.
Take notice that our clients will be relisting the property for sale in an effort to mitigate their damages and are hereby reserving their rights in law and equity to seek reimbursement of their damages as against your clients. Please advise your clients to govern themselves accordingly. [Emphasis added.]
[45] Out of an obvious sense of caution, counsel for the sellers covered off both repudiations in his letter: the anticipatory repudiation and the repudiation in failing to close by the closing deadline. While anticipatory repudiation was not a proper basis to terminate the APS (given the election to affirm the contract), the mention of anticipatory repudiation in the email did not prejudice the buyers, who were not able to close at the agreed time due to a lack of financing.
[46] In these circumstances, there was no breach of the duty of honest performance in contract.
Conclusion
[47] For these reasons, I agree with the application judge’s conclusion that the sellers were entitled to terminate the APS.
(2) The Second Issue: Did the Application Judge Err in Refusing Relief from Forfeiture?
[48] In the alternative, the buyers submit that the application judge erred in refusing to grant relief from forfeiture of their deposit. Relying on Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, 137 O.R. (3d) 374, they claim they are entitled to relief from forfeiture because allowing the sellers to retain the deposit would be out of all proportion to the damages suffered by them, and it would be unconscionable. In their submission, the forfeiture of their deposit was unconscionable since the sellers refused to respond to their extension request until after the closing deadline and they were themselves unable to close.
[49] Section 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43, provides that "[a] court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just."
[50] A rationale for forfeiture of a deposit is the need to provide an incentive for the purchaser to complete the purchase: Benedetto v. 2453912 Ontario Inc., 2019 ONCA 149, 86 B.L.R. (5th) 1, at para. 6. “It is [also] recompense to [the vendor] for the fact that his property was taken off the market for a time as well as for his loss of bargaining power resulting from the revelation of an amount that he would be prepared to accept”: HW Liebig Co. v. Leading Investments Ltd., [1986] 1 S.C.R. 70, at para. 33; see also Benedetto, at paras. 5-7.
[51] Mindful of the purposive underpinnings of forfeiture of deposits, this court has considered two factors in assessing whether relief from forfeiture pursuant to s. 98 of the Courts of Justice Act is appropriate, namely whether (i) the deposit is “out of all proportion” to the damages suffered by the vendor, and (ii) it would be unconscionable for the vendor to retain the deposit: Redstone Enterprises, at paras. 15ff; Jesan Real Estate Ltd. v. Doyle, 2020 ONCA 714, at paras. 54ff; and Azzarello v. Shawqi, 2019 ONCA 820, 439 D.L.R. (4th) 127, at para. 47, leave to appeal refused, [2019] S.C.C.A. No. 521. As noted in Redstone, “the finding of unconscionability must be an exceptional one, strongly compelled on the facts of the case”: at para. 25.
[52] Whether to grant or refuse relief from forfeiture is a discretionary decision to which deference is owed on appeal.
[53] In my view, the application judge did not err in refusing to grant relief from forfeiture.
[54] He rightly acknowledged that the forfeited deposit was out of proportion to the damages suffered. The evidence was that the sellers were able to sell the property for approximately $130,000 more than the buyers had agreed to pay within approximately two weeks of the failed closing. However, that did not mean that it would be unconscionable for the sellers to retain the deposit.
[55] In assessing unconscionability, the application judge considered the proportionality of the deposit to the overall purchase price, noting that the deposit amount was only 5% of the purchase price, which was a standard sum for residential real estate purchases.
[56] The application judge recognized that other relevant factors for assessing unconscionability include inequality of bargaining power, a substantially unfair bargain, the relative sophistication of the parties, the existence of bona fide negotiations, the nature of the relationship between the parties, the gravity of the breach, and the conduct of the parties: Redstone, at para. 30.
[57] He found that there was no evidence to suggest that those factors created unconscionability in this case. This was a standard residential real estate purchase, albeit in a heated real estate market. The sellers’ refusal to extend the closing could be described as “hard bargaining” but was not unconscionable.
[58] Moreover, the buyers waited until 3:30 p.m. on the day of closing, a full day after finding out that their financing had fallen through, to seek the possibility of an extension, and only put their request in writing 50 minutes before the closing deadline.
[59] The fact that the property was resold at a higher price also did not justify relief from forfeiture. The application judge noted that if purchasers were allowed to reclaim their deposits in a rising real estate market simply because vendors resold their property at a higher price it would eviscerate the very purpose of deposits.
[60] In challenging the application judge’s decision, the sellers submit that the application judge failed to consider two relevant factors: (1) the sellers affirmed the contract, and so it was reasonable for the buyers’ lawyer to believe an extension would be forthcoming, especially since there was no response to their extension requests prior to the closing deadline; and (2) the sellers failed to tell the buyers that they were treating the extension request as anticipatory breach, which deprived the buyers of the opportunity to insist that the sellers tender. They say he also erred in ignoring the equitable nature of the remedies before him in favour of larger systemic issues in the market, which is inconsistent with Redstone.
[61] I have set out above why the conduct of the sellers’ counsel both before or after the closing deadline did not prejudice the buyers. Moreover, the application judge did not err in taking into account larger systemic issues. He expressly recognized that courts should apply “an individualized analysis tailored to the individual case” but correctly noted that, as indicated in Redstone, relief from forfeiture will only be granted in exceptional cases.
[62] Accordingly, I would dismiss this ground of appeal.
F. Conclusion and Costs
[63] For the above reasons, I would dismiss the appeal.
[64] While the buyers were unsuccessful on this appeal, they take the position that there should be no costs awarded against them as (i) it was inappropriate for the sellers to characterize the buyers as having taken speculative legal positions on the application and appeal, or that the buyers’ real estate lawyer recanted a portion of her affidavit on cross-examination; and (ii) the sellers earned a windfall profit of over $100,000 on the sale of their home. The buyers note that the application judge held that no costs should be awarded below in view of this windfall.
[65] I reject the submission that no costs should be awarded against the buyers for several reasons.
[66] First, I disagree with the buyers’ assertion that the sellers’ characterizations were inappropriate. Although the buyers were awarded costs on the motion for a certificate of pending litigation in the amount of $5,000, cross-examinations later revealed that the supporting affidavit on that motion, sworn by the buyers’ lawyer, was inaccurate and was later substantially recanted.
[67] More specifically, in the buyers’ lawyer’s affidavit, she states that “[h]aving reviewed [her] file prior to the commencement of this legal proceeding, at 6PM on the Closing Date, [she] had not received” the sellers’ closing documents. The sellers point out that the buyers’ lawyer later clarified that the sellers’ closing documents (TD mortgage loan discharge statement, vendor’s closing certificate, and lawyer’s undertaking) had been received, and that she did not review the documents because the buyers were seeking an extension and needed financing.
[68] Furthermore, the sellers did not receive a windfall sufficient to invoke relief from forfeiture, their actions in no way contributed to the buyers’ denial of mortgage approval, and the buyers’ own behaviour was not beyond reproach. I also note that on June 6, 2022, the sellers advanced a r. 49 offer to pay the buyers the sum of $25,000. In any event, this case is distinguishable from the costs decision of this court in Ching since unlike in Ching, the buyers’ loss was in no way the responsibility of the sellers. [1]
[69] The sellers are therefore entitled to their partial indemnity costs in the amount of $18,000.
Released: August 3, 2023 “K.M.v.R” “Thorburn J.A.” “I agree. K. van Rensburg J.A.” “I agree. David M. Paciocco J.A.”
[1] In Ching, at paras. 3-23, 88, the sellers’ actions (postponement of occupancy by over four years and refusal to permit assignment of sales) contributed to the buyers’ mortgage approval being rejected.
