Court File and Parties

Court File No.: CV-14-0285-00 Date: 08/09/2018 Ontario Superior Court of Justice

Between: Mary Magdalene Aylward, Plaintiff And: Rebuild Response Group Inc., Harmony Homes Quinte Ltd. and Tom Streek, Defendants

Counsel: David P. Lees, for the Plaintiff John Mastorakos, for the Defendants

Heard at Belleville: January 15, 16, 17, 18, 19, 22, 2018 Submissions: April 9, 2018

Tausendfreund, J.

Reasons

Overview

[1] This is an action over a construction contract. The Plaintiff’s house had been destroyed by fire. She was insured and wanted a new home built similar to the one she had lost in the fire. To that end, the Plaintiff signed a construction contract with one or more of the Defendants. She then advanced 25% as a deposit and/or part payment of the contract price. However, matters did not go well. Disagreements arose over the particulars of the contract, which the Plaintiff terminated before construction ever started.

[2] The disagreements between these parties raise these issues:

a) Who were the parties to the contract? b) Did the parties have a valid and enforceable agreement? c) If so, what were the terms of the contract? d) Did either or both sides repudiate the contract? e) Was the 25% payment a deposit and, if so, is the Plaintiff entitled to relief from forfeiture? f) To what extent have the Defendants proved damages?

Facts

[3] The Plaintiff and her son, Phillip Aylward (“Phillip”), were the joint owners of a property at 404 North Big Island Road in the County of Prince Edward (“the County”). Fire destroyed the house on August 27, 2012.

[4] They had fire insurance coverage from TD Insurance (“TD”) for a global limit of $2,000,000.00 for the building, contents and living expenses. However, it was not a blank cheque within the ambit of the insurance coverage.

[5] The Plaintiff and her son sought to rebuild. Their decision was based on the assumption that TD would cover the construction expenses under the insurance policy issued to them for the property. TD’s obligation under the policy is subject to the concept of reasonableness. To that end, TD obtained estimates. The Plaintiff had the right to obtain her own estimate. During that process, the Plaintiff contacted the Defendant, Tom Streek (“Streek”).

[6] Streek has been involved in the construction business for 30 years. As of 2005, he had carried on his own construction business. He was the principal of the two Defendant corporations. Rebuild Response Group Inc. (“Rebuild”) was to undertake large loss insurance claims. Streek would then arrange to have Rebuild hire Harmony Homes Quinte Ltd. (“Harmony”) to undertake the necessary residential construction. As of 2013, these two corporations had but two employees, namely Streek and his wife. Once a contract was obtained, Streek would undertake the duties of a general contractor in hiring and overseeing the work of the sub-trades. Typically, he would expect to build three new homes a year in the price range of $150,000 to $300,000 each.

[7] The Plaintiff had obtained several degrees over nine years from three community colleges. She had been a licensed real estate agent for 20 years. She was well-educated and appeared knowledgeable in matters of real estate. Although she and her son Phillip were the joint owners of the property, Phillip left the rebuilding negotiations almost entirely to his mother. Communication between mother and son on these issues were limited and sparse. He is not a party to this action.

[8] The Plaintiff contacted Streek in March 2013 to request a quote for the rebuild of her destroyed home. Streek responded with various detailed estimates, dated April 1, April 23, September 24 and October 1, all in 2013. The changes in these estimates were driven by revised instructions at the instance of the Plaintiff.

[9] On April 2, 2013, TD sent to the Plaintiff and her son a status report on their insurance claim. I note these excerpts:

• Global limit of $2,000,000.00 (building, contents, additional living expenses).
• Required upgrades are not covered.
• TD acknowledged receipt of estimates, including demolition and debris removal from Viceroy Home for $667,740.00 plus HST; Rebuild Response Group for $710,000.00 plus HST; Complete Restoration for $490,208.00 plus HST; and Jon Marcus Custom Homes Ltd. for $486,000.00 plus HST.
• The expected rebuild time for the house is seven months from the date of obtaining the building permit.

Contract

[10] On October 7, 2013 and on the letterhead of Rebuild, the Plaintiff and Phillip as the “owners” and Streek above his name, with the names of Harmony and Rebuild as the contractors, signed a document entitled “Contract” (“contract” or “building contract”). The document included these terms and provisions:

• Total loss replacement – 2828 sq ft two storey house, five bedrooms, two four-piece / one three-piece / one two-piece bathrooms, additional 460 sq ft suite with three-piece bath/fireplace.
• Approximately three pages of detailed construction particulars.
• Total: $621,000.00 plus HST ($701,730.00).
• Payment schedule:
  • 25% deposit due upon signing of contract - $175,432.50;
  • 25% due upon weather tight stage - $175,432.50;
  • 40% due upon drywall stage - $280,692.00;
  • 10% due upon completion date - $70,173.00.

[11] The contract included neither a start nor a completion date, nor specific floor plans, which the parties had not yet addressed.

[12] TD provided the Plaintiff with a cheque for $175,432.50. It represented the 25% deposit based on the contract price of $701,730.00. On November 13, 2013, Harmony sent the Plaintiff an invoice in that amount and marked “paid”. Harmony then submitted the applicable HST for those funds to the Canada Revenue Agency.

[13] On August 21, 2013, the Plaintiff retained a lawyer, Oby Ejidike (“Ejidike”), to assist her in complying with the Plaintiff’s TD fire insurance policy and with contracts submitted by builders. On September 6, 2013, Ejidike wrote to TD. The correspondence included this paragraph:

[W]e were mandated to review all contracts submitted to our client by the builders, identify and determine the most reputable builder, supervise the building construction, and ensure compliance with agreed terms and conditions of all aspects of any contract/estimates submitted by any selected builder.

[W]e are glad to confirm that the builder that passed all tests and thus the builder of choice is the Rebuild Response Group.

[14] Ejidike then prepared a document titled “Independent Contractor Agreement” (“ICA”) between the Plaintiff and Phillip as owners/customers and the three named Defendants as contractors. The ICA included these terms:

• The contractor to provide the customer with services consisting of rebuild construction of Aylward’s damaged property, as outlined in the estimates provided by the builder which is hereby attached in its entirely and forming part of this contract as schedule A, B, C, and D. [Note: no such documents were attached.]
• The term of this agreement will begin on the date of this agreement and will remain in full force and effect for five months unless earlier terminated. The term of the agreement may be extended by mutual written agreement between the parties.
• For the services rendered by the contractor as required by this agreement, the customer will provide compensation of 25% of the contract amount upon completion of each phase of construction to the satisfaction of the Project Management team and the TD adjuster. [Note: No definition was included of “Project Management team”.]
• The Contractor will not be reimbursed for expenses incurred by the Contractor in connection with providing these Services of this Agreement.
• It is agreed that there is no representation, warranty, collateral agreement or condition affecting this agreement except as expressly provided in this agreement.

[15] Prior to signing the contract, Streek added this clause:

“No completion date set in contract.”

[16] The parties signed the ICA on or about October 7, 2013.

[17] The Plaintiff ended the retainer of Ejidike on October 23, 2013.

[18] On November 5, 2013, TD sent a registered letter to Ejidike to update her on unresolved insurance issues involving the Plaintiff. It included the following:

• The most competitive rebuild estimate TD received was in the amount of $657,209.00. This would be the full amount TD would pay for the rebuild;
• There should be no environmental issues;
• TD expected the work to be completed no later than May 31, 2014, or sooner. TD had extended the additional living expenses from November 15, 2013 to May 31, 2014. If the rebuild had commenced in the early summer, the house would have been completed by the beginning of 2014 or earlier. … [T]he additional living expense would cease on May 31, 2014.

[19] The May 31, 2014 date was of great concern to the Plaintiff, who sought assurance from Streek that her house would be completed by then. He confirmed that the work would be completed within five months from the time excavation started and confirmed that he had obtained the demolition permit on November 19, 2013.

[20] On December 3, 2013, Streek e-mailed the Plaintiff to seek clarification that the anticipated demolition would not raise environmental issues. TD’s wording, in its November 5, 2013 letter, that there should not be any environmental concerns was not sufficiently definitive for Streek. Streek also requested that the Plaintiff confirm for him that she would pay the contract price of $701,740.00 per their agreement. He sought this clarification as TD had capped its contribution at $657,209.00.

[21] The Plaintiff and Streek arranged a meeting with TD Insurance adjuster Albert Tioh (“Tioh”) for December 19, 2013, to clarify matters. On that date, Tioh confirmed TD’s earlier stated cap of $657,209.00 and that there were no environmental issues. Streek indicated that the May 31, 2014 deadline was tight. He requested an extension to June 30, 2014. Tioh responded that he could not commit, but that he would discuss it with management.

[22] Following that meeting, discussions ensued between the Plaintiff and Streek to reduce the size of the rebuild to address the approximate $44,000.00 shortfall between TD’s committed amount and the contract price. The Plaintiff did not wish to sign a new contract but was inclined to amend their existing contract.

[23] These discussions did not go well. The Plaintiff requested a reduction of 200 sq ft. Streek responded that a 400 sq ft reduction was needed to make up the monetary shortfall. They then disagreed over a series of drawings meant to address the reduced size of the proposed build.

[24] On January 20, 2014, the Plaintiff requested that her deposit be returned. She and Streek continued to negotiate over the next three months. It went nowhere. On May 8, 2014, the Plaintiff signed a contract with another builder.

Analysis

Who were the parties to the contract?

[25] The Plaintiff signed the October 7, 2013 contract in which the three Defendants were named. She also brings this action in her name to seek a return of her 25% deposit. She is clearly a party to the contract.

[26] The corporate Defendants appear interchangeably on documents. The building contract names both. The Defendants concede that either or both corporate Defendants may be considered parties to the building contract.

[27] The Plaintiff claims that Streek personally is also a proper party to the building contract. The Defendants state that, although Streek signed the building contract, he did so only in his capacity as signing officer of each of his two corporations.

[28] The electronic communication between Streek and the Plaintiff always included his business e-mail address – harmonyhomes4me@gmail.com. His written correspondence was sent on the letterhead of either one of his two corporations.

[29] When contracting on behalf of a corporation, it must be clear that it is being done on behalf of the corporation and not in a personal capacity: see Spoke v. Delinia Ltd., 2016 ONSC 1923 (Div. Ct.), at para. 32.

[30] I note the following:

a) The contract provides that the Plaintiff and Phillip “grant to Harmony and Rebuild permission to complete all work pertaining to this project on the above property.” b) Those who acted for the Plaintiff in this matter, including Ejidike and the lawyers whom the Plaintiff retained subsequently, sent correspondence to Streek in his capacity as a representative of either of the Defendant corporations and not in his personal capacity. c) The letter from Tioh to the Plaintiff and to her son on December 21, 2013 stated, “I refer to the meeting of December 19, 2013, between Mary Aylward, Tom Streek of Rebuild Response Group … and undersigned.”

[31] I am satisfied that Streek made it sufficiently known to the Plaintiff that he was not acting in his personal capacity with the Plaintiff but as a representative of either or both of the corporate Defendants. I find that Streek has no personal liability in this matter. Based on this finding and for the sake of simplicity, in the balance of these reasons I will refer to the corporate Defendants as “the Defendants”.

Did the parties have a valid and enforceable agreement?

[32] The Plaintiff states that the terms of the building contract between the parties lacked essential terms and is for that reason not enforceable. On that basis, the Plaintiff states that the Defendants are not entitled to retain the funds advanced by the Plaintiff either as a deposit and/or as pre-payment for services to be rendered.

[33] The Plaintiff states that the contract does not have a completion date. That is so. However, that is not necessarily fatal. I accept and rely upon the finding in Cleanol Integrated Services Ltd. v. Johnstone, 2015 ONSC 768, at para. 73, that in the absence of an agreement as to a completion date, the contractor shall have a reasonable time to complete the work.

[34] The Plaintiff points to the fact that the ICA has a term of five months. The Plaintiff asserts that on this basis it was understood by the parties that the time for the rebuild would be five months commencing October 7, 2013. That position requires that these two documents, namely the ICA and the building contract, be read and considered as one contract. I do not agree that this should be so, for these reasons:

a) There is no reference in the ICA that it is to be read and/or considered to be part of the contract. The ICA states that the contractor is to provide services consisting of: “rebuild construction of Mary Alyward’s damaged property at 404 North Big Island Rd. as outlined in the estimates provided by the builder which is hereby attached in its entirety and forming part of this contract as Schedule A, B, C and D”. As already noted above, there were no schedules attached to the ICA. In any event, the reference is to “estimates provided by the builder”, not to another contract signed by the parties; The sentence “no completion date set in contract” was added to the ICA by Streek and subsequently signed by the Plaintiff; b) Paragraph 30 of the ICA states: “It is agreed that there is no representation, warranty, collateral Agreement or condition affecting this agreement except as expressly provided in this Agreement.” c) As already stated, there is no reference in the ICA that it is to be considered a part of the building contract. d) There is no reference in the ICA to any consideration. Absent consideration, it is not enforceable as an agreement.

[35] I find that the ICA is a separate document and is not to be read as part of the building contract. That is so, even if I were incorrect in my finding that the ICA is not enforceable in the absence of consideration.

[36] The Plaintiff states that the contract price was understood to be paid by TD. However, that is a matter entirely between the Plaintiff and TD. There is no reference in the contract to the TD insurance policy nor does it state that the agreed upon price of $701,730.00 is to be paid by anyone other than the Plaintiff and Phillip.

[37] When it became apparent, following the meeting of December 19, 2013, that the TD commitment would be short of the contract price by $44,521.00, there were discussions between the Plaintiff and Streek of possibly amending the building contract and reducing the square footage of the proposed build. However, no agreement was reached between the parties on this issue (see further details below). As such, the total square footage of the building for which the parties contracted remained at 2828 sq ft, plus an additional 460 sq ft for the in-law suite.

[38] The Plaintiff states that the parties had not reached a consensus on the materials to be used for the anticipated construction. However, the contract details 39 different types of material, outlined over three pages in the contract, that were to be used in the proposed construction of the building. I find that the detailed particulars of the type of material to be used appear to be more than adequate. In any event, the Plaintiff had retained a lawyer to review the contract before the Plaintiff signed the document.

[39] On January 20, 2014, the Plaintiff requested a return of her deposit. In my view, that was sufficient to terminate the contract, for reasons detailed below. Written or verbal discussions that the parties had following that date were merely that – discussions. These may have risen to an attempt to rescind the Plaintiff’s termination of the contract. However, there was no meeting of the minds between the parties on that issue. Accordingly, I find that the discussions following January 20, 2014 are of no assistance on the question of whether these parties had an enforceable contract between October 7, 2013 and January 20, 2014.

What were the terms of the contract?

[40] In Angus v. Pinalski (1990), 41 C.L.R. 284 (B.C. S.C), the Court stated:

I accept the law set out in United Scientific Holdings Ltd. v. Burnley Borough Council, [1978] A.C. 904, where Lord Simon at p. 83 held:

In my view, the modern law in the case of contracts of all types is correctly summarized in Halsbury’s Laws of England (9 Halsbury’s Laws (4 th Edn) para. 481):

Time will not be considered to be of the essence unless: (1) the parties expressly stipulate that the conditions as to time must be strictly complied with; or (2) the nature of the subject matter of a contract or the surrounding circumstances show that time should be considered to be of the essence.

[41] The contract here makes no reference to a completion date. I note again that the Plaintiff had legal representation at the time she signed this document.

[42] On August 17, 2013, the Plaintiff asked Streek how long it would take for him to rebuild the house. Streek responded the same day to advise “14-16 weeks should do it depending on the rebuild size and details/weather”. He stated further that Harmony “keeps a very efficient schedule when the shovel hits the ground.” Despite the Plaintiff’s question, the reference to a completion date did not find its way into the contract.

[43] When referring to the meeting of December 19, 2013, Tioh stated in his e-mail of December 21, 2013:

The analyst [Tioh] advised all parties that the building will be completed by May 31, 2014. However, Tom Streek indicated that it is very tight and requested that the completion date be June 30, 2014, or sooner. [I] informed all parties that the analyst cannot commit, however, he will discuss the issue with management.

[44] There is no evidence on which I can find that this building could not have been completed by May 31, 2014. Even if there were a delay, TD might have extended the Plaintiff’s accommodation allowance for a reasonable period of time. If not, it would likely have become a separate legal issue between the parties as to whether or not the construction of the house was completed within a reasonable period of time. In my view, this issue did not strike at the heart and essence of the contract, to the extent that the Plaintiff could terminate the contract without further obligation for that reason alone.

Delay with the demolition

[45] The Plaintiff states that the Defendants unreasonably delayed in proceeding with the demolition of the remnants of the fire loss. This would be a necessary first step, before the contractor could proceed with excavation and construction.

[46] Streek had obtained a demolition permit in November 2013. However, he did not proceed with the work, as it was not clear whether this demolition activity might involve environmental concerns. That issue was not clarified until December 21, 2013, when Tioh confirmed that there were no environmental issues.

[47] Streek’s unchallenged evidence was that the demolition would have taken less than a day from start to finish. Yet the Plaintiff in her evidence returned time and again to the fact that the Defendants had not attended to the demolition work. The evidence does not assist as to why the timing of the demolition was so important to her. In my view, her concern in that regard did not rise above the level of an emotional issue. It played no part in the timing of the start of the construction. Accordingly, I find that it is a non-issue.

Did either or both sides repudiate the contract?

[48] In July 2013, the Plaintiff had found a floor plan on the internet. She liked it, as the plans resembled her old home which she hoped to duplicate with this rebuilding process. For reasons that are not clear, the Plaintiff did not send these plans to Streek until November 2013. On November 14, 2013, she advised Harmony of the May 30, 2014 deadline. Streek responded the same day:

Wow, with May 30 deadline, we will have to hustle design and get permits going… Did you want us to design freely to make a market friendly home? If you permit us to pick out all colour and finish choices and design, we can move quicker. We need your general layout for first and second floor so we can get started… We will need drawings approved by first week of December.

[49] The total area was 3104 sq. ft. Although the Plaintiff generally approved of the plan, she wanted a number of changes that included:

• In-law suite needed to be added;
• The entrance area was to be changed to a two-storey foyer;
• The breakfast area was to be deleted.

[50] The Plaintiff did not receive the TD letter of November 5, 2013 until November 25, 2013.

[51] On November 29, 2013, Streek e-mailed the Plaintiff to ask if she had obtained a commitment letter from TD for the compensation detailed in their contract. He also requested a more reasonable completion date, in view of the expected intervening winter schedule.

[52] On December 6, 2013, Streek raised these points with the Plaintiff by e-mail:

• Is TD paying the contract amount or are you?
• Either we build a house for $657,000.00 which TD is agreeing to pay, or they add the amount to pay us per our contract.

[53] In light of these issues, the parties agreed to meet with Tioh on December 19, 2013. On December 11, 2013, Streek advised the Plaintiff by e-mail that he would not renegotiate the contract, but would discuss where he could reduce the size of the build to meet the lower TD funding amount. He reminded the Plaintiff that his business was building, and not insurance compensation resolution.

[54] The Plaintiff, Streek, and Tioh met on December 19, 2013. When asked about her view of the meeting, the Plaintiff stated that she still expected to have the same house built for her, but at a lower price and that Streek verbally had agreed to accommodate her in that regard, a position Streek denied.

[55] E-mail exchanges between the Plaintiff and Harmony/Streek following the meeting of December 19, 2013 reflect the following:

December 22, 2013 – Plaintiff to Harmony:

• During the meeting [Tioh] requested a new contract. Not a good idea. That will mean that the contract we signed in October will become null and void, Please do not do a new contract. You can do an amendment to the present contract.

December 30, 2013 – Streek to Plaintiff:

• I am meeting with our designer today to review some blueprint details with them. I’d like to see the drawing process continue over the [holiday] break. The document I’ll send you to sign off on will just be an amendment and not a replacement to the main contract. There will be changes to the spec’s/design/size to fit into the $657,000.00 amount vs. the original $701,000.00 contract as you agreed to in our meeting. The difference is $39,584.00 plus HST. I made these suggestions to remove without negatively affecting your resale potential:
  • Wet bar - $5,000
  • Basement walkout/stairs - $2,000
  • Fireplace – 3 rd one - $7,500
  • In-law suite in garage space - $25,084

December 30, 2013 – Plaintiff to Harmony:

• [C]an you make it be 2628 sq ft instead of 2828 sq ft … that would be 200 sq ft smaller, and that should cover the [$]39,584.00.

January 2, 2014 – Streek to Plaintiff:

• I’d need to shrink the square footage by 400 sq ft, not 200 to make up the 40k difference.

January 3, 2014 – Plaintiff to Harmony:

• Regarding shrinking the house, I change[d] my mind … I am asking for what I had back … if you feel you cannot rebuild what I had at $657,209.[00], please let me know, I understand.

January 3, 2014 – Streek to Plaintiff:

• We had agreed together with [Tioh] that we would adjust the house build somewhat to fit the $657,000. I need to stick to that as well. … [I]f you can pick the option of dropping square footage or the items I listed earlier this week, we can move closer to blueprint completion. Time is ticking by.

January 3, 2014 – Plaintiff to Harmony:

• Well, in this case a new contract is necessary. I did not understand my mistake regarding not doing a new contract.

January 3, 2014 – Streek to Plaintiff:

• I am bound to this contract with you. No new contract will be drawn up as per your reminder in a recent e-mail. Just an amendment to be signed. My designer is asking me tonight about other changes to drawings so we need to proceed. Please let me know as per our meeting with Albert, what you want adjusted to fit the $657,000 amount. Further delay is going to impact the completion timelines negatively.

January 6, 2014 – Streek to Plaintiff:

• Here are the next revision drawings…if you can approve these drawings, I can get going on the permit application ASAP.

January 6, 2014 – Plaintiff to Streek:

• I am not happy with this drawing. It needs improvement for what I had.

January 6, 2014 – Streek to Plaintiff:

• I have no actual direction from you, although you agreed to have us fit the project to your $657,000 from TD. Where do you want the changes? The time delay will continue without telling us where you want the cuts.

January 9, 2014 – Streek to Plaintiff:

• Can you send the drawing with marked changes on it?

January 9, 2014 – Plaintiff to Harmony:

• Regarding the amendment, I said it would be better for you not do a new contract … I am working on the drawing.

January 9, 2014 – Streek to Plaintiff:

• Please see the attached Contract Amendment that was requested in our meeting on December 19, 2013 … if no change is required, please have Phillip and yourself sign off, as I will ASAP.

[Note: The proposed contract amendment included these terms:

• Reducing the square footage or eliminating various interior elements such as bathrooms, fireplaces, or other finished items will be done with the owner’s approval to meet the reduced figure;
• Construction/Completion date requested to be left open due to weather preventing proper demo-septic system inspection required by Building Department prior to commencement of construction.

Neither the Plaintiff nor the Defendants ever signed this proposed draft amendment.]

January 13, 2014 – Streek to Plaintiff:

• Our design team worked on the weekend making new changes and layout requests you had made late last week … will forward when I think it’s close to what you wanted. We are at a standstill though, till Phillip is engaged with us via e-mail at minimum … we need TD to adjust the completion date (to be determined) … We have determined with you, that to make up the $40,000 difference, the following can be removed without negatively impacting the house…
  • Wet Bar
  • 3 rd Fireplace
  • Finished basement area
  • $8,000 off the $20,000 septic buffer budget. These need to be inserted and signed off within the amendment for us to continue drawing blueprints as well.

January 15, 2014 – Streek to Plaintiff:

• Our design team worked over the weekend… I have not heard from you regarding the amendment contract that must be signed and I have not heard from Phillip either… At this point, we are at a standstill. We also need TD to authorize our start time for March when frost is out of the ground for our permit/septic inspection to be done prior to authorized building.

January 16, 2014 – Plaintiff to Harmony:

• What updates or progress are you talking about; you have done nothing, you had 25% per of the deposit going on 2 months.

1. No demo done because you were concerned of environmental issues…
2. No drawing because the design I sent you, you did not look at…
3. You cannot rebuild at the price the TD insurance will pay … you should know that they will not pay for things I did not replace …
4. You want to give me les[s] than I had, no changes will be done. Therefore, if you cannot rebuild my home for $657,209.20, please refund my money.

January 19, 2014 – Streek to Plaintiff:

• I have attached some revised drawings … [P]lease mark these up and send back ASAP so we can proceed.

January 20, 2014 - Plaintiff to Harmony:

• Phillip and I discussed the situation and we want you to refund the deposit. You have done no work and there are major disagreement[s] … [Y]ou’r not listening to me, RETURN MY MONEY.

[Note: In her evidence, the Plaintiff agreed that she had not discussed any of these issues with her son Phillip, nor had she forwarded any of the above correspondence to him.]

[56] The Plaintiff’s position is that the parties mutually terminated the contract during the December 19, 2013 meeting. In his letter of December 21, 2013 to the Plaintiff and her son, in which Tioh summarized the parties’ discussion during their meeting of December 19, 2013, he stated that:

Rebuild Response will re-write a new contract for the amount of $657,209.20 to be signed by the policy holders.

As already stated, such an amendment was not signed by any of the parties. Although they may well have discussed that the contract should be amended, as the subsequent e-mails between the Plaintiff and Streek confirm, matters did not proceed to that stage. The e-mails following the December 19, 2013 meeting corroborate the position of the Defendants that the parties spoke about amending the contract, but they reached no agreement in that regard. I find that the evidence does not support the Plaintiff’s position that there was a mutual termination of the contract, neither on December 19, 2013 nor at any other time.

[57] I also note that the contract could not be terminated without the agreement and participation of the Plaintiff’s son, Phillip, who is a contracting party to the contract. There is no evidence that Phillip ever requested or agreed to terminate the contract. Any mutual termination or amendment of a contract required Phillip’s approval.

Which party repudiated the contract?

[58] On January 20, 2014, the Plaintiff notified Streek that she wanted a return of her deposit and thereby declared the contract as terminated.

[59] It is the position of the Plaintiff that the Defendants repudiated their contract by means of unreasonable delays. As such, the Plaintiff states, she became entitled to terminate the contract, and did so on January 20, 2014.

[60] A fundamental breach is in substance a repudiation of the contract: see Guarantee Co. of North America v. Gordon Capital Corp., 1999 SCC 664, [1999] 3 S.C.R. 423. The S.C.C. in Guarantee made these comments on this issue at paras. 48 and 50:

48 [A] substantial failure of contractual performance, often described in other contexts as a fundamental breach, may relieve the non-breaching party from the future executory obligation under the contract…

50 [The] doctrine of fundamental breach [is] defined as a failure in the breaching party’s performance of its obligations under the contract that deprives the non-breaching party of substantially the whole benefit of the agreement… [The] distinction between a mere contractual breach and a breach that is more appropriately characterized as fundamental is the exceptional nature of the remedy; while the traditional remedy for contractual breach is the obligation to pay damages, a fundamental breach permits the non-breaching party to elect to put to an end to all remaining performance obligations between the parties. Given the exceptional nature of the remedy … the purpose of the restrictive definition of a fundamental breach is to limit the remedy to those circumstances where the entire foundation of the contract has been undermined.

[61] The Ontario Court of Appeal in Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc., 2008 ONCA 92, at para. 36, outlined five factors that can be considered when determining whether conduct has deprived the innocent party of substantially the whole benefit of the contract, namely the question of whether a fundamental breach has occurred:

1. the ratio of the party’s obligations not performed to that party’s obligations as a whole;
2. the seriousness of the breach to the innocent party;
3. the likelihood of repetition of such breach;
4. the seriousness of the consequences of the breach; and
5. the relationship of the part of the obligation performed to the whole obligation.

[62] It is the position of the Plaintiff that as of January 20, 2014, the Defendants had failed to start with the construction process as contemplated in the contract. Three and a half months had elapsed by then from the date the contract was signed on October 7, 2013. The Plaintiff states that the failure of the Defendants to start construction by that date was a fundamental breach of the contract, which entitled the Plaintiff to repudiate the entire contract. With respect to this position, I make the following findings:

a) The e-mails exchanged between the parties indicate that on repeated occasions, Streek sought the Plaintiff’s instructions on details and design of the necessary blueprints. The many changes and revisions were the result of ever-changing instructions from the Plaintiff. b) Possible environmental issues required clarification. That issue was not resolved until clarified in Tioh’s e-mail to the Plaintiff, a copy of which she did not forward to Streek until January 9, 2014. Construction could not start until that issue had been clarified. c) The matter of the available insurance funds from TD was the cause of further delay and the need for more changes to the specifications, design and size of the proposed building. d) The construction contract did not have a completion date. e) Streek had provided the Plaintiff with an estimate of five months from the date construction started to completion. While this time estimate as of January 20, 2014 would have taken the completion of construction past May 31, 2014, Tioh stated in his letter of December 21, 2013 to the Plaintiff that he could not commit to an extension of the accommodation allowance to the Plaintiff, but that he would discuss the issue with management. As of January 20, 2014, TD had not clarified whether it would extend its accommodation obligation beyond May 31, 2014.

[63] I find that in failing to start construction as of January 20, 2014, the Defendants were not in breach of their obligation under the terms of the contract between the parties. In the alternative, even if the Defendants had an obligation to have started construction by then, this possibly may have had a negative financial impact on the Plaintiff. However, the extent of such a negative impact would likely be limited to accommodation expenses beyond May 31, 2014. Taking into account the factors outlined in Spirent Communications, above, I do not find that this represented a fundamental breach of the obligation of the Defendants, so as to entitle the Plaintiff to repudiate the contract. Any additional accommodation expenses that the Plaintiff might have experienced post-May 31, 2014 would be a matter of damages and would likely be determined as an offset against the balance due from the Plaintiff to the Defendants for the construction of the building.

[64] Accordingly, I find that it was the Plaintiff who repudiated the contract. As such, she will be responsible for any damages the Defendants can establish on the evidence.

Was the Initial Payment of $175,432.50 a “Deposit”?

[65] The contract addresses the payment schedule as follows:

• 25% deposit due upon signing contract - $175,432.50;
• 25% due upon weather tight stage - $175,432.50;
• 40% due upon drywall stage - $288,692.00;
• 10% upon completion date – to be released … after 45 day lien hold-back period - $70,173.00.

[66] The payment in question is the first named payment of $175,432.50. The position of the Plaintiff is that this payment is not a deposit subject to forfeiture in the event of the Plaintiff’s breach, but is in the nature of a part payment only and as such is not subject to forfeiture. The position of the Defendants is that these funds were paid by the Plaintiff as a non-refundable deposit. In the alternative, the Defendants state that Harmony suffered damages to the extent of or greater than the amount of $175,432.50 paid by the Plaintiff.

[67] Funds paid in advance, under terms of a contract, may be either a deposit or a part payment. The Ontario Court of Appeal addressed this issue in Stevenson v. Colonial Homes Ltd., 1961 ONCA 163, [1961] O.R. 407 (C.A.), at p. 409, and quoted the following from the judgment of Finnemore, J., in Gallagher v. Shilcock, [1949] 2 K.B. 765 at pp. 768-69:

When money is paid in advance, it may be a deposit strictly so called, that is something which binds the contract and guarantees its performance; or it may be a part payment -- merely money prepaid on account of the purchase price; or, again it may be both: in the latter case, as was said by Lord Macnaghten in Soper v. Arnold (1889), 14 App. Cas. 429, 435: “The deposit serves two purposes -- if the purchase is carried out it goes against the purchase-money -- but its primary purpose is this, it is a guarantee that the purchaser means business.” If it is a deposit, or both a deposit and prepayment, and the contract is rescinded, it is not returnable to the person who pre-paid it if the rescission was due to his default. If, on the other hand, it is part-payment only, and not a deposit in the strict sense at all, then it is recoverable even if the person who paid it is himself in default. That, I think, follows from Howe v. Smith, 27 Ch. D. 89, and from Mayson v. Clouet, 1924 UK JCPC 585, [1924] A.C. 980, a case in the Privy Council. As I understand the position, in each case the question is whether the payment was in fact intended by the parties to be a deposit in the strict sense or no more than a part payment: and, in deciding this question, regard may be had to the circumstances of the case, to the actual words of the contract, and to the evidence of what was said.

[68] Courts aim to determine the intentions of the parties in accordance with the language used, having regard to the entire contract and the circumstances surrounding the formation of the contract: see Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, at para. 16.

[69] The meaning attributed to the words used in the contract will be derived from several contextual factors in light of the surrounding circumstances. These include the nature of the relationship created by the agreement, the purpose of the agreement and factors objectively known to the parties at the time of the formation of the contract: see Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at paras. 47-48.

[70] On the question of the nature of a deposit following a breach of contract, the Ontario Court of Appeal in Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, at para. 20, referred with approval to Tang v. Zhang, 2013 BCCA 52, in which Newbury J.A. spoke for the five-judge panel:

While Newbury J.A. rejected the argument that simply labelling a payment as a deposit immunized it against the court’s equitable jurisdiction to relieve from forfeiture, she declined relief. She distilled several relevant principles from English and Canadian case law, at para. 30. Two are especially pertinent to this appeal:

A true deposit is an ancient invention of the law designed to motivate contracting parties to carry through with their bargains. Consistent with its purpose, a deposit is generally forfeited by a buyer who repudiates the contract, and is not dependent on proof of damages by the other party. If the contract is performed, the deposit is applied to the purchase price;

A deposit constitutes an exception to the usual rule that a sum subject to forfeiture on the breach of a contract is an unlawful penalty unless it represents a genuine pre-estimate of damages. However, where the deposit is of such an amount that the seller’s retention of it would be penal or unconscionable, the court may relieve against forfeiture…

[71] When this contract was signed, the Plaintiff was represented by a lawyer, Oby Ejidike. In her e-mail to Harmony on September 9, 2013, Ejidike stated:

“Our mandate is targeted towards ensuring compliance with the TD policy contract, review all estimates submitted by builders and select a builder most likely to complete the project within the specified time frame.”

I find that there was no inequality of bargaining between the Plaintiff on one side and the Defendants on the other.

[72] The contract is silent on what is to occur in the event the contract is terminated following the payment of the deposit. I note that only the first payment detailed in the contract payment schedule includes the word “deposit”. It was due upon signing of the contract, at a time when no construction work had been undertaken and none was expected for at least several weeks. At that stage, the parties knew that plans approved by the Plaintiff still had to be developed. These discussions did not start until after the contract was signed.

[73] As stated in Tang v. Zang, at para. 30:

On a general level, the question of whether a deposit or other payment made to a seller in advance of the completion of a purchase is forfeited to the seller upon the buyer’s repudiation of the contract, is a matter of contractual intention;

Where the parties use the word “deposit” to describe such a payment, that word should in the absence of a contrary provision be given its normal meaning in law….

These principles from Tang have been referenced in Ontario: see Mikhalenia v. Drakhshan, 2015 ONSC 1048, at para. 33.

[74] As explained in Tang, the contract language is key. The use of the term “deposit” in a written contract is not determinative, but strongly implies that the parties intended the deposit to be forfeited in the event of contract breach: see Pleasant Developments Inc. v. Iyer (2006), 210 O.A.C. 90 (Div. Ct), at para. 8; Mikhalenia, at paras. 32 and 37; and Jensen v. Chicoine, 2018 ONSC 95, at paras. 30 and 35.

[75] I note that neither the balance of the contract nor the parties’ evidence at trial provided further assistance on the meaning of the word “deposit”. However, some meaning must be ascribed to that word. It was included in the contract, which the Plaintiff signed with the benefit of legal advice from her lawyer. I find that at some future date following the signing of the contract, the “deposit” was to be used as payment for the initial construction activities. However, at the time the contract was signed, the “deposit” had the feature and intent of motivating the contracting parties to carry through their bargain. This deposit bound the contract and guaranteed its performance: see Stevenson, at p. 409.

[76] In the absence of a contrary provision, I find that the parties’ intention was that the deposit be non-refundable.

To what extent have the Defendants proved damages?

[77] If I should be incorrect in my finding that the Plaintiff’s deposit is non-refundable, I now address the issue of the Defendants’ damages.

[78] Upon being advised on January 20, 2014 that the Plaintiff demanded a return of her deposit, Rebuild advised the Plaintiff by e-mail of January 22, 2014 that its hard costs as of that date of $8,475.00, combined with its anticipated overhead and profit for this project, would exceed the deposit.

[79] Streek testified that based on the limited size of the Defendant companies, they were confined to working on a relatively small number of projects per year. Furthermore, due to the nature of their business of insurance rebuild and custom home building, a great deal of preparation and planning was needed prior to the start of a project. Based on the size and scope of the Plaintiff’s proposed rebuild, Streek had arranged to clear the Defendants’ schedule to ensure adequate time for this project. As of January 20, 2014, his focus had been entirely on this project. Generally, the period between January and April of each year is the time he secures contracts for that year, which would include signage, updating his website and trolling the internet. The Plaintiff had posted on the internet her strongly worded negative views of her experience with the Defendants on this project. This required his attention and response. He was unable to secure building contracts for the Defendant companies for the remaining part of 2014. His income was limited to providing estimates and attending to landscaping activities.

[80] I find that Streek had undertaken reasonable efforts in his attempts to mitigate the Defendants’ damages. He testified that based on his anticipated profit margin on this project, the loss actually incurred was greater than the net amount of the deposit after having submitted the applicable H.S.T.

[81] Streek’s evidence of his loss is not definitive. Essentially, it is an estimate. It is the obligation of the Defendants to establish their loss on a balance of probabilities as a reasonable and probable consequence of the breach of contract. I have regard to these comments of the Ontario Court of Appeal in Eastwalsh Homes Ltd. v. Anatal Developments Ltd. (1993), 12 O.R. (3d) 675 (C.A.), at p. 687:

A second fundamental principle is that where it is clear that the breach of contract caused loss … but it is very difficult to quantify that loss, the difficulty in assessing damages is not a basis for refusal to make an award.… One of the frequent difficulties in assessing damages is that the plaintiff is unable to prove loss of a definite benefit but only the “chance” of receiving a benefit had the contract been performed. In those circumstances, rather than refusing to award damages the courts have attempted to estimate the value of the lost chance and awarded damages on a proportionate basis.

[82] If I am incorrect in my finding that the deposit is non-refundable, I find that the loss of the corporate Defendants’ income as a result of the Plaintiff’s termination of this contract is the sum of $150,000.00 plus H.S.T.

Relief from Forfeiture?

[83] As I found that the deposit is non-refundable, I must determine if the Plaintiff has pleaded relief from forfeiture.

[84] Paragraph 27 of the Statement of Claim is the only pleadings that might be considered to address this claim. Paragraph 27 reads:

In the further alternative, in the event that the documents titled “Contract” and/or “Independent Contractor Agreement” are found to be valid and enforceable contracts and the Plaintiff is found to have breached the contracts, which is denied, then the Plaintiff pleads that the “Deposit” provided to the Defendants is not a true deposit in that it does not accurately reflect an estimate of the Defendants’ damages but is a penalty and ought to be returned to the Plaintiff.

[85] I find that paragraph 27 is not sufficiently specific for me to find that the Plaintiff has pleaded relief from forfeiture.

[86] In the event that I should be incorrect in this finding, I must consider whether s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43 applies to these facts. It provides:

A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.

[87] To obtain relief from forfeiture, the Plaintiff must establish that: a) the forfeited sum was out of all proportion to the damages suffered; and b) it would be unconscionable for the Defendants to retain the deposit: see Redstone, at para. 15 and Jensen, at para. 27.

[88] A finding of unconscionability must be an exceptional one, strongly compelled on the facts of the case: see Redstone, at para. 25. Unconscionability can be established purely on the basis of disproportionality between the damages suffered and the amount forfeited: see Redstone, at para. 26.

[89] In Rosenberg v. 206 Bloor St. West Ltd., 2016 ONSC 6, the Court found at para. 154 that:

[D]eposits of 25% have been upheld. This is particularly so in cases … where the contract involves construction and there is a real likelihood of very substantial damages to the builder … in the event the purchaser defaults.

[90] Based on my finding that the Defendants’ damages would almost equal the amount of the deposit, there is no disproportionality in the size of the deposit. Nevertheless, I must consider other indicia of unconscionability: see Redstone, at para. 29. The Court of Appeal in Redstone suggested the following factors at para. 30: 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. I find that none of these factors apply in this case. Accordingly, I would not grant the Plaintiff relief from forfeiture.

[91] The Defendants, jointly and severally, shall be entitled to retain the deposit of $175,432.50.

[92] I may be spoken to within 45 days in the event the parties are unable to resolve the matter of costs. Unless I hear from either side, the matter of costs will be deemed to have been settled following 45 days of the release of these reasons.

Tausendfreund, J.

Released: August 9, 2018