COURT FILE NO.: 57942/18 & 58143/18 DATE: 2018/08/27 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Rolling Meadows Land Development Corporation Applicant – and – 2560262 Ontario Inc. Respondent
H. Korosis and L. Thompson, for the Applicant F. Soccol, for the Respondent
AND BETWEEN:
2560262 Ontario Inc. Applicant – and – Rolling Meadows Land Development Corporation and Glen Douglas Gordon Respondent
F. Soccol, for the Applicant H. Korosis and L. Thompson, for the Respondent HEARD: July 6, 2018
JUDGMENT ON APPLICATION
THE HONOURABLE JUSTICE R. B. REID
[1] The parties to these two applications seek a court order as to the enforceability of an Agreement of Purchase and Sale concerning 48 residential building lots.
[2] For the reasons set out below, I find that there is a binding and enforceable agreement.
Introduction and Background
[3] Rolling Meadows Land Development Corporation (“the Vendor”) is a company engaged in land development for a particular site in Thorold, Ontario. It is the beneficial owner of the Thorold site. As part of the development, it sells vacant residential building lots to prospective purchasers who undertake to build homes for sale to prospective home buyers.
[4] Glen Douglas Gordon is president and director of the Vendor and is the registered owner of the Thorold site as a bare trustee for the Vendor.
[5] The Vendor entered into an Agreement of Purchase and Sale dated February 7, 2017 (the “Agreement”) for the sale of 48 residential building lots. The purchasers were individuals in trust for a corporation to be incorporated.
[6] 2560262 Ontario Inc. (“the Purchaser”) was incorporated and the Agreement was assigned to it. As part of the Agreement, the Purchaser provided a deposit to the Vendor of about $1.3 million toward a purchase price of about $4.3 million.
[7] Section 2.2 of the Agreement states in part as follows:
The Closing Date for the lots will be twelve (12) months following the date that the Vendor has completed permit servicing requirements for the lots and the Vendor’s solicitors have provided to the Purchaser the Property Identifier Numbers for each lot promptly following their designation by the Land Registry Office; provided that in no event will the Closing Date be before November 1, 2017, or after November 1, 2018. Notwithstanding the foregoing, the Purchaser may complete the purchase of all or any of the lots on an earlier Closing Date, provided that at least ten (10) days’ notice is given to the Vendor. …
Notwithstanding anything to the contrary in this Agreement, upon written notice by the Purchaser to the Vendor on or before the Closing Date, the Purchaser shall have the right to elect to postpone the Closing Date in respect of 24 of the 48 lots, as determined by the Purchaser, for an additional period of 12 months from the original Closing Date (the “Postponed Closing”). In the event that the Purchaser exercises such right to postpone the Closing Date in respect of 24 lots, the purchase price for such 24 lots shall be increased by an amount equal to 6% per annum calculated based on the period from the original Closing Date until the Postponed Closing on the balance of the purchase price owing by the Purchaser to the Vendor in respect of the remaining 24 lots.
[8] Permit servicing requirements were not met by November 1, 2017. They were, in fact, completed on January 15, 2018, following which individual property identifier numbers were assigned.
[9] The Vendor’s position is that, as of November 1, 2017, the Agreement was at an end because an operative closing date was incapable of being formed based on the wording of Section 2.2. The Vendor submits that if the closing date was to be scheduled 12 months following the completion of permit servicing, and because permit servicing requirements were not met by November 1, 2017, then a closing date could not be properly scheduled by November 1, 2018. The Vendor also submits that in this case, the defined method of establishing a closing date was an essential term of the Agreement.
[10] As a result, in its application, the Vendor seeks a declaration that the Agreement is incapable of performance owing to the uncertainty of the terms of Section 2.2. The Vendor also seeks an order releasing the parties from any and all obligations they may have pursuant to the Agreement.
[11] In response, in a separate cross-application, the Purchaser seeks a declaration that the Agreement, as supplemented if necessary by other alleged agreements, is valid, binding and enforceable so that the closing of the transaction can occur on a reasonable closing date.
[12] The Purchaser submits that there is no express time period in the Agreement that requires the Vendor to complete the permit servicing requirements by November 1, 2017, or by any other specific date, and that the Purchaser has the right to exercise the early closing clause upon providing 10 days’ notice. Although to date that notice has not been given, the parties are currently within the closing date range of November 1, 2017 to November 1, 2018.
[13] Further, the Purchaser submits that there was an agreement to extend the closing date range for the Agreement by one year as confirmed in writing in an email exchange between the parties’ respective real estate solicitors. Further, the Purchaser submits that there was a verbal amending agreement which included a revision of the closing date range.
[14] Finally, the Purchaser submits that in any event, the closing date was not an essential term of the Agreement. Therefore, even without regard to the amending agreements, the contract is not vitiated by the alleged impossibility of establishing a closing date by November 1, 2018.
Discussion and Analysis
Could a closing date be established under clause 2.2?
[15] I agree with the Vendor that the plain reading of section 2.2 of the Agreement leads to a conclusion that no closing date within the defined range could possibly be established in the event that permit servicing requirements for the lots were not completed before November 1, 2017. Section 2.2 of the Agreement states: “The Closing Date for the lots will be twelve (12) months following the date that the Vendor has completed permit servicing requirements for the lots …” and that “in no event will the Closing Date be before November 1, 2017, or after November 1, 2018” [emphasis added]. Since January 15, 2018 was the actual compliance date, the operation of the first of those two clauses could not permit a closing date before January 15, 2018, which is outside the period defined in the second of the clauses.
[16] The two so-called “notwithstanding” clauses do not assist the Purchaser. They both presuppose a certain closing date and then an election to adopt an earlier date. In my view, it is a precondition to the application of those clauses that a valid closing date pursuant to the Agreement had been established. The word “notwithstanding” does not, in the circumstances, negate the prior conditions for determining a closing date.
Was the closing date an essential term of the Agreement?
[17] The next question is whether, despite the identified impossibility of establishing a closing date within the defined period, the closing date provision is an essential term of the contract.
[18] It is well settled that the essential terms of a land sale contract are typically identified as the parties, the price and the property: Roppo v. Avvro Developments Inc., [2006] O.J. No. 863 (S.C.J.) at para. 37, citing McKenzie v. Walsh (1920), 61 S.C.R. 312 (S.C.C.). In this case, there is no doubt that those three terms were defined with certainty.
[19] In cross-examination on his affidavit, the Vendor’s real estate lawyer admitted that the Agreement was not conditional on permit servicing requirements being completed by November 1, 2017.
[20] In Roppo v. Avvro Developments Inc., [2006] O.J. No. 863 (S.C.J.), the agreement of purchase and sale contained a provision that the date of closing was to be November 30, 2003, “provided that all permit servicing requirements have been completed, registration of the plan of subdivision has occurred and zoning is in final form so as to permit the issuance of building permits by the municipality.” Those requirements were not met, and the vendor tried unsuccessfully to avoid performance of the contract.
[21] Justice Belobaba, writing at paragraph 44 of Roppo v. Avvro Developments Inc. said as follows:
The date of closing was not stated as a condition precedent, the failure of which rendered the [agreement of purchase and sale] null and void. It was simply a suggested closing date that passed for good reason -- subdivision approval had not been obtained and, therefore, the parties were not ready to close. The caselaw is clear that when a closing date passes, even where time is of the essence, either party can set a new reasonable date for closing: DiCastri, The Law of Vendor and Purchaser, (3rd ed., looseleaf, 2004) (vol. 2) at 14-21.
[22] In the case of Justein v. 3900 Yonge Street Ltd., [1983] O.J. No. 1177 (H.C.J.), the agreement of purchase and sale stated that: “the closing date for this transaction shall be a date notified to the purchaser by the vendor at least six months prior to the closing date which date shall be at least 18 months after the commencement of construction.” The purchaser sought a declaration that the contract was not binding due to uncertainty in establishing the closing date. There, the court found that there were “sufficient certainties in the contract for the Court to infer that the reasonable expectations of the parties would be deemed to include the unstated obligations of the vendor to proceed with the construction of the building with reasonable dispatch and to close the transaction within a reasonable period of the completion of construction.”
[23] The Roppo and Justein decisions are examples of cases where the closing date became an issue and was found not to be an essential term of the agreement.
[24] Counsel for the Vendor submitted that whether a closing date provision is an essential term of a contract is a question of fact in every case. In the particular circumstances of this case, counsel submits that the closing date provision is an essential term. He points to the negotiations leading up to the signing of the Agreement including one draft that proposed the ability of the Purchaser to terminate the agreement if the permit servicing requirements were not completed by a certain date. Based on the negotiations history, counsel submits that the Purchaser itself made the closing date an essential term.
[25] The Vendor’s position would have been stronger if the termination provision had made its way into the final agreement. Even at that, it presumably would have enured to the benefit of the Purchaser. However, since the signed Agreement did not contain the termination provision, and in view of the negotiation history referred to by the parties, I do not find it reasonable to impute a shared intention to make the closing date an essential term of the contract.
[26] I am satisfied that the essential terms of the Agreement were clear. The closing date provision was neither an essential term nor, as the Vendor has admitted, a true condition precedent. Subject to my comments below about subsequent agreements of the parties, I would hold on that basis that the Agreement is enforceable and that the Vendor is obliged to comply with a closing date of January 15, 2018, unless the Purchaser specifies an earlier date on at least 10 days’ notice.
Was there an agreement to revise the closing date range?
[27] Next, I turn to the issue of whether there was an agreement between the parties to revise the closing date range.
[28] The Vendor’s solicitor became aware of the closing date problem and corresponded with the solicitor for the Purchaser on May 29, 2017. After identifying that the permit servicing requirements could not be completed by November 1, 2017, he wrote that: “I think it was intended that completion of permit servicing requirements, not the closing date, would not be after November 1, 2018, such that the closing date would not be after November 1, 2019. Please confirm. If so, we can prepare an amendment. If not, we can prepare a mutual release.” [emphasis included in original]
[29] On June 26, 2017, the solicitor for the Purchaser responded:
My clients are in agreement to complete the amendment, however, we would like to ensure that the closing no earlier than the start of the building season rather than close in December when excavation becomes more of a challenge.
They also understood that your client has requested a temporary hydro line be installed over a portion of the lots. Please ensure that same is provided for in the amending agreement.
[30] Based on the foregoing, it appears that the parties were agreed on an amendment of section 2.2 of the Agreement as to the closing date range. It also could be argued that the new closing date range was part of a more comprehensive proposal by the Purchaser which included a term about the supply of electricity to the site, such that a further acceptance was required from the Vendor. However, it is unnecessary for me to determine that issue based on my conclusions set out below as to the subsequent written amending agreement.
[31] A draft amending agreement dated June 28, 2017 was provided by the Vendor’s solicitor to the Purchaser’s solicitor on June 29, 2017. No deadline for signing by the Purchaser was identified. That draft agreement included some new terms requested by the Vendor that were not previously discussed, including the staggering of closing dates for certain lots. The staggering of closing dates was proposed because the Vendor anticipated a delay in the completion of permit servicing requirements for some lots. The draft agreement provided in part as follows:
- The first sentence of subsection 2.2 of the Agreement is deleted and the following sentence is substituted:
The Closing Date for each of the lots will be twelve (12) months following the date that the Vendor has completed permit servicing requirements for such lot and the Vendor’s solicitors have provided to the Purchaser a Property Identifier Number for such lot promptly following its designation by the Land Registry Office; provided that in no event will the Closing Date for any of lots [34 individual lot numbers listed] be before November 1, 2018, or later than November 1, 2019, and in no event will the closing date for any of lots [14 individual lot numbers listed] be before April 1, 2019, or later than April 1, 2020.
[32] The draft amending agreement also included a revision proposed by the Vendor to delete a requirement that the Vendor provide temporary hydro service as a prerequisite to completion of permit servicing requirements. The stated purpose of the revision was to correct an oversight on the part of the drafting solicitors in the original Agreement.
[33] In response to receipt of the draft amending agreement on June 29, 2017, the Purchaser’s solicitor advised the Vendor’s solicitor on July 24, 2017, that he was leaving for vacation and would be meeting with the Purchaser on his return to review the document. On August 8, 2017, counsel for the Vendor asked for an update. A further update was requested on September 7th and again on the 25th. On September 25th, the Purchaser’s solicitor responded that he hoped to meet with the Purchaser that week and respond. No further correspondence was exchanged until November 3, 2017.
[34] Independently of the correspondence between solicitors, the principals for the parties met informally from time to time. Mr. Gordon deposed on behalf of the Vendor that, after discovery of the closing date problem in the Agreement, he advised Mr. Jagdish Grewal (General Manager and a Director of the Purchaser) in a telephone conversation between May 26 and May 29, 2017 that a correction needed to be made by November 1st. A further discussion took place on August 14, 2017, in which, on behalf of the Purchaser, Mr. Grewal advised Mr. Gordon that the Purchaser agreed to the amendments previously requested. Mr. Gordon recalled Mr. Grewal advising that he needed to talk to his partners or his lawyer but that “it was not a problem.” According to Mr. Gordon, Mr. Grewal advised him that he was committed to the amendment and did not have a problem with it. Mr. Grewal told him that he just wanted to make sure that the amendment achieved what they both thought it would.
[35] Subsequently, on October 11, 2017, Mr. Grewal met with Mr. Gordon. The meeting primarily concerned the amending agreement and the fact that it remained unexecuted. Mr. Grewal advised Mr. Gordon that the Purchaser was agreeable to all the terms contained in the draft June 28th amending agreement as requested by the Vendor and that the Purchaser had agreed to sign the amending agreement in the form drafted by the Vendor’s solicitor. Mr. Gordon deposed that he told Mr. Grewal of the November 1, 2017 deadline for signing in response to which he was assured that the document would be signed in time.
[36] For his part, Mr. Grewal denied ever being made aware by Mr. Gordon of a November 1, 2017 deadline at the October 11th meeting or on any prior occasion.
[37] As indicated, there is a dispute between the parties as to the verbal notice of a November 1st deadline. It is agreed that prior to the correspondence from the Vendor’s solicitor on November 3, 2017 set out below, there was no written notice that the Vendor required the amending agreement to be signed by November 1st.
[38] Despite the parties’ disagreement on the communication of a deadline, neither sought a trial of an issue on the point, which is a typical response in an application when a dispute over a material fact arises. I have concluded that for the reasons set out below, the dispute does not concern a material fact so that no trial of an issue is required.
[39] On or about November 3, 2017, the Purchaser’s solicitor emailed the Vendor’s solicitor. The solicitor attached the draft June 28th amending agreement with some minor typographical corrections, confirming that it reflected the agreement previously reached between the parties during their recent meeting and advising that it had been sent out to the Purchaser for signing. The Vendor’s solicitor responded later that same day advising that the Vendor was no longer prepared to proceed with the proposed amendment and that it considered the original agreement “frustrated.” On or about November 6, 2017, four copies of the amending agreement signed by the Purchaser were couriered to the Vendor’s solicitor for signature.
[40] It is understandable that the Vendor wanted the amending agreement to be signed so as to avoid any uncertainty in the sale transaction. Mr. Gordon deposed that the Vendor’s financing arrangements could have been jeopardized if the deal with the Purchaser did not proceed. The lack of prompt response by the Purchaser’s solicitor to the June 29, 2017 correspondence enclosing the draft amending agreement may well have raised concerns about the Purchaser’s commitment to the deal.
[41] A logical response to those concerns on the part of the Vendor would have been to clearly articulate a deadline, whether November 1st or otherwise, in correspondence between solicitors, even if the deadline was somewhat artificial. This is particularly true given that there appears to have been an ongoing cordial relationship between solicitors and between the principals of the parties. The absence of a written notice of the deadline serves to call into question the good faith of the Vendor in its reliance on the passing of November 1st as the basis for alleging that the Agreement was frustrated.
[42] Based on my decision above that the closing date was not an essential term of the Agreement, the Vendor’s position as expressed by its solicitor that the deal was dead as of November 1, 2017 was in error. I find that the Vendor did not have the legal right to declare the contract at an end when the signed amending agreement was not delivered by November 1, 2017. Obviously, the Purchaser’s commitment to the deal was unambiguous when the amending agreement was delivered on November 6, which was consistent with the position conveyed by Mr. Grewal to Mr. Gordon and by the Purchaser’s solicitor to the Vendor’s solicitor on numerous occasions. In fact, there was no evidence that the Purchaser ever disagreed with the proposed change to the closing date range after the problem was first communicated by the Vendor’s solicitor on May 29, 2017. The Vendor’s stated concern about a possible negative effect on its financing arrangements could no longer have been a factor once the signed amending agreement was delivered.
[43] Therefore, as to the Purchaser’s application, there will be a declaration that the Agreement of Purchase and Sale dated February 7, 2017 as amended by the Amending Agreement dated June 28, 2017 constitutes a binding and enforceable agreement between the parties in accordance with its express written terms. The Vendor’s application is dismissed.
Costs
[44] I encourage the parties to resolve the issue of costs consensually. In the event that they are not able to do so, I am prepared to receive written submissions according to the following timetable:
The Purchaser is to serve the Vendor with written costs submissions and a Bill of Costs on or before September 10, 2018.
The Vendor is to serve the Purchaser with written costs submissions and a Bill of Costs on or before September 24, 2018.
The Purchaser is to serve the Vendor with any responding submissions on or before October 8, 2018.
[45] All submissions are to be filed with the court no later than October 12, 2018. If submissions are not received by that date or any agreed extension, the matter of costs will be deemed settled.
Reid J.