COURT FILE NO.: CV-16-5304SR DATE: 20200402

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

Kam Yiu Francis Ng and Priscilla Po Plaintiffs/Defendants by Counterclaim

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Mario Eugenio and Sam McDadi Real Estate Inc. Defendants/Plaintiffs by Counterclaim

Counsel: Stuart R. Mackay and Sean C. Flaherty, for the Plaintiffs Adam Jarvis, for the Defendant, Mario Eugenio Nobody Appearing for the Defendant, Sam McDadi Real Estate Inc.

HEARD: December 4 & 5, 2019

REASONS FOR JUDGMENT

Tzimas J.

OVERVIEW

[1] This matter concerns a dispute over the payout of a deposit of $50,000 in the context of a failed real estate transaction. The plaintiffs, Mr. Ng and Ms. Po, entered into an Agreement of Purchase and Sale (“the Agreement”) with the defendant, Mr. Eugenio, for the purchase of a residential property. On the date of closing, Mr. Eugenio was unable to satisfy a number of terms of the Agreement, the most significant one being the discharge of a private mortgage on or before the date of closing and therefore the delivery of free and clear title. The plaintiffs therefore refused to close the transaction. The plaintiffs then commenced an action against both Mr. Eugenio and the real estate agent, defendant Sam McDadi, for the return of their deposit.

[2] Mr. Eugenio defended the action and launched a counterclaim. In his view, the plaintiffs acted unreasonably when they chose to walk away from the transaction. Although Mr Eugenio admitted to not being in a position to deliver free and clear title on the day of closing, he submitted that the plaintiffs’ concerns were unreasonable, that he did not have “two nickels to rub together” and that he needed the plaintiffs’ funds to discharge the private mortgage. He argued that there would have been no dispute between the parties had the plaintiffs been willing to be flexible over the discharge of the private mortgage. In other words, discharging the mortgage prior to or on closing was an impossibility for him, but the plaintiffs’ refusal to close was a mere technicality.

[3] As a result of the failed transaction, Mr. Eugenio said he suffered damages. He asked that the said damages be set-off against the deposit held in trust by the real estate agent Sam McDadi.

[4] Sam McDadi did not defend the action and did not partake in the trial.

[5] For the reasons that follow, I have concluded that the plaintiffs were under no obligation to close the transaction in the absence of Mr. Eugenio’s ability to deliver clear title. Mr. Eugenio’s failure to discharge the private mortgage on or before the closing date amounted to a fundamental breach of the Agreement.

[6] The deficiencies related to the malfunctioning air conditioner, the missing survey, a writ of execution on title on account of a Small Claims Court judgment against Mr. Eugenio, and a cloud on title were secondary difficulties that may or may not have amounted to a fundamental breach, or in any event, were not insurmountable to address. However, cumulatively, these deficiencies remained outstanding issues and augmented the number of Mr. Eugenio’s breaches. At the very minimum, these deficiencies amplified the plaintiffs’ mistrust of Mr. Eugenio and undermined the prospect of any remedial arrangement to revive the Agreement and bring it to a mutually satisfactory conclusion.

[7] The action is therefore allowed and the plaintiffs are entitled to the return of their deposit. They are also entitled to costs. The counterclaim by Mr. Eugenio is dismissed.

FACTS

[8] The facts of this matter are not materially in dispute. On June 20, 2016, Mr. Ng and Ms. Po entered into a written Agreement of Purchase and Sale with Mr. Eugenio to purchase a home at 1681 Kentchester Place in Mississauga, Ontario (“the property”). The original sale price was $1,130,000. However, because Mr. Ng acted as his own agent, he and Mr. Eugenio agreed to reduce the purchase price to $1,100,000 on the condition that Mr. Ng would waive his entitlement to any commission from the sale. On June 21, 2016, the plaintiffs paid a deposit of $50,000, care of Sam McDadi Real Estate Inc. The closing date for the transaction was set for 6:00 p.m. on October 20, 2016.

[9] The terms of the Agreement included the listing of chattels, including a central air conditioning system (para. 4), the delivery of free and clear title by the vendor, failing which the deposit would be returned to the purchasers (para. 10), and mortgage discharge requirements (para. 12). The Agreement also included Schedule “A” whereby Mr. Eugenio warranted and represented that the chattels, including the air conditioning system, would be in good working order on the closing of the transaction.

[10] There were a total of three mortgages registered against the property. The first two were registered in favour of the Toronto Dominion Bank. The third was a private mortgage registered in favour of Promila Ghai and Gurpreet Singh (the “private mortgagees”), securing a principal sum of $210,000.

[11] On October 3, 2016, some 17 days prior to the anticipated closing date, plaintiffs’ counsel, Mr. Wong, sent to Mr. Eugenio’s counsel, Mr. Reddington, a number of requisitions. Among them was a requisition related to the private mortgage that stated as follows:

4. Instruments No. PR2545653 is a third mortgage registered on title in favour of Promila Ghai and Gurpreet Singh, securing the principle sum of $210,000.00

“REQUIRED: As this is a private mortgage, I require production and registration on or before closing of a proper and valid discharge of said mortgage. We will not accept undertaking to discharge after closing .” [Emphasis added.]

[12] The plaintiffs testified that they wanted to obtain clear title on closing and were not prepared to take the financial risk that the private mortgagees might refuse or otherwise fail to discharge the mortgage after the closing and payment of funds was made. Their position was also informed by their understanding of the Practice Guide for Lawyers issued by the Law Society of Upper Canada in June 2010 (“Guidelines”) on the subject of private mortgages which states the following:

PRIVATE MORTGAGES

The guideline defines a private mortgage as a mortgage held by individuals or corporations that are not institutional mortgages. Subject to the contractual obligations of the parties, the guideline provides that the purchaser’s lawyer should insist that the discharge of a private mortgage be produced and registered on or before closing. As a general rule, an undertaking to obtain and register the discharge of a private mortgage at a later date should not be given or accepted.

[13] Mr. Wong did not receive any response to his requisitions from Mr. Reddington until the morning of the closing date. In the meantime, unbeknownst to him, Mr. Reddington sought a discharge statement from Trident Law Professional Corporation (“Trident”) who represented the private mortgagees for the subject property. On October 13, 2016, Trident wrote to Mr. Reddington to advise that the sum of $329,798.64 would be due and owing as of October 20, 2016.

[14] Although his memory was tentative, Mr. Reddington thought he spoke with private mortgagee Mr. Singh and conveyed to him that the plaintiffs were insisting on obtaining the mortgage discharge in their hands before they would release the funds for the sale transaction. Mr. Singh was not happy with that requirement.

[15] On October 17, 2016, Mr. Wong followed up with a second letter to Mr. Reddington and asked for the closing documents as soon as possible. Again, he heard nothing.

[16] On October 17, 2016, but also unbeknownst to Mr. Wong, Mr. Reddington also wrote to ReMax Realty Specialists Inc. (“ReMax”) on account of a writ of execution arising out of a Small Claims Court judgment against Mr. Eugenio and asked for a payout statement. ReMax responded on October 19, 2017 and advised that with interest, Mr. Eugenio owed $38,000.

[17] On October 19, 2016, on the eve of the anticipated closing date, having still not heard anything, Mr. Wong sent a third letter to Mr. Reddington. He reiterated the requirement that the private mortgage be discharged prior to or on closing. He also sought to obtain reassurances that all outstanding property taxes were paid.

[18] Mr. Reddington admitted that although he received Mr. Wong’s letter with the requisitions on October 3, 2016, the first time he turned his mind to the “mechanics” of the private mortgage and its discharge was on October 20, 2016, the day of closing. He also admitted that he did not appreciate the problem with the private mortgage discharge until the morning of October 20, 2016. In the ordinary course, he said that this would have been something he would have worked out ahead of time.

[19] On October 20, 2016 at 11:37 a.m., about six and half hours prior to the closing deadline, Mr. Reddington replied to the requisition letter of October 3, 2016. His communication seemed to propose an undertaking by him to see to the discharge of the private mortgage. In cross-examination on this issue, Mr. Reddington could not actually recall if what he was suggesting was a personal undertaking, but he had some doubt. In any event, Mr. Reddington did recall that his personal undertaking would not be satisfactory to either Mr. Wong or Mr. Singh.

[20] Mr. Reddington was also asked about what he meant by his statement, “We are giving an undertaking of the private mortgage. The lawyer has the private discharge” in one of his responses to Mr. Wong on October 20, 2016. He agreed that the statement could not be correct since he would not have been in a position to give an undertaking on somebody else’s behalf.

[21] Mr. Wong responded almost immediately to Mr. Reddington’s communication and repeated that, “Pursuant to our letter of requisitions dated October 3, 2016, we have advised you that we do not accept undertaking to discharge. Besides up to today’s date, you did not even provide us with a discharge statement in this regard.” Mr. Wong also raised the additional concerns over the production of a legible survey of the property, the malfunctioning central air conditioning system, and the payment and reconciliation of outstanding property taxes.

[22] At 3:45 p.m. on October 20, 2016, Mr. Reddington responded to Mr. Wong’s concern and advised that he had made arrangements with the lawyer for the private mortgagees to register the discharge immediately upon receipt of the funds from the closing. He also indicated that his client had previously disclosed to the plaintiffs that the air conditioner was not working, that the plaintiffs were provided with a survey three days after they signed the Agreement, and that the taxes were paid in full such that there would be no need for a holdback.

[23] The plaintiffs admitted that they had some discussions with Mr. Eugenio about the air conditioning system not working, but that at no time did they waive the representation and warranty contained in the Agreement. In cross-examination, Mr. Eugenio admitted that he had asked a friend to come to repair the air conditioning system but the friend never came. Regarding the survey, the plaintiffs did not have any recollection of receiving a survey. Mr. Eugenio insisted that it was included in an original green binder.

[24] The greatest obstacle to the closing of the transaction remained the issue of the private mortgage and Mr. Eugenio’s inability to deliver clear title to the plaintiffs. For their part, the plaintiffs were clear and steadfast in their requirement that they receive free and clear title. They admitted in cross-examination that they understood that Mr. Eugenio faced financial hardship and that he would be using their funds to satisfy his debts. At the same time, they were not prepared to jeopardize their funds or take the risk that the private mortgagees might refuse or otherwise fail to discharge the mortgage after closing and the payment of funds was already made. Their fears were compounded by their understanding that the suggestion of an undertaking was contrary to the Guidelines of the Law Society of Upper Canada. Finally, given Mr. Reddington’s failure to respond to any communications until the day of closing, and combined with the irregularities associated with the air conditioner and the missing survey, the plaintiffs lost all faith in the prospect of a successful conclusion to the transaction.

[25] On October 20, 2016 at 5:25 p.m., Mr. Wong advised Mr. Reddington that he was in receipt of funds and that his clients were ready to close the transaction. He also advised that he would deliver the said funds immediately upon receipt of the registered discharge of the private mortgage. He added that he would be holding back $4,000 to either repair or replace the air conditioner and $7,000 to address the remaining deficiencies.

[26] At 5:52 p.m., Mr. Reddington wrote back and suggested that the closing be extended by a day so that he could obtain further instructions from his client. He appeared to clarify that the undertaking concerning the discharge was his own and that the lawyer for the private mortgagees was in possession of the private discharge document. He agreed that Mr. Eugenio would give an undertaking to pay the outstanding municipal taxes, that his client would not agree to any holdback on account of the malfunctioning air conditioner because the plaintiffs were aware of the problem, and that the cloud on title originating from the builder’s deed would be cleared by making an application to the registry office. He said nothing about the writ of execution, even though he knew about it.

[27] The plaintiffs did not accept Mr. Reddington’s proposal. In their view, as of 6:00 p.m. on October 20, 2016, there were four outstanding issues, the most significant being Mr. Eugenio’s inability to deliver free and clear title to the property. The other three issues related to the malfunctioning air conditioner, the missing survey, and the outstanding instrument on title in favour of the original home builder.

[28] Ultimately, in his cross-examination, Mr. Reddington agreed that Mr. Eugenio was not able to provide a registered discharge prior to 6:00 p.m. on October 20, 2016 and could not provide free and clear title. He said, “I did not have [the discharge] in my hands, so no, I could not provide it.”

[29] On the following day, Mr. Wong wrote to Mr. Reddington to advise that his clients would agree to a revival of the Agreement on certain terms, the most significant one remaining the registration of the discharge of the private mortgage. This time, Mr. Reddington wrote back and confirmed that the lawyer for the private mortgagees had obtained the discharge document and would register it on closing. Some additional terms were included on account of the remaining outstanding issues, including an agreement to offer $500 towards the repair of the air conditioner.

[30] Mr. Wong responded that on a without prejudice basis, and “for the sole purpose of assisting your client”, his clients would agree to revive the Agreement upon Mr. Reddington’s written confirmation that he would not release the closing funds to the private mortgagees until he received confirmation from them that the discharge of the private mortgage was registered. Mr. Reddington responded that he could not agree to that term because the private mortgagees were insisting that the funds be released to them before they would discharge the mortgage.

[31] Counsel for all three parties held a teleconference and discussed a three-way Document Registration Agreement (“DRA”) that would effectively bind the lawyer for the private mortgagees to the exchange arrangement. They all purported to agree to enter into the DRA. Mr. Wong proceeded to draft it and circulate it to the other two sides. The DRA outlined the sequence of events that were to occur to allow for the release of funds to Mr. Eugenio following the discharge of the private mortgage. Mr. Wong and Mr. Reddington signed the agreement.

[32] Despite his original consent to using a DRA to break the logjam over the mortgage discharge and the exchange of funds, Mr. Ravinder Singh of Trident refused to sign the agreement on behalf of the private mortgagees. Instead, he made a unilateral amendment that effectively annulled the procedural sequence of exchanges that were to occur. Effectively, he insisted that his clients receive the funds owed to them before they would agree to discharge the mortgage. The plaintiffs found themselves back to square one and faced with Mr. Eugenio’s inability to deliver free and clear title on closing.

[33] In the course of the DRA negotiations, Mr. Wong also learned of the writ of execution and Mr. Eugenio’s additional debt of $38,000. Mr. Wong made inquiries about this writ of execution and asked that it be cleared in advance of any closing. Although Mr. Reddington was eventually able to secure the creditor’s consent for the writ to be lifted in advance of the closing, that information was not conveyed to Mr. Wong in a timely manner.

[34] As of 7:30 p.m. on October 24, 2016, Mr. Wong was not satisfied that his clients would obtain clear title to the property. Mr. Wong brought the revival efforts to an end and asked for the return of the plaintiffs’ deposit.

[35] Eventually, the plaintiffs purchased another property for $1,090,000. Some of the items they purchased for the anticipated renovation of Mr. Eugenio’s property were redirected to the new property. Other items were returned for reimbursement.

[36] In an effort to mitigate his damages, Mr. Eugenio entered into another Agreement of Purchase and Sale on October 28, 2016 for $1,100,000. Unlike the arrangement with the plaintiffs concerning the commission waiver, this Agreement anticipated the payment of a 5% commission. The purchase closed on December 1, 2016. Very notably, in this transaction, the private mortgagees did not change the language of the standard DRA to require receipt of the purchaser’s funds before they would release the mortgage discharge document.

[37] Throughout these negotiations, the plaintiffs confirmed that Mr. Eugenio’s inability to deliver clear title on or before October 20, 2016 was a very real concern that ultimately became a deal breaker. They agreed that although the malfunctioning air conditioner and the failure to produce the survey remained concerns, they would have gone ahead with the closing if that was all that was left in dispute.

[38] Mr. Reddington testified that he did not believe that either Mr. Wong or Mr. Singh were being unreasonable with their respective requests and positions. He considered himself to be caught in the middle and tried to find a solution by way of a DRA. He also acknowledged that in the subsequent sale of Mr. Eugenio’s property, Mr. Singh did not change the wording to the standard DRA precedent provided by the Law Society. He went further to suggest that the hand-written unilateral changes to the original DRA would not have changed anything in a substantial way, seeming to imply that Mr. Wong and the plaintiffs ought not to have been so cautious.

[39] For his part, Mr. Eugenio said he was unaware of the communication exchanges between his lawyer and the plaintiffs’ lawyer. He said that he was financially in trouble and that he needed to receive the funds from the sale to satisfy his debts.

[40] In response to a question concerning his understanding of the plaintiffs’ requirement that they would not accept an undertaking for the discharge of the private mortgage, as articulated in their counsel’s communication of October 3, 2016, Mr. Eugenio responded with the following question: “And where would I get the money to pay the private mortgage? I was in trouble”. Mr. Eugenio said that he did not have “two nickels to rub together”. He also testified that he was unaware of any attempt among the lawyers to enter into a DRA. He said he only learned about that attempt on the first day of trial.

ANALYSIS

[41] The dispute between the parties is essentially over the plaintiffs’ payment of a $50,000 deposit when they entered into the Agreement. The plaintiffs submitted that Mr. Eugenio’s inability to deliver free and clear title on the date of closing amounted to a fundamental breach of the Agreement such that it brought the Agreement to an end. Given this outcome, paragraph 10 of the Agreement required Mr. Eugenio to return the plaintiffs’ deposit of $50,000.

[42] Mr. Eugenio disagreed. He claimed that the plaintiffs were obliged to close the transaction on October 20, 2016 and that in light of their failure, he was entitled to receive the deposit and apply it against the damages he claimed that he suffered. In his view, the plaintiffs were unreasonable in their insistence that they obtain free and clear title on closing. Instead, they should have accommodated his situation because he expected that the private mortgagees would discharge the mortgage as soon as they received the funds that they were owed.

[43] The dispute gives rise to the following legal issues:

1. Did Mr. Eugenio’s inability to provide free and clear title of his property to the plaintiffs constitute a fundamental breach of the Agreement?;
2. Were the plaintiffs obliged to close the transaction in the face of Mr. Eugenio’s inability to satisfy the terms of the Agreement?;
3. If the plaintiffs were obliged to close the transaction, what if any damages did Mr. Eugenio suffer?; and
4. In the event that the plaintiffs owe any damages to Mr. Eugenio, are they entitled to a relief from forfeiture of their deposit?

My consideration of each of these issues follows.

FACTUAL FINDINGS

[44] Before I address the legal issues, I make the following factual findings.

[45] First, I found the plaintiffs to be credible and reasonable. They entered into what they considered to be an uncomplicated agreement. They obtained legal advice, and they were clear that they required free and clear title on or before the date of closing as they were not prepared to take any financial risks. Their counsel demonstrated caution and followed the Law Society’s Guidelines and acted in a timely manner. His communications were reasonable, courteous and clear.

[46] Even after the Agreement expired on October 20, 2016, for the next three to four days, the plaintiffs and their counsel were open to the idea of finding a solution to Mr. Eugenio’s inability to deliver free and clear title. The plaintiffs went so far as to give up on some of Mr. Eugenio’s contractual obligations such as the working condition of the central air conditioning system and the delivery of a survey.

[47] Their bona fides efforts to bring the Agreement to a successful conclusion were met with a continuous stream of obstacles and inaction. In all the circumstances, it was reasonable for them to be cautious and insist that the terms of the Agreement, as they related to free and clear title, be satisfied.

[48] In contrast to the plaintiffs, Mr. Eugenio did not present as a credible witness. His strategy in his testimony was to make the court to feel sorry for him. He testified about his health difficulties and suggested that they were the root cause for his impecuniosity. Repeatedly he tried to sidestep his answers to questions that concerned his obligations, shortcomings, and responsibilities, by complaining that as a result of his predicament he could not “rub two nickels together”, to use his expression. He did so, not for the purposes of admitting to his financial difficulties and his inability to meet his obligations, but as a way of deflecting those obligations on others.

[49] Thus, Mr. Eugenio blamed his friend for failing to repair the air conditioner when in fact he had the obligation to deliver a system that was in good working order. He blamed the plaintiffs and suggested that he included the survey in the green binder and they misplaced it, when in fact he had the clear obligation to deliver the survey four days following the signing of the Agreement. He blamed the plaintiffs for not being flexible on the discharge of the mortgage when it was his obligation to meet. The pattern of blaming and deflecting made Mr. Eugenio incredible.

[50] The reality is that on the evidence before the court, Mr. Eugenio’s financial woes were the reason for which Mr. Eugenio could not satisfy his obligations under the Agreement. The Agreement required Mr. Eugenio to deliver the chattels in good working order. It also required him to produce a survey. Mr. Eugenio could not deliver on either of these commitments because he could not afford to hire a person to repair the air conditioner and he could not afford to order a copy of the survey. It was disingenuous on his part to blame his friend and the plaintiffs for these failings.

[51] Mr. Eugenio was also obliged to deliver clear and free title to the plaintiffs on or before the transactions’ closing date. His refusal to recognize this obligation and his attempt to resort to excuses did nothing to change the nature of his obligation.

[52] Whatever the reason for the private mortgagees’ insistence that they receive the funds in their hands before they would discharge Mr. Eugenio from his obligations, was between Mr. Eugenio and the private mortgagees to resolve. However, the mortgagees’ persistence that they receive their funds before they would agree to any discharge spoke volumes to their lack of trust of Mr. Eugenio.

[53] Against that dynamic, the plaintiffs had no part in the relationship between Mr. Eugenio and the private mortgagees and they had no obligation to do anything to accommodate Mr. Eugenio’s circumstances. They never agreed to terms in the Agreement that would require them to accommodate Mr. Eugenio’s financial difficulties, much less that they get drawn into whatever difficulties may have existed between Mr. Eugenio and the private mortgagees.

[54] Insofar as there remains any question about the plaintiffs being unduly technical, unreasonable or inflexible, which I do not find, I would hasten to add that if the mortgagees, who had an existing relationship with Mr. Eugenio were not prepared to trust Mr. Eugenio and facilitate the conclusion of the transaction by releasing to the plaintiffs’ counsel the mortgage discharge, I cannot see how or why the plaintiffs, who had absolutely no relationship with Mr. Eugenio, could be considered unreasonable for their refusal to put their purchase at risk.

[55] Having regard for Mr. Eugenio’s difficulties I fail to understand why he would have agreed to terms in the Agreement that he knew he could not meet right from the outset. Mr. Eugenio could have anticipated these difficulties and addressed them in the original Agreement. For example, he did not have to represent and warrant that the air conditioning system would be in good working order on the closing of the transaction. He could have varied that commitment to deliver the system as is, which is what Mr. Eugenio did in the subsequent sale. Similarly, if he had a copy of the survey and gave it to the plaintiffs, it makes no sense that he would be committing to provide “a valid legible survey of the property prepared by the Ontario Land Surveyor”. Schedule “A” to the Agreement could have included terms concerning the discharge of the private mortgage. Mr. Eugenio could have also negotiated arrangements with the private mortgagees to put him in a position to deliver clear and free title on closing.

[56] Certainly, the amended terms, as suggested, would have amounted to a different Agreement. But it would also have given the plaintiffs the opportunity to evaluate the real terms of the bargain and decide whether or not to enter into the agreement.

[57] Given Mr. Eugenio’s persistent characterization of the plaintiffs as unduly technical, unreasonable, inflexible, and even “scammers”, I am compelled to expressly and categorically reject those characterizations. The references to a scam and related characterizations suggestive of people acting in bad faith, were astonishing, unfortunate, and without any evidentiary foundation. Charitably, I can only conclude that those characterizations were a reflection of Mr. Eugenio’s level of desperation. As for being unduly technical and inflexible, it bears repeating my finding that the plaintiffs were reasonable and flexible within their rights. They were entitled to protect their financial position and that is what they did.

[58] Finally, I also find that Mr. Eugenio’s failings were compounded by his lawyer’s apparent inaction and procrastination in the handling of this transaction. It is never pleasant for a court to have to comment on the performance of counsel, and strictly speaking, this claim is not concerned with Mr. Reddington’s performance. I am also obliged to acknowledge that Mr. Reddington was forthcoming and very professional in his testimony and did his best to assist the court with his understanding of what went wrong and what efforts were undertaken to salvage the transaction. His candid admission that neither the plaintiffs, nor the private mortgagees, were wrong to insist on their respective requirements served to underscore his understanding of the situation and his professionalism as a lawyer. Unlike his client, he did not try to blame others for the problem related to the mortgage discharge.

[59] None of that however diminished the unfortunate reality that by responding to Mr. Wong’s letter only hours before the time of closing, Mr. Reddington, left himself no time to propose any viable options to meet everyone’s requirements. The exchanges that followed were rushed, incoherent on Mr. Reddington’s part, and unclear. They also reflected anger and impatience by everyone involved. With every exchange between the afternoon of October 20 and the days that followed came an augmented level of mistrust.

[60] In all likelihood, the profound lack of trust also permeated the negotiations of the DRA and might explain the private mortgagee’s unilateral hand-written amendment to the DRA. Although the evidence was insufficient to understand the reason for the unilateral hand-written amendment I can find that it was the result of either a fundamental misunderstanding over what a DRA was intended to accomplish, or a firm unwillingness by the mortgagees to agree to anything short of the funds in their hands before they would discharge the mortgage. Whatever the underlying explanation, I cannot find any fault in the plaintiffs’ refusal to negotiate further or to accept the amended DRA in those rushed circumstances.

[61] The only other factual finding, which was readily admitted to but must be underscored, is that at 6 p.m., on October 20, 2016, Mr. Eugenio had not obtained the discharge of the private mortgage and he was unable to deliver free and clear title to the plaintiffs, as anticipated by the Agreement.

[62] With these factual findings, I turn to the legal issues that are engaged by the plaintiffs’ claim.

Issue #1: Did Mr. Eugenio’s Inability to Provide Free and Clear Title of His Property to the Plaintiffs Constitute a Fundamental Breach of the Agreement?

[63] The short answer is yes. As I already found above, free and clear title was an essential term of the Agreement between the plaintiffs and Mr. Eugenio. The plaintiffs, through their requisition letter of October 3, 2016, were clear that they required the private mortgage on title to be discharged on or before the date of closing. They were also clear that they would not accept any undertaking for the subsequent delivery of the mortgage discharge. At 6:00 p.m. on October 20, 2016, the deadline for the closing of the transaction, Mr. Eugenio’s counsel admitted that he did not have a registered discharge in his hands that he could deliver on closing to Mr. Wong. In light of this outcome, paragraph 10 of the Agreement entitled the plaintiffs to the immediate return of their deposit.

[64] Mr. Eugenio’s impecuniosity and his related explanations for not being able to meet that requirement did not relieve him from his obligation to deliver unencumbered title. The law is clear on this point. The failure of a vendor to discharge a private mortgage on or before closing amounts to a fundamental breach of the Agreement of Purchase and Sale: Bunn et al. v. Lock (1987), 61 O.R. (2d) 772 (C.A.), at paras. 52-53; Fong v. Weinper, [1973] 2 O.R. 760 (H.C.), at paras. 10-12; McFadden v. Pye et al. (1978), 22 O.R. (2d) 268 (H.C.), at paras. 19-24; Farantos Development Ltd. v. Canada Permanent Trust Co. (1975), 7 O.R. (2d) 721 (H.C.), at paras. 57-59.

[65] I therefore find that Mr. Eugenio’s inability to provide free and clear title of his property to the plaintiffs constitutes a fundamental breach of the Agreement.

Issue #2: Were the Plaintiffs Obliged to Close the Transaction in the Face of Mr. Eugenio’s Inability to Satisfy the Terms of the Agreement?

[66] The plaintiffs were not obliged to close the transaction in the face of Mr. Eugenio’s inability to satisfy the terms of the Agreement.

[67] Mr. Eugenio’s position in this matter comes down to his view that the plaintiffs should have taken the financial risk to conclude the transaction on the expectation that Mr. Eugenio would use part of the funds to discharge his obligations under the terms of the private mortgage. He effectively wanted to be excused from his inability to deliver his end of the bargain, while at the same time requiring specific performance from the plaintiffs.

[68] The case law on this subject is clear. A vendor is required to provide clear title on closing. A purchaser is under no obligation to close in the absence of clear title. The inability of a vendor to convey title free and clear of any encumbrances imposed by a private mortgage amounts to an inability of the vendor to provide that which it contracted to provide. The financial capabilities of the vendor are irrelevant. The mere pecuniary inability to do so forms no better a defence than it ordinarily would in any other claim for breach of contract. In such circumstances, a purchaser is under no obligation to close the transaction: Bunn, at paras. 52-53; Fong, at paras. 10-12; Farantos Development Ltd., at paras. 57-59.

[69] Much was made in argument by Mr. Eugenio’s counsel about the DRA. Counsel submitted that even if counsel for the private mortgagees changed the DRA’s terms unilaterally, the agreement between the plaintiffs and Mr. Eugenio could be segregated to bind the plaintiffs and oblige them to close the transaction, independent of any disagreement or refusal the private mortgagees to conclude the proposed DRA. I reject this argument for three reasons.

[70] First, the DRA post-dated the termination of the original Agreement at issue. It was a tool that counsel attempted to use in an effort to revive the Agreement. The willingness of the plaintiffs to consider a remedy cannot possibly be turned against them to require their performance of the original Agreement. The revival of the original Agreement was contingent on the execution of the DRA by all three parties.

[71] Second, and related to the first point, the DRA prescribed a very specific sequence of events as they related to the exchange of funds and the associated documents and what each lawyer would do to facilitate the conclusion of the transaction. There was an interconnection across the obligations by all three parties to the DRA. Counsel for the private mortgagees effectively nullified that sequence through his unilateral hand-written amendment and his insistence that his clients receive the plaintiffs’ funds before anything else occurred.

[72] Third, Mr. Singh’s unilateral change to the DRA after counsel had purportedly reached an agreement to use a DRA undermined any faith that the plaintiffs could place on either Mr. Eugenio or the private mortgagees to deliver on their respective obligations. In contrast to Mr. Wong, who prepared the DRA in good faith and presented it to the parties, Mr. Singh’s unilateral amendment to the sequence of events, at the very least, put into question the parties’ understanding of how the sequence of exchanges would occur.

[73] Whatever the explanation for Mr. Singh’s unilateral amendment, if the plaintiffs could not trust the private mortgagees to execute a document that purported to reflect counsels’ ostensible verbal agreement to a DRA, how could they be certain that the private mortgagees would not make other unilateral demands after they received the funds but before they agreed to discharge the mortgage? In the face of an incomplete DRA, the plaintiffs were under no obligation to perform any of their anticipated obligations. Simply put, the DRA did not crystallize to require anything of the plaintiffs.

[74] It is noteworthy that when Mr. Eugenio sold the property to another buyer, the parties in that instance resorted to the DRA that the plaintiffs would have been prepared to sign. It is also noted that on this occasion counsel for the private mortgagees did not make any unilateral changes to that Agreement and therefore did not undermine that transaction.

[75] Finally, Mr. Eugenio and his counsel placed significant emphasis on the use of an undertaking in relation to the discharge of the private mortgage in lieu of the delivery of clear title. They submitted that the plaintiffs were being technical, difficult and unreasonable in their rejection of a solicitor’s undertaking. I found these arguments especially rich, having regard for both the factual matrix of this case, Mr. Eugenio’s and his lawyer’s conduct, and the collective inability to come to an agreement on something as simple as a DRA.

[76] To begin with, the law is clear that an undertaking by the vendor or his solicitor to discharge a private mortgage after closing is not sufficient in law to discharge a vendor’s contractual obligation to convey title unencumbered by the private mortgage on or before closing. It is also contrary to the Law Society of Upper Canada’s Real Estate Practice Guide for Lawyers: McFadden, at paras. 22-24; Farantos Development Ltd., at paras. 57-59.

[77] In contrast to the plaintiffs’ clear and unequivocal position concerning their unwillingness to access any undertaking, Mr. Eugenio and his counsel were not even clear on who was proposing the undertaking. The evidence shifted from the undertaking being from Mr. Reddington, to an undertaking coming from Trident, to a draft discharge being in the possession of counsel for the private mortgagees. Even if an undertaking of some sort could have offered solution to Mr. Eugenio’s predicament, there was never a serious proposal for the plaintiffs’ consideration at any point prior to the closing deadline.

[78] Accordingly, it would have been unreasonable to require the plaintiffs to release their funds and close the transaction in the face of the uncertainty that was being projected by Mr. Eugenio and his counsel.

Issue #3: If the Plaintiffs Were Obliged to Close the Transaction, What If Any Damages Did Mr. Eugenio Suffer?

[79] In light of the answers to the first two questions, Mr. Eugenio’s claim for damages is dismissed. In any event, his damages claim is excessive. Mr. Eugenio was able to sell the property in fairly short order and for nearly the same price. The difference on account of the payable commission and taxes would not have exceeded $15,000, a sum that is much less than the $50,000 deposit at issue.

Issue #4: In the Event That the Plaintiffs Owe Any Damages to Mr. Eugenio, Are They Entitled to a Relief From Forfeiture of Their Deposit?

[80] Given the preceding answers, this question does not need to be addressed. Mr. Eugenio is lucky that the plaintiffs were able to mitigate their damages and that they are not seeking more than the return of their deposit.

CONCLUSION

[81] Having regard to all of the foregoing, this court finds that the defendant, Mr. Eugenio’s inability to provide to the plaintiffs free and clear title by the closing date of the transaction was a fundamental breach of the Agreement. Paragraph 10 of the Agreement requires the return of the deposit if on closing, the vendor is unable to deliver free and clear title. Moreover, where a vendor defaults under an Agreement of Purchase and Sale, the purchaser is entitled to a return of the deposit in full: Azzarello v. Shawqi, 2019 ONCA 820, at para. 44; Zou v. Sanyal, 2019 ONSC 738, at para. 52. Accordingly, the plaintiffs are entitled to the return of their deposit of $50,000.

[82] On the subject of costs, parties are strongly encouraged to come to an agreement. I suspect they have both spent far more in legal costs than the value of the deposit at issue, and accordingly, it would be wise on both sides to mitigate any additional costs.

[83] If the parties are unable to come to an agreement as to costs, they are to make their submissions on the following timetable. The plaintiffs shall have until April 30, 2020 to serve and file their submissions. The defendant shall have until May 15, 2020 to respond. In light of the COVID-19 emergency measures, such submissions shall be sent directly to my assistant at Brenda.Berger@ontario.ca, who will forward them to me for my consideration. As well, submissions shall be limited to two pages, double-spaced in 12-point font, exclusive of a Bill of Costs and any Offers to Settle.

[84] As this judgment is being released during the COVID-19 emergency period when the court’s services are limited, in accordance with Rule 59.01 of the Rules of Civil Procedure, this judgment is effective as of the date of the judgment, that being April 2, 2020.

Tzimas J.

Released: April 2, 2020