COURT FILE NO.: CV-20-00652356-0000 DATE: 20220228 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
GOLDIE MALKA, also known as GOLDA MALKA Plaintiff
- and – FLORICA RACZ and JOZSEF RACZ and SOLTANIAN REAL ESTATE INC., BROKERAGE Defendants
Counsel: Michael R. Kestenberg and Beverly C. Jusko for the Plaintiff Shawn Tock for the Defendants Florica Racz and Jozsef Racz
HEARD: February 17, 2022
PERELL, J.
REASONS FOR DECISION
A. Introduction
[1] This is an abortive real estate case. It is rare variant because it is about a house swap transaction. The parties are suing each other both as vendors and also as purchasers in the claim and the counterclaim.
[2] The Plaintiff, Goldie Malka owned a property municipally known as 96 Codsell Ave. and the Defendants, Florica Racz and Jozsef Racz, owned a property municipally known as 60 Codsell Ave. On August 16, 2020, Ms. Malka and the Raczs signed agreements of purchase and sale to swap properties. The agreements were scheduled to close on November 16, 2020. The agreements did not close, and the parties blame each other for the abortive real estate transaction.
[3] Ms. Malka now moves for a summary judgment for the return of her $170,000 deposit and the Raczs move for a summary judgment for damages of $504,240.80.
[4] For the reasons that follow, I grant summary judgments: (a) granting Ms. Malka’s claim for the deposit without costs and without prejudgment interest; (b) dismissing the Raczs’ counterclaim without costs. The defendants’ real estate agent, who acted for both sides, has agreed to be bound by this judgment, and, thus, the claims against Soltanian Real Estate Inc. should also be dismissed without costs. Summary judgments should issue accordingly.
B. Facts
[5] On August 16, 2020: (a) Florica Racz and Jozsef Racz entered into an Ontario Real Estate Standard form Agreement of Purchase and Sale to purchase 96 Codsell Ave. from Malka Goldie for $1.28 million; and (b) Malka Goldie entered into an Ontario Real Estate Standard form Agreement of Purchase and Sale to purchase 60 Codsell Ave. for a purchase price of $3.4 million from Florica Racz and Jozsef Racz.
[6] The Raczs paid a $1.0 deposit to Soltanian Real Estate for the purchase of 96 Codsell Ave., and Ms. Malka paid a $170,000 deposit to Soltanian Real Estate for the purchase of 60 Codsell Ave.
[7] Both agreements were scheduled to close on November 16, 2020.
[8] Schedule A to the agreement for the purchase of 96 Codsell, which schedule formed part of the agreement, stated:
Buyer agrees to pay the balance of the purchase price, subject to adjustments, by bank draft or certified cheque, to the Seller on the completion of the transaction.
The Seller agrees to discharge any existing mortgages, liens or other encumbrances registered against the property on or before closing at his/her expense, wither [sic] from the proceeds of the sale or by solicitor’s undertaking.
This offer is combined with offer on 60 Codsell Ave. If purchase of 60 Codsell not completed on closing date, this offer shall be null and void.
[9] Schedule A to the agreement for the purchase of 60 Codsell, which schedule formed part of the agreement, stated:
Buyer agrees to pay the balance of the purchase price, subject to adjustments, by bank draft or certified cheque, to the Seller on the completion of the transaction.
The Seller agrees to discharge any existing mortgages, liens or other encumbrances registered against the property on or before closing at his/her expense, wither [sic] from the proceeds of the sale or by solicitor’s undertaking.
If this offer on 60 Codsell is [sic] not close Florica & Jozsef Racz will not close the 96 Codsell and both deals shall be null and void.
[10] Both agreements contained the following standard terms.
TITLE: Provided that the title to the property is good and free from all registered restrictions, charges, liens, and encumbrances except as otherwise specifically provided in this Agreement and save and except for: […]
CLOSING ARRANGEMENTS: Where each of the Seller and Buyer retain a lawyer to complete the Agreement of Purchase and Sale of the property, and where the transaction will be completed by electronic registration pursuant to Part III of the Land Registration Reform Act, R.S.O. 1990, Chapter L.4 and the Electronic Registration Act, S.O. 1991, Chapter 44, and any amendments thereto, the Seller and Buyer acknowledge and agree that the exchange of closing funds, non-registrable documents and other items (the “Requisite Deliveries”) and the release thereof to the Seller and Buyer will (a) not occur at the same time as the registration of the transfer/deed (and any other documents intended to be registered in connection with the completion of this transaction) and (b) be subject to conditions whereby the lawyer(s) receiving any of the Requisite Deliveries will be required to hold same in trust and not release same except in accordance with the terms of a document registration agreement between the said lawyers. The Seller and Buyer irrevocably instruct the said lawyers to be bound by the document registration agreement which is recommended from time to time by the Law Society of Ontario. Unless otherwise agreed to by the lawyers, such exchange of the Requisite Deliveries will occur in the applicable Land Titles Office or such other location agreeable to both lawyers.
DOCUMENTS AND DISCHARGE: […] If a discharge of any Charge/Mortgage held by a corporation incorporated pursuant to the Trust and Loan Companies Act (Canada), Chartered Bank, Trust Company, Credit Union, Caisse Populaire or Insurance Company and which is not to be assumed by Buyer on completion, is not available in registrable form on completion, Buyer agrees to accept Seller's lawyer's personal undertaking to obtain, out of the closing funds, a discharge in registrable form and to register same, or cause same to be registered, on title within a reasonable period of time after completion, provided that on or before completion Seller shall provide to Buyer a mortgage statement prepared by the mortgagee selling out the balance required to obtain the discharge, and, where a real time electronic cleared funds transfer system is not being used, a direction executed by Seller directing payment to the mortgagee of the amount required to obtain the discharge out of the balance due on completion.
TIME LIMITS: Time shall in all respects be of the essence hereof provided that the time for doing or completing of any matter provided for herein may be extended or abridged by an agreement in writing signed by Seller and Buyer or by their respective lawyers who may be specifically authorized in that regard.
TENDER: Any tender of documents or money hereunder may be made upon Seller or Buyer or their respective lawyers on the day set for completion. Money may be tendered with funds drawn on a lawyer’s trust account in the form of a bank draft, certified cheque or wire transfer using the Large Value Transfer System.
[11] It shall be important to note that for both the agreement for 96 Codsell Ave. and for 60 Codsell Ave.:
a. the vendor agreed to convey a title free and clear of encumbrances; no mortgages were being assumed; and
b. the agreements to close were not conditional on the purchaser arranging financing.
[12] In turn, it shall be important to note that:
a. 96 Codsell Ave. was encumbered by a $2,789,500 mortgage granted to CIBC Mortgages Inc., an institutional lender. This is a factual rarity because the mortgages to be discharged exceeded the value of the purchase price of the property being sold.
b. 60 Codsell Ave. was encumbered by a first and second mortgage totaling $3,151,216.10 ($1,982,897.64 + $1,168,318.46) granted to Angelo Kyriakoulias, a private lender.
[13] And it shall be important to note that:
a. the Raczs intended to finance their purchase of 96 Codsell with a new $1.0 million mortgage from the private lender Mr. Kyriakoulias; and
b. Ms. Malka intended to finance her purchase of 60 Codsell with a new $1.25 million mortgage from CIBC Mortgage Inc.
[14] Thus, the parties respectively had financing arrangements to make in order for their transactions to be completed on closing. (To foreshadow, the parties’ orchestration of their respective financing arrangements is a contributing cause of the problems that arose in closing the transactions.)
[15] The agreement for the purchase and sale of 60 Codsell Ave. was amended on August 21, 2020 to remove an inspection clause and to require the Raczs to complete repairs and improvements to the premises before the closing.
[16] Important incidental matters to note are that Ms. Malka and her husband were not living in 96 Codsell Ave. but leasing the residence, and, thus, they had to make arrangements to secure vacant possession. The Raczs were living in 60 Codsell Ave., and they had to make arrangements to make some repairs and some improvements to that property before closing.
[17] The Raczs retained Scott Cook as their conveyancing lawyer to close the transactions swapping 60 Codsell Ave. for 96 Codsell Ave.
[18] Ms. Malka retained Maurice Vaturi as her conveyancing lawyer to close the transactions swapping 96 Codsell Ave. for 60 Codsell Ave.
[19] After searching the title to the 60 Codsell Ave. property, on October 6, 2020, Mr. Vaturi sent a requisition letter to Mr. Cook.
a. The letter requisitioned on or before the closing of the transaction a discharge of the two private mortgages registered against the title of the property. The first mortgage had a principal sum of $1.3 million, bearing interest at 14% per annum. The second mortgage had a principal sum of $925,000, bearing interest at 15% per annum.
b. The letter of requisition stated with respect to both mortgages in bold type; “Please note this is a private mortgage and must be discharged prior to or on closing. An undertaking will not be accepted.”
[20] After searching the title to the 96 Codsell Ave. property, on October 30, 2020, Mr. Cook sent a requisition letter to Mr. Vaturi.
a. The letter requisitioned on or before the closing of the transaction a discharge of the CIBC Mortgage Inc. mortgage of $2,789,500.
[21] On November 6, 2020, Mr. Vaturi replied to Mr. Cook’s requisition letter with respect to the CIBC Mortgage Inc. mortgage. Mr. Vaturi stated that on closing Ms. Malka would provide: (a) a mortgage statement for discharge purposes; (b) a direction that a portion of the balance due on closing would be made payable to CIBC Mortgage Inc.; and (c) Mr. Vaturi’s personal undertaking to register a discharge as soon as possible after closing.
[22] On November 9, 2020, Mr. Cook sent Mr. Vaturi a Statement of Adjustments indicating that $3,230,688.15 was required to close the sale of 60 Codsell Ave. He also sent a direction that of this sum, $3,151,216.10 ($1,982,897.64 + $1,168,318.46) was to be paid to the mortgagee, Mr. Kyriakoulias. to discharge the two mortgages encumbering the property. The sum of $75,971.43 was directed to be payable to the Raczs.
[23] On November 9, 2020, Mr. Cook received from Mr. Vaturi a Statement of Adjustments indicating that $1,280,624.59 was required to close the sale of 96 Codsell Ave.
[24] On November 12, 2020, Mr. Vaturi sent a letter to Mr. Cook about the repairs and improvements and, in particular, he addressed a problem with respect to a $20,000 new refrigerator. In his letter, he wrote:
In order for us to proceed to close this transaction on Monday, we need evidence that all of the above has been completed. In the alternative, we are prepared to close with a holdback of only $50,000 for a period of 30 days to allow your client to complete all the defective and incomplete items including the fridge.
[25] On November 11, 2020, the Raczs obtained a mortgage commitment for a loan of $1.0 million from Mr. Kyriakoulias. This loan was to finance the purchase of 96 Codsell Ave.
[26] As already foreshadowed above and to repeat, the circumstance that Mr. Kyriakoulias was the Raczs’ mortgagee on 60 Codsell Ave., whose mortgages were to be discharged, and that he was to be their mortgagee for 96 Codsell Ave., along with the circumstance that Ms. Malka was arranging for a discharge from a CIBC Mortgage Inc. mortgage on 96 Codsell Ave. and new financing from CIBC Mortgage Inc. for 60 Codsell Ave. is at the heart of the problems that were to lead to an abortive closing of the purchase and sale swap.
[27] A few days before the scheduled closing, Ms. Racz met Ms. Malka at 60 Codsell. There is disputed testimony about this meeting. Ms. Racz’s evidence is that Ms. Malka said that she had overpaid for 60 Codsell Ave. and that she did not want to close the transaction because the purchase of the property was a mistake. This is denied by Ms. Malka, who deposed that all she may have said is that the real estate agency was being overpaid for real estate commissions. I make no finding of fact about whose version of this meeting is correct. Whether Ms. Malka was motivated to find an exit ramp from the property swap transaction is irrelevant to the legal analysis of whether one or the other or both parties to the property swap transaction breached the agreements.
[28] On the morning of November 16, 2020, the day of closing, Mr. Vaturi phoned Mr. Cook and left a voice mail message and then an email message asking for Mr. Cook to call. Mr. Cook did call around 3:00 p.m. In the telephone call, Mr. Vaturi advised Mr. Cook that Ms. Malka would be paying a cheque of $1,952,265.75 (the so-called “net amount”) to close the transaction later in the day. That net amount was the difference between the amount payable by Ms. Malka for her purchase of 60 Codsell Avenue and the amount payable by the Raczs for their purchase of 96 Codsell Ave. Mr. Vaturi deposed that Mr. Cook did not object to that manner of closing the transactions but requested that the closing be postponed for the completion of the repairs and improvements that were being sought by Ms. Malka rather than closing with a holdback.
[29] Mr. Cook’s version of the conversation is somewhat different. Mr. Cook did not dispute that the matter of the repairs was discussed. On the matter of the net amount payment, Mr. Cook’s version was that this was the first time that he had learned that Ms. Malka would not be paying the full purchase price on closing but would be paying the “net amount” of the difference between the purchase prices on the property swap. Mr. Cook says that he did not accept Ms. Malka’s proposal but rather he informed Mr. Vaturi that he would need to obtain the mortgagee’s cooperation to proceed in that manner. I believe Mr. Cook’s version of the conversation, which is more plausible, and consistent with the events that followed.
[30] After the telephone conversation between Messrs. Cook and Vaturi, Mr. Cook contacted Virender Sharma, who was Mr. Kyriakoulias’ lawyer. Mr. Cook inquired if Mr. Kyriakoulias would deliver discharges in exchange for the $1,952,265.75 available on the closing.
[31] At the same time, as Mr. Cook was conversing with Mr. Sharma, Mr. Vaturi was taking instructions from Ms. Malka.
[32] At 3:54 p.m. Mr. Vaturi sent the following email message to Mr. Cook.
Dear Mr. Cook
Our client is ready to close the deal today. We are in funds. Your client may attend after closing to look after the outstanding matters in your letter below. Our clients are not willing to extend the closing. […] For the closing today, we require a registered discharge of the second private mortgage with a discharge statement and your undertaking to discharge same; Your personal undertaking to discharge the first mortgage in favour of the bank together with their statement. […]
For our client’s sale to your client: We have already messaged the transfer to your office; We will deliver via email our package containing Direction re funds […] Personal undertaking to discharge the Bank mortgage; discharge statement of the existing mortgage […]
We are making the funds payable to your firm and calculated as follows: Balance due on closing as per your statement of adjustments $3,232,040.34. Balance due to our client on the sale as per our SOA $1,279,774.59. Amount owing to your client: $1,952,265.75. See copy of our certified cheque attached in the next email as well as our closing packages.
As the two deals are conditional on the closing of the other, I assume that if the sale to our client does not go through your client’s purchase of our client’s property will also not go through. If our client’s purchase is not concluded today we have instructions to declare your client in breach and proceed accordingly.
[33] A minute later, Mr. Vaturi sent the following email message to Mr. Cook:
Dear Mr. Cook
Please find attached a copy of our certified cheque and please advise where to deposit or deliver. If you do not expect to close today kindly advise if you would waive tender.
[34] Fifteen minutes later (4:10 p.m.), Mr. Vaturi sent the following email message to Mr. Cook:
Scott
As per my previous letters, my instructions are to close today. I understand you have issues with the mortgages and will not be able to provide me with discharges. A fact that you did not state in your earlier letter to me. If that is the case, clearly your client is not in a position to close today. Kindly confirm your position.
[35] Twenty minutes later (4:30 p.m.), Mr. Vaturi and Mr. Cook spoke again by phone. Mr. Cook also said he spoke to Avi Vaturi, Mr. Vaturi’s son and another lawyer at his firm. Mr. Cook’s version of these conversations is that he advised Mr. Vaturi that it had not been possible to obtain Mr. Kyriakoulias’ consent and that Ms. Malka’s decision to provide the net amount was a breach of contract. He proposed that the parties extend the closing to provide time to resolve the issue.
[36] Mr. Vaturi’s account of the conversations differs as set out in his email message of 4:51 p.m., which stated:
Scott,
I confirm our recent conversation at 4:30 p.m. to the effect that your client will not be able to be ready today for the closing. Accordingly, I will try to call my assistant to come back as he is on his way there with the original bank draft. Under the circumstances your client is in breach and the transaction is at an end subject to any rights my client may have. For now, our client requires the return of the deposit paid on account of the purchase for now. As stated in our conversation, we never requested an extension of the closing to allow for repairs, we asked for a holdback. My clients were willing to accept your clients’ undertaking to finish the outstanding items. My understanding is that the issue is more with the mortgages that need to be discharged than with our clients’ small demands for repairs. On a without prejudice basis, I shall seek instructions from our clients to see upon what terms they are willing to revive the transaction, if in fact they are willing to. I have just heard that our clerk was there, but the door was closed with a table for deliveries. I asked [him] to come back as we had already spoken.
[37] I find as a fact that Mr. Vaturi’s email message is not an accurate description of the conversation that took place between him and Mr. Cook. Mr. Vaturi’s description omits that Mr. Cook had said that the Raczs’ inability to close was the product of the late arriving announcement that Ms. Malka intended to pay only the net amount difference between the purchase prices and not in accordance with the Statement of Adjustments and direction received from Mr. Cook. Mr. Vaturi’s description omits Mr. Cook’s accusation that Ms. Malka had breached the swap agreement. Mr. Vaturi’s comment that “under the circumstances, your client is in breach” is legal argument self-serving for Ms. Malka’s benefit. Mr. Vaturi’s omission of Mr. Cook’s equally self-serving comment that it was Ms. Malka’s breach of contract is another reason that his legal posturing email message is not an accurate description of the conversation.
[38] In any event, after the 4:30 p.m. conversation, Mr. Cook continued in his efforts to make arrangements with Mr. Kyriakoulias so that the transactions could close. Mr. Cook contacted Mr. Kyriakoulias directly, and by 5:30 p.m., Mr. Kyriakoulias had agreed in principle to increase his new financing for 96 Codsell Ave. to $1.3 million. With this increase in financing for 60 Codsell Ave., the Raczs were in a position to close both transactions in the manner proposed by Ms. Malka but not on the scheduled closing date. Mr. Kyriakoulias’ assistance remained to be finalized, and Mr. Cook was never in funds to close the swap properties transaction on the day scheduled for closing.
[39] The next day, November 17, 2020, at 4:58 p.m., Mr. Cook sent the following email message to Mr. Vaturi:
[…] We have been working all day on a resolution to the problem. Because your client has chosen to structure the closings as a single payment to our client for the net proceeds, it leaves us short to pay out the existing private mortgage on our sale. Had we completed the sale in the normal fashion yesterday, we would have sufficient monies to payout the existing mortgage. We are also receiving $1.3 M mortgage monies on our purchase. Under the circumstances, it would seem that there are only two options available to close these transactions. We close the sale and purchase in the ordinary fashion, which will allow us sufficient net proceeds from our sale to pay out the existing private mortgage. We then proceed to close our purchase transaction. In the alternative, if you are to only provide us with the $192K net differential, we would need your indulgence to close our purchase and receive the new mortgage funds in the amount of $1.3 million, which coupled with the $192K from our sale, would allow us to discharge the existing first on our sale property. We would of course provide you with the necessary undertaking to complete this process. Please call me tomorrow to discuss how we can complete these transactions.
[40] On November 18, 2020 at 11:20 a.m., Mr. Vaturi sent the following email message to Mr. Cook:
Scott […] Regarding the closings, prior to closing I had been sending you emails about the outstanding items, […] however, I did not receive any response from you. I had even left you voice mails. You finally responded in the late afternoon when you told me over the telephone that you did not think you could work it out because your private second lender was asking too much money on their discharge statement and needed time to argue with them and have the amounts reduced. I was surprised that you would only find that you had an issue with a discharge statement on the afternoon of the closing date, while your client had weeks, if not months to find this out. You requested that we extend the closing, and I said I would seek instructions. In that same conversation, we agreed that there would be only one cheque, being the difference between the purchase and the sale, the net amount owing to your client, and you did not object to that. I told you I was in funds you did not ask me to make the payment differently. Besides if you would have made no sense. Your client could register a mortgage on our client's home and use the funds to pay the mortgage on the one he was selling. The result is the same, your client ends up with the same amount on closing. Had we received different instructions, on time, we would have had no problem in accommodating you. Let it be said that in neither of our conversations or emails of the day of closing you had mentioned anything about the preferred method of closing, that was never an issue even when I mentioned that my guy was on his way with the one cheque, the one you already had a scanned copy of. You did not mention that you had funds for our closing either. Finally, for now, we did not receive a direction re funds from you, or any other closing documents, they promised to before closing. We received your email suggesting an extension and responded to the effect that our client insisted on closing on that day, a few moments later. It is our position that we were ready to close both deals on the closing day. We had forwarded our signed documents by email and were told before our clerk reached your office with the original documents and key that the deal would not be closing on that day or even in escrow which we had also offered. We informed you that our client would not agree to your late request for an extension and that our client was not refusing to close the deal based on the unfinished work. We were simply asking for a holdback and then even agreed to allow you client do it after closing. We were not the obstacle for the closing, the mortgage was. Accordingly, based on the above and on what transpired on the afternoon of the day of closing, your client was not ready willing and able to close the deals on that day, while we were, resulting in the transaction coming to an end subject to any rights my clients may have. Our clients are not longer under the obligation to complete this transaction as time was of the essence. We did discuss the possibility of reviving the deals however our clients my clients have informed me that they are not interested in reviving the transactions as they are no longer interested. If this changes I shall let you know. Our clients are asking for the deposit back and require your client to instruct the Broker accordingly. Kindly advise your client of this. Trusting this states our position clearly,
[41] In this email message, which is as much legal argument and a spin on the facts, as it is an objective description of the facts, is not an accurate description of the circumstances. I find as a fact that Mr. Cook never agreed that there could be one cheque, and while he may not have objected, he indicated that he needed Mr. Kyriakoulias’ consent or cooperation to close the transactions with a net cheque payment.
[42] While the parties could ultimately receive what they were entitled to, I find as a fact that the logistics of closing the swap transaction would change depending on whether there was one cheque or an exchange of cheques. Mr. Vaturi’s proposal of one cheque was convenient for his client, but the proposal was inconvenient and a disturbance to Mr. Cook’s clients who had planned to close in accordance with the agreements of purchase and sale and not based on a 4:30 p.m. on the day of closing announcement of a change in the logistics of closing.
[43] Mr. Vaturi also misdescribes the logistical problem and its legal consequences. This misdescription is understandable since Mr. Vaturi and Mr. Cook were having a failure to communicate and understand each other. Mr. Cook’s comments that Ms. Malka was the cause of the problem and that the Raczs needed Mr. Kyriakoulias’ consent to solve the problem of closing the 60 Codsell Ave. transaction is confusing, at best, and may be the source of Mr. Vaturi’s misdescription.
[44] From Mr. Vaturi’s perspective, whether there was one cheque or two cheques, it is true to say that the Raczs would need $1,362,542.49 to close both transactions; however, it is not true to say that had Ms. Malka paid the full purchase price of $3,230,688.15, the Raczs would not be in the position to sell 60 Codsell. Had the Raczs received $3,230,688.15. from Ms. Malka, there would have been sufficient funds to pay Mr. Kyriakoulias $3,151,216.10 and convey 60 Codsell free and clear of encumbrances. However, the Raczs would not be able to close both transactions, based on the net amount cheque.
[45] If the full purchase price was paid for 60 Codsell Ave., Mr. Kyriakoulias needed to increase his financing for 96 Codsell Ave. from $1.0 million to $1.3 million, but funds would also be needed from the 60 Codsell Ave. funds paid on closing. Thus, it is true that Mr. Kyriakoulias’ cooperation was needed to close both transactions, but the problem was not that he was asking too much for discharging his mortgages on 60 Codsell Ave. The problem was that the Raczs needed $300,000 more financing for the purchase of 96 Codsell Ave.
[46] Returning to the narrative, Mr. Cook replied to Mr. Vaturi’s lengthy missive by email at 1:20 p.m. as follows:
Maurice […] I have received consent from the lender’s lawyer to simply provide them with the differential on the private mortgage payout on our sale. We can complete this today if your clients are willing to proceed. Please let me know as soon as you can.
[47] Mr. Cook’s crypt message is not accurate and does not explain that what had happened was that Mr. Cook had reached out directly to Mr. Kyriakoulias on the 16th of November and Mr. Kyriakoulias seemed prepared to increase his financing for the purchase of 96 Codsell Ave. to $1.3 million which along with the “differential on the private mortgage payout” [on the sale of 60 Codsell Ave.] would provide sufficient funds to allow both transactions to close.
[48] However, Mr. Kyriakoulias’ willingness to assist with the financing remained to be worked out with Mr. Kyriakoulias’ lawyer, and the commitment did not become firm until the 17th of November. Moreover, Mr. Cook’s cryptic message failed to disabuse Mr. Vaturi of his spin on the factual run-up to the closing of the swap transaction.
[49] Returning again to the narrative, Mr. Cook’s proposal to keep the swap properties transaction alive was not to be, and the email exchange of November 18, 2020 continued with Mr. Vaturi’s email message of 3:37 p.m. and Mr. Cook’s prompt reply at 3:39 p.m. as follows:
[3:37 p.m.] Scott, thank you for the proposal, however, my clients are adamant and will not revive the deals they are no longer interested. They want their money back. Please inform your client. Thanks.
[3:39 p.m.] Thank you for your message. I will advise the realtors to prepare a Mutual Release to be signed by the parties for the release of the deposit monies.
[50] A mutual release was not signed, and on December 1, 2020, Ms. Malka commenced an action for return of her deposit against the Raczs and Soltanian Real Estate Inc., Brokerage.
[51] The Raczs relisted their property for sale and on or about April 6, 2021, the Raczs sold the property for a purchase price of $3.2 million to a new purchaser.
C. Procedural and Evidentiary Background
[52] On December 1, 2020, Ms. Malka commenced an action for return of her deposit against the Raczs and Soltanian Real Estate Inc., Brokerage.
[53] On December 23, 2020, Ms. Malka delivered an Amended Statement of Claim.
[54] On June 17, 2021, the Raczs delivered their Statement of Defence, Counterclaim, and Crossclaim.
[55] On July 16, 2021, Ms. Malka delivered her Reply and Defence to Counterclaim.
[56] On August 9, 2021, Ms. Malka brought a motion for a summary judgment. The motion was supported by an affidavit dated July 26, 2021 from Mr. Vaturi and by Ms. Malka’s affidavit dated October 7, 2021.
[57] On September 29, 2021, the Raczs brought a cross-motion for a summary judgment. The motion was supported by the affidavit dated September 29, 2021 of Florica Racz and the affidavit dated September 29, 2021 of Mr. Cook.
[58] Mr. Vaturi was cross-examined on October 14, 2021.
[59] Mr. Cook was cross-examined on February 14, 2022.
D. Is the Case Appropriate for a Summary Judgment?
[60] The first issue to determine is whether the case at bar is an appropriate one for a summary judgment.
[61] Rule 20.04(2) (a) of the Rules of Civil Procedure [1] provides that the court shall grant summary judgment if: “the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.”
[62] If a judge is going to decide a matter summarily, then he or she must have confidence that he or she can reach a fair and just determination without a trial; this will be the case when the summary judgment process: (a) allows the judge to make the necessary findings of fact; (b) allows the judge to apply the law to the facts; and (c) is a proportionate, more expeditious and less expensive means to achieve a just result. [2] The motion judge is required to assess whether the attributes of the trial process are necessary to enable him or her to make a fair and just determination. [3]
[63] Both parties have moved for summary judgment, and both parties submit that the case is appropriate for a summary judgment. I agree, a trial is unnecessary for the claim and the counterclaim. The principal actors in this abortive real estate action are Mr. Vaturi and Mr. Cook and I have a fulsome documentary record to reach a fair and just determination without a trial.
E. Discussion and Analysis
[64] At first blush, the legal analysis of the case at bar seems complicated, but upon reflection the complications are reduced by treating it as a single swap agreement transaction rather than as two separate purchase and sale transactions that are linked together, which is the way that it was intermittently orchestrated and analyzed by Mr. Vaturi and Mr. Cook. In other words, in preparing for closing, the lawyers acted as if they were retained on two separate transactions that would close together; however, when the closing was aborted, their opposing legal arguments treated the closing as one transaction.
[65] Viewed as a single property swap agreement transaction, the legal analysis is as follows:
a. Ms. Malka’s performance obligations were threefold: (a) pay $2,789,500 to CIBC Mortgage Inc. to obtain a discharge on its mortgage encumbering 96 Codsell Ave.; (b) convey 96 Codsell Ave., free and clear of encumbrances to the Raczs; and (c) pay the Raczs $3,230,688.15.
b. The Raczs performance obligations were threefold: (a) pay $3,151,216.10 to Mr. Kyriakoulias to obtain a discharge or his two mortgages encumbering 60 Codsell Ave.; (b) convey 60 Codsell Ave., free and clear of encumbrances to Ms. Malka; and (c) pay Ms. Malka $1,280,624.59.
c. On the day scheduled for closing with time of the essence, Ms. Malka repudiated the swap property agreement when she insisted that she pay the Raczs the net sum of $1,952,265.75 instead of $3,230,688.15 as she was contractually obliged to do.
i. Ms. Malka did not contract for making a net payment.
ii. The contractual expectation of the Raczs was that they would receive $3,230,688.15, and Ms. Malka repudiated the swap agreement by paying less than she owed.
iii. This manner of performing the property swap was a breach of contract. And it was also a breach of the duty of good faith in the performance of the contract, [4] but that adds little to the analysis. A breach by any other name is still a breach.
d. On the day scheduled for closing with time of the essence, the Raczs breached the fundamental terms of the swap agreement that: (a) they pay $3,151,216.10 to Mr. Kyriakoulias to obtain a discharge or his two mortgages encumbering 60 Codsell Ave.; and (b) they pay Ms. Malka $1,280,624.59.
i. The Raczs’ breaches were not a repudiation, because they actually wanted to perform their contractual obligations.
ii. Nevertheless, on the day fixed for closing with time of the essence, they were not in the position to close, and they breached their performance obligations.
iii. Although it was Ms. Malka’s repudiation that revealed the problem that the Raczs had to persuade Mr. Kyriakoulias to increase his financing by $300,000, it was, in any event, the Raczs’ responsibility to be in the position to close both transactions. By 5:30 p.m. the Raczs had secured Mr. Kyriakoulias’ increased mortgage commitment, but the fact remains that Mr. Cook was not in funds to close the purchase of 96 Codsell regardless of whether the Raczs received the net or full payment of the purchase price for 60 Codsell.
e. Thus, the legal position on November 16, 2020 was that both parties had fundamentally breached the swap property agreement. By their mutual breaches, time was no longer of the essence and neither party was in the position to enforce the swap properties agreement by an action for specific performance or by an action for damages.
f. After November 16, 2020, Ms. Malka did not restore time of the essence, and rather, she doubled down on her repudiation by demanding a return of her $170,000 deposit.
g. After November 16, 2020, the Raczs did not restore time of the essence. To do that, pursuant to the rule from King v. Urban & Country Transport Ltd. [5], the Raczs would have had to have given reasonable notice of a new closing date and tendered performance on that date. The Raczs did not give notice; rather, they relisted the property and sold it to a new purchaser in 2021.
h. Thus, after November 16, 2020, both parties remained in breach and never restored time of the essence.
i. In law, this circumstance amounts to an abandonment of the agreement between the parties.
ii. In this circumstance of abandonment, the agreement, in effect, is rescinded and the parties are restored to their pre-contract position by operation of law.
[66] Based on this legal analysis, I grant summary judgments: (a) granting Ms. Malka’s claim for the deposit without costs and without prejudgment interest; (b) dismissing the Raczs’ counterclaim without costs; and (c) dismissing the claims against Soltanian Real Estate Inc., Brokerage without costs. Summary judgments should issue accordingly.
[67] By way of elucidation, the law about time of the essence creates a dilemma in circumstances where time of the essence has been turned off because both parties are in a state of breach. This problem was solved by the Ontario Court of Appeal in the case of King v. Urban & Country Transport Ltd..
[68] In that case, Urban & Country Transport agreed to sell a property to King. The agreement required King to give a mortgage back. After signing the agreement, King assigned her agreement to Goldberg. The transaction was scheduled to close July 2, 1968. On that day, however, neither party was ready, able, and willing to close. Goldberg was not in a position to close because he was not in a position to provide a mortgage back from King. Urban & Country Transport also was not in a position to close because its owner did not like Goldberg and refused to sell to him. Urban & Country Transport’s lawyer thus deliberately made himself unavailable to close on July 2. Because of this breach of contract, Urban & Country Transport was precluded from relying on time of the essence. By July 4, Goldberg’s lawyer had tracked down Urban & Country Transport’s lawyer and, on that day, Goldberg was in a position to close, both King and Goldberg having signed the mortgage. Goldberg’s lawyer tendered. The tender was refused, and Goldberg sued for specific performance.
[69] Goldberg’s action for specific performance appeared to produce a stalemate because both parties had been in breach of the closing date with time of the essence. For this situation, Justice Arnup developed the rule from King v. Urban & Country Transport. He stated at at pages 455–56 of the judgment:
It has been found as a fact that the defendants [the vendors] were neither ready nor willing to close on July 2nd. Therefore, the argument based upon time being of the essence fails. Normally, in this situation, when both parties let the time go by, and one of the parties wishes to reinstate time as of the essence, it is necessary to serve a notice upon the other party, fixing a new date for closing, which must be reasonable, and stating that time is to be of the essence with respect to the new date for closing. Neither side did this in this case. However, the findings of the trial judge as to the efforts of B [Goldberg’s solicitor] to close on July 2, July 3 and 4th lead inevitably to the conclusion that it was entirely reasonable to insist upon a closing on July 4th and that there was no reason in law for the vendor to refuse to close on the basis of the documents which B then had and which he tendered to D.
[70] The rule from King v. Urban & Country Transport allows a party who has let time of the essence go by to reinstate time of the essence. In the normal case, this will be achieved by giving notice: (1) clearly bring home to the other party that time of the essence is being reinstated; and (2) fixing a new date for closing, which new date must be reasonable in the particular circumstances. [6]
[71] The rule from King v. Urban & Country Transport remains good law as revealed by the Ontario Court of Appeal in Domicile Developments Inc. v. MacTavish [7].
[72] In the immediate case, both parties breached their obligations on the date fixed for closing and neither party took the appropriate steps to restore time of the essence. Both parties are not in a position to enforce the swap properties transaction.
[73] In Remedies and the Sale of Land (2nd ed.), [8] which I wrote with Bruce Engell, we discuss the problem presented by the immediate case with another problem associated with the dilemma of both parties being in default and time no longer being of the essence. At page 49, we state:
Finally, with respect to time of the essence, if neither party performs as scheduled, then with the further passage of time, it may be inferred that neither party wishes to complete the transaction. In such circumstances, the court may treat the contract as abandoned and unenforceable [9] or repudiated by both sides and unenforceable. [10] The doctrine of contractual abandonment has received considerable analysis in England where it has been explained as depending upon the parties’ conduct leading to a necessary inference of an implicit agreement to abandon the contract. Alternatively, the doctrine has been explained on the basis of estoppel. The estoppel arises where, because of the conduct of one party, the other party is justified in relying and acting on the understanding that the contract is over. [11]
[74] In circumstances in which there has been mutual breaches of the agreement of purchase and sale and neither party is in a position to close on the date fixed for closing with time of the essence, and neither party restores time of the essence, the agreement is treated as abandoned and the purchaser is entitled to a return of the deposit. [12] This law is the law applicable to the circumstances of the immediate case.
F. Conclusion
[75] For the above reasons, I grant summary judgments: (a) granting Ms. Malka’s claim for a return of her deposit without costs and without prejudgment interest; (b) dismissing the Raczs’ counterclaim without costs; and (c) dismissing the claims against the real estate brokerage without costs.
[76] I conclude that the judgments should all be without costs. Although Ms. Malka was a successful party, I would deny her costs because she repudiated the agreement by insisting that it close in a manner not contracted for to suit her own convenience and being indifferent to the difficulties it would present to the Raczs. Although I do not find that Ms. Malka was the cause of the Raczs not being in the position to close, Ms. Malka’s late and unilateral decision to close using one cheque exacerbated the Raczs’ predicament.
Perell, J. Released: February 28, 2022