CITATION: 3999581 Canada Inc. v. 1394734 Ontario Inc., 2007 ONCA 312
DATE: 20070426
DOCKET: C43707
COURT OF APPEAL FOR ONTARIO
GOUDGE, BLAIR and LAFORME JJ.A.
B E T W E E N :
3999581 CANADA INC. and 1514594 ONTARIO INC.
John Dempster for the appellants
Appellants
- and -
1394734 ONTARIO INC.
Philip W. Augustine for the respondent
Respondent
Heard: January 19, 2007
On appeal from the judgment of Justice Roydon J. Kealey of the Superior Court of Justice, dated May 27, 2005.
R.A. BLAIR J.A.:
Background and Facts
[1] The appellants seek to set aside the judgment of Kealey J., dated May 27, 2005, (a) dismissing their claim for a $100,000 abatement in the purchase price for property acquired from the respondent, and (b) allowing the respondent’s counterclaim for pre-judgment interest on the purchase price during the period of delay in closing. The dispute arises out of an erroneous description of the size of the property being purchased.
[2] On March 18, 2002, the parties entered into an Agreement of Purchase and Sale – the appellants as Purchasers and the respondent as Vendor – with respect to lands described as “Block 59, Plan 4M-916, City of Gloucester, now City of Ottawa, being approximately 98,950 square feet as outlined on [a Schedule] attached”.[^1] The purchase price was $680,000. After the Agreement was executed, but before the date fixed for closing, it was discovered that this description was erroneous. The Vendor did not have title to all of the lands described. It owned only part of Block 59 Plan 4M-916, measuring approximately 86,745 square feet (about two acres) – a difference of about .26 acres, or 12%.
[3] The parties agree that the misrepresentation respecting the area of land to be conveyed was an innocent mistake; there is no suggestion of any intentional deceit on the part of the Vendor. The origins of the mistake lie in the documents prepared by the Vendor’s agent in connection with the listing of the property. The Listing Agreement described the lands as “Block 59 R.P. 4M-916”. The Vendor did not own the whole of Block 59, however; it owned Block 59 except Parts 1 and 2 on Plan 4R12988 in the City of Ottawa (as described above). The Vendor’s listing materials again portrayed the legal description as “Block 59, Plan 4M-916” and described the size of the lands as “2.26 acres or 98,590 square feet”. This error was simply carried through from draft to draft until it found its way into the Agreement of Purchase and Sale as finally executed.
[4] Although the physical boundaries of the lands were readily identifiable on viewing the property, Mr. Gauthier – the principal of the appellant, 3999581 Canada Inc. – testified at trial that he could not determine what the square footage of the lands was by standing in the field. He said that he relied upon the documents obtained from the Vendor’s agent with respect to the legal description and land size, and that the offered purchase price was based on the square footage of the land and its intended use as a townhouse development. His evidence on this latter point was corroborated by the Purchaser’s architect and by its Director of Land Development. None of this testimony was contradicted at trial.
[5] The Purchasers discovered the misrepresentation after engaging engineers and architects to begin surveying and laying out site plans. Instead of the 62 units it expected to be able to erect, the Purchaser learned it would only be able to erect 54. They nonetheless decided to complete the transaction for the lands the Vendor could convey, and sought to do so with an abatement of the purchase price in the amount of $103,875 (consisting of a reduction of $83,875 calculated on the basis of the percentage reduction in the size of the property, plus $20,000 for costs thrown away).[^2] The Vendor refused to complete the transaction unless the full purchase price was paid.
[6] On May 21, 2002 the Purchasers registered a Caution against the lands. On July 8 they waived all conditions under the Agreement in their favour and proposed a closing date of August 7, 2002, seeking at the same time confirmation that the Vendor would agree to an abatement of the purchase price. On July 9 the Vendor confirmed the August 7 closing date but advised that it was not prepared to agree to an abatement.
[7] Accordingly, the Purchasers issued a statement of claim on July 16, 2002, claiming specific performance and an abatement of the purchase price. They obtained a Certificate of Pending Litigation which was registered on title on July 23, 2002. Negotiations followed, but no settlement was reached. The closing date was extended by agreement to August 15, at which time the parties tendered on each other. The transaction did not close.
[8] The Vendor defended the action and counterclaimed for an amount representing interest on the purchase price from the original date of closing, August 15, 2002, until the actual closing date (the transaction eventually closed on February 27, 2004).
[9] Following the tender, the Vendor moved to have the Certificate of Pending Litigation discharged on the grounds that the Purchasers had made inadequate disclosure and that the Purchasers had no reasonable claim to an interest in the lands. Rutherford J. dismissed this motion on November 1, 2002.
[10] Later, however – in January 2004 – each party brought motions that resulted in an order of considerable significance for the trial and this appeal. The Vendor sought again to discharge the Certificate of Pending Litigation (this time on grounds of delay) and in addition claimed certain relief regarding the Purchaser’s affidavit of documents and answers to undertakings. The Purchaser sought to have the appellant 1514594 Ontario Inc. added as a plaintiff in the action.
[11] Kealey J., sitting as a motions judge, heard the motions. On January 15, 2004, he made orders adding the party plaintiff and requiring that undertakings be answered, and all pre-trial proceedings be completed, by February 29 and that the action be set down for trial immediately. More importantly, he did not order that the Certificate of Pending Litigation be discharged outright. Instead, he ordered that “the real estate transaction in question in this action shall close on or before February 29, 2004” (my emphasis), subject to the Purchaser paying the purchase price plus property taxes from the original closing date, with the usual adjustments, and subject to the sum of $100,000 being withheld from the purchase price and paid into court to the credit of the action. Only if the transaction failed to close as a result of fault on the part of the Purchasers was the Certificate of Pending Litigation to be discharged.
[12] Kealey J. also ordered that the parties were to identify the issues to be tried in the action and, failing agreement, were to ask the Court to specify those issues. No such motion was brought. Counsel agreed that the issue to be tried was whether the Purchasers were entitled to an abatement of the purchase price. In this appeal, counsel also agreed that this was the issue that was tried in the proceeding below.
[13] Kealey J. tried the case over two days in March 2005, and released his decision on May 27, 2005. He dismissed the Purchasers’ claim for an abatement and granted judgment in favour of the Vendor on the counterclaim, awarding the Vendor damages in the amount of $58,636.03 for the delay in closing between August 15, 2002 and February 27, 2004.
[14] For the reasons that follow, I would allow the appeal and set aside those orders.
Analysis
[15] Respectfully, in my view, the trial judge erred in his application of the law pertaining to the circumstances in which specific performance with an abatement of the purchase price may be ordered in favour of a purchaser where the vendor is unable to convey the whole of what the vendor has agreed to convey. In addition, the trial judge’s finding that the land in question “was immediately identifiable and quantifiable by the most casual inspection because of its observable and obvious boundaries” (my emphasis) is contrary to the evidence. Because this finding is pivotal to the respondent’s equitable argument and to the exercise of the trial judge’s discretion it is both “palpable” and “overriding” and cannot be allowed to buttress the decision not to allow an abatement.
[16] In the case of a contract for the sale of land, where there is a discrepancy between what the vendor has agreed to convey and what the vendor can convey, the rule is that a purchaser is generally entitled – if the purchaser is otherwise entitled to specific performance, and so elects – to specific performance of the contract with an abatement in the purchase price. This has been the law since at least the decision of Mortlock v. Buller (1804), 10 Ves. 292, 32 E.R. 857 (Ch.). In that case, at 315-16 (Ves.), Lord Eldon L.C. said:
I also agree, that, if a man, having partial interest in an estate, chooses to enter into a contract, representing it, and agreeing to sell it, as his own, it is not competent to him afterwards to say, though he has valuable interests, he has not the entirety; and therefore the purchaser shall not have the benefit of his contract. For the purpose of this jurisdiction, the person contracting under those circumstances, is bound by the assertion in his contract; and, if the vendee chooses to take as much as he can have, he has a right to that, and to an abatement; and the Court will not hear the objection by the vendor, that the purchaser cannot have the whole. [Emphasis added.]
See also Rutherford v. Acton-Adams [1915] A.C. 866 at 869-70 (P.C.)
[17] This court and the Supreme Court of Canada have adopted the same approach. In Ontario Asphalt Block Co. v. Montreuil (1913), 29 O.L.R. 534 at 545-46 (C.A.), Meredith C.J.O. (speaking for the court) enunciated the rule in this fashion:
Ordinarily, where the vendor is unable to convey the whole of the land which he has contracted to sell, the purchaser has two courses open to him: either to refuse to complete the purchase, in which case he may sue for damages; or to require the vendor to convey that to which he can make title and to submit to a proportionate reduction or abatement of the purchase-money in respect of the remainder of the land.
The rule applicable where the other course is taken [i.e., the second option above] is nowhere, as far as I am aware, more clearly, or, as I think more correctly, stated than in the following passage from the Cyclopaedia of Law and Procedure, vol. 36, p. 740: “Although the purchaser cannot have a partial interest forced upon him, yet if he entered into the contract in ignorance of the vendor’s incapacity to give him the whole, he is generally entitled to have the contract specifically performed as far as the vendor is able, and to have an abatement out of the purchase-money for any deficiency in title, quantity, or quality of the estate.” [Emphasis added.]
[18] An appeal to the Supreme Court of Canada in the Ontario Asphalt Block case was dismissed for the reasons given by Meredith C.J.O. in this court: (1916), 52 S.C.R. 541. See also LeMesurier v. Andrus (1986), 54 O.R. (2d) 1 (C.A.).
[19] This court has also held that it is not necessary as a matter of law for a purchaser to quantify the amount of the abatement and to offer to close the transaction subject to paying the specified amount of the abatement into court as a condition of proceeding with the claim for specific performance and an abatement and resisting the vendor’s attempt to remove the agreement from title: Capital Ventures Group Inc. v. Vulcan Packaging Inc. (1990), 71 O.R. (2d) 554 (C.A.).
[20] The quantum of the abatement is generally calculated on the basis of a pro-rata reduction in the purchase price based on the amount of land that cannot be conveyed: Ontario Asphalt, supra, at 547-58; Khanna v. Mysko, [1993] O.J. No. 2697 (Gen. Div.), aff’d [1995] O.J. No. 2614 (C.A.). Here, Kealey J. adopted that approach and there is no issue on this appeal about the quantum of the abatement, calculated at $83,848 on the following basis:
$680,000 ÷ 98,590 sq. ft. = $6.87 per sq. ft.
12,205 sq. ft. missing land x $6.87 = $83,848
[21] On behalf of the Vendor Mr. Augustine raises four primary arguments in support of his position that these principles are not applicable in the circumstances of this case and that the decision of the trial judge is correct and should stand. He submits that:
a) the title defect clause in the Agreement of Purchase and Sale (Article 10) precludes specific performance and an abatement by the terms of the contract;
b) an abatement should not be ordered where the land’s boundaries were obvious on a casual inspection and the purchase price was offered on a “bulk” sum rather than an “area” basis ;
c) an abatement is ancillary to specific performance, and the appellants are not entitled to specific performance; and that,
d) the trial judge was correct in not ordering an abatement in the circumstances of this case because to do so would be inequitable.
[22] I would not give effect to any of these submissions.
Article 10 (Title Defects)
[23] The Agreement of Purchase and Sale contained the standard provision regarding title, requisitions and termination of the agreement. Article 10 makes it a condition of the Agreement that the Vendor convey a title to the property that is good and free from all restrictions, charges, liens, and encumbrances except as provided for in the Agreement (a list of specific exceptions is outlined), and then continues:
If within the specified times referred to in paragraph 8 any valid objection to title … is made in writing to Vendor and which Vendor is unable or unwilling to remove, remedy or satisfy and which Purchaser will not waive, this Agreement notwithstanding any intermediate acts or negotiations in respect of such objections, shall be at an end and all monies paid shall be returned without interest or deduction and Vendor, Listing Broker and Co-operating Broker shall not be liable for any costs or damages. [Emphasis added.]
[24] The Respondent relies heavily on this provision, which Mr. Augustine referred to as the “anti-abatement” clause. He submits that there was a valid defect in title (the Vendor could not convey everything it had agreed to convey), that the Purchasers insisted on closing, but subject to an abatement of the purchase price, and that the Vendor insisted on closing without any such abatement. Thus there was a defect in title that the Vendor was unable to remedy and the effect of Article 10 was to entitle it to treat the Agreement of Purchase and Sale as terminated and to limit the Purchasers remedy to the return of their monies without interest: see Paul M. Perell, “Specific Performance with an Abatement” (2001), 41 R.P.R. (3d) 302.
[25] I agree that Article 10 is an “anti-abatement” clause in the sense that, in the circumstances contemplated therein, neither vendor nor purchaser can be compelled to close and accept an abatement of the purchase price. In my opinion, however, Article 10 does not assist the Vendor in the circumstances of this case. It can have no application where the transaction has closed and title has passed.
[26] Here, the provisions of Article 10 were neither pleaded nor argued at trial and, indeed, the Vendor did not seek to rely upon them in relation to the transaction. Quite the contrary, the Vendor wanted to close the transaction and did so. It gave up the property but remained adamant that no abatement would be conferred. That is not what Article 10 envisages. At page 308, Mr. Perell sums up his view of the law respecting claims for an abatement in the context of the termination clause in this way:
…[A] party may have a claim for an abatement if the party has a viable claim for specific performance and the other party is unable to rely on the termination provisions contained in the agreement.
[27] Here, for the reasons just articulated, the Vendor is unable to rely upon the provisions of Article 10.
“Bulk Sum” Purchase Price
[28] The respondent contends that where a purchaser is aware of the boundaries of the property being acquired, and those boundaries are obvious on a casual inspection – as is the case here – and where the purchaser offers a bulk sum for the property not based on area or frontage or depth, the purchaser is not entitled to specific performance with an abatement: Wilson Lumber Co. v. Simpson (1910), 22 O.L.R. 452 (H.C.J.); Gray v. Chadwick (1922), 49 N.B.R. 144 (N.B.S.C.).
[29] I would not give effect to this argument. In Wilson Lumber the lands were described as “having a frontage on Richmond Street of 36 feet, more or less, and a depth of 110 feet, more or less, to a lane”. The court held that the vendor was in effect able to convey what it had agreed to convey. Here, the qualifying word is “approximately” and no one argues the Vendor’s inability to convey twelve per cent of what it agreed to convey falls within that qualification. Moreover, as I have noted above, the trial judge’s finding that the lands were easily quantifiable by casual inspection is contrary to the evidence. In addition, while the Agreement of Purchase and Sale does not say specifically that the purchase price was calculated on the basis of acreage or square footage, it clearly contemplates that the property to be sold had an area of approximately 98,590 square feet, and the uncontradicted evidence of the appellants is that their offer price was based on the square footage of the land and its intended use as a townhouse development.
[30] The record demonstrates that the professed acreage of the property was a significant factor in both the appellants’ decision to acquire the property and in the calculation of the price they were willing to pay. The trial judge made no finding to the contrary. Accordingly, this is not a case of a contract for the purchase of land for a gross or bulk sum, as was the situation in the authorities cited above.
The Appellants’ Entitlement to Specific Performance and the Equitable Nature of the Remedy
[31] The respondent’s third and fourth arguments can be dealt with together.
[32] The right to an abatement of the purchase price is ancillary to a right to specific performance. Like the Respondent’s Article 10 argument, however, the submission that the Appellants are not entitled to specific performance in the circumstances of this case has been overtaken by the closing of the transaction which took place following the order of Kealey J. on January 15, 2004. That order directed that the transaction “shall close on or before February 29, 2004,” subject to the sum of $100,000 being paid into court out of the purchase monies pending disposition of the issues subsequently to be tried. It was tantamount to an order granting specific performance to the Purchasers. Counsel agree that the only issue addressed at trial in this regard was whether the Purchasers were entitled to an abatement of the purchase price. The trial thus proceeded on the premise that the Purchasers were entitled to specific performance. The only question was whether it was specific performance with an abatement of the purchase price (the Appellants’ position) or specific performance without such an abatement (the Respondent’s position).
[33] Specific performance with an abatement is an equitable remedy. Consequently, even though the general rule – as set out in Ontario Asphalt and related authorities – is that purchaser has the right to elect to obtain specific performance with an abatement (absent Article 10 considerations), the court reserves a residual discretion whether to grant an abatement or not. The Respondent accordingly argues that the trial judge was correct in declining to order an abatement in the circumstances of this case on equitable grounds. In support of this position the respondent submits that:
a) given the Purchasers’ objection to title which the Respondent in good faith could not remedy, the Purchasers had their option to rescind the agreement and get their money back or proceed with the agreement without abatement;
b) the Purchasers elected to waive the conditions in the Agreement of Purchase and Sale that were in their favour and to close the purchase, knowing the quantity of land they were buying, the exact price they were paying and the exact number of housing units the land would yield, and they did so because the project nonetheless offered them a handsome profit potential;
c) the mistake in the description of the land was an innocent mistake and could have been ascertained prior to signing the Agreement of Purchase and Sale had the Appellants chosen to do so.
[34] The thrust of the trial judge’s rationale for finding that an abatement was not an appropriate remedy in the circumstances of this case is found in the following paragraphs of his reasons (touching, in some respects, on the points put forward on behalf of the Respondent above):
[5] A review of the learned authors and many cases cited by the parties, leads me to conclude that the following general principles are applicable to this type of case. Specific performance with an abatement of the purchase price will not likely be available as a remedy where the deficiency is so trivial as to come within the ambit of the words “more or less”; nor will it be granted where the deficiency is so large or significant that the court is effectively rewriting the parties’ contract. As well, the courts are more reluctant to grant specific performance with an abatement of the price to a purchaser than to a vendor, because to do so would give the former exactly what it wished to acquire for less consideration, whereas the latter is forced to perform a contract which it did not enter. However, in circumstances where the vendor has made a material representation as to title or the quantity of land, the court’s concern in granting the remedy will sometimes be ignored. Thus, if expressed contractual provisions “guaranteeing” title or acreage are found, the court in many cases invokes such findings and permits the remedy despite having to rewrite the contract. The same is true of representations made in a collateral contract. Furthermore, the court will sometimes order specific performance with an abatement where the error involves a “gross mistake” going to the “root of the contract” or affecting “the essence of the deal”. [Emphasis added.]
[6] The case before me falls far short of those which would incline the Court to exercise its discretion to order an abatement. Even without deciding the issue of whether the current owner plaintiff has suffered any loss in view of the discounted purchase price, which was paid to acquire the subject land, it seems to me that the plaintiffs want to “have their cake and eat it too”. The circumstances here do not involve a “guarantee”, and there is no dispute that the vendor’s misrepresentation of the square footage being sold was an innocent mistake.
[7] The record discloses that the land in question was immediately identifiable and quantifiable by the most casual inspection because of its observable and obvious boundaries. The plaintiffs had the opportunity to rescind their offer and avoid the transaction if they so wished upon learning of the shortfall in the land size. Instead they sought to abate the purchase price and at the same time avoided closing the deal by the registration of a certificate of pending litigation. Indeed they have gained the benefit of the appreciation in value of the defendant’s property from 2002 to 2004. [Emphasis added.]
[35] Respectfully, there are at least two errors in those passages – one legal and one factual – which are significant for the purposes of this appeal.
[36] First, the statement that “the courts are more reluctant to grant specific performance with an abatement of the price to a purchaser than to a vendor” – reinforced by the reference to “the court’s concern in granting the remedy [to a purchaser]” – is wrong in law. Indeed, the opposite is the case: courts will more readily grant specific performance with an abatement to a purchaser than to a vendor. As noted by Viscount Haldane in Rutherford v. Acton-Adams, supra, at 870:
If it is the purchaser who is suing the Court holds him to have an even larger right. Subject to considerations of hardship he may elect to take all he can get, and to have a proportionate abatement from the purchase money. [Emphasis added.]
[37] This statement was adopted by this court in LeMesurier v. Andrus, supra, at 5. See also Bowes v. Vaux (1918), 43 O.L.R. 521 (Ont. H.C.) and Victor Di Castri, The Law of Vendor and Purchaser: The Law and Practice Relating to Contracts for Sale of Land in the Common Law Provinces of Canada, 3d. ed. (looseleaf) (Toronto: Carswell, 1988) at para. 256. Moreover, contrary to the view of the trial judge, and as noted in Ontario Asphalt, supra, at 546:
“This is not,” it is said, “making a new contract for the parties, since the vendor is not compelled to convey anything which he did not agree to convey, and the vendee pays for what he gets according to the rate established by the agreement.”
[38] Secondly, the finding that “the land in question was immediately identifiable and quantifiable by the most casual inspection because of its observable and obvious boundaries” is contrary to the evidence. The lands were identifiable by their boundaries, but not quantifiable. As noted above, the evidence was uncontradicted in this respect, as was the testimony that the Purchasers relied upon the represented square footage of the land in developing the price they offered. The Agreement of Purchase and Sale represented that the lands were comprised of 98,590 square feet.
[39] Thus, the trial judge approached the exercise of his equitable discretion to grant an abatement from a legal perspective that was the reverse of the attitude favoured by the courts (that is, the courts approach purchasers’ claims for an abatement more favourably than those of vendors, not the reverse) and based upon a crucial factual underpinning that was misplaced. These errors sufficiently undermine the exercise of his equitable discretion, in my view, that his decision in that regard cannot stand.
[40] Accordingly, for the foregoing reasons, the appeal must be allowed.
The Counter-Claim
[41] The trial judge awarded the Respondent the sum of $58,636.03 as damages for the delay in closing between August 15, 2002 (the date set for closing) and February 27, 2004 (the date when the parties closed pursuant to court order). The amount was calculated on the basis of prejudgment interest in respect of that portion of the purchase price represented by the vendor take-back mortgage ($365,000 @ 7% interest) for that period, plus prejudgment interest on the balance of the purchase price at the Courts of Justice Act prejudgment interest rate for the same period.
[42] The trial judge gave no reasons for granting judgment on the counter-claim, and in my view he erred in that regard.
[43] The transaction failed to close on August 15, 2002, because, while both parties wanted to complete it, the Vendor was not prepared to close with an abatement and the Appellant 3999581 was not prepared to close without one. The Respondent submits that as a consequence of 3999581 registering a Certificate of Pending Litigation against the property, together with the delay in the process of the action, the Respondent was not able to access its capital asset (its property) or the proceeds of the sale from August 15, 2002 until February 27, 2004. Accordingly, the argument goes, it is entitled to be reimbursed for the financial losses resulting from that delay.
[44] I do not agree.
[45] First, as I have concluded that 3999581 is entitled to an abatement, it follows that it was justified in commencing its action and registering the Certificate of Pending Litigation against the property in order to protect its position. Secondly, there is no evidence that the Vendor was ever prepared to close the transaction with the disputed funds representing an abatement being paid into court prior to the motion judge’s order. Thirdly, there is no evidence on the record as to which of the parties was responsible for the delay in moving the case forward, and the trial judge made no findings in that regard.
[46] I am not persuaded that in such circumstances the respondent should be entitled to succeed on its counterclaim.
Disposition
[47] For the foregoing reasons, then, the appeal is allowed and judgment is granted as follows:
a) allowing the Purchasers’ claim and declaring that the Purchasers are entitled to an abatement of the purchase price in the amount of $83,848.00
b) directing that the Accountant of the Superior Court of Justice pay out to the Purchasers the sum of $83,848.00 from the monies currently held in court to the credit of this action, together with all accumulated interest on that amount, and that the balance of the monies currently held in court be paid out to the Vendor; and
c) dismissing the Vendor’s counterclaim.
[48] The Appellants are entitled to their costs of the appeal, fixed in the amount of $11,500.00 inclusive of fees, disbursements and GST. They are also entitled to the costs of the trial to be assessed on a partial indemnity basis if the parties cannot agree on the quantum of those costs.
“Robert A. Blair J.A.”
“I agree S.T. Goudge J.A.”
“I agree H.S. LaForme J.A.”
RELEASED: April 26, 2007
[^1]: The Agreement of Purchase and Sale was executed by the appellant 3999581 Canada Inc. in trust for a company to be incorporated, as Purchaser, and the Respondent, as Vendor. 3999581 Canada Inc. subsequently assigned the Agreement to the appellant, 1514594 Ontario Inc. I will refer to the appellants, together, as “the Purchasers”.
[^2]: The Purchasers abandoned their claim to costs thrown away in their oral arguments before this court.