Court of Appeal for Ontario
Date: December 19, 2018 Docket: C65032
Judges: Rouleau, Pardu and Benotto JJ.A.
Between
Giuseppe Di Millo Applicant (Appellant)
and
2099232 Ontario Inc., 2051407 Ontario Inc. and Inderjeet Dhugga Respondents (Respondent)
Counsel
Antonio Conte, for the appellant
James S. G. Macdonald, for the respondent
Heard
September 12, 2018
Appeal
On appeal from the order of Justice Jamie K. Trimble of the Superior Court of Justice, dated February 6, 2018, with reasons reported at 2018 ONSC 816.
Decision
Benotto J.A.:
[1] Introduction
[1] Giuseppe Di Millo's claim for specific performance of an option to repurchase land was dismissed by the application judge. He appeals on the basis that the application judge misapprehended the facts, misunderstood the nature of the application and erred in law.
[2] For the reasons that follow, I would allow the appeal.
Facts
[3] The appellant had, for many years, owned a large parcel of industrial land in Bolton, Ontario. He severed certain lots and, in 2012, sold two lots to the respondent, 20999232 Ontario Inc. The purchase price for both lots was $1,160,000. The respondent paid $360,000 in cash and the appellant took back a mortgage of $800,000.
[4] The agreement of purchase and sale included an option clause in Article 9.01(u), which read as follows:
Covenant to Build and Option to Purchase – The Purchaser [i.e. the respondent] covenants and agrees with the Vendor [i.e. the appellant] that within thirty (30) months from the Closing Date it shall complete construction upon the Real Property of an industrial building to the extent that the roof, heating, plumbing, concrete flooring, exterior, paving and landscaping is completed as certified by the Vendor's consulting engineer or architect. The Purchaser agrees that if the Purchaser shall fail to complete construction, as aforesaid, within the aforesaid thirty (30) month period, the Vendor shall have the option to repurchase the Real Property at the sale price paid by the Purchaser to the Vendor, pursuant to Section 2.01 hereof, after deducting there from any agents' commissions paid or incurred by the Vendor in connection with the sale of the Real Property to the [Purchaser] and upon payment by the Vendor of the balance of the Purchase price due upon such repurchase of the Real Property, the Purchaser, its successors and assigns, will release and reconvey to the Vendor all its right, title and interest in and to the Real Property. Such agreement arising from the exercise of this option by the Vendor shall be completed thirty (30) days after the date of notification to the Purchaser of the exercise of such option. A provision to this effect may be inserted in the conveyance of the Real Property [from] the Vendor, its successors or assigns, if applicable, and the Purchaser shall, and agrees to, execute all instruments or documents to give effect to the provisions of this paragraph.
[5] It essentially provides that the respondent was to build a specified industrial building within 30 months of closing (by March 2015) failing which the appellant would have the option to buy back the land at the original purchase price, less real estate commission paid on the original sale. Once the option was exercised, the sale back to the appellant was to be completed thirty days after notice of the exercise the option was given to the respondent. The agreement was silent as to when the notice of the exercise of the option had to be given.
[6] The agreement of purchase and sale also included a clause whereby the respondent agreed not to sell, assign or transfer its interest in the agreement without the prior written consent of the appellant.
[7] By March 2015, the respondent had not taken any steps to build on the property. It asked for and was given a one-year extension by the appellant. A year later – by March 2016 – the building still had not been started.
[8] The appellant's lawyer wrote to the respondent's lawyer on June 6, 2016 advising that he was exercising the option. There was no response to this letter. The circumstances surrounding the receipt of this letter are unclear. The sender produced a fax confirmation form showing that it was delivered. The recipient solicitor testified that he did not recall receiving it. Yet, the principal of the respondent swore an affidavit indicating that his lawyer told him about the June 6 letter on or about that date. In any event, both parties agreed that the June 6 letter was not an effective exercise of the option, presumably because it was not sent directly to the respondent.
[9] On August 22, 2016, the respondent entered into an agreement of purchase and sale to sell the property to a third party. The respondent did not seek the appellant's consent prior to doing so.
[10] The appellant retained a new lawyer. The new lawyer sent a letter to the respondent and the respondent's lawyer on September 24, 2016 exercising the option. The application judge noted that, in accordance with the terms of the agreement, this would have placed the closing date on October 24, 2016.
[11] Upon receiving the letter of September 24, 2016, the respondent requested another year extension. The appellant refused and insisted on a reconveyance. By then, the appellant had learned that the respondent had placed two additional mortgages of $500,000 and $150,000 on the property. He asked that they be discharged prior to closing.
[12] On October 6, 2016, the appellant's lawyer sent an email to the respondent's lawyer, which ends with the following paragraph:
If your client continues to refuse to reconvey or to remove the $500,000 mortgage, then we will be commencing an application to the Courts. I will allow until next Wednesday for your positive response that your client will be complying, failing which I will commence the application immediately thereafter. [Emphasis added.]
[13] On the following Tuesday, October 11, 2016, the following response was received: "I have been retained by [the respondent]. I have instructions to accept service of any originating process on behalf of my client."
[14] The appellant started an application requesting specific performance and discharge of the mortgages. However, on April 17, 2017, after learning that the mortgages that were placed on the property without his consent were legitimate mortgages, the appellant purchased one of the two mortgages for approximately $500,000. He says he purchased the mortgage to provide evidence that he had the funds to close.[1] He says he also wanted to solve the problem of how to recover the excess of the amount of the encumbrances on the property by purchasing the mortgage, which was registered collaterally on the house of the principal of the respondent.
[15] Although the appellant had initially requested discharge of the two mortgages placed on the property by the respondent in his notice of application, by the time of the application to the court, the appellant simply requested specific performance of the option with credits for the encumbrances. This was made clear to the court in the opening statement and the appellant filed a supplementary affidavit outlining these events.
[16] It took a year for the application to be heard.
Decision of the Application Judge
[17] The application judge dismissed the application. He concluded that the appellant did not "meet the requirements of the option". The application judge found that the timing of the notice was "outside the reasonable notice period contemplated by the Agreement" and it did not comply with the "time is of the essence" clause. The June notice was three months after the appellant could have first exercised the option and the September notice was six months after.
[18] Although this was sufficient to dispose of the matter, the application judge found the appellant was not "ready, willing and able" to close and that his failure to tender was fatal to his claim for specific performance.
Position of the Parties
[19] The appellant argues that the application judge made various palpable and overriding errors with respect to the facts and misapprehended the nature of the application. The appellant further submits that the application judge erred in law by finding that the option had expired even though the agreement did not specify the time period within which the option could be exercised. The appellant says the application judge also erred in finding that that the appellant's failure to tender meant he was not entitled to specific performance.
[20] The respondent states that the agreement required the appellant to set a closing date to complete the purchase within 30 days of exercising the option, and the appellant did not do so. Further, the respondent contends that the appellant failed to establish that he was ready, willing and able to close on any day subsequent to September 24, 2016 (i.e., the date the appellant gave notice exercising the option) and, therefore, specific performance is not available to him. The respondent states that the fact that the appellant did nothing to complete the purchase after exercising the option was not caused in any way by the respondent.
Analysis
[21] The main issue on this appeal is whether the application judge erred in concluding that the appellant was not entitled to specific performance. There is no issue that the respondent failed to comply with its obligation under the option clause to build an industrial building on the property. Rather, what is at issue is whether the appellant did what he needed to do and whether specific performance is an appropriate remedy.
[22] In particular, the appeal raises the following issues:
- Did the application judge misapprehend the facts and the nature of the application?
- Did the application judge err in finding the option had expired?
- Is the appellant's claim for specific performance defeated by his failure to tender?
- Is the appellant entitled to the remedy of specific performance under Semelhago v. Paramadevan?
Issue #1: Did the application judge misapprehend the nature of the application and the facts?
[23] A review of the record indicates that the application judge misunderstood the nature of the application before him.
[24] The application judge stated at the outset of his reasons that the appellant was requesting "a mandatory injunction requiring the Respondents to discharge the 2nd and 3rd mortgages on the property". He further stated that he was provided with no admissible evidence concerning the appellant's purchase of the second mortgage. These statements were incorrect.
[25] The supplementary affidavit of the appellant filed on consent during opening submissions detailed the appellant's purchase of the second mortgage. It was referred to and was before the court. Further, the appellant's counsel made it clear that the claim was for specific performance of the option with credits for the encumbrances, not a discharge of the mortgages.
[26] It is not clear to what, if any, extent the application judge's misapprehension about the nature of the application impacted his analysis and so I do not conclude it was a palpable and overriding error. However, as I explain below, his erroneous statement that there was no admissible evidence concerning the appellant's purchase of the mortgage infected the analysis of whether the appellant was ready, willing and able to close.
[27] The appellant also submits that the application judge made other palpable and overriding errors. In light of my conclusions on the other issues, it is unnecessary to address the appellant's additional arguments on this point.
Issue #2: Did the application judge err in finding that the option had expired?
[28] The application judge's first reason for disposing of the appellant's application was that he was out of time when he gave notice that he wanted to exercise the option. He found that notice was given outside the "reasonable notice period contemplated by the Agreement." One of the reasons he gave for reaching that conclusion was that there was non-compliance with the "time is of the essence clause".
[29] The appellant argues that the application judge erred in concluding that the option had expired. I note that the respondent does not argue otherwise. Rather, the respondent contends that the application judge's decision is supportable on the basis that the appellant did not tender, the third issue I will address.
[30] I agree with the appellant that the application judge erred in concluding that the option had expired. In my view, his error flows from his misapprehension of the nature of a "time is of the essence" clause.
[31] A "time is of the essence" clause is engaged where a time limit is stipulated in a contract. The phrase "time is of the essence" means that a time limit in an agreement is essential such that breach of the time limit will permit the innocent party to terminate the contract.
[32] Garner's Dictionary of Legal Usage, 3d ed. (Oxford: Oxford University Press, 2011) explains "time is of the essence" as follows, at p. 895:
When a contractual stipulation relating to the time of performance is "of the essence" of a contract, a party's failure to meet that stipulation automatically justifies the other party's rescinding the contract – no matter how trivial the failure. If, on the other hand, time is not of the essence, then the failure to comply with a stipulation about time will justify rescission only if there is substantial failure in performance.
[33] Similarly, Geoff Hall explains that "[t]he phrase ["time is of the essence"] is meant to evoke the notion that failure to observe stipulations in a contract as to when certain events are to occur will entitle the other party to rescind the contract": Geoff R. Hall, Canadian Contractual Interpretation Law, 3d ed. (Toronto: LexisNexis, 2016), at p. 379.
[34] Geoff Hall explains how "time is of the essence" clauses are somewhat unusual from the perspective of contractual interpretation at p. 380:
From the broader perspective of contractual interpretation, time-is-of-the-essence clauses are an interesting phenomenon in that they operate somewhat independently of the principles of contractual interpretation generally. Unlike most other contractual provisions, the meaning of such clauses does not particularly turn on the intentions of the parties. Rather, the mere invocation of the phrase imports a series of rules of law which are imposed on the parties.
These rules of law include, for example, the rule that only a party who is ready to perform can rely upon a "time is of the essence" clause to terminate the contract for the other party's non-compliance with the provision: Hall, at p. 382.
[35] These descriptions of "time is of the essence" clauses highlight that a "time is of the essence" clause does not serve to impose a time limit but rather dictates the consequences that flow from failing to comply with a time limit stipulated in an agreement.
[36] In this case, clause 14.1 of the agreement states that "Time shall be of the essence in all respects of this Agreement". While I agree that the "time is of the essence" clause applies to the option clause, it only applies insofar as the option clause stipulates time limits.
[37] Notably, while the option clause includes two time limits, it is silent as to the time limit for exercising the option. However, the application judge found, that "providing notice to the Respondent that complies with the Agreement, 6 months after the option first arose, does not comply with the time is of the essence clause". In my view, he erred in finding that the "time is of the essence" clause was engaged where no time was stipulated in the contract for exercising the option and in finding that there was non-compliance with the "time is of the essence" clause. Those errors tainted his finding that the option had expired by the time the appellant gave notice.
[38] In light of the application judge's error, it is open to this court to determine whether the option was exercised within a reasonable time. When, as here, there is no time specified for the exercise of an option, a reasonable time limit is implied: SBS Sealants Inc. v. Robroy Industries Ltd., 59 O.R. (3d) 257 (C.A.), at para. 16.
[39] Recently, this court considered an option to purchase in the context of an interest in land. In 2123201 Ontario Inc. v. Israel Estate, 2016 ONCA 409, 130 O.R. (3d) 641, at paras. 19-21, Laskin J.A. explained that the life of an option is governed by the rule against perpetuities:
An option to purchase gives the option holder the right but not the obligation to purchase land. … An option holder has an equitable interest in the land, contingent on the holder's election to exercise the option. Because an option to purchase creates an interest in land, it is specifically enforceable at the time the option is granted. But to remain valid the option must be exercised within the perpetuity period.
[40] The question of when, within the 21-year period, it is reasonable for an option to be exercised depends upon the particular circumstances of the case. Here, the respondent did not appear interested in timely compliance. It had not even started building within 30 months. It requested and received a year-long extension. Even after receiving the September 2016 notice, it requested a further extension since it had yet to start building. The respondent never asserted that the option had expired, or was about to expire.
[41] In this context, I conclude that the option had not expired at the time the appellant gave notice in September. Notice was provided within a reasonable time.
Issue #3: Is the appellant's claim for specific performance defeated by his failure to tender?
[42] The application judge found that the appellant did not tender and his failure to do so was sufficient grounds to dispose of the application for specific performance. He noted that, in essence, the appellant relied on anticipatory or repudiatory breach but concluded that the appellant, as the optioning party, was still required to tender.
[43] The application judge also refused to accept the appellant's statement that he was ready, willing and able to close. He found that it was nothing more than a "bald statement", noting that there was "no evidence he had such funds". He also commented on the appellant's failure to prepare any closing documents.
[44] The appellant argues that the application judge erred in law by finding that he was required to tender where it was clear that tender of the purchase price would be futile. He also says he was, in fact, ready, willing and able to close.
[45] For a party to be entitled to specific performance, the party must show he or she is ready, willing and able to close: Time Development Group Inc. (In trust) v. Bitton, 2018 ONSC 4384, at para. 53; see also Norfolk v. Aikens, 41 B.C.L.R. (2d) 145 (C.A.). While tender is the best evidence that a party is ready, willing and able to close, tender is not required from an innocent party enforcing his or her contractual rights when the other party has clearly repudiated the agreement or has made it clear that they have no intention of closing the deal: McCallum v. Zivojinovic, 16 O.R. (2d) 721 at p. 723 (C.A.); see also Dacon Const. Ltd. v. Karkoulis, [1964] 2 O.R. 139 (Ont. H.C.).
[46] In McCallum, at p. 723, this court explained that the renunciation of a contract may be express or implied:
The renunciation of a contract may be express or implied. A party to a contract may state before the time for performance that he will not, or cannot, perform his obligations. This is tantamount to an express renunciation. On the other hand a renunciation will be implied if the conduct of a party is such as to lead a reasonable person to the conclusion that he will not perform, or will not be able to perform, when the time for performance arises.
[47] The purchaser in McCallum made it clear that he did not intend to complete the transaction on the closing date and this renunciation relieved the vendors from the obligation to tender.
[48] The principles around the requirement to tender are summarized succinctly by Perell J. in Time Development Group, at paras. 56-57:
Tender … is not a prerequisite to the innocent party enforcing his or her contractual rights. Tender is not required from an innocent party when the other party has clearly repudiated the agreement. Numerous cases have held that the law does not require what would be a meaningless or futile gesture. Moreover, when there is an anticipatory breach, the innocent party need not wait to the date for performance before commencing proceedings for damages or in the alternative for specific performance of the agreement. [Citations omitted.]
[49] Thus, when a party by words or conduct communicates a decision not to proceed to closing, the other party is released from any obligation to tender in order to prove he was ready, willing and able to close: see Kirby v. Cameron, [1961] O.R. 757 (C.A.); Kloepfer Wholesale Hardware v. Roy, [1952] 2 S.C.R. 465.
[50] In my view, the appellant was relieved of the obligation to tender when the respondent clearly communicated a decision not to proceed with the transaction. On October 6, 2016, the appellant's lawyer requested confirmation that the respondent would close failing which he would begin an action. The respondent's reply was an invitation to commence the action. Further, in violation of the agreement, the respondent tried to resell the property without notice to or the consent of the appellant. Viewed reasonably and objectively, it was clear that the respondent was not going to close.
[51] In taking issue with the appellant's failure to tender, the respondent relies on Pierce v. Empey, [1939] S.C.R. 247, for the proposition that all terms of the option as to time must be strictly observed. In particular, the respondent refers to the following passage at p. 252:
It is well settled that a plaintiff invoking the aid of the court for the enforcement of an option for the sale of land must show that the terms of the option as to time and otherwise have been strictly observed. The owner incurs no obligation to sell unless the conditions precedent are fulfilled or, as the result of his conduct, the holder of the option is on some equitable ground relieved from the strict fulfilment of them. [Citations omitted.]
[52] The respondent says that Pierce v. Empey is still good law and that it should be applied in this case, where the appellant failed to take steps to close within the stipulated timeline.
[53] I agree that Pierce v. Empey is good law but note that it did not involve anticipatory repudiation and does not speak to a situation like the one before this court, where the respondent clearly communicated a decision not to proceed with the transaction.
[54] Thus, I am satisfied that the appellant was not required to tender, although he was required to demonstrate he was ready, willing and able to close to be entitled to specific performance.
[55] The application judge was not satisfied that the appellant was ready, willing and able to close. On that point, he said there was "no evidence" he had the funds to close. On my review of the record, he was incorrect.
[56] As the application judge noted, the appellant made the following statement in his affidavit: "I have always been ready, willing and able to pay the amount required to be paid under the option agreement." This evidence is supported by two other pieces of evidence in the record.
[57] Counsel for the respondent asked the appellant on cross-examination:
Q. Paragraph 13. The first sentence – this is your Affidavit. "I have always been ready, willing and able to pay the amount required to be paid under the option agreement." … It says in the Affidavit, 294,000. You don't really have a specific recollection of that amount; am I correct?
[58] Shortly after, the appellant's counsel, Mr. Conte, and the respondent's counsel had the following exchange:
A. [I]f your question is, did he have that amount in the bank? He did.
Q. At what point did he have it in the bank?
A. For a long time. He's had a lot of money in the bank for a long time. As you know, he took over the second – the first mortgage now – or the second mortgage now and he's paid 500 … And he paid that from his savings.
[59] The fact the appellant purchased one of the mortgages for $500,000 was supported by the appellant's June 26, 2017 supplementary affidavit. As noted above, the application judge overlooked the existence of the supplementary affidavit.
[60] The fact that the appellant had the $500,000 he used to purchase the mortgage in his savings "for a long time" is supported by Mr. Conte's evidence on behalf of his client.
[61] While it would have been preferable if the appellant had personally answered the question, in light of the rules on examinations, the answer of counsel is deemed to be the answer of the appellant. Rule 31.08 provides:
Questions on an oral examination for discovery shall be answered by the person being examined but, where there is no objection, the question may be answered by his or her lawyer and the answer shall be deemed to be the answer of the person being examined unless, before the conclusion of the examination, the person repudiates, contradicts or qualifies the answer.
[62] There was no objection to Mr. Conte answering for the appellant and the appellant did not repudiate, contradict or qualify the answer. No further questions on the issue were put to him. The answer is deemed to be the appellant's answer.
[63] In short, the application judge erred in finding that there was "no evidence" the appellant had the necessary funds to close. I am satisfied that the appellant was ready, willing and able to close. As to his failure to tender any documents, I have already explained why in the circumstances of this case it was unnecessary for the appellant to undertake the futile step of preparing any documents.
Issue #4: Is the appellant entitled to specific performance?
[64] I have concluded that the appellant's failure to tender does not preclude him from obtaining a remedy of specific performance. I have also concluded that he has demonstrated that he was ready, willing and able to close, which is a prerequisite to obtaining the remedy of specific performance. I turn to one final issue – whether specific performance is an appropriate remedy on the facts of this case.
[65] In Semelhago v. Paramadevan, [1996] 2 S.C.R. 415, at para. 21, the Supreme Court of Canada stated that "[i]t cannot be assumed that damages for breach of contract for the purchase and sale of real estate will be an inadequate remedy in all cases." Specific performance should not be granted absent evidence that the property is "unique" or, in other words, that "its substitute would not be readily available": para. 22.
[66] In Erie Sand and Gravel Ltd. v. Seres' Farms Ltd., 2009 ONCA 709, 97 O.R. (3d) 241, at para. 110, this court agreed that "specific performance is not to be ordered for breach of contract unless damages are inadequate". Gillese J.A. cited John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd., 63 O.R. (3d) 304 (C.A.), explaining what is meant by unique:
[116] … Weiler J.A., writing for the court, referred to para. 23 in 1252668 Ontario Inc. v. Wyndham Street Investments Inc., [1999] O.J. No. 3188, 27 R.P.R. (3d) 58 (S.C.J.) and stated, at para. 39:
I agree that in order to establish that a property is unique the person seeking the remedy of specific performance must show that the property in question has a quality that cannot be readily duplicated elsewhere. This quality should relate to the proposed use of the property and be a quality that makes it particularly suitable for the purpose for which it was intended.
[67] Whether or not a substitute is readily available will depend on the facts of the particular case. Uniqueness is therefore a fact-specific inquiry.
[68] The parties did not address the subject of uniqueness nor the availability of damages in lieu of specific performance. However, the record before the application judge provides a sufficient basis for this court to consider the issue. I turn now to the record.
[69] The appellant sold a specific lot consisting of two acres of land as part of his plan to develop a larger parcel into a subdivision. The subdivision plan was registered on the lands owned by the appellant.
[70] Article 9 of the agreement between the parties details the respondent's obligations. These include the respondent's agreement to get written consent from the appellant for any application for rezoning, and an agreement not to oppose any efforts by the appellant to have the subdivision property severed or rezoned or to have the subdivision plan amended. The respondent also agreed to keep the property neat and tidy and not to interfere with the appellant's installation of services.
[71] Under the option clause found in Article 9.01(u), the respondent undertook to build a building of certain specifications to be certified and approved by the appellant's consulting engineer or architect. The appellant described it in his affidavit as a "high quality industrial building."
[72] In my view, this case is similar to 11 Suntract Holdings Ltd. v. Chassis Service & Hydraulics Ltd., 36 O.R. (3d) 328 (Gen. Div.), where Lax J. concluded that damages were an inadequate remedy and granted an order for specific performance. In Suntract, the purchaser required the subject property to further their goals to develop nearby lands that they owned. The property was considered unique because the purchaser's plan was to use it to provide access to its development property. Any other property in any other location could hardly be a substitute. The plan could not go forward without the 11 Suntract property.
[73] Similarly, the land in question is sufficiently unique to satisfy the test in Semelhago, from a subjective and objective standpoint. There cannot be a substitute property in another location that would meet the goals of the subdivision plan. It is exactly for the purpose of the subdivision plan that the appellant entered into the option agreement. The appellant provided the municipality with $400,000 as security, to be released when the subdivision was fully developed. When the respondent failed to build on the property as he had contracted to do, the appellant could not complete the development of the subdivision. Only specific performance is an adequate remedy in this case.
[74] In conclusion, the appellant is entitled to specific performance of the option to purchase.
Disposition
[75] The appeal is allowed with costs payable to the appellant in the agreed upon amount of $15,000 inclusive of disbursements and applicable taxes.
"M.L. Benotto J.A."
"I agree Paul Rouleau J.A."
"I agree G. Pardu J.A."
Released: December 19, 2018
"PR"
Footnote
[1] The appellant understood the amount due on closing was $294,460 after the commission on the original sale and the amount owing under the vendor-take-back mortgage were deducted from the original sale price.