Bilotta et al. v. Booth et al.

[Indexed as: Bilotta v. Booth]

Ontario Reports

Court of Appeal for Ontario

Huscroft, Zarnett and Coroza JJ.A.

August 25, 2020

153 O.R. (3d) 210 | 2020 ONCA 522

Case Summary

Sale of land — Agreement of purchase and sale — Interpretation — Vendors' house experiencing flooding shortly before closing date — Vendors informing purchasers of damage and of insurance information the day before closing — Purchasers proposing extension of time to close or reduction in purchase price — Purchase did not close and vendors sold to third parties at substantially lower price — Application judge finding vendors breached contract and acted in bad faith — Appeal allowed — There was no substantial damage nor a breach that would have allowed purchasers to terminate — Purchasers had repudiated and vendors accepted repudiation — Finding of bad faith not supported by the record.

Sale of land — Breach of contract — Obligation to act in good faith — Vendors' house experiencing flooding shortly before closing date — Vendors informing purchasers of damage and of insurance information the day before closing — Purchasers proposing extension of time to close or reduction in purchase price — Purchase did not close and vendors sold to third parties at substantially lower price — Application judge finding vendors breached contract and acted in bad faith — Appeal allowed — There was no substantial damage nor a breach that would have allowed purchasers to terminate — Purchasers had repudiated and vendors accepted repudiation — Finding of bad faith not supported by the record.

The applicants agreed to purchase the respondents' house with a closing date of July 7. On June 23 the basement flooded. A contractor conducted some emergency repairs. On July 6, the applicants were informed of the flood and that the insurer had issued a cheque for $14,745. Their counsel alleged that a material defect had been covered up until less than 24 hours before closing and asked for a one-week extension to close the deal. On July 7, the applicants offered to either purchase the property after completion of repairs, or close on the scheduled date with a reduction in price of $50,000. Counsel for the respondents made a counter offer. With no response to the counter offer by July 10 and the sale not having closed on the scheduled date, respondents' counsel sought a full release from the applicants so that the house could be relisted. The respondents sold the house over a year later for $100,000 less than the applicants had agreed to pay. Both parties argued before the application judge that the other was responsible for the breach of the agreement of purchase and sale. The judge found that the insurance clause in the agreement included two implied terms: the buyers were entitled to timely notice of anything happening to the house before closing, and the buyers were entitled to a meaningful opportunity to inspect the house to permit them to make an informed decision in the event of substantial damage. The judge found that the offer to inspect on the closing date was insufficient and that the respondents had not acted in accordance with the duty of good faith. The respondents were found to have breached the contract and were ordered to return the applicants' deposit. The respondents appealed.

Held, the appeal should be allowed.

There was no substantial damage nor a breach of contract that would have entitled the applicants to terminate. On July 6, the applicants were informed of the flood and were provided with the insurance adjuster's report describing the repairs required. The applicants knew, or ought to have known, that the damage was not substantial so there was no election to be made between terminating the agreement or accepting the insurance proceeds and closing.

The finding of bad faith was not supported by the record. That finding would not have allowed for termination in any event. The respondents acted reasonably, even assuming that they could have informed the applicants of the damage earlier than they did. They informed the applicants of the damage and of the insurance details and made reasonable offers to extend the closing. The applicants' refusal to accept an extension of the closing followed by their failure to close on the closing date was a clear repudiation of the contract. The respondents elected to accept the repudiation and terminate the contract. The respondents were entitled to recover the $100,000 difference in price, with the $30,000 deposit to be credited against that amount.

Wile v. Cook, 1986 CanLII 27 (SCC), [1986] 2 S.C.R. 137, [1986] S.C.J. No. 48, 31 D.L.R. (4th) 205, 69 N.R. 67, 75 N.S.R. (2d) 66, 42 R.P.R. 101, 1 A.C.W.S. (3d) 343, distd

Other cases referred to

Azzarello v. Shawqi, [2019] O.J. No. 5206, 2019 ONCA 820, 439 D.L.R. (4th) 127, 7 R.P.R. (6th) 1, 95 B.L.R. (5th) 9; Bhasin v. Hrynew, [2014] 3 S.C.R. 494, [2014] S.C.J. No. 71, 2014 SCC 71, 379 D.L.R. (4th) 385, 464 N.R. 254, [2014] 11 W.W.R. 641, J.E. 2014-1992, 4 Alta. L.R. (6th) 219, 27 B.L.R. (5th) 1, 20 C.C.E.L. (4th) 1, 245 A.C.W.S. (3d) 832, EYB 2014-244256, 2015 CCLG para. 25-556, 2014EXP-3530

APPEAL from the order of Leibovich J., [2019] O.J. No. 5408, 2019 ONSC 5956 declaring vendors to be in breach of an agreement of purchase and sale.

Christopher Lee, for appellants.

Julian Binavince, for respondents.

The judgment of the court was delivered by

[1] HUSCROFT J.A.: — The Booths appeal from the order of the application judge declaring that they breached their agreement of purchase and sale with the Bilottas, requiring them to return the Bilottas' $30,000 deposit, and permitting the Bilottas to proceed to trial for any additional damages they may have suffered.

[2] I conclude that the application judge erred in finding that the Booths breached the contract. As I will explain, the Bilottas had no right to terminate the contract. Their refusal to close on the required date, following rejection of the Booths' reasonable offers to extend the closing date, constituted a repudiation of the contract. As a result, the Booths were entitled to accept the repudiation, terminate the contract and sue for damages.

[3] I would allow the appeal for the reasons that follow.

Background

[4] As the application judge noted, with one exception, the facts in this matter are not in dispute. The application judge set out the timeline, which I repeat here for convenience.

-- April 24, 2017 -- The Bilottas entered into an agreement of purchase and sale to buy the Booths' house for $750,000. The deal was to close on July 7, 2017.

-- June 23, 2017 -- The Booths' basement was flooded. There was one to two inches of water in the basement. The Booths contacted a contractor who conducted some emergency repairs.

-- June 28, 2017 -- The Booths' insurer provided a report describing the repairs needed and the additional costs. The emergency contractor was paid $6,979.72. The Booths were paid $14,745.76 by the insurance company for the remaining repairs. There was a $500 deductible. The Booths advised their lawyer (not Mr. Lee who was not representing the Booths during the relevant time period) of the damage on June 28, 2017.

-- July 6, 2017 at 1:20 p.m. -- Counsel for the Booths wrote to counsel for the Bilottas (not Mr. Binavince, who was only retained after the deal collapsed) advising that there was a flood and that the insurer had issued a cheque for $14,745.65, in addition to a $500 deductible. The Bilottas were asked how they wanted to proceed with the repairs. Counsel for the Booths stated in the letter that he had advised counsel for the Bilottas orally about the damage the day before.

-- July 6, 2017 at 4:15 p.m. -- Counsel for the Bilottas wrote back and advised they wanted to inspect the house with a qualified home inspector. Counsel alleged that a material defect had been covered up and complained about receiving less than 24 hours notice before closing. Counsel for the Bilottas asked for at least a one-week extension to close the deal, and if more time was needed then $500 per day as compensation.

-- July 6, 2017 at 5:29 p.m. -- Counsel for the Booths claimed that counsel for the Bilottas were verbally told about the water damage on July 4, 2017 at 11:50 a.m. Counsel for the Booths offered to also hold back in trust an additional $10,000, to address any costs not covered by the insurance proceeds. The Bilottas were offered the opportunity to inspect the home on July 7. Counsel for the Booths asserted that there was no substantial damage and advised that they would attend on July 7 to close. The adjuster's report was enclosed.

-- July 7, 2017 at 12:55 p.m. -- Counsel for the Bilottas complained again about the last-minute notice and reiterated their request for inspection of the house with a qualified home inspector and contractor. Counsel for the Bilottas made two offers:

(i) they would purchase the property after the repairs were completed. Once completed, the Bilottas would then have a right to inspect the property and if not satisfied renegotiate the purchase price. The closing would have to be extended and the Bilottas compensated for the expenses of the extension; or

(ii) the deal could close on the scheduled day of July 7, with a reduction in price of $50,000.

-- July 7, 2017 at 3:05 p.m. -- Counsel for the Booths wrote back and offered to hold back $50,000 in trust to ease any concerns that the insurance proceeds would be inadequate to cover the costs of the repairs. Counsel also offered to extend the closing, at no cost to any party, until July 14 to allow the Bilottas time to conduct an inspection. They also agreed to pay the cost of storing the Bilottas' belongings that would have been stored in the basement. Counsel for the Booths stated that the Booths were prepared to close that day and asked that the Bilottas advise of their position by 4:00 p.m.

-- July 7, 2017 at 3:49 p.m. -- Counsel for the Bilottas reiterated his position set out in his letter earlier that day.

-- July 7, 2017 at 4:52 p.m. -- Counsel for the Booths wrote again, saying that they are ready to close that day and offered a two-week extension until July 21, and were willing to pay the Bilottas $250 a day and their related expenses.

-- July 10, 2017 at 2:39 p.m. -- Counsel for the Bilottas stated that he forwarded the Booths July 7 proposal to his clients and was awaiting instructions. It is unclear which July 7 offer counsel for the Bilottas was referencing. He asked if they could inspect the house on the morning of July 11, 2017.

-- July 10, 2017 at 3:36 p.m. -- Counsel for the Booths wrote and stated that because the sale did not close on July 7, they were seeking a full release from the Bilottas so that the house could be relisted.

[5] The Booths sold the house over one year later for $100,000 less than the Bilottas had agreed to pay.

The Application Judge's Decision

[6] The Booths and Bilottas each filed applications arguing that the other was responsible for breach of their agreement of purchase and sale. The Booths sought $128,536.21 in damages, reflecting the $100,000 shortfall on the sale of the house in addition to related expenses of $28,536.21, while the Bilottas sought the return of their $30,000 deposit in addition to a trial on an action for additional damages they claim to have suffered.

[7] The only factual issue in dispute between the parties was this: when did the Booths, through their counsel, inform the Bilottas about the flood damage that occurred on June 23, 2017? The application judge found that they were not notified until July 6, the day before the sale was to close.

[8] The application judge found that the insurance clause in the agreement of purchase and sale included two implied terms. The first was that the buyers were entitled to timely notice in the event that anything happened to the house prior to closing, and the second was that the buyers were entitled to a meaningful opportunity to inspect the house in order to permit them to make an informed decision concerning their option, in the event of substantial damage, to terminate the contract or accept the proceeds of the insurance and complete the purchase. The application judge found that the Booths' offer to allow the Bilottas to inspect on closing day, July 7, was not sufficient time and was not a meaningful opportunity to inspect. He found that the Booths' failure to satisfy the implied terms, rather than the Bilottas' failure to close on July 7, breached the agreement.

[9] The application judge found, further, that the Booths did not act in accordance with the duty of good faith set out in Bhasin v. Hrynew, [2014] 3 S.C.R. 494, [2014] S.C.J. No. 71, 2014 SCC 71. Although the Booths did not lie to the Bilottas, the lateness of notice of the damage they provided undermined the Bilottas' legitimate contractual interests and did so in bad faith. The application judge noted the Booths' suspicion that the Bilottas were using the complaint about the damage to obtain a reduction in price, but this did not relieve the Booths of their requirement to provide timely notice of the damage and an opportunity to inspect.

[10] The application judge concluded that the Booths breached the contract and ordered the return of the Bilottas' $30,000 deposit. He also ordered a trial on any additional damages the Bilottas may have incurred, should they wish to pursue it.

Issues on Appeal

[11] The Booths submit that the application judge erred

(1) in finding that implied terms were part of the standard form agreement of purchase and sale;

(2) in failing to consider whether breach of the implied terms permitted termination of the agreement;

(3) in finding that the Booths breached the agreement; and

(4) in finding that the Booths breached the duty of good faith.

Discussion

[12] The insurance clause in the agreement of purchase and sale is key to the outcome of the appeal.

[13] The parties entered the Ontario Real Estate Association's standard form agreement of purchase and sale, which includes the following insurance clause:

All buildings on the property and all other things being purchased shall be and remain until completion at the risk of the Seller. Pending completion, Seller shall hold all insurance policies, if any, and the proceeds thereof in trust for the parties as their interest may appear and in the event of substantial damage, Buyer may either terminate this agreement and have all monies paid returned without interest or deduction or else take the proceeds of any insurance and complete the purchase.

(Emphasis added)

[14] In Wile v. Cook, 1986 CanLII 27 (SCC), [1986] 2 S.C.R. 137, [1986] S.C.J. No. 48, the Supreme Court interpreted a similar insurance clause in the Nova Scotia Real Estate Association's standard form contract and set out principles relevant to this appeal.

[15] In Wile, a fire destroyed the building the day before its sale was to close, leading the parties to extend the closing date by two weeks. During this time, the buyer's solicitor inquired about insurance coverage and learned that the insurance company might deny liability on the basis that the fire was the result of arson. The buyer's solicitor requested that the closing date be extended further but this request was rejected, and the seller's solicitor also refused to provide details of the insurance coverage. The buyer's solicitor then prepared a statutory declaration stating that the buyer would proceed with the sale once the premises were restored to the same condition as when the agreement of purchase and sale was signed or once it was determined that the insurance proceeds were sufficient for this purpose. Neither party tendered on closing.

[16] The insurance clause in Wile stated [at para. 2]:

All buildings and equipment upon the real property shall be and remain at the risk of the Vendor until closing. Pending completion of the sale, the Vendor will hold all insurance policies and the proceeds thereof in trust for the parties as their interests may appear and in event of damage to the said premises, the Purchaser may either have the proceeds of the insurance and complete the purchase, or may cancel the Agreement and have all moneys theretofore paid returned without interest.

[17] This clause is substantially similar to the insurance clause in this case, albeit that it permitted termination for mere damage, as opposed to "substantial" damage. La Forest J. explained the operation of the insurance clause, at p. 143 S.C.R.:

I have no doubt that when damage ensues to the property subject to the agreement, such as occurred in this case, the purchaser is entitled to be granted time to sort out what he is to do, and he is also entitled to obtain the details of the insurance coverage from the vendor.

In effect, the contract included implied terms associated with the insurance clause in order to facilitate the buyer in making an informed election whether to complete the purchase or terminate the agreement.

[18] The court noted that, although the buyer was concerned about whether the insurer would pay given the evidence suggesting arson, the insurance clause did not allow him to wait to see whether the insurer would pay before completing the purchase. Thus, the buyer's statutory declaration was an attempt to vary the terms of the agreement of purchase and sale, and so constituted a repudiation of the agreement. As a result, the seller was entitled to accept this repudiation and terminate the contract.

[19] In this case, the Bilotttas were advised on July 6, prior to closing, that the insurer had issued a cheque for $14,745.65 to cover the flood damage (in addition to a $500 deductible) and were provided with the insurer adjuster's report describing the repairs required and the additional costs. They knew, or ought to have known, that the damage was not substantial -- a matter they concede on appeal. As a result, there was no election to be made between terminating the agreement or accepting the insurance proceeds and closing: the election arose only in the event of substantial damage having occurred. For this reason, the Bilottas did not require a reasonable time to assess their position, as the purchaser did in Wile; there was no election to be made under the insurance clause because there was no substantial damage.

[20] In some cases, there may be a legitimate dispute about the nature or scope of damage to a property -- about whether or not it is "substantial" and so gives rise the buyer's election under the insurance clause. In such circumstances, the seller may be required to provide the buyer with a reasonable opportunity to inspect in order to determine whether the election arises. But that is not this case. There was no substantial damage, nor was there a breach of contract that would otherwise have entitled the Booths to terminate.

[21] The application judge's finding that the Booths acted in bad faith is not supported by the record and cannot be upheld. That finding would not permit the Booths to terminate the contract in any event.

[22] In my view, the Booths acted reasonably, even assuming that they could have informed the Bilottas of the damage earlier than they did. The key point is this: after they informed the Bilottas of the flood and the insurance details, the Booths made two offers to extend the closing on terms that were reasonable and that protected the Bilottas' contractual interests. Neither offer was accepted by the Bilottas, who attempted to change the agreement. The Bilottas' offer to close on July 7 was contingent on obtaining a $50,000 reduction in the agreed price, and their alternative offer to close after the repairs had been completed was contingent on their right to inspect the property and to renegotiate the purchase price if they were not satisfied. Neither offer was accepted by the Booths. As a result, the agreement remained on foot and the Booths were entitled to insist on performance in accordance with its terms. The Bilottas were required to close on July 7.

[23] The Bilottas submit that the Booths repudiated the contract on July 10 by advising that the contract was at an end, and that they terminated the contract and communicated their decision to the Booths on October 3 and 17, when they sought the return of their deposit and reimbursement for damages. Alternatively, the Bilottas submit that their subsequent commencement of the application sufficed to communicate their election to terminate the contract.

[24] This argument misstates what occurred.

[25] The Bilottas are the ones who repudiated the contract -- not the Booths. They were advised of the insurance monies that had been paid, provided with the insurance adjuster's report describing the required repairs and the additional costs, and twice offered extensions of the closing. Their refusal to accept an extension of the closing followed by their failure to close on July 7 was a clear repudiation of the contract. The Booths were entitled to accept this repudiation and terminate the contract or reject it and keep the contract alive. They elected to accept it and terminate the contract and did so in their July 10 correspondence.

[26] In summary:

(1) the Bilottas were not entitled to terminate the contract pursuant to the insurance clause, as the damage caused by the flood was not substantial;

(2) the Booths did not breach the contract;

(3) the Bilottas repudiated the contract when, after they refused to agree to extend the closing date, they failed to close in accordance with the agreed date of July 7, 2017; and

(4) the Booths were entitled to accept the repudiation, terminate the contract and sue for damages.

Conclusion

[27] I would allow the appeal and set aside the decision of the application judge.

[28] The Booths are entitled to damages representing the difference between the contract price and the amount they realized on resale of the house. The application judge found that difference to be $100,000. The $30,000 deposit is to be credited against that amount: see Azzarello v. Shawqi, [2019] O.J. No. 5206, 2019 ONCA 820, at paras. 49 to 55.

[29] The application judge made no findings concerning the Booths' claim for consequential losses of $28,536.21 and it is not clear whether these losses are contested. I would encourage the parties to agree on the amount of consequential losses owing. If they cannot do so, they may make brief three to five-page submissions, along with supporting documentation, to this court by September 18, 2020.

[30] The Booths are entitled to their costs of the application and the appeal, including any supplementary submissions that may be required concerning consequential losses. If the parties cannot agree on costs, they may make brief three to five page submissions by September 18, 2020.

Appeal allowed.

End of Document