COURT FILE NO.: 04-BN-1181
DATE: 20041005
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N:
Asan Dzourelov and Barbara Dzourelov
Michael K. Bartlett, for the Respondents
Respondents
- and -
T.B. Bryk Management and Development Ltd. and 760281 Ontario Inc.
Berkley D. Sells, for the Appellants
Appellants
HEARD: October 1, 2004
JUDGMENT
[On appeal from Deputy Small Claims Court Judge J. Gaskin on January 6, 2004]
Dawson J.
[1] This is an appeal from the decision of Deputy Small Claims Court Judge J. Gaskin sitting in Orangeville on January 6, 2004.
[2] The plaintiffs contracted with the defendants for the construction of a custom built home. The agreement of purchase and sale was signed in March of 2000 and the transaction closed in August of 2000.
[3] The agreement of purchase and sale included a provision that approximately 1000 square feet of the basement of the home to be built would be finished with the layout to be confirmed by the purchaser. It also provided that “extras” (some examples were given) were to be “priced separately”.
[4] When the plaintiffs were presented with a statement of adjustments a few days before closing they objected to a charge of $13,636.73 for the finishing of an additional 570 square feet in the basement. It was the plaintiffs’ position at trial that they had not contracted to have this additional space finished. In the days before closing, negotiations resulted in the amount charged to finish the extra 570 square feet in the basement being reduced to $9,544.30. The plaintiffs closed under protest and brought a suit in the Small Claims Court to recover this amount. They were successful at trial and the defendants appeal.
[5] At trial, the two plaintiffs, who are husband and wife, testified that they had not discussed the finishing of the additional 570 square feet with the defendants’ representatives. Mary and David Lawson, both employed by the appellant (defendant at trial) gave very different evidence. They testified that in June of 2000 there was a meeting in the basement of the partially constructed home which both of the plaintiffs attended. The discussion revolved around the placement of a wall which would separate the finished from the unfinished portion of the basement. Mr. and Mrs. Lawson each testified that at that time the plaintiffs requested that the balance of the basement, approximately 570 square feet, be finished. Mrs. Lawson also testified that the finishing of the basement took place over approximately a two month period and that one of the plaintiffs, Mr. Dzourelov, attended the home two to three times per week and witnessed the additional construction. At no time did Mr. Dzourelov indicate that it was not his wish that this aspect of the construction proceed.
[6] In his reasons for judgment the learned Deputy Judge made it very clear that he found the evidence of Mary and David Lawson to be credible and that he preferred their evidence to the evidence of the plaintiffs, Mr. and Mrs. Dzourelov. Even without the benefit of having observed the witnesses testify, it is clear from the transcript that there was an ample basis for this finding of credibility. In the circumstances of this brief trial, it is implicit in this finding of credibility that the learned Deputy Judge found that the plaintiffs had requested that the additional space be finished. There was some evidence before the learned Deputy Judge to the effect that the plaintiffs were aware that the cost of finishing space in the basement was between $17 and $22 per square foot.
[7] Despite the implicit finding by the Deputy Judge that the plaintiffs requested that the additional space be finished, he found against the defendants and in favour of the plaintiffs on the basis of an exclusive agreement clause contained in the original agreement of purchase and sale. Clause 23 of that agreement reads as follows:
The parties acknowledge that there is no representation, warranty, collateral agreement or condition, affecting the Agreement except as contained in this agreement. This agreement may not be amended other than in writing.
[8] The learned Deputy Judge concluded that the foregoing clause in a contract prepared by the defendants prevented them from recovering on a subsequent oral agreement to finish the additional space in the basement of the home.
[9] The exclusive agreement clause was not mentioned in the pleadings nor in argument by the parties. The first mention of this clause came in the Deputy Judge’s oral reasons after the trial was over. Consequently, counsel did not have an opportunity to make submissions as to the applicability of the clause, or to provide the Deputy Judge with relevant case law. If they had such an opportunity they may have brought to his attention the recent decision in Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 52151 (ON CA), 64 O.R. (3d) 533 (C.A.)
[10] In Shelanu the Court of Appeal dealt with the proper approach to the interpretation of contracts which contain exclusionary clauses, including exclusive agreement clauses. The Court ruled (at pp. 546-548) that a trial judge faced with such a clause is required to conduct a two-stage analysis. First, the judge is to specifically consider and decide whether the clause in the written agreement applies to the conduct complained of, such as the alleged breach of a subsequent oral agreement. Second, even if the exclusive agreement clause is found to be applicable, the court must decide whether to enforce the clause. If it is clear from the conduct of the parties that the provisions of the written agreement no longer represent the intention of the parties, the exclusive agreement clause should not be enforced. Enforcement should also be denied if it would result in substantial unfairness.
[11] There is no indication that the learned Deputy Judge undertook this two-step analysis. It follows, that the learned Deputy Judge fell into error by failing to approach the issue in this way.
[12] I am satisfied that the analysis required by Shelanu, which was not undertaken by the learned Deputy Judge, raises a pure question of law in the circumstances of this case, where there has been an implicit finding that the parties entered into a subsequent oral agreement. The question of law to be answered is whether the exclusive agreement clause applies to prevent the appellants (defendants at trial) from relying upon the subsequent oral agreement.
[13] The exclusive agreement clause in question consists of two sentences. I agree with the appellant’s submission that the first sentence deals with the situation at the time the agreement was signed. It has the effect of excluding the possibility of any representation, warranty or collateral agreement at that time, that was not included in the written agreement.
[14] The second sentence in clause 23 indicates that the agreement of purchase and sale cannot be amended, except in writing. Counsel for the appellants submits that the oral agreement to finish more of the basement is not a change to the original agreement but a separate subsequent oral contract. He contends that if the change had been to reduce the amount of space to be finished, or otherwise to have modified the obligations of the parties in such a way as to detract from the benefits they were to receive under the original agreement, then the second sentence of the exclusive agreement clause would be applicable, and the change would have to be in writing. That is not the case where there is a subsequent oral contract which is not in any way inconsistent with the original written contract. The original contract required that 1000 square feet of the basement be finished. It is silent with respect to the 570 square feet and so, it is argued, the exclusive agreement clause is no impediment to a separate oral agreement dealing with that 570 square feet. I agree with these submissions. In Shelanu, at p. 551, Weiler J.A., refers to Anson’s Law of Contract, 27th ed., for the proposition that a contract, whether written or not, can be varied by a subsequent written or oral agreement without running afoul of the parol evidence rule. That rule provides that extrinsic evidence is not admissible to vary or add to the contents of a written agreement. However it only deals with ascertaining the original intentions of the parties. Weiler J.A. goes on to cite authority for the proposition that “an exception to the parol evidence rule is the existence of any subsequent oral agreement to rescind or modify a written contract ...” (emphasis in original). Weiler J.A. also cites Corbin on Contracts for the proposition that an express provision in a written contract forbidding oral variation of the contract or its discharge is generally unsuccessful with respect to subsequent agreements. She adopts the following quote from Corbin, also at p. 551 of the judgment:
Two contractors cannot by mutual agreement limit their power to control their legal relations by future mutual agreement. Nor can they in this manner prescribe new rules of evidence and procedure in the proof of facts and events.
[15] In addition to these submissions I note that the original agreement of purchase and sale specifies that extras are to be priced separately. This is an indication that the provisions of the original agreement were not intended to apply to separate subsequent agreements that added to, as opposed to detracted from, the original agreement. In my view, the exclusive agreement clause in the written contract does not apply to the subsequent oral contract.
[16] Even if the exclusive agreement clause did apply to the conduct at issue in this case, I would nonetheless conclude that the clause ought not to be enforced in the circumstances here. The evidence accepted by the learned Deputy Judge indicates that both plaintiffs were present when the subsequent oral agreement was made to finish the extra 570 square feet. In addition, the plaintiff Mr. Dzourelov attended the home more than once a week and would have seen the extra space being finished but said nothing. He knew the cost per square foot of finished basement space. As a result of these factors I conclude that it would be grossly unfair to enforce the exclusive agreement clause as opposed to the subsequent oral agreement. I note that in his reasons the learned Deputy Judge acknowledged that it appeared to be unfair, but he stated that the clause must nonetheless govern. On the basis of Shalanu, this is an error of law.
[17] A further ground of appeal is raised in relation to the Deputy Judge’s decision not to consider quantum meruit and unjust enrichment because they had not been pleaded.
[18] The first thing I would note is that the facts set out in the pleadings give rise to the potential application of these equitable doctrines, although they were not referred to by name. In addition, these doctrines were raised by the articling student who appeared for the defendants at trial during an opening exchange that took place between counsel and the deputy judge. Counsel for the plaintiffs at trial also referred to quantum meruit and unjust enrichment in responding to an evidential objection raised during the trial. Therefore, this was not a case where a party was taken by surprise or failed to develop an evidential record to address the issue: see Kalkinis (Litigation Guardian of) v. Allstate Insurance Co. of Canada (1998), 1998 6879 (ON CA), 41 O.R. (3d) 528 (C.A.). The evidence at trial in this case would have been no different had there been specific reference to these doctrines in the pleadings by name.
[19] I also note that the pleadings were not prepared by counsel. It must be remembered that this was a Small Claims Court action where litigants often appear unrepresented. As noted by Heeney J. in 936464 Ontario Ltd. (c.o.b. Plumhouse Plumbing & Heating) v. Mungo Bear Ltd., 2003 72356 (ON SCDC), [2003] O.J. No. 3795 at para. 45:
The higher standards of pleadings in the Superior Court are simply unworkable in the Small Claims Court, where litigants are routinely unrepresented, and where legal concepts such as the many varieties of cause of action are completely foreign to the parties.
[20] The Newfoundland Court of Appeal has commented on pleadings in Small Claims Court cases in Popular Shoe Store Ltd. v. Simoni, 1998 18099 (NL CA), [1998] N.J. No. 57 at para. 24-25, as follows:
A Small Claims Court judge has a duty, on being presented with facts that fall broadly within the umbrella of the circumstances described in the Statement of Claim, to determine whether those facts constitute a cause of action known to the law, regardless of whether it can be said that the claimant, as a matter of pleading, has asserted that or any other particular cause of action. Subject to considerations of fairness and surprise to the other side, if a cause of action has been established, the appropriate remedy, within the subject-matter jurisdiction of the court, ought to be granted.
This approach should apply equally to the statement of defence.
[21] In view of my conclusion that the entire agreement clause is not an impediment to enforcement of the oral contract implicitly found by the Deputy Judge it is not really necessary for me to determine whether the defendant at trial should have succeeded on a quantum meruit basis. However, on the evidence accepted by the learned trial judge it would seem that the equitable doctrines of quantum meruit and unjust enrichment applied. The plaintiffs benefited from the labour and material supplied by the defendants. They saw the construction of the additional basement area underway and did nothing to stop it. They were aware of the cost per square foot of such work, in a general sense, as a result of negotiating the original agreement. The evidence was that it was between $17 to $22 per square foot. The amount they ended up being charged for the work, which is the amount the learned Deputy Judge ordered should be returned to the plaintiffs, was $9,544.30, an amount at the bottom of the range.
[22] For the foregoing reasons I allow the appeal and set aside the judgment of the learned Deputy Judge at trial. On the basis of a correct application of the law to the facts implicitly found by the Deputy Judge, I dismiss the plaintiffs’ claim and find for the defendants. It follows that the funds held in trust may be disbursed provided no appeal is taken from my decision.
[23] The appellants, defendants at trial, should have their costs. If counsel are unable to agree on costs they may arrange to make brief oral submissions by telephone conference call. This may be done by contacting my assistant. Alternatively, they may exchange and file brief written submissions and a Bill of Costs within 30 days.
Dawson J.
Released: October 5, 2004
COURT FILE NO.: 04-BN-1181
DATE: 20041005
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N:
Asan Dzourelov and Barbara Dzourelov
Respondents
- and –
T.B. Bryk Management and Development Ltd. and 760281 Ontario Inc.
Appellants
JUDGMENT
[On appeal from Deputy Small Claims Court Judge J. Gaskin on January 6, 2004]
Dawson J.
Released: October 5, 2004