COURT FILE NO.: 200/05

DATE: 20060518

SUPERIOR COURT OF JUSTICE – ONTARIO

DIVISIONAL COURT

RE: ANDREW GORDON BROWN, Plaintiff/Respondent on Appeal

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LEE GODFREY and FIONA GODFREY, Defendants/Appellants

BEFORE: Justice Swinton

COUNSEL: Andrew Gordon Brown, unrepresented

Kevin B. Forrest, for the Appellants

HEARD at Toronto: May 16, 2006

ENDORSEMENT

[1] The Appellants, Lee Godfrey and Fiona Godfrey, appeal from the decision of Tierney J. dated May 10, 2005, in which he awarded damages to Mr. Brown, the plaintiff (Respondent on appeal), in the amount of $8,723.07 and costs of $150.

[2] This case arose out of a real estate transaction, in which the Appellants had agreed to purchase the Respondent’s home. They paid a deposit of $5,000 and were obligated to pay a further deposit of $5,000. However, they gave notice that they would not proceed with the purchase and did not pay the remaining deposit. Ultimately, the Respondent was able to sell the home at close to the original purchase price.

[3] The Respondent brought an action in Small Claims Court, seeking damages of $5,000 for breach of contract from the Appellants and $5,000 as the recovery of the deposit monies from the real estate broker. At the beginning of the trial, an order was made releasing the broker from the action, as the $5,000 was paid into court.

[4] The trial judge held that the Respondent, as vendor, could sue in the alternative for damages for breach of contract or for the return of the deposit monies already paid (Transcript, p. 79). He then quantified the damages as follows: $2,066 for the deficiency in the sales price of the boat included in the deal; $1,088.64 paid in legal fees to obtain advice with respect to the vendor’s right to pursue a court action; $568.43 for bridge financing; and $5,000 for mental distress. He ordered that the monies in court should be paid to the Respondent in partial satisfaction of the judgment.

[5] The Appellants submit that the trial judge erred in awarding damages for mental distress and for legal costs. They submit that the proper amount of damages is $2,634.43. The Respondent takes the position that there were no errors made by the trial judge.

[6] In my view, the trial judge erred in awarding damages for mental distress for two reasons. First, there is no reference to a claim for such damages in the pleadings, and a plaintiff cannot recover for claims that are not pleaded, since the defendants have not been given proper notice of the issue so as to be able to respond adequately (Rodaro v. Royal Bank of Canada (2002), 59 O.R. (3d) 74 (C.A.) at para. 61).

[7] Second, such damages are rarely awarded for breach of contract, and this is not an appropriate case in which to award them. As the Court of Appeal observed in Turczinski v. Dupont Heating & Air Conditioning Ltd. (2004), 246 D.L.R. (4th) 95 at para. 27,

Therefore, generally before damages for mental distress can be awarded for breach of contract, the contract must be one where peace of mind is what is being contracted for, such as a contract for a holiday.

In addition, damages for mental distress may be awarded where mental distress is specifically contemplated by the parties as a likely consequence of breach of contract, as such damages would then be reasonably foreseeable (at para. 30).

[8] The agreement of the parties was for the purchase and sale of a home. It does not fall within the category of contract where peace of mind is being contracted for. Nor does the evidence show that mental distress would be a reasonably foreseeable result at the time the contract was entered into. Therefore, the trial judge erred in awarding damages for mental distress.

[9] The trial judge also erred in awarding damages for the legal costs incurred in contemplation of litigation. The costs recoverable in a proceeding are a matter of procedural law governed by the Small Claims Court Rules and the Courts of Justice Act, R.S.O. 1990, c. C.43.

[10] Therefore, the damages award must be varied because of the trial judge’s errors. The issue that remains is the appropriate order to be made on appeal. Pursuant to s. 134(1) of the Courts of Justice Act, an appellate court may make any order or decision that ought to or could have been made by the court appealed from. The Appellants seek to substitute an award of damages of $2,634.43.

[11] In this case, the Respondent originally sought to recover the deposit of $5,000, as well as damages of $5,000 for the remaining amount to be paid as a further deposit. While the express word “forfeiture” is not used in the claim, it is clear from the pleading as well as the evidence that the Respondent sought the forfeiture of the deposit held by the broker, plus the further deposit owing by the Appellants.

[12] According to Allied Canadian Acquisition Corporation v. 1012689 Ontario Limited, [2002] O.J. No. 289 (S.C.J.), a decision of Pitt J. relied on by the trial judge, forfeiture is not available with respect to deposit monies that have not been paid. However, a vendor may retain a deposit when a purchaser repudiates the contract, provided it is not unconscionable to do so. He may do so even if the deposit is greater than actual damages (De Palma v. Runnymede Iron & Steel Co., [1950] 1 D.L.R. 557 (Ont. C.A.)). In the alternative, the vendor has a right to sue for damages for breach of contract and apply the deposit to the amount awarded, if the damages are greater than the deposit.

[13] The Respondent began this case seeking the recovery of the deposit monies. While the agreement of purchase and sale does not expressly say that the monies will be forfeited if the purchaser breaches, the $5,000 is called a deposit, and it is clear that its purpose was to secure performance of the agreement. Given that a deposit was made, it is subject to forfeiture because of the Appellants’ repudiation of the agreement, even if there is no express reference to forfeiture in the agreement. Therefore, the Respondent is entitled to claim this amount from the $5,000 paid into court by the broker, even if his actual damages are less than the deposit. In the circumstances of this case, there are no grounds for the Appellants to seek relief from forfeiture.

[14] Therefore, the appeal is allowed. The award of $8,723.07 is set aside, and an order will go awarding the Respondent $5,000, the amount of the forfeited deposit, which is payable from the amount paid into court plus interest.

[15] In addition, I order that $60 be added to the costs ordered by the trial judge to indemnify the Respondent for the cost of service on the three defendants in accordance with Rule 19.01(1) and (3), which permits recovery of the cost of service on each party to a maximum of $20 per party. Therefore, the costs order will be varied from $150 to $210 to reflect the amount the Respondent paid to his lawyer as a disbursement for service of the claim.

[16] Both parties presented me with bills of costs at the end of the hearing. While the Appellants have succeeded in varying the damages ordered, they were not completely successful. In my view, given the divided success on appeal, no costs should be awarded for the appeal.

Swinton J.

Released: May , 2006