ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-09-093277-00
DATE: 20120724

B E T W E E N:

1250364 ONTARIO LTD. carrying on business as LIONSHEAD HOMES

Greg Roberts, for the Plaintiff

Plaintiff

• and -

PETER CHARLES TOWNEND Defendant

J. Scott McLeod, for the Defendant

HEARD: June 6, 7, 18, 21, 2012

REASONS FOR DECISION

LAUWERS J.:

[1] The plaintiff house-builder sold a house to the defendant for $560,000.00 inclusive of GST and PST but the deal did not close. The plaintiff seeks to retain the defendant’s deposits of $85,000.00 and also sues for damages for breach of contract for its losses arising from the re-sale of the house to another purchaser at the lower price of about $495,000.00 inclusive of GST and PST. The defendant counterclaims for the return of his deposits and upgrade costs on the basis that the plaintiff was not able to close the deal on November 10, 2008.

[2] For the reasons that follow I grant judgment to the plaintiff and dismiss the counterclaim.

Background facts

[3] The house was located at 7 Red Robin Road in the Town Of Georgina, Ontario beside the house occupied by the plaintiff’s principal, Lianne Eddington, and her spouse, Glenn Christoff.

[4] The Agreement of Purchase and Sale dated October 5, 2007, was prepared by Mr. Christoff, who negotiated the terms with Mr. Townend and his son Todd, a real estate agent. Paragraph 13 of the Agreement set an original closing date of June 26, 2008, and also provided:

…the Purchaser agrees that he will grant one or more extensions, as required by the Vendor for the completion of the House and the closing of the transaction. It is further agreed between the parties hereto that the House shall be deemed to be completed for closing when municipal occupancy is available, and the Purchaser agrees to close the transaction on the Vendor’s undertaking to complete all work.

[5] Paragraph 14 addressed the issue of grading:

If weather conditions do not permit the completion of sodding or exterior work, the Purchaser agrees to close this transaction and pay the full balance due on the Vendor’s undertaking to complete the work within a reasonable time thereafter, having regard to weather conditions and the availability of supplies and/or tradesmen. notwithstanding (sic) the closing of the transaction, the Purchaser agrees that the Vendor or its duly authorized agents may enter upon the Real Property in order to finish grading operations when in the Vendor’s Opinion weather permits.

[6] In this transaction the plaintiff was represented by Arthur Richman, and particularly by his law clerk Marlene Mills. There was a longstanding business relationship between the plaintiff and both Mr. Richman and Ms. Mills. The defendant was represented by Robert Nagel. Since they were neighbours, Ms. Eddington, Mr. Christoff and the defendant were in constant communication, sometimes leaving the lawyers to catch up. The record shows that Mr. Nagel routinely papered communications, but Mr. Richman rarely responded.

[7] The surveyor sited the house too close to the property line. This created a side lot set-back issue which came to the plaintiff’s attention in May 2008. The plaintiff agrees that the zoning bylaw contravention went to the root of title, since it was theoretically possible, though highly improbable given the minor nature of the underlying grading issue, that the municipality could order the demolition of the house. It also appears possible that the contravention would have prevented the defendant from getting a mortgage to finance the purchase. I observe that this is not a case in which legal title to the property was affected by the zoning by-law breach. The plaintiff was at all times in a position to convey good title to the defendant and the by-law breach did not affect title.

[8] The plaintiff needed approval for a minor variance from the zoning by-law from the Committee of Adjustment of the Town of Georgina under section 45 of the Planning Act, R.S.O. 1990, c. P-13, as amended. The insufficient side lot set-back also gave rise to a Building Code issue with respect to the window glazing on the walls closest to the lot line. The required clearance for the windows was obtained in the summer of 2008 and is not an issue in this action.

[9] When it became clear that it would not be possible to process the minor variance application through the Committee of Adjustment in June 2008, the parties discussed an alternative arrangement by which the defendant would be permitted to move into the house under an occupancy agreement while the plaintiff pursued the minor variance approval. The defendant’s lawyer Mr. Nagel drafted the “Extension and Interim Occupancy Agreement” that was signed on May 31, 2008 (the “occupancy agreement”). The preamble recognized that the defendant was to close the sale of his existing home on June 2, 2008, so it was agreed that he could take possession of the house on that day. The occupancy agreement changed the closing date of the purchase from June 26, 2008 to July 30, 2008.

[10] The occupancy agreement provided:

5. The Purchaser shall set up his own accounts for utilities, service and hot water tank as of June 2, 2008 and shall be responsible for all charges incurred during the interim occupancy.

6. Should the Seller not be in a position to complete this transaction on the extended date of legal closing, then the Seller and Buyer shall agree to a further reasonable extension of the date of legal closing, provided that such further extension shall not exceed 150 days from the original date of completion (June 2, 2008).

7. In the event that the Seller is unable to complete this transaction despite application of its best efforts to address the aforementioned issues, then the Purchaser shall, on not less than sixty (60) days written notice, vacate the Property and return all keys to the Seller. Upon delivery of vacant possession of the Property and all keys, the Seller or the Seller’s lawyer shall return to the Purchase the Purchaser’s deposit(s) in full, without interest or deduction.

8. Time shall remain of the essence.

9. In all other respects, the purchase and sale of the property shall be completed in accordance with the Agreement of Purchase and Sale dated October 5, 2007.

The effect of the occupancy agreement was to set the outside closing date at October 29, 2008.

[11] The defendant moved into the house on June 3, 2008. Under the occupancy agreement he was to assume responsibility for paying for utilities but he did not do so except for electrical charges.

[12] The Committee of Adjustment did not sit in the summer of 2008. The plaintiff prepared the minor variance application dated August 1, 2008. The Notice of Hearing went out on August 19, 2008, for the Committee’s meeting on September 15, 2008.

[13] Both sides were confident that obtaining the minor variance approval was a formality. Ms. Eddington saw the approval as a minor matter. Mr. Townend clearly agreed since early in the process he offered to take title to the house subject to a hold-back of $15,000.00. Mr. Townend’s letter directly to the plaintiff on May 30, 2008, stated:

Rather than extend closing until the minor variance is completed, I propose we complete the transaction next week on the basis that you will look after the building and zoning issues within a reasonable timeframe…On Friday, I propose to pay you the full purchase price of the property, less a $15,000.00 hold-back, which would be held until the building and zoning issues have been addressed and the house has received final building code inspection. The deed would also be transferred to me on Friday.

This proposal was formalized in a letter by Mr. Nagel to Mr. Richman dated May 30, 2008.

[14] Mr. Nagel wrote to Mr. Richman on August 28, 2008, and again on September 4, 2008, proposing that the defendant take title subject to a hold-back of $40,000.00 pending “granting of the minor variance, expiry of the 20-day appeal period, occupancy & final inspections, and removal of the work order (re: windows).” The size of the proposed hold-back was explained: “My client estimates that he can fund all but approximately $40,000.00 of the purchase price” but he needed the mortgage advance, which could not be given until the “minor variance and building code matters have been finalized.” The basis of the proposal was this: “My client has been advised that the Town of Georgina is confident that the minor variance (scheduled for hearing in mid-September) will be granted.”

[15] Mr. Richman failed to answer any of these letters. Ms. Eddington testified that she did not want to close subject to a holdback: “I said no because I wanted to convey clear title as a moral obligation, looking after his best interests.”

[16] The minor variance application was duly circulated and the Department of Engineering and Public Works responded by memorandum dated September 3, 2008, which stated:

We have reviewed the above-noted application, and wish to advise that there is an outstanding Lot Grading Permit affecting the subject lands. The permit was first issued in November 2005 and despite efforts by Town staff to have the deficiencies corrected, many remain outstanding.

The Department of Engineering and Public Works therefore objects to this application and requires the correction of all deficiencies prior to the Committee considering application P410837. It is our position that the application should be deferred until such time as the proponent receives lot grading clearance from this department. We wish to note that due to staff changes and shortages, we are not able to respond to requests for inspections on short notice.

Should the Committee choose to consider this application prior to the applicant obtaining lot grading approval then we request that this be imposed as a condition.

[17] Ms. Eddington explained the underlying grading issue in her evidence. There were a few houses on the street that had been built by the plaintiff. In 2006 the Department of Engineering and Public Works installed municipal services under the road and the road elevations were increased. Ms. Eddington testified that in the final analysis the Department did not require any changes to the grading of the subject lot although it did require grading changes on another nearby lot. Her evidence that the issues were minor was substantially corroborated by the testimony of Michael Baskerville, the manager of the Town’s Engineering Department, although he insisted that some grading of the subject site was required. (The grading approval was not secured, however, until 2009 when the final grades were inspected by a Town official.)

[18] Mr. Christoff for the plaintiff and Mr. Townend attended the Committee of Adjustment meeting on September 15, 2008. The Committee deferred the application to the meeting of September 29, 2008, in order to get clarification from the Department of Engineering and Public Works as to what they required.

[19] Mr. Richman sent a letter dated September 15, 2008, that was authored and signed by Ms. Mills advising that the Committee of Adjustment hearing had been extended to September 29, 2008, necessitating the extension of the closing to October 7, 2008.

[20] The Committee of Adjustment did not meet on September 29, 2008, because there was not enough on the agenda, so the application was again deferred to its next scheduled meeting on December 1, 2008. But the new date meant that the closing date of October 7, 2008, could not be met.

[21] On October 6, 2008, Mr. Nagel wrote to Mr. Richman asking whether the transaction would close on October 7, 2008, or whether a further extension was required. Mr Richman did not respond in writing. Mr. Nagel wrote again on October 9, 2008, confirming “our conversation yesterday that our client is prepared to extend the closing date to Wednesday October 29, 2008…time to remain of the essence… to enable your office to obtain a minor variance…” Mr. Richman did not transmit back the signed acknowledgment of extension as requested. The defendant was obliged by the terms of the occupancy agreement to extend the closing to October 29, 2008, which was the outside closing date. It is not clear to me that either Mr. Nagel or Mr. Richman were then alive to the fact that the minor variance approval would not be available until December 2008, well beyond that date.

[22] On October 17, 2008, Ms. Eddington took a vacation and travelled to Italy, to return on November 11, 2008. I accept her evidence that she told Mr. Townend about her travel plans including the dates of her departure and return when she was at his place discussing the possible extension of his deck.

[23] On October 27, 2008, Mr. Nagel wrote to Mr. Richman setting a final closing date of November 10, 2008. His letter stated: “Further to our recent telephone communications, I confirm that completion of this transaction has now been extended to November 10, 2008.” It also stated:

We suspect that completion of this transaction is low on the Vendor’s priority list. Mr. Townend has been very accommodating, however his legal costs continue to grow with each extension, and he is entitled to see finality to this transaction. Accordingly, we have been instructed to advise as follows:

1. November 10, 2008 is set as a firm closing date, subject only to the building and zoning issues being satisfactorily resolved and the Vendor being able to convey clear title with property taxes up to date.

2. We hereby re-establish time to be of the essence;

3. In the event that the Vendor is unable or unwilling to complete the transaction on November 10, 2008, then: (a) The transaction will be at an end; (b)The Purchaser’s deposits and all amounts paid for extras will be returned in full without delay; (c) All interest on the unpaid purchase price or other occupancy rent will be waived; (d) The Purchaser will have 60 days to vacate the premises.

To avoid an unfortunate outcome to this transaction, please ensure that your client is ready to complete this transaction on November 10, 2008.

[24] I discuss the legal effects of this letter below.

[25] On November 10, 2008, Mr. Nagel faxed Mr. Richman asking whether the plaintiff would waive tender. Upon receiving no response, Mr. Nagel tendered even though he knew that the deal could not close.

[26] Mr. Townend testified that he entered into an agreement to purchase another home in the Lake Scugog area after November 15, 2008, but did not provide the court with more particulars or any documentary evidence. It seems reasonable to infer that he began his search for a house in that area some time before he bought one.

[27] The Committee of Adjustment heard the minor variance application on December 1, 2008, and granted it. The appeal period expired under section 45(12) of the Planning Act on December 21, 2008. The approval was conditional, however, on “submission to the secretary-treasurer of written confirmation from the Engineering and Public Works Department that their concerns outlined in the memorandum dated September 3, 2008 and the email dated November 24, 2008 attached hereto as Schedule 1, have been resolved.” The decision required that the condition be satisfied within one year.

[28] On December 15, 2008, Mr. Nagel wrote to Mr. Richman purporting to give 60 days notice under the occupancy agreement that Mr. Townend would vacate the premises on February 15, 2009. The letter stated that:

In accordance with paragraph 14 of the Extension and Interim Occupancy Agreement, the Buyer, Peter Charles Townend, shall require return of the deposits in full (Eighty-five thousand dollars) ($85,000.00) without interest or deduction on the date of vacant position.

[29] On January 14, 2009, the Canadian Imperial Bank of Commerce issued a notice of sale under charge affecting the property, which put significant financial pressure on the plaintiff.

[30] On February 5, 2008, Mr. Nagel wrote to Mr. Richman attempting to reconcile a number of figures in unravelling the transaction. Mr. Nagel stated that Mr. Townend would pay the occupancy fee calculated under the occupancy agreement in the amount of $8,833.92, along with tax reimbursement for the time of occupancy at $6,166.20. He requested utility billings figures. There were other adjustment cited in that letter, and Mr. Nagel’s request was for a refund in the amount of about $69,000.00 from the deposits.

[31] On February 18, 2009, Mr. Roberts, litigation counsel for the plaintiff, wrote to Mr. Nagel purporting to accept the defendant’s repudiation:

I confirm that my client has accepted repudiation of the Agreement of Purchase and Sale which is terminated and of no further force and effect. By reason of Mr. Townend’s breach of contract and repudiation of the Agreement of Purchase and Sale, all deposit money previously paid has been forfeited to our client as liquidated damages and not as a penalty, as well as all money to be my client for “extras” under section 27 of the Agreement.

[32] On April 7, 2009, the house was resold to new purchasers, the Houghtons, for $520,000.00, (about $495,000.00 inclusive of GST and PST), to close May 29, 2009. The final inspection by the Town of Georgina was conducted on May 7, 2009, and the condition on the minor variance approval was cleared on May 8, 2009.

Discussion

[33] The facts give rise to the following issues:

1. Did Mr. Nagel’s letter of October 27, 2008, validly and effectively reinstate the time of the essence clause and establish November 10, 2008, as the terminal closing date?

2. Did either party repudiate the Agreement and what are the consequences?

3. What are the damages?

I address each issue in turn.

Issue One: The “Time of the Essence” Clause and the Closing Date

[34] The defendant asserts that the closing date of November 10, 2008, was either established by agreement between counsel, or was the valid re-instatement by the defendant of the “time of the essence” clause and the establishment of the terminal closing date.

[35] The applicable law can be briefly stated. A “time of the essence” clause is enforceable in accordance with its terms. As the Court of Appeal observed in Domicile Developments Inc. v. MacTavish (1999), 45 O.R. (3d) 302, per Laskin J.A. at para. 11, the applicable propositions are:

1. When time is of the essence and neither party is ready to close on the agreed date the agreement remains in effect.
2. Either party may reinstate time of the essence by setting a new date for closing and providing reasonable notice to the other party.

[36] The court relied on the decision of the Court of Appeal in King et al. v. Urban & Country Transport Ltd. (1974), 1 O.R. (2d) 449 (C.A.). Arnup J.A. said at page 456:

Normally, in this situation, when both parties let the time go by, and one of the parties wishes to reinstate time as of the essence, it is necessary to serve a notion upon the other party, fixing a new date for closing, which must be reasonable, and stating that time is to be of the essence with respect to the new date.

[37] Arnup J.A. noted the corollary at page 455: “Time may not be insisted upon as of the essence of the agreement by a litigant who has shown himself not to be ready, desirous, [prompt and eager to carry out his agreement].”

[38] This last point is an aspect of the duty of good faith imposed on the parties to a contract to ensure that they “do not act in a way that eviscerates or defeats the objectives of the agreement that they have entered into”: Transamerica Life Canada Inc. v. ING Canada Inc. (2003), 68 O.R. (3d) 457 (C.A.) per O’Connor A.C.J.O. at para. 53.

[39] I find that Mr. Nagel’s letter of October 27, 2008, was effective to waive the October 29, 2008 closing date, as he admitted in cross-examination. But I find that the letter was not valid and effective to reinstate the time of the essence clause or to make November 10, 2008 the terminal closing date, for three reasons.

[40] First, Mr. Nagel’s October 27, 2008 letter was ineffective because it was not a clear and unencumbered reinstatement of the time of the essence clause and establishment of the terminal closing date. Mr. Nagel larded the letter with new and onerous conditions that went well beyond the original Agreement of Purchase and Sale and the occupancy agreement. He did this to attempt to secure collateral advantages for Mr. Townend, but that is not the way in which the reinstatement of the time of the essence is permitted to operate. It is not to be a pretext for substantive renegotiation, at least not in these circumstances where the time is short.

[41] The second reason is that the November 10 closing date was simply unreasonable. The explanation requires a more fulsome discussion of the facts.

[42] Mr. Nagel’s evidence was that his assistant, Jennifer McCausland, spoke to someone in Mr. Richman’s office in setting that date. At trial Mr. Nagel produced for the first time a handwritten yellow sticky memo from his file dated October 23, 2008. It measures four inches by six inches, and provides:

Oct. 23/08
→ 10:00 am
Telephoned Mr.
Richman’s office
→ LM – are we
Closing Oct. 29
→ asked them to
let me know today!
New Date
Nov. 10/08

[43] It is noteworthy that the yellow sticky memo was not listed on the defendant’s affidavit of documents and was not produced by Mr. Nagel until the trial. He appeared to be quite uncomfortable when this was pointed out. He said that he thought that the typed memo to file mis-dated October 23, 2009, was sufficient (it should have been dated 2008). The typed memo to file is different from the notation on the yellow sticky memo. The typed memo states:

10:00 a.m. I called Mr. Richman’s office. I left a message asking if we are going to be closing on October 29, 2008. Marlene from Mr. Richman’s office returned our call to say that the new closing date will be set for November 10, 2008 because they were still waiting on the city to grant the minor variance.

[44] Ms. McCausland testified that she spoke to Marlene Mills of Mr. Richman’s office, who wanted the closing date changed to November 10, 2008 from October 29, 2008 because the deal could not close until then. She confirmed that date with Mr. Nagel and advised Ms. Mills. Ms. McCausland testified that she typed up the memo to file months later, in early 2009, when the file was to be transferred to Mr. McLeod for litigation purposes. She meant it to “clarify” the meaning of the notes in the yellow sticky. She said that “Mr. Nagel asked me to do the memo because he was afraid of the sticky.” To be fair, she had earlier testified that he had expressed a concern that the yellow sticky might be lost. Mr. Nagel said the same thing in his evidence.

[45] I do not accept the explanation. Mr. Nagel’s entire file was photocopied and the photocopies were sent to Mr. McLeod. Had the yellow sticky memo been photocopied on an ordinary sized piece of paper, then there would have been no concern about it going missing. I am not, however, prepared to draw the inference that the words: “New Date Nov. 10/08,” were inserted some time after Ms. McCausland wrote the memo on October 23, 2008.

[46] A plausible explanation could be that Ms. Mills did not know of the December 1, 2008 Committee of Adjustment hearing date at the time of her conversation with Ms. McCausland. That was not explored in evidence, but, as I note below, it does not affect the legal analysis. There is no doubt that Ms. Mills knew of the December 1 hearing date when she spoke to Mr. Nagel on November 6, 2008. Mr. Nagel took the position in cross-examination that the November 10, 2008 closing date was reasonable because it had been proposed by the plaintiff’s solicitor’s office, according to the typed file memo wrongly dated October 23, 2009. His evidence was corroborated by Ms. McCausland. He testified that his office did not make inquiries from the Town before sending the October 27, 2008 letter that set November 10, 2008, as the new closing date.

[47] Ms. Mills testified that, knowing that the Committee of Adjustment hearing was postponed until December and that Ms. Eddington was out of the country, she did not agree and would not have agreed to the November 10 closing date. She called Mr. Nagel about the October 27, 2008 letter on November 6, 2008. Ms. Mills said she was shocked because that date was unreasonable and told Mr. Nagel so. She also told him about the December hearing date.

[48] Mr. Nagel testified that when Ms. Mills spoke to him she did not tell him that the Committee of Adjustment would be hearing the minor variance application on December 1, 2008. I do not accept his evidence in light of his file memorandum dated November 6, 2008; it proves that Mr. Nagel contacted the Town that day and knew that the minor variance application was scheduled to be heard on December 1, 2008. It is not likely that Mr. Nagel would have called the Town if Ms. Mills had not told him that day about the hearing date. I accept her evidence on the content of their telephone conversation and do not accept Mr. Nagel’s evidence.

[49] I prefer the evidence of Ms. Mills to that of Ms. McCausland and Mr. Nagel. It is simply more consistent with the overall tableau of evidence, especially Ms. Eddington’s absence from the country at the time and the fact that minor variance approval would not be available by November 10, 2008. It seems unlikely that Ms. Mills would have agreed to that closing date.

[50] Mr. Nagel was asked about the December 1, 2008 meeting of the Committee of Adjustment in cross examination:

Q: Let me ask you this. You’re a real estate lawyer. If you had known about December 1 st minor variance Committee of Adjustment’s meeting, do you think it was reasonable to reinstate time is of the essence on October 27 th for a November 10 th closing date? A reasonable amount of time?

A: That would, if we knew that the matter wasn’t coming up until December the 1 st , then, no, that wouldn’t have been a reasonable period of time.

[51] Later, in re-examination, Mr. Nagel was asked about his file memorandum dated November 6, 2008 said:

Q: What were you told on the 6 th of November by Ms. Gardner [of the Town of Georgina Building Department]?

A: That the matters had not been determined yet and that the next hearing date would be December 1 st and then again, if if if it was approved, if the minor variance was granted, there would be a twenty day waiting period but, effectively, at that point, the matters hadn’t been resolved.

Q: Were you ever told by Ms. Gardner that this matter would be approved on December 1 st .

A: No.

Q: Was this letter [of October 27, 2008] sent before you had your conversation with Ms. Gardner?

A: Absolutely. It’s faxed on October 28 th at 11:31 a.m. and I didn’t have a conversation with Ms. Gardner until November the 6 th .

Q: From the date of the October 27 th letter to the 10 th of November, were you ever told by anyone that the meeting for December 1 st would result in an approval of a minor variance?

A: No.

Q: Had you been advised of that, what would have happened?

A: Had we been advised it would have been approved?

Q: Yes.

A: Then, in that case, I would have counselled Mr. Townend that we needed to allow until after December 1 st because if it’s going to be approved then why wouldn’t we close the deal? If we knew it’s going to be approved…if everything had been satisfied, clearly he wanted the deal so, I would have said well, let’s extend them till twenty days after whatever it is…after the December 1 st hearing date.

[52] I find this narrative to be somewhat dubious, since Mr. Nagel’s earlier evidence was that he and Mr. Townend were confident that the approval would be received and nothing had changed in the meantime. The testimony shows that Mr. Nagel recognized that Mr. Townend’s insistence on the November 10 closing date was unreasonable.

[53] On Ms. McCausland’s evidence, the setting of the November 10 closing date was by the defendant’s agreement with Ms. Mills’ request. On Ms. Mills’ evidence, she did not request that date; it was unilaterally set by Mr. Nagel’s office. I find that whether or not Mr. Nagel’s office unilaterally set the closing date at November 10, 2008 on October 27, 2008, it was plainly unreasonable for Mr. Townend to insist on it once he knew that December 1, 2008, was the Committee of Adjustment hearing date. There was, in short, nothing magical or irrevocable about the October 27, 2008 letter.

[54] The third reason for determining that Mr. Nagel’s letter of October 27, 2008, was not valid and effective to reinstate the time of the essence clause or to make the terminal closing date November 10, 2008, is Mr. Townend’s bad faith. He testified that he was under a good deal of stress as a result of the continual postponements and the closing date, that he had had enough and pushed for closure. He also expressed concern that the plaintiff might be in financial difficulty if not bankrupt and speculated that this might have affected the closing. I reject his evidence as self-serving and inherently implausible. It is not consistent with his efforts to get an early closing with a hold-back. Mr. Townend knew throughout that the minor variance approval was a minor issue and that the approval was virtually inevitable. He had all of the benefits of home ownership under the occupancy agreement. In my view he simply lost his desire to live in the house and wanted to move back to a home in the Lake Scugog area. Once Mr. Townend formed that intention, he decided to use any available pretext as an opportunity to abort the transaction with the plaintiff.

[55] Mr. Nagel testified that his actions beginning with the October 27 letter and following through with the November 10 tender were done with Mr. Townend’s active knowledge and instructions. Mr. Townend did not waive privilege in Mr. Nagel’s evidence, and Mr. Roberts did not seek a ruling on whether, by calling Mr. Nagel, Mr. Townend had effectively waived privilege, so I do not have detailed and direct evidence. But I do not hesitate to draw the inference that Mr. Nagel was acting in accordance with Mr. Townend’s instructions throughout.

[56] I find that Mr. Townend had ceased to be ready, desirous, prompt and eager to carry out his agreement, as the cases require of a party who wishes to reinstate a time of the essence clause or to establish a new closing date for a transaction. Mr. Townend took advantage of the minor variance approval timing and Ms. Eddington’s absence, which he knew about, to force an unreasonable closing date. It is no accident that Mr. Nagel’s October 27, 2008 letter was sent after she left on October 17, 2008, and that the closing date was stipulated to be November 10, 2008, the day before her scheduled return. Mr. Townend made every effort to eviscerate or defeat the objective of the Agreement of Purchase and Sale. He did not exhibit the kind of good faith reflected by the plaintiff in the case of Logger v. Bear Inc., [2007] O.J. No. 409, 155 A.C.W.S. (3d) 68 (S.C.) per Crane J.

[57] November 6, 2008, was the latest day on which Mr. Nagel and, through him, Mr. Townend could have known that the November 10 closing date was unreasonable, assuming that they did not know earlier. I find that this knowledge invalidated their effort to reinstate the time of the essence clause and to set it as November 10, 2008. In accordance with Domicile Developments Inc. v. Duncan MacTavish, there was then no scheduled closing date. There is no evidence that either party thereafter sought to re-establish a new closing date.

[58] Mr. McLeod advances a related argument, that a closing date could not be set until the condition of the minor variance approval was satisfied on May 8, 2009, so that even if the November 10, 2008 closing date was not reasonable, an outside date of May, 2009, would certainly have been unreasonable in all of the circumstances. Accordingly, the defence submits that there was no reasonable closing date that could have been established by the plaintiff to compel the defendant to close the transaction.

[59] Since the Committee of Adjustment’s minor variance approval on December 1, 2008, was conditional, would the defendant have been able to resist closing the transaction on or after December 22, 2008, when the appeal period on the minor variance approval expired?

[60] The plaintiff submits that the defendant could have been obliged to close the deal after the appeal period on the minor variance approval expired on December 21, 2009. In making this submission the plaintiff relies on paragraph 14 of the original Agreement of Purchase and Sale under which grading issues could be attended to after title passes. The defendant takes the position that the plaintiff was contractually obligated to convey the property free of by-law deficiencies or, in other words, with both the minor variance approval from the Committee of Adjustment and the grading required by the engineering report completed.

[61] I find the argument to be academic since neither side sought to set a new closing date. I observe, however, that Mr. Nagel’s evidence in re-examination, excerpted above, supports the plaintiff’s submission.

Issue Two: Repudiation

[62] The second issue is whether either party repudiated the Agreement of Purchase and Sale and, if so, what the consequences are.

[63] The law on repudiation is summarized by Angela Swan in Canadian Contract Law, 2nd ed. (Markham: LexisNexis, 2009) at section 7.99:

Problems like those just discussed frequently arise in contracts for the purchase and sale of land. Events may occur and statements may be made between the making of the Agreement of Purchase and Sale and the closing that could be taken as an indication that one party or the other will not perform. Only if one party’s statement meets the test of Lord Selborne, will the other be justified in not making sure that it can show that it was ready, willing and able to perform.

[64] Ms. Swan referred to the statement of Lord Selborne L.C. in Mersey Steel & Iron Co. Ltd. v. Naylor, Benzon & Co. (1884), 9 App. Cas. 434 (H.L.) at 438, 439:

…you must look at the actual circumstances of the case in order to see whether the one party to the contract is relieved from its future performance by the conduct of the other; he must examine what that conduct is, so as to see whether it amounts to a renunciation, to an absolute refusal to perform the contract, such as would amount to a rescission if he had to the power to rescind, and whether the other party may accept it as a reason for not performing his part.

[65] I also rely on the Ontario Court of Appeal’s decision in Hutts v. Hancock, [1954] O.R. 105 (C.A.).

[66] I find that the defendant repudiated the Agreement of Purchase and Sale by sending the letter of October 27, 2008, and by later failing to withdraw the terminal closing date of November 10, 2008. I find that the abortive tender on November 10, 2008, was another act of repudiation by the defendant. All of the defendant’s other efforts to unravel the Agreement amount to further acts of repudiation. On the evidence, the plaintiff accepted the defendant’s repudiation on February 18, 2009, by counsel’s letter.

[67] The effect of the defendant’s repudiation and the plaintiff’s acceptance of it is that the defendant breached both the Agreement of Purchase and Sale and the occupation agreement, and the plaintiff was free to pursue its damages claim through this litigation.

Issue Three: The Determination of Damages

[68] The parties agree that the governing principles for the determination of damages are set out in Boswell J.’s decision in Zander Sod Co. v. Solmar Development Corp., [2011] O.J. No. 1877, 6 R.P.R. (5th) 116 (S.C.).

[69] Boswell J. noted:

122 In my view, I am compelled to follow the Supreme Court's decision in Elsley [Elsley v. J.G. Collins Ins. Agencies Ltd., [1978] 2 S.C.R. 916]. Essentially, where parties specify a sum as liquidated damages, they should be held, on the plain and ordinary interpretation of their language, to have intended that the specified sum was a genuine pre-estimate of damages, unless a contrary intention was shown.

[70] He concluded at paragraph 128 that the insertion of the liquidated damages clause fixing damages of $500,00.00 was a genuine attempt to pre-estimate damages and fixed damages at that amount.

[71] The language of the Agreement of Purchase and Sale in this case, reproduced below with the strike-through shown, is substantially similar:

It is agreed that in the event of Purchaser failing to close the within transaction without reasonable justification, the deposit shall be forfeited to the Vendor as liquidated damages for expense and loss of time incurred by the Vendor in connection with this Agreement, irrespective of any other right cause or action, or remedy which the Vendor may be entitled to hereunder.

[72] The complication in this case is that there are two documents in play. One is the Agreement of Purchase and Sale and the other is the occupancy agreement.

Damages under the Agreement of Purchase and Sale

[73] I turn first to the calculation of the difference between the sale to Mr. Townend and the subsequent sale of the property to Houghton.

[74] The comparative sale proceeds are set out in the following calculation:

Townend Sale

Purchase Agreement Agreed Price $560,000.00

Adjustment Payable:

Tarion Enrolment Fee (Incl. GST & PST) 750.00
Local Improvements – Sutton Sewer Surcharge 796.40

Hydro Connections 950.00
Water Connections 385.00

Credit – carpet not installed -3,000.00

Net Sale Price Including Adjustment $559,880.40

Houghton Sale

Agreed Price from Purchase Agreement $520,000.00

Net GST Payable -24,761.90

Adjusted Sale Price 495,238.10

Tarion Enrolment Fee (Incl. GST & PST) 819.25
Local Improvements – Sutten Sewer Surcharge 796.40
Hydro Connections 950.00
Water Connections 385.00
Tree Planting 450.00

Net Sale Price Including Adjustment $498,638.75

Difference in Net Sale Price Including Adjustment 61,241.65

Real Estate Commission 27,300.00

Total Difference 88,541.65

Less Deposits paid by the defendant 85,000.00

Net Additional Loss to the plaintiff resulting from the resale $3,541.65

[75] The plaintiff claims reimbursement of the net additional loss, and also claims reimbursement of litigation fees for keeping the CIBC power of sale at bay at $932.25 together with the litigation fees for defending against the defendant’s Tarion Warranty claim for the return of the deposit at $9,322.50.

[76] But for the liquidated damages provision in the Agreement of Purchase and Sale, I would find the net additional loss to the plaintiff resulting from the resale, together with the plaintiff’s legal fees associated with both the CIBC power of sale and the Tarion Warranty defence to be fully recoverable from the defendant since they “may fairly and reasonably be considered either arising naturally from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties”: Hadley v. Baxendale 1854, 9 Ex. 341, 156 E.R. 145 at page 151, as applied in Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30.

[77] The plaintiff submits that the defendant collaterally contracted for some extras that are outside of the deposits contemplated by the Agreement of Purchase and Sale that fall outside the liquidated damages clause.

[78] In his letter to Mr. Richman dated February 5, 2009, Mr. Nagel made the following comments on the basement upgrade:

The Vendor had quoted $15,000.00 for the upgrades requested by Mr. Townend. At one point during the basement work, the Vendor noted that $20,000.00 had been invested in the upgrades. At that point, Mr. Townend advised that this exceeded the quotation and the Vendor was not to incur any further expense on the basement.

Accordingly, I find that the defendant owes another $2,000.00 on account of the basement upgrades ($17,000.00 less the deposit of $15,000.00, which the plaintiff may retain), plus $300.00 for the boathouse roof replacement, and $150.00 for spider spray. The plaintiff submits that the fence on the deck is another extra valued at $1,500.00. This amount was not proven. The fence is plainly worth more than nothing and, as a matter of rough justice, I fix the cost at $600.00.

[79] I consider these amounts to be due on a collateral contract which is therefore outside the liquidated damages clause in the Agreement of Purchase and Sale and the principles of Zander Sod.

[80] I take the same view of damages claimed under the occupancy agreement.

Damages under the occupancy agreement

[81] The parties now agree that the occupancy fee to be paid by the defendant under the occupancy agreement comes to $8,727.41. They agree that the figure for property taxes to have been paid by the defendant under the occupancy agreement is $6,956.33. They also agree that the utility expenses to be paid by the defendant net out at $3,334.84.

[82] Finally, the plaintiff claims $4,500.00 in costs to repair, paint, clean, and stage the house, essentially restoring it to a new and vacant state for resale following Mr. Townend’s occupancy. While expenses for these items were incurred by the plaintiff, there is no evidence to support this number. The number of $400.00 proposed by Mr. Nagel in his letter strikes me as too low on the evidence as to the work done. As a matter of rough justice, I set the appropriate figure at $2000.00.

[83] Judgment accordingly.

[84] The plaintiff has been successful and is entitled to costs, subject to the effects of any offers to settle. If costs cannot be agreed between the parties, I will accept written submissions on a 10-day turnaround basis starting with the plaintiff and ending with the plaintiff’s reply submissions. If nothing is received in 10 days I will assume that the costs issue has been resolved.

Justice P.D. Lauwers

DATE: July 24, 2012