COURT FILE NO.: CV-12-462802
DATE: 20130821
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
2329131 ONTARIO INC. and 2327451 ONTARIO INC.
Plaintiffs
- and -
CARLYLE DEVELOPMENT CORP. and CARLYLE CONSOLIDATED HOLDINGS INC.
Defendants
Jonathan Kulathungam, for the Plaintiffs
Alvin Meisels, for the Defendants
HEARD: July 17, 2013
Swinton J.:
Overview
[1] The plaintiffs have brought a motion for partial summary judgment, seeking an order of specific performance of an agreement of purchase and sale for a commercial property. For the reasons that follow, I would grant partial summary judgment.
Background
[2] The principals of the plaintiff companies, Polly and Kawar Bindra, have owned a number of small convenience stores and restaurants since they immigrated to Canada in 1975. In March 2012, they closed a grocery/restaurant business they were operating at York University after they entered into an agreement of purchase and sale with the defendants, whereby they agreed to buy a property municipally known as 701-703 Centre Street, Espanola, Ontario, operating as Papertown Petro Service Centre. The property had a Petro-Canada gas bar and convenience store and contained three other buildings: one tenanted by a McDonald’s restaurant, one by a Tim Horton’s restaurant, and the third by an optometrist and a Service Canada office. The third building also had an empty unit that had been tenanted by a DQ Restaurant.
[3] The initial offer was accepted on January 11, 2012 for a price of $3,800,000, conditional for ten business days upon approval of the agreement by the vendors’ and purchasers’ solicitors. During further negotiations, the Bindras were led to believe a AAA government tenant had been obtained for the empty unit, although that tenancy never occurred. Nevertheless, in an agreement of purchase and sale dated March 3, 2012, the purchase price was agreed upon at $4,015,000. The Bindras paid a deposit of $200,000. Closing was to be on June 1, 2012, and time was of the essence according to the terms of the agreement.
[4] The parties subsequently entered into five formal amending agreements, some at the request of the plaintiffs and some at the request of the defendants. The March 18, 2012 Amending Agreement had inserted the following term at the request of the defendants:
Purchaser acknowledges that inventory is in addition to the purchase price. There is approximately $150,000 of gas and $50,000 of stock inventory at any time. Inventory will be taken the day before closing and purchaser shall pay vendor cost.
[5] A number of these amending agreements extended the date for closing (for example, from June 1, 2012 to June 15, then June 29, then July 15). Each of these amending agreements explicitly stated that time would be of the essence.
[6] The fifth amending agreement, dated July 4, 2012, extended the closing date to July 15, 2012 and also added a condition for obtaining the approval of the TDL Group (which operates Tim Horton’s restaurants and franchises) that TDL would not exercise its right of first refusal to purchase a portion of the property which it leases from the defendants.
[7] The transaction did not close on July 15, 2012, as contemplated in the fifth amending agreement. The parties never entered into any further written amendments to the agreement of purchase and sale. However, they continued to proceed as if the transaction was still valid, and various closing dates were suggested during July.
[8] The plaintiffs’ real estate lawyer, Martin Zaretsky, sent requisitions to the defendants’ real estate lawyer, Barry Poulson, on July 11, 2012 - beyond the May 18, 2012 date for requisitions stipulated in the agreement of purchase and sale. In a letter dated July 12, 2012, Mr. Poulson pointed out that the requisition date had been missed, but he nevertheless took steps to respond. For example, he prepared postponements of the leases and sent them to the tenants for signature, as requested by the Bank of Montreal, the plaintiffs’ lender (see, for example, the letter to McDonald’s dated July 11, 2012). He also asked TDL for a letter respecting the right of first refusal in a letter dated July 11, 2012.
[9] In a July 12 letter, Mr. Zaretsky had suggested a new closing date of July 20. In a letter dated July 13, 2012, Mr. Poulson confirmed that the closing date was extended to July 31, 2012. He stated that inventory would then have to be taken July 30. However, he did not state that time was of the essence.
[10] By July 13, 2012, the plaintiffs learned that McDonald’s alleged that the defendants were in default of the terms of their lease, because the defendants had built the three unit building in a no-build zone in contravention of a lease term, and they had permitted the DQ Restaurant to operate within the no-build zone in violation of the non-compete and exclusivity terms of the lease. These issues had not been disclosed to the plaintiffs by the principal of the defendants, Greg Carlyle.
[11] Ultimately the plaintiffs negotiated a resolution with McDonald’s, although that was not achieved until July 31, 2012. Part of the resolution required the defendants to make an application to obtain Planning Act consent. A lease amending agreement was to be executed by the plaintiffs and McDonald’s.
[12] The parties then took steps to try to close on Friday, August 3, 2012, although there was no written agreement that August 3 would be the closing date. However, the evidence is clear that the Bindras wanted to take over the gas station and convenience store before the August long weekend that started August 3. Draft closing documents were sent to Mr. Zaretsky by Mr. Poulson’s office in advance of August 3.
[13] During the evening of August 2, 2012, representatives of the plaintiffs and the defendants engaged in an assessment of the inventory. Mrs. Bindra returned to Toronto in the early hours of Friday, August 3 after the inventory was completed. The parties had agreed on a price of $220,281.79 for the inventory. Before leaving, she left money for a cash float.
[14] At 9:30 AM on August 3, Mrs. Bindra telephoned Mr. Zaretsky and asked him when she should deliver the funds for the inventory and closing. At that time, Mr. Zaretsky had not yet received the estoppel certificates from the tenants, which he had agreed to take instead of postponements of the leases. He was also waiting to hear from the Bank’s lawyer, Robert Hall, who, it turned out, was on vacation.
[15] Mr. Poulson had initially tried to obtain postponements of the leases and estoppel certificates from the tenants. Indeed in a letter dated August 2, he mistakenly said that the estoppel certificates had already been supplied to Mr. Zaretsky. Early on August 3, Mr. Zaretsky said that he had an estoppel certificate from McDonald’s and suggested that the defendants might provide a statutory declaration on the terms of the other leases and provide an undertaking to obtain signed acknowledgements. In a fax sent at 11:39 AM, Mr. Zaretsky stated that he was hoping to hear from the Bank as to whether the funds would be advanced that day.
[16] Later that day, around 3:00 PM, Mr. Zaretsky told Mr. Poulson that the Bank had refused to accept the statutory declaration, and the Bank would not be funding the mortgage that day. He still emphasized the importance of obtaining tenant estoppel certificates to satisfy the Bank, especially in light of the problems with the McDonald’s lease. He confirmed that the purchasers were waiving a requirement for the postponement of the leases, but wanted the estoppel certificates or acknowledgements from tenants. Mr. Zaretsky proposed that there be a payment for the inventory that day and a closing in escrow the following week, given that his clients had effectively taken over the business that day. Mr. Zarestsky states in an affidavit that Mr. Poulson indicated the proposal was reasonable, and he would consult his client.
[17] Around 3:40 PM, Mr. Poulson telephoned to say that his client was not prepared to close in escrow or extend the closing date. Shortly thereafter, he purported to fax 104 pages of tender documents. There were no tenant acknowledgements or estoppel certificates in the documents faxed. Nor was the fax completely transmitted, as Mr. Poulson admitted in cross-examination. After the tender documents were sent, Mr. Poulson faxed a statutory declaration from Mr. Carlyle at 4:50 PM with respect to the leases.
[18] In a fax sent sometime late in the afternoon, Mr. Poulson stated that the defendants were unable to provide tenant acknowledgements. He later sent a fax stating that the requisition for tenant acknowledgements was out of time.
[19] Subsequently, the Bank indicated that it would accept the statutory declaration in lieu of the tenant acknowledgements. Funds were ready to be released, according to the plaintiffs, by the Tuesday after the long weekend or the Wednesday, according to the defendants’ evidence.
[20] Mrs. Bindra has filed a supplementary affidavit for this motion in which she describes the funds available for closing. The balance due was $3,815,427.58. As of August 3, 2012, she had $755,711.86 available to close, plus a $1.7 million line of credit. The balance of funds was to come from the Bank.
[21] The plaintiffs remained eager to close, but the defendants again refused to do so in a letter from Mr. Poulson dated August 14, 2012. He took the position that August 3 was a firm closing date, and the vendor was not willing to extend.
The Law on Summary Judgment
[22] A court is to grant summary judgment if satisfied that there is no genuine issue requiring a trial with respect to a claim or a defence (Rule 20.04(1)). In coming to a conclusion on a motion for summary judgment, the court may weigh evidence, evaluate the credibility of a deponent or draw any reasonable inference from the evidence, unless it is in the interest of justice that such powers should only be exercised at a trial (Rule 20.04(2.1)).
[23] The Court of Appeal has adopted a “full appreciation test” for such motions in Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764 at para. 50, asking whether a “full appreciation” of the evidence and the issues can be achieved by way of a motion for summary judgment.
The Issues
[24] The plaintiffs argue that the defendants are in breach of the agreement of purchase and sale for a number of reasons. First, they submit that there was no agreement that August 3, 2012 would be the new closing date. Second, even if there was such an agreement, the parties had waived the time of the essence provision in earlier versions of their agreement of purchase and sale. Third, even if time remained of the essence, the vendors could not rely on the provision and treat the agreement as at an end, because they were not ready, willing and able to complete on August 3.
[25] The defendants argue that the key clause in the parties’ agreements was the term requiring inventory be taken the day before closing. Given that inventory was taken August 2, they submit that the firm closing date was August 3, and the plaintiffs were in breach, as they failed to close that day.
[26] I note that the parties are generally in agreement on the applicable legal principles, as set out in the following section of these reasons.
Analysis
Did the parties agree to August 3 as the closing date?
[27] While there was no written agreement that August 3, 2012 was to be the closing date, it is evident that both parties and their lawyers were trying to achieve closing at the end of July, particularly after the resolution of the dispute with McDonald’s on July 31. The two lawyers were exchanging documents in an effort to do so. Most importantly, Mrs. Bindra herself gave evidence that she wanted to take over the business on August 3 so as to be able to operate over the August long weekend.
[28] Significantly, the parties took inventory on August 2. Their agreement contemplated that inventory would be taken the day before closing. Indeed, common sense would indicate that inventory be taken just before closing, so that payment could be made just as the change in ownership and operation of the business occurred.
[29] In light of this record, I find that the parties had agreed on a closing date of August 3, 2012.
Was time of the essence?
[30] Where time is of the essence in an agreement of purchase and sale, and one party fails to make a deadline for closing, the innocent party can treat the contract as ended and sue for damages, provided that the innocent party is “ready, desirous, prompt and eager” to carry out the agreement (Domicile Developments Inc. v. MacTavish (1999), 1999 CanLII 3738 (ON CA), 45 O.R. (3d) 302 (C.A.) at para. 10). However, if neither party is ready to close on the agreed date, the agreement continues to exist. A party may then reinstate time of the essence only if the party sets a new closing date and provides reasonable notice to the other party (at para. 11).
[31] The plaintiffs argue that time was not of the essence, given the failure of the parties to make that stipulation at the time of the extensions of the closing date during the month of July. They rely on the decision of Watchfield Developments Inc. v. Oxford Elgin Developments Ltd. (1992), 25 R.P.R. (2d) 236 (Ont. Ct. (Gen. Div.)) at pp. 244-45), which held that parties could not insist time was of the essence after they had extended the closing date and not stipulated that time continued to be of the essence.
[32] The defendants rely on cases from Alberta and British Columbia holding that where time is of the essence in an agreement and there is an extension of time under the agreement to a specified date, the effect of the extension on the essentiality of time must be determined in the context of the circumstances of the case (Salama Enterprises (1988) Inc. v. Grewal, 1992 CanLII 4035 (BC CA), 1992 CarswellBC 90 (B.C.C.A.) and Digger Excavating [1983] Ltd. v. Bowlen, 2001 ABCA 214, 2001 CarswellAlta 1135 (Alta. C.A.)). In Salama, the British Columbia Court of Appeal held that where there are circumstances making it unjust for a party to insist time is of the essence, given an extension of time, the court may refuse to give effect to the time of the essence provision (at para. 11).
[33] While counsel for the plaintiffs argued that the law is different in Ontario from that in Alberta and British Columbia, I note that in Domicile Developments Inc., the Ontario Court of Appeal stated that time of the essence can be implied from the surrounding circumstances (at para. 16).
[34] In the present case, after the fifth amending agreement, the parties failed to state that time remained of the essence each time they agreed on a new date for the closing, despite having made that stipulation in earlier written amendments. The proposed closing dates of July 17, 20 and 31, 2012 came and went with no closing and with the parties continuing to treat the agreement of purchase and sale as in effect.
[35] The defendants submit that it is reasonable to imply that time was of the essence once the parties agreed on the date for the inventory, given that the agreement contemplated that the inventory would be taken the day before closing. They argue that it was sensible for the parties to close after the taking of the inventory, because at that point, the purchasers had effectively taken over the business, having agreed to purchase the inventory and taken over services such as the lottery terminal and the ATM.
[36] Having regard to the parties’ conduct throughout July, I find that they had waived the provision that time would be of the essence. In earlier written amendments to the agreement of purchase and sale, they had specifically provided that time remained of the essence, even when the closing date changed. However, they made no such stipulation after the fifth amending agreement in early July. Moreover, they tried to meet various closing dates, but were unable to close. For example, the July 31 closing date could not be met because the outstanding issues with the McDonald’s lease were not resolved until July 31. Given the parties’ conduct, it is apparent that they hoped to close August 3, but they had not stipulated that time was of the essence and, by their conduct, they waived the time of the essence provision in the agreement of purchase and sale.
[37] The fact that inventory had been taken did not make time of the essence. The clause requiring inventory to be taken prior to closing was inserted to make clear the purchasers’ obligation to pay for the inventory, according to Mr. Poulson. While Mr. Carlyle stated in his affidavit that the taking of the inventory was a “determinative step” requiring closing the next day, the agreement does not state this, nor did Mr. Poulson state that the taking of inventory was a determinative step requiring closing the next day.
Were the vendors able to rely on the time of the essence clause?
[38] Even if I am wrong in my conclusion that time was not of the essence with respect to the August 3, 2012 closing date, the defendants were not in a position to close that day. Therefore, they cannot rely on the time of the essence provision (Domicile, above, para. 10; Digger, above, para. 19).
[39] The evidence is clear that the defendants were not ready to close on August 3. First, they had not complied with the condition requiring TDL to indicate its position on its right of first refusal. That condition had not been waived by the plaintiffs. While the defendants assert that the right of first refusal was no longer effective, the condition had not been fulfilled.
[40] Second, the defendants did not make proper tender. The vendors’ lawyer Mr. Poulson had sent four faxes of the tender documents late on August 3. He acknowledged on cross-examination that the documents had not been sent in full, stating, “I know that the whole package didn’t get through to him, for whatever reason” (Transcript, p. 40). Mr. Zaretsky also gave evidence that he did not receive all of the documents required for tender.
[41] Third, the defendants had not provided the estoppel certificates for the tenants other than McDonald’s that the financing Bank requested. While Mr. Zaretsky had suggested that a statutory declaration might be acceptable, and one was provided at 4:50 PM, the Bank had not yet indicated that it would accept a statutory declaration on August 3. In any event, it was then too late in the day to obtain financing from the Bank.
[42] The defendants suggested that they were not required to provide estoppel certificates because the purchasers’ request for them was made out of time. However, the defendants by their conduct clearly waived the requirement that the requisitions be made by May 18, the date set out in the agreement of purchase and sale. Mr. Poulson, lawyer for the vendors, had sought postponements and then estoppel certificates from the tenants. He had said as late as August 2 that he thought the estoppel certificates had been provided. It was only at the last minute that he purported to rely on the May 18 date for requisitions. In my view, the defendants had clearly waived the May 18 date for requisitions by their conduct. Having done so, they were required to provide estoppel certificates in a timely manner for the Bank’s satisfaction. They did not do so.
[43] In Domicile Developments, above, the Court of Appeal stated that a party who is not ready to close on the closing date can rely on a time of the essence provision in the agreement only if the party gives reasonable notice setting a new closing date and reinstating the time of the essence clause. Otherwise, if the party terminates the agreement, he is in breach (at para. 12). That is the situation here. The defendants were not ready to close on August 3. Therefore, if time were to be of the essence, they were required to give reasonable notice of a new closing date and reinstate the time of the essence provision. They did not do so. The evidence is clear that had they done so, the plaintiffs would have been able to close by Wednesday of the following week at the latest.
[44] I note that the defendants could have closed in escrow. They argue that there was no reasonable offer of escrow arrangements from the plaintiffs, only a suggestion that the plaintiffs pay for the inventory. I note, however, that the defendants refused to even consider closing in escrow, and therefore, it is understandable that there was no discussion on terms because of the position they took.
Whether the motion should be granted
[45] In my view, this is an appropriate case to grant partial summary judgment, as there is no genuine issue requiring a trial. While there are some contested facts, such as the date the mortgage funds were available from the bank, I have assumed that the defendants’ version of events is the correct one, and there is still no issue requiring a trial.
[46] The plaintiffs suggested that Mr. Carlyle acted in bad faith, as they believe he refused to close because the McDonald’s lease issue had been resolved. To determine whether he acted in bad faith in refusing to close, I would be required to assess his credibility. In my view, it would not be just to do so based on the affidavit evidence and cross-examinations. However, I need not come to a conclusion on his motive in order to determine the motion for partial summary judgment.
[47] This is a case where the documents play an important role. It is also a case where contentious factual issues are limited, and the parties are generally in agreement on the legal principles. Given that the defendants were not ready, willing and able to close on August 3, 2012, they are not entitled to rely on the time of the essence provision, even if it applies. There are no issues of credibility or fact that require a trial to determine that the defendants were in breach of the agreement. Rather than treat the agreement of purchase and sale as at an end, they should have given reasonable notice of a new closing date and re-asserted that time was of the essence. Had they done so, the evidence shows that the plaintiffs would have been able to close in the following week.
The appropriate remedy
[48] That brings me to the issue of remedy. The plaintiffs seek an order of specific performance, requiring the defendants to close the transaction subject to the plaintiffs having a short period in which to conduct their due diligence to ensure that there have been no material changes to the property since August 2012. The evidence is uncontradicted that they were in a position to close by August 8, 2012 at the latest, but the defendants refused to close.
[49] The defendants did not take issue with the appropriateness of an order of specific performance in their motion materials. Mrs. Bindra has explained in her affidavit why this property is special to her and her husband, as it provides a good opportunity for them to carry on a business and to have good tenants in the other buildings. The Bindras have put much effort into obtaining the property. They agreed to an increase in price of $215,000 above the initial asking price on the representation that there would be a new AAA tenant, yet none materialized. They also successfully negotiated with McDonald’s to deal with the defendants’ lease breaches, thus removing the risk of litigation against the landlord or possible demolition of the building in violation of the lease.
[50] In my view, it would not be unjust to grant specific performance in the circumstances. Given the nature and function of the property to the plaintiffs, a substitute is not readily available (see Semelhago v. Paramadevan, 1996 CanLII 209 (SCC), [1996] 2 S.C.R. 415 at para. 22). The evidence is clear that the plaintiffs were ready to close by August 8, 2012 at the latest, and the defendants were in breach as they were not ready to close on August 3 themselves, nor had they reinstated the time of the essence provision.
[51] Accordingly, I grant the motion for partial summary judgment, and I order specific performance of the agreement of purchase and sale, with the closing to be 30 days after the release of these reasons or such other date as the parties agree upon, subject to the condition that the plaintiffs shall be permitted to carry out due diligence in that period to determine that there have been no material changes to the property. As well, inventory shall be taken one day before the closing.
[52] The plaintiffs sought other relief in their motion, which was not addressed in oral argument. The orders sought included a reference to a Master to determine damages and an order that $215,000 from the purchase price be paid into court pending a determination whether there should be an abatement of the purchase price and damages.
[53] I am not prepared to make such an order without proper submissions, especially on the appropriateness of a reference. If the parties cannot agree on further steps to be taken, they should bring a motion in the normal course. I am not seized of this matter.
[54] If the parties cannot agree on costs of this motion, they may make brief written submissions: the plaintiffs within 14 days of the release of this decision and the defendants within 14 days thereafter.
Swinton J.
Released: August 21, 2013
COURT FILE NO.: CV-12-462802
DATE: 20130821
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
2329131 ONTARIO INC. and 2327451 ONTARIO INC.
Plaintiffs
- and -
CARLYLE DEVELOPMENT CORP. and CARLYLE CONSOLIDATED HOLDINGS INC.
Defendants
REASONS FOR JUDGMENT
Swinton J.
Released: August 21, 2013