ONTARIO
SUPERIOR COURT OF JUSTICE
CITATION: French Family Funeral Home Limited v. William Player, Joanne Harpell and Bruce Holtom, and 1564714 Ontario Ltd. and 1872864 Ontario Inc., 2015 ONSC 182
COURT FILE NO.: 5629/13SR
DATE: 20150113
B E T W E E N:
FRENCH FAMILY FUNERAL HOME LIMITED
Robert A. Dinnen, for the Plaintiff/Defendant by Counterclaim
Plaintiff/Defendant by Counterclaim
- and -
WILLIAM PLAYER, JOANNE HARPELL AND BRUCE HOLTOM
Christopher S. Guest, for the Defendants/Plaintiffs by Counterclaim
and Plaintiffs by Counterclaim
Defendants /Plaintiffs by Counterclaim
- and -
1564714 ONTARIO LTD. and
1872864 ONTARIO INC.
Joining as Plaintiffs by Counterclaim
HEARD: November 28, 2014
D E C I S I O N
WILCOX, J.
BACKGROUND
[1] This matter arises out of the sale of real property by the Plaintiff. By Agreement of Purchase and Sale dated November 7, 2011 (hereinafter the Agreement), 1564714 Ontario Ltd. (hereinafter 156) agreed as purchaser to purchase from what was then Monette and French Funeral Home Limited as vendor a property located at 450 Government Road West, Kirkland Lake, in the District of Temiskaming. The Plaintiff vendor changed its corporate name to French Family Funeral Home Limited on June 26, 2012.
[2] Paragraph 8 of Schedule A to the Agreement was as follows:
- The Vendor further represents, warrants and covenants to and with the Purchaser, which representations and warranties are relied upon by the Purchaser and without which representations and warranties the Purchaser would not have executed this Agreement, as follows:
… c) That to the best of the Vendor’s belief no part of the buildings or structures on the property encroach in any manner or to any extent on or over the lands adjoining any part of the property and no encroachments exist against the property. The Purchaser shall satisfy itself to be sure at the Purchaser’s own cost. d) That the Vendor has no knowledge and has received no notice of any pending or threatened litigation as a result of any existing by-laws, regulations or statutes relating to the use and occupation of the property and that to the best of the Vendor’s knowledge and belief there are no defects in the construction, state of repair or state of completion of the building and improvements erected on the property, nor any claims for adverse possession or similar claims adverse to the title of the Vendor, and further that there will not as of the date of closing be any work or other orders outstanding against the property. e) That (1) all soils and materials on the site are of native material and nature, and (2) no part of the property has ever been used as a dump or fill site or for the dumping of waste or chemical substances, nor does the property contravene any relevant environmental legislation or requirements, nor has any part of the property been subject to an open file or investigation pursuant to the Environmental Protection Act (Ontario); and … All of the foregoing representations and warranties shall be confirmed by a statutory declaration of the Vendor on closing and shall survive the closing of the within transaction.
[3] Paragraph 9 of the Agreement provided:
The Vendor acknowledges and agrees that the Purchaser has executed this agreement as a trustee only and shall be entitled, without the consent of the Vendor, to assign this agreement to any person, firm or corporation, whether now existing or not, and upon the Vendor receiving notice of such assignment, the Purchaser shall be relieved of all further liability hereunder and the Vendor shall complete this transaction with such assignee as if such assignee had originally been the Purchaser hereunder.
[4] The Agreement did not specify a closing date, but August 13, 2012 was agreed upon. The Purchaser, 156, was unable to pay the purchase price and the sale did not close on that date. Negotiations followed between counsel. The purchase and sale was completed on February 13, 2013 at which time a transfer of the subject lands was registered in favour of 1872864 Ontario Inc. (hereinafter 187).
[5] On closing, a promissory note in the amount of $30,750 was included as part of the consideration. No payment has been made on this note.
[6] The Defendants William Player, Joanne Harpell and Bruce Holtom were the debtors and French Family Funeral Home Limited was the creditor on the note.
[7] The Defendant William Player (hereinafter “Player”) is said to be the president, sole director and sole shareholder of 156. The Defendant Joanne Harpell (hereinafter “Harpell”) is the spouse of Player. The Defendant Bruce Holtom (hereinafter “Holtom”) is the president, sole director and sole shareholder of 187.
PLEADINGS
[8] The Plaintiff brought an action on the promissory note against the Defendants Player, Harpell and Holtom for payment of the principal plus interest and costs. The Fresh Amended Statement of Defence and Counterclaim admits that no payment of the money claimed has been made and that payment is overdue, but denies that it is owed. The denial is based on:
- allegations of latent defects
- allegations of breach of representations and warranties
- a right of set off involving the counterclaim
- equitable estopple and promissory estoppel.
The Fresh Amended Statement of Defence and Counterclaim also alleges that the Plaintiffs misrepresented the land area, but counsel in court confirmed that that was no longer in issue.
[9] The Defendants, together with 156 and 187 counterclaimed for rescission of the purchase by 187 from the Plaintiff and recovery of its costs and expenses from that transaction or, in the alternative, damages of $1,500,000.
[10] In support, the counterclaim relied on the allegations in the Fresh Amended Statement of Defence portion and on further allegations that:
- the Plaintiffs failed to make full disclosure
- the Purchasers would not have proceeded to complete the agreement if such disclosure had been made, including entering into the promissory note.
[11] The Plaintiff brought a motion for summary judgment granting its claim on the promissory note and dismissing the counterclaim.
LAW RE: SUMMARY JUDGMENT
[12] Motions for summary judgment are provided for by rule 20 of the Rules of Civil Procedure. Rule 20.04 provides for the dispositions of such motions as follows:
DISPOSITION OF MOTION
20.04 (1)
(2) The court shall grant summary judgment if,
(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or (b) the parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment. O. Reg. 284/01, s. 6; O. Reg. 438/08, s. 13(2).
(2.1) Powers – In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
- Weighing the evidence.
- Evaluating the credibility of a deponent.
- Drawing any reasonable inference from the evidence.
(2.2) Oral Evidence (Mini-Trial) – A judge may, for the purposes of exercising any of the powers set out in the subrule (2.1), order that oral evidence be presented by one or more parties, with or without time limits on its presentation. O. Reg. 438/08, s. 13(3).
(3) Only genuine issue is amount – Where the court is satisfied that the only genuine issue is the amount to which the moving party is entitled, the court may order a trial of that issue or grant judgment with a reference to determine the amount.
(4) Only genuine issue is question of law – Where the court is satisfied that the only genuine issue is a question of law, the court may determine the question and grant judgment accordingly, but where the motion is made to a master, it shall be adjourned to be heard by a judge.
(5) Only claim is for an accounting – Where the plaintiff is the moving party and claims an accounting and the defendant fails to satisfy the court that there is a preliminary issue to be tried, the court may grant judgment on the claim with a reference to take the accounts.
[13] Rule 20 was substantially amended effective January 1, 2010. The former test of “no genuine issue for trial” was replaced with “no genuine issue requiring a trial”. Judges hearing motions for summary judgment were given the power to weigh evidence, evaluate the credibility of a deponent, and draw reasonable inferences from the evidence (the “enhanced powers”) in determining whether there is a genuine issue requiring a trial.
[14] In the case of Combined Air Mechanical Services Inc. v. Flesch 2011 ONCA 764, 2011 O.N.C.A. 764 the Ontario Court of Appeal heard five separate appeals from summary judgment rulings. In view of controversy and uncertainty arising from the amendments, the court took the opportunity to provide guidance in the use of rule 20. Rather than commenting on the relative merits of the various approaches taken in the cases, the court explicitly stated that, “ … our decision marks a new departure and a fresh approach to the interpretation and application of the amended rule 20”. (Paragraph 35). Therefore, previous cases must be used with caution.
[15] At the outset, the court noted that the January 1, 2010 amendments to the rules had also introduced proportionality as a guiding interpretive principle (paragraph 1).
[16] The court held that the rule’s purpose was not to eliminate all trials, only unnecessary ones. The guiding consideration was said to be whether a fair and just resolution could be achieved through the summary judgment process without the need for a full trial (paragraphs 36 through 39).
[17] The court found that there are at least three types of cases that are amenable to summary judgment:
1 - where the parties agree that it is appropriate to determine an action by way of motion for summary judgment 2 – where the claims or defences are shown to be without merit. That is to say, when there is no chance of success. 3 – where the amended test for summary judgment coupled with the enhanced powers of the court permit the motion judge to dispose of cases on the merits and the trial process is not required to serve the interests of justice (paragraphs 40 through 44).
[18] Referring to the enhanced powers, the court stated:
45 The threshold issue in understanding the application of the powers granted to the motion judge by rule 20.04(2.1) is the meaning to be attributed to the phrase “interest of justice”. This phrase operates as the limiting language that guides the determination whether a motion judge should exercise the powers to weigh evidence, evaluate credibility, and draw reasonable inferences from the evidence on a motion for summary judgment, or if these powers should be exercised only at a trial. The phrase reflects that the aim of the civil justice system is to provide a just result in disputed matters through a fair process. The amended rule recognizes that while there is a role for an expanded summary judgment procedure, a trial is essential in certain circumstances if the “interest of justice” is to be served.
[19] The Court of Appeal promulgated a “full appreciation” test. It was to be applied in deciding if the enhanced powers should be used to identify claims having no chance of success or to resolve all or part of any action. “The motion judge must ask the following question: Can a full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can their full appreciation only be achieved by way of trial?” (paragraph 50). This did not mean simply being familiar with the contents of the motion record, but fully appreciating the evidence and issues in a way that permits a fair and full adjudication of the dispute (paragraph 53). A summary judgment motion was said not to be “an adequate substitute for the trial process” in cases that call for multiple findings of fact on the basis of conflicting evidence emanating from a number of witnesses and found in a voluminous record because a full appreciation would be elusive (paragraph 51). The attributes of the trial process that might recommend it over a motion for summary judgment in a given case were reviewed (paragraphs 46 through 53). This full appreciation test was criticized by the Supreme Court of Canada in the case of Hryniak v. Mauldin, 2014 SCC 7, 2014 S.C.C. 7, as will be discussed below.
[20] The court then went on to confirm the evidentiary obligations on a summary judgment motion. “Each side must put its best foot forward with respect to the existence or non-existence of material issues to be tried” (paragraph 56). Furthermore, “a party who moves for summary judgment must be in a position to present a case capable of being decided on the paper record before the court”. Although the motion judge may order that oral evidence may be presented, that is for the purposes of exercising any of the enhanced powers, not for the parties to supplement the motion record (paragraphs 61 and 63). The requirement to put the best foot forward is not new. It has been held to mean that, if the matter went to trial, the parties would present no additional evidence. (Rogers Cable TV Ltd. v. 373041 Ontario Ltd. 1994 7367 (ON SC), 22 O.R. (3^rd^) 25).
[21] The moving party bears the legal burden of showing that there is no genuine issue requiring a trial. The responding party bears an evidentiary burden to respond with evidence setting out specific facts showing there is a genuine issue requiring a trial (Combined Air Mechanical Services Inc. v. Flesch paragraph 100).
[22] One of the five cases dealt with by the Court of Appeal in Combined Air Mechanical v. Flesch, Hryniak v. Mauldin, was appealed to and dealt with by the Supreme Court of Canada, as noted above. The Supreme Court agreed with the Court of Appeal’s disposition of the case and dismissed the appeal, but differed in part on the interpretation of rule 20.
[23] The Supreme Court stated that the process of adjudication must be “fair and just” and expanded on what that meant in terms of the accessibility of the justice system which is compromised by the cost and delay of dispute resolution processes, such as full trials, which are disproportionate to the nature of the dispute and the interests involved. Summary judgment procedures were seen as enhancing access to justice.
[24] The court noted that motions for summary judgment must be granted when there is no issue requiring a trial, but that the Court of Appeal had not explicitly focused on when there is a genuine issue requiring a trial. Therefore the Supreme Court stated at paragraph 49:
There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.
[25] Notably, the Supreme Court took issue with the Court of Appeal’s formulation of its “full appreciation test”, as follows:
56 While I agree that a motion judge must have an appreciation of the evidence necessary to make dispositive findings, such an appreciation is not only available at trial. Focussing on how much and what kind of evidence could be adduced at a trial, as opposed to whether a trial is “requir[ed]” as the Rule directs, is likely to lead to the bar being set too high. The interest of justice cannot be limited to the advantageous features of a conventional trial, and must account for proportionality, timeliness and affordability. Otherwise, the adjudication permitted with the new powers – and the purpose of the amendments – would be frustrated.
57 On a summary judgment motion, the evidence need not be equivalent to that at trial, but must be such that the judge is confident that she can fairly resolve the dispute. …
[26] The Supreme Court went on to outline how to approach a motion for summary judgment, as follows:
66 On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will [page 112] serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.
[27] In view of the Supreme Court’s decision, I understand the Ontario Court of Appeal’s decision in Combined Air Mechanical v. Flesch still to be good law, apart from the full appreciation test.
OUTLINE
[28] It is necessary to deal first with the Plaintiff’s motion to dismiss the counterclaim. If the counterclaim were to be dismissed, then judgment would be granted on the promissory note. If the counterclaim survives, then there is an issue as to whether equitable set off is applicable between the counterclaim and the promissory note. The issues of the existence and effect of the alleged warranty are critical to this matter as it was argued.
EXISTENCE OF WARRANTY
[29] The Plaintiffs by counterclaim, 156 and 187, sought to rely on the representations and warranties set out in paragraph 8 of Schedule A to the Agreement of Purchase and Sale. They submitted that the Plaintiff had made false representations under paragraph 8 (e) and that both 156 and 187 are entitled to rely upon same and upon the Vendor’s warranty. The submission went on to say that a purchaser is entitled to rely upon the representations and warranties of a vendor contained in a contract between a vendor and purchaser which expressly provides that the representations and warranties shall survive closing. There is no obligation upon the purchaser to perform its own due diligence to ensure that the representations are true or to prove that it has relied to its detriment upon the representations and warranty. The vendor is responsible for the consequences of any misrepresentations made by it and its warranty obliges the vendor to restore the premises to the condition in which the purchaser would have received the premises if the vendor’s representations had been true or to indemnify the Purchaser for any damages suffered by it. In the event that the intentions of the vendor and purchaser can be ascertained to be such that the representations were fundamental to the contract and were essentially a condition, then rescission is an optional remedy even after completion of the transaction in cases where the representations and warranties are expressed to survive closing. The Plaintiff had not produced any evidence that its representations in paragraph 8 (e) were true. Neither 156 nor 187 has ever waived the benefit of the representations and warranties contained in that paragraph. Both have relied thereon and both now are entitled to either rescission of the sale, restoration of the lands and premises to the condition represented by the Plaintiff, damages for misrepresentation in an amount to be determined, or some combination thereof, together with the right of equitable set off against any amount found to be due and owing on the promissory note. This is due to the Plaintiff’s/Vendor’s misrepresentations and the entitlement of the Plaintiffs by counterclaim to rely upon the warranties.
[30] The Plaintiffs took the position that the representations and warranties made to 156 in the Agreement did not exist by the time of the February 13, 2013 closing. Rather, the Plaintiff was entitled to, and did, effectively rescind the Agreement and proceed to negotiate the settlement of its remedies. The settlement was arrived at through correspondence and involved an entirely different transferee, an unconventional adjustment date, an additional deposit, a new completion date, payment of additional moneys by way of damages, the conversion of a portion of the price from cash to promissory note and the provision of security for the payment of that note by the personal obligations of three individuals, two of whom were strangers to the negotiations previously.
[31] It is necessary to look at the chain of events leading up to the closing to evaluate this contention.
[32] The Agreement was between 156 as buyer and Monette and French Funeral Home Limited as seller. The purchase price was $550,000, subject to adjustments. The agreed upon closing date was August 13, 2012. The seller was ready to close on time, but the buyer was not, as it was not in funds. There were extensions to the closing date. The situation was set out in the letter of September 21, 2012 of Robert A. Dinnen, the lawyer for the vendor, to Gerald E. Norman, the real estate lawyer for the purchaser, as follows:
Re: French Family Funeral Home Limited sale to 1564714 Ontario Ltd. 450 Government Road West, Chaput Hughes Closing Date: September 21, 2012 Your File No. 3854-11 My File No. MONE5970
It is obvious that your client is unable or unwilling to complete this transaction today as scheduled. If I am mistaken, and you are, in fact, able to close today, please tell me immediately. My client is ready, willing and able to close immediately today. By means of the usual arrangements where offices are separated by considerable distance, we are able to fax the documents to you and undertake to mail or courier the originals immediately following closing. You would be able to deposit the funds directly to our trust account and thereupon proceed to register online. The keys would be available at the realtor’s for pickup following registration. Thus, as soon as you have the necessary funds, closing can take place in a matter of minutes. This assumes co-operation by both sides. Given that you do not have the necessary funds, co-operation is not possible at this time.
Out of an abundance of caution therefore, in order to preserve our client’s legal rights under the agreement with your client, we are today arranging to have an agent tender on you to remove any possible doubt that our client is serious and ready to close. The physical tender will take place on Monday, September 24, 2012. We would be able to tender on you today were it not for the distance between our two offices and the time it will take for the delivery of the original documents to our Barrie agent. Those documents have this morning been put into the hands of the employees of Ontario Northland Transportation for delivery to the agent and, in turn, tender upon you. Until then, our client will remain ready, willing and able to close. Thereafter, we aren’t sure.
The tender is a formal step and we do not expect that you will be able to close on Monday, September 24, 2012. You have already made that clear. Your client does not have the necessary funds available. Therefore, after you confirm on Monday with our tendering agent that you are not able to close, our client will be free to accept your client’s repudiation and take his remedies if, as and when he sees fit.
All of that said, our client would be willing to agree to extend the closing date and continue to remain ready, willing and able to close, again, this time to October 26, 2012, as you requested, if your client pays an additional sum of $10,750.00 by certified cheque deposited to our trust account by not later than Monday, September 24, 2012 at 3:00 p.m. and acknowledges by that time in writing faxed to this office that the premises will be accepted on closing in their present condition. The extra money is necessary to cover his additional legal costs incurred by all of the extensions and for maintenance of the premises. The acknowledgement is to recognize that the premises are sitting unoccupied waiting for your client and he should bear the responsibility of any deterioration or breakdown in the meantime from this point forward.
Further correspondence confirmed that the tender took place but there was no money to close the deal.
[33] Mr. Dinnen wrote to Mr. Norman again on December 17, 2012, acknowledging the latter’s letter of December 14, and stating:
I believe my clients may well be willing to instruct me to release the transfer for the property to you, as well as release the other closing documents, unchanged from when they were prepared earlier this year, and to release the keys, upon deposit to my trust account by certified cheque (and provision to me of a copy of the certified cheque by fax) of the sum of $564,016.60 by noon on December 21, 2012. After that time, this will not be possible. The amount includes extra legal costs, maintenance and interest expenses.
[34] Then, on December 19, 2012, Mr. Dinnen wrote the following to Mr. Norman:
RE: Your File 3854-11: My File MONE5970
I have been instructed to offer to settle this matter of your clients’ continuing breach of their contract with my clients by offering to release a transfer of the property to you, as well as release other appropriate closing documents and keys, upon deposit to my trust account by certified cheque (and provision to me of a copy of the certified cheque and deposit slip by fax) of the sum of $532,500.47 by no later than noon on December 21, 2012. After that time, this will not be possible and this offer will be withdrawn.
It is understood that this is an offer to settle your clients’ liability and that if you do not make the deposit as aforesaid, all of my clients’ rights under the agreement will survive. They are, in other words, not varying the terms of the agreement, of which your client has so clearly been in breach for several months, and when your client fails again to come up with the funds, there will be no reduction in my clients’ rights of recovery against your client. This is a one-time offer, not a variation to the agreement.
My clients are not making a new agreement with a new entity. They are holding your clients to their agreement, unaltered. This letter is an offer to settle your clients’ liability under the existing agreement of which your clients are in breach. If your clients continue to fail to complete the agreement, all of our clients’ rights against your clients will remain unchanged. They will not bargain away those rights, only to watch another day pass by without any money. Nothing in any of the communications is intended to be, or is to be interpreted as, a reduction in the quantum of damages that my clients are entitled to receive when this case proceeds to court for full relief. That quantum presently stands at a minimum of $564,016.60 and continues to increase every day.
It is also part of this offer to settle that your clients acknowledge and agree that the property is being accepted in its present condition, with any and all defects, patent and latent, and your clients are accepting the risk of any defect, whether foreseeable or not or detectable on inspection or not, and whether known or unknown to the vendors, and, in addition, your clients agree that the vendors and anyone appointed by them shall have, without charge, exclusive possession of, and access at all times to, the apartment and four (4) of the garage bays, to include the westernmost garage unit, until January 6^th^ and the westernmost garage until March 31^st^.
This is the only offer that our clients will acknowledge. They will not be entering into any “amending agreement” with your clients. It is apparent that if they were to be so foolish as to do that, your client would simply fail to close the deal yet again and when this matter finally does end up in court, he would hold up the “amending agreement” that my clients would have foolishly signed as a defence to my clients’ action for proper damages. Indeed, all of the evidence to date indicates clearly that your clients have no intention whatsoever of completing their agreement with my clients and are merely stringing them along to try to improve your clients’ chances in court.
Your clients owe damages now of at least $564,016.60 and that amount increases every day. That reality will not change unless payment is received into my trust account in accordance with this letter, on time.
I would appreciate it if you would kindly stop attempting to secure something from my clients that would serve only to compromise their rights enforceable in court. Do not send any draft “agreement” or anything else, please, except money.
[35] 156 entered into an agreement dated December 19, 2012 for the assignment of “an agreement of purchase and sale as amended … regarding the purchase of 450 Government Road West, Temiskaming” to 187.
[36] The correspondence regarding the purchase price continued, including on February 8, 2013 when Mr. Norman wrote to Mr. Dinnen referencing 187’s purchase from French Family Funeral Home Limited as follows:
At long last, I am pleased to advise that I am in funds to complete the above-noted transaction and accordingly, enclose Purchaser’s direction and undertaking along with Purchaser’s warranty and indemnity.
I am aware that no formal extension of the closing date has taken place, but have been led to believe by my client that the seller is ready, willing and able to close at this time.
I have taken the liberty of drafting a statement of adjustments and enclose the same for your review. Please note that part of the consideration is to be by way of a promissory note in the amount of $30,750 due on September 30, 2013 …
I confirm, on behalf of our respective clients, that the Agreement of Purchase and Sale shall be deemed to have been amended to provide that the seller be permitted to use the apartment, garage bays …
[37] Mr. Dinnen wrote to Mr. Norman again on February 11, 2013, stating: “My clients offer to accept cash of $501,750.47 and a promissory note for $30,750 but this offer can be accepted only by delivery of the cash and the original promissory note by February 13, 2013 and after that this offer to settle will be withdrawn and my clients will be at liberty to enforce all of their rights under the Agreement. Attached as a schedule to this offer is a statement of adjustments explaining the calculation”.
[38] Mr. Norman replied later on February 11 referencing 187’s purchase from French Family Funeral Home Limited and saying: “Thank you for your letter of even date in connection with the above. I have instructions from my client to complete this transaction based on same and will prepare cheques as soon as I receive your direction”.
[39] The Statement of Adjustments is consistent with the terms of the Agreement with modifications for delay and for the Promissory Note. It showed the French Family Funeral Home Limited as Vendor and 156 as Purchaser. It gave it a sale price of $550,000 subject to the usual adjustments and also subject to adjustments for a promissory note of $30,750 and “extra for legal costs, maintenance and interest of $10,750. The adjustments were as of December 21, 2012. The previous adjustment date of August 13, 2012 was crossed out.
[40] On February 12, 2013, Mr. Dinnen wrote to Mr. Norman. Unlike previous letters which had referred to the lawyers’ respective file number, this one referenced French Family Funeral Home Limited sale to 156. It included closing documentation to be held in escrow pending the delivery of the balance due on closing, and dealt with closing arrangements. The same Statement of Adjustments was enclosed as was in Mr. Dinnen’s letter of February 11.
[41] In reviewing those letters and documents, I see no indication that the agreement was considered to have been terminated and replaced by another in settlement of the Plaintiffs’ remedies. Rather, it appears that successive adjournments of the closing date were negotiated as efforts were made to enable the Agreement to close and to compensate the Purchaser for its additional expenses incurred during the delay.
[42] Also, in the Fresh Amended Statement of Defence and Counterclaim, the Defendants/Plaintiffs by counterclaim refer to and rely on the Agreement including the representations and warranties therein. The Plaintiff’s admissions and denials of the allegations are not inconsistent with the continuing existence of the Agreement. The Plaintiffs’ Reply and Defence to Counterclaim reads as if the Agreement had remained in effect, repeatedly referring to it and the deal that it embodied, and relying on its terms. Although the counterclaim is based in part on the representations and warranties in the Agreement, at no point does the Statement of Defence to Counterclaim deny or even question the Agreement’s existence. Indeed, it admits paragraph 22 of the Statement of Defence and Counterclaim which states that “(t)he agreement of purchase and sale was completed on February 13, 2013 …”.
[43] In view of the above, I do not agree with the Plaintiff that the Agreement of Purchase and Sale was rescinded and replaced by another agreement which was arrived at through correspondence and closed on February 13, 2013. Instead, I find that the Agreement and its representations and warranties survived, subject to negotiated changes in the closing date and price.
THE EFFECT OF THE REPRESENTATIONS AND WARRANTIES
[44] I turn now to the issue of the effect of the representations and warranties.
[45] Key to this is an environmental assessment report dated February 18, 2002 prepared by A & A Environmental Services Inc. (the A & A report). This report was done for the Plaintiff’s predecessor on title to the subject property. It is stated to be a phase one environmental site assessment under the Canadian Standards Association’s guidelines and to be based on visual observations, interviews with persons familiar with the property, and review of historical records concerning the current and past use of the property, and precursory soil analysis or measurements. It was “not intended to be a definitive investigation of any contamination or other environmental concerns at the property”. The following are excerpts from the report:
The property was formerly part of the Teck-Hughes Gold Mine and the current building was formerly two building used as a mine “dry” but these were completely refurbished and combined into the present facility which operates as a funeral services building with chapel, viewing room, lunch room preparation room, garage and offices. No environmental issues were noted inside the building but there is evidence of ground movement in that the ceramic floor tiles have cracked in a line across the interior of the building. In the parking area, several locations gave a strong signal for large buried metal objects of various sizes and an interview with the former environmental officer for the former owners of the site (Kinross Mines), suggested that this area may contain buried metal scrap and also a capped mining shaft. Scrap metal does not present an environmental hazard but no information is available as to the nature of the scrap materials. The analysis of the three surface soil samples does not suggest the surface soils are contaminated. However, it is recommended that the ground stability be investigated and that the Ministry of Northern Development and Mines be contacted to discuss this issue. The Ministry of the Environment officer for the Kirkland Lake area could recall no environmental issues with this site. No further environmental investigation is warranted at this time provided the client is willing to accept the risks associated with the buried scrap metals on site.
The subject property is covered with imported gravels over the entire yard areas of the property.
The former mine buildings appear to have been gutted to basic structures before refurbishing as a funeral home… There was a 1-inch wide crack in the floor running the entire length of the building suggesting ground movement had occurred. This is not an environmental issue but a structural one but it should be checked by a geotechnical engineer. There is a crawl space in the middle of the building under the ceramic tile floor but no environmental issues were noted here.
The parking lot of the site was traversed at 10 ft. intervals with a Gerrard Metal Detector fitted with a depth multiplier capable of detecting large buried metal objects (> 1 gallon paint can) whilst ignoring small metal items such as pop-cans. It is ideal for locating buried underground metal tanks but will, of course, also detect large pieces of buried metal scrap such as steel siding. Numerous “hits” were found throughout the parking lot and some of these were substantial but there was no other indication of buried tanks such as filler pipes or vent pipes. A large hit was noted at the northwest corner of the building over an area of approximately 3m by 4m. The former use of the site as a mining property may have led to buried scrap steel being located on site. This was found to be the case on the adjacent assay lab site where several pieces of scrap steel were found but scrap steel does not lead to contamination of the soils. However, the presence of numerous “hits” leaves unanswered the question as to what the source of the metal signals are. If there is steel-mesh reinforced concrete in this area, this will also register as a hit.
An aerial photograph of the town, taken in the late 1950’s does show the subject site during its mining days. The two buildings of the former mine dry can be clearly seen.
Mr. Ollila was the chief environmental officer for Kinross Gold, the owners of the former Teck-Hughes Mine site until it was recently sold to Foxpoint Resources of Vancouver. He held that position for over ten years and indicated that the ground conditions in the area of the subject site were unstable due to the movement of the bedrock around the former mine workings. When asked about the numerous metal signals found in the parking area, he indicated these were likely due to the common practice of burying scrap steel and equipment parts on site. He also pointed out that there was a capped mine shaft on the subject site (this may explain the large metal “hit” at the northwest corner of the building?).
The site history investigations confirm the use of the site as part of the Teck-Hughes Gold Mine for most of the twentieth century. In 1990, the Monettes converted the former mine buildings into what exists today and operates as a funeral services facility. The area of the subject site has been extensively mined and the site appears to contain buried scrap steel items of unknown origin. If these are simply metal parts, the environmental risks are small but if they contain drums of chemicals or fuels, they would constitute a serious environmental issue. However, this is unlikely. Added costs could be incurred should the site be excavated and disposal of scrap metal items becomes necessary.
The site history investigation revealed that the site was formerly used as part of a gold mine for most of its developed history. The present building shows no signs of environmental issues but there is some evidence of ground movement due to the extensive mine workings beneath the site and this may need further investigation for geo-technical issues. There appear to be several areas of the parking lot where scrap steel items have been buried but the nature of these is unknown. Trenching of the adjacent site last Fall, which was also part of the same mine operation, showed buried scrap items such as wire rope and some steel siding. The scrap steel items are not environmentally damaging provided they are not containers for chemicals such as sodium cyanide which was used extensively in gold milling but this is highly unlikely given the use of the buildings as a mine dry.
[46] The affidavit evidence indicates that Player had received a copy of the report in and around November, 2011, soon after the Agreement of Purchase and Sale was executed. Indeed, Player’s affidavit of October 21, 2014 is somewhat vaguely worded, but at least suggests that he had the report before executing the Agreement and had walked the property several times, noting that there was no visual indication of a mine shaft on the property, and assuming that any such shaft had been filled. He goes on to say that the first time he became aware that there was a shaft on site was after closing when the mine owner sought access to the site to replace the existing cap on it. This does not seem credible, given the information provided to him before then in the A & A report and from the Town of Kirkland Lake.
[47] Player claims to have substantial experience in the real estate industry gained from over 40 years as a real estate agent and developer. He and Holtom expected to derive substantial profits from the development, sale or marketing of the subject property and Player was engaged in preliminary work to that end even prior to completion of the Agreement. Holtom acknowledged that both he and 187 relied on Player as their agent, and adopted Player’s evidence.
[48] Documents produced by the Defendants/Plaintiffs by Counterclaim reveal that they were aware in 2011 that the property was previously a mine site and even of the location of the mine shaft.
[49] A December 8, 2011 email from Glen Tunnock, a consultant acting for the Defendant/Plaintiffs by Counterclaim, to the Town of Kirkland Lake refers to “this former Teck-Hughes mine site”. It is cc’ed to Brass Key Properties, which, counsel confirmed, was Player’s. A further email from the town to Tunnock and cc’ed to Brass Key Properties on December 12, 2011 attached air photo imagery, surveys and maps showing mine openings, mine workings, and other items. Notably, the maps show the location of the central mine shaft relative to the funeral home building. The shaft is labelled “buried and capped”. Player’s affidavit of October 21, 2014 acknowledges receipt of “some documents from the town planner which indicated that there may at some time before 2002 have been a mine shaft on the subject property”. This is disingenuous. In fact, later on December 12, 2011, Brass Key Properties forwarded the town’s email to Brian Mortel with the comment that “there are going to be a lot of studies required for this property that we didn’t know about. I think we may need more time and removal of the escape clause as the cost is looking huge”.
[50] There is also a letter dated October 22, 2014 from Bioforj Environmental to Player and his lawyer. It is explicitly based on the information provided by the addressees and a review of the A & A report. It opines that “… there is the possibility of some non-native material buried on the site, including potentially hazardous chemicals, The (sic) extent and quantity of which is unknown”. Also, it notes that there is an old mine shaft on the property, that work was recently done on the shaft cap, that a vent was installed there which is visible above ground, and that the earth on the site is shrinking and settling is occurring. The cost of investigating and remediating the site could not be estimated.
[51] The Defendants/Plaintiffs by Counterclaim submit that the Plaintiff made false representations under paragraph 8 (e) of Schedule A to the Agreement and that they are entitled to rely on those and on the warranty therein. In support, they submit that a purchaser is entitled to rely upon the representations and warranties of a vendor contained in a contract between the vendor and purchaser which expressly provides that the representations and warranties shall survive closing. There is no obligation upon the purchaser to perform its own due diligence to insure that the representations are true or to prove that it has relied to its detriment upon the representations and warranty. The vendor is responsible for the consequences of any misrepresentations made by it and its warranty obliges the vendor to restore the premises to the condition in which the purchaser would have received the premises if the vendor’s representations had been true or to indemnify the purchaser for any damages suffered by it. In the event that the intentions of the vendor and purchaser can be ascertained to be such that the representations were fundamental to the contract and were essentially a condition, then rescission is an optional remedy even after completion of the transaction in cases where the representations and warranties are expressed to survive closing.
[52] The Plaintiff submitted, in summary, that properly interpreted, the warranty was true, the warranty was waived by conduct, no reliance was placed on the warranty nor could be placed on the warranty and, furthermore, that there was speculation about but no proof of damages.
ANALYSIS
[53] Counsel helpfully provided various cases and excerpts dealing with contractual interpretation generally and warranties in particular.
[54] The Canadian Encyclopedic Digest Contracts IX.1 provides the following general principles in the interpretation of contracts:
552 The objective of interpreting a contract is to discover and give effect to the parties’ true intention as expressed in the written document as a whole at the time the contract was made. In the absence of ambiguity, the plain, ordinary, popular, natural or literal meaning of the words, read in light of the entire agreement and its surrounding circumstances, should be adopted except where to do so would result in a commercial absurdity or create some inconsistency with the rest of the contract. Contractual interpretation is essentially a search for the objective meaning of language, absent proof that all parties mutually interpreted the contract in a way that may not have been apparent to an ordinary person. Thus, while modern courts tend to interpret contractual language contextually, in accordance with the surrounding circumstances of the agreement, and consistent with the reasonable understanding and expectations of the parties, interpretation of a contract must be objectively based. Generally, evidence of unexpressed (subjective) intention of the parties is not admissible.
553 Under the so-called modern “contextual approach” to contractual interpretation, particular provisions of an agreement are not to be read in isolation, but, rather, in harmony with the agreement as a whole and any related agreement forming part of the larger transaction in order to construe properly any given term in its wider context. Further, the contract as a whole may, and sometimes must, be considered in light of the facts and circumstances known to and affecting both parties at the time of the making of the contract, in order to understand the object of the parties and the frame of reference within which the process of interpretation should take place. Such surrounding circumstances are usually referred to as the commercial setting or context or the factual matrix of the contract, and evidence pertaining to same is to be distinguished from other extrinsic evidence. The genesis and aim of the transaction, as well as its background and context, and the market in which the parties were operating, may be considered as part of the context of the agreement. Business contracts are to be interpreted in accordance with commercial reality unless the language of the agreement clearly precludes this approach. The scope of the surrounding circumstances to be considered will vary from case to case, but should encompass those factors which assist the court in searching for an interpretation that promotes the true intent of the parties. At the same time, the words of the contract must not be overwhelmed by a contextual analysis, since the court’s task is not to make a new contract for the parties. The intention of the parties is determined in the objective sense of a reasonable person by reference to the surrounding circumstances at the time of the signing of the contract.
[55] Anson’s Law of Contract, 23^rd^ Edition, states at page 121:
Once it has been established that a statement forms a term of the contract, it is necessary to consider what is its precise importance and effect. Contracts are normally made up of various statements and promises on both sides, differing in character and importance; the parties may regard some of these as vital, others as subsidiary, or collateral to the main purpose of the contract. Where one of these is broken, the traditional approach of the Courts is to discover, from the tenor of the contract or the expressed intention of the parties, whether the broken term was vital to the contract or not.
If the parties regarded the term as essential, it is a condition: its failure entitles the innocent party to treat himself as discharged from liability. If they did not regard it as essential, but as subsidiary or collateral, it is a warranty; its failure can only give rise to an action for such damages as have been sustained by the failure of that particular term. Thus from one point of view a warranty may be regarded as a promise of indemnity against a failure to perform a particular term of the contract. Warranty and condition alike are parts, and only parts, of a contract consisting in various terms.
[56] Further, it states at paragraph 126:
Certain qualifications must be made to the rule that a breach of condition discharges the innocent party from further performance.
Where one party has been guilty of a breach of condition, the other party need not necessarily treat himself as discharged. He can, if he so wishes, ‘waive’ compliance with the condition and enforce the contract as if it had been omitted. Alternatively, he can elect to affirm the contract, that is to say, with knowledge of the breach, to treat the contract as still binding and to content himself with damages, which are his remedy in any event. In this latter case, he is commonly said to sue upon a warranty ‘ex post facto’. This means simply that, having affirmed the contract, he cannot subsequently assert that he is discharged by the breach of condition, but must sue as if it were a breach of warranty only.
Affirmation is voluntary; but an innocent party may, in certain circumstances, be compelled to sue for damages on a warranty ex post facto.
[57] A party is not required to demonstrate reliance on express warranties to succeed in a claim based on them. They are entitled to rely on them (Monarch Construction Limited v. Axidata Inc. 2007 6579 (ONSC pages 41 and 42)).
[58] In Davis v. Kelly 2001 PESCTD 98, 2001 P.E.S.C.T.D. 98, DesRoches C.J.T.D. stated at paragraph 35:
A warranty is the assurance by one party to a contract of the existence of a fact upon which the other party to the contract may rely. It is an assurance given by the promissor to the promissee in order to relieve the promissee of any duty to ascertain the fact for himself or herself. It is a term of the contract, but is collateral to the main purpose of the contract; that is to say it is not so vital as to negate the agreement if the warranty is not true. However, if the warranty is untrue, it can give rise to an action for damages.
[59] However, in St. Onge v. Willow Bay Investments Inc. 2010 ONSC 3318, 2010 O.N.S.C. 3318, Murray J. stated:
Even in the case of warranties capable of surviving closing, where the vendor’s non-compliance with a warranty is readily discoverable by the purchaser prior to closing, the purchaser’s failure to object will permit a court to credit the purchaser with an intention to extinguish or merge a warranty where the deed is executed without objection.
[60] With respect to the use of conduct of the parties subsequent to making a contract, the Canadian Encyclopedic Digest Contracts IX .2(c) states:
568 If the parties are agreed on the meaning of contractual provisions, the court will almost invariably adopt the interpretation accepted by them. Moreover, in a case of true ambiguity, even if the ambiguity is patent, it is proper to consider the acts of the parties done subsequent to the making of the contract and in purported implementation thereof as a guide to the proper interpretation of the contract. Thus, when a party adopts an interpretation of the contract in which the opposite party concurs or acquiesces, the first party will be precluded subsequently from asserting a construction of the contract that is at variance with that on which the parties have acted. It is the duty of the court to adhere to the construction followed by the parties.
[61] Waxman v. Yeandle 1951 Carswell ONT 403 quotes at paragraph seven from Hallsbury that, “a representee who knows the truth is not deceived. Proof, therefore, of such knowledge is a complete answer to any proceeding founded on misrepresentation, whether such misrepresentation was fraudulent or innocent, and is sufficient to show that the representee was cognizant of the real facts at any time before he altered his position”.
[62] In Caddick v. Francis 2011 Carswell ONT 5170, “an agreement of purchase and sale of a home contained warranties relating to sewer and water systems, which systems failed soon after closing. The purchaser sued on the warranties. In dismissing their claims, the court stated that they “would only have a remedy if they had relied upon the representations in deciding to purchase the home. Since the sewer and water systems were to their knowledge in poor shape, I cannot accept that they relied upon the representations as suggesting otherwise”.
CONCLUSION
[63] I find that there is no genuine issue requiring a trial. The Defendants/Plaintiffs by Counterclaim’s claim against the Plaintiff is based on information that they had for over a year prior to closing and perhaps even before entering into the Agreement of Purchase and Sale. This is the information found in the A & A report provided by the Plaintiff and also received from the municipal representatives. The information gained subsequent to closing, when the mining company recapped the mine shaft, adds little or nothing to what was already in those sources. The Enviroforj report is nothing more than an opinion based on that same information. I see no misrepresentations by the Plaintiffs. The Defendants/Plaintiffs by Counterclaim, knowing this information and with the representation and warranty worded as it was, chose not to treat the term as a condition and rescind the deal as they could have done pursuant to the conditions in the Agreement. They chose instead to close the deal without an abatement of the $550,000 purchase and even paying extra for the delay in closing. They are treating it as a warranty on which they sue for damages estimated at $1,500,000. As an aside, I note that there is no proof of damages and the estimate is based on many uncertainties. They closed the deal knowing, as they would given Player’s experience, and the fact that they were being legally represented, that litigation would entail delays, expense and uncertainty. The uncertainty would be of whether they could get a damages award and, if so, of the size thereof. There would also be uncertainty of their ability to collect any damages award. This does not strike me as a rational course of action. Rather, it is absurd. Furthermore, they did not commence litigation in the matter except in response to the Plaintiff’s claim on the promissory note. All of this context indicates that the Defendants/Plaintiffs by Counterclaim understood as the Plaintiff posits that the representations and warranties in the Agreement were not intended to cover matter of which the Purchasers were aware prior to closing. Therefore, the Counterclaim is dismissed. There shall be judgment for the Plaintiff on the Promissory Note.
COSTS
[64] If the parties cannot agree on costs, the Plaintiff shall have 15 days to serve and file its costs submissions. The Defendants/Plaintiffs by Counterclaim shall have 10 days thereafter to serve and file their costs submissions. Both sides’ submissions shall be limited to 3 (three) double-spaced pages plus Bills of Costs.
Justice James A. S. Wilcox
Released: January 13, 2015