CITATION: Meron v. 2182804 Ontario Ltd., 2015 ONSC 1966
COURT FILE NO.: CV-12-456943
DATE: 20150327
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
TOM MERON, SERGE KUCHUK and ALBERT MISHAEV
Plaintiffs
- and -
2182804 ONTARIO LTD. and CLAUDE BITTON
Defendants
Arnold H. Zweig, for the Plaintiffs and Defendants by Counterclaim
Gary M. Caplan and J.W. Anisman, for the Defendants and Plaintiffs by Counterclaim
and between:
2182804 ONTARIO LTD.
Plaintiff by Counterclaim
- and –
TOM MERON, SERGE KUCHUK, ALBERT MISHAEV and rame meron
Defendants by Counterclaim
HEARD: February 23-25, 2015
j.m. spence j.
reasons for decision
[1] This action concerns the aborted sale of a property located at 2322 Bloor Street West (the “Property”).
[2] The Plaintiffs claim against the Defendants for the return of monies held in trust, the return of their deposit and damages for breach of contract.
[3] The Defendant Corporation, 2182804 Ontario Ltd. (“218”) claim against the Plaintiffs for a declaration of breach of contract and judgment accordingly, damages for breach of contract and a declaration that the deposit has been forfeited.
[4] Part of the relief sought by the Plaintiffs is, in effect, the repayment of the $100,000 deposit paid pursuant to the Agreement of Purchase and Sale (the “APS”). The deposit was paid by Rame Meron (“Mr. Meron”) who is a Defendant by Counterclaim, but not a named Plaintiff. He is the father of the named Plaintiff, Tom Meron, and was the principal participant in the making of the decisions of the Plaintiffs. He gave evidence on behalf of the Plaintiffs. It is not submitted that the status of the Plaintiffs’ claim for the return of the deposit and the status of the counterclaim of the Plaintiffs by Counterclaim against Mr. Meron as well as the other named Plaintiffs are adversely affected by Mr. Meron’s not being a named Plaintiff. The term “Plaintiff” as used below includes Mr. Meron.
[5] The parties have filed an Agreed Statement of Damages (the “ASD”) at Exhibit 2 to the Record.
[6] The Plaintiffs and 218 signed the APS for the Property in January of 2012. The closing was to be on March 29, 2012. Just prior to the closing date, the Plaintiffs advised 218 that they would not close.
[7] The parties have filed an agreed chronology.
[8] The dispute which led to the purchase being aborted related to the zoning of the Property. The Plaintiffs wanted to purchase a property zoned to allow the use of 4,000 square feet as a restaurant. They sought to include a condition as to zoning in the APS, but the vendor, 218, would not agree. The Plaintiffs say that they received assurances from 218 relating to the zoning issue. These are addressed below.
[9] Paragraph 9 of the APS provides, in effect, that there is no representation or warranty of any kind with respect to the zoning of the Property. Paragraph 26 provides that there is no warranty, collateral agreement or condition affecting the APS.
[10] After signing the APS, the Plaintiffs learned that the zoning did not allow for the use of 4,000 square feet as a restaurant, but only 2,000 square feet. The Plaintiffs sought further assurances from 218. The negotiations were unsuccessful.
[11] The Plaintiffs say that the APS did not contain all of the terms and conditions agreed upon by the parties.
[12] The Defendants say that 218 was at all material times ready, willing and able to complete the transaction in accordance with the terms of the APS.
[13] The Plaintiffs and the Defendants are experienced in business, including the conducting of real estate transactions.
[14] The owners of 218 are the defendant Claude Bitton (“Mr. Bitton”) and his partner, Andrew Chabutsky.
[15] The Plaintiff, Serge Kuchuk (“Mr. Kuchuk”), and his partner, Rame Meron (“Mr. Meron”), are in the restaurant business and own two restaurants known as the “Green Eggplant”. Messrs. Kuchuk and Meron were interested in a third location and became aware that the Property was for sale.
[16] They met with Mr. Bitton to discuss the purchase of the property. They indicated to Mr. Bitton that they were interested in this location for a restaurant, and particularly a third location of the Green Eggplant. They indicated to Mr. Bitton that they were only interested in the property if it could be used as a restaurant. The Plaintiffs allege that Mr. Bitton represented to them and assured them that the property indeed could be used as a restaurant and there would be no problem in the City of Toronto providing approval for a restaurant. Mr. Bitton denies that he made such a representation. Mr. Kuchuk wanted to set out in the APS a condition in writing that the property could be used for a restaurant. Mr. Bitton indicated to Mr. Kuchuk and Mr. Meron that he was having problems with his partner, the other owner of 218. Mr. Bitton indicated that he did not want any condition to be set out in writing as that would make it difficult for him to deal with his partner.
[17] The Plaintiffs allege that Mr. Kuckuk and Mr. Meron were concerned about not putting in a condition in writing as to the use of the Property. They say Mr. Bitton indicated to both of them that the Property could be used as a restaurant and if for any reason the City of Toronto refused to give them a permit for restaurant use then he (Mr. Bitton) would return any deposit that was delivered as well as purchase the Property back from them so that the purchasers would suffer no loss. Mr. Bitton denies these allegations.
[18] Mr. Bitton indicated that he wished to sell the Property for $3,600,000.00. The Plaintiffs allege that Mr. Bitton specifically indicated to Mr. Kuchuk and Mr. Meron that if the Property could not be used as a restaurant then he (Mr. Bitton) would purchase the property back from the purchasers for $4,000,000.00. Mr. Bitton said in his testimony that the Property is worth $4 million. He denies that he gave Mr. Kuchuk and Mr. Meron the alleged indication.
[19] The negotiations occurred at the home of Mr. Bitton on January 12, 2012. The parties agreed on a purchase price of $3.5 million. The Plaintiffs were to prepare and submit the proposed APS.
[20] On January 13, 2012, Mr. Kuchuk says he went to the office of the Planning Department of the City where a staff member told him that there would be no zoning problem with the restaurant proposal of the Plaintiffs.
[21] The Plaintiffs met with their real estate agent and told him the terms they wished to put in the APS and the Agreement was prepared accordingly. The Plaintiffs did not include in the APS any provision dealing with zoning. In particular, they did not include any provision setting out the alleged representation by Mr. Britton about the zoning or the alleged agreement relating to zoning problems. On January 17, the parties to the APS signed it and backdated it to January 12, 2012. Mr. Meron paid the deposit of $100,000.
[22] The Plaintiffs then went to their lawyers about the transaction and their lawyers sent their requisition letter on March 8. No mention was made in it of zoning matters. The lawyers for 218 responded on March 14, 2012.
[23] The Plaintiffs retained the services of consultants, architects and others to design a restaurant facility for the Property. The Plaintiffs drew up plans for mechanical and electrical work and they commissioned drawings.
[24] The Plaintiffs learned from a Zoning Notice dated March 21, 2012 that the zoning provisions in effect would not allow them to use the entire 4,000 square feet of space as a restaurant, but only about 2,000 square feet without an application for approval.
[25] Mr. Kuchuk said he then went back to the City office with the letter and was told that the building was close to a residential area and a special by-law was expected to restrict any business on the block in question, as indicated in the Zoning Notice, and that if the Plaintiffs were to go to the Committee of Adjustment it was “99%” likely that they would not get approval.
[26] The Plaintiffs immediately voiced their concern about the zoning problem to Mr. Bitton. Mr. Bitton denied that there were any representations or warranties given to them and denied making any verbal promises.
[27] On March 27, the Plaintiffs requested an extension of the closing date for two to three months to enable them to apply to the Committee of Adjustment to allow for the use of the Property as it is alleged they were promised. This request was rejected. Mr. Bitton said in his testimony that if the outstanding mortgage, which was in default, was not paid out by the agreed closing date, the mortgagee would proceed to exercise its power of sale.
[28] On March 28, the Plaintiffs advised in writing that they were prepared to pay $3,200,000 towards the purchase price and place $300,000 in an interest-bearing account on the basis that if the Committee of Adjustment and/or the Ontario Municipal Board granted the adjustment, the vendors would be entitled to the further $300,000. This offer was not accepted. The transaction did not close.
[29] The mortgagee exercised its power of sale and sold the property.
The Issues
The Assurances Given by Mr. Bitton
[30] The Plaintiffs say that on January 12, 2012 when their representatives, Mr. Meron and Mr. Kuchuk met with Mr. Bitton, as the representative of 218, he gave them the following oral assurances about the zoning as part of the oral agreement for purchase and sale which they made at that time:
(1) Mr. Bitton said that the applicable zoning requirements would not create any problem for them in using the entire building space of about 4,000 square feet as a restaurant; and
(2) if they did encounter such a problem, Mr. Bitton said he would return the deposit to them and if the zoning problem existed after closing, he would buy the building back from them for $4 million.
[31] The Plaintiffs discovered a zoning problem prior to closing and advised Mr. Bitton and sought the return of the deposit, but were refused and told that the transaction must close on the agreed date in accordance with the APS.
[32] Mr. Bitton flatly denies that he gave the assurances asserted by the Plaintiffs. He says he told the Plaintiffs that the APS had to be without any conditions..
[33] The Plaintiffs rely on the disputed representation in the first assurance set out above and on the disputed collateral agreement to return the deposit in the second assurance. The Plaintiffs do not assert a claim in respect of the part of the disputed collateral agreement which provides for a buy-back for $4 million.
Mitigation
[34] The Plaintiffs say that 218 failed to mitigate its losses from the failure of the transaction and any damages otherwise payable must be reduced accordingly.
Whether the Assurances were Given
The Representation about the Zoning
[35] As noted above, the Plaintiffs say Mr. Bitton said there would be no zoning problem with their plan to use the entire building space as a restaurant. Mr. Bitton said in his testimony he was confident the building could be used as a restaurant. He did not say whether he said or did not say the entire space could be so used. He said the transaction had to be without conditions because his partner and fellow owner of 218 would not agree to any conditions.
[36] Considering the evidence of both parties, it is probable that Mr. Bitton said that the Plaintiffs should have no problem with the zoning for their intended use. He told the Plaintiffs and said in his testimony that there were a number of other restaurants in the vicinity, including one in particular, with about 6,000 square feet of space in a building of which he was a part owner in the nearby Jane and Bloor area. He showed them plans for a large real estate development project in which he was interested. The overall implication of his remarks was that the spoke from experience in regard to the zoning question.
[37] He made these comments during the same discussion in which he said there could not be any conditions on the offer.
Liability for the Representation
[38] The Plaintiffs submit that all the requirements for a finding of liability for negligent misrepresentation are satisfied in this case. Mr. Bitton had reason to realize that the Plaintiffs might rely on his representation to their detriment and accordingly, he owed them a duty of care which he did not perform. This contention is at least prima facie sound. The representation was incorrect and misleading.
[39] However, there is an issue as to whether the Plaintiffs relied on the representation in a reasonable manner in deciding whether to enter into the APS and whether damages resulted from their reliance.
[40] The day after the meeting of January 12, the Plaintiffs decided to seek to satisfy themselves about the zoning by consulting the City office for its information and advice and they did so and they were satisfied with what they were told by the staff person who addressed their enquiry. By deciding to make that enquiry and then effectively accepting the advice they received, which was apparently completely reassuring, the reasonable conclusion is that they decided to and did place their reliance upon that advice and not upon the representation made earlier by Mr. Bitton. Therefore, any damage they suffered from proceeding on the basis of unwarranted confidence about the zoning cannot be attributed to the remarks of Mr. Bitton.
[41] Paragraph 9 of the APS provides as follows:
future loss: Seller and Buyer agree that there is no representation or warranty of any kind that the future intended use of the property by the Buyer is or will be lawful except as may be specifically provided for in this agreement.
This term is effectively repeated in paragraph 26 of the APS.
[42] It appears that the Plaintiffs did not read the APS except to check that the terms which they told their agent to fill in had been completed correctly. Paragraph 9 of the APS was not buried in the midst of a long paragraph in a long agreement. It was a separate paragraph. It had a heading in bold, in capital letters, which would have alerted anyone perusing the document that the subject of future use was specifically addressed. The term was effectively repeated in paragraph 26 which was also prefaced by a heading in bold and in capital letters. Mr. Meron does not read English, but Mr. Kuchuk does. They could have asked the real estate agent what the provisions in the APS form dealt with, but they did not do that. They did not consult a lawyer. The Plaintiffs initialed and signed the APS and then submitted it to Mr. Bitton for execution by the owners of 218. The APS was prepared by The Plaintiffs. There was nothing in these circumstances to give Mr. Bitton and his partner reason to believe that the Plaintiffs were relying on an oral representation that was expressly and specifically made inapplicable by the terms of the APS. The above facts distinguish this case from the factual context in Beer v. Townsgate I Ltd., 36 OR (3d) 136 (C.A.).
[43] For the above reasons, the claim of the Plaintiffs based on the oral representation of Mr. Bitton cannot succeed.
The Collatoral Agreement
[44] Both Mr. Meron and Mr. Kuchuk say that Mr. Bitton gave both the assurances which they allege; i.e. with respect to the return of the deposit and with respect to the repurchase of the property after closing.
[45] It is not clear from their testimony whether Mr. Meron and Mr. Kuchuk thought that Mr. Britton was offering these assurances on behalf of 218 or only on behalf of himself. Mr. Bitton told them an agreement with conditions was not acceptable because his partner would not sign it.
[46] In view of that advice from Mr. Bitton, which they had no reason to doubt and apparently did not doubt, if Mr. Bitton then gave them the alleged assurances, they would reasonably have had to suppose he was speaking only for himself. In order to “refund the deposit” if that was required of him prior to closing, Mr. Bitton would have had to pay $100,000 from his own resources, and he would have been able only to recoup out of the deposit only his partnership share, not the entire amount, leaving the balance of the deposit to his partner. Moreover, the Plaintiffs would then have purchased the property for $3.4 million, not the agreed $3.5 million, and in circumstances where they had told Mr. Bitton that they wanted to buy the property only if its entire space could be used and now would be buying it without assurance of that prospect, and at a lesser price than had been agreed.
[47] The term about refunding the deposit is coupled in the alleged agreement with the term about buying back the property if the zoning problem is unresolved at closing. While no claim is asserted on the basis of the buy-back term, it must still be taken into account in assessing the credibility of the alleged agreement, because that agreement is said to have contained both terms.
[48] If Mr. Bitton were required to perform under this term of the alleged agreement, the result would be that he would have sold his interest in the building on the basis of a $3.5 million payment for 100% of the interest in the building and then bought the entire 100% interest back for $4 million. His evidence was that he wanted to sell the building. He had turned down two offers of $3.4 million and $3.3 million, respectively. He knew the mortgagee could exercise his power of sale at a cost to 218 of about $3.1 million out of the sale proceeds. He believed the Property was worth $4 million, so he had reason to believe it could sell for a price sufficient to cover the mortgage. He had been told that the Plaintiffs did not want the building if they could not use all of its space, so he had reason to believe that, if they wanted to resell it to him on a buy-back, they would reasonably be prepared to accept a price not greatly in excess of the $3.4 million or $3.5 million they would have paid at that point. In such circumstances, it is not credible that Mr. Bitton would have agreed to the alleged $4 million buy-back term.
[49] There is a lack of clarity about the terms of the alleged agreement. It is not clear exactly what level of comfort from the City was to be required in order to determine that a zoning problem no longer existed or how long a period without resolution of the zoning problem could extend before the buy-back obligation was triggered. These matters would be important to a prospective buyer as terms of the alleged agreement.
[50] It is certainly credible that the Plaintiffs wanted to obtain some assurance from Mr. Bitton that they would not be left out of pocket and with an unwanted building if a zoning problem was going to prevent the execution of their plans. It is therefore credible that they raised these matters, in some form, in their negotiations with Mr. Bitton on January 12. But it is clear that Mr. Bitton said that because of his dealings with his partner, there could not be any conditions. Whatever he may have said to keep the Plaintiffs favourably disposed to the purchase, for the reasons given above, it is unlikely that he made the alleged collateral agreement.
[51] Counsel made only a very brief reference to the requirement that an agreement for the sale of land must be in writing and the matter was not pursued in the submissions. That requirement is set out in Section 1 of the Statute of Frauds, R.S.O. 1990, c. S.19. Nothing in this case suggests a reason why that provision would not be applicable to the alleged collateral agreement.
[52] Paragraph 26 of the APS provides, under the heading “agreement in writing” that, “There is no representation, warranty, collateral agreement or condition which affects this agreement other than as expressed hereto.” The analysis set forth above with respect to paragraph 9 of the APS and this paragraph is largely applicable in regard to this issue. Paragraph 26 deals with more issues than the question of collateral agreements, but it is hardly so dense that its provision in that regard could be reasonably regarded as “buried”. There was nothing in the circumstances of the presentation of the APS to Mr. Bitton for execution by his partner and himself to suggest that the Plaintiffs were relying on an oral agreement with Mr. Bitton as part of the agreement for the purchase of the Property, despite the express provision of paragraph 26.
[53] Accordingly, the claim of the Plaintiff cannot succeed on the basis of the alleged collateral agreements.
[54] While the Plaintiffs say the alleged collateral agreement was with Mr. Bitton, they rely on his alleged breach of the collateral agreement as their excuse for not closing the APS with 218, which suggests there was supposed to be some relationship between the alleged collateral agreement and the APS, but it leaves unclear what that relationship might be. As noted above, the claim of the Plaintiffs is against both of the Defendants. If the alleged collateral agreement was made only with Mr. Bitton, there would be no basis for the claim against 218 because it was not in breach of its obligations under the APS. Again, the same lack of clarity is apparent.
Mitigation
[55] The Plaintiffs submit that the Plaintiffs are not liable on the counterclaim because 218 failed to try to mitigate its damages in circumstances where it could reasonably have tried to do so.
[56] This submission must be considered in the context of the claim made by 218 for damages for breach by the Plaintiffs of their obligation to close in accordance with the APS. The parties have agreed in Section [2] of the ASD that if 218 is successful, its damages are the amount which is the net amount determined by deducting the “actualized profit of the Vendors” from the sale of the Property by the mortgagees from the “expected profit of the Vendors” from the sale of the Property to the purchasers at the contract price in the APS.
[57] On this basis, the question must be whether there is action that 218 could reasonably have taken that would have yielded different amounts for inclusion in the calculation of the damages in Section [2] of the ASD.
[58] The Plaintiffs submit that 218 passed up previous real opportunities to sell the property for more than the mortgagee obtained, which was a gross amount of $3.3 million. A real offer had set an offer price of $3.4 million. After the APS failed to close, 218 did nothing to try to revive that offer or to seek other offers that might have been better than the one the mortgagee obtained. This submission does not take into account that the mortgagee was engaged in exercising its legal right to sell the property and had a duty to exercise that power in a provident manner. There is no suggestion that the mortgagee was not doing so. In the circumstances, the sales offer of the mortgagee takes the place of the duty of the mortgagor/vendor to mitigate unless that sales offer is shown to be improvident, which is not the case here.
[59] The Plaintiffs object that if 218 had instead accepted the offer which it made on March 29 to close the APS for a price of $3.2 million with $300,000 to be held in trust until the necessary approvals were obtained for the restaurant, it could have made a greater net profit on the sale than 218 did on the sale by the mortgagee. This would have been the result if the zoning approval had been obtained (leaving to one side the cost of obtaining that approval), but not if the offer had been unsuccessful. There is no way to assess the likelihood of success. It should be recalled that the last advice the Plaintiffs received from a City official was that it was almost certain they would not obtain the necessary approval.
[60] The offer made by the Plaintiffs on March 29 is not acceptable as a comparator for this purpose. To accept it would necessarily imply that a party may avoid the consequences of its breach of contract by the expediency of offering to purchase for a price that is lower than the agreed price, but still higher than the price obtained by the vendor on the disposition subsequent to the breach. This approach to mitigation would deny to the vendor the right to be put in as good a position as it would have been if its contract had been performed and not breached, so it should not be considered a proper method for applying the principle of mitigation.
[61] For the above reasons, it is not shown that 218 failed to perform its duty to mitigate.
Conclusion
[62] For the reasons set out above, the claim of the Plaintiffs is dismissed and the counterclaim of the defendants 218 and Mr. Bitton for damages for breach of the APS is successful. Accordingly, judgment is to go against the Plaintiffs in favour of the defendants in the agreed amount of $388,346.61 on account of their damages. This amount includes the $100,000 paid as a deposit which is therefore to be released to the defendants in part payment of their damages.
[63] The parties may make written submissions on costs to me with a copy by e-mail to my assistant. The submissions of the defendants are due within 10 days from the release of these reasons, the response of the Plaintiffs is due within the following 10 days and any reply is due within the 10 days after that.
Spence J.
Released: March 27, 2015
CITATION: Meron v. 2182804 Ontario Ltd., 2015 ONSC 1966
COURT FILE NO.: CV-12-456943
DATE: 20150327
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
TOM MERON, SERGE KUCHUK and ALBERT MISHAEV
Plaintiffs
- and -
2182804 ONTARIO LTD. and CLAUDE BITTON
Defendants
and between:
2182804 ONTARIO LTD.
Plaintiff by Counterclaim
- and –
TOM MERON, SERGE KUCHUK, ALBERT MISHAEV and rame meron
Defendants by Counterclaim
REASONS FOR JUDGMENT
Spence J.
Released: March 27, 2015