CITATION: Agrette, et al. v. Sacco, et al., 2016 ONSC 617
COURT FILE NO.: 54021/12
DATE: 2016/01/27
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MICHAEL AGRETTE and ILANA AGRETTE
Plaintiffs
- and -
FREDRICK ANDREW SACCO and SACCO HOMES INC.
Defendants
M.S. Stratton, for the Plaintiffs
P.R. Heath, for the Defendants
HEARD: January 11, 12, 13, 14 & 15, 2016
The Honourable Mr. Justice J.R. Henderson
REASONS FOR JUDGMENT
[1] The plaintiffs claim the return of a deposit in the amount of $150,000.00 that the plaintiffs paid to the defendant, Fredrick Andrew Sacco (hereinafter called “Sacco”), as part of an oral agreement whereby Sacco agreed to construct a residential home at 6651 Flora Court, Niagara Falls, Ontario (hereinafter called “the Flora Court property”) and sell it to the plaintiffs.
[2] The main terms of the agreement evolved over a period of about two weeks, and are not in serious dispute. Prior to payment of the deposit on April 24, 2012, the parties had agreed upon the particulars for the construction of the house and had agreed upon a purchase price of $799,000.00. Subsequently, the parties agreed that the sale would close on November 28, 2012.
[3] However, as the closing date approached, certain problems arose, including a breach of a zoning by-law and a disagreement as to the precise warranty that would be provided by Sacco. The parties were unable to resolve those problems.
[4] By letter dated October 3, 2012, the lawyer for the plaintiffs repudiated the agreement of purchase and sale and demanded the return of the plaintiffs’ deposit, plus the money that the plaintiffs had paid for items that had been installed in the house.
[5] In this action, the plaintiffs submit that they were entitled to repudiate the agreement and that they are entitled to damages because of Sacco’s breach of the agreement. In the alternative, the plaintiffs claim damages as a result of negligent misrepresentations by Sacco, or by reason of the doctrine of unjust enrichment. In the further alternative, the plaintiffs submit that if the deposit is prima facie forfeited, the plaintiffs are entitled to relief from forfeiture.
[6] Sacco takes the position that the plaintiffs breached the agreement as the plaintiffs wrongfully repudiated the agreement. Therefore, Sacco submits that the plaintiffs have forfeited the deposit and that he is entitled to keep it.
[7] The following issues arise:
(i) Did either of Sacco or the plaintiffs breach the agreement, and if so, what are the consequences of that breach?
(ii) Are the plaintiffs entitled to damages for negligent misrepresentation?
(ii) Are the plaintiffs entitled to damages for unjust enrichment?
(iii) Is Sacco entitled to retain the deposit?
(v) Is the defendant, Sacco Homes Inc., a proper party to this action?
FINDINGS OF FACT
[8] At all material times, Sacco was a director and officer of Sacco Homes Inc. (hereinafter called “SHI”), a residential construction company. In addition, Sacco worked on a full time basis as a building inspector for the City of Niagara Falls.
[9] In April 2012, Sacco started the construction of a residential home on the Flora Court property. At that time, Sacco personally owned the Flora Court property. It was Sacco’s intention that upon completion of the construction, Sacco and his family would occupy the home.
[10] In the early stages of construction, on approximately April 9, 2012, the plaintiffs, who were shopping for a new home, approached Sacco with a proposal that Sacco complete the construction on the Flora Court property and sell the finished home to them.
[11] After a short period of negotiation, the plaintiffs and Sacco entered into an oral agreement whereby Sacco agreed to complete the construction of the home, with some changes as requested by the plaintiffs, and sell the property to the plaintiffs for a purchase price of $799,000.00. The particular details as to what would be provided by Sacco were set out in a three page Features sheet that was provided by Sacco to the plaintiffs.
[12] The parties did not initially agree to a closing date for the sale of the Flora Court property because the plaintiffs could not close the agreement until the plaintiffs sold their present home at 7677 Southwood Drive, Niagara Falls, Ontario (hereinafter called “the Southwood Drive property”).
[13] Accordingly, the parties agreed that if the construction of the Flora Court home was completed before the plaintiffs sold the Southwood Drive property, then Sacco and his family could move into and occupy Flora Court. If this occurred, the plaintiffs agreed to give Sacco three or four months’ notice to vacate Flora Court, at which time they would close the Flora Court agreement.
[14] As a term of the initial oral agreement, as evidence of their intention to complete the agreement, I find that the plaintiffs paid Sacco a deposit of $150,000.00 on April 24, 2012. I find that the parties did not put their minds to what would happen to the deposit if the Flora Court agreement did not close.
[15] I find that the construction of the Flora Court property was substantially completed by early August 2012, and that Sacco and his family moved into the Flora Court property in accordance with an Occupancy Permit dated August 16, 2012.
[16] At approximately the same time, on August 16, 2012, the plaintiffs entered into a binding agreement to sell the Southwood Drive property with a closing date of October 30, 2012. At that point, after a series of emails, the parties agreed that Sacco and his family would vacate the Flora Court property and that the Flora Court agreement would close on November 28, 2012. The plaintiffs subsequently were able to amend their agreement to sell the Southwood Drive property so that the Southwood Drive agreement would also close on November 28, 2012.
[17] Thereafter, both Sacco and the plaintiffs retained lawyers to draft a formal written agreement of purchase and sale that would incorporate all of the terms of their oral agreement. Unfortunately, several problems arose during the course of this exercise.
[18] Within a few days after August 16, 2012, Sacco became aware of the fact that a portion of the attached covered deck breached the municipal zoning by-law as the edge of the deck was only approximately one foot from the side lot line, whereas the by-law required a setback of at least four feet. I accept that this issue was a significant one for the plaintiffs as the only outside access to the backyard was alongside the deck on that side of the house and the plaintiffs intended to build a walkway in that area.
[19] I find that Sacco proposed three possible solutions to the plaintiffs for the zoning problem, including cutting down the size of the deck; obtaining a minor variance from the municipality; or purchasing some of the neighbour’s property which would necessitate a severance application. I find that the plaintiffs would not accept the first two options, and left the matter to Sacco to arrange for a purchase of land and a severance, if possible.
[20] I find that Sacco consequently arranged for the purchase of a small piece of property from the neighbour and arranged for a severance application. The severance application was heard and approved on September 18, 2012. However, the severance could not be finalized until the appeal period had expired and the documentation for the transfer had been prepared and registered.
[21] In the draft agreements that were exchanged between the parties’ lawyers, the parties were unable to agree on terms that would deal with the ongoing severance issue. In particular, the plaintiffs requested terms that would allow them to occupy the property rent-free until the severance had been completed and would provide them with options if the severance was not obtained. In response, Sacco requested a term that permitted him to complete the severance within three months of the closing date, or in the alternative, to apply for, and obtain a minor variance.
[22] By late August or early September, there was also a dispute with respect to the warranty that would be provided by Sacco. The difficulty was that the warranty for new homes, as set out in the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31 (“ONHWPA”) would not apply if and when the plaintiffs took ownership of the Flora Court property as the home had been occupied by Sacco and his family and it was no longer a new home. In the drafts exchanged between the lawyers, the plaintiffs requested that Sacco provide the same warranty that would have been provided to them by the ONHWPA; however Sacco offered to provide a builder’s warranty for one or two years, but would not provide a warranty as set out in the ONHWPA for “major structural defects” for years three to seven.
[23] Thereafter, by letter dated October 3, 2012, the plaintiffs’ lawyer wrote to Sacco’s lawyer with a demand that Sacco pay to the plaintiffs the sum of $157,384.98. This represented the $150,000.00 deposit, plus amounts that the plaintiffs had paid for a hot water tank, a range hood, and some lights that had been installed in the Flora Court property.
[24] Sacco’s lawyer responded with a letter to the effect that the plaintiffs had until October 5, 2012, to confirm that the plaintiffs would complete the Flora Court agreement, failing which the agreement would be considered at an end.
[25] I find that the plaintiffs’ lawyer’s letter of October 3, 2012 was a repudiation of the agreement. As the plaintiffs did not do anything further to complete the Flora Court agreement, the deal was at an end.
[26] Further complications ensued thereafter. Anticipating that the Flora Court agreement would close on November 28, 2012, Sacco had started building another home for his family on Kelsey Court. After the Flora Court agreement failed to close, Sacco and his family remained in the Flora Court property and did not require the Kelsey Court home. Accordingly, Sacco sold his interest in Kelsey Court to Frank D’Agostino (“D’Agostino”). In doing so, Sacco received a payment from D’Agostino that only compensated him for his construction expenses, without any profit or compensation for his own time.
[27] Furthermore, in July 2014, the Flora Court house burned to the ground. Eventually, Sacco received the sum of $750,000.00 from his insurers as compensation for the loss of the Flora Court house. Later, Sacco sold the remaining lot at Flora Court to another builder for $125,000.00.
BREACH OF THE AGREEMENT
[28] I find that the terms of the initial oral agreement were negotiated in person and through email in the period commencing on approximately April 9, 2012, when the plaintiffs first visited the Flora Court property, and ending on April 24, 2012, when the plaintiffs paid the deposit to Sacco. I find that upon payment of the deposit, there was a binding oral agreement between the parties.
[29] I find that there was an implied term of the oral agreement that at an appropriate time prior to the completion of the Flora Court agreement, the terms of the oral agreement would be recorded in a formal written and signed agreement of purchase and sale.
[30] I find that there were some agreed amendments to the initial oral agreement, including some modest changes to the design of the house; additional concrete work at a price of $6,455.00; a term that permitted Sacco and his family to occupy the Flora Court property; and an agreement to fix the closing date at November 28, 2012. There is no dispute with respect to these amendments to the oral agreement.
[31] The difficulties arose when, pursuant to the terms of the oral agreement, the parties attempted to record the oral agreement in a formal written agreement of purchase and sale.
[32] In the draft agreements exchanged by the lawyers, there were some minor differences with respect to whether the lawn would be sodded and whether there would be a holdback for the driveway. In my view, those minor differences were not significant issues, and, in any event, were not serious enough to permit one of the parties to terminate the agreement.
[33] The two serious differences related to the zoning by-law and the warranty. Accordingly, it is necessary for me to make findings as to the terms of the oral agreement, as those terms relate to these two issues, and then determine if one or both parties breached the agreement by failing to agree to incorporate those terms into the written agreement.
[34] Regarding the zoning by-law, I find that prior to April 24, 2012, the parties had no discussion as to whether the construction of the house on Flora Court would comply with the zoning by-laws. That being said, I am certain that both parties in these circumstances assumed that the house would be constructed in a manner that complied with all municipal laws, provincial laws, by-laws, and regulations. Accordingly, I find that there was an implied term in the oral agreement that the construction of the Flora Court house would comply with all municipal by-laws.
[35] In the draft agreements that were exchanged, in light of the ongoing severance application, I find that neither party was prepared to record the aforementioned implied term as part of the written agreement. Rather, both sides attempted to introduce additional terms for their own benefit with respect to the severance application. Further, neither side was willing to accept the additional terms requested by the other side.
[36] I accept that as of the closing date, November 28, 2012, the severance application would likely have been completed, and there would have been compliance with the municipal by-law. Therefore, in hindsight, it was very likely that if the parties had simply recorded their oral agreement, with the implied term that the construction would comply with all municipal by-laws, then this problem would not have prevented the agreement from closing.
[37] However, I find that neither party wished to take that chance. Sacco wanted the plaintiffs to agree in advance to close the agreement even if the severance had not been completed, and to accept the possibility of a minor variance if the severance was not obtained. The plaintiffs wanted to live rent-free in the property until the severance had been completed and wanted an option to terminate the agreement if the severance failed. Neither party agreed to the demands of the other.
[38] Because neither party was willing to record the simple terms of the oral agreement in the written agreement and because the parties could not reach an agreement with respect to the additional terms, I find that both the plaintiffs and Sacco were in breach of the oral agreement regarding the severance issue.
[39] Regarding the warranty, I find that the plaintiffs raised the warranty issue with Sacco in an email dated April 22, 2012, prior to the finalization of the oral agreement. I find that the parties met on April 23, 2012, and discussed, among other things, the warranty.
[40] During that discussion I find that Sacco told the plaintiffs, in response to their questions about the warranty, that if there were any problems with respect to the construction of the house, the plaintiffs should call him and he would take care of it. To illustrate the warranty, I find that Sacco told the plaintiffs that if there were cracks in the foundation, the plaintiffs should call Sacco, and he would call the company who poured the foundation and see that the problems were fixed. I also find that Sacco told the plaintiffs that if there were any other problems with the construction, then Sacco may be able to make a claim on a supplier’s warranty, but otherwise that Sacco would fix the problems.
[41] In the draft agreements that were exchanged, Sacco was prepared to agree to a builder’s warranty for one or two years, but Sacco wanted a specific exemption so that he would not be responsible for major structural defects after year two. In my view, this proposal by Sacco was far different from the oral representations that he made to the plaintiffs in the negotiation of the oral agreement. By failing to agree to a written warranty that was substantially the same as the warranty that formed part of the oral agreement, I find that Sacco was in breach of the agreement regarding the warranty.
[42] For these reasons, I find that the plaintiffs were entitled to repudiate the agreement with Sacco, and that they did so by way of their lawyer’s letter of October 3, 2012.
[43] Because the plaintiffs lawfully terminated the agreement, the plaintiffs are entitled to the return of their deposit of $150,000.00. The plaintiffs are also entitled to the sum of $6,634.98, which represents the actual amount of money paid by the plaintiffs for the three items that were installed in the Flora Court property. Judgment will go accordingly.
[44] Hereinafter, in the event that I am incorrect in finding that the plaintiffs were entitled to repudiate the agreement, I will deal with the plaintiffs’ alternative claims.
NEGLIGENT MISREPRESENTATION
[45] In my view, any relevant representations by Sacco form part of the oral agreement, and I have dealt with those issues under the previous heading. Therefore, any negligent misrepresentation claim is subsumed in the breach of agreement claim.
UNJUST ENRICHMENT
[46] There are three elements to a claim for unjust enrichment, as discussed in the case of Garland v. Consumers Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629 at para. 30, namely, (i) an enrichment of the defendant, (ii) a corresponding deprivation of the plaintiff, and (iii) an absence of juristic reason for the enrichment.
[47] In the present case, the third element of unjust enrichment is absent. The plaintiffs paid the deposit as evidence of their intention to complete the agreement of purchase and sale. The plaintiffs also paid money for the installation of items in the home pursuant to the agreement of purchase and sale. In my view, these are juristic reasons for the payments that were made by the plaintiffs to Sacco. Accordingly, the doctrine of unjust enrichment does not apply.
THE DEPOSIT AND FORFEITURE
[48] The law regarding deposits and forfeiture is well settled. Where a deposit is paid by the purchaser in a contract for the purchase of land, and the purchase does not close because of a default by the purchaser, the vendor is entitled to retain the deposit without having to prove actual damages. Even in the case where the vendor resells at a purchase price that is high enough to compensate him for any loss from the first sale, the vendor may nevertheless retain the deposit. See the cases of De Palma v. The Runnymede Iron & Steel Company, 1949 CanLII 73 (ON CA), [1950] O.R. 1 (OCA), Signal Chemicals Ltd. v. Dew Man Marine Trade Inc., 2011 ONSC 3951 at para. 13, and Pleasant Developments Inc. v. Iyer, 2006 CanLII 10223 (Div. Crt.) at para. 7.
[49] The courts may grant relief from forfeiture of a deposit if it is established that the amount of the deposit is out of all proportion to the actual losses suffered by the vendor, and that it would be unconscionable for the vendor to retain the deposit. See the cases of Stockloser v. Johnson, [1954] 1 Q.B. 476, and Craig v. Mohawk Metal Ltd. (1976), 1975 CanLII 364 (ON SC), 9 O.R. (2d) 716.
[50] The onus is on the party seeking relief from forfeiture to establish that such relief should be granted. See the Signal Chemicals case at para. 17 and the Pleasant Developments case at para. 14.
[51] In the present case, if I am incorrect as to my finding that Sacco was in breach of the agreement, then the plaintiffs’ repudiation of the agreement would be unlawful, and the deposit would be prima facie forfeited to Sacco. If that were the case, then in the alternative, I would grant the plaintiffs relief from forfeiture.
[52] In submissions, counsel for Sacco provided calculations which suggest that as a result of the repudiation of the Flora Court agreement, Sacco incurred losses that were in the general range of the $150,000.00 deposit. I do not accept those calculations for the reasons set out herein.
[53] First, a large portion of Sacco’s calculation of the alleged losses relates to the construction of the house on Kelsey Court. In particular, Sacco claims that he did not receive compensation for his construction management time when he sold his interest in Kelsey Court to D’Agostino for only his construction expenses. Sacco claims that he has lost compensation for his construction management of Kelsey Court in the amount of $45,273.00.
[54] In my view, Kelsey Court was a real estate construction project that was separate and distinct from the Flora Court property. It was never anticipated that any losses suffered by Sacco on Kelsey Court could be visited on the purchasers of Flora Court. I find that even though the repudiation of the Flora Court agreement meant that Sacco did not need or want Kelsey Court, Sacco in fact could have continued to finish the Kelsey Court construction. If he had done so, then Sacco could have sold the completed house and land for a profit. Instead, Sacco chose to bail out of the Kelsey Court project for reimbursement of his construction expenses. Sacco cannot now claim that his alleged loss was caused by the plaintiffs.
[55] Further, the evidence as to Sacco’s loss on Kelsey Court is very soft. At trial, Sacco provided copies of cheques that he says represent money that he spent on Kelsey Court, but it is obvious that some of those cheques relate to Flora Court. Still further, part of Sacco’s calculated loss on Kelsey Court includes undocumented and uncorroborated cash payments of approximately $56,000.00. On the basis of this evidence, I find that there is no loss to Sacco for which the plaintiffs are responsible as a result of Sacco’s construction of the Kelsey Court home.
[56] Second, I do not accept most of Sacco’s calculations regarding his alleged losses as a result of the fire. In particular, I do not accept Sacco’s claim that he has lost $55,257.00, a sum that he says represents fair compensation for the time he spent completing the documentation in support of his insurance claim, and negotiating a settlement of the claim. In my view, this alleged loss is unreasonable and highly speculative.
[57] I find that there is no nexus between the fire and the repudiation of the Flora Court agreement. Therefore, Sacco’s time spent as a consequence of the fire is not a loss for which the plaintiffs would be responsible even if the plaintiffs had wrongfully repudiated the agreement. I will, however, accept that Sacco had some out of pocket expenses that he incurred in order to obtain the insurance proceeds, and there should be an accounting for those out of pocket expenses in the calculations.
[58] Third, because Sacco and his family continued to live in the Flora Court house, I do not accept that the interest payments, property taxes, or Sacco’s personal time regarding Flora Court are losses that arise from the repudiation of the agreement.
[59] In determining whether the deposit was out of proportion to the actual losses, I accept that Sacco had some expenses regarding the marketing of the Flora Court property for re-sale in the approximate amount of $5,500.00, and that Sacco spent approximately $54,000.00 renovating the Flora Court property to make it more marketable. I also accept that Sacco had to pay approximately $1,000.00 to a third party to process the insurance claim. Thus, Sacco’s expenses that arise out of the repudiation of the agreement amount to approximately $60,500.00.
[60] Sacco’s expenses must then be compared to the pecuniary gain that flowed from the repudiation of the agreement. If the Flora Court agreement had closed, Sacco would have received the sum of $805,455.00 (including the extra charge for concrete work). Instead, because of the repudiation of the Flora Court agreement, Sacco received a total of $875,000.00 from his insurer and the builder who purchased the Flora Court lot. Thus, Sacco has a net pecuniary gain of $69,545.00.
[61] In summary, Sacco’s expenses are less than his pecuniary gain. Therefore, I find that Sacco has no actual losses as a result of the repudiation of the Flora Court agreement.
[62] For these reasons, I find that if the plaintiffs had wrongfully repudiated the Flora Court agreement, the amount of the deposit is far out of proportion to Sacco’s actual losses, and that it would be unconscionable for Sacco to retain the deposit. Therefore, in the alternative, I would grant the plaintiffs relief from forfeiture in full.
IS SHI A PROPER PARTY?
[63] I accept that there was ambiguity as to whether the plaintiffs were negotiating an agreement with Sacco or with SHI or both. The plaintiffs submit that they were aware that Sacco was a director and shareholder of SHI; that Sacco at all times used an email address that referenced SHI; and that the Features sheet was on SHI letterhead. However, the plaintiffs also acknowledged that they were aware that the property was owned by Sacco personally and that Sacco was building the house on Flora Court for his own use.
[64] I find that this ambiguity was cleared up when Michael Agrette called Sacco from his bank while he was arranging for payment of the deposit. During that call Michael Agrette asked Sacco to whom the cheque should be made payable, and Sacco told him that it should be payable to Sacco personally. Thereafter, the plaintiffs arranged for the deposit cheque in the amount of $150,000.00 to be payable to Sacco personally.
[65] I find that at the time the oral agreement was finalized, upon payment of the deposit cheque, it was clear that the plaintiffs had an agreement with Sacco, not SHI. Thus, SHI is not a proper party to this proceeding.
CONCLUSION
[66] For the above-mentioned reasons, I find that the plaintiffs were entitled to repudiate the oral agreement and did so by way of their lawyer’s letter of October 3, 2012. In the alternative, if the plaintiffs’ repudiation of the agreement was not lawful, I grant relief from forfeiture to the plaintiffs in full. Therefore, judgment will go in favour of the plaintiffs against Fredrick Andrew Sacco in the amount of $156,634.98. The claim against the defendant corporation is dismissed.
[67] If there are any other issues, including costs, that cannot be resolved, I direct that the party seeking relief shall deliver written submissions to the trial co-ordinator at St. Catharines within 20 days of the release of this judgment with responding submissions to be delivered within 10 days thereafter. If no submissions are received within this timeframe, the parties will be deemed to have settled all of the remaining issues as between themselves.
Henderson J.
Released: January 27, 2016
CITATION: Agrette, et al. v. Sacco, et al., 2016 ONSC 617
COURT FILE NO.: 54021/12
DATE: 2016/01/27
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MICHAEL AGRETTE and ILANA AGRETTE
Plaintiffs
- and -
FREDRICK ANDREW SACCO and SACCO HOMES INC.
Defendants
REASONS FOR JUDGMENT
Henderson J.
Released: January 27, 2016