CITATION: Kennelly v. Hashemi, 2017 ONSC 5502
COURT FILE NO.: 57288/17 & 57532/17 (St. Catharines)
DATE: 20170926
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Christopher Kennelly and Jupiter Equities, LLC
Applicants
Scott Beattie, for the Applicants
- and -
Hassan Hashemi
Respondent
David Martin, for the Respondent
AND BETWEEN:
Hassan Hashemi
Applicant
David Martin, for the Applicant
- and -
Christopher Kennelly and Jupiter Equities, LLC
Respondents
Scott Beattie, for the Respondents
HEARD: August 18, 2017 in St. Catharines
BEFORE: R. A. Lococo J.
REASONS FOR JUDGMENT
I. Introduction
[1] Christopher Kennelly agreed to purchase real estate in Niagara-on-the-Lake from Maryam Furney. A deposit of $40,000 was provided to Ms. Furney’s lawyer. Jupiter Equities LLC, a company Mr. Kennelly controlled, provided the funds for the deposit.
[2] When the purchase agreement was entered into, there were a number of encumbrances registered on title. The encumbrances included three mortgages as well as a caution registered by Albert Paul Mifsud, who had previously agreed to purchase the property in a transaction that did not close.
[3] The purchase agreement provided that the closing date would be February 14, 2017, but the seller had the option to delay the closing up to two weeks. The purchase agreement also provided that no existing encumbrances would be assumed by the buyer or remain on title after closing, and that the seller would remove the caution.
[4] Ms. Furney later assigned her rights under the purchase agreement to Hassan Hashemi. Mr. Hashemi was the tenant in possession of the property. He also assumed the third mortgage by way of transfer from the previous mortgagee. The transfer included assignment of power of sale rights under the mortgage, the assigning mortgagee having previously served a notice of power of sale.
[5] The purchase of the property did not close. As set out in more detail below, Ms. Furney was not in a position to close on February 14, 2017. Among other things, the Mifsud caution and the prior mortgages remained on title. As well, the transaction did not close at the scheduled time on the revised closing date of February 24, 2017, which Mr. Hashemi set after the purchase agreement was assigned to him. Mr. Kennelly would not agree to extend the closing beyond that time. He did not accept Mr. Hashemi’s offer to further extend the closing time within the two-week period set out in the purchase agreement.
[6] Each side seeks relief by way of an application pursuant to rule 14.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. In the first application, Mr. Kennelly and Jupiter Equities seek the following relief:
(a) A declaration that Mr. Hashemi is in breach of the purchase agreement;
(b) A declaration that Jupiter Equities is entitled to return of the $40,000 deposit held by Ms. Furney’s lawyer (now counsel of record for Mr. Hashemi); and
(c) A mandatory order that the deposit be returned to Jupiter Equities, with interest.
[7] In these Reasons, I will refer to Mr. Kennelly and Jupiter Equities collectively as the Applicants.
[8] In the second application, Mr. Hashemi seeks parallel relief from the Applicants, alleging that they breached the purchase agreement and claiming that Mr. Hashemi is entitled to payment of the deposit. He also claims consequential damages arising from the breach, and requests that the second application be converted to an action to permit damages to be assessed. As well, he asks that the Applicants (being non-residents) be required to post security for costs.
[9] The Applicants initially objected to the applications being heard together, based on Mr. Hashemi’s late service of the second application. Ultimately, however, the parties agreed that the applications would be heard together, with the hearing of Mr. Hashemi’s application being limited to the relief relating to breach of contract and the deposit. The balance of the relief Mr. Hashemi claimed would be dealt with at a later time to the extent required.
[10] It is common ground between the parties that I have the authority to grant the requested declaratory and mandatory relief relating to breach of the purchase agreement and entitlement to the deposit, as provided for in rules 14.05(3)(d) and (g) of the Rules of Civil Procedure.
[11] With the above background, the threshold issue to be determined is as follows: did either party breach the purchase agreement by failing to close the transaction when required to do so?
[12] The Applicants argued that Mr. Hashemi breached the purchase agreement when he failed to close on February 24, 2017, the revised closing date that Mr. Hashemi set and the Applicants accepted. Among other things, the Mifsud caution remained on title, and the various charges against the property had not been discharged, as required by the purchase agreement. The Applicants also argued that Mr. Hashemi was not entitled to further extend the closing date after failing to close on the revised closing date that he had designated.
[13] Mr. Hashemi argued that the Applicants breached the purchase agreement by refusing to close the transaction within the time specified in the purchase agreement. According to Mr. Hashemi, he was entitled to extend the closing date within the 14-day option period set out in the purchase agreement, and was in fact ready, willing and able to close on February 27, 2017. By that date, Mr. Mifsud’s caution had been discharged by court order, and according to Mr. Hashemi, he would have been in a position to pay out the other encumbrances from the closing funds.
[14] As explained further below, I have concluded that Mr. Hashemi was not in a position to convey title to the Applicants free of encumbrances, as required by the purchase agreement. Accordingly, Mr. Hashemi breached the purchase agreement. The Applicants were not in breach, and are entitled to the return of the deposit.
II. Breach of contract
(a) Legal principles
[15] It is common ground between the parties that the legal principles that apply in this case were articulated in the decision of this court in Stefanovska v. Kok (1990), 1990 6848 (ON SC), 73 O.R. (2d) 368, [1990] O.J. No. 865 (H.C.). In that case, the purchasers refused to complete a real estate transaction because of a storm and sanitary sewer easement that ran along the property’s westerly boundary. The purchasers took the position that the easement prevented the vendors from conveying good title to the property, arguing that the easement would substantially impair the purchasers’ use and enjoyment of the property. The court disagreed, accepting the vendors’ position that the easement was minor in nature and did not prevent the purchasers from receiving that which they bargained for (at paras. 28 and 38). The court dismissed the purchasers’ title objection and granted summary judgment to the vendors, finding that the vendors were in a position to grant good title on the closing day (at paras. 59-60). In reaching that conclusion, the court articulated the applicable test, as follows (at para. 29):
In my respectful opinion, the test to be applied in cases of this nature is whether the vendor can convey substantially what the purchaser contracted to get. In this regard, all of the surrounding circumstances must be considered to determine if the alleged impediment to title would, in any significant way, affect the purchasers' use or enjoyment of the property.
[16] In order to apply this test in the applications before me, it is helpful to review in further detail the circumstances surrounding the proposed transaction between the parties.
(b) Factual Background
[17] Under an agreement of purchase and sale dated January 26, 2017, Christopher Kennelly agreed to purchase the subject property from Maryam Furney. The purchase price was $800,000. As required by the agreement of purchase and sale, a deposit of $40,000 was provided to Ms. Furney’s lawyer, to be held in trust pending closing. Jupiter Equities LLC, a company Mr. Kennelly controlled, provided the funds for the deposit.
[18] When the purchase agreement was entered into, there were a number of encumbrances registered on title. As previously noted, the encumbrances included three mortgages and a caution registered by Albert Paul Mifsud, who had previously agreed to purchase the property in a transaction that did not close.
[19] The purchase agreement provided that the closing date would be February 14, 2017, but the seller had “the option to delay [the closing] up to 2 weeks.” The purchase agreement also provided that no existing encumbrances would be assumed by the buyer or remain on title after closing, and that the seller would remove the caution registered against title at the seller’s expense.
[20] The purchase agreement also included a standard clause providing that if the discharge of a mortgage held by designated forms of financial institutions was not available in registrable form on closing, the buyer agreed to accept the seller’s lawyer’s personal undertaking to obtain a discharge and cause it to be registered on title within a reasonable time after closing. In those circumstances, the seller would be required on or before closing to provide the buyer with the mortgagee’s discharge statement setting out the amount required to discharge the mortgage, such amount to be payable to the mortgagee out of the closing funds. The purchase agreement also included a number of other standard clauses, including a clause providing that time shall be of the essence of the agreement, but may be extended or abridged by an agreement in writing between the parties or their lawyers on their behalf.
[21] The only condition to the purchase agreement was an inspection condition for the buyer’s benefit, which Mr. Kennelly waived on February 9, 2017. As of February 14, the initial date set for closing, the Applicants had provided their lawyer with the required funds to close the transaction.
[22] The transaction did not close on February 14. On the previous day, Ms. Furney’s lawyer (Mr. Martin) advised the Applicants’ lawyer that that Ms. Furney would be unable to close on February 14 since she had been unable to obtain a release of the Mifsud caution, but was working on resolving the issue to allow closing “within the fourteen day optional period.” By letter dated February 21, 2017, Mr. Martin advised that his client “elected to close the transaction on February 23, 2017”, but that he would not be the lawyer handling the transaction.
[23] On February 22, the Applicants’ lawyer spoke to Akin Akindele, whom Ms. Furney had identified as the seller’s new lawyer. Both lawyers confirmed that they would strive to complete the transaction on February 23 as planned.
[24] On February 23 at 1:56 p.m., the Applicants’ lawyer received a letter from Mr. Akindele by email, advising that on the previous day, Ms. Fourney had assigned the purchase agreement to Hassan Hashemi, and that Mr. Hashemi had also assumed the third mortgage on the property. Mr. Akindele’s letter also advised that the assigning third mortgagees had previously served notice of power of sale under the mortgage, and that Mr. Hashemi intended to rely on the power of sale rights to complete the sale to the Applicants. Although not stated in the letter, Mr. Hashemi deposed in his affidavit that he was also the tenant of the property and had actual possession of the property. The Applicants’ lawyer responded by email at 2:58 p.m., in which he noted among other things that it did not appear that the closing would happen that day, and asked Mr. Akindele to confirm whether he agreed to an extension to (Friday) February 24. In Mr. Akeindele’s responding email at 4:03 p.m., he advised that he had withdrawn from the matter effective immediately.
[25] By email to the Applicants’ lawyer sent at 2:21 a.m. on February 24, Mr. Hashemi indicated that he was extending the closing time to 2:30 p.m. on February 24, 2017, provided that, among other things, the full amount of the balance due on closing was deposited to the trust account of his lawyer prior to that time. The email identified his new lawyer as Mr. Strashin and that lawyer’s legal assistant as Ms. Ford. The Applicants’ lawyer responded to Mr. Hashemi by email at 2:39 a.m., confirming that the closing had been extended to February 24, and that he would deal with Mr. Hashemi’s new lawyer going forward.
[26] The Applicants’ lawyer heard nothing from Mr. Hashemi’s lawyer or Mr. Hashemi prior to the agreed closing time of 2:30 p.m. on February 24. At 3:05 p.m., the Applicants’ lawyer sent an email to Ms. Furney’s original lawyer, with a copy to Ms. Ford, advising that his client would not to extend the closing beyond 2:30 p.m., and demanding the return of the $40,000 deposit.
[27] At 4:00 PM, Ms. Ford responded by email, stating in part: “[M]r. Hashemi agrees and will continue with the transaction under his Notice of sale.” The email also indicated that the Applicants could close directly with Mr. Hashemi “once it is established that the encumbrances will be extinguished.” As well, the email indicated that Mr. Strashin was “prepared to help move this along to close Monday” [February 27]. By email sent at 4:13 p.m. the same day, Mr. Hashemi confirmed his offer “to extend the closing time to 27-February-2017 5 PM and furthermore if required at my option to 28-February-2017 at 5:00 PM.” In his affidavit, Mr. Hashemi deposed that after sending that email, he learned that Mr. Strashin had a potential conflict, and that he decided not to retain Mr. Strashin.
[28] It is common ground between the parties that the Applicant’s did not accept the further extended closing time that Mr. Hashemi proposed, and that the transaction did not in fact close.
[29] Included in Mr. Hashemi’s application record is a copy of an “Application to Register Court Order” that was registered on the property’s title on February 22, 2017. Attached to that application is the judgment of Edwards J. of this court (dated January 31, 2017 and entered February 21, 2017) in favour of Sub-Prime Mortgage Corporation, the second mortgagee, granting Sub-Prime possession of the property and leave to issue a Writ of Possession. Among other things, the judgment also ordered the discharge of the Mifsud caution from title and directed the Land Registrar to delete the caution from title. Mr. Hashemi deposed that even though the second mortgagee had obtained leave to obtain a writ of possession, it “did not register a writ of possession”, and that Mr. Hashemi remained in possession of the property. In the applications before me, there was no evidence that the Applicants were aware of that Edwards J.’s judgment had been placed on title and no evidence that the Applicants were aware of the judgment’s contents or the particulars of the situation relating to the enforcement of the second mortgage.
[30] As noted in Mr. Hashemi’s affidavit, the parcel register for the property indicates that the first mortgagee (Elle Mortgage Corporation) and second mortgagee (Sub-Prime Mortgage Corporation) both transferred their mortgages to the same company, 2257573 Ontario Inc., on February 28, 2017. The parcel register also indicates that the Mifsud caution remained on title until it was withdrawn on March 23, 2017.
[31] Following the failed transaction, Ms. Furney again listed the property for sale. The listing price was $1,200,000. She received only one offer, for $500,000, which was not accepted.
(c) Analysis and conclusion
[32] As agreed between the parties, in order to determine whether there has been a breach of the purchase agreement in this case, the test is whether Mr. Hashemi was in a position to convey substantially what the Applicants contracted to get. In this case, the Applicants contracted to get good title to the property, free of encumbrances, specifically the registered charges and the Mifsud caution. After considering the evidence before me, including the surrounding circumstances outlined above, I have concluded that Mr. Hashemi was not in a position to convey good title to the Applicants, and accordingly was in breach of the purchase agreement.
[33] As previously noted, Mr. Hashemi argued that it was the Applicants who breached the purchase agreement by refusing to close the transaction within the time specified in the purchase agreement. The purchase agreement set February 14, 2017 as the closing date, but allowed the seller to delay the closing up to two weeks, the outside limit being February 28, 2017. According to Mr. Hashemi, he was entitled to extend the closing date to any day within that period, and was in fact ready, willing and able to close on February 27, 2017. Prior to that date, Mr. Mifsud’s caution had been discharged by court order, and according to Mr. Hashemi, he would have been in a position to pay out the other encumbrances from the closing funds.
[34] For a number of reasons, Mr. Hashemi’s position is not supportable. The purchase agreement gave the seller the option to delay the closing for up to two weeks beyond February 14, 2017. However, it did not give the seller the right to extend the closing a number of times within that period at the seller’s discretion.
[35] Although Mr. Martin advised that Ms. Furney was not in a position to close on February 14, it was not until February 21 that he notified the Applicants’ lawyer of the revised closing date of February 23, and also advised that a new lawyer for the seller would be appointed. Over the next three days, the Applicants’ lawyer was put in contact with two other law firms to complete the purchase, but neither of those firms was ultimately retained by the seller or her assignee. On the new closing date of February 23, the Applicants’ lawyer learned that Mr. Hashemi would be assuming the seller’s role.
[36] After the first replacement law firm withdrew, Mr. Hashimi advised the Applicants’ lawyer of a revised closing time of 2:30 p.m. on Friday, February 24, which the Applicants accepted. When Applicants’ counsel heard nothing more before the new closing time, and given the chaotic turn of events over the previous few days, I can well understand why the Applicants would lose confidence in the capacity of the other side to complete the transaction. As well, as outlined further below, the Applicants had not been provided with any basis for concluding that Mr. Hashemi was in a position to convey good title to the property. In all the circumstances, I agree with Applicants’ counsel that the Applicants were justified in treating the transaction as at an end and demanding the return of the deposit.
[37] Even if Mr. Hashemi had the right to further extend the closing beyond February 24, the evidence before me did not support his position that he was ready, willing and able to close on February 27, or that he would have been on February 28. There was no evidence that the Applicants were provided with discharge statements from the mortgagees indicating how much was required to pay out the mortgages registered on title, or that such statements would have been available by February 27 or 28. In addition, Mr. Hashemi’s affidavit indicated that by Monday, February 27, he was once again without a lawyer to close the transaction. As well, although Edwards J.’s order discharging the Mifsud caution had been placed on title, the caution was not in fact withdrawn from title until well after February 28.
[38] Clearly, property that continues to be subject to prior registered mortgages or a caution from a previous agreed buyer would not be free of encumbrances, as required by the purchase agreement Either or both of those impediments to title would have significantly affected the buyers’ use or enjoyment of the property, raising the prospect of loss of the property, significant financial loss or, at a minimum, impeded access to financing. In these circumstances, I am satisfied that Mr. Hashemi was unable to convey substantially what the Applicants contracted for under the purchase agreement. Accordingly, Mr. Hashemi was in breach of the purchase agreement. The Applicants were not in breach, and are entitled to the return of the deposit.
III. Conclusion
[39] For the foregoing reasons, in the application brought by Christopher Kennelly and Juniper Equities LLC, judgment will issue:
Declaring that Hassan Hashemi is in breach of the purchase agreement, as set out in paragraph 1(a) of the Application dated March 31, 2017; and
Ordering the return of the deposit of $40,000 that was paid in trust to the solicitor for the original seller, as set out in paragraph 1(c) of the Application.
[40] The application brought by Hassan Hashemi is dismissed.
[41] If the parties cannot agree on costs, the Applicants shall serve and file brief written submissions (not to exceed three pages) together with a bill of costs and any pertinent offers within 14 days. Hassan Hashemi will have 14 days after receipt of the Applicants’ submissions to respond by brief written submissions. The Applicants may reply by brief written submissions within a further seven days (the outside final date being October 31, 2017). All submissions are to be forwarded to the Trial Coordinator and me at 59 Church Street, 4th Floor, St. Catharines ON, L2R 7N8. If no submissions are received within the specified timeframe, the parties will be deemed to have settled the costs issue.
The Honourable Mr. Justice R.A. Lococo
Released: September 26, 2017
CITATION: Kennelly v. Hashemi, 2017 ONSC 5502
COURT FILE NO.: 57288/17 & 57532/17 (St. Catharines)
DATE: 20170926
SUPERIOR COURT OF JUSTICE - ONTARIO
BETWEEN:
Christopher Kennelly and Jupiter Equities, LLC
Applicants
- and -
Hassan Hashemi
Respondent
AND BETWEEN:
Hassan Hashemi
Applicant
- and -
Christopher Kennelly and Jupiter Equities, LLC
Respondents
REASONS FOR JUDGMENT
R. A. Lococo, J.
Released: September 26, 2017