Court File and Parties

COURT FILE NO.: CV-17-131692-00

DATE: 2018-04-06

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

DOUGLAS GAMOFF and SHEILA GAMOFF Plaintiffs

– and –

YIXING HU and DAVID LEA Defendants

Kevin L. MacDonald and Jamie M. Sanderson, for the Plaintiffs

Patrick James, for the Defendants

HEARD: March 26, 2018

REASONS FOR DECISION

EDWARDS J.:

Overview

[1] When the residential real estate market is a rising market, most people - perhaps with the exception of first time buyers, are happy homeowners and investors. When the market turns and drops, it is not for the faint of heart. The facts of this case tragically demonstrate how one family, presumably desperate for their dream home, became embroiled in a bidding war and overextended their ability to finance the purchase price of that dream home.

[2] The Plaintiffs seek summary judgment for the difference between the agreed upon purchase price for the subject property and what the property ultimately sold for.

The Facts

[3] In early 2017, the Plaintiffs were the owners of a property located at 9 Wilmac Court, Whitchurch-Stouffville, Ontario (the Property). The Plaintiffs decided to sell their home, and engaged Re/Max All-Stars Realty Inc. (Re/Max) as their realtor to list the property for $2,000,000. Re/Max listed the property on March 29, 2017. Within a relatively brief period of time (March 29, 2017 to April 2, 2017), there were 18 showings of the property. Out of these showings on April 2, 2017, three groups of potential buyers attended at the property and presented offers to purchase.

[4] Prior to submitting their offer, the Defendants had spoken to a Mr. Ialongo. Mr. Ialongo was the real estate agent responsible for the listing of the property with Re/Max. Mr. Ialongo advised the Defendants that another agent at Re/Max, Mr. Dely, could act for them as agents. The Defendants actually viewed the property with Mr. Dely on April 1, 2017. The Defendants maintain that in discussions with Mr. Dely, they indicated that they were interested in purchasing a property but did not wish to become part of a bidding war.

[5] When the Defendants initially submitted their offer on April 1, 2017, they did so with a purchase price of $2,050,000.

[6] On April 2, 2017, the Defendants were advised by Mr. Dely that there were multiple offers for the property and that their offer of $2,050,000 was too low. Despite having told Mr. Dely that they did not want to become involved in a bidding war, the Defendants ultimately submitted an offer for $2,250,000 which was accepted by the Plaintiffs. The terms of the offer required that the Defendants provide an initial deposit of $30,000, with a second deposit of $90,000 to be made on April 6, 2017. The closing date for the purchase of the property was August 30, 2017.

[7] The Defendants paid the initial deposit required by the Agreement of Purchase and Sale (the APS) in the sum of $30,000. A day after signing the APS, April 3, 2017, the Defendants requested an amendment to the APS that would move the date for the payment of the second deposit of $90,000 from April 6 to April 10, 2017. On the next day, April 4, 2017, the parties agreed to an amendment to the APS allowing for the payment of the second deposit on April 10, 2017.

[8] On the same day that the parties entered into the amendment extending the time for the payment of the deposit, the Defendants contacted Mr. Ialongo and advised him that they believed that they had paid too much for the property. Their concern in this regard was undoubtedly fueled by the fact that they had learned that, a combination of their approved mortgage financing and assessed value of their home, would not permit them to obtain the necessary financing to close on the APS. Noteworthy in that regard, is the fact that the APS did not have a condition that would have allowed the Defendants a means to extricate themselves from the APS. The APS was not contingent on the Defendants obtaining the necessary financing to close the transaction.

[9] After contacting Mr. Ialongo, the Defendant David Lea (Lea) emailed Mr. Ialongo advising him that he had made a mistake trying to purchase the property, and further advised “I am begging please reach out to the original agent with a firm offer”.

[10] On April 6, 2017, the Plaintiffs were advised by Mr. Ialongo of the information that he had received from the Defendants, to the effect that they believed that they had paid too much for the property.

[11] On April 10, 2017, the Defendants failed to pay the second deposit required by the amendment to the APS. On the next day the Defendants actually attended at the property, and told the Plaintiffs in person that they did not have the financing required to close the transaction. This meeting was followed up with a second meeting, at which time the Defendants now allege that there was an oral agreement reached, the terms of which involved the Plaintiffs agreeing to immediately relist the property in exchange for the Defendants agreeing to compensate the Plaintiffs for any difference in the purchase price. This oral agreement is denied by the Plaintiffs and, in any case, is not in writing as would be required pursuant to the Statute of Frauds.

[12] In addition to denying that this oral agreement was ever entered into, the Plaintiffs refused to discuss the matter with the Defendants and advised them that any communication should be directed through their lawyer.

[13] The Plaintiffs engaged Thomas Phelan (Phelan) as their lawyer to handle the real estate transaction. The Defendants engaged a lawyer, Garry Shapiro (Shapiro). On April 19, 2017, Phelan wrote to Shapiro and advised – amongst other things, that the Plaintiffs confirmed to him that no oral agreement had been reached as alleged by the Defendants.

[14] Email communications were exchanged by Shapiro and Phelan between April 19 and April 21, 2017. There was no communication from Shapiro after April 21, 2017, when Shapiro had indicated to Phelan that he would be getting back to him by April 24 or 25, 2017.

[15] As no communication had been received by Phelan from Shapiro as promised, Phelan wrote Shapiro on April 28, 2017 indicating, amongst other things:

In view of the fact that I have not received and [sic] response to my previous correspondence I am instructed that my clients are proceeding to re list the property and hopefully re sell in a timely manner, in order to attempt to mitigate…

[16] The Plaintiffs did, in fact, relist the property on May 1, 2017 at a list price of $2,250,000.

[17] The Phelan letter of April 28, 2017 to Shapiro was responded to by the Defendants’ litigation counsel, Patrick James, who on May 2, 2017 confirmed that the Defendants’ financing from the bank had fallen through, and as such they would be unable to close the transaction on August 30, 2017. Mr. James went on to state in his letter:

We are putting your clients on further notice to take immediate steps to start mitigating their losses by (a) immediately contacting any buyers who made offers on April 1, 2017 to determine whether they may be willing to purchase the property; and (b) re-listing the property on the market/MLS as soon as possible in order to find a suitable buyer. We trust your clients will make best efforts to sell the property for the highest price possible in order to satisfy their duty to mitigate.

[18] Between May 1 and May 16, 2017, the Plaintiffs received no offers on the property. On May 17, 2017, based on a recommendation made to them by Mr. Ialongo, the Plaintiffs reduced the listing price of the property to $1,998,000. Between May 17, 2017 and June 6, 2017, the Plaintiffs received no offers on the property despite the reduction in the purchase price.

[19] On June 6, 2017 the Plaintiffs, through their lawyers, offered to the Defendants an opportunity on a with prejudice basis to revive the APS by permitting the Defendants to pay the supplementary deposit, and to complete the APS in accordance with its terms on August 30, 2017. This offer was not accepted by the Defendants.

[20] Between June 6 and July 26, 2017, the Plaintiffs received no offers on the property. This action was commenced on July 4, 2017. The Defendants’ statement of defence was served on July 25, 2017.

[21] On July 28, 2017, the Plaintiffs received advice from Mr. Ialongo to reduce the purchase price of the property to $1,798,000.

[22] On July 31, 2017, the Plaintiffs received an offer to purchase the property for $1,700,000. After some negotiation, on August 9, 2017 the Plaintiffs entered into a new agreement of purchase and sale with an armslength purchaser in the amount of 1,770,000. This transaction closed on October 3, 2017.

The Issue

[23] The fundamental issue in this case is when did the Defendants repudiate the agreement such that the Plaintiffs’ duty to mitigate can be said to have been triggered? Initially during the course of argument, Mr. James urged the court to consider that the repudiation occurred some time between April 4, 2017 (when the Defendants communicated to Mr. Ialongo the concerns with respect to having purchased the property at an inflated price) and April 10, 2017, (when the Defendants breached the APS by failing to pay the second deposit). It is argued on behalf of the Defendants, that the Plaintiffs should have known that the Defendants had repudiated the APS and, as such, no later than April 10, 2017 the Plaintiffs were under a duty to mitigate their damages and to immediately relist the property.

[24] In support of their argument the Defendants engaged an expert, Agnes Lee, to conduct an appraisal as to the value of the property as of April 8, 2017. In addition to her report, and as a result of an earlier order made by DiTomaso J., the Defendants were given 30 minutes to have Ms. Lee’s evidence received by the court viva voce, with a further 30 minute time frame for cross-examination.

[25] In her evidence, Ms. Lee stated that the appraised value of the property as of April 8, 2017 was $2,180,000. She stated in her evidence that the real estate market was, in general - and in particular in relation to where the property was located, still a “hot market” where purchasers could realistically expect multiple offers and potential bidding wars. According to Ms. Lee, it remained a hot market until around mid-May, 2017.

[26] In support of her valuation of the property Ms. Lee referred to three comparable properties, one of which is described as Comparable Sale 2 which sold on May 9, 2017, within six days of listing for $2,388,888. After adjustments, the adjusted value of Comparable Sale 2 was just under $2,200,000.

Position of the Plaintiff

[27] The Plaintiffs argue that the facts of this case, set forth above, are of a kind that this court should grant summary judgment. There is no dispute with respect to the terms of the APS, nor is there any dispute that the Defendants – through their lawyer, had aborted the transaction as of May 2, 2017. The only issue is the quantum of the Plaintiffs’ damages. In that regard, it is argued on behalf of the Plaintiffs that the damages for the Defendants’ breach of the APS are easily quantified given the difference between the purchase price agreed upon between the parties, i.e. $2,250,000, and the ultimate sale price of the property of $1,780,000.

Position of the Defendants

[28] The Defendants argue that there is a real genuine issue that requires a trial with respect to the assessment of the Plaintiffs’ damages. This issue arises out of the suggestion that the Plaintiffs should have mitigated their damages when it was clear that the Defendants had breached the contract by failing to pay the second deposit of $90,000 required by April 10, 2017. It is suggested that if the Plaintiffs had relisted the property and/or contacted the other individuals who had expressed an interest in purchasing the property on April 1, 2017, that the property would have sold in accordance with the appraised value suggested by Ms. Lee of $2,180,000, and as such the Defendants’ exposure to damages would have been minimized.

Analysis

[29] While Mr. James maintained in his argument that the evidence established that the Defendants had repudiated the agreement as early as April 4, 2017 - and certainly no later than April 10, 2017, he ultimately conceded that the date of repudiation actually occurred when he wrote to the Plaintiffs’ real estate counsel Mr. Phelan on May 2, 2017, putting the Plaintiffs on notice that the Defendants would not be closing the transaction on August 30, 2017, and requiring the Plaintiffs to start mitigating their damages.

[30] Given the concession from Mr. James that the date of repudiation is therefore the beginning of May 2017, the question then arises as to whether there is any genuine issue with respect to the efforts made by the Plaintiffs to mitigate their damages. In that regard, Mr. James suggests that the Plaintiffs did not act reasonably when they relisted the property for the actual sale price that had been agreed to between the parties, i.e. $2,250,000. Mr. James suggested that the Plaintiffs should have relisted the property as they had when they originally listed it for approximately $2,000,000. Mr. James suggests that if it had been listed for $2,000,000, the Plaintiffs would very likely have obtained offers from interested parties.

[31] The difficulty that I have with Mr. James’ argument in this regard is two-fold. First of all there is no expert evidence - or any evidence from someone with expertise in the prevailing market where this property was located, that would suggest that it was unreasonable for the Plaintiffs to have relisted it at the beginning of May 2017 for a list price of $2,250,000. It was certainly open to the Defendants to have sought such an opinion from a real estate appraiser like Ms. Lee. Fundamentally, however, the opinion that was sought was flawed, given that the date sought for the real estate appraisal from Ms. Lee was a reflection of when the Defendants would have had this court accept that the agreement had been repudiated, i.e. April 10, 2017. Ms. Lee offered no opinion, nor could she offer any opinion given the report that she had prepared, that in any way addressed whether it was appropriate for the Plaintiffs to have listed the property as they did on May 1, 2017.

[32] The second fundamental reason why I have a difficulty with Mr. James’ argument arises out of the evidence that was, in fact, presented to the court by Ms. Lee on behalf of the Defendants. Ms. Lee testified that the market was still a hot market and remained so until May 15, 2017. One of the comparables that she used in the preparation for her report was a property that was listed and sold within six days for just under $2,400,000. That property was apparently sold at its list price. After adjusting, this purchase price would suggest that the Plaintiffs’ property was worth just under $2,200,000. Accepting Ms. Lee’s evidence in this regard, I fail to see how the Plaintiffs can be said to have acted unreasonably listing the property for $2,250,000 on May 1, 2017, when one of Ms. Lee’s comparables sold a few days later for an adjusted sale price of just under $2,200,000.

The Law

[33] The real issue that this court has to grapple with is whether or not the full forensic machinery of a trial is required to determine whether the Plaintiffs acted reasonably in their efforts to mitigate their damages. In my view there is no genuine issue that does require a trial, either with respect to whether or not the Defendants breached the agreement, or any genuine issue as to whether the Plaintiffs properly mitigated their damages.

[34] It is beyond dispute that in a motion for summary judgment both parties are obliged to put their best foot forward. As it relates to the key issue in this case, that relating to whether the Plaintiff’s properly mitigated their damages, the onus is on the Defendants to prove a failure to mitigate. That principle is well set forth in a decision of Morden J. in 100 Main Street Ltd. v. W.B. Sullivan Construction, 1978 CanLII 1630 (ON CA), 20 O.R. (2nd) 401. The onus of proof with respect to whether or not the Plaintiffs have mitigated is on the Defendant to show that the Plaintiff did not act reasonably in the steps that they took to mitigate.

[35] To meet that onus, the Defendants had an obligation to put before the court evidence that would suggest that listing the property at $2,250,000 was unreasonable. A similar issue to this was dealt with by Paraveski J. in Cuervo-Lorens & Zabek v. Linda L. Carpenter, 2016 ONSC 4661, where at para. 6 Paraveski J. stated:

I find that the purchaser reasonably mitigated her damages when confronted with the purchasers’ repudiation. She need only have acted reasonably. The onus is on the purchasers to show that she did not meet the standard. The evidence demonstrates that she relisted the property within six or seven days of the repudiation. She retained the services of the same real estate agent who had acted for her on the initial sale. The property was marketed using essentially the same methodology that resulted in the first sale. There were multiple offers, two or three of which did not result in binding agreements before the final one was entered into. All of this speaks of reasonableness. Of greater significance, however, in the context of a summary judgment motion, is the absence of evidence from a professional which opines that the shortcomings in the sale process alleged by the purchasers actually had any impact on the final sale price. It is not enough for the purchasers, upon whom the onus rests, to plainly and merely state, for example, that the six or seven day “delay” in the relisting of the property must have negatively affected its market price. The purchasers, it must be assumed, have put their “best foot forward” and it is lacking. The same holds for the other criticisms raised in their amended factum. It is similarly insufficient to argue that prices in the area generally rose during the relevant time period, thus suggesting that the vendor must have accepted less than market price when she agreed to sell the property for $50,000 less than the amount the purchasers were initially willing to pay. In the absence of a qualified appraiser’s opinion that she did so, I am not convinced that a trial is required to determine whether she undersold the property. There is little better evidence of market value than the price at which the property actually sold following what appears to be appropriate and apparently motivated marketing.

[36] The decision of Paraveski J. was upheld by the Ontario Court of Appeal in Cuervo-Lorens v. Carpenter, 2017 ONCA 109, where at paras. 2 and 3 the Court of Appeal stated:

The motion judge concluded that the respondent acted reasonably in mitigating her damages. The property was relisted shortly after the repudiation through the same agent that handled the sale to the appellants. The property was resold approximately two months after it was relisted.

The appellants did not file opinion evidence on the summary judgment motion indicating the steps taken on the resale were unreasonable or concerning the $50,000 price differential. In the absence of such evidence, we see no basis on which to interfere with the motion judge’s decision to dismiss the action as against the vendor.

[37] The Defendants in this case provided no expert evidence to assist the court with respect to whether the Plaintiffs listing of the property for $2,250,000 was unreasonable. As I have already indicated, not only is there an absence of that type of evidence to assist the court, but in my view the Defendants find themselves in the unenviable position where their own expert, Ms. Lee, used a comparable that in my view lends credence to the Plaintiffs’ conduct in listing the property in the manner that they did.

[38] The law with respect to the measure of damages as it relates to an aborted real estate transaction is well summarized in the recent decision of Perell J. in DHMK Properties Inc. v. 2296608 Ontario Inc., 2017 ONSC 2432. As it relates to the particular facts of this case, I reproduce paras. 52 through 55 as being particular apropos to the facts of this case:

In 642947 Ontario Ltd. v. Fleischer, supra, the Court of Appeal stated that the date of assessment is determined by what is fair in the circumstances of each case. The Court also stated that where the vendor retains the property to speculate on the market, damages will be assessed at the date of closing.

The selection of the date of assessment is subject to adjustment because of the duty to mitigate. If the guilty party can show that the innocent party unreasonably missed an opportunity to reduce damages, that is, that the innocent party ought to have mitigated before the closing date, then the date for the assessment for damages will be adjusted. Conversely, the innocent party may show that it is not appropriate to use the closing date for the assessment of damages, and a later date should be selected because he or she should be allowed a reasonable opportunity to mitigate.

The date of assessment is a variable. Justice Morden stated that the principle relating to the plaintiff’s duty to take reasonable steps to mitigate its loss is itself a factor in determining the measure of its loss; the essential object of the court’s inquiry is always to determine the plaintiff’s true loss having regard to the legal policy that avoidable losses are not recoverable.

It is worth noting that there is, in fact, no positive duty or obligation to mitigate, apart from the duty of self-interest; rather, it is a principle of the calculation of damages that the innocent party is denied recovery for avoidable loss. A person mitigates for the sensible reason that he or she would not otherwise recover for the growing losses because, for the purposes of calculating compensatory damages, the innocent party is treated as if he or she mitigated. Talisman Homes Ltd. v. Endicott (2002), 2 R.P.R. (4th) 109 (Alta. Q.B.) is an example where damages were reduced because of the vendor’s failure to mitigate.

[39] Fundamentally, on this motion for summary judgment what I have to decide, is whether or not the Plaintiffs’ duty to mitigate involved reasonable steps to minimize the Defendants’ losses. As I suggested to counsel during the course of argument, one can only speculate as to what position the Defendants might have taken if the property had been listed and sold for $2,000,000. It would not be unreasonable to speculate that in all likelihood the Defendants would have argued that the Plaintiffs should have listed the property for a higher price, thereby reducing their potential exposure to damages. In essence, this court is in no different a position than a trial court would be in terms of crystal ball gazing as to whether or not the conduct of the Plaintiffs was reasonable or unreasonable. In the absence of any evidence from the Defendants suggesting that the Plaintiffs course of conduct was unreasonable, in my view - based on the evidentiary record reviewed above, I am more than satisfied that when it became clear that the Defendants had repudiated the agreement, the Plaintiffs accepted the repudiation and began their efforts to mitigate their damages. I am equally more than satisfied that the Plaintiffs’ acted reasonably in listing the property in the manner that they did, and thereafter reducing the list prices to the point where they were able to obtain an offer that ultimately closed.

[40] The Plaintiffs are entitled to damages based on the difference between the contracted for sale price between the parties and the ultimate sale price of $1,780,000. The Plaintiffs are also entitled to the special damages claimed.

[41] The impact of this court’s decision will undoubtedly have a dramatic effect on the Defendants. I have every sympathy for the Defendants. With the changes in the real estate marketplace in the Greater Toronto Area, I have every expectation that there may be more cases where purchasers find that they have overextended themselves in a declining market. Purchasers would be well advised to consider making their offers to purchase contingent on financing, and for the sale of their existing home if they have one.

[42] If the parties cannot resolve the issue of costs, written submissions may be submitted to the court through my assistant, Diane Massey, diane.massey@ontario.ca, limited to no more than three pages in length. The Plaintiffs’ submissions are to be received no later than April 20, 2018, with the Defendants’ submissions to be received no later than May 15, 2018. If submissions are not received by May 15, 2018, the court will assume that the issue of costs have been resolved between the parties.

Justice M.L. Edwards

Released: April 6, 2018

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

DOUGLAS GAMOFF and SHEILA GAMOFF Plaintiffs

– and –

YIXING HU and DAVID LEA Defendants

REASONS FOR DECISION

Justice M.L. Edwards

Released: April 6, 2018