Court File and Parties
Court File No.: CV-16-4857-00 Date: 2018-02-06 Superior Court of Justice – Ontario
Re: Giuseppe Di Millo, Applicant And: 2099232 Ontario Inc., 2051407 Ontario Inc. and Inderjeet Dhugga, Respondents
Before: Trimble, J.
Counsel: A. Conte, for the Applicant J.S.G. Macdonald, for the Respondent 2099232 Ontario Inc. No one appearing for the Respondents 2051407 Ontario Inc. or Inderjeet Dhugga
Heard: December 11, 2017
Endorsement
The Motion:
[1] In this Application, Mr. Di Millo, the Applicant vendor seeks a declaration that it has an interest in the subject property, a certificate of pending litigation, a mandatory injunction requiring the Respondents to discharge the 2nd and 3rd mortgages on the property, and an order for specific performance of an option to buy back the property, which was contained in the Agreement of Purchase and Sale by which the Applicant originally sold the property to the Respondent purchaser, 2099232 Ontario Inc. At the motion, the Applicant pursued the order to discharge the 2nd and 3rd mortgages, and for specific performance of the option.
The Result:
[2] For reasons set out below, the Application is dismissed, with costs to be spoken to as indicated.
The Facts:
[3] By Agreement of Purchase and Sale dated April 3, 2012, the Applicant sold its property to the Respondent, 2099. The sale of the specific lot was part of the Applicant’s plan to develop a larger parcel into a subdivision. To that end, as security, the Applicant had on deposit with the Municipality a letter of credit for $400,000. Further, until the development was assumed by the Municipality, the Applicant was responsible for repair and maintenance of the roads. The APS must be seen in this light.
The APS contained provisions that can be summarized as follows:
9.01(u) The Respondent undertook to build a building of certain specifications, within 30 months of closing. That building had to be certified and approved by the Applicant’s consulting engineer or architect. If the Respondent did not build as required, the Applicant had the right to repurchase the building for the sale price in the APS, less any real estate commissions. The repurchase had to be completed within 30 days of the date of the Applicant’s delivering notice to the Respondent.
9.01(v) The Respondent agreed that it would not “sell, assign or transfer, or enter into an agreement to sell assign or transfer, its interest or its obligations in the within agreement…or in the real Property being purchased herein, without the prior written consent of the vendor...” [The clause provides for the vendor’s rights if the Respondent sold the property, but did not provide for any remedy specifically, should the Respondent transfer any interest it had in the property short of outright sale.]
14.01 Time was of the essence.
14.02 The covenants survive closing.
14.03 The vendor is not deemed to have waived or acquiesced in any default by the purchaser unless done in writing. [There is no provision addressing waiver in the event of by default by the vendor.]
14.04 Providing details regarding how and where notice may be given.
14.13 Providing details regarding how and where tender may be performed.
[4] In addition, the vendor took a vendor take back mortgage of $800,000. Payments under the mortgage were interest only.
[5] The closing was set for 25 June, 2012, but was extended by amendment to 5 September, 2012. This amendment also provided that time was of the essence.
[6] The Applicant’s solicitor never registered the option to purchase on title, a fact that the Applicant did not discover until September, 2016.
[7] The 30 months within which the Respondent had to build the building expired on March 5, 2015. By that time, the Respondent had not yet begun its building, but told the Applicant that he was finalizing his arrangements and construction would start shortly. Based on that information, and (the Applicant says) the Respondent’s undertaking to pay the interest accruing on the $400,000 letter of credit the Applicant had on deposit with the Town of Caledon, the Applicant agreed to grant the Respondent’s request for an extension of the build time to March 5, 2016. This was an oral extension, one the parties agreed I was asked to accept. The VTB mortgage was to have matured on September 5, 2015. While the payments of interest only under the original VTB mortgage were paid, it too was extended in March, 2015 to September 5, 2016 on the same terms.
[8] The Respondent says that it relied on the Applicant’s extension of the VTB mortgage to conclude that the Applicant had no interest in exercising the purchase option. Therefore, the Respondent says, it rearranged financing and debt by giving to 2051407 Ontario Inc. a $500,000 2nd mortgage on the property which was registered on 30 November 2015. The Applicant says that the mortgage was registered only after he spoke to the Respondent about the Respondent’s failure to build.
[9] The Applicant says that by the summer of 2016, the Respondent had still not submitted building plans for approval and had not even applied for a building permit. The Applicant inspected the property and found that the Respondent had built a temporary structure by enclosing a cement pad on 4 sides with truck trailers, a make-shift door, and an exposed wood roof. The structure did not comply with bylaws and was not the structure contemplated by the APS.
[10] On seeing this, the Applicant decided to exercise his option to buy back the property. He instructed his then lawyer to write to 2099 and notify it of the Applicant’s intention to exercise the option. The Applicant’s then lawyer wrote to 2099’s then lawyer on 6 June 2016, notifying it and setting the closing date for the buy-back of the property for 6 July 2016. That letter was faxed to 2099’s then lawyer on or about 6 June 2016. On his cross-examination, the Applicant’s former lawyer produced the fax confirmation sheet. 2099’s then lawyer does not remember receiving the fax but confirms that it was received. 2099 denies seeing the letter. In any event, the parties agree that this notice was defective under the APS. Had the notice been adequate, the closing date would have been 6 July, 2016 per the APS.
[11] The vendor gave to Inderjeet Dhugga a 3rd mortgage on the property of $150,000, only two days after the invalid notice letter was faxed.
[12] The VTB matured on September 15, 2016. While the Respondent made payments on interest in September and October, the principle was not paid nor was the mortgage extended. The VTB mortgage has been in default since, although the Applicant has taken no steps to realize on his security.
[13] In September, the Applicant, not having heard from his then lawyer since instructing him to notify 2209 of his desire to buy back the property, learned from his then lawyer that nothing had been done since the June 6 letter was sent.
[14] The Applicant changed lawyers. In mid-September, he learned that his former lawyer had not registered the option on title, and that two mortgages had been placed on title. This was the Applicant’s first notice of the 2nd and 3rd mortgages.
[15] On 24 September, 2016, the Applicant’s new lawyer notified 2209 of the Applicant’s exercising the option, and demanded that the Respondent discharge the 2nd and 3rd mortgages as their presence meant that the Applicant could not re-purchase the land. This notice complied with the APS’s terms.
[16] The Applicant never tendered. He says that he could not exercise the option because of the 2nd and 3rd mortgages.
[17] The Applicant’s counsel advised that since the beginning of the application, the Applicant has purchased the 2nd and 3rd mortgages. I was provided with no admissible evidence concerning these transactions. Therefore, for the purposes of this Application, I consider the mortgages to be as reflected on the parcel abstract contained in the record.
The Positions of the Parties:
1. The Applicant:
[18] The Applicant says that he notified the Respondent of his intention to buy back the property on 24 September, 2016; therefore, the closing under the APS would have been 24 October, 2016. He was always ready, willing and able to close, but could not do so because of the 2nd and 3rd mortgages. In order to close, he would have had to assume the two mortgages, which he was not prepared to do. In any event, the Applicant says that the mortgages are in violation of the APS and therefore must be discharged before he re-purchases. Finally, the Applicant says that the mortgages were placed on the property in bad faith, in order to frustrate the Applicant’s buyback of the property.
2. The Respondent, 2099232 Ontario Inc.
[19] The Respondent says that the Applicant took no steps to enforce the option. The APS provided that time was of the essence. In the 18 months since the September, 2016 notice letter, the Applicant took no steps to close the buy-back transaction. He did not tender on the closing date.
[20] 2099 says that the Applicant, buy his actions and inaction, waived reliance on the option. He extended the building provision and the mortgage. He accepted interest payments after the expiry of the mortgage after its expiry and after his September, 2016 notice to enforce the buy-back option. Based on the Applicant’s actions and inaction 2099 altered its financial position by rearranging its debt by placing the 2nd and 3rd mortgages on the property. Granting the Applicant’s relief would place hardship on 2099.
3. The 2nd and 3rd Mortgagees:
[21] Neither mortgagee appeared at this motion. 2051407 Ontario Inc. was served. Mr. Dhugga was not served.
The Issues:
The following issues arise:
- Did the Applicant comply with the option’s notice terms?
- Was the Applicant ready, willing and able to close?
- Was the Applicant prevented from exercising the option by the 2nd and 3rd mortgages?
- Was 2099232 Ontario Inc. entitled to rely on the actions or inaction of the Applicant?
Analysis:
1. Did the Applicant Comply with the Option’s Notice Terms?
[22] A vendor’s option to buy back land must be construed strictly.
[23] The Applicant agrees, but says that time is of the essence only applies to the requirement to give notice of intention to buy back the property. Once notice is given, the Applicant says, the ‘time is of the essence’ requirement is ended. It does not apply to the other requirements of the option.
[24] I disagree. The ‘time is of the essence’ provision applies to all aspects of the option. Further, fulfillment of the option requires the optioning party to tender.
[25] The seminal case in this area is Pierce v. Empey, 1939 CanLII 1 (SCC), [1939] SCR 247 in which the mortgagor in default quit-claimed title to the mortgagee but had the right to purchase the property provided it redeemed the mortgage within a 3 month period, including all expenses that the mortgagee incurred. The mortgagor claimed that equity should intervene to extend the redemption period by another three months based on the conduct of the mortgagee, which amounted to a waiver. Duff, C.J., for the Court, said at para. 252:
It is well settled that a plaintiff invoking the aid of the court for the enforcement of an option for the sale of land must show that the terms of the option as to time and otherwise have been strictly observed. The owner incurs no obligation to sell unless the conditions precedent are fulfilled or, as the result of his conduct, the holder of the option is on some equitable ground relieved from the strict fulfilment of them. [emphasis added]
[26] In the case, Duff, C.J., also held that the mortgagor, not having tendered, could not rely on waiver, although there was evidence that might support waiver.
[27] More recent cases have upheld Pierce both in terms of strict compliance with all terms of the option and with respect for the need for the optioning party to tender [see Antifave v. Tisnic, 1981 CanLII 2015 (SK QB); and 364021 Alberta Ltd. v. 361738 Alberta Inc. , 1990 CarswellAlta 44 (C.A.), para 2-3].
[28] In Union Eagle Limited v. Golden Achievement Limited, [1997] UKPC 5, the option provided that it had to be completed by 5:00 p.m. on a specific date. The optioning party tendered the purchase price at 5:10 p.m. The other party rescinded the contract at 5:11 p.m. The optioning party claimed that the other party acted unconscionably. The only issue before the Privy Council was whether the Court ought to have allowed equity to intervene given the failure to comply with the option’s exercise by a mere 10 minutes.
[29] Lord Hoffmann, speaking for the Privy Council, stressed the importance of certainty when he said, at para. 8:
[I]n many forms of transaction it is of great importance that if something happens for which the contract has made express provision, the parties should know with certainty that the terms of the contract will be enforced. The existence of an undefined discretion to refuse to enforce the contract on the ground that this would be "unconscionable" is sufficient to create uncertainty. Even if it is most unlikely that a discretion to grant relief will be exercised, its mere existence enables litigation to be employed as a negotiating tactic.
[30] The effect of the failure to strictly meet the option’s terms is “to restore to the vendor his freedom to deal with his land as he pleases.” (para. 12). According to the Privy Council, the failure to strictly comply with all terms of an option mean that specific performance is not available (para.13).
[31] Union Eagle is the law in Ontario [see 1473587 Ontario Inc. v. Jackson et al. (2005) 2005 CanLII 4578 (ON SC), 74 O.R. (3d) 539 (S.C.J.); 2181050 Ontario Ltd. v. Strong et al., 2018 ONSC 442 (S.C.J.)].
[32] In my view, by adding the ‘time is of the essence’ clause, the parties made it clear that they would be bound, strictly, by the terms of the Agreement.
[33] In this case, the Applicant did not meet the requirements of the option. The timing of the Applicant’s notice was outside the reasonable notice period contemplated by the Agreement. I say this for the following reasons:
a) As indicated above, option terms must be strictly complied with since they benefit only the optioning party and inhibit the title holder from dealing with his real estate.
b) The option to buy back the property arose if the Respondent did not “within thirty (30) months from the Closing date … complete construction upon the Real Property of an Industrial building [to a defined extent] as certified by the Vendor’s consulting engineer or architect.” With a closing date of September 5, 2012, the option first arose on March 5, 2015, if the building was not completed by that date. The date by which the building was to be built, failing which the Applicant’s option arose, was extended by oral agreement to March 5, 2016.
c) The ‘time is of the essence’ clause, the building requirement, and the option clause were inserted because this lot was part of a larger development that the Applicant was undertaking. He had a $400,000 deposit with the municipality, which he had provided by letter of credit, which cost him money to keep open.
d) The option clause does not state a time or date by which the Applicant must give notice of his intention to exercise the option.
e) On the facts of this case, it was 3 months after he could first exercise the option that the Applicant, through his solicitor, gave the first (albeit defective) notice, and 6 months after he could first exercise the option that he gave notice that complied with the Agreement.
f) The parties agreed that time was of the essence. This lot was part of a larger development project. By March 2015 was clear that 2209 had not complied with the building requirement. While the parties agreed to a 12 month extension to clause 9.01(u), the Applicant knew or ought to have known at that time that there was a risk that 2099 might not comply by the extended date since it does not appear that it had not taken any steps to be able to build. Further, it must have been abundantly clear at some point during the year’s extension that 2099 would not be able to comply with the requirement to build. Logic and reason dictate that some reasonable time limit on the Applicant’s exercise of the option must be imposed. The facts indicate that there was no reason to delay giving notice beyond March, 2016, when a visit to the property at any time in 2016 would have shown that no building was in progress. On the facts of this case, providing notice to the Respondent that complies with the Agreement, 6 months after the option first arose, does not comply with the time is of the essence clause.
[34] This finding, in and of itself, is sufficient to dispose of the Application.
2. Was the Applicant Ready, Willing and Able to Close?
[35] In para. 8 of his Affidavit the Applicant says that he was always ready, willing and able to close as he had access to the funds necessary. Under clause 9.01(u), the closing date for the buy-back was fixed at 30 days after the date of the Applicant’s notice to exercise the option was delivered. Setting aside any issue with the timelines of the notice, the closing would have occurred on October 24, 2016.
[36] The Applicant’s statement that he was always ready, willing and able to close is a bald statement. There is no evidence that he had such funds. There is no evidence that he prepared any closing documents. Under clause 14.10, the Applicant was the attorney for the Respondent to “execute any instrument or document or do any act to give effect to the provisions of this Agreement”. The Applicant acted under that provision to register the option and the Power of Attorney on title. He, however, prepared no documents with respect to the transfer for 2099 to sign, or that he could sign under the Power of Attorney.
[37] The case law makes it clear that with respect to an option, the option must be strictly construed against the optioning party, and the optioning party must tender.
[38] In this case, the Applicant argues that it did not need to tender as it was clear that the Respondent could not build as required. In essence, the Applicant relies on anticipatory breach.
[39] I reject this argument. 2099’s breach of the agreement by his failure to build cannot be measured until the time set in the Agreement. The Applicant cannot rely on the vendor’s anticipatory or “repudiatory” breach for Applicant’s own failure to tender. The contract remains in force. The Respondent may still repent and perform the contract according to its terms by tendering himself [see Union Eagle, supra, para. 6].
[40] This finding, in and of itself, too is enough to dispose of the Application.
3. Was The Applicant Prevented From Exercising the Option By the 2nd and 3rd Mortgages?
[41] No.
[42] Clause 9.01(u) is silent on the impact of any mortgages that the Respondent placed on the property.
[43] Without deciding the point, it is arguable that the 2nd and 3rd mortgages 2099 placed on the property violated clause 9.01(v) in that the mortgages are a transfer of the Respondent’s fee simple interest in the real estate to the mortgagee subject to the equity of redemption, and were done without the written permission of the Applicant. The Agreement, however, is silent as to the impact of such mortgages on the Applicant’s right to buy back the property. While clause 9.01(u) declares the mortgages to be void, it does not entitle the Court to order that the Respondent discharge them.
[44] This finding is limited to the Applicant’s request for specific performance of the buy-back provision in the Agreement. It specifically does not apply to any claim for damages arising from the placement of the mortgages or any relief sought under the mortgages.
4. Was 2099232 Ontario Inc. Entitled to Rely on the Actions or Inaction of the Applicant?
[45] This question is moot since the option has expired.
Costs:
[46] I shall decide who shall pay costs to whom, and in what amount, based on written submissions. The submissions are limited to 5 double spaced pages, excluding cases and offers. The Respondent's shall be served and filed by 4 p.m., 21 February, 2018 and the Applicant’s by 4 p.m., 28 February, 2018.
TRIMBLE, J
Date: February 6, 2018
Court File and Parties
Court File No.: CV-16-4857-00 Date: 2018-02-06 Superior Court of Justice – Ontario
Re: Giuseppe Di Millo, Applicant And: 2099232 Ontario Inc., 2051407 Ontario Inc. and Inderjeet Dhugga, Respondents
Before: Trimble, J.
Counsel: A. Conte, for the Applicant J.S.G. Macdonald, for the Respondent 2099232 Ontario Inc. M. Whiteley, for the Respondent 2051407 Ontario Inc. M. Talsky, for the Respondent Inderjeet Dhugga
Endorsement
TRIMBLE, J.
Released: February 6, 2018