Court File and Parties

COURT FILE NO.: CV-18-136990 DATE: 2019-07-04 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Andrea Greco and Sandra Greco, Applicants – and – Vince Padovani and NRS Select Ltd. and Stanley Paul Fienberg, Respondents

Counsel: John Lo Faso, for the Applicants Omer S. Chaudhry, for the Respondent

HEARD: June 7, 2019

Reasons for Decision

CHARNEY J.:

Introduction

[1] This application arises from a failed real estate deal. The Applicants, Andrea Greco and Sandra Greco, entered into an Agreement of Purchase and Sale (APS) to sell a property located in Richmond Hill, Ontario (the Property) to the Respondent, Vince Padovani. The Applicants allege that Mr. Padovani breached the APS by failing to close, and have brought this application for a declaration that they are entitled to deposits paid by the Respondent pursuant to the APS, totalling $400,000.

Request for an Adjournment

[2] This application was originally scheduled to be heard on November 1, 2018.

[3] At the end of October, 2018, the Respondent requested an adjournment of the November 1, 2018 hearing date. The parties agreed to a consent Order adjourning the application to June 7, 2019. A full day was scheduled to hear the application. A schedule for the delivery of the Respondent’s material, cross-examinations and the exchange of factums was also agreed to.

[4] The new hearing date and litigation schedule was set out in the Order of Casullo J. dated November 1, 2019.

[5] The parties complied with the Court ordered schedule, and all materials were filed in advance of the hearing date.

[6] At the outset of the hearing, Mr. Klaiman appeared and advised the Court that he had been retained on a limited retainer to ask for an adjournment on behalf of Mr. Padovani. Mr. Klaiman explained that he had only been contacted by Mr. Padovani the evening before, and that he had not had an opportunity to review the file. He indicated that Mr. Padovani had lost confidence in his counsel, Mr. Chaudhry. He also explained that Mr. Padovani waited until the day before the hearing to dismiss Mr. Chaudhry and contact Mr. Klaiman because Mr. Padovani was focused on “family matters” and had been unable to attend to this matter until the day before the scheduled hearing. Mr. Klaiman undertook that if the adjournment were granted he would go on record as counsel. He could not, however, proceed today because he had no opportunity to review the file.

[7] Mr. Chaudhry was also in attendance, and indicated that he had not been able to obtain any instructions from Mr. Padovani.

[8] Mr. Padovani was not present.

[9] Mr. Lo Faso, on behalf of the Applicants, opposed the adjournment. This matter had been previously adjourned, and the June 7, 2019 long motion date was scheduled on consent. The Respondent waited until the morning of the hearing to request an adjournment. While Mr. Lo Faso acknowledged that there was no prejudice to his client since the deposit funds were being held in trust, he argued that this was just another delay tactic by the Respondent and was not fair to his clients.

[10] In my view, Mr. Padovani has failed to provide a legitimate explanation for dismissing his lawyer on the eve of the scheduled hearing date and seeking an adjournment the morning of the hearing. The cryptic explanation of “family matters” is the same excuse used by Mr. Padovani for his failure to close the APS in 2017 and 2018 (see para. 4 of the Respondent’s factum). This vague reference to “family matters” is not a sufficient basis to adjourn a long motion date scheduled seven months ago on consent. Mr. Padovani has cried “family matters” too often. This is clearly a delay tactic by Mr. Padovani, and will not be countenanced by the Court.

[11] I advised Mr. Klaiman that the adjournment would not be granted, and he informed the court that he had no further retainer in the matter and asked to be excused.

[12] I did not excuse Mr. Chaudhry, since he remains counsel of record. Mr. Chaudhary advised that he had no instructions from Mr. Padovani and would not be able to make submissions.

[13] The application proceeded on that basis.

Facts

[14] On June 27, 2017 the Applicants entered into an APS to sell the Property to Mr. Padovani. Mr. Padovani agreed to purchase the Property for $3,200,000, with a closing date of September 29, 2017. The APS provided for two deposits. The first deposit of $50,000 on acceptance payable to NRS Select Ltd. “to be held in trust pending the completion or other termination of this Agreement and to be credited toward the Purchase Price on completion…”

[15] Mr. Padovani also agreed to pay a “supplementary deposit” of $150,000 to NRS Select Ltd. no later than 5 p.m. on July 10, 2017 “to be held in trust in the same manner as the initial deposit pending completion or other termination of this Agreement”.

[16] Mr. Padovani was not able to close on September 29, 2017, and his counsel sent a fax to the Applicants’ lawyer on September 27, 2017 requesting an extension of the closing date:

Our client has advised that he requires a 4 week extension, to October 27, 2017, but will close sooner if possible. Please advise if your clients will agree to the extension.

[17] Counsel for the Applicants responded on September 27, 2017 advising that the vendors would agree to the extension provided that “the purchaser provides another deposit in the amount of $200,000 payable to Andrea and Sandra Greco” and per diem interest on $2,800,000 (the balance after the deposits) at 5% interest until closing.

[18] This was the first of eight extensions requested by Mr. Padovani. Six of these requests for extensions were made either the day before or the day of the scheduled closing date.

[19] To obtain these extensions, Mr. Padovani agreed to pay further deposits to the Applicants’ real estate lawyer, Stanley Fienberg, in trust. From November 1, 2017 to February 15, 2018, Mr. Padovani paid a total of $200,000 in further deposits to Stanley Fienberg, in trust. In addition, he agreed to pay 6% interest on the outstanding balance.

[20] The final extension was to March 20, 2018. The vendors indicated that they would agree to a further extension to April 30, 2018 provided that interest was prepaid to that date. Mr. Padovani failed to close on March 20, 2018, and was not able to prepay the interest on the outstanding balance. The total interest owed was $18,871.23, and Mr. Padovani was able to provide only $5,000. As a result, counsel for the Applicants returned the $5,000 and advised Mr. Padovani’s counsel that the vendors considered the purchaser in breach of the agreement.

[21] Without prejudice efforts were made to revive the APS on terms, but these efforts ultimately failed.

[22] The Property was relisted for sale on June 26, 2018. The current asking price is $2,499,000, which is $701,000 less than the price Mr. Padovani agreed to in the APS. As of the date of the hearing of this application the property had not been sold.

Analysis

[23] Based on the evidence provided, I find that Mr. Padovani was in breach of the APS by failing to close on the agreed closing date.

[24] It is well established that a deposit is intended for forfeiture to the vendors upon the purchaser’s breach of contract. Furthermore, a deposit may be forfeited without proof of damages. In De Palma v. Runnymede Iron & Steel Co., [1950] O.R. 1 (C.A.), at p. 8, the Court of Appeal held that where the sale of land does not close due to a default by the purchaser, the vendor is entitled to the deposit without having to prove actual damages. The Court of Appeal adopted the following statement from Howe v. Smith, (1884), 27 Ch. D. 89, by Fry L.J. at p. 101, as follows:

Money paid as a deposit must, I conceive, be paid on some terms implied or expressed. In this case no terms are expressed, and we must therefore inquire what terms are to be implied. The terms most naturally to be implied appear to me in the case of money paid on the signing of a contract to be that in the event of the contract being performed it shall be brought into account, but if the contract is not performed by the payer it shall remain the property of the payee. It is not merely a part payment, but is then also an earnest to bind the bargain so entered into, and creates by the fear of its forfeiture a motive in the payer to perform the rest of the contract.

[25] In Pleasant Developments Inc. v. Iyer, the Divisional Court summarized the legal principles applicable to deposits at paras. 7-8:

The law is clear that a deposit may be forfeited without proof of damages. See DePalma v. Runnymede Iron & Steel Co., [1950] 1 D.L.R 557. In other words even in the case where the vendor resells at a purchase price that is high enough to compensate for any loss from the first sale, the vendor may nevertheless retain the deposit. See Perell and Engell, Remedies and the Sale of Land, 2nd ed at p. 186.

While I accept that the language of the contract is not by itself determinative, the use of the word “deposit” will imply that the payment is intended for forfeiture upon the purchaser’s breach. See Perell and Engell, supra, at p. 187. The common law position is that if the agreement is silent and the purchaser defaults, the deposit, by it very nature is forfeited to the vendor. See Salavatore et al, Agreement of Purchase and Sale (Toronto: Butterworths, 1996) at p. 61.

[26] See also: Benedetto v. 2453912 Ontario Inc., 2018 ONSC 4524, at paras. 25-28; Tibor Urac v. Mohamed Ferawana, 2017 ONSC 385, at para. 32.

[27] Even if the amount paid is characterized as a non-refundable deposit, if the amount of the deposit is out of all proportion to the losses suffered, the court may order the deposit be returned: Dovbush v. Mouzitchka, 2016 ONCA 381, at para. 31, and cases cited therein. To obtain relief from forfeiture on this basis, the Respondent is required to establish i) the forfeited sum was out of proportion to the damages suffered; and ii) it would be unconscionable for the vendor to retain the money: Varajao v. Azish, 2015 ONCA 218, at para. 11; Redstone Enterprises v. Simple Technology, 2017 ONCA 282, at para. 20.

[28] The issue of disproportionality was not raised in the Respondent’s factum, but I will make the following observations.

[29] In Azzarello v. Shawqi, 2018 ONSC 5414, Nishikawa J. reviewed a number of cases that considered whether the deposit was disproportionate to the sale price. She stated, at para. 66:

Courts have found that deposits in the amount of 4.8 percent, 20 percent, and 25 percent of sale price were not unconscionable: Signal Chemicals Ltd. v. Dew Man Marine Trade Inc., 2011 ONSC 3951, 8 R.P.R. (5th) 151, at para. 16 (citations omitted). The percentage is not determinative, but is merely a factor. In Redstone, the deposit was approximately 7 percent of the purchase price and was found not to be commercially unreasonable. In Mikhalenia, at para. 46, the deposit was $100,000.00 on a total sale price of $1,300,000.00 (6.67 percent) and was found not to be unconscionable. In this case, the $75,000.00 deposit was approximately 4.8 percent of the $1,555,000.00 purchase price.

[30] In the present case, the original deposit of $200,000 was 6.25% of the purchase price, and was not disproportionate. While the additional deposits resulted in a 12.50% total deposit, this was not disproportionate, especially given that the additional deposits were made in consideration for extensions to the original closing date. By agreeing to these extensions, the Applicants lost the opportunity to resell the Property. Each extension increased the risk to the seller, and should be accompanied by a correspondingly increased risk of forfeiture to the purchaser. In my view, the total $400,000 deposit was not disproportionate and it would not be unconscionable for the vendor to retain that money.

Conclusion

[31] Based on the foregoing analysis, I find that the Applicants are entitled to a declaration that the Respondent, Vince Padovani, is in breach of the APS and as a result the Applicants are entitled to the $400,000 deposit paid pursuant to the APS. The Respondent NRS Select Ltd. is directed to pay to the Applicants the $200,000 deposit being held by them in trust pursuant to the APS. The Respondent, Stanley Paul Fienberg, is directed to pay to the Applicants the $200,000 additional deposit being held by him in trust.

[32] These declarations are made without prejudice to the right of the Applicants to pursue any claim for damages against the Respondent, Vince Padovani, although I make no findings with regard to any such claim, except to note that the deposits paid to the Applicants will be credited to Mr. Padovani with respect to any such claim for damages.

[33] In a factum filed on behalf of the Respondent before he dismissed his lawyer, the Respondent took the position that he should be refunded the interest prepaid with respect to the Vendor’s Take-Back Mortgage. He alleges that he paid to the Applicants a total of $72,569.78 towards the interest on the balance due on closing. This issue was not argued before me, and I express no opinion with regard this issue. The decision in this case is without prejudice to Mr. Padovani’s right to raise this issue in any other proceedings where it may be relevant.

[34] The Applicants claim $19,560 costs inclusive of disbursements and HST for this Application on a partial indemnity basis. While the Applicants had to prepare for a full day application, the case took less than an hour to argue because it was unopposed. In these circumstances, I am of the view that proportionate costs under Rule 57.01 of the Rules of Civil Procedure should be fixed at $15,000, payable by the Respondent, Vince Padovani, to the Applicants within 30 days.

Justice R.E. Charney

Released: July 4, 2019