COURT FILE NO.: CV-18-138107
DATE: 20190906
CORRIGENDA: 20190909
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Arista Homes (Boxgrove Village) Inc.
Plaintiff
– and –
Mehak Lakhany
Defendant
Daniel McConville, for the Plaintiff
Michael B. Miller, for the Defendant
HEARD: July 31, 2019
REASONS FOR DECISION
(Text of Original Decision Has Been Amended – Change Appended)
MCKELVEY J.
Introduction
[1] On June 30, 2017, the defendant, Mehak Lakhany (“Lakhany”), entered into an Agreement of Purchase and Sale for the purchase of a residential home located at 45 Decast Crescent in Markham. The vendor of the home was a developer, Arista Homes (Boxgrove Village) Inc. (“Arista Homes”). Arista Homes is a builder of residential homes in the GTA.
[2] The purchase of the home was scheduled to close on June 19, 2018. In accordance with the terms of the purchase and sale agreement, the defendant paid deposits which totalled $100,000.
[3] In a letter dated June 18, 2018, counsel for Lakhany advised Arista Homes that Lakhany was unable to complete the purchase.
[4] Subsequently, Arista Homes initiated this lawsuit to recover damages for breach of contract. No defence was filed and the plaintiff brought a motion for default judgment. However, the default judgment did not proceed as the defendant set aside the default and entered a defence in the action. Having done so, the default motion was converted into a motion for summary judgment.
[5] For purposes of this motion there were a number of facts agreed to by the parties which significantly narrowed the issues in dispute. The defence agreed that there had been a breach of the Agreement of Purchase and Sale and that the only issue in the action was a proper assessment of the plaintiff’s damages taking into account their allegation that the plaintiff had failed to mitigate.
[6] As part of their evidence on the motion, the plaintiff relied upon a valuation of the property as of June 19, 2018. The valuation was conducted by D. Bottero & Associates. This opinion dated March 8, 2019 expressed the view that the market value of the home as of June 19, 2018, was $800,000. The original purchase price for the home in the Agreement of Purchase of Sale dated June 29, 2017 was $1,204,990. The difference between these two figures is $404,990.
[7] The defence had an opportunity to conduct its own evaluation for the value of the property. This opinion was not entered into evidence on the motion. However, the defence agreed that the difference in value between the purchase price for the home and the value of the home at the time of closing was $404,990 as per the plaintiff’s valuation estimate.
[8] Both parties also agreed that the appropriate rate of pre-judgment interest in this case is 12% as per the Agreement of Purchase and Sale.
Position of the Parties
[9] The plaintiff’s position is that they are entitled to judgment for the sum of $404,990, representing the diminished value of the home at the time of closing. The plaintiff has not resold the property and the plaintiff agreed that if their assessment of damages as noted above is accepted, they are not pursuing a claim for any of the carrying costs of the home following the defendant’s breach.
[10] The plaintiff also claims that they are entitled to keep the deposit paid by the defendant in the sum of $100,000. The plaintiff maintains that the defendant is not entitled to any credit for the deposit to offset the damages for breach of contract.
[11] The defence takes the position that the plaintiff has failed to mitigate its damages and that this case should be allowed to proceed to trial to determine the question of mitigation. The defendant also asserts that it is entitled to a deduction from any damages for the sum of $100,000 which was paid by the defendant as a deposit under the Agreement of Purchase and Sale.
Rule 20 – Summary Judgment
[12] This is a motion for summary judgment under Rule 20. In 2014, the Supreme Court of Canada released its decision in Hryniak v. Mauldin, 2014 SCC 7, which considered when it is appropriate to grant summary judgment under Rule 20 of the Rules. Rule 20.04(2) provides that,
(2) The court shall grant summary judgment if,
(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.
[13] Rule 20.04(2.1) provides that,
(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
Weighing the evidence.
Evaluating the credibility of a deponent.
Drawing any reasonable inference from the evidence.
[14] In its decision in Hryniak, the Supreme Court of Canada notes that there will be no genuine issue requiring a trial when a judge is able to reach a fair and just determination on the merits of a motion for summary judgment. This will be the case when the process allows the judge to make the necessary findings of fact, allows the judge to apply the law to the facts, and is a proportionate, more expeditious, and less expensive means to achieve a just result. The question a court must consider is whether the judge has confidence that he or she can find the necessary facts and apply the relevant legal principles to fairly resolve the dispute.
[15] In the present case I have concluded that the issues raised in the summary judgment motion do not require a trial. For the following reasons, I believe I am in a position to make the necessary findings of fact and apply those facts to the law in a way that will reach a fair and just determination on the merits of this case.
Analysis
[16] It is acknowledged by the defence that Mr. Lakhany was in breach of the Agreement of Purchase and Sale. The appropriate measure of damages at common law in this situation is the difference between the contract price and the market value of the property at the time of closing. This principle is reflected in the Ontario Court of Appeal decision in 100 Main Street Ltd. v. W.B. Sullivan Construction Ltd. (1978), 1978 CanLII 1630 (ON CA), 20 O.R. (2d) 401. In that decision, Justice Morden states,
Accepting that the basic principle of damages is that the plaintiff should be put in the position it would have been in if the contract had been performed it appears to me that even in the case of an accepted anticipatory repudiation the proper date for taking the market value should be as of the time fixed by the contract for completion, subject to the duty of the vendor to mitigate following acceptance of the repudiation.
[17] In the Ontario Court of Appeal decision in 642947 Ontario Ltd. v. Fleischer (2001), 2001 CanLII 8623 (ON CA), 56 O.R. (3d) 417, the Ontario Court of Appeal notes that the basic principle for assessing damages for breach of contract is based on putting the injured party as nearly as possible in the position it would have been had the contract been performed. Ordinarily, courts give effect to this principle by assessing damages at the date the contract was to be performed, which would be the date of closing. It is open to a court however to choose a date different from the date of closing if contextual considerations require it. The court further states that, where, “the vendor retains the property in order to speculate on the market, damages will be assessed as at the date of closing”.
[18] In the present case, the plaintiff has not resold the property. I accept that the appropriate measure of damages is to be calculated by taking the agreed upon purchase price and subtracting the fair market value at the time of closing. This produces an assessed claim of $404,990.
[19] Mr. Lakhany argues that the above figure does not take into account the failure of the plaintiff to properly mitigate his damages and that for this reason, the matter should be referred to trial. I disagree.
[20] On the issue of mitigation, the defence argues that the plaintiff was required to put the home on the market at a reduced price, and that its failure to do so constitutes a failure to mitigate its damages. The evidence relied upon by the defendant is that of Mr. Anthony Montanaro, who is the Controller and Human Resources Manager of the plaintiff. He was cross-examined on this motion and gave the evidence that the plaintiff did not re-list the property with a real estate agent, but instead only used their in-house sales staff. He also agreed that they were not aggressively marketing the home. This is reflected in his evidence at question 107, where he testified as follows:
Question: Do you agree with me that you are…by not aggressively or more aggressively selling these homes, that you are speculating on the real estate market going up?
Answer: No, we don’t want…the reason we are not doing this is we don’t want to impact the homes that are sold and haven’t closed yet. It is not fair to those homeowners that purchased a house and haven’t closed the deal yet.
[21] Mr. Montanaro also gave evidence that they have not reduced the selling price for the home in question, even though its assessed value has dropped considerably. It appears that the plaintiff is reluctant to reduce the sale price or aggressively market the home because it would cause difficulties with other buyers in the development whose purchases have not yet closed. However, even if one were to accept that the plaintiff has not taken reasonable steps to sell the home, this does not result in a triable issue where there is clear evidence accepted by both parties that the value of the home at the time of closing was $800,000. As noted in the Fleischer decision, a vendor may retain a property following a breach of contract and damages in this scenario will be assessed by the value at the time of closing.
[22] In addition, even if I accepted the defence argument that the plaintiff has failed to mitigate its damages, the defendant has not met its onus of establishing that the loss could have been minimized in any way if the plaintiff had acted reasonably. The legal onus is on the defence to provide evidence to show that the loss could have been diminished. The defendant must also show how and to what extent that loss could have been minimized. This is reflected for example, in the Supreme Court of Canada decision in Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, where the Supreme Court of Canada notes,
Where it is alleged that the plaintiff has failed to mitigate, the defendant bears the burden of proving that the plaintiff has failed to make reasonable efforts to mitigate and that mitigation was possible.
[23] This principle is also reflected in the Supreme Court of Canada decision in Janiak v. Ippolito, 1985 CanLII 62 (SCC), [1985] 1 SCR 146, at para. 33. See also: Forest Hill Homes v. Ou, 2019 ONSC 4332.
[24] The defence has not led any evidence on this motion as to how the plaintiff’s damages could have been lessened if they had more aggressively marketed the property. Given the defendant’s agreement to the fact that the property was worth $800,000 on the date of closing, I conclude that there is no reasonable basis to believe that the property could have been sold at a higher price. To suggest otherwise is simply speculation without an evidentiary foundation.
[25] The second issue which needs to be addressed on this summary judgment motion is whether the purchaser’s deposit is forfeited over and above the damages for breach of contract or alternatively, whether the defendant is entitled to credit for the $100,000 paid as a deposit.
[26] The plaintiff argues that the deposit should be forfeited over and above the damages for breach of contract. In this regard, the plaintiff relies on the decision in Azzarello v. Shawqi, 2018 ONSC 5414. In that decision, the court held that the defendant was not entitled to relief from forfeiture for the deposit. It found that the deposit amount was not disproportionate to the purchase price and was warranted in the circumstances of the case over and above damages based on the difference between the agreed upon purchase price and the value of a residential property following breach of the Agreement of Purchase and Sale.
[27] This decision should be contrasted with that in Bang v. Sebastian, 2018 ONSC 6226. In that case, the issue to be determined was whether the deposits made by the defendant were payable in addition to the damages suffered by the plaintiff or whether the deposits were to be applied as a credit against the plaintiff’s damages. In holding that the deposit was to be applied as a credit against the plaintiff’s damages, Justice Sanfilippo stated,
I find that the wording of the deposit term in the Agreement of Purchase and Sale clearly and unambiguously reflects the parties’ intention that the deposit would be applied as a credit to the payment obligation owed by the purchaser defendant to the vendor plaintiffs on completion of the transaction. There is no difference to the use of the deposit in the event of termination of the agreement as opposed to its successful completion. Rather, it was intended to be applied as a credit to the obligation owed by the purchaser to the vendors: whatever form that obligation might take. I conclude that the $35,000 paid by the purchaser defendant is to be paid to the vendor plaintiffs and credited against the damages that they have proven.
[28] In the present case, the purchase and sale agreement clearly sets out that the balance due on closing of the real estate transaction was to be reduced by the amount of the deposits which totalled $100,000. However, there is a provision in the contract which states,
This offer is to be read with all changes of gender or number required by the context and, when accepted, shall constitute a binding contract of Purchase and Sale, and time shall, in all respects, be of the essence. The deposit monies are expressly deemed to be deposit monies only, and not partial payments. Default in payment of any amount payable pursuant to this Agreement on the date or within the time specified, shall constituted (sic) substantial default hereunder, and the Vendor shall have the right to terminate this Agreement and forfeit all deposit monies in full. Without prejudice to the Vendor’s rights as to forfeiture of deposit monies as aforesaid, and in addition thereto, the Vendor shall have the right to recover from the Purchaser all additional costs, losses and damages arising out of default on the part of the Purchaser pursuant to any provision contained in this Agreement, including interest thereon from the date of demand for payment at the rate of 12% per annum, calculated daily, not in advance, until paid…
[29] The plaintiff’s interpretation of the above clause is that it entitles the vendor to a forfeiture of the deposit in addition to compensatory damages arising out of the purchaser’s default. In my view, however, this provision does not support that conclusion. As a general rule, the purpose of damages for breach of contract is to put the plaintiff in the same position as he would have been in had the contract been completed. As noted by Justice Charney in a handwritten endorsement in Leaf Homes Limited v. Xi Huang, Court File No. CV-18-138069-00, a contractual term that a deposit is to be paid means that if the purchaser is unable to complete the purchase, the vendor can keep the deposit without paying any damages. If no damages are shown, then the deposit is nevertheless forfeited. If, however, damages are proven, the deposit will be applied or set off against the damages.
[30] In the present case, although the Agreement of Purchase and Sale provides that the deposit monies are deemed to be deposit monies only and not partial payments, it is apparent from the first page of the agreement that the defendant is entitled a credit on closing for the deposit monies. The deposits would be credited towards the purchase price on completion of the transaction. The clause relied upon by the vendor provides that in addition to the forfeiture of the deposit monies, the vendor shall have the right to recover from the purchaser “all additional costs, losses or damages arising out of default on the part of the purchaser”. (Emphasis added)
[31] I conclude in the circumstances that the clear intention based on the wording of the Agreement of Purchase and Sale is that the purchaser would be entitled to a credit for the monies paid as a deposit in the event that the damages were greater than the amount of the deposit.
[32] At the present time there does not appear to be any appellate authority on the deductibility of deposits paid in residential real estate transactions. Apart from the decision in Azzarello referred to above, the trend appears to follow the approach taken by Justice Sanfilippo in the Bang v. Sebastian decision as well as other decisions such as that of Justice Charney in the Leaf Homes case. See also Colucci v. Golozari, 2019 ONSC 713, a decision of Justice Edwards.
[33] I have concluded therefore, that overall, the provisions in the Agreement of Purchase and Sale reflect an intention that while the deposit monies are properly forfeited to the plaintiff, the defendant is entitled to credit for the amount of the deposit to offset the additional damages claims by the plaintiff for breach of the purchase and sale agreement.
Conclusion
[34] For the above reasons, I grant summary judgment to the plaintiff for the sum of $304,990. This represents the agreed upon difference between the purchase price and value of the home at the time of closing, less the sum of $100,000 paid as deposits towards the purchase price and which are forfeited to the plaintiff. The plaintiff is also entitled to pre-judgment interest at the rate of 12% in accordance with the agreement reached between the parties on this motion.
[35] At the commencement of argument, the parties agreed that the partial indemnity costs of this motion would properly be assessed at $22,500. If there are issues with respect to costs, then an appointment should be taken out with the trial coordinator within 30 days of the release of this decision to address the issue of costs. In such event, the parties will deliver concise briefs at least two days before their attendance. If no arrangements are made within 30 days for an appointment to speak to costs, there will be no order for costs.
Justice M. McKelvey
Released: September 6, 2019
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Arista Homes (Boxgrove Village) Inc.
Plaintiff
– and –
Mehak Lakhany
Defendant
REASONS FOR Decision
Justice M. McKelvey
Released: September 6, 2019
Amendment
- Paragraph [22] has been amended to reflect: … the defendant has not met its onus of establishing that the loss could have been minimized in any way if the plaintiff had acted reasonably. (Not the plaintiff).