Superior Court of Justice - Ontario

COURT FILE NOs.: CV-18-598038-0000; CV-18-00600828-0000

DATE: 2019-02-15 (Original typo: 21090215)

BETWEEN:

SANDRA A. ANIA and TIMOTHY W.D. SULLIVAN Applicants

– and –

SPICE DANFORTH INC. Respondent

AND BETWEEN:

SPICE DANFORTH INC. Applicant

-and-

SANDRA A. ANIA and TIMOTHY W.D. SULLIVAN Respondents

Counsel: Mark A. Ross, for the Applicants Monica Peters, for the Respondent Monica Peters, for the Applicant Mark A. Ross, for the Respondents

Heard: January 10, 2019

Before: Swinton J.

Overview

[1] The parties have each brought an application concerning an agreement of purchase and sale relating to a townhouse condominium unit that has yet to be built. The dispute between them arises with respect to the Purchasers’ obligation to demonstrate their financial ability to close the transaction. These reasons apply to the determination of both applications.

Factual Background

[2] The applicants in Court File CV-18-598038-0000 are spouses Sandra Ania and Timothy Sullivan (the “Purchasers”). They have a small child, and they currently own and live in a condominium apartment unit.

[3] On September 27, 2016, they entered into an agreement of purchase and sale (“APS”) with the respondent Spice Danforth Inc. (the “Vendor”) respecting the purchase of a townhouse condominium unit. The price was $444,900. At that time, construction had not started, although it was expected to commence on September 30, 2016.

[4] The occupancy date was originally March 29, 2019. This date was extended to March 30, 2020 by an amendment to the APS on November 20, 2017. However, construction has not yet started, even though units in this development were first sold in 2014. As will become clear later in the description of the facts, the development will never be proceeding as a condominium.

[5] The Purchasers have made deposits totalling $55,614.00, which are being held in trust by the Vendor’s lawyers. A further deposit of $11,123 is due upon occupancy. A balance of $378,163 would be due once all deposits under the APS are paid.

[6] Pursuant to section 2.02(a) of Schedule A to the APS, the Purchasers have certain obligations with respect to confirmation of their financial resources. It reads:

The Purchaser hereby warrants and represents that it has (or will have on or before the Closing Date) the financial resources to complete the purchase and sale transaction contemplated here on an all-cash basis to the Vendor, either wholly from the Purchaser’s resources or from third party financing that will ultimately be secured by one or more mortgages given by the Purchaser and registered against the Property on or shortly after the Closing Date. All deposit monies due or payable by the Purchaser prior to the Firm Occupancy Date shall be made or tendered only by way of a bank draft or cheque drawn on (or issued by) a Canadian chartered bank or trust company, on the express understanding that if a cheque or bank draft is delivered to the Vendor by a third party on behalf of the Purchaser (i.e. drawn on the bank account of such third party, rather than on the bank account of the Purchaser), then such bank draft or cheque shall be deemed to be a payment made by such third party as agent for and on behalf of the Purchaser, in which case it is agreed that the certificate confirming that such deposit monies are being held in a designated trust account by the Vendor’s solicitors pending the completion or termination of this transaction or the provision of prescribed security in respect of same (being Form 4, prescribed by Section 39 of O. Reg. 49/01 to the Act) shall be issued and delivered directly to the Purchaser only, and not to such third party. In order to evidence and confirm the Purchaser’s financial ability to complete this transaction on an all-cash basis to the Vendor on the Closing Date as aforesaid, the Purchaser hereby agrees to submit to the Vendor each of the following documents and items, within 30 days after the date of the Purchaser’s signed receipt of this fully executed Agreement, and additionally thereafter within 15 days after the Vendor’s written request, for same, which request may be made from time to time, on one or more occasions, namely:

(i) An irrevocable direction to the Vendor indicating and confirming how the Purchaser wishes to take title to the Property, with such direction nevertheless being subject to the overriding approval of the Vendor and the First Mortgagee;

(ii) Evidence of the source of the Purchaser’s down payment satisfactory to the Vendor and the First Mortgagee, accompanied by written confirmation of the Purchaser’s annual income, and any other financial and personal information, documents, instruments or verifications which may be required or desired by the Vendor, the First Mortgagee and any mortgage insurer (if applicable), for the purpose of either confirming that the Purchaser has sufficient resources on its own (and therefore does not require any mortgage financing) to complete this transaction on an all-cash basis to the Vendor on Closing, or for the purpose of facilitating the mortgage approval of the Purchaser by the First Mortgagee in connection with any financing that may be required by the Purchaser to enable the Purchaser to complete this transaction on an all-cash basis to the Vendor on the Closing Date as herein provided, or for the purpose of determining and establishing the financial ability of the Purchaser to pay the cash balance of the Purchase Price due on the Firm Occupancy Date and/or the Closing Date; and

(iii) In those circumstances where the Purchaser requires or desires third party financing to assist the Purchaser in completing this transaction on an all-cash basis to the Vendor, a copy of a binding and unconditional mortgage commitment, financial term sheet or loan agreement (together with any and all amendments made thereto from time to time) issued by the First Mortgagee, or by a third party financial institution or other lender which is satisfactory to the Vendor in its sole and unchallenged discretion, and which evidences and confirms the Purchaser’s approval for a mortgage loan in such amount or amounts as may be necessary to enable the Purchaser to complete this transaction on an all-cash basis to the Vendor on the Closing Day, on the express understanding that even if the Purchaser ultimately intends to obtain such financing from a lender other than the First Mortgagee, the Vendor shall nevertheless be entitled to compel the Purchaser to obtain (and the Purchaser shall correspondingly be obliged to procure) mortgage approval for a first mortgage directly from the First Mortgagee, in such amounts as will enable the Purchaser to complete this transaction on an all-cash basis to the Vendor on the Closing Date, and to deliver to the Vendor the written confirmation of such approval by the First Mortgagee within 30 days after the date of the Purchaser’s signed receipt of this fully executed agreement. ... (emphasis added)

[7] “Closing Date” is a defined term under section 1.01(d). It means the date when title for the property is transferred to the purchaser. “First Mortgagee” is also a defined term.

[8] The Purchasers provided the Vendor with an October 24, 2016 letter from a mortgage broker, Downtown Lending Centres, which indicated that they had been pre-approved for a mortgage of $355,920. The letter stated that the advancement of the funds was conditional on the satisfaction of the following conditions: receipt of a contract to purchase, verification of employment income, verification of down payment, and a property appraisal. The Vendor accepted this letter as compliant with section 2.02(a).

[9] On January 4, 2018, the Vendor wrote to the purchasers of all the units asking for a binding and unconditional mortgage commitment “issued by your lender which evidences and confirms the Purchaser’s approval for a mortgage loan in such amount or amounts as may be necessary to enable the Purchaser to complete this transaction on an all-cash basis to the Vendor on the Closing Date.” In the letter, the Vendor stated that commitments subject to conditions such as “income to be confirmed” would not be acceptable. The information was to be provided by January 26, 2018. According to the letter and the evidence of Warren Green, president of the Vendor, the reason for the request was the change in federal Residential Mortgage Underwriting Guidelines respecting the minimum qualifying rate for uninsured residential mortgages.

[10] The Purchasers again obtained a letter from Dominion Lending Centres, dated January 28, 2018, indicating that they had been approved by TD Bank for a mortgage of $355,920. Three conditions were specified: verification of employment income, verification of down payment and a property appraisal. This was sent to the Vendor January 31, 2018.

[11] This time, the Vendor rejected the information, because it was a pre-approval from a mortgage broker, not the lender, and because the approval was subject to conditions. The Vendor also stated that there was a shortfall between the deposits and the amount due on closing of $22,243.

[12] The Purchasers disputed the amount owing on closing, claiming that it was $11,123. They then obtained a mortgage commitment from CIBC dated February 7, 2018 for $169,900 that required an unconditional agreement to sell their current residence, as well as a credit bureau check on Mr. Sullivan. According to an email from Tom Strgacic, a mortgage advisor with the CIBC, this commitment assumed a down payment of $275,000. He explained in cross-examination that the arrangement assumed the Purchasers would be using equity from their current residence to help finance the new unit.

[13] This commitment was rejected by the Vendor on February 20, 2018. First, the Vendor took issue with three conditions, including the condition respecting the sale of the Purchasers’ current residence. The Vendor also indicated there was a shortfall of $209,163. It demanded either a revised mortgage commitment for the full amount of an all-cash closing or delivery of a post-dated cheque for the shortfall amount. On March 1, 2018, the Purchasers’ former lawyer wrote to explain that they would be using the proceeds from the sale of their residence to close the transaction.

[14] In a letter from the Vendor’s lawyers dated March 14, 2018, the Vendor took the position that the Purchasers were in default under the APS, citing section 2.03. While the letter gave the Purchasers until March 28, 2018 to provide a mortgage commitment, it stated that if the Purchasers did not comply, the Vendor had the right to declare the APS terminated and to forfeit all deposit monies.

[15] It is useful to quote section 2.03 at this time. Under a heading “Purchaser’s failure to provide financial information or to procure needed financing”, it sets out the grounds on which the Vendor may deem a purchaser to be in default and to unilaterally terminate the APS. For purposes of the present litigation, the Vendor relies on paragraph (a).

[16] Section 2.03 states in part:

2.03 Notwithstanding anything contained in this Agreement to the contrary, it is expressly understood and agreed that in the event that:

a) the Purchaser fails to submit the information, evidence and/or documents contemplated in Section 2.02(a)(i), (ii) and (iii) above within the time period(s) hereinbefore stipulated, and as often as the Vendor, the Vendor’s solicitors or the First Mortgagee shall require, or if the information, evidence and/or documentation pursuant to the foregoing provisions hereof [or provided to the Vendor, the Vendor’s solicitors or the First Mortgagee pursuant to any other provision(s) of this Agreement, or any amendment or addendum with respect to the same] is, in whole or in part, false or misleading;

b) the Purchaser fails to disclose any relevant facts pertaining to the Purchaser’s mortgage approval and/or the Purchaser’s financial circumstances of abilities;

c) the Purchaser requires a first mortgage loan in order to complete this transaction on an all-cash basis to the Vendor on the Closing Date, but has not obtained the requisite mortgage approval from the First Mortgagee or from any other financial institution satisfactory to the Vendor in its sole, unfettered and unchallenged discretion, and has not provided the Vendor with a copy of the binding and unconditional mortgage loan commitment within 30 days after the date of the Purchaser’s signed receipt of this fully executed Agreement (as contemplated in Section 2.02(a)(iii) for any reason whatsoever;

d) the Purchaser was initially approved for the requisite mortgage loan by the First Mortgagee or such third party lender satisfactory to the Vendor, and subsequently such approval has been withdrawn or the loan amount has been reduced by the First Mortgagee or such third party lender prior to Closing;

then in recognition that the Vendor has held the Property off the marketplace because of this Agreement and the Purchaser’s unqualified and unconditional commitment to complete this transaction on an all-cash basis to the Vendor on the Closing Date, the Purchaser shall be deemed to be in default in any of the foregoing circumstances noted in Section 2.03 (a) to (d) above ...

The Vendor then has a unilateral right either to declare the APS terminated and the deposit monies will be forfeited, or the Vendor can take back a mortgage.

[17] On March 14, 2018, the Purchasers obtained a new mortgage commitment from CIBC for $355,920 that would not contain a condition respecting the sale of their residence. It listed Ms. Ania’s parents as co-borrowers. Again, the Vendor rejected this commitment, claiming there was a $22,243 shortfall, and it was conditional on adding the parents, when they were not parties to the APS. The Purchasers asked if the parents could be put on title, but the Vendor said no, relying on section 2.01 of the APS that prohibited assignment or sale of the unit until after Closing without the consent of the Vendor, which could be arbitrarily withheld. When Mr. Green was asked on cross-examination why he did not want to co-operate with the Purchasers, he said, “I don’t have to.”

[18] The Purchasers dispute that there is any shortfall, as they have funds to make the final deposit plus other funds to make up the 20% down payment.

[19] The Vendor’s lawyer requested additional documents on March 27, 2018, including pay stubs, notices of assessment, financial statements and a copy of the parcel register for their residence. Again, the Vendor threatened to terminate the APS and forfeit all deposit monies.

[20] The parcel register was provided March 27, 2018. The Vendor’s counsel pointed out during argument that it showed a purchase price of $275,000 in August 2014 and a mortgage of $201,000. The Purchasers also advised the Vendor that some of their funding would come from their equity in their residence when the condo unit is sold. On March 28, 2018, they advised that they were obtaining an appraisal of their residence.

[21] On April 11, 2018, the Vendor’s lawyer advised that the Vendor would proceed to terminate the APS. After some initial resistance to providing income information in late March and after changing lawyers, the Purchasers provided income documents and investment portfolio documents in a letter from their new counsel Mr. Ross on April 12. He also offered to provide a copy of the appraisal (which shows a market value of $461,000 for their current residence).

[22] Again, on April 16, 2018, lawyers for the Vendor refused to find the documentation acceptable and stated that the Vendor would proceed to terminate the APS. In fact, the Vendor had already given notice of termination of the APS by sending a letter by regular and registered mail on April 13, 2018. That letter could not be effective before April 20, 2018 because of the notice provision of the APS.

[23] In the meantime, on April 17, 2018, the Purchasers had again provided further documentation respecting their investments. The Vendor did not ask to see the appraisal.

[24] This litigation was commenced by the Purchasers. During cross-examination of Mr. Green on October 11, 2018 with respect to his affidavit of June 29, 2018, important information came to light about the future of the townhome project. Mr. Green revealed that the purchasers of 95 of the 116 units in the development could not qualify for financing. It appears that most of these people failed to qualify in January and February of 2018, since Mr. Green said that about 20 qualified in January and February (Transcript, p. 29). Those who did not qualify had their deposits returned.

[25] Mr. Green also revealed during cross-examination that the Vendor would no longer be proceeding with a condominium development, but had decided instead to build a rental development. Of the approximately 20 to 25 qualified purchasers, all but four have surrendered their units in exchange for receiving their deposits back, because they did not want to live in a largely rental property. It had also become clear sometime in 2018 that the condominium maintenance fees would be much higher than originally contemplated because of unanticipated sewage charges. Mr. Green also stated that a shovel will not be hitting the ground for quite awhile – at least a year or maybe two years.

The Issues

[26] The Purchasers argue that they are not in default under the APS. They emphasize that the warranty they made in accordance with section 2.02(a) of the APS was that they had or would have the ability to complete the purchase on Closing Day on an all-cash basis (emphasis added). They submit that they have met their obligation to provide documentation of their financial ability to close on an all-cash basis on the closing date in accordance with section 2.03(a).

[27] Alternatively, they submit that they have demonstrated satisfactorily that they have the necessary financial resources, and the Vendor has exercised its discretion unreasonably and in bad faith in rejecting their evidence of an ability to finance a closing (albeit a closing that will never occur). They seek a declaration that the APS is in effect, that the deposit monies should be returned to them with interest, and that there should be a trial of an issue with respect to the damages they have suffered as a result of the Vendor’s decision not to proceed with the condominium townhouse development.

[28] The Vendor argues that there has been a default by the Purchasers, because they failed to provide an unconditional mortgage commitment in violation of the APS. The Vendor seeks a declaration that the Purchasers are in default under the APS, and their deposit is forfeited.

The Legal Principles

[29] The Purchasers argue that the Vendor, in determining whether they have satisfied the financing requirements in the APS, must act honestly and in good faith. I agree (see Greenberg v. Meffert (1985), 1985 CanLII 1975 (ON CA), 18 D.L.R. (4th) 548 (Ont. C.A.) at para. 18).

[30] Both the Vendor and Purchasers agree that an objective standard of reasonableness applies to determine whether the Purchasers provided the necessary proof of their ability to finance the purchase (Greenberg at para. 19). However, the Vendor argues that the Purchasers never complied with the contractual obligation to provide a binding and unconditional mortgage commitment or evidence of down payment, and so they were in default under section 2.03(a), giving the Vendor the unilateral right to terminate the APS.

[31] As in Greenberg, the contract at issue was prepared by the Vendor. It is detailed, written in fine print, difficult to read and weighted in favour of the Vendor’s interests. The Court of Appeal stated in Greenberg that any ambiguity or uncertainty should be construed in the way most favourable to the party who had not drafted the agreement (at para. 21).

Analysis

There is no default under section 2.03(a)

[32] Counsel for the Purchasers argues that the Vendor did not have the right to terminate the APS under section 2.03(a), because the Purchasers were not in default under that section. He correctly points out that there are four specified circumstances in which the APS may be terminated because of the purchaser’s default. The Vendor relies on paragraph (a) which relates to the failure to provide financial information.

[33] The heading to section 2.03 states “Purchaser’s failure to provide financial information or to procure needed financing.” It is noteworthy that paragraphs (a) and (b) deal with disclosure of financial information: the failure to provide documentation and the provision of false information respectively are acts of default. In contrast, paragraphs (c) and (d) deal with the ability to finance the purchase. Paragraph (c) provides that it is a default if the purchaser does not provide the information showing an ability to finance the purchase on an all-cash basis within 30 days of entering the agreement (emphasis added). Paragraph (d) provides that it is a default if the Purchaser does not inform the Vendor that the mortgage commitment has been withdrawn or has been reduced by the mortgagee.

[34] The evidence shows that the Purchasers tried to provide the documentation required by the Vendor over the course of several months. They first provided a pre-approval letter from the mortgage broker, as they had done around the time of entering into the APS. They then provided two mortgage commitments from CIBC on February 7, 2018 and March 14, 2018.

[35] They were initially reluctant to provide income information in March 2018. I can understand their frustration at the seemingly unreasonable demands and conduct of the Vendor around this time. For example, the Vendor was refusing to accept proof of financing conditional on proving income or a credit check, although Mr. Strgagic from the CIBC explained in cross-examination that these were standard requirements. Moreover, in the letter dated March 14, 2018, the lawyers told the Purchasers they must provide proof of mortgage financing for the full amount or provide a post-dated cheque for the shortfall amount of $209,163 by March 29, 2019. Nowhere in the contract was the Vendor entitled to a post-dated cheque, nor does the APS require a full mortgage, since buyers may well be contributing their own funds to the purchase.

[36] In any event, the Purchasers did provide income information, as well as evidence of their savings, RRSPs, and investments. They also offered an appraisal of their current residence. Furthermore, they offered the option of a full mortgage commitment in which Ms. Ania’s parents would be co-borrowers.

[37] I find that the Purchasers satisfied their obligation to provide the evidence and documentation contemplated by section 2.03(a), and they were not in default of their obligation under section 2.03(a). Paragraphs (c) and (d) address defaults arising from the failure to obtain initial financing or losing financing, and there is no allegation of default under these paragraphs.

[38] Paragraph (a) deals with the provision of information. I find that the Purchasers cooperated with the Vendor and provided information up to and after the date the Vendor decided to terminate the APS. There was no default under section 2.03(a).

The Purchasers have provided satisfactory proof of their financial ability to close

[39] In the alternative, and if I am wrong in my interpretation of section 2.03(a), I find that the Vendor has acted unreasonably and in bad faith in respect of the financing requirement. It asked for an unconditional mortgage commitment for the purchase of a unit in a development when ground had not been broken and completion was years away. It demanded proof of an ability to close on an all-cash basis in early 2018, when the warranty of the Purchasers was that they had or would have the funds to close on an all cash basis on Closing Date. Moreover, it demanded unconditional mortgage commitments and took issue with any condition, even the reasonable requirement of a verification of employment income close to the closing date (although it had had no problem with such a condition when it accepted the pre-approval letter in October, 2016).

[40] The Purchasers made a number of attempts to show their ability to close on an all cash basis. They first provided a pre-approval letter in the same form as that accepted by the Vendor when the APS was signed. I accept that the Vendor had concerns about the letter this time, although it had accepted a similar letter in 2016, because of stricter rules concerning residential mortgages.

[41] The Purchasers then provided two mortgage commitments from CIBC. In my view, the Vendor acted unreasonably in refusing to accept both. The first contemplated the sale of the Purchasers’ current residence, in which they have some equity. The Purchasers offered to provide an appraisal in late March, which would have shown significant equity, but the Vendor decided to terminate the APS instead. The Purchasers also provided documents showing RRSPs, TFSAs, and other savings that the Vendor did not consider, but which would have demonstrated their ability to pay the 20% down payment on closing.

[42] The Vendor claims that there was a shortfall under the February proposal - unreasonably, in my view, as it ignored these other sources of funds. This led the Purchasers to obtain the CIBC mortgage commitment for the full amount approved in 2016, provided Ms. Ania’s parents would be co-borrowers. The Vendor refused to discuss this proposal, taking the position that the Purchasers themselves had to have the ability to close. It has not provided any satisfactory reason why it refused to add the parents as co-purchasers.

[43] The Vendor has not given a precise date as to when it decided to change from a condominium to a rental development. However, Mr. Green has given evidence that only about 20-25 persons were qualified for financing by February, 2018. Of 116 units, 95 did not qualify for financing. Having regard to this evidence and the Vendor’s treatment of the financial information disclosed by the Purchasers, I draw the inference that the Vendor had no intention of continuing with the condominium development when it terminated the Purchasers’ APS in mid-April 2018.

[44] I find that the Purchasers did comply with the APS, both in providing documentation and in obtaining mortgage commitments that met the financing requirements of the APS. I find that the Vendor has acted unreasonably and in bad faith in its application of the financing requirement under the APS and in terminating the APS with the Purchasers.

Conclusion

[45] Accordingly, I declare that the Purchasers have complied with the APS, and it remains binding and enforceable.

[46] As it is clear that the Vendor will not complete the transaction for the sale of a condominium townhome, I order that the deposits of $55,614 made by the Purchasers and held in trust by DelZotto, Zori LLP be repaid to them with interest, in accordance with the terms of the Tarion Addendum to the APS.

[47] I order that there be a trial of an issue with respect to the Purchasers’ claim for damages, as they have demonstrated that there is some evidence to show that they may have suffered damages for the loss of bargain.

[48] The Vendor’s Application is dismissed.

[49] Given the Purchasers’ success on the applications, they have a reasonable expectation of receiving their costs. The parties have asked that they be given a chance to discuss costs and hopefully reach an agreement. If the parties can agree on costs within 15 days of the release of these reasons, they shall send me a letter confirming they have reached an agreement. If they cannot agree, the Purchasers shall provide brief written submissions within 21 days of the release of these reasons. The Vendor will submit its submissions within 7 days thereafter.

Swinton J.

Released: February 15, 2019

COURT FILE NOs.: CV-18-598038-0000; CV-18-00600828-0000

DATE: 2019-02-15 (Original typo: 21090215)

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

SANDRA A. ANIA and TIMOTHY W.D. SULLIVAN

Applicants

– and –

SPICE DANFORTH INC.

Respondent

AND BETWEEN:

SPICE DANFORTH INC.

Applicant

-and-

SANDRA A. ANIA and TIMOTHY W.D. SULLIVAN

Respondents

REASONS FOR JUDGMENT

Swinton J.

Released: February 15, 2019