COURT FILE NO.: CV-1900-618467
DATE: 20191011
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
HONG JU and SONGLIN CAI Applicants
– and –
MONIR TAHMASEBI and GOLDEN LIFE REALTY LTD. Respondents
Julian Binavince, for the Applicants
Pathik Baxi, for the Respondent, Monir Tahmasebi
HEARD: August 22, 2019
APPLICATION UNDER Section 97 of the Court of Justice Act, Section 3 of the Vendors and Purchasers Act and Rules 14.05, 38, and 39 of the Rules of Civil Procedure
LEIPER J.
REASONS FOR DECISION
[1] This application by Hong Ju and Songlin Cai (the “Applicants”) was brought for a declaration that the respondent Monir Tahmasebi (the “Purchaser”) repudiated two agreements of purchase and sale (the “Agreements”) for a Toronto property which was to be severed into two lots prior to the closing of the Agreements.
[2] The Applicants seek payment of the first deposit of $100,000 made at the time the Agreements were made. These funds are being held in trust by Golden Life Realty Ltd. (the “Realty Co.”).
[3] The Applicants seek payment of the second deposit provided for in the Agreements in the amount of $100,000.00.
[4] The Applicants also seek an order that their claim for damages suffered as a result of the Purchaser’s repudiation of the Agreements be converted to an action.
[5] For the reasons below, I conclude that the Purchaser did not repudiate the Agreements and that the application should be dismissed.
BACKGROUND FACTS
The Agreements of Purchase and Sale and the First Deposit: March 23, 2016
[6] On March 23, 2016, the Applicants and the Purchaser entered into the Agreements. The terms provided that the Applicants would apply to the City of Toronto to sever the lands into two lots prior to closing the transaction.
[7] The purchase price was $2.5 million for the entire property or $1.25 million per lot.
[8] The first deposit was paid at the time the Agreements were signed: this consisted of $50,000 for each lot for a total deposit of $100,000. These are the funds held in trust by Realty Co.
[9] The Agreements provided for second deposits in these words:
THE buyer agrees to pay additional deposit of the $50,000 payable to the Golden Life Realty Ltd. in trust after the seller provide city or OMB severance approval to the buyer’s lawyer. [original text]
[10] The schedules to the Agreements stipulated that “all the deposit is non refundable if the buyer in default and not close the transaction” [original text].
[11] The Agreements also provided that “the closing will be 60 days after the seller received separate deed from city of Toronto” [original text].
[12] Paragraph 20 of the standard form section of the Agreements stated: “Time shall in all respects be of the essence hereof.”
The Communications Concerning Severance Approval: March 24, 2016 to June 27, 2018
[13] On November 20, 2017, the Purchaser’s lawyer wrote to the Applicants’ lawyer alleging that there had not been timely severance obtained of the lot. The Applicants’ lawyer responded on November 22, 2017 that the Committee of Adjustments had not decided the matter yet. Counsel for the purchaser sent another letter to the Applicants’ lawyer inquiring about the severance status on December 7, 2017.
[14] The Toronto Local Appeal Body granted the application to sever on December 15, 2017.
[15] Counsel for the Purchaser sent further correspondence inquiring about the status of the severance on the following dates:
(a) December 19, 2017;
(b) January 26, 2017;
(c) February 20, 2018;
(d) March 12, 2018.
[16] On March 25, 2018, counsel for the Purchaser received an email from counsel to the Applicants stating that he was “away or in court for the past month and a half.”
[17] On June 8, 2018 a Certificate of Official was issued confirming the consent to convey the parcel of land in accordance with the decision of the Toronto Local Appeal Body.
[18] On June 27, 2018, the parcel was transferred by the Applicants to themselves for consideration of $0.00. On that day, counsel for the Applicants advised the Purchaser that it had obtained the severance and that the closing would be in 60 days.
The Communications Regarding Payment of the Second Deposit and the Termination of the Contract
[19] On July 6, 2018, the lawyer for the Purchaser wrote to the lawyer for the Applicants to request an extension of 45 days to close. The reason given was that the agreement had been outstanding for more than two years and the Purchaser was out of the country for the summer. The Applicants did not agree to an extension.
[20] Counsel for the Applicants wrote to counsel for the Purchaser on Sunday July 22 and again on Wednesday July 25 to request payment of the second deposit.[^1]
[21] The email of Sunday July 22, 2018 read, “I also understand that the second deposit has not been paid. Please have the second deposit paid ASAP.”
[22] The email of Wednesday July 25, 2018 read, “Your client’s failure to pay the second deposit is a breach of the two agreements of purchase and sale. If the deposits are not paid forthwith, my client will take whatever action he deems appropriate.”
[23] On August 1, 2018, the Applicants’ lawyer wrote to counsel for the Purchaser to assert that he was in default. The letter advised that if the additional deposits are not paid to Realty Co. by August 7, 2018 at 10:00 a.m., the “Sellers will exercise their rights under the agreements, including but not limited to terminating the agreements.”
[24] On August 7, 2018, the Applicants terminated the Agreements on the basis that the Purchaser had failed to cure the default by paying the second deposit of $100,000.
[25] On August 15, 2018, the Applicants re-listed the properties for sale at $1,298,000.00 per lot.
[26] On August 27, 2018, the stipulated closing date, neither party tendered to close.
THE POSITIONS OF THE PARTIES
[27] The Applicants argue that a plain reading of the second deposit provisions in the Agreements, in the context of this transaction, required payment of the second deposit within one week of notice that the severance had been approved. This timing was based on the provision that time was of the essence. It is also based on the practical assumption that one week is sufficient time to attend to the mechanics of obtaining a bank draft/certified cheque/bank transfer.
[28] The Applicants also argue that the Purchaser remained silent when the deposit was demanded in July and is estopped from arguing that the second deposit was not due at the time the Applicants terminated the contract.
[29] Finally, and in support of the relief sought, the Applicants argue that the Purchaser repudiated the agreement by failing to pay the second deposit as required by the Agreements.
[30] The Purchaser argues that the Applicants failed to act in good faith. The Applicants failed to promptly inform the Purchaser of the City approval. The Applicants failed to provide information on request about the status of the severance in response to the correspondence sent by counsel for the Purchaser. The Purchaser submits that in this context, the Applicants should not be entitled to rely on the standard form provision that provided “time shall be of the essence.” The Purchaser argues that the failure to pay the second deposit by August 7, 2018 did not provide a basis for the Applicants to terminate the contract.
ANALYSIS
The Nature of a Deposit
[31] “A true deposit is an ancient invention designed to motivate contracting parties to carry through with their bargains”: Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, para. 20.
[32] Here, the Purchaser submits that the initial deposit of $100,000 was an ample guarantee that the bargain would be completed and established the Purchaser’s commitment to complete the transaction.
[33] I agree. The Purchaser made a significant deposit in March of 2016 and these funds remained in trust awaiting the severance of the property and the eventual closing. The significance and timing of the second deposit is discussed below.
The Organizing Principles of Good Faith in Canadian Contract Law/Time being of the Essence/Failure to Stipulate the Timing
[34] There is a general organizing principle of good faith that underlies contract law. This principle includes the duty of honest performance, which requires parties to be honest with each other in relation to the performance of their contractual obligations: Bhasin v. Hrynew, 2014 SCC 71, at paras. 65, 93.
[35] Where a party to a contract is required to pay an amount and the time for performance is not stipulated, Canadian authority holds that there is an obligation to pay such amount within a reasonable time. The reasonableness of the time will be determined upon the facts in each case: Illidge v. Sona Resources Corporation, 2018 BCCA 368, para. 61.
[36] Where time is of the essence, but a party has not acted in good faith in performance of his obligations under the contract, then that party cannot rely on a “time of the essence” clause: Deangelis v. Weldan Properties Inc., 2017 ONSC 4155 at para. 35.
[37] The Applicants argue that here the combination of “time being of the essence” and the mechanical requirements for obtaining funds, mean that a one-week time for payment as reasonable.
[38] The Purchaser argues that the Applicants did not keep him apprised of the status of the severance and that most of the Purchaser’s requests for information received no response. This leads to a reasonable inference that time was not of the essence to the Applicants, given these delays. The Purchaser argues that his request for an extension was unreasonably denied and an arbitrary and unreasonably short timeline was imposed. Given the size of the second deposit, the Purchaser’s absence from the country and the lengthy delay involved in obtaining the severance, the Purchaser argues that the second deposit deadline and the Applicants’ termination were unreasonable.
[39] I do not infer bad faith from the Applicants’ delay in the obtaining of the severance. The decision of December 15, 2017 was lengthy and detailed. It was the second stage of a process that began with the Committee of Adjustment, which had refused the severance. In order to trigger the closing date and start the 60-day closing clock running, the Agreements provided that the Applicants had to transfer the lot and obtain a deed to the newly severed parcel. The date on the official register shows that this was not signed until approximately six months after the appeal decision.
[40] The communications from the Applicants inform the reasonableness of the time available for the payment of the second deposit. The Agreements provided that the deposit was payable “after the seller provide city or OMB severance approval to the buyer's lawyer.” The City approval was contained in the decision released on December 15, 2017. The Applicants did not provide this information to the Purchaser’s lawyer. They did not trigger the deposit payment for months. They did not respond to the many requests from the Purchaser for an update.
[41] Given the additional time required to obtain official documentation to transfer the deed, which had to happen before the 60-day closing period, it is logical to conclude that the second deposit was to continue to ensure the Purchaser’s commitment during this next period (which was nine months approximately from City approval to closing date). This is in keeping with the nature of deposits, described above.
[42] However, the Applicants did not trigger the deposit obligation. They waited for more than six months to require the payment of the deposit. The closing date was fixed. Having received an extension request, and the information that the Purchaser was out of the country, the Applicants set a deadline that they could reasonably have expected would be impossible for the Purchaser to meet. In the circumstances I find that this was not reasonable nor was it consistent with the organizing principle of good faith that underlies Canadian contract law.
[43] If the Applicants intended to obtain the second deposit expeditiously following the triggering event in the contract, it would have been reasonable to answer one of the many letters from the Purchaser’s lawyer between December and March with this information. The Applicants did not press for payment.
[44] Having set an unreasonable date for the payment of the second deposit, I find that the Applicants ought not to have terminated the contract.
CONCLUSION
[45] The Application is dismissed. If the parties are unable to agree as to costs, they may provide brief written submissions on or before October 25, 2019.
Leiper J.
Released: October 11, 2019
COURT FILE NO.: CV-1900-618467
DATE: 20191011
ONTARIO
SUPERIOR COURT OF JUSTICE
HONG JU and SONGLIN CAI Applicants
– and –
MONIR TAHMASEBI and GOLDEN LIFE REALTY LTD. Respondents
REASONS FOR decision
LEIPER J.
Released: October 11, 2019
[^1]: It appears from the materials filed that there were without prejudice communications during this period. I did not consider the fact of those communications.