Bilotta v. Booth
NEWMARKET COURT FILE NOS.: CV-17-133890 CV-18-134896
DATE: 2019-10-21
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Carmine Bilotta and Rosina Bilotta Plaintiffs
– and –
Kimberley Booth and Donald Booth Respondents
COUNSEL: Julian Binavince, for the Plaintiffs Christopher Lee, for the Respondents
HEARD: September 12, 2019
REASONS FOR DECISION
LEIBOVICH, J.
[1] The Booths and the Bilottas have filed applications arguing that the other is responsible for breaching their agreement of purchase and sale. Since they are both applicants and respondents, I will simply refer to them by their names. The Bilottas agreed to purchase the Booths’ house for $750,000. It was to close on July 7, 2017. On June 23, 2017, the Booths had a flood in their basement, resulting in over $20 000 in water damage. The Bilottas were told about the damage on July 6, 2017. The Booths tendered on Friday, July 7, 2017 to close, but the Bilottas refused to, asking, among other things, for an inspection of the property. Later that day, the Booths offered to extend the closing. On Monday, July 10th, the Bilottas were still considering the request and asked if they could inspect the house the next day. An hour later the Booths told the Bilottas that their purchase of agreement and sale was over, and they would now relist the house. Subsequent efforts among the parties to revive the deal failed. The house was sold a year later at $100,000 less than what the Bilottas had agreed to originally pay.
[2] The Booths state that the Bilottas were responsible for the breach of the agreement of purchase and sale, and they are owed the shortfall of $100,000 and related expenses of $28,536.64. The Bilottas state that the Booths were responsible for the breach because the Bilottas were not given timely notice of the damage and were not given a meaningful opportunity to inspect the property. The Bilottas seek the return of their $30,000 deposit and seek an action for the other damages they suffered.
[3] For the reasons set out below, I find that the Booths were responsible for the breach of the agreement of purchase and sale. They did not provide the Bilottas with timely notice of the damage, or a meaningful opportunity to inspect the property. The Bilottas are entitled to the return of their deposit. Pursuant to Rule 38.10 (b), I also order a trial on the issue of what additional damages the Bilottas are alleged to have incurred.
The Facts
[4] Except for one point that will be addressed below, the facts are not in dispute. I have set out the timeline of the events. While the parties made numerous attempts after July 10th to revive the deal, it is admitted by all that the original agreement of purchase and sale ended on July 10, 2017. Therefore the subsequent attempts to revive the agreement are not included in the timeline.
[5] The timeline of the events is as follows:
• April 24, 2017 – The Bilottas entered into an agreement of purchase and sale to buy the Booths’ house for $750,000. The deal was to close on July 7, 2017.
• June 23, 2017 – The Booths’ basement was flooded. There was one to two inches of water in the basement. The Booths contacted a contractor who conducted some emergency repairs.
• June 28, 2017 – The Booths’ insurer provided a report describing the repairs needed and the additional costs. The emergency contractor was paid $6,979.72. The Booths were paid $14,745.76 by the insurance company for the remaining repairs. There was a $500 deductible. The Booths advised their lawyer (Not Mr. Lee who was not representing the Booths during the relevant time period) of the damage on June 28, 2017.
• July 6, 2017 at 1:20 p.m. – Counsel for the Booths advised in writing to counsel for the Bilottas (not Mr. Binavince, who was only retained after the deal collapsed) that there was a flood and that the insurer had issued a cheque for $14,745.65, in addition to a $500 deductible. The Bilottas were asked how they wanted to proceed with the repairs. Counsel for the Booths stated in the letter that he had advised counsel for the Bilottas orally about the damage the day before.
• July 6, 2017 at 4:15 p.m. – Counsel for the Bilottas wrote back and advised they wanted to inspect the house with a qualified home inspector. Counsel alleged that a material defect had been covered up and complained about receiving less than 24 hours notice before closing. Counsel for the Bilottas asked for at least a one-week extension to close the deal, and if more time was needed then $500 per day as compensation.
• July 6, 2017 at 5:29 p.m. – Counsel for the Booths claimed that counsel for the Bilottas were verbally told about the water damage on July 4, 2017 at 11:50 a.m. Counsel for the Booths offered to also hold back in trust an additional $10,000, to address any costs not covered by the insurance proceeds. The Bilottas were offered the opportunity to inspect the home on July 7th. Counsel for the Booths asserted that there was no substantial damage and advised that they would attend on July 7th to close. The adjuster’s report was enclosed.
• July 7, 2017 at 12:55 p.m. – Counsel for the Bilottas complained again about the last-minute notice and reiterated their request for inspection of the house with a qualified home inspector and contractor. Counsel for the Bilottas made two offers:
i) They would purchase the property after the repairs were completed. Once completed, the Bilottas would then have a right to inspect the property and if not satisfied renegotiate the purchase price. The closing would have to be extended and the Bilottas compensated for the expenses of the extension; or
ii) The deal could close on the scheduled day of July 7th, with a reduction in price of $50,000.
• July 7, 2017 at 3:05 p.m. – Counsel for the Booths wrote back and offered to hold back $50,000 in trust to ease any concerns that the insurance proceeds would be inadequate to cover the costs of the repairs. Counsel also offered to extend the closing, at no cost to any party, until July 14th to allow the Bilottas time to conduct an inspection. They also agreed to pay the cost of storing the Bilottas’ belongings that would have been stored in the basement. Counsel for the Booths stated that the Booths were prepared to close that day and asked that the Bilottas advise of their position by 4:00 p.m.
• July 7, 2017 at 3:49 p.m. – Counsel for the Bilottas reiterated his position set out in his letter earlier that day.
• July 7, 2017 at 4:52 p.m. – Counsel for the Booths wrote again, saying that they are ready to close that day and offered a two-week extension until July 21st, and were willing to pay the Bilottas $250 a day and their related expenses.
• July 10, 2017 at 2:39 p.m. – Counsel for the Bilottas stated that he forwarded the Booths July 7th proposal to his clients and was awaiting instructions. It is unclear which July 7th offer counsel for the Bilottas was referencing. He asked if they could inspect the house on the morning of July 11, 2017.
• July 10, 2017 at 3:36 p.m. – Counsel for the Booths wrote and stated that because the sale did not close on July 7th, they were seeking a full release from the Bilottas so that the house could be relisted.
[6] The agreement of purchase and sale allows for it to be terminated upon substantial damage. The Insurance Clause reads:
All buildings on the property and all other things being purchased shall be and remain until completion at the risk of the Seller. Pending completion, Seller shall hold all insurance policies, if any, and the proceeds thereof in trust for the parties as their interest may appear and in the event of substantial damage, Buyer may either terminate this agreement and have all monies paid returned without interest or deduction or else take the proceeds of any insurance and complete the purchase.
Analysis
Preliminary issue
[7] There is no dispute that the agreement of purchase and sale ended on July 10, 2017 with the Booths 3:36 p.m. letter to the Bilottas. The question remains, who was responsible for the breach?
[8] The one factual issue in dispute is when did the Booths, through their counsel, tell the Bilottas, through their counsel, about the water damage. It is agreed that the latest the Bilottas were advised is July 6, 2017, as reflected in the July 6, 2017 1:20 p.m. letter by David Struthers, counsel for the Booths, to Bhupinder Somal, counsel for the Bilottas. Mrs. Bilotta swore in her affidavit that she was advised on July 6, 2017 about the water damage.
[9] Counsel for the Booths wishes to rely on hearsay statements to support their assertion that the Bilottas were told earlier, on July 4, 2017. In particular, counsel for the Booths wishes to rely on the assertion contained in the July 6, 2017 5:29 p.m. letter from Mr. Struthers to Mr. Somal that he told Mr. Somal verbally on July 4, 2017 about the water damage. There is no affidavit evidence from Mr. Struthers on this point. There is no issue that Mr. Struthers’s statement on this point is hearsay. The question is whether it is admissible pursuant to Rule 39.01(5) of the Rules of Civil Procedure or through a principled exception to the hearsay rule.
[10] Mr. Lee, for the Booths, relies on Rule 39.01(5) and states that the July 4, 2017 date is the best evidence because it was not disputed by Mr. Somal in any subsequent correspondence. Mr. Binavince states that Rule 39.01(5) only applies to non-contentious facts, and this fact is contentious, and he advised Mr. Lee of this. Furthermore, the statement does not meet the requirements for admission as a principled exception to the hearsay rule.
[11] Rule 39.01(5) makes statements on information and belief admissible with respect to “facts that are not contentious”. The word “contentious” means “likely to cause an argument; disputed, controversial”: Oakley Manufacturing Inc. v. Bowman, [2005] O.J. No. 1641 (Ont. S.C.J.). The Manitoba Court of Appeal in Fawley v. Moslenko, 2017 MBCA 47 at para. 76 interpreted QB r 39.01(5) which has the same wording and the equivalent to rule 39.01(5) in Ontario. The Court stated:
The principles that I take from this jurisprudence lead me to summarize the purpose and scope of QB r 39.01(5) in the following manner:
The purpose of r 39.01(5) is to admit evidence on an application that is otherwise inadmissible under r 4.07(2); it is not a free-standing exclusionary rule to challenge otherwise admissible evidence.
The pre-conditions to admissibility on information and belief under r 39.01(5) are that the source of the information must be specified in the affidavit and that the facts deposed to are not contentious.
A fact is contentious only if the evidence makes it likely to cause an argument, be disputed or raise a controversy. The mere objection of counsel to a fact does not make it contentious. Unless a fact is obviously contentious from the affidavit material filed by the party wishing to rely on the fact, the other side will have to establish the fact is contentious through either cross-examination on the affidavit or filing his or her own affidavit if the particular application permits such practice.
If the affidavit evidence in question does not meet the requirements of r 39.01(5), before disregarding it, the judge must also be satisfied that the evidence is not otherwise admissible, based on the law of evidence, if it was given by a witness in court.
Where the judge is not weighing the evidence in order to decide the merits of the dispute between the parties, the question for the judge to decide is the potential admissibility of the evidence, not its actual admissibility. In such cases, if the evidence is potentially capable of being admitted, it may be received and relied upon even if the facts are contentious.
[12] The principled approach to the admission of hearsay evidence was summarised in R. v. Mapara, 2005 SCC 23 at para. 15:
The principled approach to the admission of hearsay evidence which has emerged in this Court over the past two decades attempts to introduce a measure of flexibility into the hearsay rule to avoid these negative outcomes. Based on the Starr decision, the following framework emerges for considering the admissibility of hearsay evidence:
a. Hearsay evidence is presumptively inadmissible unless it falls under an exception to the hearsay rule. The traditional exceptions to the hearsay rule remain presumptively in place.
b. A hearsay exception can be challenged to determine whether it is supported by indicia of necessity and reliability, required by the principled approach. The exception can be modified as necessary to bring it into compliance.
c. In “rare cases”, evidence falling within an existing exception may be excluded because the indicia of necessity and reliability are lacking in the particular circumstances of the case.
d. If hearsay evidence does not fall under a hearsay exception, it may still be admitted if indicia of reliability and necessity are established on a voir dire.
[13] Rule 39.01(5) is not applicable in this case because the timing of when counsel for the Booths notified counsel for the Bilottas of the water damage is very much a disputed, contentious fact at this application as it was in July 2017 when the deal fell apart. Furthermore, it does not meet the criteria for admission as an exception to the hearsay rule. The proposed hearsay evidence also fails the necessity requirement. No information has been provided to the court regarding why Mr. Struthers has not provided sworn affidavit on this point. He could have easily done so. In addition, the statement in the July 6th letter that Mr. Somal was told on July 4th about the water damage contains no indicia of reliability to overcome its hearsay nature. I do not accept Mr. Lee’s assertion that because Mr. Somal did not object to this assertion one must assume that he agreed with it. I say this for the following reasons:
In the initial July 6th letter, Mr. Struthers said that he had advised Mr. Somal the day before (July 5th) of the water damage; and
While Mr. Somal did not object in writing to the July 4th assertion, he also did not specifically agree that this was correct, and in his July 7th letter, he again complained about the last-minute notice.
[14] Even if I was inclined to consider this hearsay evidence, it is far from the best evidence on the issue. In the space of two letters written hours apart, Mr. Struthers made two different assertions regarding when he verbally told Mr. Somal. In contrast, we have Mr. Bilotta’s clear assertion under oath that he was only told on July 6th, which corresponds to the written notice sent to Mr. Somal on July 6th, which then set off a flurry of letters between the two parties on July 6th and 7th. I have no hesitation finding that counsel for the Bilottas was only notified on the 6th of the water damage.
Who Breached the Purchase of Agreement and Sale?
[15] It is the Booths’ position that the Bilottas breached the agreement of purchase and sale by failing to close on July 7, 2017. The purchase of agreement and sale allowed the Bilottas to walk away from the deal only if there was substantial damage to the house. The water damage to the basement does not qualify as substantial damage. Furthermore, the Booths claim that the Bilottas were not truly concerned with the water damage and were just using it to try and leverage a lower price for the house. The Bilottas now concede that the damage to the basement does not qualify as substantial damage, but it is the Bilottas position that the Booths were required to give them timely notice of the water damage and give them an opportunity to inspect the house. These terms are either implicit in the agreement of purchase itself or part of the requirement to act in good faith in the performance of their contract obligations.
Implied Terms
[16] As stated, the Bilottas submit that the purchase of agreement and sale has, in essence, two implied terms associated with the insurance clause: 1) an implied term to provide the buyers with timely notice if anything happens to the house; and 2) an implied term to provide the buyers with an opportunity to inspect the house so that they can make an informed decision with respect to their options that are set out in the insurance clause. I agree.
[17] Terms may be implied in a contract based on the presumed intention of the parties, “where the implied term is necessary to give “business efficacy” to the contract; or where the implied term otherwise meets the “officious bystander” test - that is, a term that the parties would say, if questioned, “of course” that would be understood to be a term of the contract.”; As stated by the Ontario Court of Appeal in Rankin Construction Inc. v. Ontario, 2014 ONCA 636 at para. 29:
Terms may be implied in a contract based on: (1) custom or usage; (2) legal incidents of a class or type of contract; or (3) the presumed intention of the parties, where the term is necessary "to give business efficacy to a contract or as otherwise meeting the 'officious bystander' test as a term which the parties would say, if questioned, that they had obviously assumed": Canadian Pacific Hotels Ltd. v. Bank of Montreal, 1987 CanLII 55 (SCC), [1987] 1 S.C.R. 711, at p. 775; see also M.J.B. Enterprises, at para. 27; Double N Earthmovers, at para. 30; Martel, at para. 81. Any implied terms must fit and be the necessary implication of the express terms; if there is any evidence against the proposed term, it cannot be implied: M.J.B. Enterprises, at para. 29.
Also see, Packall Packaging Inc v Ciszewski, [2016] OJ No 31 at para. 13 and Fairview Donut Inc. v. The TDL Group Corp., 2012 ONSC 1252, [2012] O.J. No. 834 at para. 448-459.
[18] The insurance clause requires the seller to: 1) hold all insurance policies, if any, and the proceeds thereof in trust for the parties as their interest may appear; and 2) in the event of substantial damage, the Buyer may either terminate the agreement and have all monies paid returned without interest or deduction or take the proceeds of the insurance and complete the purchase.
[19] From the time the agreement of purchase and sale was signed to the July 7th closing date, the Bilottas were completely dependent on the Booths, who still maintained possession of the property, to advise them if anything happened to the house. Furthermore, the Bilottas could not determine if they wanted to claim that there was substantial damage if they have not been notified of the incident or been given an opportunity to have the property assessed by their own inspector. It is not sufficient to do what counsel for the Booths (not Mr. Lee) did in this case, which was to notify the buyers the day before closing and only allow them the day of closing to have the property inspected. I appreciate that current counsel for the Bilottas now agrees that the house did not suffer substantial damage that would provide the Bilottas with the right to terminate the deal. But that does not mean that the Bilottas did not have the right to timely notice and inspection so they could make an informed determination and to ascertain if the flooding was not a recurring problem. Applying the 'officious bystander' test an implied term of timely notice and inspections are “term(s) which the parties would say, if questioned, that they had obviously assumed". In fact, Ms. Booth was questioned in this regard and she agreed that she assumed that the buyers should be told and given an opportunity to inspect:
Q: Okay. So why did you tell your lawyer about the damage?
A: Because I felt he should know
Q: For what reason?
A. Because we are selling the house and we wanted it to close.
Q: And you know that the damage would be a concern to the vendor?
A: Absolutely.
Q: To the purchaser, pardon me?
A: Yes
Q. And if the tables were turned, you would want to know, correct?
A. Correct.
Q. Did you understand before you told your lawyer that you had an obligation to tell the purchaser about the damage?
A. I would just assume that I did.
Q. Right. Because you would have expected the exact same thing?
A. Right.
Q. You would have expected that if you were a purchaser, you understood that the vendor would have an obligation?
A. M’hmm.
Q. To you it was clear?
A. M’hmm.
Q. Correct?
A. Right.
Q, Isn’t it reasonable that he might need more than a day to organize an inspection?
A. That we could have, yeah.
Q. Well –
A. Yes.
Q. – it’s not unreasonable that he asked for more than a day, correct?
A. Correct.
Q. So if he found out on the sixth, the Struthers law office said on the seventh, said you can inspect on the day of closing; do you recall that?
A. M’hmm.
Q. Yes?
A. Yes.
Q. But it would be reasonable perhaps to give them the seventh and the eighth, a few days, correct?
A. Yes.
Q. And extend closing, correct?
A. Yes.
Q. So I’m going to suggest to you, ma’am, that, in fact, you had an obligation to tell the Bilottas about the damage; would you agree with that?
A. Yes.
Q. And you had an obligation to tell them in a timely manner; would you agree with that?
A. Yes.
[20] The buyers were entitled to timely notice and a meaningful opportunity to inspect the property, but not an endless period of time to inspect. The Booths were prepared to allow the Bilottas to inspect on the 7th before the closing. That in my view was not sufficient time, and not a meaningful opportunity. However, the Booths, on the day of closing, Friday July 7th, offered first to extend the closing for another week to give the Bilottas an opportunity to inspect. The offer was not accepted on July 7th by the Bilottas. Later that same day the Booths offered the Bilottas a two-week extension. July 7th was a Friday. The last offer by the Booths was at 4:52 pm. After the weekend, on the Monday counsel for the Bilottas informed counsel for the Booths that the Bilottas were considering the proposal and wanted to inspect the house the next day on the 11th. It is unclear if the reference was to the one week or the two-week extension proposal. Approximately an hour later, counsel for the Booths wrote back and advised that because the sale did not close on July 7th, their purchase of agreement and sale was at an end. The results of this application would be different if the Booths did not withdraw their offer and the closing was extended a week with the Bilottas given the opportunity to inspect the property on the 11th.
[21] In my view, it was not the Bilottas’ failure to close on July 7th that breached the agreement, it was the Booths’ failure to satisfy the implied terms of the agreement to provide timely notice and a meaningful opportunity to inspect that breached the agreement.
[22] Furthermore, the Booths had a duty to act in good faith. In Bhasin v. Hrynew, 2014 SCC 71, the Supreme Court of Canada recognized that there is an organizing principle governing contractual performance that requires parties to perform their contractual duties honestly and reasonably and not capriciously or arbitrarily. Essentially, this duty requires that a party not seek to undermine the legitimate contractual interests of the other party in bad faith. Cromwell J. explained the general duty of honesty in contractual performance in at para. 73:
I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one's contractual performance.
[23] The Booths did not lie to the Bilottas. However, counsel for the Booths waited until the last moment to tell counsel for the Bilottas about the water damage and only allowed the Bilottas to inspect the house within 24 hours of being notified of the water damage. The Booths undermined the Bilottas’ legitimate contract interests and did so in bad faith. Again, there is no information before me regarding why counsel for the Booths waited so long to tell counsel for the Bilottas about the damage when he himself was told over a week earlier. It was hardly surprising that this late disclosure resulted in immediate allegations of wrong doing and suspicion by counsel for the Bilottas. It is this type of bad faith behaviour that Bhasin v. Hrynew sought to end.
[24] Mr. Lee submits that the Bilottas were not actually interested in an inspection rather the complaint about the water damage was just another attempt by the Bilottas to obtain a reduction in price. The real estate agent for Bilottas, after the agreement of purchase and sale was signed and before the closing, did seek a reduction in price to reflect the current market value. The Booths rejected that request. In addition, in one of their July 7, 2017 letters that was written after being notified of the water damage counsel for the Bilotats agreed to close, without inspection, if the price was reduced by $50 000. The Bilottas may very well have wanted a reduction in price but that did not relieve the Booths of the requirement to provide them with timely notice of the damage and provide them with an opportunity to inspect the property.
[25] Mr. Lee also relies on the fact that Mr. Bilotta, according to his examination, did not read through the appraiser’s report as an indication that he was not interested in the damages. I am not sure that Mr. Bilotta’s failure to read the report is indicative of anything given that he was awaiting for his own inspector to evaluate the house and was, understandably given the late disclosure, not going to rely on what the Booths sent him.
Conclusion
[26] As a result, I find that the Booths breached the purchase of agreement and sale and their $30,000 deposit should be returned to them with any accrued interest.
[27] Pursuant to Rule 38.10 (b), I also order a trial on the issue of what additional damages the Bilottas are alleged to have incurred and it will be up to the Bilottas if they want to pursue that action. I have been provided with no evidence in this application, apart from the hardship of having to live with their son in law, that the Bilottas suffered any other damage monetary or otherwise.
[28] In the event that the parties cannot agree upon the costs, I ask that the parties exchange and file written submissions, limited to two pages. The submissions shall be filed in accordance with the following schedule:
a. The Bilottas shall file their submissions and bill of costs within five business days of the release of these Reasons; and
b. The Booths shall file their submissions within five business days thereafter.
The Honourable Justice H. Leibovich
Released: October 21, 2019
NEWMARKET COURT FILE NOS.: CV-17-133890 CV-18-134896
DATE: 2019-10-21
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Carmine Bilotta and Rosina Bilotta Plaintiffs
– and –
Kimberley Booth and Donald Booth Respondents
REASONS FOR DECISION
The Honourable Justice H. Leibovich
Released: October 21, 2019