Court File and Parties
COURT FILE NO.: CV-18-00609705 DATE: 2019-05-24 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
GEORGE LESLIE SCOTT AND HARRIET BRAV-BAUM Applicants
– and –
SHOREH FORJANI a.k.a. SHOREN KONSTANTIN and CENTURY 21 HERITAGE GROUP LTD Respondents
Counsel: Greg Weedon, for the Applicants Mario Kalemi, for the Respondent Shoreh Forjani a.k.a. Shoren Konstantin
HEARD: April 30, 2019
Reasons for Decision
LEIPER J.
INTRODUCTION
[1] This is an application for relief for an alleged breach of an agreement of purchase and sale of a house on Burnett Avenue (the “Burnett property”) in Toronto.
[2] The applicants, the vendors of the property (the “vendors”), ask the court to find that the respondent purchaser, Ms. Forjani, a.k.a. Ms. Konstantin (the “purchaser”), breached the agreement of purchase and sale by failing to close the sale transaction of the Burnett property. The vendors allege that Ms. Forjani acted in bad faith and that she is not entitled to relief from forfeiture of her deposit. The vendors seek an order from the court requiring the respondent, Century 21, to release the deposit of $72,500.00 to them.
[3] The purchaser, Ms. Forjani, argues that the condition of the property changed substantially between the date the agreement was signed and the planned closing date. She says that at all times, she was ready, willing and able to close the sale, but did not close because the vendors failed to deliver the property in substantially the same condition as when the agreement was signed. She alleged that the vendors’ failure to maintain the property rendered it “uninsurable, unsafe, uninhabitable and/or unable to be financed in its state.” She alleges this was a frustration of the contract in law.
[4] The holder of the deposit, Century 21, takes no position on the matter.
[5] For the reasons given below, I conclude that the purchaser breached the agreement, that there was no frustration of the contract by the vendors and that they are entitled to receive the deposit held by Century 21. I find that the purchaser failed to act in good faith, as this term is applied in the law of contract. I decline to decide the question of whether there had been any anticipatory breach of contract prior to June 28, 2018 by the purchaser. Finally, in all of the circumstances, I conclude that the purchaser has not established that there should be relief from forfeiture in this case.
The Preliminary Issue: The Late Service of the Applicant’s Supplementary Application Record and Factum
[6] Prior to argument on the application, the respondent purchaser requested an adjournment based on the late service of the applicant vendors’ supplementary record and factum. The supplementary record contained a 5-page affidavit with two exhibits, one being from the North York registry book related to the age of the property, the second was a document of confirmation from Century 21 related to the time and date of the agreement at issue and the purchaser’s appointment made by the purchaser to view the property the day after she had signed the agreement. The supplementary factum was 12 pages in length and provided responses to the contents of the respondent purchaser’s materials.
[7] The supplementary application record was delivered to the respondent purchaser’s counsel by email six days prior to the application and was served on the following day. The respondent purchaser’s counsel submitted that he had not had time to consider whether to file responding information and that certain conclusions in the supplementary affidavit would be disputed, such as the descriptive word “plummeted” used in relation to the real estate market during the period of time in question.
[8] The respondent purchaser and her counsel reviewed the additional material on a recess provided for that reason and made additional submissions on any prejudice to proceeding with the supplementary record included in the application record.
[9] After hearing these submissions, I took into account the date of delivery and service of the new material, its supplemental features, its size, the desire of both parties to proceed and the need to have a greater context to assess any prejudice related to the additional material. I decided that the application should proceed without prejudice to the ability of the respondent purchaser to seek additional time to either make additional submissions or file additional evidence in reply.
[10] The argument was completed on April 30, and the parties were provided with two weeks to supplement their oral arguments with written submissions and/or case law related to the issues of “substantial” damage and its relation to the frustration of a contract. On May 15, 2018, the parties provided additional case law on this question which was considered and forms part of the discussion below. The respondent purchaser did not seek to file any additional material related to the responding material that was not served in accordance with the Rules. In all of the circumstances, I confirm the decision to allow that material to form part of the record. In the final analysis, the new material did not form a significant part of these reasons for decision.
BACKGROUND FACTS
The Property and the Listing
[11] On May 15, 2017, the vendors listed the Burnett property that is the subject of this application. Their son, Martin Scott (“Mr. Scott”), acted as their real estate agent on the listing.
[12] The Burnett property was described in the listing as follows:
Raised 3 Bdrm Bungalow in Prime West Lansing. Steps to Yonge and Sheppard Subway; Shopping, Parks and Schools, Quiet community Adjacent to Burnett Park, Great for move-In, renovations or new Build.
Extras: Fridge, Gas Stove, Dishwasher, Main Floor Washer and Dryer, French doors, Hot water tank (Rental)
[13] The main floor included room descriptions and dimensions of the living room, dining room, kitchen, master bedroom and two other bedrooms. The “lower level” was described as “Rec” with dimensions of 27’ by 14’. The house had a garage attached to it. The Burnett property was vacant at the time of listing.
[14] The vendors’ evidence was that the garage had been cleaned out prior to listing and that there was evidence of water seepage and discoloration in the garage which is common in houses of this age with uninsulated garages. The state of the garage is important because on the day prior to the intended closing, the purchaser took photographs of the garage and house to substantiate her conclusion that this was significant structural damage. The purchaser asserts that the water seepage and discoloration happened between the time of listing and closing and that by allowing this to happen, the vendors frustrated the agreement. This evidence is discussed in greater detail as part of the analysis of the arguments.
[15] The asking price for the Burnett property was $1,372,000.
[16] There were no photographs, inspection reports or other objective documentation of the state of the Burnett property as at the date of listing. A standard clause in the agreement noted that “All buildings on the property and all other things being purchased shall be and remain until completion at the risk of Seller…”
The Agreement of Purchase and Sale
[17] On May 15, 2017, the parties signed an agreement of purchase and sale (the “agreement”). The purchaser agreed to purchase the Burnett property for a price of $1,450,000. The purchaser is a real estate agent and mortgage broker. She also acted as the realtor on the sale of this transaction and was entitled to a commission on the sale.
[18] According to Century 21 records filed by the vendors, the purchaser saw the Burnett property on May 16, 2017, the day after she signed the agreement. The purchaser says she viewed the property on May 15, 2017, the date of closing. Given the findings below, not much turns on this discrepancy.
[19] The Burnett property was vacant at the time of the purchaser’s visit, although there were some paintings in the basement that were the subject of e-mail discussion between the purchaser and Mr. Scott.
[20] The agreement signed by the parties was not conditional on inspection, financing or other conditions precedent. At the time it was signed, the purchaser told Mr. Scott that she intended to “perform a substantial renovation” and either resell or occupy the Burnett property. The agreement specifically noted that:
The Buyer acknowledges having the opportunity to include a requirement for a property inspection report in this Agreement and agrees that except as may be specifically provided for in this Agreement, the Buyer will not be obtaining a property inspection or property inspection report regarding the Property.
[21] In the purchaser’s affidavit, she agreed that she told Mr. Scott she intended to finish the basement and add a second floor to remodel the entire property. An amendment to the agreement reflected this intention:
The Seller agrees to allow the Buyer to apply for government authorities for required consents, approvals or permits to allow the buyer to sever the land, complete substantial renovation and/or rebuild the premises.
[22] A schedule to the agreement permitted up to 3 access visits by the purchaser “for the purpose of measuring and getting quotations.”
[23] The vendors’ real estate agent and the purchaser were registrants under the Real Estate Brokers Act, 2002, S.O. 2002, c. 30, Sched. C. Each signed a disclosure document required by their Code of Ethics, O. Reg. 580/05 to the effect that each would disclose all facts within their knowledge that “affect or will affect the value of the property.” Neither agent provided any information on their respective forms about facts that would affect the value of the Burnett property.
[24] The parties agreed to a closing date of June 29, 2018. The purchaser paid a deposit of $72,500.00 to the respondent, Century 21.
The Change in the Real Estate Market Conditions
[25] The parties agreed that during the period between the signing of the agreement and closing, the Toronto real estate market “softened” – demand slowed and prices declined.
The Purchaser’s Extension Requests
[26] In the four months before the intended closing date, there were multiple pieces of correspondence, initiated by the purchaser, concerning problems she was having obtaining the necessary financing for the transaction. On February 25, 2018, the purchaser sent an email to Mr. Scott to explain there was a “big chance” that funds would not be available to her on closing. She advised Mr. Scott that at the peak of the market, in April of 2017, she purchased 3 properties and she needed to close one of those using a private lender at a 10% interest rate.
[27] The purchaser also told Mr. Scott that she had purchased a second property on August 3, 2017 for which she had not received as large a mortgage commitment as she had hoped, meaning that she would have to make a larger down payment than she had originally planned. The purchaser told Mr. Scott that the second property had been purchased for $1.408 million, but by the time of closing, it was worth “around $1.1 million.” The purchaser said she was awaiting building permits for this property. She planned to sell it to obtain equity for the down payment and closing costs for the Burnett property.
[28] The purchaser asked Mr. Scott to consider an extension of the closing date for one year. She also suggested that the property could be put up for sale, without interior showings, and if a willing buyer could be found that would pay more than she had agreed to pay, she would assign her right to purchase to that buyer and the vendors would receive $500 for each month of extension.
[29] On March 15, 2018, counsel for the vendors advised the purchaser that they were not able to extend the closing date. The vendors said through their counsel that if the purchaser wanted to be released from the transaction for the amount of the deposit, that might be possible.
[30] After additional exchanges of correspondence on March 15, 19 and 26, counsel for the vendors sent a letter to the purchaser on March 27, 2018 reviewing the proposal for an extension and “respectfully” declining the offer. Counsel offered a short extension “in good faith” and responded to other assertions made by the purchaser. These assertions had suggested that the vendors’ counsel was not being diligent and was not working on the file.
[31] In the March 27, 2018 response to the purchaser, counsel for the vendors confirmed the earlier information from the purchaser that she was having difficulty funding the upcoming transaction because of the downturn in the real estate market and her leveraged positions with other properties. Counsel opined that this was an anticipatory breach of the agreement and implored the purchaser to seek legal advice. The letter closed as follows:
Should you have knowledge that you are not (or will not be) in a position to close, for lack of funding or otherwise, and continue to represent that you will close this transaction in lieu thereof, you will be acting in bad-faith and coming to the table with unclean hands. Acting to the contrary will prevent my clients from actively working to mitigate their damages.
[32] The purchaser responded to counsel for the vendors, and said, among other things, that she needed more than 2-4 weeks to make arrangements to close the transaction.
[33] On June 11, 2018, counsel for the vendors sent a follow-up letter to the purchaser asking about her intentions and seeking contact information for her lawyer. A second letter was sent on June 13, imploring the purchaser to provide contact information for her lawyer and raising concerns over an active tenancy interest in the Burnett property and which meant a risk for potential damages.
[34] On June 13, the purchaser wrote that she was willing to close the deal but was not yet able to get a mortgage or down payment. Her letter said:
As a result, I will require your clients to provide me with 100% financing with 3.5% of interest only payment payable on the first day of the month through postdated cheques for a period of one year subject to possibility of discharge at any time without penalty with at least 30 days prior notice to vendors/lender.
Option number two is to grant a one year closing extension subject to advancement of the closing date by Buyer with at least two months prior notice.
[35] On June 15, the purchaser provided contact information for her lawyer.
[36] On June 18, the purchaser provided a mortgage commitment letter from her existing lender and requested again an extension from June to October 2018 to “come up with the down payment money and closing costs to close the above deal.” The funding commitment was contingent on the purchaser obtaining funds for closing costs and a down payment and on having a firm agreement for the sale of another of her properties. The purchaser had crossed out a term in the mortgage commitment which gave the chargee the right to cancel funding if the property was not occupied by the borrower as her principal residence.
[37] In a further email dated June 18, 2018, the purchaser described the details of her plans to resolve her funding issues and requested that the vendors’ counsel communicate with her directly because her lawyer had only just started working with her that day.
[38] The vendors’ counsel wrote back to advise he was constrained by Law Society regulations on contacting clients directly and he suggested that the purchaser bring her lawyer “up to speed” on the matter. Counsel advised that his clients could not extend the closing date, and gave reasons for this position, including the fact that the mortgage commitment letter was short by $400,000 and it was contingent on the sale of another property with an unknown sale price and closing date. Counsel advised that if a further commitment for all funds required to close was provided, a term for an extension could be considered. Counsel for the vendors confirmed that his clients were willing and able to close the transaction.
The Access Visit by the Purchaser, the Closing Correspondence and the Allegations of Substantial Damage
[39] On June 25, 2018, an access visit was arranged at the request of the purchaser to take place for one hour on June 28 at 10:00 a.m. and a further visit on June 29 at 3:00 p.m.
[40] On June 27, 2018, counsel for the vendors provided counsel for the purchaser with the necessary closing documents, directions, void cheques and keys to the property, all to be held in escrow pending completion of the transaction.
[41] On June 28, 2019 counsel for the vendors wrote to counsel for the purchaser confirming their telephone conversation of 4:00 p.m. as follows:
Your client attended the Property today for an access visit in accordance to Schedule A of the Agreement of Purchase and Sale (“Agreement”);
Your client alleges that there are structural issues relating to the interior garage wall;
Your client alleges that there may be a water seepage issue in the garage;
Your client has informed you that she will likely have problems obtaining financing and insurance.
Counsel for the vendors pointed out that the agreement had been signed nearly one year ago and there were no conditions as to home inspection or warranties. Counsel also stated that the purchaser entered into the agreement prior to conducting a walkthrough, and finally that his clients remained “ready, willing and able” to close the transaction.
[42] On June 29, 2018, counsel for the purchaser delivered a letter via facsimile to counsel for the vendors which read:
Please note that upon our client’s revisit to the property she discovered that the property has substantial structural damage that was not existing when she entered into the Agreement of Purchase and Sale. Your client has a duty to preserve the property in substantially the same condition subject to any reasonable wear and tear. The damages to the property are substantive and structural in nature. This is not what was bargained for and not acceptable to our client.
Furthermore upon notifying the home insurance company pursuant to her obligation to disclose all material facts, the home insurance company cancelled her policy and refused to insure the property. Similarly, upon advising the lender of the same issues, the lender cancelled their commitment and is refusing to lend pursuant to the substantial damage that grossly affects the value of the property.
But for the extensive damage to the property, our client would have been in a position to close the property and tender the funds required to do so. Your clients’ negligence to maintain the property has resulted in extensive damages and a property that is uninsurable and unable to be financed at the current state.
Pursuant to the above, your client is in default of the Purchase and Sale Agreement failing to provide a property as agreed upon. The substantive damage on the property prevent it from being financed and insured at effectively renders the purchase as land value only, which is not what was bargained upon.
[43] On July 5, 2018, counsel for the vendors delivered a response to counsel for the purchaser in which he disputed the basis for the failure to close and put counsel on notice that the purchaser had breached the agreement. Counsel for the vendors noted that the letter concerning the (disputed) allegations of substantial damage was delivered at 3:45 p.m. on the date of closing. Counsel noted that there was no engineer, home inspector or other professional engaged to determine any damage to the home. Counsel pointed out that the purchaser had waived any right to a home inspection, and was an experienced realtor and broker who understood the ramifications of purchasing a property and waiving an inspection. Counsel (erroneously) stated that the purchaser had not looked at the property prior to the June 28 access visit. Counsel noted that if there had been an intention to close the transaction, there would have been other access visits prior to closing.
[44] Counsel for the vendors further advised that his clients would re-list the Burnett property to take efforts to mitigate damages and would be seeking forfeiture of the deposit. On November 5, 2018, the property was the subject of another agreement of purchase and sale to a new purchaser, at a purchase price of $1,120,000 – $252,000 less than the original agreement with the respondent purchaser. This transaction was to close on November 30, 2018.
The Photographs Filed by the Purchaser at the Application
[45] A series of black and white photographs were provided, supplemented by colour photographs during argument. The photographs can be grouped as follows:
a. Garage Photos: part of a wall and floor of a garage in which there is evidence of moisture and discoloration, with some peeling of the surface material, which appear to be cement or concrete blocks. The photographs did not include other portions of the garage, or full exterior photos;
b. Rear and Side Yard Photos: these photos show an untended rear yard with some tall weeds, along with some weeds at the side of the house. These photos did not appear to be connected to the alleged structural damage;
c. The Amphibian Photo: One photograph included an amphibian (either a toad or a frog) among some leaves outside the house/garage dislodged by the purchaser when she moved a recycling bin;
d. Basement: there were some close-up photographs of the basement area revealing cobwebs, gaps in the baseboards and some moisture stains on the walls and in the baseboard area. These photographs did not show the entire basement area or the extent of water damage.
There were no photos provided of the exterior walls, and none of the main floor living space. The purchaser alleged that the “water and structural damage” did not exist when she entered into the agreement, but her affidavit did not detail any specific observations of the living space that would permit a conclusion to be made that the living area was not habitable as a result of what she had observed in the garage or in the basement. There were no reports, measurements or descriptions of the undamaged areas to enable any comparison to be made about the overall condition of the premises. Further, there were no photographs or other materials filed (other than the small listing photograph and description in the listing) about the condition of the house or the garage at the time of the agreement made on May 15, 2017.
The Waterproofing Quote of June 29, 2018
[46] On June 29, 2018, the purchaser hired a technician to provide a quote for waterproofing and other repairs. A copy of that quote, which had a number of components and totaled $19,400 plus HST, involved the work quoted below and described as:
e. Install a 1/3 Liberty sump pump. Rebate: $2150.
f. Add cost for drain replacement inside approx. $6000-1250 – rebate for back water valve.
g. Install an area drain outside garage approx. 7 ft height and connect to the existing one. Approx. 2500 + HST.
h. Replace main sewer pipe outside from old clay pipe to the (illegible) 4” PVC plastic pipe. Approx $6500 + HST.
The quotation included a drawing of the 147 foot perimeter of the house, and described the cost to prepare and fill any cracks in the foundation; repairs of concrete floor (without describing where), clean up if debris and finishing with soil.
[47] Counsel for the vendors submitted that the costs of replacing the sewer pipe, the sump pump and main drain replacement and drain installation outside the garage were costs unrelated to the condition of the garage wall and/or any alleged “structure/substantial damages.” The vendors allege that additional costs for complete waterproofing and drainage of the property were included to inflate alleged damages to support what they say was a bad faith effort by the purchaser to shift the blame for the failed transaction on them.
[48] The vendors submitted that the fact the quote was to seal cracks meant that there were no structural issues. They also point to the fact that the waterproofing technician was not retained until the day after the purchaser informed her lender and insurance company that there was damage.
[49] Neither party proffered expert evidence about the qualifications of the technician, the basis for the quotation, any testing done to substantiate the need for the work, or the relationship between the various components of the quote and/or the photographs and/or the position of the purchaser that there was “substantial structural damage” that rendered the Burnett house uninsurable, unsafe, uninhabitable and/or unable to be financed at June 28, 2018.
ANALYSIS
Issue No. 1: Was there an Anticipatory Breach of Contract by the Purchaser?
[50] An anticipatory breach of contract or “renunciation” takes place where a party’s conduct would lead a reasonable person to the conclusion that the party will not perform or not be able to perform the contract when the time for performance arises.[^1] This allows the party who is ready to close a transaction to withdraw if it is clear the other party cannot or will not carry out its side of the transaction.
[51] The vendors seek a finding that the correspondence from the purchaser amounted to an anticipatory breach of the agreement. The purchaser argues that there was no anticipatory breach in advance of closing. She argues that the correspondence relied on by the vendors in that regard was not clear and that she was ready and able to close the transaction.
[52] The vendors tendered the documents required for closing on June 27, 2018. The purchaser went to the property on June 28, 2018 and through counsel, refused to close based on the alleged frustration of the contract by reason of the condition of the property, her communication to her insurer and mortgage lender and the cancellation of the loan commitment. The story of this transaction does not involve the vendors declining to tender due to the anticipatory breach by the purchaser. A determination needs to be made that takes into account what took place after counsel suggested that there was an anticipatory breach of the agreement.
[53] The issue of what should happen to the deposit is more appropriately framed in relation to two related questions: was there a breach of the agreement by the purchaser or was there a frustration of the contract because of the condition of the house? These questions are discussed next.
Issue No. 2: Was there a Breach of the Agreement of Purchase and Sale by the Purchaser or was the Agreement Frustrated by the Condition of the House?
[54] The first sign of a potential issue in closing this agreement was when the purchaser notified the vendors that she was having financing issues leading to her request for an extension of the closing date. The correspondence began in February of 2018 and continued into June. During this period, the purchaser was having difficulty obtaining a mortgage commitment and she had other properties that needed to be sold or leveraged to assist with completing the sale. In response, the vendors made some counter offers which were for shorter extensions and did not meet the purchaser’s needs.
[55] If the purchaser had declined to close because of the funding issues she was experiencing, without any condition in the agreement on obtaining funding, this would not have been a valid reason for the purchaser to withdraw from the contract, and the deposit would have been forfeited.[^2]
[56] Here, the purchaser asserts she was, in fact, willing and able to close, but it was the condition of the property that frustrated the contract. Her disclosure to her lender and the insurer on the eve of closing led those entities to withdraw the necessary funding.
[57] The case law around repudiation and frustration of contract establishes the following general propositions:
Where the purchaser defaults or repudiates the contract, the vendor may retain the deposit as liquidated damages;[^3]
Repudiation must be clear, absolute and certain.[^4]
Frustration of a contract may lead to the parties being relieved of their obligations under a contract where there is a supervening event, either legally or factually, without the fault of either party, which changes the nature of the contract such that the parties are unable to carry it out as originally agreed. In such cases, a party may be excused from performing its obligations under the contract.[^5]
Parties have a duty to act in good faith during their dealings and in the case of damage discovered prior to completing the transaction, this may mean requests for a reasonable extension to assess the damage, remediate the damage or make other concessions, including on price.[^6]
In real estate transactions, substantial damage to property which takes place between the offer and the closing may be grounds to terminate an agreement.[^7]
[58] The frustration cases often involve external events: changes in the law, changes in an event that is required for the contract to be meaningful, or destruction by fire of a property. Here, the question is whether the property was so damaged or uninhabitable that it amounted to frustration of the contract.
[59] I am unable to make such a finding. First, there is a dearth of evidence as to the condition of the house at the time the agreement was signed. The purchase contemplated that it would be substantially renovated and this is in keeping with how it was marketed to the public. The mortgage commitment signed by the purchaser protected her from loss of funding if she did not make it her primary residence. She advised Mr. Scott that she intended to renovate. This is also consistent with her decision not to require a home inspection prior to finalizing the agreement. The only evidence that the damage in the photographs was not there a year earlier was from the purchaser and is a conclusory statement, unsupported by contemporaneous notes, photographs or other evidence from the time of the first visit.
[60] Second, the evidence from the photographs is largely confined to water in the garage and evidence of peeling and discolouration on the garage walls. There is no evidence about the impact of this on the safety or habitability of the house. The living areas in the Burnett property were on the main floor yet there was no evidence about the state of the main floor. The basement photographs have some evidence of moisture but in the absence of other evidence from a home inspector, engineer or similar professional, I am unable to conclude from viewing the photographs inside the house that they established structural damage that made the house unsafe or uninhabitable.
[61] The photographs of the weeds and the amphibian are not material to the question of substantial damage. The purchaser argues that the failure to maintain the grass and yard speaks to the care for the house. At their highest, these photographs show that the grass and yard had not been tended to for an indeterminate period of time prior to taking the photographs.
[62] As for the waterproofing quotation obtained on June 29, 2018, there is no context to describe what the assessment of the property and, as pointed out in argument, portions of the quotation do not relate to the garage or to the house. If one assumes that the list of waterproofing work quoted was necessary to prevent damage or water leakage into the house, the cost of the repairs amounted to a fraction of the selling price. The addition of this evidence does not establish there was substantial damage, or that the house was uninhabitable.
[63] One of the most significant pieces of evidence that is missing from the record is what the purchaser told her insurer and mortgage broker. There was no evidence that there were efforts to reappraise, substitute another insurer or have the insurer view the property to establish whether, in fact, the commitments in place could be completed. Did the insurer take the purchaser’s word for it? Were the photographs relied upon as the sole source of evidence by the insurer and the lender?
[64] I conclude that the evidence falls short of establishing that there was substantial damage to the property that would excuse the purchaser from carrying out the agreement of purchase and sale. If there had been evidence of bona fide efforts to complete the transaction and negotiations around remediation of the water damage, leading to a lending commitment and insurance, the transaction might have been capable of closing. Instead, the purchaser took photographs, did not share them with the vendors and unilaterally advised her lender and insurer of something that caused them to cancel their commitments. The purchaser had previously said that the extensions were sought to avoid the costs of a private lender. The mortgage commitment was for a higher rate than that what the purchaser had requested from the vendors via a vendor take back mortgage.
[65] It is an available inference that after the purchaser failed to get the extension, or improved lending terms, the purchaser went to the Burnett property looking for another reason to cancel the transaction. I draw that inference from the evidence as a whole and after a review of the correspondence and the purchaser’s actions just prior to the planned closing. This leads to a consideration of the next issue, that is, whether the purchaser should be relieved from forfeiting her deposit. I conclude that there was no frustration of the contract, but instead, a breach of the agreement by the purchaser.
Issue No. 3: Should the Purchaser Receive Relief from Forfeiture? Was there Bad Faith?
[66] The purchaser seeks relief from forfeiture on the basis that she acted in good faith and entered into a second mortgage (filed at the hearing but not shared with the purchaser back in June of 2018) that cost her interest and fees. In addition, the purchaser, as the real estate agent, lost her possible commission on the transaction. She requests that discretion be applied and that, in all of the circumstances, her deposit be returned to her.
[67] The vendors, for their part, lost the sale and ultimately received a lower amount on the second sale of the Burnett property. They also had costs in the form of legal fees related to the attempts to close the transaction. They argue that the purchaser failed to act in good faith by raising objections in an attempt to be relieved of her obligations to close the transaction. Had she acted in good faith, the vendors allege that the purchaser would have discussed a short extension to measure and determine what should be done about the alleged water damage to the property. Instead, she arbitrarily took steps to make it impossible for her to close and then accused the vendors of behaving negligently.
[68] Section 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43 provides that “A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.” The principles to be considered in determining whether to grant relief in this context are whether the deposit is disproportionate to the overall transaction and whether or not forfeiture of the deposit would be unconscionable. This is sometimes referred to as the test in Stockloser v. Johnson, [1954] 1 Q.B. 476, [1954] 1 All E.R. 630 (C.A.) and has been adopted by the Court of Appeal for Ontario.[^8] I have applied the test to the facts here as follows.
a. Is the Deposit Disproportionate?
[69] Here, the deposit was $72,500.00 on a total sale of $1.4 million. The deposit was approximately 5 % of the total purchase price. The closing period was for just over 12 months and took the house off the market for that period of time. There was no evidence that the deposit was unusual or out of the ordinary.
[70] As noted in Redstone, deposits are common for residential real estate transactions. They exist to motivate parties to a contract to keep their bargain to one another. The law does not require proof of damages suffered if one party repudiates the contract.
[71] In Redstone, a 7% deposit was forfeited where there was no evidence that it was a commercially unreasonable amount. The court noted there were elements of risk around the fluctuating market at the time, but concluded that a total deposit of more than 7% was “not in the unfair range.”[^9]
[72] There was no evidence tendered that suggest that a 5% deposit on a Toronto residential real estate transaction is disproportionate.
b. Is Forfeiture Unconscionable?
[73] A finding of unconscionability is exceptional. It may arise where there was inequality of bargaining power. That is not the case with this transaction. Here, there were two knowledgeable industry registrants acting on either side of the transaction. There was no suggestion that the agreement was entered into due to duress or vulnerability. To the contrary, the correspondence demonstrates the purchaser’s knowledge and involvement with multiple real estate transactions, commercial lenders, municipal permits and insurance. The purchaser advised Mr. Scott on February 25, 2018 that she had purchased 3 properties in June of 2017 at the peak of the market.
[74] In addition, the tone of some of the purchaser’s correspondence to the vendors was assertive and knowledgeable. For example, after counsel’s letter to her on March 27, 2018, the purchaser described herself as a “realtor and known to be a deal maker.” In other correspondence, the purchaser described the market pressures she was facing clearly and consistently with the terms of the loan commitments she obtained.
[75] There was no evidence of any inequality of bargaining power that would make forfeiture of the purchaser’s deposit unconscionable.
[76] Other indicia that may relate to unconscionability, depending on the overall context, include an unfair bargain, the relative sophistication of the parties, whether there were bona fide negotiations, the gravity of the breach and the conduct of the parties.
[77] The only indicia which requires further consideration was raised by the vendors who argued that the purchaser did not act in good faith in her dealings with them. I agree with this argument. The purchaser’s actions were not consistent with someone who was attempting to meet their obligations in good faith. The purchaser acknowledges that the funding arrangements were unfavourable. She tried to negotiate extensions, a vendor take back mortgage at a lower rate and, when this was not accepted, on the eve of closing she went to the property and without raising her concerns directly with the vendors, she took unilateral steps that were not disclosed to the vendors and left her without funding to close. I infer from her actions that she wanted to be relieved from the transaction and used her objections to the state of the garage, the yard and the basement as the rationale, while insisting that she was always willing to close. The purchaser did nothing to negotiate abatement, seek an extension to correct any issues or even to advise the vendors that she was taking this position before she went back to her lender and insurer. This was not acting in good faith.
[78] For all of these reasons, I conclude that the deposit was not disproportionate nor would it be unconscionable in all of the circumstances for the purchaser to forfeit the deposit. I decline to grant the relief requested by the purchaser under s. 98 of the Courts of Justice Act.
Conclusion
[79] For the reasons given above, I make the following orders:
(a) A declaration that the respondent purchaser Shoreh Forjani also known as Shoren Konstantin, breached the agreement of purchase and sale dated May 15, 2017;
(b) A declaration that the applicant vendors are entitled to the deposit funds with respect to the agreement of purchase and sale dated May 15, 2017;
(c) An order directing that the respondent Century 21 release the deposit funds it is holding with respect to the agreement of purchase and sale dated May 15, 2017 and deliver the deposit along with any accrued interest to the applicant vendors’ solicitors, Weedon Law, via bank draft or certified cheques, within three (3) business days after the release of the Court’s decision; and
(d) An order that the respondent purchaser Shoreh Forjani also known as Shoren Konstantin, pay to the applicant vendors pre- and post-judgment interest pursuant to the Courts of Justice Act, as amended, with credit for accrued interest on the deposit.
Costs
[80] If the parties are unable to agree as to costs, they are to make brief written submissions as to costs by June 10, 2019.
Leiper J.
Released: May 24, 2019
COURT FILE NO.: CV-18-00609705 DATE: 20190524
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
GEORGE LESLIE SCOTT AND HARRIET BRAV-BAUM Applicants
– and –
SHOREH FORJANI a.k.a. SHOREN KONSTANTIN and CENTURY 21 HERITAGE GROUP LTD. Respondents
REASONS FOR DECISION
Leiper J.
Released: May 24, 2019
[^1]: McCallum et al. v. Zivojinovic (1977), 1977 CanLII 1151 (ON CA), 16 O.R. (2d) 721 (C.A.), at para. 15; Signal Chemicals Ltd. v. Dew Man Marine Trade Inc., 2011 ONSC 3951, 8 R.P.R. (5th) 151, at para. 13. [^2]: Signal Chemicals Ltd. v. Dew Man Marine Trade Inc., ibid at para. 13. [^3]: Kalis v. Pepper, 2015 ONSC 453, 38 B.L.R. (5th) 285, at para. 10. [^4]: Ibid, at paras. 12-17. [^5]: Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58, [2001] 2 S.C.R. 943, at para. 55; and Cowie v. Great Blue Heron Charity Casino, 2011 ONSC 6357. [^6]: Wile v. Cook, 1986 CanLII 27 (SCC), [1986] 2 S.C.R. 137. [^7]: Hou and Fu v. Bhattacharya and Dalton, 2005 CarswellOnt 7037; Cassie v. Bazilewich, 2007 MBQB 277, 222 Man.R. (2d) 49, at paras 17-20; and Gambouras v. Swan (1994), 37 R.P.R. (2d) 221 (B.C.S.C.). [^8]: Redstone Enterprises Ltd. v. SimpleTechnology Inc., 2017 ONCA 282, 137 O.R. (3d) 374, at para. 15. [^9]: Ibid, at para. 34.