Court File and Parties

COURT FILE NO.: CV-18-00138295 DATE: 20210212 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Hamid Naghshineh and Niloufar Saeedi, Plaintiffs AND: Arash Malek Zadeh a.k.a. Arash Maleki and Amirhossein Barati, Defendants

BEFORE: Justice J. Di Luca

COUNSEL: Leo Klug, Counsel, for the Plaintiffs Louis Vittas, Counsel, for Mr. Maleki David Schatzker, Counsel, for Mr. Barati

HEARD: February 10, 2021

Endorsement

[1] The defendant, Mr. Amirhossein Barati, brings a motion, pursuant to Rule 21.01(1)(b) of the Rules of Civil Procedure, to strike out the state of claim against him on the basis that it discloses no reasonable cause of action.

[2] If Mr. Barati is successful, the other defendant, Mr. Maleki, seeks an order granting leave to commence a third-party action against Mr. Barati, against whom he currently has a crossclaim. At the outset of argument on this motion, counsel for Mr. Barati advised that he would consent to Mr. Maleki’s request pursuant to Rule 29.02(1.2) of the Rules. Counsel for the plaintiffs also advised that he was unopposed to such an order if Mr. Barati was successful on his motion to strike.

Background

[3] This action arises out of a failed real estate deal. The plaintiffs are the owners of a property located at 119 Burbank Drive East in Toronto. By way of an agreement of purchase and sale dated May 8, 2017, they agreed to sell the property to Mr. Maleki. While the agreement of purchase and sale names only Mr. Maleki as the purchaser, the plaintiffs allege that Mr. Maleki was acting as an agent for Mr. Barati and that they were effectively both purchasers of the property as agent and principal.

[4] The real estate deal failed to close on the scheduled closing date of October 10, 2017. The plaintiffs’ position is that they were prepared to close, but the defendants defaulted on the agreement. The plaintiffs claim that they suffered damages of $200,000 in excess of the deposit. They further claim that both defendants are liable for these damages.

[5] In relation to Mr. Barati, the plaintiffs plead that he was the true buyer and that Mr. Maleki at all times was acting as his agent and at his direction. The plaintiffs plead that as a result of this agent-principal relationship, Mr. Barati is personally liable for the losses sustained.

Legal Test

[6] Rule 21.01(1)(b) of the Rules allows a judge to strike a plaintiff’s pleading on the ground that it discloses no reasonable cause of action. A pleading should only be struck where it is “plain and obvious” that it discloses no reasonable cause of action, see Hunt v. Carey Canada Inc., 2 S.C.R. 959. This test is satisfied where a party fails to plead necessary elements of a recognized cause of action or where the allegations are legally insufficient, see Hiller v. Hutchens, 2014 ONSC 1579 at para. 39. In making this determination, the Court gives the statement of claim a generous reading and assumes that the facts pleaded are true unless they are patently ridiculous or incapable of proof, see Lysko v. Braley (2006), 79 O.R. (3d) 721 at para. 3.

[7] No evidence is admissible on a Rule 21 motion. However, an extraneous document that is referred to in the pleadings and forms an integral part of the factual matrix of the claim may be considered, see Gaur v. Datta, 2015 ONCA 151 at para. 5 and McCreight v. Canada, 2013 ONCA 483 at para. 29.

[8] The parties in this case agree that the agreement of purchase and sale is a document that is referred to in the pleadings and is integral to the case. As such, they agree that it is appropriate for me to consider the document in determining this motion.

The Issue

[9] Counsel for Mr. Barati argues that the “sealed contract” rule applies in this case and operates to bar liability on behalf of the alleged principal, Mr. Barati, who was not a party to the contract signed by his alleged agent, Mr. Maleki.

[10] In the ordinary course, a principal may be sued on a simple contract entered into on his or her behalf by an agent who actually signs the contract. An exception to this general rule exists where a contract is entered into under seal. Where a contract is entered under seal, the law recognizes that only the parties to the contract have obligations and rights under it, see Friedman Equity Developments Inc. v. Final Note, 2000 SCC 34 at para. 39. The “sealed contract” rule applies to both disclosed and undisclosed principals, see McDowell v. Fortress Real Capital Inc., 2019 ONCA 71 at para. 72.

[11] Counsel for Mr. Barati further argues that the agreement of purchase and sale is a contract “under seal” and that as a result, Mr. Barati cannot be sued under it. The agreement of purchase and sale used in this case is the standard pre-printed OREA form, which is used for many, if not most, routine residential real estate transactions.

[12] Counsel points to the language on the agreement of purchase and sale which states “IN WITNESS whereof I have hereunto set my hand and seal” next to the signature line, and also points to the pre-printed word “seal” with a small black circle after the signature line. Counsel argues that the inclusion of this language and the pre-printed “seal” and small black circle is sufficient to establish that the agreement of purchase and sale is a contract under seal.

Law and Analysis

[13] A determination as to whether a contract is “under seal” can occur in one of two ways; through operation of statute or by application of the common law.

[14] Section 13(a) of the Land Registration Reform Act is an example of a statutory provision that deems certain types of documents in relation to land transfers to be “under seal.” While this provision applies to transfer documents, charges and mortgages, it does not apply to an agreement of purchase and sale for a residential property, see Ryan in Trust v. Kaukab, 2011 ONSC 6826 per Pepall J. (as she then was), at para. 158 citing Benjamin Zarnett (as he then was) in the Law Society of Upper Canada 2002 Special Lectures on Real Property Law.

[15] In the absence of an applicable deeming provision, the determination as to whether a contract is “under seal” must be undertaken in accordance with the common law which requires a demonstration that the parties to the contract intended it to be “under seal”, see Friedman, supra, at para. 36 and see also Romaine Estate v. Romaine, 2001 BCCA 509 at para. 32.

[16] In Ryan, supra, at paras. 162-165, Pepall J. had occasion to examine the issue of a contract “under seal” in the context of a failed real estate deal that used a pre-printed form similar to the one used in this case. She stated:

[162] The APS, which was in preprinted form, stated that it was signed, sealed and delivered and the form included dark spots underneath which were the words “(Seal)”.

[163] In Royal Bank of Canada v. Kiska, Laskin J.A. writing in dissent discussed the sealing requirement. In his view, the words “signed sealed and delivered” were insufficient to denote a sealed document. He went on to say:

A more difficult situation would exist if, instead of the bracketed word “seal”, there was an imprint of a wafer reproduced on the document. That was the case in Sawyer & Massey Ltd. v. Bouchard, supra, where the Court refused to give sealed effect to the document sued upon. A different view in a similar situation but on different considerations was taken in Re Imperial Canadian Trust Co. and McKeague, 38 Man. R. at p. 249., [1929] 1 W.W.R. 588; affirmed, , [1929] 4 D.L.R. 381, Man. R. loc cit., [1929] 2 W.W.R. 423. It is not necessary, for the purpose of the present case to come to a decision on this question.

[164] In Friedmann, Bastarache J. wrote:

Today, while the creation of a sealed instrument no longer requires a waxed impression, there are still formalities which must be observed. At common law, a sealed instrument, such as a deed or a specialty, must be signed, sealed and delivered. The mere inclusion of these three words is not sufficient, and some indication of a seal is required: see, e.g., 872899 Ontario Inc. v. Iacovoni (1998), 163 D.L.R. (4th) 263 (Ont. C.A.). To create a sealed instrument, the application of the seal must be a conscious and deliberate act. At common law, then, the relevant question is whether the party intended to create an instrument under seal.

[165] Clearly something more than the language “signed, sealed and delivered” is required and Bastarache J.’s comments seem to suggest that the addition of a dark spot followed by the word (“seal”) on a preprinted form would also be insufficient. Rather, there must be some reliable evidence of a conscious and deliberate act of the application of a seal by the signatories to the agreement. Here there was none. In my view, the Kaukab Defendants’ sealed contract argument should fail.

[17] Counsel for Mr. Barati candidly acknowledges that the above cited passages from Ryan run counter to his argument and indeed foreclose it. However, he points to two other cases from the same court level as Ryan and argues that the case law appears split on this issue. He suggests that it therefore remains open to me to rely on the views expressed in those earlier cases.

[18] The two cases are Bank of Montreal v. Unified Homes, [1994] O.J. No. 875 (Ont.Ct. (Gen.Div.)) per Farley J. and Re/Max Garden City Realty Inc. v. 828294 Ontario Inc., [1992] O.J. No. 1080 (Ont.Ct. (Gen.Div.)) per Philp J. Both of these cases arose in the context of summary judgment motions and not Rule 21 motions. Both of these cases also predate Friedman and 872899 Ontario Inc. v. Iacovoni, cited in Friedman, which clearly articulate the principle that the key issue is the parties’ intention to create a document under seal and not the mere presence of pre-printed language on a document.

[19] In my view, the two cases cited merely stand for the proposition that in some cases, an inference may arise that a document is under seal because the parties signed a pre-printed form bearing the appropriate recitals and diagram of a seal without the further formality of affixing an actual seal to the document. However, to the extent that these cases appear to stand for the proposition that a signature on pre-printed form which includes the recital “Signed, Sealed and Delivered” and a small depiction of a seal, always establishes that a document is “under seal” once signed, they are inconsistent with the later case law from the Court of Appeal for Ontario and Supreme Court of Canada, both of which are binding.

[20] As such, I am of the view that the Ryan decision does not evidence a divide in the case law. Rather, it is a case that involves an application of the current legal principles as set out in Friedman and Iacovoni.

[21] Turning back to this case, I conclude that in the absence of either a statutory presumption or a finding that the agreement of purchase and sale used in this case is complete proof of the fact that it was signed under seal, the Rule 21 motion must fail. In my view, the use of the pre-printed form used in this case does not invariably establish a conscious and deliberate act on the part of the parties to create a contract under seal. That will be an issue that falls to be determined at another stage of the proceedings based on whatever evidence the parties see fit to tender.

[22] The motion is dismissed. As a result, the motion of the defendant Mr. Maleki is dismissed as moot.

[23] I urge the parties to agree on the issue of costs. If they are unable to, they can submit brief costs outlines and submissions no longer than 5 pages in length. The plaintiffs’ submissions are to be submitted within 15 days of the release of this endorsement and the defendant’s submissions within 20 days.

Justice J. Di Luca Date: February 12, 2021