2174372 Ontario Ltd. v. Dharamshi

OSHAWA COURT FILE NO.: CV-18-3603

DATE: 20210917

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

2174372 Ontario Ltd.

Plaintiff

– and –

Galib N. N. Dharamshi and Khadija S. Dharamshi

Defendants

COUNSEL:

Ed Hiutin and Wei Jiang, for the Plaintiff

Alnaz I. Jiwa, for the Defendants

HEARD: August 20, 2021

REASONS FOR DECISION

CHARNEY J.:

Introduction

[1] The defendants, Galib Dharamshi and Khadija Dharamshi, bring this motion for summary judgment against the plaintiff with respect to a failed real estate transaction. The plaintiff was the builder/vendor of a residential home, the defendants were the purchasers.

[2] The defendants allege that the plaintiff was not ready and able to close on the scheduled closing date because the house was not ready for occupancy. They seek the return of their $55,000 deposit and $26,500 damages.

[3] The plaintiff agrees that the dispute may be decided by way of summary judgment, but argues that summary judgment should be granted in its favour. It alleges that it was the defendants’ bad faith that led to the failed closing. The plaintiff seeks to retain the $55,000 deposit and $96,659 damages.

Facts

(i) APS

[4] The plaintiff is a builder of new residential buildings. The parties entered into an Agreement of Purchase and Sale (APS) on April 1, 2017 to purchase a property for $859,990 to be built in a building development in Clarington, Ontario. The defendants paid a total of $55,000 in deposits over five installments from April 1, 2017 to August 1, 2017.

[5] The parties executed two amendments to the agreement on May 28, 2017 and January 3, 2018, with the final purchase price being $869,445.64.

[6] The Closing Date of the APS was November 8, 2018.

[7] Paragraph 19 of the APS provided that the Closing could proceed if the Dwelling was “substantially completed” and the Vendor could complete any outstanding items of construction required by the Agreement within a reasonable time after Closing. The APS further provided that the Dwelling is deemed to be “substantially completed” when the interior work required to be done by the Vendor was “finished to permit occupancy”. The paragraph also provided that “The Vendor shall not be required to produce an Occupancy Certificate on Closing, provided that Vendor delivers an undertaking to provide same to Purchaser, if issued by the Municipality, within a reasonable time after Closing”.

[8] Paragraph 9 of the Tarion Addendum to the APS provided that the builder must provide on closing either an occupancy permit or “written confirmation…that the all conditions of occupancy under the Building Code have been fulfilled and occupancy is permitted under the Building Code.

[9] Paragraph 11 of the Tarion Addendum to the APS provided that if the APS is terminated (other than as a result of breach of contract by the purchaser) the Vendor shall refund all monies paid by the Purchaser, including the deposit, with interest from the date each amount was paid to the Vendor. This provision was subject to any court order if either party initiated a legal proceeding to contest the termination of the APS.

[10] Paragraph 29 of the APS provided that “Time shall be of the essence of this Agreement”.

[11] Various terms in the Tarion Addendum to the APS gave the plaintiff the unilateral right to extend the closing date, but that option had to be exercised by the plaintiff giving proper written notice to the purchaser prior to November 8, 2018.

(ii) Repudiation of the APS

[12] On July 17, 2018, the defendants phoned the plaintiff’s sale representative at Citizen Realty Inc. to advise him that they may not be able to close due to difficulty obtaining financing. This began a series of correspondence and negotiations that led to this lawsuit. The legal dispute at the heart of this lawsuit turns on the legal effect of some of these communications. As a result, it is important to reproduce selections of the correspondence in some detail.

[13] On August 21, 2018, Mr. Dharamshi emailed the plaintiff’s representative at Citizen Realty stating:

There is a very strong possibility I might not be in position to complete the purchase of the property LOT 176 NORTHGLEN with a closing date of Thursday November 8, 2018.

Unless your organization is willing to offer some sort of concession and work with me, I’m afraid I will need to back away from the purchase. We are seeking a reduction in price with an extended closing period.

[14] The email explained that the defendants’ current property was worth less than Mr. Dharamshi anticipated and he is “unable to come up with the required down payment to qualify for the mortgage limit I am approved for.”

[15] Dominic Tassone, the Director of the plaintiff corporation, and Mr. Dharamshi had a telephone conversation on August 21, 2018. Mr. Dharamshi followed up with an email on August 23, 2018 with an offer that has been redacted because of settlement privilege.

[16] Mr. Tassone responded to this proposal on August 24, 2018, advising Mr. Dharamshi that his request was unacceptable and that the plaintiff was not willing to renegotiate the terms of the APS. He concluded “If no other acceptable arrangements can be mutually agreed upon I look forward to the home closing as per the agreed upon sale agreement”.

[17] The parties exchanged various emails between August 26, 2018 and September 28, 2018 with various settlement proposals, but no agreement.

[18] Finally, on September 30, 2018, Mr. Dharamshi emailed Mr. Tassone to advise that he would not be able to complete the APS. His email stated:

Given the devastating and sudden devaluation of my current property and that of LOT 176 Bowmanville and your reluctance to adjust the pricing to fair market value, it’s with immense remorse I inform you I am unable to move forward with the completion of the agreement.

[19] Mr. Tassone responded on October 1, 2018:

I am in receipt of your email dated September 30, 2018…wherein you repudiate the terms of the Agreement of Purchase and Sale.

If you confirm, in writing, by no later than 4:00 pm on October 3, 2018, that you have retracted said repudiation and choose one of the following options by such time and date, then I on behalf of the Vendor will allow you to close the purchase transaction in accordance with the below options and terms:

OPTION 1 (redacted)

OPTION 2:

You shall close the purchase of Lot 176 on November 8, 2018 for the purchase price of $869,445.64.

If you do not agree to either of the above options by the deadline shown above and /or if you commit a breach of any of the covenants contained above, I will accept your repudiation of the Agreement of Purchase and Sale, entitling the Vendor to exercise such remedies as are available to it, including, without limitation, terminating the Agreement of Purchase and Sale, retaining all deposits paid to date…and commencing an action against you for any damages incurred by the Vendor…

Time continues to be of the essence. Kindly govern yourself.

[20] Mr. Dharamshi responded the same day. He did not retract his repudiation of September 30, 2018, but again reiterated his request for a reduction in the purchase price.

[21] On October 22, 2018, counsel for the plaintiff emailed Mr. Dharamshi:

We have reviewed the communications between you and our client between July and October of this year, wherein you advise inter alia, that you will not be closing the transaction on the appointed date of November 8, 2018.

Please be advised, that you are legally obligated to close the transaction on November 8, 2018, in accordance with the APS and any amendments. If you fail to do so, the deposit and any other amounts paid pursuant to the APS will be forfeited. Our client will then proceed to mitigate damages by re-selling the property. Our client will pursue you for any deficiency in the sale price as well as any other damages associated with re-selling.

Please govern yourself accordingly.

[22] Again Mr. Dharamshi responded the same day, confirming that he was “unable to complete the purchase due to mortgage approval restrictions”, and noting that if there was any room for further negotiation, he would be happy to meet.

[23] On October 25, 2018, counsel for the plaintiff wrote to Mr. Dharamshi to advise that his client was prepared to proceed on the basis of one of two options (both redacted) but indicated “that time remains of the essence pursuant to the current APS”.

[24] Mr. Dharamshi responded on October 29, 2018 advising that “I am financially handicapped from moving forward at this time”. He once again offered an alternative proposal (redacted).

[25] On October 30, 2018, Mr. Dharamshi was advised by counsel for the plaintiff that his offer was not acceptable. This was followed by another exchange in which Mr. Dharamshi asked the plaintiff to reconsider, and the plaintiff’s counsel indicated that the plaintiff’s position had not changed.

(iii) Aborted Closing – November 8, 2018

[26] On November 1, 2018, the plaintiff’s real estate lawyer emailed a documents list to the defendant’s real estate lawyer in preparation for the November 8, 2018 closing date. The email stated “Please be advised that the Vendor is ready, willing and able to complete the transaction on the scheduled Closing Date.”

[27] On November 2, 2018, the plaintiff’s site clerk sent the defendants an email to arrange a Pre Delivery Inspection (PDI) date for November 8, 2018, at 10:30 a.m. (the date of closing). The site clerk was advised by another of the plaintiff’s employees that the defendant did not intend to close and was instructed to recall the email. The email was recalled, and no PDI was scheduled prior to the November 8, 2018 Closing Date.

[28] On November 5, 2018 and on November 7, 2018, at 4:30 p.m., the defendant attended the building site on his own, and without the permission of or notice to the plaintiff, to inspect the building. He discovered that it was not complete and was not ready for occupancy. His affidavit states that there was no electricity, no heating, no lighting, the flooring was not completed, no carpeting, no sinks, no bathtubs, no toilets, no faucets, no locks, no appliances, no garage doors, no painting, no countertops. He called the City of Clarington to inquire whether it had done an inspection and whether it had issued an Occupancy Permit to the plaintiff to permit the house to be occupied. He was advised by the City that the builder had not scheduled an inspection and no Occupancy Permit had been issued.

[29] The plaintiff’s evidence is that all electricals and pipelines were complete by November 8, 2018, although it acknowledges that no outlets or fixtures had been installed. It does not dispute the balance of the defendants’ evidence on this point.

[30] Despite this slight discrepancy, there is no dispute that the property was not “substantially complete” and was not ready for occupancy on November 8, 2018. The plaintiff argues that the defendants are responsible for the house not being completed in time, an issue I will return to later in these Reasons.

[31] On November 7, 2018 the defendants’ real estate lawyer received an email from an articling student in the plaintiff’s lawyer’s office, confirming that the APS was scheduled to close on November 8, 2018, and advising that he (the articling student) would attend at the defendants’ lawyer’s office to exchange closing documents. He indicated that “If I don’t hear from you, I shall attend your office at approximately 10:45 a.m. tomorrow with our documents.”

[32] A similar email was sent by the articling student the morning of November 8, 2018, confirming his intention to attend the defendants’ lawyer’s office “at 10:45 a.m. today” and asking the defendants’ lawyer to have the closing deliveries ready by that time.

[33] The closing documents provided by the plaintiff did not include an Occupancy Permit, but, pursuant to the para. 19 of the APS, no Occupancy Permit was required on closing. The plaintiff’s counsel’s letter of November 1, 2018 specifically provided:

If an Occupancy Permit is issued by the Municipality same will be provided to you by our client at such time as our client receives it from the Municipality, which may not be in time for closing or in accordance with the Vendor’s Certificate.

[34] The closing documents provided by the plaintiff did, however, include a Vendor’s Certificate, which provided, at para. 8, that “provisional or temporary occupancy of the home has been authorized under …the Building Code”.

[35] On November 8, 2018, the defendants’ lawyer wrote to the plaintiff’s real estate lawyer acknowledging the tendering documents for closing delivered to his office that morning, and enclosing the defendants’ documents “duly executed by our clients along with a copy of our certified cheque payable as per your Direction of Funds”.

[36] The letter continued:

However, although we are ready, able and willing to close the transaction, my client will not take possession of the property and will not close the transaction and consider you in breach of the Agreement of Purchase and Sale dated April 1, 2017, for the following reasons:

There is no occupancy certificate, or partial occupancy certificate. Although you note in your VENDOR’S CERTIFICATE…that pursuant to Tarion requirements , a provisional or temporary occupancy of the home ahs been authorized under…the Building Code, the property is NOT READY FOR OCCUPANCY at all.

My client attended the property on Monday November 5, 2018 and again yesterday at 4:30 p.m. The property is substantially incomplete, for example, the property is a shell with nothing in it: there is no electricity, heating, lighting, flooring, carpeting, sinks (none whatsoever), no bathtub, no toilets, no faucets, no locks, no appliances, no garage doors, no painting, no counter tops, garbage everywhere, etc. etc.

You have not included in you closing documents: Survey; Certificate of Completion and Possession (not surprising as the property is substantially incomplete).

…Our office has spoken to the building department and was told yesterday at about 4:00 p.m. and again today at about 3:00 p.m. that the builder has not even asked for inspection to be conducted.

For the reasons noted above, the builder/vendor is unable to provide my client with a property in accordance with the Agreement of Purchase and Sale executed by the parties. My clients, therefore, consider the builder/vendor is unable to complete the transaction. My clients reserve their rights to sue the builder/vendor for damages suffered by them.

[Emphasis in original.]

[37] The defendants did not deliver the actual certified cheque on closing, only a copy. Mr. Dharamshi explained that because he knew that the house was not ready for occupancy, and the builder did not deliver an Occupancy Permit and had cancelled the PDI, he provided only a copy of the cheque and not the original, knowing that the APS could not close.

[38] On November 9, 2018, counsel for the plaintiff responded to the defendants’ letter:

You have not asked that your clients’ deposit be returned, nor have you elected to terminate the agreement of purchase and sale. Our client has also not elected to terminate the agreement of purchase and sale.

As such, pursuant to the case law, we are hereby providing you with notice of a new closing date for the closing of the transaction under the subject APS. The new closing date will be December 10, 2018. Our client will be ready, willing and able to close the transaction on this date.

To avoid any doubt, time remains of the essence and our client expects your client will also be ready, willing and able to close on this new day. Should your clients not close this date our client will terminate the APS. The deposit and any other amounts paid pursuant to the APS will be forfeited. Our client will then proceed to mitigate its damages by re-selling the property. Our client will pursue your clients for any deficiency in the sale price as well as any other damages associated with reselling.

[39] Defendants’ counsel responded by email the same day:

I do not agree with your reply. Review my letter. It is clear that my client refuses to close which is equal to terminating the agreement.

I do not have to demand the return of deposit as by law your client will have to return the deposit in any event.

As far as my client is concerned the agreement is terminated and is entitled to the return of the deposit.

…Your client did not give any notice that there would be delay. On the contrary, your client by tendering, indicated that it was ready to close. Clearly it was not.

I expect my client’s deposit to be returned.

[40] Defendants’ counsel sent a follow-up email on November 10, 2018, advising plaintiff’s counsel that he had instructions to bring an application to seek a return of the deposit if not voluntarily returned. The letter states:

Since you seem to take it as my client did not terminate the APS, which is incorrect, as words and conduct is also sufficient to elect to terminate a contract, I here by (sic) notify you that my client does elect to accept the repudiation of the APS and considers it terminated as a result of the fundamental breach by your client and demands the return of the deposit.

[41] Plaintiff’s counsel responded on November 12, 2018, advising that the plaintiff’s position “is that the new closing date for the subject APS is now December 10, 2018. We will pursue the legal remedies available to our client at that time”.

(iv) December 10, 2018 Tender

[42] On December 6, 2018, the plaintiff wrote to the defendant to schedule a PDI for December 10, 2018. The defendant responded that he had terminated the APS and would not be attending for the PDI.

[43] On December 6, 2018, the plaintiff obtained an Occupancy Permit from the City.

[44] The plaintiff tendered on December 10, 2018, but the defendants refused to participate, taking the position that the agreement was terminated on November 8, 2018.

Analysis

[45] Both parties claim that the other party was responsible for the failure to close on November 8, 2018. The first question is whether this dispute can/should be resolved on motion for summary judgment.

Motions for Summary Judgment

[46] Rule 20.04(2)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provides: “The court shall grant summary judgment if the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.”

[47] Rule 20.04(2.1) sets out the court’s powers on a motion for summary judgment:

In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

1. Weighing the evidence.

2. Evaluating the credibility of a deponent.

3. Drawing any reasonable inference from the evidence.

[48] These powers were extensively reviewed by the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7, where it laid out a two-part roadmap for summary judgment motions at para. 66:

On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[49] Even with these extended powers, a motion for summary judgment is appropriate only if the material provided on the motion “gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute” (Hryniak, at para. 50).

[50] In Hryniak, the Supreme Court held (at para. 49) that there will be no genuine issue for trial when the summary judgment process “(1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.”

[51] To defeat a motion for summary judgment, the responding party must put forward some evidence to show that there is a genuine issue requiring a trial. A responding party may not rest on mere allegations or denials of the party’s pleadings, but must set out—in affidavit material or other evidence—specific facts establishing a genuine issue requiring a trial.

[52] The motion judge is entitled to assume that the record contains all of the evidence that would be introduced by both parties at trial. A summary judgment motion cannot be defeated by vague references as to what may be adduced if the matter is allowed to proceed to trial.

[53] It is now well settled that “both parties on a summary judgment motion have an obligation to put their best foot forward” (see Mazza v. Ornge Corporate Services Inc., 2016 ONCA 753, at para. 9). Given the onus placed on the moving party to provide supporting affidavit or other evidence under Rule 20.01, “it is not just the responding party who has an obligation to ‘lead trump or risk losing’” (see Ipex Inc. v. Lubrizol Advanced Materials Canada, 2015 ONSC 6580, at para. 28).

[54] Thus, if the moving party meets the evidentiary burden of producing evidence on which the court could conclude that there is no genuine issue of material fact requiring a trial, the responding party must either refute or counter the moving party’s evidence or risk a summary judgment.

[55] A plaintiff or defendant bringing a motion for summary judgment does not thereby reverse the onus of proof. See for example, Sanzone v. Schechter, 2016 ONCA 566, at paras. 30-32, confirming the initial evidentiary obligation borne by the moving party (in that case the defendant) on a summary judgment motion.

[56] On a motion for summary judgment the judge may grant judgment in favour of a responding party, even in the absence of a cross-motion for such relief: Singh v. Trump, 2016 ONCA 747, at para. 147; Meridian Credit Union Limited v. Baig, 2016 ONCA 150, at para. 17 . In the present case the plaintiff relies on this proposition in support of its claim to summary judgment, even though it did not bring a motion for summary judgment.

[57] While Rule 20.04 provides the court hearing a summary judgment motion with “enhanced forensic tools” to deal with conflicting evidence on factual matters, the court should employ these tools and decide a motion for summary judgment only where it leads to “a fair process and just adjudication”: Mason v. Perras Mongenais, 2018 ONCA 978, at para. 44; Eastwood Square Kitchener Inc. v. Value Village Stores, Inc., 2017 ONSC 832, at paras. 3-6 (and cases cited therein).

[58] In the present case, both parties are asking the Court to decide this action by way of summary judgment motion. Each has filed affidavits in support of its position, opposing parties have been subject to cross-examination, and transcripts of the cross-examinations have been filed as part of each party’s motion record. There are few relevant facts in dispute. Most of the relevant facts are found in written correspondence between the parties or their lawyers. The primary disputes relate to the legal consequences that flow from those facts, rather than the facts themselves.

[59] I am satisfied that, given the motion records filed by the parties, I am in as good a position as a trial judge to “find the necessary facts and apply the relevant legal principles so as to resolve the dispute”. I am also satisfied that, given the quantum of damages potentially at issue, this is “a proportionate, more expeditious and less expensive means to achieve a just result.”

Positions of the Parties

[60] Each side blames the other for the failure to close the APS.

[61] What is perhaps unique about this case is that each side tendered on November 8, 2018 thinking that the other side would be unable to close on that date.

[62] The plaintiff alleges that they were misled by the defendants’ repudiation of the APS on September 30, 2018, when Mr. Dharamshi emailed Mr. Tassone to advise that he was unable to obtain the necessary financing to complete the APS, and was therefore “unable to move forward with the completion of the agreement”.

[63] As a result of this and similar statements, the plaintiff decided to prioritize the completion of other units in the development, which were scheduled to close on time. Had Mr. Dharamshi informed the plaintiff that he could close the APS on the scheduled closing date, the plaintiff states that it would have completed the home in time for the November 8, 2018 closing date, or, in the alternative, exercised its contractual right to postpone the closing by a few weeks to ensure that the home was substantially complete on closing.

[64] The plaintiff argues that the defendants acted in bad faith by consistently telling the plaintiff that they could not obtain the necessary financing and would therefore not be able to close – a statement relied upon by the plaintiff when it delayed completion of the property – and by failing to inform the plaintiff prior to November 8, 2018 that they would, in fact, have the financing available for the closing date.

[65] Finally, the plaintiff argues that the defendants’ letter of November 8, 2018 did not expressly terminate the APS, and the plaintiff was therefore entitled to impose the new closing date of December 10, 2018. The defendants failed to close on that new closing date and are therefore in breach of the APS and not entitled to the return of their deposit.

[66] The defendants argue that the plaintiff elected to affirm the APS and kept the November 8, 2018 closing date alive, insisting that time was of the essence and that the defendants present a certified cheque for the agreed sale price per the Statement of Adjustments. The defendants did not ask the plaintiff to delay the construction of the house. The defendants did not tell the plaintiff to tender on November 8, 2018. The defendants argue that they could not be acting in bad faith by fulfilling their contractual obligation to present a certified cheque on closing – which was what the plaintiff kept insisting they must do.

[67] The defendants argue that the APS did not close because the plaintiff could not provide a substantially completed home on the closing date as required by the APS. The defendants argue that the plaintiff violated a fundamental term of the APS, which gave the defendants, as the innocent party, the right to terminate the agreement and ask for their deposit back. They argue that their lawyer’s letter of November 8, 2018 was an express termination of the APS, and the plaintiff had no right to impose a new closing date.

Analysis

Repudiation of the Contract

[68] There is no dispute that the defendants’ email of September 30, 2018, in which Mr. Dharamshi advised the plaintiff that he was “unable to move forward with the completion of the agreement”, was a clear repudiation of the APS.

[69] It is also clear from Mr. Tassone’s reply on October 1, 2018 that the plaintiff understood that the September 30, 2018 email was intended as a repudiation of the contract by the defendants. His email of that date began: “I am in receipt of your email dated September 30, 2018…wherein you repudiate the terms of the Agreement of Purchase and Sale”.

[70] The law relating to anticipatory breach of contract was summarized by the Ontario Court of Appeal in Spirent Communications of Ottawa Limited v. Quake Technologies (Canada) Inc., 2008 ONCA 92, at para. 37:

An anticipatory breach sufficient to justify the termination of a contract occurs when one party, whether by express language or conduct, repudiates the contract or evinces an intention not to be bound by the contract before performance is due. See Pompeani v. Bonik Inc. (1997), 1997 CanLII 3653 (ON CA), 35 O.R. (3d) 417, [1997] O.J. No. 4174 (C.A.). To assess whether the party in breach has evinced such an intention, the court is to ask whether a reasonable person would conclude that the breaching party no longer intends to be bound by it. See McCallum v. Zivojinovic (1977), 1977 CanLII 1151 (ON CA), 16 O.R. (2d) 721, [1977] O.J. No. 2341 (C.A.). …[I]n determining whether the party in breach had repudiated or shown an intention not to be bound by the contract before performance is due, the court asks whether the breach deprives the innocent party of substantially the whole benefit of the contract.

[71] See also: Remedy Drug Store Co. Inc. v. Farnham, 2015 ONCA 576, at para. 47.

[72] As noted by the Ontario Court of Appeal in Brown v. Belleville (City), 2013 ONCA 148, at para. 42, and recently affirmed in Ching v. Pier 27 Toronto Inc., 2021 ONCA 55, at paras. 32 -33:

[A] repudiatory breach does not, in itself, terminate the contract. If the non-repudiating or innocent party does not accept the repudiation, then the repudiation has no legal effect. In his text, The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011), Professor Gerald Fridman explains as follows, at p. 595:

From the time that this kind of termination was recognized, it was accepted that there could be no such thing as unilateral repudiation. Just as the making of a contract requires the joint participation of both parties, an offeror and an acceptor, so the discharge of a contract, even where the discharge is by repudiation, in advance of the time for performance, also requires the conformity and acquiescence of both parties. [Emphasis in original.]

Accordingly, the consequences of a repudiation are stated to depend on the election made by the innocent party. If the innocent party accepts the repudiation, the contract is terminated (sometimes referred to as disaffirmation). Alternatively, the innocent party may treat the contract as subsisting (sometimes referred to as affirmation). See Guarantee Co. of North America v. Gordon Capital Corp., 1999 CanLII 664 (SCC), [1999] 3 S.C.R. 423, at para. 40.

[73] Similarly, in Semelhago v. Paramadevan, 1996 CanLII 209 (SCC), [1996] 2 S.C.R. 415, the Supreme Court of Canada stated, at para. 15:

In cases such as the one at bar, where the vendor reneges in anticipation of performance, the innocent party has two options. He or she may accept the repudiation and treat the agreement as being at an end. In that event, both parties are relieved from performing any outstanding obligations and the injured party may commence an action for damages. Alternatively, the injured party may decline to accept the repudiation and continue to insist on performance. In that case, the contract continues in force and neither party is relieved of their obligations under the agreement. [Emphasis added.]

[74] In this case, the plaintiff was the non-repudiating innocent party on September 30, 2018. As the innocent party, the plaintiff had two options:

a. It could accept the repudiation and treat the agreement at an end. If it chose that option, both parties would be relieved from performing any outstanding obligations, and the plaintiff could commence an action for damages.

b. It could decline to accept the repudiation and continue to insist on performance of the contract. As the Supreme Court held in Semelhago: “In that case, the contract continues in force and neither party is relieved of their obligations under the agreement.”

[75] On October 22, 2018, counsel for the plaintiff emailed Mr. Dharamshi, and clearly affirmed the APS and declined to accept the repudiation, when he stated:

Please be advised, that you are legally obligated to close the transaction on November 8, 2018, in accordance with the APS and any amendments.

[76] This wording was clear and unequivocal. The plaintiff did not elect to terminate the agreement but insisted on its continued performance. This choice remained the consistent choice of the plaintiff up to and including the date of closing, as demonstrated by all the correspondence from the plaintiff and the plaintiff’s lawyer up to and including November 8, 2018, which consistently pressed the defendants for performance of the APS.

[77] The legal effect of this choice was that the contract continued “and neither party is relieved of their obligation under the agreement”.

[78] Thus, when November 8, 2018 arrived, both parties were obliged to close in accordance with the terms of the APS.

Aborted Closing – November 8, 2018

[79] Unfortunately for the plaintiff, the property was not “substantially complete” and was not ready for occupancy on November 8, 2018. This was in breach of the plaintiff’s obligations under the APS and put the plaintiff in breach of a fundamental term of the APS.

[80] I do not accept the plaintiff’s position that the defendants were responsible for the plaintiff’s decision to delay completion of the property. By electing to affirm the APS on October 22, 2018, the plaintiff affirmed that it would comply with its obligations under the contract. It also affirmed that it expected the defendants to come up with the funds to close the deal for the agreed purchase price. The plaintiff could not affirm the contract but unilaterally decide to tender a home that was not ready for occupancy.

[81] There is no question that the terms of the APS gave the plaintiff the unilateral right to extend the closing date if the house could not be substantially completed by November 8, 2018, but that option had to be exercised by the plaintiff giving proper written notice to the defendant prior to November 8, 2018. Even though the plaintiff – as the builder of the home – knew that the house would not be substantially completed by November 8, 2018, it did not exercise its option to extend the closing date.

[82] The plaintiff argues that the defendants’ tendering was nothing but a “set up” wherein the defendants “lay in the weeds” in hopes of catching the plaintiff by surprise on the date of closing. There is an element of truth in this description; the defendants had gone to the building site the days before the scheduled closing and discovered that the house was not substantially completed. The defendants knew when they obtained the financing on November 7, 2018 that it was very unlikely that the house would be substantially completed by the next day. The defendants knew on November 7, 2018 that the plaintiff would be unable to close on November 8, 2018.

[83] While the defendants took advantage of the plaintiff’s failure to complete the house on time, this does not, in my view, qualify as bad faith or prevent the defendants from relying on the “time of the essence” provision of the APS.

[84] The plaintiff was the builder of the home, and construction of the home was entirely within its control. It decided to delay construction of the home to prioritize the building of other homes in the development. That was a decision it was entitled to make. As the builder, the plaintiff knew that the home would not be “substantially completed” on November 8, 2018, but did not exercise its option to extend the closing date even though it knew that it would not be able to close on that date.

[85] It was the plaintiff who insisted on closing on November 8, 2018. While the defendants did not tell the plaintiff that they knew the house was not ready for occupancy, neither did the plaintiff arrange for a PDI or inform the defendants that the house was not substantially completed. In fact, on November 1, 2018, the plaintiff’s real estate lawyer advised the defendants’ lawyer “that the Vendor is ready, willing and able to complete the transaction on the scheduled Closing Date.” That representation was not true.

[86] Both parties were playing their cards close to their chest.

[87] The plaintiff did not complete the house or exercise its option to extend the closing date because it thought that the defendants would not be able to close on November 8, 2018. That was a chance the plaintiff took when it insisted on closing on November 8, 2018, despite the house not being ready for occupancy. The plaintiff cannot neglect its own obligations under the APS, press for performance, and then complain that it has been unfairly treated because the defendants were able to fulfil their contractual obligations.

[88] As indicated, I find that the plaintiff was in breach of a fundamental term of the APS because the property was not “substantially complete” and was not ready for occupancy on November 8, 2018.

[89] It follows that, as of November 8, 2018, the tables turned. The defendants became the innocent, non-repudiating party, with the option of either accepting the repudiation and treating the agreement as being at an end or declining to accept the repudiation and insisting on performance.

Termination of the APS

[90] The defendants’ counsel immediately advised the plaintiff that it was the defendant’s position that the plaintiff had breached the terms of the APS and that the defendants “will not take possession of the property and will not close the transaction” and that the defendants “reserve their rights to sue the builder/vendor for damages suffered by them.” The defendants argue that these words were sufficient to give notice to the plaintiff that the defendants were treating the agreement as being at an end.

[91] The plaintiff argues that the defendants did not expressly state “the agreement is terminated” or immediately demand the return of their deposit, and therefore, even if the plaintiff was in breach of the APS, the defendants did not terminate the agreement before the plaintiff’s email of November 9, 2018, setting a new closing date of December 10, 2018.

[92] The defendants’ counsel was more explicit in his reply email of November 9, 2018, stating that the defendants consider the APS “terminated as a result of the fundamental breach by your client and demands the return of the deposit”. The plaintiff argues that this termination was too late because the plaintiff had already set a new closing date.

[93] As indicated above, at paras. 11 and 81, the Tarion Addendum to the APS gave the plaintiff the unilateral right to extend the closing date, but that option had to be exercised prior to November 8, 2018. The plaintiff’s email of November 9, 2018 email did not meet that condition.

[94] The plaintiff takes the position that it was entitled to extend the closing date on November 9, 2018 because neither party was ready to close on November 8, 2018. In this regard, the plaintiff relies on the principle established by the Court of Appeal in King v. Urban & Country Transport Ltd. (1973), 1973 CanLII 740 (ON CA), 1 O.R. (2d) 449.

[95] In King v. Urban, the purchaser was not in a position to close on the closing date; but the vendor was also in default and not entitled to rely on the time of the essence provision in the contract. The Court of Appeal resolved the stalemate by applying two propositions (at pp. 454-56):

1. When time is of the essence and neither party is ready to close on the agreed date the agreement remains in effect.

2. Either party may reinstate time of the essence by setting a new date for closing and providing reasonable notice to the other party.

[96] See also: Domicile Developments Inc. v. McTavish (2000), 1999 CanLII 3738 (ON CA), 45 O.R. (3d) 302 (C.A.).

[97] In Fortress Carlyle Peter St. Inc. v. Ricki’s Construction and Painting Inc, 2019 ONSC 1507, Perell J. expressed this principle at para. 18: “when both contracting parties breach the contract, the contract remains alive with time no longer of the essence but either party may restore time of the essence by giving reasonable notice to the other party of a new date for performance”.

[98] In my view, the principle set out in King v. Urban does not apply in this case, and the plaintiff was not entitled to set a new closing date.

[99] While the defendants had repudiated the APS on September 30, 2018, the plaintiff elected to refuse to accept the termination of the APS and insisted that the plaintiff perform it obligations under the contract. Because the plaintiff’s rejection of the defendants’ anticipatory repudiation kept the agreement alive, time remained of the essence (Domicile). Both sides were therefore obligated to abide by the terms of the APS on November 8, 2018.

[100] On November 8, 2018 the defendants were ready to close, but the plaintiff was not. The defendants were able to secure the necessary financing and had a certified cheque for the full amount available in the event that the plaintiff could provide a substantially completed home. Accordingly, as of November 8, 2018, only the plaintiff was in breach of the APS, and the principle in King v. Urban does not apply.

[101] Given this conclusion, the plaintiff had no right to impose a new closing date when it purported to do so on November 9, 2018.

[102] The next issue is whether the defendants exercised their right to affirm or disaffirm the contract within a reasonable time.

[103] In Ching, the Ontario Court of Appeal referred to a “middle way” which gives the innocent party a period of time in which to make up its mind whether to affirm the contract or terminate it. The Court stated, at para. 39, that the innocent non-repudiating party “need not make its election immediately and may be given a reasonable period of time to decide whether to affirm the contract or accept the repudiation”. The Court adopted the British Columbia Court of Appeal’s statement in Dosanjh v. Liang, 2015 BCCA 18, at para. 37: “at least until that reasonable period of time has elapsed, a court should be slow to treat equivocal statements or acts as affirmations of the contract.”

[104] In my view, the defendants’ counsel’s email of November 8, 2018, advising the plaintiff that the defendants “will not take possession of the property and will not close the transaction” and that they “reserve their rights to sue the builder/vendor for damages suffered by them” was a clear and unequivocal termination of the APS, which, as the innocent non-repudiating party, the defendants were entitled to do.

[105] I do not accept the plaintiff’s position that the defendants had to use the magic words “we hereby terminate the APS”, or immediately demand a return of their deposit in order to successfully terminate the agreement. Read as a whole, the defendants’ counsel’s email of November 8, 2018, clearly evinces an intention to terminate the APS because of the plaintiff’s failure to comply with one of its fundamental terms.

[106] If I am wrong about the November 8, 2018 email, there is no doubt that the defendants’ counsel’s email of November 9, 2018 clarified any equivocation or uncertainty. The email stated:

It is clear that my client refuses to close which is equal to terminating the agreement

As far as my client is concerned the agreement is terminated and is entitled to the return of the deposit.

[107] According to the Ontario Court of Appeal’s decision in Ching, the innocent party must be given a “reasonable period of time to decide whether to affirm the contract or accept the repudiation”. If the immediate termination on November 8, 2018 was in any way equivocal, the express termination on November 9, 2018 was not, and this falls within any definition of “reasonable period of time”.

Conclusion: Return of Deposit

[108] Based on the foregoing analysis I conclude that the plaintiff breached a fundamental term of the APS when it was unable to provide a “substantially completed” home to the defendants on November 8, 2018, and that this breach entitled the defendants to terminate the APS within a reasonable period of time, and demand that their deposit be returned. I find that the defendants did terminate the APS on November 8, 2018, or, at the latest on November 9, 2018, and are therefore entitled to a return of their $55,000 deposit.

Damages

[109] In addition to the return of their deposit, the defendants seek $26,500 in damages for the cost of the mortgage and other incidental charges related to the aborted closing.

[110] The defendants acknowledge that they never attempted to sell their current home, and never attempted to obtain a mortgage from a bank. When the defendants’ lawyer told them that he had received an email from the plaintiff’s lawyer confirming the plaintiff’s intention to close on November 8, 2018 the defendant felt that he had no choice but to meet the tender.

[111] In order to come up with the funds to close the APS, the defendants needed almost the entire $825,000 that remained due on closing. Mr. Dharamshi first approached his mother, who was unable to provide the funds. She suggested that he meet with one of her friends, who was a private mortgage broker.

[112] On November 7, 2018, Mr. Dharamshi met with Nazmin Nanji (the lender), a private mortgage broker and a friend of Mr. Dharamshi’s mother. The lender agreed to lend the defendants $810,000 without conducting an appraisal of the property or confirming the adequacy of the security.

[113] The parties signed a Mortgage Loan Commitment and Agreement for the $810,000 at an interest rate of 6 percent, compounded monthly for an eight-month term, with mortgage payments at $4,050 per month, interest only, and a lender fee of $20,250. A first mortgage was to be registered on the property to be purchased.

[114] As indicated above, counsel for the defendants provided the plaintiff’s real estate lawyer with a copy of the certified cheque for the full amount of the closing funds ($825,000) but did not deliver the actual cheque.

[115] Upon the transaction not closing, the defendants instructed their lawyer to return the loan to the lender. The money was paid back on November 13, 2018. The lender demanded payment of $50,000 for the loan, comprised of the lender fee ($20,250) and the interest for seven months ($4,050 x 7 = $28,350) plus legal fees ($1,400). The defendants did not immediately pay the lender the lending fee or interest demanded but sought to negotiate with him and seek a reduction in the amount of his fees.

[116] The lender agreed to reduce his total fees to $25,000, and the defendants paid this amount on June 7, 2019.

[117] The plaintiff argues that the court should infer from the circumstances surrounding this private loan that it was not a true loan for financing the purchase of the property, but rather a loan given for the sole purpose of helping the defendants achieve a technical tender after the defendants realized that the property was not ready for occupancy.

[118] The plaintiff alleges that the lender only agreed to lend the money to help the defendants achieve a “technical” closing because the lender knew that the defendants had no intention of actually closing the APS on November 8, 2018, and that the money would be immediately returned to the lender.

[119] I accept the plaintiff’s proffered inference: the circumstances surrounding the loan do suggest that the defendants and the lender both proceeded on the understanding that the plaintiff would almost certainly be unable to close, the defendants would then terminate the APS, and the defendants would be able to return the lender’s money within a few days. Given the state of the property on November 7, 2018, the risk that the plaintiff would be able to provide a substantially completed home on November 8, 2018 was vanishingly small. The defendants were clearly trying to position themselves so that it was the plaintiff, and not the defendants, who were in breach of the APS.

[120] Even accepting that inference, this does not change the fact that the defendants had the funds available on November 8, 2018, and it was the plaintiff’s failure to tender a substantially completed home that resulted in the termination of the APS. There was, in my view, nothing improper in the defendants putting themselves in a position to comply with their obligations under the APS, even if they (correctly) anticipated that the plaintiff’s default would get them off the hook.

[121] The plaintiff could have easily avoided this situation by substantially completing the home in time for the November 8, 2018 closing, as it was contractually obligated to do, or, extending the closing date in accordance with the Tarion Addendum, as it was contractually entitled to do. The plaintiff did neither.

[122] The plaintiff argues that if the defendants are successful, the Court should find that the $25,000 fee paid by the defendants to the lender is not a proper charge in respect of mortgage fees and interest, but rather the cost of the lender working with the defendants to achieve a technical tender, and therefore too remote and not foreseeable as damages.

[123] Regardless of where the defendants borrowed the money there would have been financial costs and penalties involved in borrowing $810,000, even for a few days. Banks routinely charge mortgagors penalties for early repayment of a loan. Private lenders often charge “lenders fees”.

[124] The defendants’ entitlement to damages does not turn on whether the defendants anticipated or were completely surprised by the plaintiff’s breach of the APS. Either way the defendants had to borrow the funds in order to tender on closing.

[125] There is no question that if the defendants had borrowed the money from a bank, and the plaintiff failed to close, the defendants would be entitled to damages for the transactional costs incurred for borrowing the money even for a few days. The defendants’ entitlement to damages does not depend on whether they borrowed the money from a bank or private lender. Whether the $25,000 paid by the defendants to the lender was in keeping with the usual cost of borrowing that amount of money for that period of time is, in my view, a question of mitigation of damages.

[126] The onus is on the plaintiff to lead evidence that the defendants failed to make reasonable efforts to mitigate and that mitigation was possible: Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51. See also: Forest Hill Homes v. Ou, 2019 ONSC 4332, at para. 24.

[127] It is very possible that, had the defendants acted sooner to obtain financing, they could have negotiated more favourable terms for the loan. By waiting until the last minute, they were negotiating with a gun to their head. That said, there was no evidence before me that the defendants failed to mitigate their losses. While they never applied for a mortgage from a bank, there was no evidence that a bank mortgage for the same amount would have cost them less than $25,000 in interest and other charges. Without such evidence, I accept the defendants’ claim that the transactional costs to obtain the funds required for closing were $25,000.

[128] The defendants also claim $1,500 for “legal costs incurred by us for the aborted closing”, although there are no documents appended to corroborate this expense and no explanation regarding how these costs were incurred or who they were paid to. No invoice or evidence of payment is provided. I am not prepared to grant judgment for this claim on the basis of the scant information provided.

Evidence on a Motion

[129] Before concluding, I should address an evidentiary issue that arose during submissions. In its factum, the plaintiff asserts that the defendants did not have sufficient funds available to close because bank policy required a five day holding period for a portion of the funds transferred. They rely on a TD Canada Trust document discussing holding periods for personal and small business accounts. The TD document is attached as a “schedule” to the plaintiff’s factum. It is not in the plaintiff’s motion record and is not appended to any affidavit. There is no affidavit from TD Canada Trust attesting to whether this policy would apply to the funds in question.

[130] Counsel for the defendants took the position that the holding policy did not apply to those funds and all funds were available as of November 8, 2018.

[131] A document for use on a motion for summary judgment must be in the motion record, properly introduced through an affidavit that is subject to cross-examination. Evidence on motions cannot be introduced as a schedule to a factum.

[132] Counsel for the plaintiff explained that he could not include the TD document in an affidavit because its relevance only became apparent after he had cross-examined the defendant and received answers to undertakings, and Rule 39.02(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, precludes the filing of additional affidavits by a party who has already conducted a cross-examination of an adverse party.

[133] That’s not quite what Rule 39.02 says. It only precludes the filing of additional affidavits without leave of the court or consent. Rule 39.02(2) provides:

A party who has cross-examined on an affidavit delivered by an adverse party shall not subsequently deliver an affidavit for use at the hearing or conduct an examination under rule 39.03 without leave or consent, and the court shall grant leave, on such terms as are just, where it is satisfied that the party ought to be permitted to respond to any matter raised on the cross-examination with evidence in the form of an affidavit or a transcript of an examination conducted under rule 39.03. [Emphasis added.]

[134] If the plaintiff thought that the TD document was relevant, it should have brought a motion for leave to file an additional affidavit. If granted, that affidavit would be subject to cross-examination and perhaps a reply affidavit. Counsel cannot circumvent the requirements of Rule 39.02 (2) by “bootlegging evidence in the guise of authority”: Public School Boards’ Assn. of Alberta v. Alberta (Attorney General), 1999 CanLII 640 (SCC), [1999] 3 SCR 845, at para. 3.

[135] Accordingly, the TD document was not admissible and was not considered.

Conclusion

[136] This is a case where the plaintiff held all the cards. The plaintiff decided to affirm the contract and press for performance, insisting that time continued to be of the essence. The plaintiff decided when to complete construction of the home, and the plaintiff chose the closing date. The plaintiff misplayed its hand, and now cries foul when the defendants called its bluff and tendered.

[137] The defendants’ motion for summary judgment is granted in favour of the defendants.

[138] This Court Orders that:

a. The plaintiff refund to the defendant the deposit of $55,000 plus interest from the date of the deposit to the date of judgment as per para. 11 of the Tarion Addendum to the APS. Interest shall accrue at the post-judgment interest rate under the Courts of Justice Act as of the date of this Judgment.

b. The defendants are awarded damages in the amount of $25,000, plus pre-judgment interest.

[139] If the parties are unable to agree on costs, the defendants may file costs submissions of no more than 3 pages plus costs outline and any offers to settle by October 18, 2021, and the plaintiff may file costs submissions on the same terms within a further 20 days.

Released: September 17, 2021 Justice R.E. Charney