Peterborough Court File No.: CV-21-211-00

Date: 2021-11-18

Ontario Superior Court of Justice

Between:

Aaron Grayson and Jasmine Isaac Applicants

– and –

Chett Creasy and Tiffany Creasy Respondents

Counsel:

S. McGrath and J.P.E. Hardy, for the Applicants

A.J.S. McLeod, for the Defendants

Heard: October 26, 2021

Reasons for Decision

Casullo J.:

Overview

[1] This matter involves a failed real estate transaction. The participants are the applicants as purchasers, and the respondents as vendors.

[2] At issue is a claim by the applicants for damages for breach of contract.

[3] Given that there are no substantial facts in dispute, the application was heard on the basis of an agreed statement of facts, as well as two brief affidavits in respect of which no cross examinations were conducted.

[4] Counsel are to be commended on their efforts to have this matter heard on a timely basis.

Background

[5] The applicants, Aaron Grayson and Jasmine Isaac, and the respondents, Chett and Tiffany Creasy, lived on Crystal Springs Drive in Peterborough. In January 2021 the applicants saw that the respondents’ home at 75 Crystal Springs Drive (“Property”) was for sale.

[6] Coincidentally, the applicants were looking for a larger home to accommodate their growing family, and the Property checked all the boxes: larger house, same neighbourhood, same school district, pool in the backyard.

[7] The applicants made an offer of $530,000, which the respondents accepted. On January 26, 2021 the parties entered into an Agreement of Purchase and Sale (“APS”) with a closing date of March 19, 2021.

[8] At the time the APS was entered into, the applicants were represented by a lawyer. The respondents relied upon their realtor for assistance.

The Agreement of Purchase and Sale

[9] A standard form APS was utilized in this case. Schedule A to the APS contained, inter alia, three conditions relevant to this application.

[10] The first condition gave the applicants the option of voiding the APS if they were unable to obtain a new mortgage (“Mortgage Condition”):

This Offer is conditional upon the Buyer arranging, at the Buyer’s own expense, a new Charge/Mortgage. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 6:00 p.m. on February 11, 2021, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

[11] The second condition gave the applicants the option of voiding the APS if they were unable to obtain a satisfactory airy quality test (“Air Quality Condition”):

This Offer is conditional upon the Buyer obtaining satisfactory air quality tests, at the Buyer’s own expense and the obtaining of a report satisfactory to the Buyer in the buyer’s sole absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 6:00 P.M. on March 12, 2021, that this condition is fulfilled, this Offer shall be null an void and the deposit shall be returned to the buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of the air quality tests. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the tie period stated.

[12] The third condition permitted the respondents to continue marketing the Property for sale after signing the APS. If they received a better offer for the Property, they were required to give notice to the applicants. The applicants then had 24 hours to waive the conditions in the APS, failing which the APS would be null and void (“Escape Clause”):

Provided further that the Sellers may continue to offer the property for sale and, in the event that the seller receives another Offer satisfactory to the Seller, the Seller may so notify the Buyer in writing by delivery to the Buyer personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedules thereto. The Buyer shall have 24 hours from the giving of such notice to waive this condition by notice in writing delivered to the seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedules thereto, failing which this Offer shall be null and void, and the Buyer’s deposit shall be returned in full without deduction.

Subsequent Offer

[13] The respondents did receive a further, and significantly better, offer for the Property, at $703,000. On February 7, 2021 they entered into an agreement with a second purchaser, with a closing date of March 19, 2021. This contract was conditional on the respondents being released from the APS.

[14] On February 8, 2021, at 9:00 p.m., Mr. Creasy sent Mr. Grayson an email which stated

“Hey just wanted to let u know. We r going with a different offer. Sorry for the Inconvenience. Chett”.

[15] Mr. Creasy also forwarded his realtor’s email, in which the realtor advised Mr. Creasy he was “obligated to provide notice informing him/them they have 24 hrs notice from not [sic] to remove condition and firm or walk away from the deal.”

[16] Appended to the realtor’s email was a “Notice to Remove Condition(s)” which advised the applicants that they had until 8:00[^1] p.m. on February 9, 2021 to remove “Any and all Conditions”.

Notice of Fulfillment

[17] The applicants were willing to waive the conditions if another purchaser made an offer. To ensure there was no margin for error, the applicants signed an advance copy of the Notice of Fulfillment (Notice”), which would be ready to be served should the respondents receive a second offer.

[18] The applicants served the Notice on the respondents’ realtor via email at 4:52 p.m.

[19] Given their concerns about the second offer, Mr. Grayson followed up with Mr. Creasy directly via email at 4:58 p.m., 4:59 p.m., and 7:35 p.m., asking Mr. Creasy to confirm he had received the Notice. The applicants’ lawyer sent an email to Mr. Creasy at 8:43 p.m., asking that he confirm receipt of the Notice.

[20] Mr. Creasy did not respond to any of these queries.

[21] It was only once the 24-hour window expired that Mr. Creasy told the applicants the APS was null and void because they had only waived the Mortgage Condition and the Air Quality Condition. In Mr. Creasy’s view, because the applicants had failed to waive the Escape Clause, he and his wife were free to proceed with their sale of the Property to the second purchaser, which they did.

[22] On February 16, 2021, the applicants registered a Caution of Agreement of Purchase and Sale on title to the Property. In May 2021 the parties agreed on the following terms:

(a) The applicants would withdraw the Caution from title;

(b) The respondents would complete the sale to the second purchaser;

(c) The respondents would hold $175,000 of the sale proceeds in trust; and

(d) The parties would seek a determination of whether the APS was breached, or whether it was properly null and void.

[23] Since the Property was sold to the second purchaser, there was no viable claim for specific performance.

Issues

[24] The issues to be determined are as follows:

1. Did the respondents breach the APS?

2. If the respondents did breach the APS, what is the appropriate measure of damages?

Discussion

Issue 1: Did the respondents breach the APS?

[25] The respondents were clearly eager to accept the second offer. This is unsurprising, given a second purchaser was willing to pay $173,000 more for the Property. However, contrary to what Mr. Creasy said to Mr. Grayson in the email, the respondents were not entitled to “go with a different offer.” They were obligated to advise the applicants that there was another offer. Once they had been advised of the competing offer, the applicants had 24 hours to fulfill or waive any and all conditions contained in the APS.

[26] At first blush, one might be inclined to agree with the respondents’ position. The APS contained three “conditions,” and the applicants fulfilled only two. Additionally, the language in the Escape Clause, namely “waive this condition,” appears straightforward enough. However, any initial agreement with the respondents’ position is overturned once one looks beyond the wording of the Escape Clause and applies common sense.

[27] The principles of contractual interpretation set down by the Supreme Court of Canada in Sattva are well-entrenched. Evidence of the surrounding circumstances of a contract – its “factual matrix” – is admissible to interpret the contract, and ought to be considered at the outset of the interpretive exercise. See Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para 47.

[28] The Court went on at para 56:

While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement. The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract.

[29] And finally, at para 58, judges are cautioned that the nature of the evidence to be relied upon should consist only of objective evidence of the background facts at the time of execution of the contract. In other words, what were the parties agreeing to?

[30] Looking at the contract as a whole, the APS included two conditions specifically for the applicants’ benefit. These two conditions could only be waived by the applicants.

[31] The Escape Clause was included for the benefit of the respondents. Its purpose was to allow the respondents to continue marketing the Property. If they received a better offer, it forced the applicants to firm up their offer within 24 hours of being notified, failing which the respondents could go with the new offer.

[32] Once the respondents triggered the Escape Clause, if the applicants waived the mortgage and air quality conditions within 24 hours, the APS became firm and binding on both parties.

[33] The purpose of the Escape Clause was to force the applicants’ hand, perhaps before the financing and air quality information were firmly in place. The Escape Clause was a mechanism, and its purpose was fulfilled once the two conditions were fulfilled. The applicants were not required to expressly waive the Escape Clause.

[34] The respondents agreed to the original offer, then lit the fuse, so to speak, when they received a better offer. The APS was not rendered null and void by any failure on the applicants’ behalf to the Escape Clause. The respondents’ interpretation of the contract is untenable, and I have no difficulty in finding they breached the APS.[^2]

[35] Given that the applicants have lost the benefit of the performance of the contract, they are entitled to damages.

Issue 2: What is the appropriate measure of damages?

[36] When assessing damages following a breach of contract, the court endeavors to put the injured party, as nearly as possible, in the position it would have been in had the contract been performed: Semelhago v. Paramadevan, 1996 CanLII 209 (SCC), [1996] 2 S.C.R. 415 at para 12.

[37] The applicants argue that had the APS not been breached, they would have paid $530,000 for a home that was worth $703,000. An award of $173,000, the difference between the two values, would put them in the position they would have been had the sale gone through.

[38] The respondents submit that if the applicants did sustain damages, they have failed to mitigate, and their entitlement is limited to real estate costs and legal fees.

[39] Both parties rely on Akelius Canada Inc. v. 2436196 Ontario Inc., 2020 ONSC 6182, 328 A.C.W.S. (3d) 516, in which two sophisticated real estate investors entered into an agreement of purchase and sale for a group of properties. The vendor ultimately could not deliver free and clear title, and the disappointed buyer sued for breach of contract. The vendor eventually sold the properties for about $50,000,000 more than the original purchase price. The disappointed buyer sought $50,000,000 in damages, reflecting the appreciation realized by the sellers. The buyer also sought over $700,000 in legal costs thrown away on the aborted transaction.

[40] In Akelius, Morgan J. found that the vendor had breached the agreement of purchase and sale. However, when it came to damages, the disappointed purchaser was only entitled to recover the legal costs thrown away. Morgan J. held that speculative profit as a measure of damages cannot be awarded simply because the vendor made a profit, quoting from Marshall v. Meirik, 2019 ONSC 6215, 311 A.C.W.S. (3d) 760, at para 30:

The measure of damages for failure to complete a purchase of land is the difference between the contract price and the market value of the land – which is intended to represent the lost benefit of the bargain to the vendor.

[41] Ordinarily, where there has been an aborted purchase and sale of real estate, damages are assessed at the date that had been set for closing: 100 Main Street Ltd. v. W.B. Sullivan Construction Ltd. (1978), 1978 CanLII 1630 (ON CA).

[42] However, as Laskin J.A. held in 6472047 Ontario Ltd. v. Fleischer (2001) 2001 CanLII 8623 (ON CA), 56 OR (3d) 417, at para 42 (Ont CA), “The date for the assessment of damages is determined by what is fair on the facts of each case.”

[43] I find that fairness dictates damages should be assessed as at March 19, 2021, the closing date set out in the APS. Given that the second purchaser offered to pay $173,000 more for the property on February 7, 2021, this is the proper measure of damages.

[44] This does not conclude the analysis, however. Disappointed purchasers seeking damages are “required to mitigate by making diligent efforts to find a substitute property”: Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, [2012] 2 SCR 675, at para 30. In other words, disappointed purchasers have a duty to mitigate.

[45] The respondents argue the applicants have not provided any evidence of their mitigation efforts. The applicants submit that the respondents bear the onus of proving mitigation. I suspect the failure to adequately address mitigation is largely due to the fact that in their efforts to have this matter heard expeditiously, on the basis of an agreement statement of facts and untested affidavits, information that would have been obtained through cross examination was not produced.

[46] As it stands, the only evidence of mitigation is that of the applicants, who submit that they have not been able to find another property which offered the same value. There is no documentation to support this assertion, however. Did the applicants eventually sell their home and purchase another property? Did the applicants’ home appreciate in value during that time? This is all information relevant to the issue of mitigation.

[47] In light of this lacuna, it is open to me to find that the applicants have not proven their damages. But that would bestow upon the respondents a windfall they do not deserve, given their breach. There must be some reduction of the $173,000 to account for mitigation, or the lack thereof, but where should the line be drawn? I trust the appropriate measure of damages lies somewhere in the middle, or perhaps even 60% to the applicants and 40% to the respondents. However, I am not prepared to make this determination on the record before me.

[48] In the circumstances, I am directing a reference with the sole purpose of calculating damages, pursuant to r. 54.02(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194:

Subject to any right to have an issue tried by a jury, a judge may at any time in a proceeding direct a reference of the whole proceeding or a reference to determine an issue where,

(b) … an investigation is required that, in the opinion of a judge, cannot conveniently be made at trial.

[49] The parties are free to structure the assessment hearing in whichever manner they choose. They may obtain expert appraisal reports, call witnesses, conduct cross examinations, etc.

[50] Facta limited to 15 pages shall be served seven days in advance of the hearing.

[51] The hearing may be arranged through the trial coordinator. The parties should endeavor to agree upon a schedule, but if they are unable to, they may request a case conference through my judicial assistant, Nicole Anderson (nicole.anderson@ontario.ca).

[52] If the parties reach a settlement that renders the assessment unnecessary, counsel are asked to notify me through Ms. Anderson.

[53] At the same time as the assessment, I will address costs.

CASULLO J.

Released: November 18, 2021

[^1]: All parties agree that the Notice should have read 9:00 p.m. instead of 8:00 p.m.

[^2]: In light of my finding, I need not address whether the applicants’ notice to the respondents was deficient.