COURT FILE NO.: CV-20-00651684-0000
DATE: 20220404
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
YI-HANG CHAN and CHIAO-WEI HSIAO
Applicants
- and –
SHAN MANGAL and HOMELIFE SUPERSTARS REAL ESTATE LIMITED
Respondents
Annabelle Lui for the Applicants
Samir Chhina for the Respondents
HEARD: March 17, 2022
PERELL, J.
REASONS FOR DECISION
A. Introduction
[1] In this proceeding by application, the Applicants, Yi-Hang Chan and Chiao-Wei Hsiao, sue Shan Mangal and Homelife Superstars Real Estate Limited (“Homelife”) for the return of a $50,500 deposit paid on an abortive real estate transaction. The Applicants seek a reference for damages as against Mr. Mangal or, in the alternative, damages for costs thrown away in the amount of $7,818.22. The defendant Homelife did not oppose the application. For the reasons that follow, I grant the Applicants a judgment for the return of the deposit.
B. Facts
[2] Mr. Mangal is the principal of a property management and construction company. On August 31, 2018, he purchased 16 Bryant Ave. in the City of Toronto.
[3] On February 6, 2020, Mr. Mangal entered into an Ontario Real Estate Association (“OREA”) standard form Agreement of Purchase and Sale and agreed to sell 16 Bryant Ave. to the Applicants. The purchase price was $1,010,000 with a $50,500 deposit. The deposit was paid and is being held by Homelife. The transaction was scheduled to close on March 17, 2020.
[4] For present purposes the following provisions of the OREA standard form contract are pertinent:
TITLE SEARCH: Buyer shall be allowed until 6:00 p.m. on the 10 day of March, 2020, (Requisition Date) to examine the title to the property at Buyer's own expense and until the earlier of: (i) thirty days from the later of the Requisition Date or the date on which the conditions in this Agreement are fulfilled or otherwise waived or; (ii) five days prior to completion, to satisfy Buyer that there are no outstanding work order or deficiency notices, affecting the property […]
TITLE: Provided that the title to the property is good and free from all registered restrictions, charges, liens, and encumbrances except as otherwise specifically provided in this Agreement und save and except for […] If within the specified times referred to in paragraph 8 any valid objection to title or to any outstanding work order or deficiency notice […] made in writing to Seller and which Seller is unable or unwilling to remove, remedy or satisfy or obtain insurance save and except against risk of fire (Title Insurance) in favour of the Buyer and any mortgagee, with all related costs at the expense of the Seller), and which Buyer will not waive, this Agreement notwithstanding any intermediate acts or negotiations in respect of such objections, shall be at an end and all monies paid shall be returned without interest or deduction and Seller, Listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages. Save as to any valid objection so made by such day and except for any objection going to the root of the title, Buyer shall be conclusively deemed to have accepted Seller's title to the property.
TIME LIMITS: Time shall in all respects be of the essence hereof provided that the time for doing or completing of any matter provided for herein may be extended or abridged by an agreement in writing signed by Seller and Buyer or by their respective lawyers who may be specifically authorized in that regard.
[5] The Applicants retained Adam Richardson as their conveyancing lawyer, and on March 9, 2020, he sent Karanpaul Singh Randhawa, Mr. Mangal’s lawyer, a requisition letter. (Although nothing turns on it, Mr. Randhawa is a lawyer, and he was also Mr. Mangal’s real estate agent from Homelife. Mr. Randhawa had acted for Mr. Mangal when he originally purchased the property.)
[6] Mr. Richardson’s requisition letter to Mr. Randhawa required, amongst other things:
a. on or before closing a discharge of Instrument No. AT5362364, a Charge/Mortgage of Land registered February 11, 2020 from Shan Mangal in favour of 1614358 ONTARIO LTD and Narendra Singh and Meni Moskowski securing the principal sum of $800,000; and,
b. on or before closing a discharge of a Notice of Interest being Instrument No. AT5365364 pursuant to a Promissory Note registered February 14, 2020 by Mohinderjit Singh in favour of Shan Mangal in the amount of $200,000.00.
[7] Mr. Richardson completed off-title searches, and on March 11, 2020, Mr. Richardson learned from the City of Toronto that there were four open building permit files and one active investigation about 16 Bryant Ave. Mr. Richardson’s office immediately requisitioned that these matters be dealt with by the closing of the transaction. Mr. Randhawa was sent a further requisition letter that stated:
Further to our requisition letter sent on March 9, 2020, our office has received a Property Information Report today revealing a number of open permits and an investigation for construction without a permit on the subject property. We require on or before closing evidence that these open permits and investigations are closed as these go to the root of title. Thank you, Dana
[8] In this Application, Mr. Mangal takes the position that this further requisition was out of time. Nevertheless, Mr. Mangal attempted to deal with the matter. On March 11, 2020, he contacted John Sadler, the Toronto City Inspector, dealing with the files. Mr. Sadler said that a personal inspection of the property was required before the files could be closed, but this was not possible on an urgent basis because of the Covid-19 emergency’s impact. Nevertheless, Mr. Sadler did attend on the property on March 13, 2020, and he advised Mr. Mangal that to close the files about 16 Bryant Ave. the following was required: (a) a clearance report from a structural engineer; (b) a clearance report from an electrical engineer; (c) the repair of the bathroom and a sump-pump; and (d) an inspection confirming that the basement was not a separate dwelling unit.
[9] On March 15, 2020, Mr. Mangal delivered the required structural engineer’s report.
[10] On March 16, 2020, the repairs of the bathroom and the sump-pump are completed.
[11] On the day of the closing, March 17, 2020, Mr. Mangal’s lawyer asked for an extension of the closing date in order for Mr. Mangal to resolve the outstanding matters. Mr. Mangal also offered to have $10,000 held back from the closing proceeds to deal with the municipality’s requirements. The request for an extension was refused, and the Applicants insisted that Mr. Mangal immediately deal with the requisitions and be in a position to close.
[12] Mr. Mangal, however, was unable to close on March 17, 2020 because the following matters were outstanding:
a. The private mortgage in favour of 1614358 Ontario Ltd. and Narendra Singh and Meni Moskowski had not been discharged nor had the lenders provided a payout statement or a Document Registration Agreement to deal with the discharge of the mortgage.
b. The Notice of Interest with respect to the promissory note had not been discharged.
c. The four outstanding building permit files and the active investigation of the City of Toronto had not been finally resolved.
[13] Further, Mr. Mangal was unable to provide the Applicants with a title insurance policy covering the issues of the open building permits and the Applicants’ own title insurer, Chicago Title Insurance Company Canada, refused to insure over the building permit problem.
[14] All these matters remained outstanding when the Applicants tendered on March 18, 2020. The Applicants demanded a return of their deposit in exchange for a mutual release.
[15] On March 19, 2020, Mr. Mangal delivered the required report from the electrical engineer.
[16] On March 24, 2020, Mr. Mangal learned that the City had closed the building department’s files on March 20, 2020.
[17] Mr. Mangal relisted the property for sale, and on June 29, 2020, it was resold for $999,000.
[18] The Applicants repeated their demands for a return of the deposit, and when they were rebuffed, the Applicants sued Mr. Mangal for a return of the deposit and damages. He counterclaims for forfeiture of the deposit and damages.
[19] It is Mr. Mangal’s position that notwithstanding the Covid-19 pandemic which created difficult circumstances for completing the transaction in March 2020, he acted in good faith and made all possible efforts to complete the transaction, but the Applicants, in turn, did not act in good faith. Mr. Mangal submits that it was the Applicants not him that breached the Agreement of Purchase and Sale.
C. Discussion and Analysis
[20] The Applicants’ lawsuit is a routine abortive real estate transaction case where a purchaser makes timely requisitions that: (a) the vendor, acting in good faith, is unable to answer by the date of closing; and (b) the purchaser does not waive. In this situation, the purchaser’s remedy is governed by the Title provision in the Agreement of Purchase and Sale, which provides that:
[the] Agreement notwithstanding any intermediate acts or negotiations in respect of such objections, shall be at an end and all monies paid shall be returned without interest or deduction and Seller, Listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages.
[21] The title search provision in the standard agreement of purchase and sale provides deadlines for searches and inquiries about the title to the property, municipal work orders, and deficiency notices, the present use of the property, and insurability. If the purchaser misses the deadline for these inquiries, some of which, strictly speaking, are not title matters, then the literal effect of the concluding part of the title provision is to deny the purchaser the right to object, unless the objection is classified as an objection “going to the root of title,” which is a very serious title problem that could amount to a total failure of consideration.
[22] However, notwithstanding the wording of the Title provision, courts allow purchasers to object to what are known as matters of conveyance after the requisition deadline. The case law has recognized different kinds of title requisitions. There are four kinds of title requisitions: (1) title requisitions going to the root of title; (2) title requisitions that are matters of conveyance, which means that are within the power of the vendor to satisfy; (3) latent title requisitions, which refers to title requisitions that cannot be found during the search period; and (4) what might be called a title requisition simpliciter; that is, a requisition that is not latent, or a matter of conveyance, and it does not go to the root of title.
[23] Matters going to the root of title were best defined in a famous lecture given at the Law Society’s Special Lectures by William Howland, who later went to the bench and eventually was Chief Justice of Ontario. His lecture is quoted in Majak Properties Ltd. v. Bloomberg.[^1] Mr. Howland stated:[^2]
Are there any objections to title which are so serious that the purchaser can still make them even though they were not submitted within the prescribed time for making title objections? The answer is that objections which go to the “root of title” can still be raised by the purchaser. If there is a total failure of consideration and the purchaser would receive nothing at all, not even the possession of the property, an objection to title on such grounds would go to the root of title […] Title is the foundation of the contract. Apart from the situation where the vendor has no power to sell, it is difficult to define accurately what objections go to the root of title. If the vendor does not have the power to give the purchaser what it is intended by the contract he shall have then the objection [sic] may then go to the root of title […]
[24] The second kind of requisition is a requisition that is a matter of conveyance. Matters of conveyance may be requisitioned up until closing notwithstanding the requisition deadline specified in the standard provision found in agreements of purchase and sale. In his lecture, Mr. Howland described matters of conveyance. He stated:[^3]
In the first place a distinction must be drawn between matters of conveyance and matters of title. If the objection is one of conveyance rather than of title, the purchaser does not have to submit it within the time for submitting requisitions on title. Matters of conveyance may be said to be those of which the vendor alone or with other persons whose concurrence he can require is in a position to convey the title to the property. They assume that the vendor has a right to make title or to cause it to be made and are concerned with the satisfaction of the right. [...]
By this definition, a requisition that is within the power of the vendor to handle is a matter of conveyance.
[25] The third type of requisition is latent title matters; these are title matters that are not discoverable during the requisition period. For present purposes, I need not discuss this type of requisition. I do need to address the fourth kind of requisition, which may be described as a requisition simpliciter; these are simple title requisitions that need to be made in a timely way. These title requisitions are: (a) not matters of conveyance, (b) not matters that go to the root of title, and (c) not latent title matters. If the purchaser’s lawyer fails to note and requisition about this type of title requisition in a timely manner, then the purchaser will lose the right to object at all, because pursuant to the Title provision of the standard form agreement of purchase and sale, he or she will be deemed to have accepted the vendor’s title to the property.
[26] Such is the law that applies to the immediate case. In the immediate case, the Applicants made timely requisitions simpliciter with respect to the mortgage and the Notice of Interest. And, although the requisition with respect to the building permits was not a matter going to the root of title,[^4] it was a matter of conveyance that could be requisitioned up until the closing of the transaction. Mr. Mangal responded in good faith to the valid requisitions, but he was unable to satisfy the requisitions.
[27] I shall not set out the competing arguments of the parties in the immediate case because they both did not appreciate the operation of the Title provision in the standard form agreement of purchase and sale, and thus their arguments were not doctrinally sound.
[28] The Applicants’ argument was, however, partially right in its conclusion. In the immediate case, the deposit should be refunded but without interest and with no claim for damages against Mr. Mangal or Homelife.
[29] I will just briefly mention that there is no merit to Mr. Mangal’s arguments about good faith. It does appear that Mr. Mangal acted in good faith in attempting to try and close the transaction, but in those circumstances, he was not relieved of his contractual obligations, which included returning the deposit if he was unable, acting in good faith, to answer the requisitions; however, he could rely on the Title provision to spare him a claim for damages.
[30] The Applicants did not act in bad faith in refusing an extension of the closing of the transaction and holding Mr. Mangal to his bargain,[^5] and they are entitled to a return of the deposit,[^6] but since Mr. Mangal was proceeding in good faith, they do not have a claim for damages.
D. Conclusion
[31] For the above reasons, I grant the Applicants a judgment for $50,500 for the return of the deposit but without interest or a claim for damages. It follows that Mr. Mangal’s claims are dismissed.
[32] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with the submissions of the Applicants within twenty days of the release of these Reasons for Decision followed by the Respondents’ submissions within a further twenty days.
Perell, J.
Released: April 4, 2022
COURT FILE NO.: CV-20-00651684-0000
DATE: 20220404
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
YI-HANG CHAN and CHIAO-WEI HSIAO
Applicants
- and -
SHAN MANGAL and HOMELIFE SUPERSTARS REAL ESTATE LIMITED
Respondents
REASONS FOR DECISION
PERELL J.
Released: April 4, 2022
[^1]: (1976), 1976 864 (ON SC), 13 O.R. (2d) 447 (H.C.J.). [^2]: (1976), 1976 864 (ON SC), 13 O.R. (2d) 447 at p. 454 (H.C.J.). [^3]: (1976), 1976 864 (ON SC), 13 O.R. (2d) 447 (H.C.J.) at pp. 451–52. [^4]: Municipal zoning by-laws and building by-laws are not matters of title: 567 College Street Inc. v. I2329005 Inc., 2019 ONSC 7346; Brar v. Smith 2014 ONSC 5030; Jackson v. Nicholson (1979), 1979 1774 (ON SC), 25 O.R. (2d) 513 (H.C.J.); Innes v. Van De Weerdhof, 1970 362 (ON SC), [1970] 2 O.R. 334 (H.C.J.); Re Mullin and Knowles, 1965 209 (ON CA), [1966] 1 O.R. 324 (C.A.); Re Gay, [1959] O.J. No. 340 (C.A.); Re Pongratz and Zubyk, 1954 326 (ON SC), [1954] O.W.N. 597 (H.C.J.); The Township of Trafalgar v. Hamilton, 1953 122 (ON CA), [1954] O.R. 81 (C.A.). Work orders are not title matters: Ahuntisic Investments Inc. v. Cheng (1992), 28 R.P.R. (2d) 16 (Ont. Gen. Div.), affd. (1994), 39 R.P.R. (2d) 38 (C.A.). Provincial land use regulations are similar to zoning and are not title matters: Palen v. Millson (1987), 1987 4336 (ON SC), 63 O.R. (2d) 89 (Dist. Ct.); 665284 Ontario Ltd. v. Ricci (1992), 23 R.P.R. (2d) 221 (Ont. Gen. Div.). In 1854822 Ontario Ltd. v. Estate of Manuel Martins, 2013 ONSC 4310 and Thomas v. Carreno, 2013 ONSC 1495, it was held that an open building permit could constitute a valid objection to title. [^5]: Elliott v. Montemarano, 2020 ONSC 6852; Asumeng v. Rending, 2020 ONSC 2304; Deangelis v. Weldan Properties (Haig) Inc., 2017 ONSC 4155. [^6]: 2651171 Ontario Inc. v. Brey, 2022 ONCA 148 rev’g 2021 ONSC 1492.