Superior Court of Justice - Ontario

COURT FILE NO.: CV-21-672708-0000

DATE: 20220513

RE: Natalie Mouralian AND: Isabelle Groleau

BEFORE: J.T. Akbarali J.

COUNSEL: M. Olanyi Parsons, for the Plaintiff Matthew Morden, for the Defendant

HEARD: May 12, 2022

ENDORSEMENT

Overview

[1] This action arises out of a failed real estate transaction. The plaintiff purchaser was unable to sell her properties to enable her to obtain financing to close the transaction. The defendant vendor tendered, but the plaintiff could not complete the transaction. The defendant subsequently resold the property to another buyer for more money.

[2] The plaintiff purchaser brought this action claiming the return of her deposit. The defendant vendor brings this summary judgment motion seeking an order dismissing the plaintiff’s claim and a declaration that the plaintiff has no interest in the deposit.

[3] The plaintiff argues that the motion should be dismissed because there is a genuine issue requiring a trial as to whether she should be entitled to relief from forfeiture. In support of this argument she alleges: (i) because the defendant sold the property for substantially more, she has suffered no loss; and (ii) due to the plaintiff’s personal circumstances, it would be unconscionable for the defendant to retain the deposit. Those personal circumstances include that the plaintiff entered into the transaction during a period where she was struggling with her mental health, and as such was unable to appreciate the consequences of the agreement; she suffered a concussion after entering into the agreement of purchase and sale but before the intended closing date; and despite best efforts to sell her other properties, she was unable to do so.

Is summary judgment appropriate?

[4] Rule 20.04(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, directs the court to grant summary judgment if the court is satisfied that there is no genuine issue requiring a trial.

[5] In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Court held, at para. 49, that there will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a summary judgment motion. “This will be the case when the 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”: para. 49.

[6] In my view, this case is appropriate for summary judgment. The facts are not in dispute. The parties argue only about the implications of the facts for purposes of the test for relief from forfeiture. Determining the issues will not require me to make use of the enhanced fact-finding powers in the rule, as there is no need in this case to make findings of credibility, or draw inferences of fact.

Should relief from forfeiture be granted?

[7] The basic principle is that, when a purchaser fails to close a transaction, the deposit is forfeited, without proof of any damages suffered by the vendor because “it is not just part payment but also a security mechanism to incentivize the purchaser to complete the transaction”: Azzarello v. Shawqui, 2019 ONCA 820, at paras. 45, 46, 54. “Where the vendors suffers no loss, the vendor may nevertheless retain the deposit, subject to relief from forfeiture”: Azzarello, at paras. 45-46; Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282; Tang v. Zhang, 2013 BCCA 522, 359 D.L.R. (4th) 104, at para 30.

[8] Relief from forfeiture is an equitable remedy, codified in s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C. 43, which provides that a court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.

[9] The two-part test for relief from forfeiture, originally set out in the English case Stockloser v. Johnson, [1954] 1 Q.B. 476 (C.A.), and adopted into Ontario (see, for example, Azzarello, at para. 47; Redstone, at para. 15), asks:

a. Whether the forfeited deposit was out of all proportion to the damages suffered; and

b. Whether it would be unconscionable for the seller to retain the deposit.

[10] “The finding of unconscionability must be an exceptional one, strongly compelled on the facts of the case”: Redstone, at para. 25.

[11] In considering the second branch of the test, the Court of Appeal, while noting that the list of indicia of unconscionability is never closed, identified the following factors that may assist (see Redstone, at para. 30):

a. Inequality of bargaining power;

b. A substantially unfair bargain;

c. The relative sophistication of the parties;

d. The existence of bona fide negotiations;

e. The nature of the relationship between the parties;

f. The gravity of the breach; and

g. The conduct of the parties.

[12] In the recent decision of Uber v. Heller, 2020 SCC 16, the Supreme Court of Canada reviewed the equitable doctrine of unconscionability. There, the Court held that unconscionability requires both an inequality of bargaining power and a resulting improvident bargain: para. 65.

[13] I turn to consider the first branch of the test, whether the forfeited deposit was out of all proportion to the damages suffered.

[14] Here, no damages were suffered. Although the failed transaction caused the defendant to incur costs, she subsequently sold the property for more money, and the greater sale price more than covered the costs she incurred, even if one includes the potential liability she claims she has for commission on the failed transaction. I thus assume, for purposes of my analysis, that the first branch of the test is made out. For the sake of completeness, I note that the deposit in question was $70,000, representing about 5% of the agreed-upon sale price of $1,499,000.00. It was thus a very typical deposit on a residential property transaction.

[15] The parties agree that it is the second part of the test for relief from forfeiture that is at issue in this case. The real question is whether it is unconscionable for the vendor to retain the deposit. I turn now to analyze the indicia of unconscionability in the context of the evidence in the record. While I consider the factors identified in Redstone, I do so in the context of the two overarching requirements for unconscionability identified in Uber.

[16] First, is there an inequality of bargaining power? In Uber, the Court held that an inequality of bargaining power exists when one party cannot adequately protect their interests in the contracting process: para. 66. Differences in wealth, knowledge, or experience may be relevant, but inequality encompasses more than just those attributes: para. 67. The disadvantages suffered by one party to the contract need not be so serious as to negate the capacity to enter a technically valid contract. However, in many cases where inequality of bargaining power has been demonstrated, the relevant disadvantages impaired a party’s ability to negotiate or enter into the contract freely, or compromised a party’s ability to understand or appreciate the meaning and significance of the contractual terms, or both: para. 67-68.

[17] The plaintiff relies on her mental state at the time the contract was entered into. She deposes that her uncle, with whom she was very close, had just died. She deposes that, in addition to her grief over losing her uncle, his loss triggered memories of the trauma she experienced when her father died in her arms in 2017.

[18] She was at her uncle’s funeral on May 27, 2021, when her real estate agent was pressuring her into signing an offer to purchase the defendant’s property. She did sign an offer on that day.

[19] The defendant signed back the offer the next day, May 28, 2021. The plaintiff accepted the offer at about 9:30 p.m. that same evening. She deposes that as a result of the combination of the pressure her real estate agent placed on her, and her severe emotional distress, she agreed to sign the agreement of purchase and sale (“APS”).

[20] The plaintiff attempted to obtain medical evidence to support her contention that she did not have the capacity to sign the APS, but the psychiatrist whose (hearsay) letter is in the record indicated he could not provide the opinion she was seeking. I note that he only saw her in April 2022, so it is not clear to me how he could opine on her mental state nearly a year earlier in any event.

[21] The plaintiff also filed a letter from a nurse practitioner that states that she was not of sound mind on May 28, 2021 due to a sudden family death and she was “not in a position to sign a binding contract.” The letter is three sentences long. It does not describe when the nurse practitioner saw the plaintiff, what assessments were done, how she knows that the plaintiff was not in “a position” to sign a binding contract, or even what she means by “a position to sign a binding contract”. It does not explain her qualifications to draw that conclusion. Moreover, the letter is hearsay. I accord it no weight.

[22] Against the plaintiff’s evidence about her mental state, I must weigh the evidence that suggests there was no inequality of bargaining power. I note the following facts:

a. The parties had no relationship with each other and had never met when the APS was concluded;

b. From the defendant’s perspective, nothing about the negotiations or the agreement was unusual. She was unaware that the plaintiff was dealing with the loss of her uncle, or that it had triggered memories of her earlier traumatic experiences. She eventually learned that the plaintiff had experienced a death in the family, but only after the APS had been signed;

c. Each party had a real estate agent advising them. No evidence suggests the defendant was aware that the plaintiff’s real estate agent was pressuring her;

d. The APS was negotiated at arms-length, in a bona fide process, with offers passing between the parties; and

e. The plaintiff was then the owner of two other properties, so had at least some experience buying real estate.

[23] These factors all suggest that the plaintiff was able to protect her interest in the contracting process.

[24] To the extent she argues that she did not appreciate the consequences of the APS, I note that she did not seek to repudiate the agreement at any time until her financing fell through, although she had months to do so. Her lawyer tried to negotiate something with the defendant’s lawyer when it became clear the plaintiff would not have financing in place to close the transaction, and clearly indicated that the problem was lack of financing; he did not raise any other concern.

[25] On cross-examination, the plaintiff testified that she intended to complete the transaction “up until the end”. To do so, she took a number of steps, including hiring an agent to sell her properties, signing a listing agreement, staging her properties, eventually firing her agent when she became unhappy with him and hiring a new agent, remediating mold that was discovered in one of the properties, and relisting the property. Undertaking these tasks was onerous, not least because in June 2021 the plaintiff suffered a concussion which impacted her health. Even still, she did her best to try to sell the properties so that she could obtain the financing she needed to close the transaction with the defendant. Her evidence that she wanted to close the transaction up until the end is inconsistent with her position that she did not understand the consequences of the APS.

[26] In any event, it is clear that the defendant had no knowledge of any alleged incapacity of the plaintiff at the time the APS was signed. “Even in cases of mental incompetence, a party seeking to escape the terms of a contract must show not only that he or she was mentally incompetent, but also that the other party knew it” or at least was aware of facts that should have put them on notice that the state of mind of the mentally incompetent person was in question: Lougheed v. Ponomareva, 2013 ONSC 4347, at paras. 43-44; Grant v. Imperial Trust Co., 1935 CanLII 335 (SCC), [1934] O.W.N. 370 (C.A.); aff’d 1935 CanLII 327 (SCC), [1935] 3 D.L.R. 660 (S.C.C.).

[27] As a result, I conclude that there was no inequality of bargaining power.

[28] Second, was the bargain improvident? I conclude it was not. The plaintiff’s ongoing desire to close the transaction up until the end reflects the fact that the bargain was not improvident. The fact that the property sold for $1,677,022, pursuant to an agreement entered into on October 6, 2021, suggests that the sale price the parties agreed to was not improvident, but at least fair.

[29] In reality, this litigation arises because the plaintiff, despite her best intentions, encountered some unfortunate circumstances which impacted her ability to sell her other properties and obtain the financing she needed to close the real estate transaction with the defendant. While no doubt the plaintiff has suffered from these circumstances, they do not lead to the conclusion that it would be unconscionable for the defendant to retain the deposit. The deposit is not a windfall for the defendant, because it is not meant to be damages for the failed transaction, but rather, it is security to incentivize purchasers to close the transactions they enter into.

[30] For these reasons, I find that the elements of the test for relief from forfeiture are not established.

[31] In the result, I grant the defendant’s motion for summary judgment, and dismiss the plaintiff’s claim. I declare that, due to the plaintiff’s breach of the APS, the deposit, plus accrued interest, is forfeited to the defendant.

Costs

[32] At my request, the parties uploaded costs outlines and any relevant offers to settle to CaseLines. At the hearing, they agreed that, once I drafted my reasons on the merits, I would view the costs outlines and offer (there is only one) and determine costs without the need for further submissions. I followed that process, and now turn to deal with the costs of this action.

[33] The three main purposes of modern costs rules are to indemnify successful litigants for the costs of litigation, to encourage settlement, and to discourage and sanction inappropriate behaviour by litigants: Fong v. Chan (1999), 1999 CanLII 2052 (ON CA), 46 O.R. (3d) 330, at para. 22.

[34] Subject to the provisions of an Act or the rules of court, costs are in the discretion of the court, pursuant to s. 131 of the Courts of Justice Act. The court exercises its discretion taking into account the factors enumerated in r. 57.01 of the Rules of Civil Procedure, including the principle of indemnity, the reasonable expectations of the unsuccessful party, and the complexity and importance of the issues. Overall, costs must be fair and reasonable: Boucher v. Public Accountants’ Council for the Province of Ontario, 2004 CanLII 14579 (Ont. C.A.), 71 O.R. (3d) 291, at paras. 4 and 38. A costs award should reflect what the court views as a fair and reasonable contribution by the unsuccessful party to the successful party rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier, 2002 CanLII 25577 (ON CA), 2002 CarswellOnt 4020, 118 A.C.W.S. (3d) 341 (C.A.), at para. 4.

[35] Here, the defendant is the successful party and is presumptively entitled to her costs. Her bill of costs supports costs of $11,207.12 all-inclusive on a partial indemnity scale, and $17,705.62 all-inclusive on a full indemnity scale. These costs are lower than those that would have been sought by the plaintiff were she successful. Her bill of costs establishes partial indemnity costs of $14,814.30 and full indemnity costs of $24,690.50, neither of which figure includes disbursements.

[36] On April 11, 2022, the defendant served an offer to settle, offering to pay the plaintiff $5,000 in exchange for a release and a no costs dismissal of the claim, if accepted by April 15, 2022, and with partial indemnity costs to the defendant if the offer were accepted after April 15, 2022. This offer was served two days before cross-examinations. While not a particularly generous offer, it reflects the defendant’s correct assessment that she was likely to succeed on this motion.

[37] The defendant has beaten her offer to settle, and as a result, is presumptively entitled to partial indemnity costs up to April 11, 2022, and substantial indemnity costs thereafter. The defendant has not calculated her costs on that basis. Having regard to the dockets filed, I have done my own calculation; her claim for costs is approximately $12,000.

[38] In my view, these costs are fair and reasonable. They are proportionate to the amount sought in the proceeding ($70,000), and reflect the fact that the issues were not complex, but were important to both parties. Moreover, they are less than the costs claimed by the plaintiff, so are within her reasonable expectations.

[39] The plaintiff shall pay the defendant costs of $12,000 all-inclusive within thirty days.

Conclusion

[40] In summary, I make the following orders:

a. The plaintiff’s claim is dismissed;

b. Due to the plaintiff’s breach of the APS, her deposit of $70,000 plus all interest earned on such amount is forfeited to the defendant;

c. The plaintiff shall pay the defendant’s costs of this proceeding, fixed at $12,000 all-inclusive within thirty days.

[41] Order to go in accordance with the draft I have signed.

J.T. Akbarali J.

Date: May 13, 2022