COURT FILE NO.: CV-21-60038
DATE: 2022/06/28
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
GIOVANNI STANZIANO
E. Krajewska and A. Pel, for the Applicant
Applicant
- and -
VALERIE JEANNE WOLFE
G. Enskat, for the Respondent
Respondent
HEARD: June 16, 2022
A. J. GOODMAN J.:
REASONS FOR JUDGMENT- APPLICATION
Introduction:
[1] The applicant, Giovanni Stanziano (“Giovanni”), seeks specific performance in relation to an Agreement of Purchase and Sale (“APS”) to close the sale of the property located at 17 Beecher Street in St. Catharines (“the Property”). [^1]
[2] The nub of the application stems from a dispute regarding clause 7 of the APS that relates the HST on a disposition of the property.
[3] For the following reasons, the application is granted.
the facts:
[4] Giovanni is a graduate of Niagara College’s Culinary Arts Apprentice program. He co-owns a bakery with his sister in St. Catharines, named Con Gusto Artisan Bakery (“Con Gusto”). Until recently his income and credit rating were both too low for him to qualify for a mortgage.
[5] Giovanni’s spouse, Sharon Silbert (“Sharon”), is a collaborative family lawyer and mediator who practices in St. Catharines. Sharon has some legal experience relating to residential real estate, but has no experience relating to commercial real estate law or the application of HST to APS to anything other than residential properties.
[6] The respondent, Valerie Wolfe (“Valerie”), is the Executive Director of the Hamilton office of a small, publicly-funded health and safety association. She has a Bachelor’s degree in chemistry.
[7] The respondent’s husband, Donald Wolfe (“Donald”), was called to the bar in 1986 and was appointed as a judge of the Ontario Court of Justice in December 2018. Donald practiced primarily criminal law prior to his appointment. He also performed some residential real estate work and legal industry directories identify him as a real estate lawyer. Donald is generally familiar with agreements of purchase and sale, including the industry-standard Ontario Real Estate Association (“OREA”) forms. Donald did not practice commercial real estate law and did not give tax advice as part of his legal practice.
[8] The Property is a brick house built in the early twentieth century that is approximately 1,430 square feet, two storeys tall, and has four bedrooms and one bathroom. The house has historic elements, including leaded glass windows, a large fireplace, and hardwood floors. The Property is currently zoned residentially. However, Donald operated a law practice at the Property between 1991 and 2018. This was on the basis of a continuous non-conforming use exemption.
[9] Valerie has owned the Property since 1991 and it was purchased in her name for liability and tax reasons. Although Valerie holds legal title, Donald is the de facto owner/operator of the Property. He guaranteed the mortgage of the Property. Valerie has seldom ever visited the office, nor does she have a key. As Donald’s “landlord”, Valerie registered for HST and remitted same to the authorities on her rental income.
[10] By the time Giovanni made his offer to purchase in December 2020, the Property had been vacant since Donald’s appointment in December 2018. While he was required to immediately cease practicing law, he continued to use his office to slowly wind down his files. When Donald was appointed, Valerie sought advice from her accountant about the capital gains tax implications of selling the Property but not about any HST implications.
[11] Sharon learned the Property was for sale on November 25, 2020 from Mr. Erik Grinbergs, a local family and real estate lawyer. Mr. Grinbergs was aware that Sharon was interested in purchasing an office. Mr. Grinbergs told Sharon that Donald wanted to sell the Property, that the Property “does require work”, and that he believed Donald would “seriously entertain an offer of $300,000 without any real estate agent being involved and being sold on an ‘as is basis’.”
[12] Sharon and Giovanni agreed that the Property’s characteristics made it desirable and suited their needs because of its potential for use as either a residence (where Giovanni could sleep in between his shifts at the bakery) or as an office for Sharon’s law practice. Sharon had been searching for similar listings in St. Catharines. There appeared to be nothing else directly comparable to the Property in relation to price, location, and size. Local housing market data confirms that in the fourth quarter of 2020, there was exceedingly low availability of detached homes in the $250,000-350,000 range in the Niagara region.
[13] Sharon took the lead in seeking out and visiting the Property. After Mr. Grinbergs put Sharon in contact with Donald, all subsequent interactions and communications that led up to execution of the APS were solely between Sharon and Donald.
[14] On December 8, 2020, Donald gave Sharon a tour of the Property. During this visit, Donald mentioned to Sharon that a real estate agent had told him that he would likely be better off selling it “as is” for approximately $325,000 rather than renovating and then selling the Property. Donald also mentioned to Sharon that he thought it was a great house and he had actually considered living there himself but had concluded it was just a bit too small.
[15] On December 19, 2020, when Donald showed Sharon the Property for a second time, Sharon brought along a contractor, Mike Biro, to assess the scale, complexity, and cost of potential renovations for both office and residential use. Mr. Biro concluded that the Property had good “bones”, but noted problems and the general state of disrepair of the Property’s rear portion. Mr. Biro never provided an estimate for the potential renovation work.
[16] Given the uncertainty surrounding the costs associated with renovating the Property for use either as an office or as a residence, Sharon and Giovanni decided that it would be prudent to determine future use after he acquired the Property and obtained more concrete advice on renovation options and costs from a contractor.
[17] On December 20, 2020, Sharon conveyed an interest in making an offer of $318,000 for the Property on Giovanni’s behalf, and related to Donald that she was “happy to prepare a draft of the Agreement of Purchase and Sale for your review”. Giovanni believed that this was a “fair price” and it was one that was “towards the upper end” of what he could afford.
[18] On December 21, 2020, Donald responded and stated: “Glad to hear that you are interested in the property. I agree the next step would be for you to prepare an offer by APS. The registered owner is Valerie Wolfe and I would review it with her.” When Donald invited Sharon to draft the APS, he did not specify whether a residential or a commercial agreement of purchase and sale was to be used; or whether HST should be included in or in addition to the purchase price; or whether an HST registration would be necessary. Sharon therefore prepared the APS, expecting that Donald would propose amendments or make a counter-offer to address any perceived issues after he had reviewed it with Valerie.
[19] Sharon prepared the contract and sent a copy signed by Giovanni to Donald on December 22, 2020. Sharon used a generic, standard-form OREA agreement of purchase and sale. Donald characterizes the form that Sharon used as being a “residential” OREA form, although it is not specifically labelled as such. He conceded on cross-examination that an OREA Form 100 APS “would be the standard form that I would see if an agreement of purchase and sale came into the office.”
[20] The APS that Sharon prepared, and which was ultimately accepted by Valerie without any amendments, contains the following key provisions: (i) The purchase price of the Property is $318,000; (ii) The closing date is January 27, 2021; (iii) Giovanni was required to pay a $5,000 deposit; (iv) The offer was conditional on Giovanni obtaining financing for the transaction; (v) the APS constituted an “entire agreement” between Valerie and Giovanni; and (vi) the previously-mentioned Clause 7, which appears in the APS is as follows:
[21] In drafting the APS, Sharon was uncertain about the HST implications of the sale, and filled in the blank field of Clause 7 to provide that any HST would be “included in” the purchase price of $318,000.
[22] Valerie reviewed the APS with Donald and perceived his input as tantamount to legal advice. She remarked on cross-examination that: “I didn't seek legal advice from anyone besides Don.” Valerie did not seek advice from her accountant, Mr. Bassett, prior to signing the APS.
[23] Donald admits in his affidavit that he “failed to see” that Clause 7 contained the words “included in”. His evidence is also that when his wife asked him a direct question about the HST implications of the sale, he “confidently” assured her that HST would be Giovanni’s problem. Donald made this assurance to Valerie despite his lack of awareness of the “included in” language of Clause 7; having taken no formal steps to confirm that Giovanni was an HST registrant and having no experience in commercial real estate or that that he “didn't give tax legal advice”. There was the absence of any representations that an HST number would be provided prior to closing. Donald’s evidence is that, despite Clause 7’s express stipulation that any applicable HST is “included in” the purchase price, “it was never our belief that the HST was embedded in the $318,000 purchase price. It was always our belief that the HST would be in addition to that.”
[24] Valerie concedes that the “ultimate decision” on whether to convey her acceptance of the APS rested with Donald. On the morning of December 24, 2020, Donald told Sharon that “we have decided to accept your offer as presented”. As Valerie explained on cross-examination, the Wolfes were attracted to Giovanni’s offer because it offered “a quick resolution to something hanging over our heads and particularly over Don's head.”
[25] The sale initially proceeded without issue. On December 30, 2020, Mr. Grinbergs agreed to represent Valerie on the sale of the Property and he had received a copy of the APS by this date. That day, Giovanni paid the deposit. To obtain a mortgage, Giovanni contacted a broker, and first inquired about commercial financing options. Faced with unfavourable terms, including a down payment he could not afford, Giovanni inquired at RBC, where he has his personal and Con Gusto accounts, about the possibility of a residential mortgage. RBC approved Giovanni for a residential mortgage on January 7, 2021.
[26] Valerie sought belated accounting advice and on the evening of January 20, 2021, she emailed her accountant, Mr. Bassett, to seek advice regarding a draft HST declaration that Giovanni’s real estate solicitor had prepared. She did not provide a copy of the APS to Mr Bassett. Mr. Bassett replied: “If the purchaser intends to use the property as a commercial property, you/Eric (sic) should obtain his HST #. That will help to protect you from any possible HST issue later (SS 221(2) of the Excise Act).”
[27] On January 24, 2021, Mr. Bassett sent an email to Valerie and Mr. Grinbergs offering further advice, but again without knowing that HST was “included in” the purchase price and proceeding from the (erroneous) premise that Sharon was the purchaser. Mr. Bassett said that: “the property is being sold to a lawyer who intends to use the property as her office” and “suggest that you request her HST #”. Two hours after Mr. Bassett’s email, Mr. Grinbergs sent an email to Sharon that inquired for the first time about Giovanni’s HST registration status.
[28] That evening, Sharon sent several responding emails to Mr. Grinbergs and explained that Giovanni would be using the property residentially. She also stated that: “Even if Gio[vanni] did have an HST number it wouldn’t really help them, would it? Wouldn’t that just mean less cash going to Valerie on closing? I am guessing their accountant didn’t realize the deal had HST included in the sale price, and assumed it was “in addition to”.
[29] The following day, Mr. Grinbergs wrote to Mr. Bassett (copying Valerie) and advised that Giovanni would not be using the Property commercially and that “The Agreement of Purchase and Sale specifically indicates that HST is included in the purchase price”. Mr. Grinbergs asked Mr. Bassett: “What are the implications for Valerie of this?” Mr. Bassett explained that because HST is “included in” the purchase price “the HST would be calculated as being a portion of the price paid”. Valerie replied to Mr. Bassett stating: “We are approaching the refusal to get an HST number as a potential breach of contract, but will see how it gets resolved”.
[30] On January 26, 2021, Mr. Grinbergs told Giovanni’s solicitor that “[M]y client was always of the understanding that an HST registration number would be supplied and therefore no payment of HST would be remitted or collected” and “$318,000 is what my client agreed to receive.”
[31] On the date of closing, January 27, 2021, Giovanni had fulfilled all of his obligations under the APS, and was ready, willing, and able to purchase the Property. However, Valerie refused to close. Giovanni remains ready, willing, and able to close, subject to renewing his mortgage approval.
[32] After Valerie’s refusal to close the sale, Giovanni searched for comparable properties available on the market. Searches conducted in March 2021 and in August 2021 for all properties in St. Catharines that sold for less than $325,000 since January 27, 2021 did not turn up any comparable properties. Since the date of closing, prices in the local market have surged.
Positions of the Parties:
[33] The applicant says that the property was for sale on an “as is” basis. Giovanni and Sharon viewed the Property as uniquely suited to serve as either as a residence where Giovanni could stay between his late night and early morning “shifts” at the nearby bakery he co-owns and manages; or a law office for Sharon.
[34] As requested, Sharon provided a standard APS to Donald on December 22, 2020 that provided that (i) the purchase price is $318,000; (ii) any applicable HST is to be “included in” the purchase price (Clause 7); and (iii) the APS is an entire agreement between Giovanni and Valerie.
[35] Valerie acknowledges that she specifically asked Donald about the HST implications of the draft APS. According to Donald, he assured her that Giovanni would bear any HST liability. Valerie admits that she “trusted and relied upon” this advice. Unfortunately, Donald’s advice was wrong and he has now admitted that he did not notice the “included in” wording of Clause 7. However, the existence of an oversight or error by Donald was not communicated to Giovanni or his counsel at any point prior to the commencement of this litigation.
[36] The applicant says that in the days leading up to the closing date, a period in which there is some evidence of “seller’s remorse”, Valerie sought HST advice from her accountant. He advised her that she would have to bear the cost of HST pursuant to the APS. While she learned of the impact of the language of Clause 7 in advance of the scheduled closing date, Valerie did not admit there had been a mistake or seek an amicable solution. Instead, she alleged there had been misrepresentations and made an ultimatum to Giovanni: the sale would only close if he became an HST registrant (thereby assuming HST liability to the CRA) and paid her $318,000. The applicant says that he did not accede to this effort to rewrite the plain language of Clause 7.
[37] The applicant submits that the respondent’s reason for refusing to close the sale of the Property is that she wanted to receive more money than she is entitled to. The applicant seeks an order for specific performance that will hold the respondent to her obligations under the APS, give effect to the unambiguous wording of Clause 7, and do justice between the parties in a fair manner.
[38] The respondent submits that the parties signed an APS but there is disagreement between the parties as to the contract and how it relates to the issue of HST. This was to be a commercial transaction and HST was to be paid by the purchaser. The purchaser would be entitled to input credits so that the applicant would not end up being out of pocket.
[39] The respondent takes the position that neither party understood the ramifications of HST and accordingly were not of the same mind (ad idem) when the APS was entered into and signed.
[40] In the alternative, the respondent contends that Sharon led both Valerie and Donald into a misunderstanding of the nature of the transaction and the HST implications. Although the OREA Form 100 designates Valerie and Giovanni as Seller and Buyer, respectively, the transaction at issue is based almost entirely on discussions between Donald and Sharon. In all discussions and communication, Sharon only discussed using this property for her office. There was no indication at all that the property was going to be used for anything else. Based on the misrepresentations, Donald was persuaded that this was the nature of the transaction wherein the property would be sold as a commercial property with HST to “flow through” so that neither party would end up being out of pocket as it related to HST. In this way, the property would be sold for $318,000 and that would be the amount that the applicant would end up paying (applying for tax input credits with regard to the HST) and the amount the respondent would receive.
[41] The Property was used as a commercial property for many years. Even though the property was zoned residential, the property was used commercially based on the principle of legal non-conforming use. This was made clear by Donald to Sharon and the appraisal that he provided to the applicant also stipulated that this property was being used as a commercial property pursuant to the legal non-conforming use.
[42] The respondent contends that, with the benefit of hindsight, both parties were not ad idem on the issue of HST and were at odds on how the tax would apply and who would bear the burden of its payment. The parties lacked ad idem with respect to the overall contract, the purchase price or how the HST issue would be handled.
[43] The respondent says that the court, on the basis of unilateral mistake induced by Sharon, ought to render the APS null and void. Both in her affidavit and in the cross-examination, Sharon takes the position that she and Giovanni had not made up their mind as to whether or not they would use the property residentially or commercially.
[44] Entire agreement clauses have often been held to be unenforceable and only work when the courts are satisfied of the significance of the clause brought home to the affected party. The courts strike down unfair terms and signed agreements where there is no realistic expectation that the written terms have been either read or, if read, understood by the signing party.
[45] The respondent submits that the applicant has not provided adequate justification for an order of specific performance. The applicant relies on unsubstantiated or incomplete evidence. The important issue of uniqueness requires consideration of the subject Property’s attributes in light of its proposed use. While the applicant’s factum makes reference to several decisions in which an order for specific performance had been issued, those cases are distinguishable. In this case, there is a great deal of uncertainty proffered by the applicant. While damages may be a substitute for this equitable remedy, properly applied to this case, the respondent submits that damages ought not be awarded and the contract deemed rescinded.
LEGAL PRINCIPLES:
[46] Pursuant to the Excise Tax Act, R.S.C., 1985, c. E-15 (“ETA”), a purchaser of real property is obligated to pay HST that applies to a sale. If a contract does not specify whether HST is included in a purchase price, “HST will be added to the quoted price.” However, a contract can provide that HST is “included in” the purchase price. Where HST is “included in” the purchase price, the vendor necessarily does not ‘net’ the entire purchase price amount. This is because the purchase price contains ‘embedded’ HST that must be collected and remitted to the CRA.
[47] A purchaser’s status as an HST registrant determines who, as between the vendor and the purchaser, has the obligation to collect and remit applicable HST to the CRA. The ETA contains a default presumption that a vendor must collect any applicable HST arising from the sale of real property. However, where a purchaser is an HST registrant, they are obligated to collect and remit HST. As a recent LAWPRO article explains: “Some lawyers … believe HST does not apply on a sale to a GST/HST-registered purchaser. This is incorrect. HST does apply. The sale is taxable. However, ETA s. 221(2), provides that the vendor does not collect the tax. Under s. 228(4), the purchaser must “self-assess” and pay the tax directly to the CRA.”
[48] If a purchaser is an HST registrant, they are eligible to claim input tax credits (“ITCs”) on the purchase of real property if they intend to use it for commercial purposes. ITCs serve to offset, in whole or in part, a purchaser’s HST liability to the CRA. As the Ontario Court of Appeal explains in National Money Mart Company v. 24 Gold Group Ltd., 2018 ONCA 812, at para. 72: “[t]he obligation of a [purchaser] to pay HST does not depend upon whether it can claim an input tax credit.” Courts have recognized that where an agreement of purchase and sale specifies that any HST is “included in” in the purchase price, a purchaser is entitled to a deduction in the purchase price at closing that constitutes the ‘embedded’ HST that is payable to the CRA even if the purchaser later claims ITCs to negate their actual tax liability.
[49] Where HST is “included in” the purchase price of real property, one of two scenarios will occur. Both result in a vendor “netting” less than the “full” purchase price. In Scenario “A”, the purchaser is not an HST registrant. Under the ETA, the vendor must collect and remit HST to the CRA. Because the parties agreed that HST would be “included in” the purchase price, the price contains “embedded” HST that the vendor must remit to the CRA. In Scenario “B”, the purchaser is an HST registrant. The purchaser must “self-assess” and pay HST directly to the CRA. Because the vendor expressly agreed that any HST was “included in” the purchase price, the purchaser is entitled to deduct this amount from the proceeds paid to the vendor at closing, even if the purchaser later claims ITCs.
[50] In Gillespie v. 1766998 Ontario Inc., 2014 ONSC 6952, the court dealt with an OREA agreement of purchase and sale where Clause 7 specified any HST would be “included in” the purchase price, as here. The judge rejected an attempt by the vendor to saddle the purchaser with the HST liability, holding that the words “included in” found in Clause 7 of an OREA residential APS, “clearly ascribe[d] to the [vendor] the risk of HST applying”..”
ANALYSIS:
[51] The Wolfes both allege that Sharon made misrepresentations in the lead-up to the execution of the APS, and there was no consensus ad idem, and those are the reasons why they would not close on the Property.
[52] Sharon admits that she expressed a “hope” to Mr. Grinbergs and Donald that she would be able to use the Property as a law office, and discussed how it might be configured for such use. However, I accept Sharon’s uncontroverted evidence that Donald never gave her any reason to believe that the future use of the Property was important to the respondent.
[53] In para. 10 of her factum, the respondent claims that “Mr. Wolfe was led to believe by the actions and words of Ms. Silbert that the HST would simply be a ‘flow though’.” This assertion is without evidentiary foundation. Donald’s incorrect understanding of the HST consequences resulted from his own unverified assumptions, his lack of diligence, and his admittedly poor understanding of tax law. When she considered and executed the APS, Valerie relied upon her husband’s erroneous legal advice, rather than actions or words of Sharon or, for that matter, Giovanni.
[54] There is no evidence that Sharon ever made any assurances or representations about the HST consequences of the sale, or that an HST number would be provided prior to closing. While it is true that Sharon was uncertain about the HST consequences, Sharon and Donald never even discussed the topic of HST. On this record, Sharon did not induce any alleged misunderstanding of the agreement or the HST consequences.
[55] Sharon did not intend to mislead the Wolfes; she simply did not think it necessary to state that her use of the Property as an office was a “hope” rather than a “firm plan”.
[56] Valerie’s evidence is clear that she depended upon Donald’s understanding of the HST consequences when she considered and executed the APS. As she explained in her affidavit: “I asked Don in passing if there were any tax implications, and he advised that it would “be a wash” … I certainly trusted and relied upon this interpretation.” On cross-examination, she described the advice that Donald gave her as being legal advice, acknowledging that, prior to signing the APS, “I didn't seek legal advice from anyone besides Don”.
[57] It may be also somewhat self-serving to suggest that Donald, as a former lawyer, relies on the assertion that he did not read the full APS and only limited his consideration to one or two pages of the contract. In any event, these actions and inactions appear to have led to Donald’s incorrect understanding of the HST consequences, which precipitated the legal advice he provided to Valerie and his ultimate decision to accept Giovanni’s offer by returning the APS.
[58] As explained in Giovanni’s factum, Donald failed to notice the “included in” language of Clause 7 of the APS and took no steps to confirm that Giovanni was an HST registrant or seek an oral or written assurance that an HST number would be provided prior to closing and did not discuss the HST consequences of the sale with Sharon at all.
[59] Contrary to statements made by Donald in his affidavit, if HST is “included in” the purchase price of real property, a purchaser’s HST registrant status does not alter the calculation of the vendor’s net proceeds. As discussed, where a purchaser is an HST registrant, there are two main repercussions, but neither affects the amount of a vendor’s net sale proceeds.
[60] I observe that in this case, the specific contract used was an OREA residential sales agreement, as contrasted to a commercial agreement. As such, one would expect Donald to be aware of the format and importance of Clause 7.
[61] I agree with the applicant that future use has no bearing on the HST consequences of the sale. As explained in paras. 45-50 of Giovanni’s factum, it is the wording of Clause 7 of the APS that governs who bears the cost of HST, not future use or a purchaser’s HST registrant status or ability to claim input tax credits.
[62] The Wolfes’ mistaken belief about the HST consequences was based on their own factual and legal misconceptions. The failure to understand the HST implications came to light when the Wolfes (on the advice of their real estate solicitor) belatedly sought accounting advice from Mr. Bassett. For their part, Sharon and Giovanni only learned about Donald’s failure to understand the HST consequences when they reviewed the Wolfes’ affidavits.
[63] Counsel argues that there was a mutual mistake and/or that the parties were not “ad idem” with respect to the purchase price and had not seen eye-to-eye in connection with the application of the HST. They had not agreed in advance who would bear the burden of paying the tax or how the HST issue would be handled.”
[64] With respect, I disagree. The same arguments were advanced in similar cases dealing with clauses where HST/GST was “included in” the specified purchase price. These arguments were rejected by the courts.
[65] In Bumac Properties Inc. v. 1221 Limeridge Inc., 2000 CarswellOnt 4819 (S.C.), the court dealt with a dispute over a clause in an agreement of purchase and sale which provided: “if this transaction is subject to Goods and Services Tax (G.S.T.) then such tax shall be included in the purchase price”. At closing, the purchaser was given a deduction of ~$60,000 on the purchase price on the basis they were a registrant required to collect and remit GST. The purchaser, as permitted under the ETA, also claimed input tax credits of ~$60,000. The vendor brought an action to recover the $60,000 deducted at closing. The court concluded that the purchaser was within its rights to claim both the deduction at closing and the input tax credits. The court held that: “there is no ambiguity in the meaning of paragraph 7 in the case at bar” and that the vendor’s “attempt to rewrite the contract … must therefore fail now that [it] realizes that [it] made a bad bargain.”
[66] The court reached the same conclusion in Gillespie. The case involved a dispute over Clause 7 of the standard-form OREA agreement of purchase and sale. The vendor argued that there was ambiguity about the tax consequences of the sale. The court flatly rejected this argument and explained that the conditional wording at the start of Clause 7 (“If the sale of the property… is subject to Harmonized Sales Tax” was intended to “clearly ascribe to the defendant the risk of HST applying”. As the court stressed: “The words “included in” are actually interlineations inserted in a blank spot in the pre-printed OREA form of agreement of purchase and sale. The specific inclusion was made to clearly allocate the risk. There is no ambiguity.”
[67] The judge in Gillespie also rejected an argument about common or mutual mistake. The court explained that the purchaser “would have had no basis to know or care whether the [vendor] was subject to HST or not.”
[68] I find that the same is true in this case. Donald and Sharon had no discussions about HST implications of the sale prior to execution of the APS. Moreover, when Sharon drafted the APS, she did not know whether HST would apply to the sale, or whether Valerie was an HST registrant. The words “included in” were unequivocal and specifically chosen to ensure that any risk of HST was borne by the vendor.
[69] Moreover, the narrow doctrine of unilateral mistake – which is raised in by the respondent – does not apply here. This doctrine has “demanding preconditions” and operates to “restore the parties to their original bargain, not to rectify a belatedly recognized error of judgment by one party or the other”.
[70] None of the preconditions of unilateral mistake are met in this case. To benefit from the doctrine, a party must demonstrate that there was a prior oral agreement that was not properly adopted into writing; the other party knew or ought to have known about this error, while the plaintiff did not; and the other party’s reliance on the written contract amounts to “fraud or the equivalent of fraud”.
[71] In this case, there was no prior oral agreement that was improperly codified in the APS. Sharon and Donald did not reach an oral agreement on HST or otherwise. They discussed the parameters of a potential sale between Giovanni and Valerie, and Donald invited Sharon to “prepare an offer by Agreement of Purchase and Sale” for him to review. The applicant did not know, and could not have known, about the Wolfes’ misconception about the HST consequences of the sale. When Sharon drafted the APS, she had no knowledge about Valerie’s status and Donald had promised to “review” the offer with Valerie and that Donald would propose revisions or a counter-offer if necessary. He did neither.
[72] Giovanni’s reliance on the plain language of Clause 7 of the APS, a standard form document bears none of the hallmarks of “fraud or the equivalent of fraud”. Very simply, this is an instance of belatedly recognized error of judgment by one party or the realization of a bad bargain, rather than a valid unilateral mistake. As Ms. Krajewska readily points out, Clause 7 of the APS influences the proceeds of the sale, the allocation of responsibility for the HST and not the negotiated price or other terms of the contract.
[73] Absent fraud, duress or unconscionable behaviour, the Parole Evidence Rule bars extrinsic evidence, including prior or contemporaneous oral agreements and prior or contemporaneous written agreements, that contradict or create a variation of a term in writing that the parties intended to be completely integrated.
[74] Even if there had been a prior oral agreement of some kind, its terms could not have addressed the HST implications of the sale given that Sharon and Donald never discussed it. The respondent has not led any evidence that there was any agreement, disagreement, or discussion of HST, much less the price. To the extent that Valerie may claim to have relied on statements made by Sharon to Donald about the future use of the Property, the future use of the Property is irrelevant to the determination of liability for HST and for this APS. The allegations of misrepresentation are particularly baffling given that Valerie did not provide a warranty/representation that future commercial use was permitted under zoning laws. Sharon was subsequently advised by the City of St. Catharines that the Property had lost its legal non-conforming status due to its vacancy.
[75] Moreover, Valerie cannot claim that the APS was an inaccurate codification of a prior oral agreement given the plain language of the entire agreement clause.
The entire agreement clause:
[76] The respondent’s argument that the entire agreement clause may be unenforceable is not supported by the jurisprudence and ignores the relevant authorities cited in para. 66 of the applicant’s factum.
[77] The argument – that the entire agreement clause in the APS can be nullified to include representations and warranties made by Sharon – ignores the actual wording of the entire agreement clause in the contract. This broadly-worded clause does not limit representations to those made by the Giovanni himself. It states: “This agreement including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein.”
[78] The respondent’s argument is also contrary to the very purpose of entire agreement clauses. Without a broad interpretation of this standard-form clause, vendors would risk being bound by warranties or collateral agreements made by their real estate agents that the vendors did not know about or authorize. Although the respondent alleges that “there is some case authority” supporting her argument about the scope of the entire agreement clause, no such authorities are provided.
[79] In agreeing to this clause, the parties both agreed that the APS codified their agreement and that, as of the date of execution, there were no collateral representations or warranties of any kind.
The remedy of Specific Performance:
[80] In determining whether specific performance is appropriate, “the fundamental question is whether the plaintiff has shown that the land rather than its monetary equivalent better serves justice between the parties”. This analyses is rooted firmly in the facts of a specific case.
[81] Courts consider together three factors: (i) The nature of the property involved, including its ‘uniqueness’; (ii) The related question of the inadequacy of damages as a remedy; (iii) The behaviour of the parties, having regard to the equitable nature of the remedy.
[82] Uniqueness “does not mean singularity or incomparability”. Rather, uniqueness reflects considerations such as: (a) a property’s physical attributes; (b) the purchaser’s subjective interests and intended use; and (c) the circumstances of the underlying transaction. Uniqueness does not simply reflect “whether there are other similar homes in the same neighbourhood or subdivision”. Rather, the proper question is whether any of those homes were “readily available” for the applicant to purchase when the respondent breached the APS.
[83] When the housing market is characterized by rapid price increases, affordability becomes an important factor in the analysis and the availability of similar homes outside of the applicant’s price range does not qualify as a “readily available” substitute: Sivasubramanian v. Mohammad, 2018 ONSC 3073, at para. 84, aff’d. 2019 ONCA 242.
[84] I am persuaded that the Property is unique. First, I accept the jurisprudence cited in the applicant’s factum concerning uniqueness in the context of a “hot” real estate market.
[85] Second, the respondent offers a bald denial of uniqueness without any evidence. There is no evidence demonstrating that there were alternate properties that were “readily available” to Giovanni. Where a vendor fails to do so, this supports a finding of uniqueness. In contrast, Giovanni’s uncontroverted evidence is that there were no similar properties available in a similar location and price range in late 2020 and early 2021, and that prices in the local market have risen inexorably since the execution of the APS and its breach. The respondent has not identified a single alternate property that Giovanni could have purchased with the same characteristics, location, and potential for renovation, at a similar price.
[86] Third, I agree with the applicant that the respondent’s critique of the fact that certain aspects of the applicant’s future use of the Property remained uncertain at the time the APS was signed is immaterial. As the Court of Appeal recently explained in Lucas v. 1858793 Ontario Inc., 2021 ONCA 52, at para. 75: “The court should examine the subjective uniqueness of the property from the point of view of the plaintiff at the time of contracting”. When Giovanni agreed to purchase the Property, he believed the Property could be suitable as either an office for Sharon or a residence close to his bakery; the Property was in poor condition and in need of significant renovations; Giovanni had not been able to obtain a detailed quote from a contractor about the cost of renovations; and he had not yet confirmed that a commercial use was permitted under the applicable zoning by-law given the Property’s vacant status.
[87] In Walker v. Jones, (2008), 2008 CanLII 47725 (ON SC), 298 D.L.R. (4th) 344, (Ont. S.C.) the court granted specific performance to the purchaser of a house for a purchase price of $279,000 in the contest of a “hot” housing market. Strathy J. (as he then was) held at para. 165, that: “I do not think it was at all unreasonable for the plaintiff to seek specific performance rather than enter the still turbulent and rising real estate market. As well, the evidence does not establish that she could have found a reasonably comparable substitute property in her price range.” This approach to “hot” markets has been repeatedly followed.
[88] I find that the circumstances of the present case mirror Walker. Giovanni’s uncontested evidence is that there were no similar properties nearby that were “readily available” on the local market that were within his price range. The respondent did not lead any evidence to the contrary.
[89] The Property is also unique in its potential use. At the time the APS was agreed to, the Property was subjectively valuable to Giovanni. Giovanni was attracted to the Property by its potential to serve as either office for Sharon or a residence for himself. Moreover, the Property was within his price range, ripe for renovation, and is close enough to Con Gusto that Giovanni viewed it as a replacement to sleeping at his mother’s house. Consistent with specific performance jurisprudence, in Giovanni’s eyes, the Property was “the right price in the right area, [and] suitable to renovate within [his] means”. All three factors favour granting specific performance in this case.
Damages would not adequately compensate Giovanni:
[90] The inadequacy of damages is intertwined with uniqueness.
[91] As the Court of Appeal explains in Erie Sand and Gravel Limited v. Tri-B Acres Inc., 2009 ONCA 709, at para. 118: “Where a plaintiff establishes that the land in question is unique, damages will often be inadequate and the plaintiff has a fair, real and substantial claim to specific performance.” Specific performance is favoured if there is “a real risk that an award of damages will not meaningfully do justice between the parties”.
[92] In Lucas, at para. 75, the Court of Appeal took a practical approach to the inadequacy of damages. In a ‘hot’ market, the applicants sought specific performance respecting a condominium unit. As the court explained:
Granting specific performance will better achieve justice than requiring the applicants to sue for damages. If they are required to sue for damages … the applicants will be denied the advantage of the rise in value of the Unit that exists today and their use of their deposit, which will impact to their detriment on their ability to acquire a home of the size and quality they could otherwise afford now
Specific performance is the only remedy that provides timely access to justice to the applicants.
[93] Gillespie is also instructive. The purchaser sought specific performance in the context of a dispute HST liability under an OREA residential APS. Given a “modest” purchase price of $195,000 and because “[p]ractically speaking, the plaintiffs’ damages would likely be limited to their legal fees and any moving or architects’ expenses thrown away on the aborted sale with the defendant”, the Court granted specific performance, concluding: “In all, I do not see monetary damages as being a comparatively fair or adequate measure of justice.”
[94] In my view, an award of damages would not provide a fair or adequate measure of justice. Compelling Giovanni to seek damages would be disproportionate given the “modest” purchase price of $318,000, delay his recourse to a remedy, and result in a scenario where Giovanni is left to use the damages that he eventually recovers to belatedly pursue properties with no assurance that he would be able to locate anything at all comparable to the Property in the overheated market.
[95] I agree with the applicant that, while not dispositive, there is some evidence that Valerie’s refusal to close the sale is motivated by more than just her belated discovery about the HST. In the summer of 2020, her son, Jonathan, was interested in personally undertaking renovations to the property, but this fell through when he moved to Toronto. When the HST issue became apparent in late January 2021, Valerie went on the offensive, levelling allegations of misrepresentations and breach of contract. I also observe that the respondent abruptly threatened to terminate the APS at the eleventh hour unless her ultimatum – that Giovanni assume HST liability and pay her $318,000 – was met, and she subsequently made good on that threat by refusing to complete the transaction. Valerie did not seek Mr. Bassett’s advice regarding HST until January 20, 2021.
[96] I am not prepared to condone the respondent’s unilateral efforts and it would be inappropriate to reward a party who violates a valid APS because he or she feels they would be in a more advantageous financial position by doing so.
[97] In contrast, the applicant has not behaved in any manner that would disentitle him from the remedy of specific performance.
[98] As the Superior Court recently opined in a case involving a vendor’s purported termination of an agreement of purchase where specific performance was granted: “A party cannot rely on its own conduct to resile from an agreement”: M & M Homes Inc. v. 2088556 Ontario Inc., 2019 ONSC 5403, at para. 66.
CONCLUSION:
[99] The language in the APS is clear and unambiguous.
[100] The respondent was not induced to enter into the contract by any alleged misrepresentation(s) made by Giovanni or Sharon. Even if the respondent believed that the applicant would be using the Property as an office, it was not reasonable to assume that this would impact or otherwise be dispositive of the bargain and contract entered into by the parties; the way in which HST would apply to the transaction by virtue of the specific language in Clause 7, or the calculation of net sale proceeds.
[101] Moreover, I find that the parties were ad idem in all material aspects, including the price and terms contained in the APS.
[102] The Application is hereby granted.
[103] An Order to issue in the nature of specific performance requiring the respondent to complete the sale of the Property in accordance with the APS; and extending and fixing a new date for the closing of the sale. If terms cannot be settled, I may be available to assist the parties.
[104] If the parties cannot agree on the issue of costs, I will consider brief written submissions. These cost memoranda shall not exceed five pages in length, (not including any Bill of Costs or Offers to settle). The applicant shall file his costs submissions within 15 days of the date of this judgment. The respondent shall file her costs submissions within 15 days of the receipt of the applicant’s materials. The applicant may file a brief reply within five days thereafter. If submissions are not received by August 12, 2022, the file will be closed and the issue of costs considered settled.
A. J. Goodman J.
Date: June 28, 2022
COURT FILE NO.: CV-21-60038
DATE: 2022/06/28
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
GIOVANNI STANZIANO
Applicant
- and -
VALERIE JEANNE WOLFE
Respondent
REASONS FOR JUDGMENT- APPLICATION
A.J. Goodman J.
DATED: June 28, 2022
[^1]: For ease of reference, I intend to refer to the first names of the parties with no disrespect intended.