NEWMARKET COURT FILE NO.: CV-17-130291-00
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
REAL ESTATE PROFESSIONALS INC. o/a ROYAL LEPAGE REAL ESTATE PROFESSIONALS, BROKERAGE
Plaintiff
– and –
CASTEL HOMES INC., MARK ZANETTE carrying on business as CASTEL HOMES and ALLURE AT THE GATES OF AURORA INC.
Defendants
M.A. De Sanctis, for the Plaintiff
P.K. Martin, for the Defendants
HEARD: November 21 and 28-29, 2022; January 3, 2023
REASONS FOR JUDGMENT
I. Overview
1The defendant Mark Zanette and his brothers are in the property development business. They co-own a number of companies, including the two corporate defendants, Castel Homes Inc. and Allure at the Gates of Aurora Inc. (“Allure Inc.”).
2In 2013, Mr. Zanette hired the plaintiff, Real Estate Professionals Inc. (“REP”), to market custom-built homes that he and his brothers planned to construct and sell as part of a gated community development in Aurora, Ontario to be called “Allure at the Gates of Aurora”.
3REP’s principal, Peter Campoli, who is not a lawyer, prepared a contract titled “Exclusive Sales Agreement”, which I will refer to as “the ESA”. The ESA was framed as a contract between REP and “Castel Homes”, which was described in the ESA as “a corporation incorporated under the laws of the province of Ontario”. On February 14, 2013, Mr. Zanette signed this document as the “authorized signing officer” for Castel Homes.
4The first complication in this case is that there is not, and never has been, an Ontario corporation named “Castel Homes”. Rather, Mr. Zanette is an officer and director of a similarly-named corporation, the defendant Castel Homes Inc.
5As it happens, the properties that REP was being hired to market and sell were actually owned by the second corporate defendant, Allure Inc., which has the same business address as Castel Homes Inc. Mr. Zanette is also an officer and director of Allure Inc., and is the acknowledged directing mind behind both corporations.
6The ESA provided that REP would be the “Sole and Exclusive Sales Agent” for the properties in the Allure at the Gates of Aurora development, and that it would continue in this role either until all of the lots in the development were sold, or until either party terminated the contract by giving 30 days written notice.
7The contract entitled REP to receive a commission equal to 2% of the sale price of each lot that was sold while the ESA was in effect. However, the ESA did not clearly state whether the “sale price” should be understood as including or excluding HST.
8The ESA provided further that REP’s commission was to be paid in two installments. Half of the commission, or 1% of the lot’s sale price, was to be paid shortly after the signing of the agreement of purchase and sale for that lot, which I will also refer to as “the APS”. The second half was then to be paid to REP after the sale of the lot closed.
9In addition, REP was to be paid a monthly fee for its work. However, the monthly fees that REP was paid were then to be deducted from any closing sales commissions that REP ultimately received. The ESA did not provide how these deductions were to be allocated between the money REP was to receive for the sales of different lots.
10Over the next two years, from February 2013 to April 2015, REP marketed the Allure properties, and sold eight lots. However, two of these sales ultimately did not close, for reasons I will explain later. One of these buyers then immediately purchased a different lot in the development, and this second sale did close. The net result is during the time that the ESA was in effect there were a total of nine sales agreements signed by eight different purchasers, but only seven of these transactions ultimately closed.
11In April 2015, Mr. Zanette exercised the termination clause in the ESA. As of this date REP had submitted a number of invoices for its first-half commissions, most of which had not been paid.
12After Mr. Zanette terminated the ESA, REP submitted further invoices seeking payment of its second-half commissions for the various lot sales, even though most of these payments were not yet due because the associated transactions had not yet closed. As noted above, two of the transactions never did close.
13Most of REP’s invoices for its first-half commissions, and all of the invoices for its second-half commissions, remain unpaid.
14In March 2017 REP commenced this action. It has sued Castel Homes Inc., Allure Inc., and Mr. Zanette personally, seeking damages for breach of contract against all three defendants, and equitable remedies for unjust enrichment against Allure Inc. and Mr. Zanette. REP is also suing Mr. Zanette in tort for inducing a breach of contract by Castel Homes Inc. In the further alternative, it seeks compensation from all three defendants on the basis of quantum meruit.
15In substance, most of REP’s claims are directed at securing the compensation it should have received under the ESA for its work marketing and selling the Allure properties. REP also makes a more extravagant claim for disgorgement of all of Allure Inc.’s profits from the land sales, but it has not identified any legal basis that would entitle it to receive more than what it bargained to receive under the ESA.
16REP’s position about exactly how much money is still owed under the ESA has evolved over time. However, by the end of this trial, the amount REP seeks had crystallized at $265,787.66. It seeks judgment against all three defendants for this amount, jointly and severally.
17The defendants acknowledge that REP is owed some money, but they dispute the amount, and disagree about which of them ought to pay it. According to the defendants, on a proper interpretation of the ESA, REP is only owed around $160,000. They also take the position that the only party against whom judgment should be granted is Allure Inc.
18In summary, the dispute between the parties over the amount that REP is owed under the ESA turns on two narrow questions of contractual interpretation:
i) Whether REP’s 2% commission should be calculated based on the sale prices of the lots including or excluding HST; and
ii) Whether REP is entitled to claim any commission for the sales that did not close.
19The parties also disagree about which of the defendants should be ordered to pay the amount owing.
II. Points in Issue
20To summarize, there are four main issues in dispute between the parties:
i) Which of the defendants are contracting parties under the ESA?
ii) Does the ESA entitle REP to a 2% commission based on the sale price of lots sold including HST, or excluding HST?
iii) Does the ESA entitle REP to be paid a 1% commission for the two lot sales that ultimately failed to close?
iv) Does REP have any valid causes of action against the defendants who are not parties to the ESA?
21My conclusions on these points can be summarized as follows:
i) I agree with REP that the ESA should be understood as a contract between REP and Castel Homes Inc.;
ii) I agree with the defendants that the ESA entitles REP to receive a 2% commission based on the sale price of lots in the development excluding HST;
iii) I agree with the defendants that the ESA does not entitle REP to claim any commission for the sales of Lots 7 and 8, which failed to close; and
iv) I find that REP does not have any viable legal or equitable claims against the non-contracting defendants, Mr. Zanette and Allure Inc., in either contract, tort or unjust enrichment. Moreover, REP cannot rely on the doctrine of quantum meruit to obtain more money than it is entitled to receive under the ESA.
22In the result, I find REP is entitled to judgment against Castel Homes Inc. in the amount of $161,720, plus pre-judgment interest.
III. The Evidence
23In 2008 Mark Zanette and his brothers acquired land in Aurora, Ontario on which they planned to build a gated residential community of custom-built homes, to be called “Allure at the Gates of Aurora”. Legal title over the land was acquired by a new company that was set up for this purpose. This new company was originally called Castel Homes (Aurora) Inc., but changed its name in April 2012 to “Allure at the Gates of Aurora Inc.”, which I have referred to using the shorthand “Allure Inc.”.
24Allure Inc. built a model home on a lot on the site in 2010 and hired a different realtor to market the properties, without any success.
25In early 2013, a friend introduced Mr. Zanette to Mr. Campoli and suggested that Mr. Campoli might be able to sell the Allure properties through his own real estate company, REP. Mr. Campoli proceeded to draft the ESA, which appointed REP as the exclusive sales agent for the Allure properties. Mr. Zanette signed this contract on February 14, 2013, after making one amendment that Mr. Campoli accepted.
A. Evidence regarding the identity of the contracting parties
26As I have already noted, the ESA named the contracting parties as REP and “Castel Homes”, the latter of which is identified in the ESA as “a Corporation incorporated under the laws of the Province of Ontario”. When Mr. Zanette signed the ESA on February 14, 2013, he purported to be the authorized signing officer for “Castel Homes”.
27As I have also already noted, there is not, and never has been, any Ontario corporation named “Castel Homes”. However, Mr. Zanette is the president and one of the two directors of a corporation called “Castel Homes Inc.” The Ministry of Government and Consumer Services “Profile Report” for Castel Homes Inc. identifies the name “Castel Homes”, without the “Inc.”, as an “expired or cancelled business name” that lapsed on January 24, 2006.
28Mr. Zanette is also the president and sole director of the defendant Allure at the Gates of Aurora Inc. (“Allure Inc.”), which as I have noted was before April 2012 called “Castel Homes (Aurora) Inc.”
29As I will discuss later, Allure Inc. owned the properties that REP was being hired to market, and it was Allure Inc. that received the funds from their sales. All of the money that was paid to REP under the ESA was paid by Allure Inc. Although REP addressed its initial invoices to “Castel Homes”, and did the same with the final invoices that it sent after commencing this action, most of the invoices it tendered were addressed to Allure Inc.
30As part of its case at trial, REP read in excerpts from Mr. Zanette’s May 21, 2021 examination for discovery on behalf of the two corporate defendants1, in which Mr. Zanette maintained that “Castel Homes” had been named as the contracting party in error, explaining:
This is obviously a mistake. I mean, I didn’t draw this contract, but it should have been Allure at the Gates of Aurora Inc. … Castel Homes doesn’t even exist, like, Castel Homes is nothing. It’s – it’s the wrong name.
31Mr. Zanette took this same position in his trial testimony, adding that the last time Castel Homes carried on business was in 2001 or 2002, and that the ESA should have been framed as a contract with Allure Inc.
32However, on March 31, 2022 the plaintiff served a request to admit on the defendants’ former counsel in which, among other things, it sought an admission that “the Plaintiff and the Defendants entered into an Exclusive Sales Agreement dated February 14, 2013”. In his response, dated April 14, 2022, the defendants’ counsel at the time (not Mr. Martin) refused to make this admission, instead taking the position that:
… the Exclusive Sales Agreement was between the plaintiff and the defendant Castel Homes Inc. (“Castel”) and the other defendants were not parties to the agreement.
33As I will discuss later, REP’s position at trial is that the ESA should be understood as a contract with Castel Homes Inc., which was previously also the defendants’ stated position. However, the defendants now argue that the ESA should be rectified to substitute Allure Inc. as the contracting party.
B. The terms of the ESA
34The terms on which REP, described in the contract as “the Realtor”, was to be paid its commissions are mainly set out in paragraph 2 of the ESA. This paragraph has a preamble and seven sub-paragraphs, which are somewhat confusingly labelled as (i) and (a) through (f). There is also an unnumbered paragraph inserted between paragraphs 1 and 2 that bears on REP’s entitlement to be paid its commissions.
35The substance of paragraph 2 and the unnumbered paragraph that precedes it can be summarized as follows:
i) The preamble to para. 2 provides that REP was to receive $7,000 per month from the Builder, “for servicing the sales office during office hours for the course of the contract”. A handwritten addendum specified that these payments were “to be deducted from the total commission on closi[n]g”. Before Mr. Zanette signed the contract, he had one of REP’s sales agents write in this amendment by hand, and Mr. Campoli ultimately accepted the change. The amendment did not specify exactly how these deductions were to be allocated between the commissions that REP would be receiving for selling different lots;
ii) Subparagraphs 2(i) and 2(a) both provided that “Castel Homes”, referred to as “the Builder”, would pay REP a total commission of “2% of the sale price per dwelling unit sold plus the applicable HST Tax required to be paid by Law”. Subparagraph (i) added that this commission would be payable “in respect of all offers to purchase dwelling units situated on the above mentioned development, received from any source whatsoever, during the currency of this Agreement, and accepted by the Builder.” In other words, REP could collect a commission even if it did no work arranging the sale of a particular lot;
iii) Although subparagraph 2(a) states that REP’s 2% commission was to be paid “forthwith”, subparagraph 2(b) goes on to explain that the Builder would actually pay this commission in two equal installments, with the first – a payment of 1% of the sale price, plus HST – being:
…due to the Realtor on all firm deals within 15 days of receipt of an invoice from the Realtor, subject to the Builder having received the initial amount of the Purchaser’s deposit monies and the Agreement of Purchase and Sale is [sic] firm and binding.
The second installment would then be “due to the Realtor upon successful completion, being final closing”;
iv) Subparagraph 2(c) provided that if a conditional sale agreement “does not firm up and falls through and the Builder returns the full deposit to the purchaser”, REP would receive no sales commission, and would return any commission already paid;
v) Subparagraph 2(d) set out what would happen if “a firm and binding Agreement of Purchase and Sale is terminated through no fault of the Purchaser and or the Sales Representative and at the discretion of the Builder”. I will discuss this clause in more detail later, when I address the issue of whether REP is entitled to 1% commission payments for the two sales that did not close;
vi) The unnumbered paragraph that was inserted between paras. 1 and 2 stated:
THE BUILDER AGREES to pay the Realtor Sales Commission as set out in this Agreement, and agrees that if the selling price is [sic] (excluding Builder’s G.S.T.), of any dwelling unit is reduced in any way, the Commission will be based on the original selling price (excluding Builder’s G.S.T.), and therefore Commission payable will be based on same.
vii) Subparagraph 2(f) provided that REP would receive an additional commission if a sale price was increased to include “extras”. Although Mr. Campoli complained during his testimony that REP has not been paid these additional commissions, he did not provide any evidence of how much was owing, and REP has not included any commissions relating to extras in its calculation of its damages.
C. Sales and commissions paid to REP from 2013 to 2015
36From February 2013 to April 2015, when Mr. Zanette terminated the ESA, nine lots were sold, for prices that ranged between $1.85 million and $2.95 million, including HST. However, one of these lots, Lot 3, was sold only after the purchaser, Simon Asaro, terminated his agreement to buy a different lot, Lot 8. Two of the nine sales – the sales of Lots 7 and 8 – did not close.
37Listed in chronological order by the date that the agreements of purchase and sale were signed, the nine transactions were as follows:
Lot #
APS signed
Closing date
APS purchase price, including HST
4
April 22, 2013
June 9, 2015
$1,850,000
6
April 30, 2013
April 14, 2016
$2,400,000
19
June 15,2013
April 9, 2015
$2,265,000
11
August 11, 2013
June 12, 2017
$2,265,000
21
November 23, 2013
May 28, 2015
$2,000,000
7
December 4, 2013
Did not close
$2,265,000
8
July 30, 2014
Did not close
$2,400,000
20
February 28, 2015
December 31, 2015
$2,400,000
3
April 2, 2015
May 1, 2015
$2,950,000
38There is conflicting evidence about the exact selling price of some of the lots.
39In his trial affidavit, Mr. Campoli appended the APS documents for the various lots, which set out the sale prices that are listed in the above table.
40However, his affidavit also includes a table that lists higher sale prices for two of the lots. In this latter table, the sale price for Lot 11 is listed as $2,415,000 rather than $2,265,000, and the sale price of Lot 21 is listed as $2,135,000 rather than $2,000,000.
41The reason for these discrepancies is not entirely clear from the record. Mr. Campoli seems to have taken the higher sale prices that he used in his table from an undated chart that was prepared by Allure Inc. and then produced by the defendants in their Affidavit of Documents. However, Allure Inc.’s chart also lists a lower selling price for Lot 4 than the APS price – $1,820,356.87 rather than $1,850,000 – which Mr. Campoli seems to have ignored when preparing his own table.
42The defendants have submitted their own table to support their own calculations of the commissions they claim REP is still owed, in which they also use the sales prices from Allure Inc.’s chart. However, unlike Mr. Campoli’s table, the defendants use the lower sale price for Lot 4.
43In the absence of any clear explanation as to when or in what circumstances the undated Allure Inc. chart was prepared, I am inclined to treat the sales prices that Mr. Campoli set out in the body of his trial affidavit, all of which are supported by copies of the associated APS documents, as the most reliable evidence of the true sale prices of the various lots.
44Two of the transactions listed in the above table – the sales of Lots 7 and 8 – ultimately failed to close. I will discuss the circumstances that led to this later in my reasons.
45As I have also previously noted, the original purchaser of Lot 8, Simon Asaro, did not complete his purchase of this lot. Instead, he arranged to have his contract to buy Lot 8 terminated and he agreed to instead buy Lot 3, which was the lot on which the model home had previously been constructed. REP had been using the model home as its sales office.
46Mr. Asaro signed the APS to purchase Lot 3 on April 2, 2015, and the transaction then closed a few weeks later, on May 1, 2015. On April 16, 2015, Mr. Zanette notified REP in writing that he was terminating the ESA, effective in 30 days, explaining his decision in his letter on the grounds that with the pending sale of the model home to Mr. Asaro, REP would no longer have any place on site to do business.
47During the time that the ESA was in effect, between February 2013 and May 2015, REP received a total of $160,880 in commission payments, inclusive of HST. All of this money was paid by Allure Inc. The amount paid can be broken down as follows:
i) $126,000 was to cover REP’s $7,000 monthly fee for 18 months, plus $16,380 for HST on these payments;
ii) $18,500 was for the first-half commission due to REP in relation to the sale of Lot 4.
48REP also submitted invoices for its 1% commission on the other eight lots that were sold through April 2015. As it had done with the Lot 4 invoice, REP calculated its commission based on the total selling price, including HST. In some instances REP submitted multiple invoices for the same lots. Although REP had addressed the first invoice for the sale of Lot 4 to “Castel Homes”, it addressed its subsequent invoices to Allure Inc. None of these invoices have been paid.
D. Invoices submitted by REP after the termination of the ESA
49Paragraph 1 of the ESA provided that:
If the right to terminate is excersized [sic] the balance of the Sales Commission owed (for all sold lots/units) to the Realtor shall be paid in full when due as per Section 2 below.
50In April and May 2015, REP submitted invoices seeking its second instalment payments for eight of the nine properties at issue, with the exception of Lot 3. REP did so even though under paragraph 2(b) of the ESA the second-half of its commissions only became due on “final closing”, which had not yet occurred.
51As of May 2015, only one of the transactions for which REP submitted an invoice – the sale of Lot 19 – had closed. However, it is undisputed that with the exception of Lots 7 and 8, all of these sales eventually did close over the next two years. It is also undisputed that none of REP’s April and May 2015 invoices have been paid.
52REP started this action in March 2017. Several months later, in May 2017, REP sent two further invoices in which it requested its first and second-half commission payments in relation to the sale of Lot 3. REP addressed these final two invoices to “Castel Homes”, rather than to Allure Inc. These last two invoices also remain unpaid.
53As I will discuss later, REP’s earlier invoices had all been for amounts based on the sale prices of the lots including HST. However, the invoices that REP submitted in relation to Lot 3 were for a lower amount. Lot 3 had been sold to Mr. Asaro for $2,950,000 inclusive of HST, but the invoices REP submitted were for only $26,318.58, rather than for $29,500.
IV. REP’s Breach of Contract Claim
A. Who are the contracting parties to the ESA?
54The first problem presented by the ESA is that one of the named contracting corporate parties, “Castel Homes”, does not exist. However, Mr. Zanette is the president and director of a corporation with a similar name, Castel Homes Inc.
55REP’s position is that the ESA should be interpreted as a contract with Castel Homes Inc. REP does not characterize this interpretation as a matter of rectification, but simply assumes that “Castel Homes” and “Castel Homes Inc.” can be treated interchangeably. In essence, REP seeks to have me treat the omission of the word “Inc.” in the part of the ESA preamble in which “Castel Homes” is named as “the Builder” as an inconsequential drafting error.
56The defendants take a different position. They urge me to conclude that both signatories of the ESA meant to create a contract between REP and the second corporate defendant, Allure Inc., which was the actual owner of the properties that REP was being hired to market and sell.
57Since the ESA by its own terms plainly does not identify “the Builder” to be Allure at the Gates of Aurora Inc., the defendants are effectively inviting me to rectify the contract to change what the ESA actually says, in order to reflect what they say was the true intention of the contracting parties when it was signed.
58The equitable remedy of rectification of a contract is only available in narrowly-circumscribed situations. As Binnie J. explained in Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678, at para. 31:
The traditional rule was to permit rectification only for mutual mistake, but rectification is now available for unilateral mistake (as here), provided certain demanding preconditions are met. Insofar as they are relevant to this appeal, these preconditions can be summarized as follows. Rectification is predicated on the existence of a prior oral contract whose terms are definite and ascertainable. The plaintiff must establish that the terms agreed to orally were not written down properly. The error may be fraudulent, or it may be innocent. What is essential is that at the time of execution of the written document the defendant knew or ought to have known of the error and the plaintiff did not. Moreover, the attempt of the defendant to rely on the erroneous written document must amount to “fraud or the equivalent of fraud”. The court’s task in a rectification case is corrective, not speculative. It is to restore the parties to their original bargain, not to rectify a belatedly recognized error of judgment by one party or the other: Hart v. Boutilier (1916), 1916 CanLII 631 (SCC), 56 D.L.R. 620 (S.C.C.), at p. 630; Ship M. F. Whalen v. Pointe Anne Quarries Ltd. (1921), 1921 CanLII 57 (SCC), 63 S.C.R. 109, at pp. 126-27; Downtown King West Development Corp. v. Massey Ferguson Industries Ltd. (1996), 1996 CanLII 1232 (ON CA), 133 D.L.R. (4th) 550 (Ont. C.A.), at p. 558; G. H. L. Fridman, The Law of Contract in Canada (4th ed. 1999), at p. 867; S. M. Waddams, The Law of Contracts (4th ed. 1999), at para. 336. In Hart, supra, at p. 630, Duff J. (as he then was) stressed that “[t]he power of rectification must be used with great caution”. Apart from everything else, a relaxed approach to rectification as a substitute for due diligence at the time a document is signed would undermine the confidence of the commercial world in written contracts.
59Subsequently, in his majority reasons in Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56, [2016] 2 S.C.R. 720, at para. 32, Brown J. held:
It … falls to a party seeking rectification to show not only the putative error in the instrument, but also the way in which the instrument should be rectified in order to correctly record what the parties intended to do. “The court’s task in a rectification case is corrective, not speculative”: Performance Industries, at para. 31.
60Although in Performance Industries Binnie J. spoke of “the plaintiff” bearing the burden in cases of unilateral mistake, in that case it happened to be the plaintiff who was seeking rectification. In my view, Brown J.’s subsequent comments in Fairmont Hotels clarify that the burden of justifying rectification is born by whichever party is seeking to have the contract rectified.
61In this case, although neither party has framed the issue this way, they are both effectively inviting me to rectify the contract. They both agree that naming “the Builder” as “Castel Homes” was a drafting error. However, they disagree about how this error should be corrected.
62There is some force to Mr. Martin’s argument, for the defendants, that Allure Inc. was the more logical entity to have been named as the contracting party, since it owned the properties that REP was being hired to market and sell, and would accordingly be receiving the money that was generated by their sale, out of which REP was to be paid. Indeed, several paragraphs of the ESA, such as, for instance, paragraph 2(b), which I have already discussed, and paragraph 2(d), which I will discuss later, seem to assume that “the Builder” would be the entity that would be entering into the sales contracts with the lot purchasers, and that would accordingly be receiving the purchasers’ deposits. It is undisputed that the lots were all sold by Allure Inc., not by Castel Homes Inc., and that it was also Allure Inc. that received the sales proceeds.
63Moreover, there is no real dispute that for most of the time the ESA was in effect, everyone treated Allure Inc. as if it were the de facto contracting party. REP addressed its first few invoices to “Castel Homes”, but then addressed most of its subsequent invoices to Allure Inc. REP only reverted to naming “Castel Homes” in its invoices when it submitted two final invoices for the sale of Lot 3, which it did after commencing this action.
64It is also undisputed that all of the payments that were made to REP were made by Allure Inc., not by Castel Homes Inc.
65This evidence all supports the conclusion that in the months after the ESA was signed, the parties all treated Allure Inc. as the de facto contracting party. Indeed, Mr. Campoli states in his trial affidavit that:
For all intents and purposes, Allure at the Gates of Aurora Inc. derived the benefits of the services provided by REP. In fact, Allure at the Gates of Aurora Inc. was providing payment to REP for the monthly payments owed to REP as set out in clause 2 of the Contract.
66However, I am not satisfied that Mr. Campoli and Mr. Zanette had a common intention when they signed the ESA to make Allure Inc. one the contracting parties, such that their naming of the Builder as “Castel Homes” can be treated as a mutual mistake.
67Mr. Campoli testified, to the contrary, that when he drafted the ESA and then signed it on REP’s behalf, he believed that Mr. Zanette’s company was called Castel Homes, and that he only learned some time later that the lots that REP was being hired to market and sell were actually owned by a different company, Allure Inc., that Mr. Zanette also controlled.
68I am also not satisfied that the naming of the contracting party as Castel Homes rather than as Allure Inc. can be viewed as a unilateral mistake by Mr. Zanette. I do not accept Mr. Zanette’s suggestion in his evidence that he meant to sign the contract on behalf of Allure Inc., but that he became confused because Allure Inc. had previously been named Castel Homes (Aurora) Inc. The profile report for Allure at the Gates of Aurora Inc. shows that it changed its name some ten months before the ESA was drafted and signed. I am not persuaded that Mr. Zanette subjectively believed when he signed the contract that naming “Castel Homes” as the contracting party was intended by both signatories to bind Allure Inc.
69In these circumstances, I am not persuaded that the ESA can properly be rectified at the request of the defendants to substitute Allure Inc. in place of “Castel Homes”. I accept when Mr. Campoli drafted and signed the ESA, he was entirely unaware of Allure Inc.’s existence, and that he accordingly never formed the intention of having REP enter into a contract with this particular corporation.
70Mr. Zanette, on the other hand, knew full well how he and his brothers had organized their businesses. If he had wanted Allure Inc. to be named as the contracting party in the ESA, it was his obligation to disclose its existence to Mr. Campoli, and persuade Mr. Campoli to agree to have Allure Inc. named as the other contracting party.
71However, I am satisfied that the test for rectification is met in relation to REP’s implicit request that I rectify the ESA by inserting the missing “Inc.” into the name of the corporation that the ESA names as “the Builder”.
72Mr. Campoli testified:
[O]riginally when I first met Mark [Zanette], I was introduced that they had this building [sic] called Castel Homes and they were building in a site in Aurora. And I don’t believe they had other projects going on at that time, so we did the contract that was Castel Homes, and that was okay with Mark. And when I asked him what should I do, he said yeah, just do it on Castel Homes, so I did it on Castel Homes.
73I find it unnecessary to decide whether Mr. Zanette actively led Mr. Campoli to believe that his company was named “Castel Homes”, without the “Inc.”, or if Mr. Campoli simply failed to understand the importance of including the “Inc.” in Castel Homes Inc.’s full legal name. Indeed, neither Mr. Campoli nor Mr. Zanette are lawyers, and I think it is entirely possible that they both failed to appreciate the legal significance of the missing “Inc.”
74Either way, I am satisfied that there was a mutual intention on both sides to have REP enter into a contract with Mr. Zanette’s existing corporation, rather than with a corporation that did not exist. In these circumstances, interpreting the ESA as a contract between REP and Castel Homes Inc., as REP proposes, would in my view have the effect of “restor[ing] the parties to their original bargain” and “correctly record[ing] what the parties intended to do: Performance Industries, at para. 31; Fairmont Hotels, at para. 32.
75In this regard, I consider it to be of some significance that when the defendants responded in April 2022 to REP’s Request to Admit, they took the position that:
… the Exclusive Sales Agreement was between the plaintiff and the defendant Castel Homes Inc. (“Castel”) and the other defendants were not parties to the agreement.
76In my view, the situation here is similar to that addressed in Macchi S.p.A. v. New Solution Extrusion Inc., 2011 ONSC 766, where the defendants successfully argued that a contract should be rectified to change the name of the contracting party from that of a non-existent corporation, “New Solution Extrusion Inc.”, to that of an existing corporation, “New Solutions Extrusion Corporation”. Wilton-Siegel J. concluded in that case that “[t]he only mistake pertained to the actual corporate name of the party, which was more in the nature of a typographical error”. See also Heshmati v. Memarzadeh, 2017 ONSC 6547, at para. 19, where Spies J. held on a small claims appeal that the trial judge had correctly rectified the spelling of the name of the contracting corporation to make it accord with the actual spelling of an existing corporation.
77In Macchi S.p.A., Wilton-Siegel J. distinguished Pelliccione v. John F. Hughes Contracting and Development Company, 2005 CanLII 34822 (Ont. S.C.J.) on its facts, noting (at para. 67) that in Pelliccione:
… the incorrect use of a corporate name was part of an on-going pattern of misrepresentation. However, in the present circumstances, the plaintiff has failed to establish an on-going pattern of wrongful behavior intended to derive profit from the use of the incorrect name as in Pelliccione.
78In Pelliccione, the plaintiff had entered into a contract with the non-existent corporation “John F. Hughes Construction & Development Co. Ltd.”, rather than with an existing corporation controlled by the individual defendant, John Hughes, that was named “John F. Hughes Contracting and Development Company Limited”. Ferrier J. refused rectification, rejecting the defendant’s evidence that the misnaming of his company in the contract was “in effect a typographical error or an innocent mistake in the words making up the name of the company”. He concluded instead that the defendant had deliberately misnamed his corporation in the contract, and noted that:
… there are a total of four dissimilarities in the Hughes Construction name compared to the Hughes Contracting name: “Construction” (Contracting); “&” (and), “Company” (Co.); “Ltd.” (Limited).
79In contrast, the difference in the case at bar between the non-existent corporation that was named in the ESA, “Castel Homes”, and the actual name of Mr. Zanette’s corporation, Castel Homes Inc., consists of a single missing word.
80Moreover, in Pelliccione the contract had been drafted by the defendant, who ought to have recognized the mistake if it had been inadvertent, and who was also now the party proposing rectification. In contrast, in the case at bar the ESA was not drafted by Mr. Zanette, who was the party who ought to have spotted the mistake, and it is REP, not the defendants, who are implicitly seeking to rectify the contract by adding the missing “Inc.”
81I also find to be of some significance that the ESA contains multiple other obvious drafting and spelling errors.
82In all the circumstances, I am satisfied that omission of the word “Inc.” in the ESA can properly be viewed as tantamount to a typographical error, and that rectifying this error would not conflict with the true intentions of the signatories to the contract.
83I am also satisfied that, unlike the situation found in Pelliccione, Mr. Zanette did not deliberately choose to sign the ESA on behalf of a non-existent corporation in order to gain some improper advantage over REP. To the contrary, by signing the contract on behalf of a non-existent corporation, Mr. Zanette exposed himself to the risk of being found personally liable under the contract through the operation of s. 21 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16, (“the OBCA”) which provides:
21 (1) Except as provided in this section, a person who enters into an oral or written contract in the name of or on behalf of a corporation before it comes into existence is personally bound by the contract and is entitled to the benefits thereof.
84Although s. 21(1) refers to “a corporation before it comes into existence”, the section has been held to also apply in situations where the corporation named in a contract never comes into existence at any time: see Pelliccione, at para. 69.
85Significantly, however, REP does not rely on s. 21(1) of the OBCA. Instead, REP takes the position that the ESA should be interpreted to bind Castel Homes Inc. as the contracting party. In the circumstances here, I am satisfied that this is the appropriate course for me to take.
B. Can Allure Inc. be held liable for breach of contract as a non-contracting party?
86As I have just discussed, I accept REP’s position that the ESA should be understood as a contract between itself and Castel Homes Inc., rather than as a contract with Allure Inc.
87However, REP argues further that Allure Inc. “ought to also be liable for breach of the Contract/covenant”, despite it not being named as a contracting party in the ESA. (REP characterizes this argument as an alternative to its main argument that Allure Inc. is liable for unjust enrichment, which I will discuss later in my reasons.)
88Essentially, REP’s argument is that because Allure Inc. was the beneficiary of REP’s sales efforts, and because Allure Inc. assumed Castel Homes Inc.’s obligations under the contract by making payments to REP, which under the ESA were to be paid by “the Builder”, Allure Inc. should be treated as bound by the contract.
89Citing the Supreme Court of Canada’s leading decision in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, REP suggests that Allure Inc.’s involvement in the operation of the ESA during the years the agreement was in effect is a “surrounding circumstance” that, when taken together with Mr. Zanette’s evidence at trial “that Allure ought to have been the named party to the Contract”, provides a basis for reinterpreting the contract to include Allure Inc. as a de facto third contracting party.
90In my view, this argument has three main problems.
91First, it is based on a misreading of Sattva, which instructs judges (at para. 46) to:
…read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. [Emphasis added.]
Sattva does not say that circumstances that were not known to the parties when they signed the contract, and that became known to them only later, can be used to retroactively reinterpret their agreement.
92Mr. Campoli’s own testimony, which I have accepted on this point, is that when he drafted and signed the contract he had no idea that Allure Inc. even existed. Even though he later discovered that Allure Inc. owned the development properties and was the real beneficiary of the ESA, and even though Allure Inc. later assumed responsibility for fulfilling some of “the Builder’s” contractual obligations, these are not “surrounding circumstances” that shed any light on his objective intentions at the time he drafted the contract and signed it on behalf of REP.
93Second, the ESA is unambiguously drafted as a contract between REP and a single other corporate entity. There is simply no way to read it as a tripartite contract between REP and two different corporations. REP strenuously resisted the defendants’ argument that the ESA should be interpreted as a contract with Allure Inc. rather than with Castel Homes Inc., and I have accepted REP’s position on this point.
94Third, Castel Homes Inc. could not unilaterally transfer its obligations under the ESA to Allure Inc. without REP’s agreement. As Wilson J. explained in National Trust Co. v. Mead, 1990 CanLII 73 (SCC), [1990] 2 SCR 410, at pp. 426-27 S.C.R.:
The common law has long recognized that while one may be free to assign contractual benefits to a third party, the same cannot be said of contractual obligations. This principle results from the fusion of two fundamental principles of contract law: 1) that parties are able to make bargains with the parties of their own choice (freedom of contract); and 2) that parties do not have to discharge contractual obligations that they had no part in creating (privity of contract).
95Paragraph 8 of the ESA states that the contract “shall ensure [sic] to the benefit of and be binding upon the respective successors and assigns of each of the Parties hereto”. However, the fact that Allure Inc. benefitted from the contract, and that it took on some of Castel Homes Inc.’s contractual obligations, did not make it Castel Homes Inc.’s “successor”, since both corporations existed when the ESA was drafted and signed, and still exist today. As Wilson J. explained in National Trust Co. v. Mead, at p. 423 S.C.R.:
When used in reference to corporations, a “successor” generally denotes another corporation which, through merger, amalgamation or some other type of legal succession, assumes the burdens and becomes vested with the rights of the first corporation.
96It was open to the parties to formally transfer Castel Homes Inc.’s contractual obligations to Allure Inc. by entering into “a trilateral agreement by which [the] existing contract [was] extinguished and a new contract brought into being in its place”: National Trust Co. v. Mead, at p. 427 S.C.R. They could also have entered into a new tripartite contract in which both Castel Homes Inc. and Allure Inc. were made jointly and severally liable. However, they did not do either of these things.
97I am not satisfied that REP’s willingness to accept payments from Allure Inc., or Allure Inc.’s decision to make at least some of the payments that were due to REP under the ESA, can properly be understood either as implicitly making Allure Inc. a party to REP’s existing contract with Castel Homes Inc., or as bringing into existence a new unwritten contract between REP and Allure Inc. REP has not cited any authority to me that would support either conclusion.
98In summary, I am satisfied that if the ESA is interpreted to identify Castel Homes Inc. as the second contracting party – as REP urges me to do, and as I have done – REP has no viable claim in contract against the non-contracting corporation, Allure Inc. I will consider REP’s alternate claim that Allure Inc. is liable for unjust enrichment later in my reasons.
C. How much was REP entitled to be paid under the ESA?
99The defendants concede that the ESA entitles REP to be paid more than it has already received. Having accepted REP’s position that the ESA should be understood as a contract between itself and Castel Homes Inc., it follows that Castel Homes Inc. must be found liable in contract to pay REP the difference between what REP ought to have received and what it has been paid to date, plus pre-judgment interest.
100It is common ground that REP has already been paid $160,880. The dispute between the parties over how much more REP ought to receive turns on two relatively narrow questions of contractual interpretation.
101The first question is whether REP’s entitlement to a commission based on “2% of the sales price per dwelling unit sold” should be understood as meaning the sale price including or excluding the HST component of the sale price that was listed in the agreement of purchase and sale for a lot. REP’s position is that HST should be included. The defendants’ position is that it should be excluded.
102The second question is whether REP is entitled to claim a 1% first-half commission for the sales of Lots 7 and 8, which did not close. REP acknowledges that it cannot claim the second-half 1% commission that it would have been entitled to receive on closing, but argues that it is still entitled to receive its first-half commissions. The defendants disagree.
103Both sides have submitted calculations as to what REP is owed under their competing interpretations of the ESA. As I have already discussed, I am not persuaded that the sale prices they both use, some of which are based on an undated chart that was prepared at some point by Allure Inc., are more reliable and accurate than the sale price figures in the various APS documents that were appended to Mr. Campoli’s trial affidavit.
104Using the APS sales prices, the parties’ competing calculations can be summarized as follows:
Lot Number
Total sale price (including HST)
HST included in total sale price
Sale price less HST
REP’s total commission
Plaintiff’s calculations
Defendants’ calculations
3
$2,950,000
$339,381
$2,610,619
$59,000
$52,212
4
$1,850,000
$212,832
$1,637,168
$37,000
$32,743
6
$2,400,000
$276,106
$2,123,894
$48,000
$42,478
7*
$2,265,000
$260,575
$2,004,425
$22,650
$0
8*
$2,400,000
$276,106
$2,123,894
$24,000
$0
11
$2,265,000
$260,575
$2,004,425
$45,300
$40,088
19
$2,265,000
$260,575
$2,004,425
$45,300
$40,088
20
$2,400,000
$276,106
$2,123,894
$48,000
$42,478
21
$2,000,000
$230,088
$1,769,912
$40,000
$35,398
Total
$369,250
$285,487
HST
$48,003
$37,113
Total including HST
$417,253
$322,600
Amount already paid to REP
-$160,880
-$160,880
NET
$256,3732
$161,7203
*Transaction did not close
105Neither of these net figures includes pre-judgment interest.
1. Does the ESA require REP’s commissions to be calculated based on the sale price including or excluding HST?
106Builders are required to charge and collect HST when they sell a new home, calculated at 13% of the actual sale price. However, agreements of purchase and sale for real estate transactions ordinarily state the total price that the buyer must pay, including HST.
107Paragraph 2(i) of the ESA states that the Builder agreed to pay REP “Sales Commission on a per lot basis equal to 2% of the sales price per dwelling unit sold”. However, this paragraph does not clearly state whether the “sale price per dwelling unit sold” should be understood as meaning the total sales price listed on the APS – that is, the sale price including HST – or as meaning the underlying true sale price, to which 13% HST is then added to arrive at the total sale price that is shown in the APS.
108The parties disagree about which of these “sales price” figures should be used, with REP advocating for the higher figure that includes HST, and the defendants for the lower figure that excludes HST.
109The practical difference between these two approaches is that including HST entitles REP to receive 13% more in commission payments than it would be entitled to receive if HST is excluded. This translates to a difference of approximately $42,000.
110Mr. Zanette testified at trial that “backing out” HST from the sale price, as the defendants propose, is the industry standard practice. However, Mr. Campoli disputed this.
111As the Supreme Court of Canada observed in Sattva Capital Corp. v. Creston Moly Corp., at para. 49, “in contractual interpretation, the goal of the exercise is to ascertain the objective intent of the parties”. See also Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 33.
112In Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, [2019] 4 S.C.R. 394, at para. 74, Côté and Brown JJ. explained further (dissenting in the result, but not on this point):
This Court has described the object of contractual interpretation as being to ascertain the objective intentions of the parties (Sattva, at para. 55). It has also described the object of contractual interpretation as discerning the parties’ “reasonable expectations with respect to the meaning of a contractual provision” (Ledcor, at para. 65). In meeting these objects, the Court has signalled a shift away from an approach to contractual interpretation that is “dominated by technical rules of construction” to one that is instead rooted in “practical[ities and] common-sense” (Sattva, at para. 47). This requires courts to read a contract “as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract” (ibid.).
113My task in this case is accordingly to try to ascertain the “objective intent of the parties”. The main source of evidence about what they intended, and what each would have understood the other as intending, is the language of the contract itself. However, I can also consider the “surrounding circumstances”, also referred to as the “factual matrix”, that were known to the parties when the contract was drafted and signed: Sattva, at para. 46.
114As Rothstein J. explained in Sattva, at para. 47:
The overriding concern is to determine “the intent of the parties and the scope of their understanding” (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27, per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 64-65, per Cromwell J.). To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning …
115In this case, paragraphs 2(i) and 2(a) of the ESA both state that REP is entitled to a commission based on “2% of the sale price per dwelling unit sold plus the applicable H.S.T.”
116I do not accept REP’s argument that the phrase “plus applicable HST” indicates that the HST charged to the purchaser was to be included in the “sale price per dwelling unit sold”. Rather, the plain meaning of this phrasing is simply that HST had to be collected and remitted on REP’s own commission payments, as required by law.
117Likewise, I do not agree with REP that Mr. Zanette said anything different in his read-in evidence. He merely acknowledged that any payments made to REP had to include the HST on its commission.
118However, I also place no weight on Mr. Zanette’s testimony that it is “industry practice” to “back out” HST when calculating realtors’ commissions. Mr. Campoli disputed this, testifying that in his experience the practice varied. As REP notes, Mr. Zanette was not qualified to give opinion evidence about “industry practice” in general. Even if I accept his evidence about what he believed, there is no reason to think that his belief would necessarily have been shared by Mr. Campoli.
119REP’s main argument is that its own practice of invoicing Allure Inc. for amounts that it calculated by including HST in the “sale price” sheds light on the parties’ common intention. REP attaches particular significance to the invoice it submitted for its first-half commission on the sale of Lot 4, which was the only one of REP’s commission invoices that Allure Inc. paid, although it did so only in part.
120Some further factual background is needed to put REP’s argument into context.
121Lot 4 was the first lot that REP sold. The APS was signed on April 22, 2013, and the total sales price, including HST, was $1,850,000. This can be broken down into a true sales price of $1,637,168.14, plus $212,831.86 in HST.
122REP submitted an invoice, dated May 16, 2013 and addressed to “Castel Homes”, for 1% of the total sale price inclusive of HST, or $18,500. REP then added 13% HST to this amount ($2,405), so the total invoice it submitted was for $20,905.4
123If HST had been backed out of the Lot 4 sale price when calculating REP’s 1% commission, REP’s commission would have instead been $16,371.68, and the HST payable on this commission would have been $2,128.32, resulting in a total invoice of $18,500.
124Allure Inc. did not pay REP this invoiced amount of $20,905. Instead, it sent REP a cheque for $18,500.
125REP argues that Allure Inc.’s $18,500 payment should be interpreted as implicitly acknowledging that REP was entitled to be paid an $18,500 commission plus HST, and seeks to explain away the $2,405 shortfall in what Allure Inc. paid as an accidental failure by Allure Inc. to also pay the HST due on REP’s commission.
126REP’s counsel, Mr. De Sanctis, argues in the factum that he filed as part of his closing submissions:
In cross-examination, Mark Zanette confirmed that the first-half of the invoice that was paid for Unit 4 was $18,500.00 which was the calculations completed by REP on its invoice and not on the basis of the amounts set out for Unit 4 on his Chart (Exhibit 11).
[I]t is important to recall that in cross-examination, Mark Zanette confirmed that the first-half of the commission paid on Unit 4 was on the invoice provided by Royal Le Page [sic]. This was the true intention of the parties otherwise Allure would not have paid that invoice or disputed it within 5 days as was their right under the Contract. Neither of which occurred.
The Plaintiff’s calculation was completed on the basis of the applicable contractual language and in the same manner as was done for Unit 4 (which was partially paid) and therefore ought to be the preferred analysis of the quantum of damages.
127However, as the calculations set out above show, the $18,500 amount that Allure Inc. paid can be equally explained on the basis that Allure Inc. thought that the commission REP was charging was too high because HST had not been “backed out” of the Lot 4 sale price. If Allure Inc. had recalculated the commission payable to REP by backing HST out of the lot sale price, and then added the HST collectable on the commission payment, the total would have come to $18,500.
128Moreover, Mr. Zanette did not agree in cross-examination that REP was entitled to claim a first-half commission of $18,500. He agreed in cross-examination that Allure Inc. had given REP a cheque for $18,500, and that he had signed this cheque. However, Mr. De Sanctis then put to Mr. Zanette that if HST had been backed out of the Lot 4 sale price REP’s commission would have been lower, which led to the following exchange:
A. Let me just double check that. Fair enough. You are missing one – you are missing something there, Mr. De Sanctis.
Q. Well, you paid $18,500.00 for the first half of the commission....
A. You are forgetting the H.S.T.
129To reiterate what I have already noted, if REP was paid a 1% commission on the Lot 4 sale price with HST backed out, its commission would have been $16,371.68 rather than $18,500, but adding 13% HST would then have brought the total back to $18,500, which is the amount Allure Inc. actually paid REP.
130In Sattva, at para. 47, Rothstein J. emphasized that a decision-maker trying to ascertain the contracting parties’ objective intentions “must read the contract as a whole”. When trying to determine whether the parties in this case objectively intended the “sale price” to include or exclude HST, I find the unnumbered paragraph that was inserted between paras. 1 and 2 of the ESA to be of critical importance.
131This unnumbered paragraph addresses how REP’s commission would be adjusted if the sale price of a lot was ever reduced after an APS for that lot was signed. It states:
THE BUILDER AGREES to pay the Realtor Sales Commission as set out in this Agreement, and agrees that if the selling price is (excluding Builder’s G.S.T.), of any dwelling unit is reduced in any way, the Commission will be based on the original selling price (excluding Builder’s G.S.T.), and therefore Commission payable will be based on same.
132Mr. Campoli, who drafted the ESA, agreed that the phrase “Builder’s G.S.T.” was meant to refer to the HST that is included in the total sale price listed on the agreements of purchase and sale.
133The self-evident purpose of this provision was to prevent REP’s commissions from being reduced if the Builder made a post-purchase agreement with a lot buyer to reduce the sales price below what REP’s sales representatives had negotiated.
134REP notes that this paragraph never came directly into play because “none of the sale prices for any of the Agreements of Purchase and Sale were reduced in any way” while the ESA was in effect. Even if this is true,5 I think this argument misses the point.
135In my view, the significance of this unnumbered paragraph is that it reveals the absurd consequences that would flow from REP’s proposed interpretation of paras. 2(i) and 2(a).
136Under the unnumbered paragraph, if the original selling price of a lot were reduced by any amount, REP’s commission would be based on the new sale price excluding HST. In light of this, it makes no sense to me that the parties would have intended REP’s commission to otherwise be based on the sale price including HST.
137On REP’s proposed interpretation of paragraphs 2(i) and 2(a) of the ESA, the Builder could engineer a 13% reduction in REP’s commission, and save itself thousands of dollars, merely by offering a small price reduction to the purchaser, which the purchaser would have no reason to refuse. I cannot accept that the parties would have intended this absurd result, which would fly in the face of the ostensible purpose of the unnumbered paragraph.
138In his majority judgment in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at para. 64, Cromwell J. noted that:
The key principle of contractual interpretation … is that the words of one provision must not be read in isolation but should be considered in harmony with the rest of the contract and in light of its purposes and commercial context.
139In my view, the only way to read the unnumbered paragraph harmoniously with paragraphs 2(i) and 2(a), in light of their purposes and commercial context, is to interpret these latter paragraphs as also requiring HST to be “backed out” from the lots’ sale prices when calculating REP’s commissions. This interpretation permits the unnumbered paragraph to achieve its apparent goal of protecting REP from having its commissions reduced by the Builder and the purchaser, without REP’s consent.
140This interpretation of the disputed contractual provisions is also supported by the contra proferentem rule, which requires any ambiguity in the language of a contract to “be resolved against the author if the choice is between him and the other party to the contract who did not participate in its drafting”: Austin v. Bell Canada, 2020 ONCA 142, at para. 31. Since Mr. Campoli drafted the ESA, any ambiguity in the wording of paragraphs 2(i) and 2(a) must be resolved against REP.
141In summary, I find that when the ESA is read as a whole, the only sensible way to construe the phrase “2% of the sale price per dwelling unit” in paragraphs 2(i) and 2(a) is to interpret “sale price” as meaning the true sale price, not including HST. This reading also accords with the contra proferentem rule.
2. Is REP entitled to receive 1% commissions for the sales of Lots 7 and 8 that did not close?
142The second dispute between the parties is over whether REP can claim a 1% first-half commission in relation to the sales of Lots 7 and 8, where agreements of purchase and sale were signed but the transactions ultimately did not close.
143REP initially claimed that it was entitled to receive its full 2% commission for these transactions, even though the ESA states that REP’s second-half 1% commission only became payable on closing. However, during his trial testimony Mr. Campoli resiled from this position, which I agree was unsupportable in the face of the express language of the ESA stating that the second-half commission payments were only to be made on closing.
144However, REP still maintains that it is entitled to collect the 1% commission that became due under paragraph 2(b) once the agreements of purchase and sale for lots 7 and 8 were signed, and the purchasers had provided their deposits. REP relies on paragraph 2(d), which permits REP to keep any commissions it has already been paid in relation to sales that do not close “through no fault of the Purchaser and or the Sales Representative” when:
… at the discretion of the Builder, the Builder terminates the Agreement of Purchase and Sale …
145The defendants disagree. They argue that paragraph 2(d) has no application to the sales of lots 7 and 8, because the sales agreements for these lots were not terminated “at the discretion of the Builder”.
146I will begin my analysis by setting out the factual circumstances that led to the sales of lots 7 and 8 falling through, along with the surrounding legal context in which this happened.
147New home sales in Ontario are regulated by the Ontario New Home Warranties Plan Act, R.S.O. 1990, c.O.31, (the “ONHWPA”) which is administered by the Tarion Warranty Corporation (O. Reg. 273/04). Under the ONHWPA and its regulations, contracts for the purchase and sale of new homes must include the standard-form Tarion Addendum, which establishes a series of deadlines.
148Among other things, if the construction of a new home has not been completed by the “Outside Closing Date”, the Tarion Addendum gives purchasers a 30-day window in which they can terminate the purchase agreement and have their deposit money returned to them.
149Mr. Zanette testified that the various critical dates in the Tarion Addendum are automatically populated by the Tarion software. His evidence, which was unchallenged on this point, was that because the houses in the “Allure at the Gates of Aurora” development were all being custom-built to the buyers’ specifications, there was never any realistic prospect that any of them would be finished by the “Outside Closing Dates” that were set out in the sales agreements. He expected that most purchasers would nevertheless choose not to exercise their Tarion termination options, as indeed most did not.
150However, two of the purchasers who bought lots during the timeframe that the ESA was in effect chose to terminate their purchase agreements. Both did so after it became clear that their home had either not been built by the “Outside Closing Date” set out in the APS, or that it would not be finished by that date.
151The purchasers of Lot 7 expressly exercised their termination rights under the Tarion Addendum. It is clear that once they did so Allure Inc. had no choice but to accept their decision and return their deposits.
152The circumstances that led to the sale of Lot 8 being terminated were different, since the buyer, Mr. Asaro, did not unilaterally exercise his termination option under the Tarion Addendum. Instead, he and Mr. Zanette signed a “Mutual Release and Termination Agreement” which stated that:
… for various pertinent reasons, the parties hereto now desire to terminate the Purchase Agreement, and wish to release each other from any and all claims that they may have arising under (or in connection with) the Purchase Agreement, and have accordingly entered into these presents in order to evidence same …
153However, it is undisputed that this document was only drafted and signed because work on Mr. Asaro’s house on Lot 8 had not even started, and that he either was, or very soon would have been, in a position where he could have unilaterally terminated the purchase agreement under the Tarion Addendum.
154Moreover, Mr. Asaro testified at trial that he was aware of his Tarion Addendum termination rights, and he confirmed that his agreement to purchase Lot 8 had been terminated at his request. He explained that otherwise:
We’d fall into a Tarion time limit for deposits, and I had to deal with it at that time or I would be out. I had no recourse against anybody.
Later in his evidence he added:
That is the reason I had to call in the agreement, and get my deposits back, because that was coming up due.
155After Mr. Asaro terminated his agreement to purchase Lot 8, he immediately purchased a different lot in the development, Lot 3, which was the lot on which the model home had already been built.6
156Mr. Asaro and Mr. Zanette gave conflicting evidence about the reason why construction of the house on Lot 8 was delayed. Mr. Asaro blamed Mr. Zanette, while Mr. Zanette blamed Mr. Asaro for repeatedly changing the design details of his home.
157I now turn to consider how these terminations fit into the contractual landscape of the ESA.
158Paragraph 2(d) of the ESA addresses what would happen to REP’s right to receive a commission in two narrowly defined circumstances where the sale of a lot failed to close. As I will now explain, I am satisfied that neither of these circumstances applies to the termination of the purchase agreements for either Lots 7 and 8.
159The first part of paragraph 2(d) states:
In the event a firm and binding Agreement of Purchase and Sale is terminated through no fault of the Purchaser and or the Sales Representative and at the discretion of the Builder, the Builder terminates the Agreement of Purchase and Sale, the Sales Commission paid to date on that particular deal in question shall not be refunded from the Realtor to the Builder. [Emphasis added.]
160For this contractual provision to apply, two conditions must be satisfied. First, the termination of the sales agreement must have not been the “fault” of the purchaser or REP’s sales representative. Second, the termination must have been “at the discretion of the Builder”.
161The second part of paragraph 2(d) then addresses a different scenario, in which a transaction is terminated because the purchaser fails to provide all the necessary deposits. Neither party suggests that this latter provision has any application to the sales of Lots 7 or 8.
162REP argues that since the sales of both Lots 7 and 8 did not close because of Allure Inc.’s building delays, the first part of paragraph 2(d) should govern the terminations of these sales agreements. According to REP:
… it was the failure of the Defendants to construct the home on time which amounted to the transaction being terminated. The Contract identifies that that when a firm deal is terminated through no fault of the Purchaser or the Sales Representative, the Sales Commission paid to date on that particular deal shall not be refunded from the Realtor to the Builder.
163This argument ignores the further requirements of the relevant provision: namely, that the termination also occur “at the discretion of the Builder”, and that it be the Builder “who terminates the Agreement of Purchase and Sale”.
164In my view, neither of these preconditions were met in the case of the termination of the sale of Lot 7, where the buyers formally exercised their Tarion Addendum right to terminate the purchase agreement and get their deposits back. It was plainly not the Builder “who terminate[d] the Agreement” for the sale of Lot 7, nor can the termination be said to have occurred “at the discretion of the Builder”.
165In contrast, the purchase agreement for Lot 8 was ostensibly ended by both Mr. Asaro and Allure Inc.’s mutual agreement. However, it is clear from Mr. Asaro’s evidence that the termination agreement came about at his initiative, and that if Allure Inc. had not agreed, he would have exercised his Tarion Addendum option to terminate the transaction unilaterally. In these circumstances, I am of the view that the termination of the Lot 8 transaction cannot properly be characterized as having occurred “at the discretion of the Builder”.
166I also do not think that it matters that Allure Inc. might in theory have stopped the terminations of the sales of Lots 7 and 8 by building homes on these lots more quickly. Mr. Zanette’s unchallenged evidence is that there was never any realistic chance of Allure Inc. meeting the Tarion “outside closing” deadlines, since the homes were being custom-designed to the customers’ specifications.
167In these circumstances, it would in my view strain the ordinary meaning of “discretionary” past the breaking point to characterize the termination of either the Lot 7 or the Lot 8 transactions as “discretionary” decisions by Allure Inc.
168REP also relies on obiter comments made by La Forest J. in his plurality reasons in H.W. Liebig Co. v. Leading Investments Ltd., 1986 CanLII 45 (SCC), [1986] 1 SCR 70, at p. 85, where he agreed that it was “certainly true” that “where it is the vendor who reneges … the broker could recover either on a quantum meruit … or in contract” (citations omitted). He explained further (at p. 85, citations omitted):
The action in contract may be justified, on several bases, including the fact that it is the vendor’s own fault that the contract is not completed. In cases where the vendor has not reneged, however, the courts have not allowed the broker to obtain his commission unless he was able to show that the proposed purchaser was ready, able and willing to purchase at the time set for the completion of the sale:
169In this case, even assuming that the failures of the Lots 7 and 8 sales can be properly characterized as Allure Inc.’s “fault” for not having built houses on these lots more quickly, there were no buyers “ready, willing and able to purchase” either property. To the contrary, both transactions failed because the buyers chose not to complete their purchases.
170Mr. Asaro did agree with the leading suggestion put to him by Mr. De Sanctis that he was “ready, willing and able to close the transaction for Unit 8 on the scheduled closing date”. However, it is clear from his evidence as a whole that all he meant by this is that he would have been “ready, willing and able to close” if the house that was to be built on Lot 8 had been finished by the “outside closing date”. Since the house was not finished – indeed, construction on it had not even started – Mr. Asaro was plainly not “ready, willing and able to close” on the purchase of Lot 8, which is why he arranged to terminate his purchase of this lot and instead buy Lot 3, which already had a finished house built on it.
171As I will discuss later, Liebig is still instructive, although not in the manner that REP suggests.
172REP also relies on this Court’s decision in Sutton Group Incentive Realty Inc. Brokerage v. 1246190 Ontario Inc., 2011 ONSC 4786, which in my view is distinguishable on its facts.
173In that case there was a contract that guaranteed the realtor its commission if a transaction did not close “owing or attributable to the Seller’s default or neglect” (at para. 19). The seller was then found at trial to have deliberately failed to complete the transaction, and to have entered into a secret agreement to sell the same property to the same purchaser, in what was found to have been a deliberate attempt to avoid having to paying the realtor its commission (at paras. 19-22).
174There is no suggestion in the case at bar that Mr. Zanette deliberately sabotaged the sales of either Lots 7 or 8 in an attempt to deprive REP of its commissions. It is true that after the sale of Lot 8 to Mr. Asaro was terminated, Mr. Zanette made a deal to sell him a different lot, Lot 3, at a higher price. However, the defendants do not dispute that REP is entitled to receive its full contractual entitlement to a commission on the sale of Lot 3. Moreover, the ESA, unlike the contract in Sutton, does not expressly guarantee REP a commission when a transaction fails because of the Builder’s “neglect”.
175The ESA does not expressly address what was to happen when a transaction failed in circumstances that are not captured by paragraph 2(d). Nevertheless, some inferences about the parties’ objective intentions in these other situations can be gleaned from the way that paragraph 2(d) deals with the specific contingencies that it does address, and from the language that is used in other parts of the contract.
176Paragraph 2(d) provides that when a transaction fails because of a discretionary decision by the Builder, REP would be entitled to keep any commission payments for the transaction that it has already received. The fact that the parties singled out this situation for special mention implies that they considered it exceptional, and that it therefore required special treatment. This supports the inference that they contemplated that if a transaction failed for other reasons, they meant for REP not to be entitled to keep any commission payments it had already received, or receive any commissions that had not yet been paid.
177Some significance can also be attached to the specific language used in paragraphs 2(i) and 2(a) of the ESA, which state that REP’s commission was to be set at 2% “of the sales price per dwelling sold” (emphasis added), since there is authority for the proposition that the word “sale” should ordinarily be understood as meaning a completed sale.
178This is the central ratio of La Forest J.’s plurality majority reasons in Liebig, which REP relies on for a different reason. As he explained at paras. 28-29, in his view:
I do not think the technical meaning that lawyers may attach to a word for certain purposes should be substituted for the ordinary meaning of that word in everyday speech unless there is evidence that the parties intended to use it in that special or technical sense. I have not found the word defined in that sense in the Oxford Dictionary, and it flies against the ordinary understanding of people as to the meaning of the word, particularly, as has been judicially recognized, in the context of this kind of agreement. I realize, of course, that people will sometimes say they have sold a property when they have accepted an offer for it. But that is wishful thinking based on the normal sequence of events. If there is a chance that a proposed purchaser will renege, the vendor will wistfully inform you that he thought it was sold.
This is perhaps another way of saying that what the vendor seeks to obtain is a sale, not a lawsuit. All a lawyer means when he speaks of an agreement of sale as being a sale is that it ordinarily carries a right to specific performance. But that is obviously not what the parties have in mind in entering into the contract; they are thinking of a completed sale. The fact that a lawyer, if consulted by the vendor, would seek to make this understanding clear is merely a credit to his caution, a natural bent of lawyers supported in this instance, as we have seen, by some authority. This, however, does not alter the plain meaning of the words as used by ordinary people in an ordinary business setting.
179However, I recognize that La Forest J.’s plurality reasons are not necessarily conclusive on this point, because he did not command a majority of the seven-member panel on this issue. Dickson C.J.C. and Lamer J. (as he then was) agreed with La Forest J. However, three other judges – Estey, McIntyre and Chouinard JJ. – all disagreed and concluded that “[s]tanding alone, the word ‘sale’ may be interpreted to mean either a binding agreement for sale or a completed sale” (at para. 50).
180The deciding vote in Liebig was cast by Le Dain J., who relied on the specific way that the word “sale” had been defined in the contract at issue, which had provided that:
For the purpose of this agreement a sale shall be deemed to include the entering into of an agreement to exchange this property or the granting of an Option to Purchase this property during the currency of this listing, if said exchange or option is subsequently completed. [Emphasis added.]
This led Le Dain J. to conclude that in particular contract at issue the word “sale” should be understood to mean a completed sale (at para. 64), but he expressly added that he “[did] not reach by the aid of any presumption of intention arising from the notion of the ‘common understanding of men’” (at para. 63).
181Accordingly, I do not read Liebig as establishing any hard and fast rule that the words “sale” or “sold” must always refer to a completed sale. Rather, the meaning that should be attached to those words in a particular contractual context can vary, and requires the contract to be considered as a whole.
182In Shapiro v. 1086891 Ontario Inc., 2006 CanLII 2050, at paras. 164-65 (S.C.J.), Perell J. explained the holding in Liebig in the following terms:
The H.W. Liebig & Co. case establishes that the entitlement to a commission is a matter of contract between the vendor and his or her agent. The vendor and the real estate agent have the freedom of contract to stipulate in what circumstances the commission is payable. It is possible that a vendor may bind itself to pay a commission for the mere introduction of a purchaser or for the presentation of an offer that is accepted by the vendor. In each case, it is a matter of interpreting the particular agreement.
As established by the majority’s judgment in the H.W. Liebig & Co. case, given the typical context and the common understandings and expectations of both vendors and agents trading in real estate that a vendor will pay a commission only upon the completion of a sale, it requires clear and unequivocal language to establish that the commission is payable not only on sales but also on offers. As a matter of interpretation, most vendors and most real estate agents would understand that a sale of the property means the performance of the agreement of purchase and sale. Thus, typically, an agent does not receive a commission if the agreement does not close. [Emphasis added.]
183In the case at bar, I do not think that the ESA “clearly and unequivocally” gives REP a contractual right to obtain a commission for sales that did not close, at least in circumstances where the Builder is required to return the purchaser’s deposits.
184I acknowledge that there are some aspects of the ESA that support the conclusion that the contracting parties intended there to be some circumstances where REP would be entitled to receive a sales commission even when a deal ultimately fell through. Most obviously, the first part of paragraph 2(d) expressly provides that REP can keep any commission already paid when a deal is terminated “at the discretion of the Builder”.
185The language in paragraph 2(b) entitling REP to receive payment of half its commission after the Builder has received the deposit, but before the transaction has closed, also arguably supports the conclusion that the parties meant for REP to receive partial 1% commission even if a deal ultimately fell through in circumstances where the Builder was entitled to keep the purchaser’s deposit.
186However, as I have already discussed, there are other aspects of the ESA that point in the other direction.
187In the final analysis, I find that the ESA is ambiguous, and that it is accordingly appropriate to resolve the ambiguity by applying the contra proferentem rule.
188The ESA was drafted by Mr. Campoli. He could have included a term that clearly and unambiguously gave REP the right to receive and keep a 1% commission for deals that did not close because the purchasers exercised their termination rights under the Tarion Addendum. Had he done so, Mr. Zanette would have had the choice of either accepting this term, negotiating to have it removed, or hiring a different realtor.
189Instead, Mr. Campoli presented Mr. Zanette with a contract that did not address this specific contingency, and that instead used language that at least suggested that REP’s right to receive any commission in situations where the Builder would not be making any money from a failed transaction was more limited. In my view, the resulting ambiguity must be resolved against REP.
190In summary, I find that REP does not have any contractual right to receive a 1% commission for the sales of Lots 7 and 8 that did not close. Whether REP can claim any payments for its work in relation to these lots based on its alternative claims in equity is a question I will consider in the next part of my reasons.
D. Conclusions re: REP’s breach of contract claims
191My conclusions regarding REP’s claim for breach of contract can be summarized as follows:
i) The ESA should be construed as a contract between REP and Castel Homes Inc.
ii) Allure Inc. is not liable for breach of contract either on the basis that it was a third contracting party, or on the basis that Castel Homes Inc. transferred its rights and obligations under the ESA to Allure Inc.;
iii) REP’s entitlement under the ESA to be paid a commission based on “2% of the sale price per dwelling unit sold” should be understood to mean 2% of the sale price excluding HST;
iv) The ESA does not entitle REP to claim a 1% commission for the sales of Lots 7 and 8, which did not close because of construction delays and which were terminated at the request of the purchasers, who received their deposits back.
192I accordingly find that Castel Homes Inc. is liable to pay REP damages for breach of contract, which for the reasons I have outlined above I quantify as $161,720, plus pre-judgment interest.
V. Can REP assert claims against the defendants who were not parties to the ESA?
193REP asserts further that it can also claim damages against the two non-contracting defendants, Allure Inc. and Mr. Zanette, on a variety of different legal bases. For the following reasons, I am not prepared to give effect to any of REP’s arguments.
A. Can Mr. Zanette be held personally liable for breaching the “covenant” to pay REP under the contract?
194REP argues that Mr. Zanette should be found personally liable in contract because the ESA included a “covenant” that REP would be paid as per the terms of paragraph 2, and because Mr. Zanette signed the ESA. According to REP’s submissions in its factum:
… the “covenant” was breached by Zanette who had exclusive control over the operations of Allure and Castel Homes to ensure that payment for commissions would be made according to the Contract. It is submitted that Zanette was aware of the covenant contained in the Contract since he signed the Contract and therefore he was personally responsible to ensure that the covenant was not breached.
195REP cites no authority for the proposition that the use of the word “covenant” in a contract signed on behalf of a corporation makes the signer personally liable as a guarantor.
196In ordinary usage, a “covenant” is simply an agreement. English common law distinguished between covenants and contracts, in that the former were made under seal and were enforceable without consideration: see, Trusts & Guarantee Co. v. Buxton, 1929 CanLII 33 (SCC), [1929] S.C.R. 529, at p. 532 S.C.R.; Friedmann Equity Developments Inc. v. Final Note Ltd., 2000 SCC 34, [2000] 1 SCR 842, at para. 20. However, the ESA is not a “covenant” in this historical technical legal sense.
197I do not accept that by using the word “covenant” in the preamble to paragraph 2, the parties intended to make Mr. Zanette a personal guarantor of his corporation’s obligations under the contract. Rather, paragraph 2 merely states that the contracting party – “the Builder”, which REP says should be identified as Castel Homes Inc. – was agreeing, or “covenanting”, to pay REP as provided for in the contract. It does not say, or in any way imply, that Mr. Zanette was personally agreeing to do anything.
198In effect, REP seeks to have me pierce the corporate veil. This can only be done in limited circumstances: see, e.g, Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., 1996 CanLII 7979 (Ont. C.A.); Chevron Corp. v. Yaiguaje, 2015 SCC 42, [2015] 3 S.C.R. 69, at para. 80.
199If REP wanted Mr. Zanette to personally guarantee the contract, it was free to insist that he do so when the terms of the ESA were being negotiated. There is simply no basis for me to interpret the ESA, as it was drafted by Mr. Campoli, as including any implied personal guarantee by Mr. Zanette.
B. Can Mr. Zanette be held liable for the tort of inducing a breach of contract by Castel Homes Inc.?
200REP argues further that Mr. Zanette can be held personally liable for the tort of inducing a breach of contract by Castel Homes Inc., of which he is an officer and director.
201REP bases this argument on Hurst Real Estate Service Inc. v. Great Lands Corporation et al., 2018 ONSC 4824, aff’d 2020 ONCA 109, which, like the case at bar, also involved an action by a realtor against a property developer over an unpaid sales commission.
202The trial judge in Hurst concluded on the evidence before her that the individual defendant Mr. Sadr, who was the sole director and officer of the two corporate defendants, was personally a party to the contract at issue in the case. However, she also held in the alternative that he could also be found liable for the tort of inducing breaches of contract by the corporate defendants.
203I agree that the trial decision in Hurst supports REP’s argument. However, REP is wrong when it states in its factum that “the [Ontario] Court of Appeal affirmed Hurst in its entirety”. To the contrary, the Court of Appeal expressly held at para. 24 of its reasons that it was not addressing the correctness of the trial decision concerning the tort of inducing a breach of contract by a corporation.
204With respect, the trial judge’s holding in Hurst that a corporate officer or director can be held liable for the tort of inducing a breach of contract by the corporation that he or she controls was in my view rendered per incuriam, since she reached this conclusion without considering the extensive body of Ontario case law that has adopted what has become known as “the rule in Said v. Butt”, named after an eponymous decision of the English Court of King’s Bench, reported at [1920] 3 K.B. 497.
205As Perell J. explained in Sigma Convector Enclosure Corp. v. Fluid Hose & Coupling Inc., 2022 ONSC 4371, at para. 43 (citations omitted):
The exceptional and narrow rule in Said v. Butt concerns the tort of inducing breach of contract, and the rule is that in the absence of separate conduct which is mala fide and against the best interests of the corporation, a corporate officer or employee may not be sued for inducing breach of contract where a claim for breach of contract is available against the corporation.
206The validity of the rule in Said v. Butt in Ontario law has been repeatedly reaffirmed by the Ontario Court of Appeal, including most recently in FNF Enterprises Inc. v. Wag and Train Inc., 2023 ONCA 92, at para. 24, which was released in February 2023, while my judgment in the case at bar was on reserve. See also: Density Group Limited v. HK Hotels LLC, 2014 ONCA 605, at paras. 164-69, 186-92; Correia v. Canac Kitchens, 2008 ONCA 506, at para. 87; 175777 Ontario Limited v. Magna International Inc., 2001 CanLII 8529, at paras. 17-24 (Ont. C.A.); 460635 Ontario Limited v. 1002953 Ontario Inc., 1999 CanLII 789, at para. 5 (Ont. C.A.); Meditrust Healthcare Inc. v. Shoppers Drug Mart, 1999 CanLII 2316, at para. 16 (Ont. C.A.); ADGA Systems International Ltd. v. Valcom Ltd., 1999 CanLII 1527, at paras. 11, 18.
207Mr. Zanette, as the directing mind of both Castel Homes Inc. and Allure Inc., can certainly be seen as causally responsible for REP not having been fully paid the money it is owed under the ESA. However, I am not satisfied that there is evidence supporting the conclusion that his decision to have the corporate defendants withhold payment to REP was “mala fide and against the best interests of the corporation[s]”: Sigma, at para. 43.
208As Carthy J.A. explained in ADGA Systems International Ltd. v. Valcom Ltd, at para. 15, the Said v. Butt exception:
… assures that officers and directors, in the process of carrying on business, are capable of directing that … a business contract not be performed on the assumed basis that the company’s best interest is to pay the damages for failure to perform.
209In the case at bar, I have already found that the invoices REP submitted for its commissions overstated the amounts it was entitled to receive under the contract, both because the invoices failed to “back out” HST from the sale prices when calculating REP’s commissions on the various lots that were sold, and because REP sought to be paid its full 2% commission in relation to Lots 7 and 8, where the transactions failed to close. Mr. Zanette plainly had a legitimate business reason not to have Castel Homes Inc. or Allure Inc. pay these invoices in full.
210While Mr. Zanette can perhaps be faulted for not having Castel Homes Inc. make partial payment of the amounts that he now agrees REP is entitled to receive, I am not persuaded that his conduct takes him outside the shield against personal tort liability for inducing Castel Homes Inc. to breach the contract, under which he entitled to shelter by the rule in Said v. Butt.
211Accordingly, I find that REP’s action against Mr. Zanette for the tort of inducing a breach of contract by Castel Homes Inc. must fail.
C. Can Allure Inc. be found liable for unjust enrichment?
212REP argues further that it can assert causes of action in restitution against both Allure Inc. and Mr. Zanette, based on the doctrine of unjust enrichment.
213As Côté J. explained in her majority reasons in Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303, at para. 35:
Broadly speaking, the doctrine of unjust enrichment applies when a defendant receives a benefit from a plaintiff in circumstances where it would be “against all conscience” for him or her to retain that benefit. Where this is found to be the case, the defendant will be obliged to restore that benefit to the plaintiff.
214It is well settled that to make out a cause of action in unjust enrichment, a plaintiff must establish three things:
i) an enrichment of or benefit to the defendant,
ii) a corresponding deprivation of the plaintiff, and
iii) the absence of a juristic reason for the enrichment.
See, e.g., Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, at para. 32; Peel (Regional Municipality) v. Canada, 1992 CanLII 21 (SCC), [1992] 3 S.C.R. 762, at p. 784; Pettkus v. Becker, 1980 CanLII 22 (SCC), [1980] 2 S.C.R. 834, at p. 848.
215I accept that REP has established the first two elements.
216With respect to the first element, Allure Inc. benefitted directly from REP’s work marketing and selling the six properties where the transactions ultimately closed, and also benefitted indirectly from the work REP did with respect to the sale of Lot 8, which ultimately led to the buyer purchasing a different lot, Lot 3.
217I am also prepared to assume for the purpose of my analysis that at least some of the profits that Allure Inc. received from the sale of the various lots were ultimately passed on to its principal, Mr. Zanette.
218With respect to the second element, REP has also suffered a deprivation: its agents spent time and effort marketing and selling Allure Inc.’s lots, and REP has not yet been fully compensated for this work, as it was entitled to be under the terms of the ESA.
219I am also prepared to find that there is some “correspondence” between REP’s deprivation and Allure Inc.’s enrichment, even though under the ESA it was Castel Homes Inc., not Allure Inc. or Mr. Zanette, that was responsible for paying REP’s commissions.
220The ESA plainly contemplated that REP’s commissions would come out of the sale proceeds of the properties. Since Mr. Zanette was the directing mind of both defendant corporations, it is reasonable to assume that when he signed the ESA he contemplated either that Allure Inc. would transfer funds to Castel Homes Inc. to allow Castel Homes Inc. to pay the commissions itself, or that Allure Inc. would simply pay them directly, as it ultimately did with some of them. I am satisfied that to the extent that REP’s commissions were not paid, Allure Inc. was accordingly enriched.
221The problem REP faces, in my view, is with the third requirement: the absence of a juristic reason for Allure Inc.’s enrichment.
222It is well-settled that the existence of a contract can be a “juristic reason” explaining why a defendant’s enrichment is not unjust. As Dickson J. (as he then was) put it in Rathwell v. Rathwell, 1978 CanLII 3 (SCC), [1978] 2 S.C.R. 436, at p. 455;
[T]he facts must display an enrichment, a corresponding deprivation, and the absence of any juristic reason — such as a contract or disposition of law — for the enrichment. [Emphasis added.]
See also Pettkus, at p. 844; Garland v. Consumers’ Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629, at paras. 38, 44; Pacific National Investments Ltd. v. Victoria (City), 2004 SCC 75, [2004] 3 S.C.R. 575, at para. 23.
223As my colleague Akbarali J. explained in Ciccocioppo Design/Build Inc. v Gruppuso, 2017 ONSC 2012, at para. 18:
The existence of a contract is a juristic reason to deny recovery for claimed unjust enrichment: Brouilette Building Supplies v. 1662877 Ontario Inc., 2009 CanLII 491, at para. 17 (Ont. S.C.J.), Heerkens v. Lindsay Agricultural Society, 2017 ONSC 240, at para. 54. This recognition that a contract is a juristic reason reflects the principle of autonomy of the parties to the contract, including their legitimate expectation that they may order their affairs by contract: Kerr v. Baranow, 2011 SCC 10 at para. 41, [2011] 1 S.C.R. 269. It also reflects the principle that equity finds a role where an injustice arises without a legal remedy: Kerr at para. 45. A party wronged due to a breach of a contractual obligation has a legal remedy. It can seek to rectify any resulting injustice through an action for breach of contract, consistent with the expectations of the parties to the contract.
224In this case, I find that there is a “juristic reason” for Allure Inc. having been enriched through REP’s work. This juristic reason is that REP performed its work under a contract with a related corporation, Castel Homes Inc., that provided that REP would be compensated for its work. REP’s real complaint is not that Allure Inc. has received some benefit to which it was not juristically entitled, but that Castel Homes Inc. did not uphold its end of the contractual bargain and pay REP what it is owed.
225In Moore v. Sweet, at para. 51, Côté J. noted that:
The fact that a plaintiff has a contractual claim against one defendant does not preclude the plaintiff from advancing his or her case by asserting a separate cause of action against another defendant if it appears most advantageous.
226However, the doctrine of unjust enrichment does not automatically permit every contracting party to sidestep the doctrine of privity of contract and sue a third party in restitution as an alternative to suing the contracting party in contract. The plaintiff may only elect to sue in restitution rather than suing in contract if he or she has a valid cause of action in restitution. In many situations, the existence of a contract will defeat the plaintiff’s unjust enrichment claim, by preventing the plaintiff from establishing the absence of a juristic reason for the third party’s enrichment.
227In this regard, the particular facts of Moore v. Sweet were somewhat unusual. The plaintiff in that case had a contract with her estranged husband in which he agreed to keep her as the beneficiary of his life insurance policy if she paid the insurance premiums. She upheld her end of the bargain, but he did not. Instead, he secretly made his new common law spouse the beneficiary under the policy.
228After the husband died, the insurance money went to his common law spouse, and the plaintiff successfully sued her in unjust enrichment to obtain the insurance proceeds. The fact that the plaintiff could in theory have sued her husband’s estate for breach of contract – although she could not have done so successfully, because the estate was impecunious – was held by a majority of the Supreme Court of Canada not to bar her from proceeding instead by claiming unjust enrichment against the common law spouse.
229However, I find the situation in the case at bar to be distinguishable. In Moore v. Sweet, the defendant had received the very thing that the plaintiff had contracted to obtain for herself, namely, the life insurance proceeds. If her estranged husband had carried out his end of his contractual bargain with the plaintiff, the insurance money would have all gone to the plaintiff, rather than to the husband’s common law spouse.
230Côté J. emphasized the significance of this in her majority reasons, noting at para. 51:
Since Risa [the common law spouse] was given the very thing that Michelle [the plaintiff] had contracted to receive and was otherwise entitled to receive (given that she held up her end of the bargain), it seems evident to me that Risa was enriched at Michelle’s expense. To be clear, it is not simply that Risa gained a benefit with a value equal to the amount of Michelle’s deprivation. Rather, what Risa gained is the precise benefit that Michelle lost: the right to receive the proceeds of Lawrence’s life insurance policy. [Italics in original.]
231In contrast, the contract between Castel Homes Inc. and REP specifically contemplated that someone other than REP would profit from the sale of the “Allure at the Gates of Aurora” lots. Even though REP may not have known when the contract was drafted and signed that these profits would flow to Allure Inc. rather than to Castel Homes Inc. itself, it was none of REP’s concern who profited from the contract, as long as REP was paid for its own work.
232Moreover, unlike the situation in Moore v. Sweet, REP has no legal or equitable claim to the entirety of the profits derived from the sale of the lots. The most that REP can claim is the commissions that it was entitled to receive under the contract. REP also has no proprietary claim to any portion of the sale proceeds, in particular. Money is fungible. If Castel Homes Inc. had paid REP using funds that it derived from some other income source, REP would have no grounds for complaint.
233REP argues that there is “no juristic reason to deny entitlement to REP for its commissions”. This is true, but beside the point. The relevant question at this stage of the analysis is not whether REP has a juristically valid claim to be compensated by someone, but whether the defendants who REP claims were enriched unjustly do not have any juristically recognized basis for keeping their enrichment.
234In this case, REP’s real complaint is that Castel Homes Inc. has not upheld its end of the contractual bargain and paid REP what it is owed under the contract. If Castel Homes Inc. had done so, whether out of the lot sale proceeds or out of its own funds, REP would have no grounds to complain that either Allure Inc. or Mr. Zanette have been unjustly enriched by their receipt of proceeds from the lot sales.
235The situation might very well be different if there was evidence that Castel Homes Inc. is insolvent, and if the evidence showed that Mr. Zanette had deliberately structured the contract with REP so that the liabilities were born by Castel Homes Inc. but the profits flowed to Allure Inc., with a view to depriving REP of the money it was contractually entitled to receive.
236In this situation, I might well agree that it would be unjust not to let REP recover against the parties who actually benefitted under the contract. As Côté J. noted in Moore v. Sweet, at para. 38:
… [the] principled approach to unjust enrichment is a flexible one that allows courts to identify circumstances where justice and fairness require one party to restore a benefit to another.
237However, REP has presented no evidence that Castel Homes Inc. is judgment-proof. Moreover, as I have already noted, REP strenuously resisted the defendants’ efforts to have the contract rectified to substitute Allure Inc. as the contracting party.
238Essentially, REP’s position seems to be that I should assume, with no evidence, that both corporate defendants may be impecunious, on the grounds that their former counsel refused REP’s efforts to probe the state of the corporations’ finances during Mr. Zanette’s examination for discovery.
239Counsel did so on the basis of lack of relevance. Specifically, he refused to:
i) provide copies of Castel Homes Inc. and Allure Inc.’s general ledgers;
ii) let Mr. Zanette answer whether he had personally received any funds from the sales of the development lots; and
iii) after Mr. Zanette had been shown an undated spreadsheet from the defendants’ book of documents, showing that at some unknown time Allure Inc. had had a balance of $74,567.14 remaining from the proceeds of the lot sales, counsel refused to let him answer “whether Allure still [had] those funds”.
240Based on these refusals, and with no other evidence, REP urges me to draw the inference that Allure Inc. “was effectively a single-purpose entity and no longer holds any funds.”
241I would make three observations.
242First, REP could have brought a refusals motion and sought to have Mr. Zanette ordered to answer these questions. While REP is correct that it was not obliged to bring a refusals motion before inviting me to draw an adverse inference against the defendants, its failure to do so is a relevant factor I can consider when deciding whether I ought to draw the adverse inference REP now seeks: see, e.g., McCracken v. Canadian National Railway Company, 2012 ONCA 445, at paras. 117-18; The Guarantee Company of North America v. Ciro Excavating & Grading Ltd., 2015 ONSC 4465, at para. 12, aff’d 2016 ONCA 125.
243Second, some of the refused questions were framed very narrowly. In particular, the question about whether Allure Inc. “still had” the money shown in the undated spreadsheet was framed to refer to these specific funds. Even if I were prepared to infer that Allure Inc. no longer has these particular funds on hand, it would not logically follow that Allure Inc. must now be insolvent. Indeed, at the unknown time the spreadsheet was prepared, only six of the twenty-one lots in the “Allure at the Gates of Aurora” development seem to have been sold. By now, Allure Inc. has very likely sold more lots and has made more money, even if it has already spent the $74,567.14 that it apparently had on hand when the undated spreadsheet was prepared.
244Third, and perhaps most importantly, even if I were to conclude that Allure Inc. is “a single-purpose entity [that] no longer holds any funds”, this would not allow me to draw any conclusions about the current financial state of Castel Homes Inc., which is the corporation against which REP is entitled to claim damages for breach of contract.
245On the evidential record before me, I see no grounds for concluding that Castel Homes Inc. is likely to be insolvent, such that REP will be unable to recoup the money it is owed by pursuing its action in contract. While REP’s concerns that this might be the case may be understandable, they are entirely speculative on the record before me.
246In summary, I am not satisfied that REP has met its burden of establishing that there is no juristic reason for any enrichment having been received by the non-contracting defendants, Allure Inc. and Mr. Zanette. Rather, the juristic reason for any enrichment they received is REP’s contract with Castel Homes Inc. To the extent that Castel Homes Inc. has breached this contract, REP’s remedy is to pursue an action in contract against Castel Homes Inc., not seek damages in restitution from the non-contracting defendants.
D. Can REP claim compensation on the basis of quantum meruit?
247REP’s fifth argument is that it can claim compensation from all three defendants on the basis of the doctrine of quantum meruit.
248As Cromwell J. explained in Kerr v. Baranow, at para. 74:
Quantum meruit originated as a common law claim for compensation for benefits conferred under an agreement which, while apparently binding, was rendered ineffective for a reason recognized at common law.
249That is plainly not the situation here. REP’s agreement with Castel Homes Inc. has not been “rendered ineffective” and unenforceable. Even if Castel Homes Inc. turns out to have insufficient assets to satisfy REP’s judgment debt, as a judgment debtor REP will have access to other remedies to pursue any funds that Castel Homes Inc. may have transferred out of its possession: see rule 60.18 of the Rules of Civil Procedure.
250This is also not a situation where the contracting parties mistakenly failed to specify how much REP was to be paid for its work, requiring the courts to step in and determine the reasonable value the services that REP provided under the contract.
251In my view, in these circumstances REP’s only legitimate claim against Castel Homes Inc. is one based in contract, not one based on quantum meruit. REP has no grounds for claiming payment from Castel Homes Inc. of anything other than what it is entitled to receive under the contract.
252In particular, REP cannot invoke quantum meruit to obtain compensation from Castel Homes Inc. for amounts that I have found it is not entitled to receive under the contract, such as payment for its work relating to the sales of Lots 7 and 8 that did not close. As Scott C.J.M. observed on behalf of the Manitoba Court of Appeal in Rillford Investments Ltd. v. Gravure International Capital Corp., 1997 CanLII 3908, at para. 26 (Man. C.A):
Simply stated, the remedy of quantum meruit is not appropriate when there is an express contract between the parties. As Treitel, The Law of Contract (London: Stevens & Sons, 1983), stated (at p. 792):
The general rule is that where a contract expressly provides for a fixed remuneration on specified events, the court cannot award any other remuneration on those events, or award any remuneration if they do not occur. To allow quantum meruit in such cases would contradict the agreement reached by the parties.
253I am also not persuaded that REP can properly do an end run around the limits on its contractual compensation by making claims in quantum meruit against the non-contracting defendants, particularly for the amounts that it is not entitled to receive under the contract.
VI. Remedies
A. Damages
254It follows from the preceding analysis that REP is entitled to judgment in its favour for breach of contract against Castel Homes Inc., and to an award of damages in the amount of $161,720, plus pre-judgment interest.
B. Other remedies
255However, REP seeks to supplement an award of damages against Castel Homes Inc. with various equitable remedies directed at either Castel Homes Inc. or the other defendants.
1. Constructive trust
256REP’s first request is for “a finding that the funds received by Allure on the sale of the subject properties are impressed with a constructive trust”.
257For a number of reasons, I am not satisfied that REP is entitled to a constructive trust remedy.
258Most obviously, “[t]he principle of unjust enrichment lies at the heart of the constructive trust”: Pettkus v. Becker, at p. 847. My rejection of REP’s unjust enrichment claim against Allure Inc. accordingly disentitles REP from impressing any funds that were received by Allure Inc. with a constructive trust.
259However, even if I had found that REP did have a viable claim in unjust enrichment against Allure Inc., I would still not have found this to be an appropriate case to impose a remedial constructive trust. As Côté J. noted in Moore v. Sweet, at para. 91 (italics in original):
While the constructive trust is a powerful remedial tool, it is not available in all circumstances where a plaintiff establishes his or her claim in unjust enrichment. Rather, courts will impress the disputed property with a constructive trust only if the plaintiff can establish two things: first, that a personal remedy would be inadequate; and second, that the plaintiff’s contribution that founds the action is linked or causally connected to the property over which a constructive trust is claimed (PIPSC, at para. 149; Kerr, at paras. 50-51; Peter, at p. 988). And even where the court finds that a constructive trust would be an appropriate remedy, it will be imposed only to the extent of the plaintiff’s proportionate contribution (direct or indirect) to the acquisition, preservation, maintenance or improvement of the property (Kerr, at para. 51; Peter, at pp. 997-98).
260In the circumstances of this case, there are three main factors that weigh against imposing a remedial constructive trust.
261First, the “property” at issue here is money. As Côté J. noted in Moore v. Sweet, at para. 93, “[o]rdinarily, a monetary award would be adequate in cases where the property at stake is money.” REP has not shown that an award of money would be inadequate in this case.
262Second, unlike the situation in Moore v. Sweet, there is no identifiable existing pool of money to impress with a constructive trust. In Moore, the disputed insurance proceeds had been paid into court, which led Côté J to find that impressing that money with a constructive trust would be the simplest remedy, whereas the alternative in that case – ordering that the money already paid into court be returned to the defendant, and then requiring the plaintiff to enforce her judgment against the defendant personally – would “unnecessarily complicate the process”.
263In contrast, imposing a constructive trust has no similar advantages here. Indeed, one of the particularly puzzling aspects of REP’s position is that it is simultaneously asking me to impress a constructive trust on the funds received by Allure Inc., while also urging me to find that Allure Inc. no longer has any money. Impressing a constructive trust on money that Allure Inc. may no longer have would in my view simply add a layer of needless complexity to my remedial award.
264Third, REP’s argument that it should be awarded a constructive trust over all of the funds that Allure Inc. received from “the sale of the subject properties” is in my view grossly overreaching. The properties at issue sold for in excess of $16 million dollars. REP is only owed slightly more than $160,000, plus pre-judgment interest.
265For all of these reasons, I am not prepared to accede to REP’s request that I impose a constructive trust over the proceeds of the lot sales.
2. Tracing or accounting orders
266REP also seeks a further remedial order in the form of “an Order for an accounting and equitable tracing of the ‘Constructive Trust Property’”. Having denied REP’s request for a constructive trust, this further request is moot. However, I will make two further points.
267First, REP’s reliance on this Court’s decision in Canadian National Railway Co v. Holmes et al., 2022 ONSC 1682, is in my view misplaced. Canadian National involved an action against an employee who had breached his fiduciary duty to his employer by secretly self-dealing to corporations that he controlled. Koehnen J. imposed a tracing order, noting that:
Tracing orders are common where defaulting fiduciaries are required to account to their beneficiaries to ensure that they do not profit from their breach of duty.
REP’s contention that “Holmes is on all fours with this case” overlooks the important difference that none of the defendants in this case were in a fiduciary relationship with REP, and REP accordingly has no basis for claiming disgorgement of the entirety of their profits.
268Second, for reasons I have already discussed, REP’s claim that it needs an equitable tracing order to be able to recover the money it is owed is speculative and premature.
269REP has presented no evidence that Castel Homes Inc. is likely to have insufficient assets to cover its judgment debt for breach of contract. However, if REP’s fears are realized and Castel Homes Inc. turns out to be judgment-proof, REP will be able to seek further remedies as part of the judgment enforcement process.
270Making an accounting or tracing order at this stage, in anticipation of the speculative possibility that REP might at some point need such an order, would in my view introduce a possibly needless complication into my remedial award.
3. Disgorgement of profits
271Finally, REP also relies on Canadian National Railway Co. v. Holmes to argue that I should make an order requiring the defendants to “disgorge their profits”, similar to the order that was made in that case.
272In my view, this argument is entirely without merit. The disgorgement order in Holmes was justified there because the plaintiff in that case had established a legitimate proprietary claim to all of the defendant’s profits. In contrast, REP has no proprietary entitlement to receive all of the profits that were generated by selling the properties in the “Allure at the Gates of Aurora” development. Indeed, REP does not seriously assert any such claim, but only seeks payment of the much smaller amount that it is entitled to receive under its contract with Castel Homes Inc. There is simply no cognizable basis in law or equity for ordering the defendants to “disgorge” the entirety of their profits to REP.
VII. Disposition
273In the result, judgment is granted to the plaintiff against the defendant Castel Homes Inc. for breach of contract. REP’s damages are quantified at $161,720, plus pre-judgment interest.
274Properly calculating pre-judgment interest is not straightforward, because different sums REP was entitled to receive under the contract were due to be paid to REP at different times.
275A further complication is that while the ESA required the amounts that REP had already received in monthly payments to be “deducted from the total commission on closing”, this term was added by way of a handwritten amendment to the contract, and the ESA does not expressly state how this calculation was to be done.
276I would resolve this latter ambiguity by interpreting the contract as requiring these amounts to be deducted on a first-in basis. That is, I find that REP’s entitlement for a second-half commission payment on the first sale that closed, which seems to have been the sale of Lot 19, should be reduced by the entire amount of monthly payments that REP had received to date, and so forth.
277I will direct counsel to work together to try to agree on a calculation of pre-judgment interest in accordance with these reasons. If they are unable to do so, they may schedule a further appearance before me through my judicial assistant.
278With respect to costs, I would urge counsel to attempt to come to an agreement. If they are unable to do so, they may file brief written submissions of no more than three pages in length. These should be served in the ordinary way and filed through the filing office, and should also be posted on Caselines. I would be obliged if counsel could also send copies of their submissions and bills of costs by email to my judicial assistant
279Since REP has successfully obtained judgment in its favour, it should file its costs submissions first. They will be due four weeks after the release of this judgment. The defendants will then have four weeks to serve and file their responding submissions. REP may then file brief reply submissions of no more than one page within one week.
The Honourable J. Dawe
Released: July 13, 2023
Real Estate Professionals Inc. v. Castel Homes Inc. et al., 2023 ONSC 4099
NEWMARKET COURT FILE NO.: CV-17-130291-00
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
REAL ESTATE PROFESSIONALS INC. o/a ROYAL LEPAGE REAL ESTATE PROFESSIONALS, BROKERAGE
Plaintiff
– and –
CASTEL HOMES INC., MARK ZANETTE carrying on business as CASTEL HOMES and ALLURE AT THE GATES OF AURORA INC.
Defendants
REASONS FOR JUDGMENT
The Honourable J. Dawe
Released: July 13, 2023
Footnotes
- See rule 31.11 of the Rules of Civil Procedure.
- If the higher sales prices for Lots 11 and 21 found in Allure Inc.’s undated spreadsheet are used instead of the APS sale price, REP’s net damages figure comes to $265,788.
- On the defendants’ own calculations, which use both the higher sale prices for Lots 11 and 21 in Allure Inc.’s undated spreadsheet as well the lower sale price for Lot 4, the total comes to $166,827.
- This invoice also stated that “the commission calculation is based on 70% (for acceptance) of the total flat fee commission due”, but Mr. Campoli acknowledged in his evidence at trial that this was a mistake, and that the invoice should have said 50%.
- The undated chart prepared by Allure Inc. indicates that the sale price for Lot 4 was reduced at some point. However, I have already explained why I prefer the APS sales prices as more likely reliable.
- The defendants take no issue with REP’s entitlement to claim its full 2% commission in respect of the completed sale of Lot 3 to Mr. Asaro. Paragraph 2(i) of the ESA entitles REP to claim a commission for all properties sold “during the currency of [the ESA]”, whether or not REP had any role in arranging the sales.