Would-be purchaser of property not entitled to relief from forfeiture of deposit: Ont. CA

A vendor need not technically hold the title to a property and only has to be in a position ensuring that good title will be conveyed to the purchaser in order to be entitled to the full sale price, the Ontario Court of Appeal has ruled.

The individual appellant in 1854329 Ontario Inc. v. Cairo, 2022 ONCA 744 agreed to buy a commercial building from the corporate respondent for $7.25 million and provided a $200,000 deposit. The agreement of purchase and sale stated that if the appellant waived the financing condition or provided notice that it was fulfilled, he would have to add another $200,000 deposit.

The appellant received a term sheet from the Business Development Bank of Canada, which provided the terms on which the bank was prepared to loan him $6.65 million to fund his purchase and which specified that it was not a loan offer. He waived the condition and gave the additional $200,000 upon receiving the term sheet.

The sale was set to close on Apr. 7, 2020. A few days before that date, the bank changed the terms on which it was willing to loan the money. The appellant believed that the change was due to the bank’s perception that the COVID-19 pandemic would impact his business.

The appellant, through his lawyer, told the respondent’s counsel about the revised financing offer, and said that he could not close on Apr. 7, 2020. He requested a six-month extension, which the respondent’s counsel refused.

Six months later, the respondent tendered and sold the property for $75,000 less than the price that the appellant had agreed to pay. The respondent brought a summary judgment motion for an amount equal to the $400,000 deposit.

The motion judge assessed damages at $234,849.18 and found the respondent entitled to the full $400,000 deposit. He denied the appellant’s request for relief from forfeiture of the deposit. He considered the issues of proportionality and unconscionability as provided in the cases of Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490 and Stockloser v. Johnson, [1954] 1 Q.B. 476 (C.A. (Eng)).

The judge determined that the vendors acted reasonably, the deposit was commercially reasonable at about 5.5 percent of the sale price and was not disproportionate to the respondent’s actual damages, and there was no evidence of unequal bargaining power or of a substantially unfair bargain.

The individual appellant, on the corporate appellant’s behalf, filed an appeal seeking to set aside the judge’s assessment of damages and to obtain relief from forfeiture.

No relief from forfeiture

The Ontario Court of Appeal dismissed the appeal upon seeing no errors in the motion judge’s analysis or his conclusion that the appellant failed to meet his burden of showing that this was an exceptional case to grant relief from forfeiture.

The appellant argued that the damages should be reduced by two-thirds because the respondent was only a one-third owner and one-third of the damages represented the amount of the respondent’s loss.

The Court of Appeal disagreed. It ruled that the respondent had the ability to deliver title to the appellant and would have received the full purchase price if the sale pushed through. The fact that the judge left it to the respondent to arrange payment to the property’s co-owners was not the appellant’s business, the appellate court said.

The appellant also contended that the judge wrongly concluded that the appellant should have foreseen the pandemic’s risks when the condition was waived. In response, the appellate court held that the judge’s reasons, when read as a whole, showed that the appellant, by waiving the financing condition without cash in hand, assumed the risk of the transaction falling through, which was a risk not limited to the pandemic.

Finally, the appellant asserted that the judge erroneously decided that neither side provided evidence regarding negotiations to salvage the transaction when there was in fact such evidence.

The Court of Appeal also rejected this argument. It noted that the judge stated that the appellant “adduced virtually no information about any negotiations” and found it significant that the appellant’s lawyer offered no compensation to the respondent for the extension sought.