The Ontario Court of Appeal looked at a case where the delivery of the funds for closing was 9 minutes late. That was unfortunate for the Buyer since the Seller terminated the Agreement.
A new deal was struck where the Buyer would pay an additional $113,000.00 in order to close the deal.
Could the Seller terminate? The Court said yes! That was an expensive 9 minutes!
Ivy Zeena Correa and Alwin Correa sued Valstar Homes (Oakville Sixth Line) Inc. the builder for the return of the extra $113,000.00.
Facts
On February 16, 2020, the Buyers entered into an Agreement of Purchase and Sale (the “APS) to purchase a newly built home in Oakville from Valstar.
The APS set a closing date of “no later than 5:00 p.m.” on January 27, 2021,
and provided that “[t]his date may be amended by mutual agreement and/or extended by the Vendor.” The APS included a “time is of the essence” clause.
On December 2, 2020, Valstar extended the closing date to April 20, 2021.
On that day, the Buyers had difficulty securing funds for the closing.
They requested a one-day extension of the closing date, but Valstar refused the request.
The Buyers claimed that the institution they sought financing from tried to conduct an inspection earlier in the day on April 20, 2021, which was a condition of the financing, but was prevented from doing so.
The Buyers ended up obtaining alternative, private financing and deposited the money required for the closing into their solicitor’s bank account.
Their solicitor wired the funding to Valstar’s solicitor at 4:52 p.m., but the funds did not arrive until 5:09 p.m.
Valstar terminated the APS, invoking the “time is of the essence” clause. Subsequently, Valstar offered to “revive” the APS if the Buyers paid an additional $100,000 plus $13,000 HST.
Valstar justified the request by claiming the value of the property had increased since the APS was signed.
The Buyers agreed and closed the transaction the next day.
On May 17, 2022, the appellants issued their statement of claim against Valstar for $130,000. They alleged that they agreed to Valstar’s price increase under protest. The Buyers moved for summary judgment against Valstar.
DECISION By the Motions Court
The motion judge dismissed the appellants’ motion and granted summary judgment to Valstar, dismissing the action.
The motion judge determined that Valstar was entitled to treat the APS as terminated at 5:01 p.m. on April 20, 2021.
He rejected the appellants’ argument that Valstar acted in bad faith and accepted that Valstar was entitled to rely on the “time is of the essence” clause in treating the APS as terminated.
The judge relied on 3 Gill Homes Inc. v. 5009796 Ontario Inc. stating:
“the phrase ‘time is of the essence’ means that a time limit in an agreement is essential such that breach of the time limit will permit the innocent party to terminate the contract.”
The judge determined that Valstar did not impose an improper penalty in connection with the revised APS. He found that the “revival fee” of $100,000 plus HST was part of an entirely new contract, and therefore rejected the Buyers’ reliance on the common law doctrine regarding the unenforceability of a penalty clause.
ISSUES
The Ontario Court of Appeal stated:
“[12] The appellants (the Buyers) raise the following issues:
- Did the motion judge err in applying the decision of the Supreme Court in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633?
- Did the motion judge err in concluding that the “time is of the essence” clause applied to the closing of the transaction on April 20, 2021?
- Did the motion judge fail to consider and conclude that the terms of the APS, with respect to the closing time, are ambiguous and should be interpreted against the respondent in accordance with the doctrine of contra proferentem?
- Did the motion judge err by failing to analyze the respondent’s conduct in terminating the APS as being unreasonable, unfair and unjust in the circumstances?
- Did the motion judge fail to conclude that the payment of $100,000 plus HST paid by the appellants to revive the APS is an impermissible penalty?
- Did the motion judge fail to conclude that the appellants were under economic compulsion or duress when they paid the $100,000 plus HST to the respondent to revive the APS?”
- In respect the the Analysis by the Court, here’s in part their decision:
“ANALYSIS
[16] … the APS clearly stated that “the “Closing Date” or “Date of Closing” or “Closing” means no later than 5:00 p.m. on the 27th day of January 2021.
When the date was extended to April 20, 2021, this did not alter or affect the 5:00 p.m. deadline for closing. There was no ambiguity in this regard.
The Buyers were advised by Valstar on the morning of April 20, 2021, that “this transaction must close by 5:00 today,” and this firm deadline was reiterated in the ongoing correspondence between the parties later that day.
[20] …. we see no error with the motion judge’s conclusion that the termination of the APS was not unreasonable, unfair or unjust.
[21] The motion judge quoted the passage from 3 Gill Homes, at para. 17, “While the outcome for the respondent was indeed harsh, it was not unconscionable or unfair. The wording of the contract and the warnings provided by the respondent beforehand were clear.”
[22] The motion judge then made a similar finding in this case, stating, at para. 65, “I understand that this finding may seem ‘harsh’, as the Court of Appeal described it in 3 Gill Homes.
It was open to Valstar to be more lenient with the Purchasers in light of their circumstances and intent to close on April 20, 2021. But even accepting that to be the case, I cannot find that Valstar acted wrongly by insisting on compliance with a contractual term to which the parties agreed. I see no reason here to rewrite the parties’ bargain.”
[24] The motion judge rejected this argument, concluding that the payment of $113,000, referred to as a “revival fee”, was a term of a new contract freely entered into by the parties after the termination of the original APS.
[25] We do not accept the characterization of the payment of $113,000 as a penalty…..
[26] ….. the motion judge committed no error in rejecting the Buyers’ argument that they were subject to economic duress.
Disposition
[27] For these reasons, we dismissed the appeal.”
COMMENT
Kindly note that the closing funds were sent over at 4:52 pm but not received until 5:09 pm. The deadline was 5:00 pm, so the funds were 9 minutes late! That cost the Buyers $113,000.00 (being $100,000.00 plus $13,000.00 HST).
Be sure to get the funds delivered on time. It’s absolutely essential.
Brian Madigan LL.B., Broker
www.OntarioRealEstateSource.com