The parties entered into an agreement of purchase and sale for a commercial condominium. The agreement provided that if the purchase defaulted, the deposit funds were forfeited to the vendor as liquidated damages. The precise closing date was left to the vendor to set. The purchaser paid deposits totaling $40,000, and a further $31,999.50 on interim occupancy closing. The vendor unilaterally set a final closing date. The purchaser asked for a brief extension of the final closing date without giving a reason for doing so, and the vendor refused to grant the extension, also without giving a reason. The purchaser missed the closing date by a day. The purchaser sued for specific performance and relief from forfeiture of the deposit funds and brought a motion for a certificate of pending litigation. The vendor sued for a declaration that the agreement was at an end and that the purchaser had forfeited its deposit and brought a motion for summary judgment. Each party accused the other of failing to act in good faith.
Held, the purchaser’s motion should be dismissed; the vendor’s motion should be granted. Where the parties have a long-term, ongoing relationship, a level of good faith may be expected that imposes flexibility and obligations beyond the letter of the contract. Where they are commercially experienced buyers and sellers in a discrete, one-off transaction, the level of contract adherence would not be expected to vary from the strict contractual terms. In this case, the parties were commercially experienced and were involved in a one-off real estate deal. Good faith meant sticking to the contract.
The amount forfeited under the agreement did not include the funds paid by the purchaser on interim occupancy closing. Given that the purchase price was $639,990, there was nothing out of proportion about the forfeiture of $40,000. The purchaser was not entitled to relief from forfeiture.
[23] A duty of good faith is required in contract law, but it is measured by the specific relationship between the parties: Yam Seng Pte Ltd. v. International Trade Corp. Ltd., [2013] 1 All E.R. (Comm.) 1321, [2013] EWHC 111 (Q.B.). It very much depends on “whether, in the particular context, the conduct would be regarded as commercially unacceptable by reasonable and honest people”: Mid Essex Hospital Services NHS Trust v. Compass Group UK and Ireland Ltd., [2013] EWCA Civ. 200 (C.A.).
[24] In other words, while the Supreme Court’s decision in Bhasin v. Hrynew puts a new focus on the reciprocal contractual duties owed by contracting parties, its contribution is to “consolidate existing doctrinal approaches and provide a more precise remedial vocabulary”: Edward Belobaba, “Good Faith in Canadian Contract Law”, in Commercial Law: Recent Developments and Emerging Trends (Law Society of Upper Canada, 1985), at 80. Where the parties have a long-term, ongoing relationship, a level of good faith may be expected that imposes flexibility and obligations beyond the letter of the contract; where they are commercially experienced buyers and sellers in a discreet, one- off transaction, the level of contract adherence would not be expected to vary from the strict contractual terms: Yam Seng, at para. 142.
[25] The vendor’s obligation here was to have the condominium ready to transfer to the purchaser and to set the final closing date. The purchaser’s obligation was to have the closing funds ready on the closing date and to pay them to the vendor. The purchaser did not have an obligation to take less than full title or to get title a day or two late; likewise, the vendor did not have an obligation to take a few less dollars or to take the closing money a few days late. Given the relationship of vendor and purchaser in a discreet real estate deal, good faith meant sticking to the contract, not bending the contract — even just a little bit — to one side’s will.
VII. Relief from Forfeiture
[29] Counsel for the purchaser says that the purchaser is entitled to relief from forfeiture. He submits that relief from forfeiture is appropriate where the sum which could potentially be forfeited is out of all proportion to the damage suffered, and it is therefore unconscionable for the vendor to retain the money: Edwards-Decoito v. Maple View Building Corp., [2005] O.J. No. 5486, 2005 CanLII 47699 (S.C.J.), at para. 28. To this, counsel for the vendor responds that no relief from forfeiture will be granted where the failure is apparently deliberate: Terry v. Law Society of Upper Canada, [1992] O.J. No. 1678 (Gen. Div.), at para. 12. Citing Impex Holdings Ltd. v. Princess Street evelopments (Kingston) Inc., [1993] O.J. No. 200, 1993 CarswellOnt 579 (Gen. Div.), he also submits that the purpose of a deposit is to compensate the vendor for the property being off the market pending closing, and that since the agreement was properly brought to an end, the vendor is entitled to keep the deposits: Hinkson Holdings Ltd. v. Silver Sea Developments Limited Partnership, [2007] B.C.J. No. 1729, 2007 BCCA 408.
[30] The Court of Appeal has made it clear that deposits can be forfeited to a vendor upon a purchaser’s non-closing: De Palma v. Runnymede Iron & Steel Co., [1950] O.R. 1, [1949] O.J. No. 495 (C.A.). The question here, however, is whether all of the payments made to the vendor qualify as deposits. Counsel for the purchaser says that, in fact, none of them do since an interim closing had already taken place, while counsel for the vendor says that all of them do since they were all labelled as deposits by the parties.
VIII. The Deposits
[31] The purchaser’s position is that once the interim closing takes place and the purchaser assumed occupancy of the Condominium, the deposits became payments on account of the closing and are no longer deposits to be held as security by the vendor. That is not a particularly persuasive position with respect to the four $10,000 payments, which are clearly delineated as staged deposits and are marked as “deposit” on the memo line of each of the cheques written by the purchaser.
[32] The same is not true, however, of the $31,999.50 payment made on the interim closing date. That appears to literally be a payment on account of closing, and, indeed, the cheque written by the purchaser and deposited by the vendor does not say “deposit” on the memo line. Closing funds are not deposits.
[33] In providing for liquidated damages, the agreement, properly read, provides the purchaser forfeits the $40,000 in deposit moneys. It does not provide that the purchaser forfeits the $31,999.50 paid on account of closing funds.
[34] There is nothing out of proportion about this forfeiture. Counsel for the purchaser has provided me with no case law or expert opinion demonstrating that a $40,000 deposit on a $639,990 is an unusually large deposit or represents a disproportionate amount of liquidated damages. This is not a case for relief from forfeiture.
IX. Summary Judgment
[35] I pause to indicate that I am satisfied that I can come to a fair and just determination of this matter on the merits based on the motion materials filed and the submissions of counsel. In Hyrniak v. Mauldin, [2014] 1 S.C.R. 87, [2014] S.C.J. No. 7, the Supreme Court instructed that Rule 20 [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194] and the test for summary judgment must be interpreted broadly, with a view to proportionality and access to an affordable, timely and just judicial process. Here, the parties communicated mostly by correspondence and e-mail, and even if this matter went to trial the trial judge would for the most part be presented with a written evidentiary record. I find that here is no genuine issue requiring a trial.
[36] The purchaser’s action is dismissed, as is its motion for a certificate of pending litigation. There shall be a declaration that the agreement is at an end and that the purchaser has forfeited its deposit of $40,000. The solicitor for the vendor shall release $40,000 held in his trust account in respect of this transaction to the vendor. The balance of $31,999.50 held by the vendor’s solicitor in respect of this transaction shall be released to the purchaser. There shall also be an order removing the caution placed on title to the condominium by the purchaser.
*source: Ontario Reports
