The plaintiff agreed to purchase from the defendant a residential property with a closing date of June 22. The agreement contained a standard insurance clause providing that the risk remain with the seller until completion and that in the event of “substantial damage”, the buyer had the option of terminating the agreement or taking insurance proceeds and completing the purchase. The agreement allowed for four visits by the purchaser prior to closing. The plaintiff had exercised one visit before discovering a fire on April 27, by which time the property had been vacant for several months such that the defendant’s insurer did not cover the repairs. The defendant arranged for repairs and it was only on June 1, the day after repairs were completed, that the plaintiff was given another opportunity to visit the property. The plaintiff expressed concerns about a smell of smoke and the quality of the repairs, and his agent asked the defendant’s agent for a report about the fire. By mid-June, with no report having been received, the plaintiff’s solicitor wrote to the defendant’s solicitor to try to get a response and mentioned terminating the agreement and obtaining a return of the deposit. The defendant’s solicitor replied that there was “no substantial damage” and that there had been “complete repairs”. The plaintiff’s solicitor disagreed. The transaction did not close on June 22. The plaintiff retained new counsel who contacted defendant’s counsel with an urgent request for documents on the repairs so that the plaintiff could make an informed decision. The specific requests were not addressed. The defendant relisted the property in July, with the listing containing considerably more information about the fire than had been provided to the plaintiff. The plaintiff commenced an action for the return of his deposit. The defendant counterclaimed for damages representing the difference in price between what the plaintiff offered and what the house sold for months later.
Held, the action should be allowed; the counterclaim should be dismissed.
The defendant breached the agreement of purchase and sale. The defendant claimed that the plaintiff’s declaration of an intention not to close was an anticipatory breach, but that concept did not apply because neither party had treated the contract as being at an end. The defendant, by failing to provide the plaintiff the opportunity to inspect the damage before repairs were made, especially when it was known that the plaintiff was concerned and wished to get access to the house, undermined the plaintiff’s legitimate contractual interests and rights under the insurance clause. Furthermore, the limited and belated disclosure made in mid-June was incomplete and somewhat misleading such that the defendant did not act in good faith. The fact that the cost of repairs was small in relation to the purchase price did not mean that the damage was not substantial.
After the closing date the defendant failed to take reasonable steps to minimize his losses, so if his counterclaim had succeeded, he would have been entitled only to retain the deposit.
*source: Ontario Reports
