ONTARIO – Contract Interpretation – A time is of the essence clause in an Agreement of Purchase and Sale means that a time limit is essential such that a breach allows the innocent party to terminate the Agreement. There must be some factual basis such as unfair or unjust conduct by the party seeking to uphold the clause to use the court’s residual equitable jurisdiction to relieve against the breach of a “time is of the essence” clause.
ONTARIO – Contract Interpretation – It would be an unwarranted intervention into the freedom to contract for a Court to alter the closing time in an Agreement of Purchase and Sale where the wording is clear, electronic registration was mandatory, the funds had to be received by 3 pm on the closing date, and there was a shared understanding of the payment deadline.
3 Gill Homes v. 5009796 Ontario Inc. cob. Kassar Homes
2024 ONCA 6
Ontario Court of Appeal (Roberts, Sossin and Dawe J.JA)
This appeal is about a real estate closing where the purchaser missed the stipulated time for paying the purchase price in the Agreement of Purchase and Sale (“APS”) by 35 minutes. The Vendor treated the contract as terminated as a result of the breach. The ONSC judge agreed with the Vendor.
The Appellant sought declarations that the Respondent Kassar breached the APS and that the contract was unconscionable. It sought damages because the house had been sold to a third party. The ONCA dismissed the appeal. (para. 8)
Background
The Appellant entered into an APS with the Respondent for the purchase of a residential house. The transaction was originally scheduled to close on August 31, 2021. There were construction delays, and the deadline was missed. There was a time is of the essence clause in the APS; however, neither party terminated the contract. (para. 3)
The APS was amended (“Agreement”) to extend the closing date to January 28, 2022. The Agreement included a “time is of the essence” clause similarly worded to the APS. (para. 4)
Before the closing and on the day of the closing, the Respondent was reminded that the purchase price had to be paid before 3 pm on the closing date or the deal would be terminated. (para. 5)
On the day before the closing date, the Purchaser’s lawyer requested an extension of the closing to January 31, 2022. The request was denied. Later on, the Respondent reminded the Appellant that the purchase price must be paid by 3 pm on January 28, 2022, or the Agreement would be terminated.
On the day of closing, at 2:47 pm, the lawyer for the Appellant emailed the lawyer for the Vendor (Respondent) and advised that the purchase funds had been obtained and the banking was being dealt with. At 3:10 pm on the day of closing, the Vendor’s lawyer responded that they had instructions not to close because the payment deadline was missed. The purchase funds were delivered and received by the Vendor 35 minutes later. (para. 6)
Key Provisions of the APS
14.02(c) If the Purchaser’s lawyer is unwilling or unable to complete this transaction via TERS [“Teraview Electronic Registration System”], in accordance with the provisions contemplated under the Document Registration Agreement, then said lawyer (or the authorized agent thereof) shall be obliged to personally attend at the office of the Vendor’s Solicitor, at such time on the scheduled Closing Date as may be directed by the Vendor’s Solicitor or as mutually agreed upon (and in the absence of any such mutual agreement, by no later than 3:00 P.M. (London, Ontario time) on the scheduled Closing Date), in order to complete this transaction via TERS utilizing the computer facilities in the Vendor’s Solicitor’s office.
14.02(d) The Purchaser expressly acknowledges and agrees that the Vendor shall not be requested nor required to release the transfer/deed to the Property for registration electronically unless and until the balance of all funds due on Closing, in accordance with the Vendor’s statement of adjustments, are remitted by certified cheque to the Vendor’s Solicitor (or in such other manner as the Vendor’s Solicitor may authorize or direct), and correspondingly received by the Vendor’s Solicitor by no later than 3:00 P.M. on the scheduled Closing Date.
16.02 Upon default by the Purchaser, in addition to any other rights or remedies which the Vendor may have, the Vendor, at its option, shall have the right to declare this Agreement null and void ……
The ONSC Decision
The application judge found that the land was in the Land Titles system, electronic registration was mandatory and the APS s. 14.02(d) was engaged and imposed an obligation to make payment before 3 pm on the closing date. (para. 9) The application judge held that the Respondent was entitled to terminate the APS because of the late payment and the “time is of the essence” clause.
The application judge referred to case law that supported a strict interpretation of a deadline in the Agreement if there is a “time is of the essence” clause and the parties are sophisticated and in the real estate business, e.g., 1473587 Ontario Inc. v. Jackson (2005) 2005 CanLII 4578ONSC, aff’d 2005 CanLII 26121 (ONCA) (para. 11) This was further supported by the Agreement, which extended the closing date and contained a “time is of the essence” clause.
The application judge did not find the APS unconscionable as the two other purchase and sales between the parties closed without issue. (para.13)
Finally, the application judge held that there was no basis such as unfair or unjust conduct by the party seeking to uphold the clause to use the courts residual equitable jurisdiction to relieve against the breach of a “time is of the essence” clause. The judge referenced an Alberta case, known as Bowlen v Digger Excavating (1983) (2001 ABCA 214 (para. 14)
With respect to damages, the application judge held that if the Appellant had been successful, a trial would be required to determine the measure of damages as the value of the property was subject to differing expert reports.(para.15)
ONCA Considered the Following Issues:
- Did the application judge err in finding that 3 pm was the payment deadline under the APS?
- Did the application judge err in finding that, in respect of the closing payment, time was of the essence?
- Did the application judge err in finding that the payment deadline was not unconscionable?
- Are the reasons of the application judge sufficient to permit appellant review?
- Did the application judge err in finding that damages could not be fairly and justly determines on a written record?
Analysis
The ONCA held that the wording of the Agreement was clear, there were warnings to the purchaser regarding the payment deadline and therefore, there was no extricable error that required a review. If there was, however, the standard of review would be correctness. The ONCA referred to the standard of review as set out in Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2017 ONCA 293, 135 O.R. (3d) 241, at para. 49, leave to appeal refused, [2016] S.C.C.A/ (para. 17)
The ONCA further held it would be an unwarranted intervention into the freedom to contract for a court to alter the closing time in the APS because the APS wording was clear, electronic registration was mandatory, and the funds had to be received by 3 PM on the closing date. (para. 21)
The ONCA further held that a “time is of the essence “clause means that a time limit in an agreement is essential such that a breach allows the innocent party to terminate the agreement. (para. 24)
Even though the parties had not strictly enforced the “time is of the essence “clause in earlier transactions between the parties, the amending Agreement extending the closing date changed the arrangement between the parties and the 3 pm deadline on closing was to be treated as a firm deadline. (para. 25)
The ONCA found that the communications between the parties in the days prior to the closing included reminders of the payment deadline and a refusal to extend the closing date, all of which reflected the “shared understanding” of the parties that the closing date and time would be enforced. (para. 26)
The ONCA held that the application judge explained their findings by the virtue of the governing case law and the APS and surrounding factual circumstances. (para. 29)
The appeal was dismissed.