ALBERTA – Agreement of Purchase and Sale – Real Estate – For a real estate contract to be valid, there must be offer and acceptance, and a “meeting of the minds” about the essential terms of identification of the parties, the property and the price. The Statute of Frauds requires an agreement for the sale of land to be in writing and signed by the party to be charged.

ALBERTA – Contracts – Unconscionability – Where there was no inequality of bargaining power or an improvident sale, the contract was not unconscionable.

ALBERTA – Specific Performance – Where a property is unique and damages would not be an adequate remedy, the court may order specific performance. To prove uniqueness, it is sufficient to show that “the premises have a quality that makes them especially suitable for their proposed use and that it cannot be reasonably duplicated elsewhere.”

Orica Canada Inc. v. ARVOS GmbH
2024 ABKB 97 (February 20, 2024)
Court of King’s Bench of Alberta (Reed J.)

The Plaintiffs brought an action for specific performance of an agreement of purchase and sale (“APS”) following the vendor Defendants’ refusal to close the sale of a cottage. The Plaintiffs moved for summary judgment on the basis that they had a valid contract, the Defendants had no right to rescind the agreement, and the property was sufficiently unique to justify an order for specific performance. (para. 4)

The Defendants argued that summary judgment should be granted dismissing the action on the basis that the APS was not valid because: (i) a change to the purchase price was initialed after the change was made, not before; (ii) the Plaintiff who had changed the original purchase price in her handwriting was not an authorized user of the Ontario Real Estate Association (“OREA”) form and had no authority to change anything on the form; and (iii) the deposit was not delivered to the Plaintiffs within 24 hours of acceptance of the offer. They also argued that the agreement was unconscionable and that specific performance should not be granted. (para. 5)

The motion judge rejected the Defendants’ arguments and found that there was no genuine issue for trial. Justice Chozik held that the APS was valid, the deal was not unconscionable, and specific performance was the only adequate remedy, and granted summary judgment. On the extensive record before the Court and by applying the additional fact-finding powers under Rule 20.04(2.1), Justice Chozik was satisfied that there was no genuine issue for trial. (para. 6)

Analysis

Validity of the APS

The Court cited the following principles in analyzing the validity of the APS:

1. For a valid contract to exist, there must be offer and acceptance. Acceptance must be communicated to the offering party. For a real estate contract to be valid, the essential terms are identification of the parties, the property and the price ( 30);
2. The Statute of Frauds, S.O. 1990, c. s. 19 requires that an agreement for the sale of land must be in writing and signed by the party to be charged, notwithstanding the doctrine of part performance (para. 31); and
3. For an APS to be valid, there must be a “meeting of the minds, or consensus ad idem” as to the essential terms, which is an objective test. The essential terms of the agreement must be sufficiently certain ( 32).

The Court rejected the Defendants’ argument that there was no valid offer to purchase because there was a handwritten amendment made after they had signed the APS. The evidence was that the Plaintiffs offered a purchase price of $450,000. The Defendants did not accept that offer but instead counteroffered to sell the property for $475,000 and initialed the amendment. The Plaintiffs accepted the amended offer, one of them at the time the offer was made, the other by later initialing the amended APS.

Justice Chozik held that it was of no consequence that the second Plaintiff didn’t sign the amendment before the vendors did (para. 35) and that once the change was initialed by all parties, it was accepted and there was a valid agreement. (para. 38)

The Court rejected the Defendants’ argument that the handwritten amendment to the OREA form was done by someone not authorized to amend the form and that the APS was therefore void. There was nothing in the licensing provisions of the OREA form that suggested that unlicensed use of the forms invalidates an agreement the parties entered into using the form. The APS had been drafted by someone licensed to use the form. The Plaintiff simply amended the purchase price and wrote the date in by hand. The Court held that “[t]hese minor revisions by an unlicensed user of the form did not nullify the APS. Nor did they expose OREA to any liability.” (paras. 39-42)

In analyzing the Defendants’ argument that they were entitled to treat the APS as discharged when they did not receive the deposit within 24 hours, the Court applied the repudiation principles. “Repudiation of a contract occurs when one party shows an intention not to be bound by the contract. Repudiation can occur by words or conduct and can be demonstrated by a refusal to perform.” (para. 44)

The effect of repudiation depends on the election by the non-repudiating party. The innocent party has the right to either elect to terminate the agreement or treat the contract as still in full force and effect. (para. 45)

The Court held that the failure to pay the deposit in time was a fundamental breach of the contract. Had the Defendants accepted the repudiation and terminated the APS, they would have been discharged from performance of the contract. However, they did not do so. Instead, they retained a lawyer and provided contact information for the deposit to be sent. Their lawyer then accepted the deposit and held it for five months. The Court held that “by accepting the deposit, and continuing to perform under the contract, the Highs treated the contract as being in full force and effect despite the breach.” (paras. 46-47)

Justice Chozik also found that the Defendants were “trying to ‘play fast and loose’” by unfairly relying on a time is of the essence clause to justify being relieved of their contractual obligations after they had themselves failed to satisfy a condition precedent. The Defendants had failed to provide their lawyer’s information, which meant that the Plaintiffs could not send their deposit. The Court held that: “[h]aving accepted the deposit, and acting as if the contract was still in full force and effect at the time of the breach, they were not entitled to treat the contact as at an end five months later.” (paras. 50-53)

Unconscionability

The Court rejected the Defendants’ submission that they were not as sophisticated as the Plaintiffs in respect of private real estate transactions and that one of them was vulnerable because of ill health. Justice Chozik found no evidence with respect to the Defendant’s ability to enter into a valid contract, holding that “he was neither impaired nor exploited.” (para. 63)

The parties had “relatively similar experiences in the real estate market. Whether they were engaged in ‘private’ transactions or had access to the ‘MLS’ through a realtor is irrelevant.” Justice Chozik rejected the Defendants’ argument that the Plaintiffs were more sophisticated. Notably, the evidence showed that the Plaintiffs’ had entered into other private land transactions only after they had signed the APS whereas, prior to signing the APS, the Defendants had owned three properties and managed a rental property for 30 years. The Defendants had listed that rental property for sale, engaged a realtor and a real estate lawyer. The Court concluded that the Defendants “knew the process of buying and selling real estate.” (paras. 64-67)

The Defendants also argued that the contract was unconscionable because it was an improvident sale due to the purchase price being below fair market value. In rejecting this argument, the Court relied on the legal principle that parties are free to make a bad bargain, holding that: “Not every bad deal is an improvident one. An improvident bargain is one that unduly advantages the stronger party or unduly disadvantages the more vulnerable party at the time the contract is formed.” The question the Court must determine is “whether the potential for undue advantage or disadvantage created by the inequality in bargaining power has been realized.” (paras. 71-72)

The Court found that the sale was not improvident, holding that: “[t]he value of real estate is largely subjective. The market value of a property is established by how much someone is prepared to pay for it and how much someone is prepared to sell for it [sic]. In other words, the market value of a property is best established by its sold price.” (para. 76)

Justice Chozik did not place much weight on a 2023 retroactive appraisal of the property that showed a value of $650,000 in May of 2021, which was $150,000 more than the purchase price in the APS. In considering the weight to give the appraisal, the Court found that it used “comparables that are strikingly different from the Highs’ cottage. While many of the listed comparables sold for considerably more money, they also had important differences”, including multiple stories, waterfront properties that were not separate from the building by a road and recent updates. (paras. 74-78)

The Court also noted that one of the Defendants text messages showed that they knew the cottage could be worth more than $475,000 but chose to enter the APS anyway. It was also a private sale, so no real estate commission was payable, which narrowed the gap in the agreed upon price and the Defendants’ starting price. The Court held that this was “not the mark of an improvident deal”.

Justice Chozik found that the APS was not unconscionable – there was no inequality of bargaining power and the deal was not improvident.

Specific Performance

The Court found that the property was sufficiently unique to justify an award of specific performance. In doing so, it rejected the Defendants’ argument that the cottage was not unique to meet the Plaintiffs’ needs because they already owned a cottage on the lake and had tried to buy two others. The Court held that there was no dispute that: (i) the cottage was “uniquely situated on a peninsula reaching onto the lake”; (ii) it had waterfront on two sides of the property, not one at the front; (iii) there were only nine other cottages on that peninsula; (iv) it neighboured the Plaintiffs’ cottage and they had tried to buy a second cottage for some time to accommodate their friends and family on the lake; and (v) cottages on this peninsula rarely come up for sale. (paras. 87-89)

The Plaintiffs did not need to show that the property was unique in the “strict dictionary senses that it is entirely different from any other property.” It was sufficient to show that “the premises have a quality that makes them especially suitable for their proposed use and that it cannot be reasonably duplicated elsewhere.” (para. 90) The Court found that the Plaintiffs had met that test. Justice Chozik was also satisfied that damages would not be an adequate or complete remedy and that a monetary award would not be sufficient to purchase a substitute property. The Plaintiffs were therefore entitled to specific performance. (para. 91)