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Contracts - Anticipatory Repudiation (2). More v. 1362279 Ontario Ltd. (Seiko Homes)
In More v. 1362279 Ontario Ltd. (Seiko Homes) (Ont CA, 2023) the Court of Appeal considers an issue of anticipatory breach in an APS closure:[18] The central issue underlying this appeal is whether the motion judge erred in finding that the appellant was in anticipatory breach of the three APS when it faxed the letter repudiating the transaction just after 5:00 p.m. on October 1. The appellant makes two primary submissions on the appeal.
[19] First, the appellant argues that the motion judge erred in finding that the proper closing time was midnight on October 1, 2020, and therefore, the appellant anticipatorily breached the APS by faxing a letter to Mr. More terminating the transaction shortly after 5:00 p.m. The appellant contends that since the APS contained the “time is of the essence” clause, the timeline for closing was to be strictly enforced and that the respondents repudiated the agreement by failing to deliver the closing funds on the closing day. The appellant also points out that because the Teraview System does not permit transfers to be electronically registered past 5:00 p.m. on any business day, closing funds had to be tendered no later than 5:00 p.m.
[20] I do not accept the appellant’s submission. As to the 5:00 p.m. deadline, the motion judge held that the appellant’s position was contradicted by the DRA Mr. Tomas prepared and delivered to Mr. More, which provided that if the APS was silent on the time of closing, the deadline for “release” of funds from escrow would be 6:00 p.m. on closing day. In any event, the motion judge found that the appellant could not rely on the “time is of the essence” clause since there was no specific time set out in the APS. I see no error in that finding because it is consistent with this court’s observation in Di Millo v. 2099232 Ontario Inc., 2018 ONCA 1051, 430 D.L.R. (4th) 296, at paras. 31, 35:A “time is of the essence” clause is engaged where a time limit is stipulated in a contract. 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.
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[A] “time is of the essence” clause does not serve to impose a time limit but rather dictates the consequences that flow from failing to comply with a time limit stipulated in an agreement. [Emphasis added.] [21] Put differently, the mere presence of the “time is of the essence” clause is of limited assistance to courts interpreting a contract where the contract is otherwise silent on the deadline to perform the obligations under the contract. This was squarely the situation before the motion judge.
[22] The motion judge also found that the appellant was not entitled to rely on the clause because it was “clearly not willing to close on the agreed date and terminated the transaction prematurely.” In my view, it was open to the motion judge to make those findings and I see no basis for appellate intervention: 1179 Hunt Club Inc. v. Ottawa Medical Square Inc., 2019 ONCA 700, at para. 14, citing Domicile Developments Inc. v. MacTavish (1999) 1999 CanLII 3738 (ON CA), 45 O.R. (3d) 302 (C.A.), at pp. 306-07 (paras. 10-12). In Domicile, this court expressly held that an innocent party must itself be “ready, desirous, prompt and eager” to carry out the agreement in order to take advantage of the “time is of the essence” clause.
[23] Second, the appellant challenges the motion judge’s finding that it acted unreasonably and in bad faith by prematurely cancelling the transaction owing to delays that should have been expected during the pandemic. The motion judge found that although Mr. More had explained the delays and sought an adjustment of the closing date to allow the funds to be delivered to the appellant, the appellant refused to consider that possibility. The motion judge further found that Mr. More was in receipt of the funds and would have personally delivered those funds to Mr. Tomas’ office, if necessary, had Mr. Tomas been responsive to communications. The appellant argues that there is no basis for the motion judge’s finding and highlights that Mr. Tomas continued to monitor his trust account until shortly after midnight going into October 2, and he determined no closing funds had been forwarded by Mr. More.
[24] I see no error in the motion judge’s conclusion that the appellant acted unreasonably and in bad faith. It was open to the motion judge to find, on this record, that purchase transactions would usually be honoured despite minor delays in the delivery of closing funds that the appellant “pounced on” in a “totally unexpected fashion”. The motion judge accepted that during the pandemic, it was common practice for lawyers to work together to complete the rest of closing steps after the closing of the Teraview System and before midnight on closing day.
[25] Nor is it necessary for this court to decide definitively whether, as a matter of law, a purchaser can rely on the fact that their counsel is in receipt of closing funds in order to cure minor delays in delivering the funds to the vendor and/or the vendor’s counsel. In this case, once there was a finding of clear repudiation by the appellant just after 5:00 p.m. on October 1, the fact that the mortgage funds were ultimately delivered the day after the closing date is irrelevant because the innocent parties, namely, the respondents, were relieved of the requirement of tender at that point. As this court held in Di Millo, at para. 49, “when a party by words or conduct communicates a decision not to proceed to closing, the other party is released from any obligation to tender in order to prove he was ready, willing and able to close.”
[26] In sum, the motion judge did not err in finding that the appellant anticipatorily breached the APS before the midnight closing deadline, the “time is of the essence” clause is of no assistance to the appellant, and there is no basis to disturb the motion judge’s finding that the appellant acted unreasonably and in bad faith. I would dismiss the appeal. . Rahbar v. Parvizi
In Rahbar v. Parvizi (Ont CA, 2023) the Court of Appeal considered a residential Agreement of Purchase and Sale (APS) that failed due to the purchaser's financing falling through. The case is interesting for the 'last-minuting' that these situations can create:[2] The appellants, Hamidreza Rahbar and Maryam Esmaeili (“the buyers”), entered into an agreement to purchase a residential property in Waterloo, Ontario (the “APS”). The deal did not close by the agreed time because their financing fell through. The respondents, Ehsan Parvizi and Samin Shokri (“the sellers”), later sold the property to third parties at a higher price and kept the buyers’ deposit monies.
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Analysis of the Issue of Repudiation
[28] As the buyers note, a repudiatory breach does not in itself terminate the contract: Ching v. Pier 27 Toronto Inc., 2021 ONCA 551, 460 D.L.R. (4th) 678, at para. 32. The consequences of a repudiation depend on the election of the innocent party. If the innocent party accepts the repudiation, the contract is terminated. Alternatively, if the innocent party treats the contract as subsisting (i.e., affirms the contract), the contract is not terminated: Ching, at para. 33.
[29] In this case, the application judge found that there was an anticipatory breach: “[t]he anticipatory breach here lay not in the request for an extension but in the communication that the vendor’s financing had fallen through.” The buyers do not challenge this finding. Rather, they dispute what flows from the anticipatory repudiation.
[30] Following the anticipatory repudiation, the sellers could elect to either affirm or disaffirm the contract. The application judge found that they affirmed:[The buyers’ lawyer] wrote at 5:09 PM affirming the contract and stating clearly that the agreement had to close that day in accordance with its terms. [Emphasis added.] [31] As Pepall J.A. noted in Ching, at para. 36, “[a] party who ‘presses for performance’ will be found to have affirmed the contract”.
[32] The effect of the affirmation was to keep the contract “alive” and so the sellers needed to show that they were ready, willing and able to close by the closing deadline or the rule in King v. Urban & Country Transport Ltd. (1973), 1973 CanLII 740 (ON CA), 1 O.R. (2d) 449 (C.A.) would come into play. That rule was explained by Pepall J.A. in Ching, at para. 52:In King v. Urban the purchaser was not in a position to close on the closing date; but the vendor was also in default and not entitled to rely on the time of the essence provision in the contract. Arnup J.A. resolved the stalemate by applying two propositions:
1.When time is of the essence and neither party is ready to close on the agreed date the agreement remains in effect.
2. Either party may reinstate time of the essence by setting a new date for closing and providing reasonable notice to the other party. [Footnote omitted.] [33] Since the sellers needed to show they were ready willing and able to close, the application judge was incorrect in concluding that they did not need to do so. However, this error is of no moment, as the trial judge went on to find that the sellers were, in fact, ready and willing to close.
[34] The buyers submit that the application judge erred in finding that the sellers were ready, willing and able to close by the agreed time, as their lawyers failed to enter into a document registration agreement as required under the APS. They also take issue with what they say were two other deficiencies in the documents tendered by the sellers.
[35] I do not agree with the appellants’ submission that the application judge erred in finding that the sellers were ready, willing and able to close.
[36] The application judge noted that at 5:09 p.m. on the day of closing, after the sellers’ lawyer received the buyers’ request to extend the closing, he advised the buyers that they were ready, willing and able to close as scheduled. As set out above, counsel wrote:[W]e have provided your office with all deliverables pursuant to the [document registration agreement]. Our clients are ready, willing, and able to complete this transaction today. [37] The application judge found that the sellers provided the buyers with their closing documents and the buyers’ lawyer did not object to the documents tendered by the sellers at closing:The [buyers] submit that the [sellers] were themselves not in a position to close on December 15 because they had not sent any tender documents to the [buyers].
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[The sellers’ lawyer] says his firm sent copies of closing documents to [the buyers’ lawyer] by email on December 9, 2021 at 8:11 PM. A further copy was sent on December 15, 2021 at 5:08 PM. … [T]here is no dispute that [the sellers’ lawyer’s] email of 5:09 PM on December 15 was received by [the buyers’ lawyer]. That email confirmed that [the sellers’ lawyer] had provided [the buyers’ lawyer] with all deliverables and that his clients were ready willing and able to close. [The buyers’ lawyer] never contested [the sellers’ lawyer’s] statement that he had provided all deliverables for the closing.… [Emphasis added.] [38] Nor do I accept the buyers’ submission that the sellers were not ready to close because a document registration agreement had not been signed. The application judge concluded on this issue:A second reason for which the [buyers] say the sellers were unable to close is that they had not agreed on a document registration agreement. A document registration agreement is an agreement that addresses closing procedures and the release of documents delivered in escrow for real estate transactions that are closed electronically. The applicants submit that this is a critical document which is negotiated between the parties.
I do not find the [buyers’] argument in this respect persuasive. The [buyers] themselves had not proposed a document registration agreement to [the sellers’ lawyer]. Although [the buyers’ lawyer] thought she had sent one, and stated in her affidavit that she had, she later volunteered that she was mistaken. …
The document registration agreement is, in any event, a non-issue. …The last sentence of clause 11 [of the APS] makes it clear that the parties will be bound by the document registration agreement recommended by the Law Society of Ontario unless they agree otherwise. There was therefore nothing to negotiate. [Emphasis added.] [39] I see no error in the application judge’s consideration of this issue, and his conclusion that the absence of a formally executed document registration agreement was not fatal in this case.
[40] Lastly, the buyers submit that the personal undertaking given by sellers’ counsel to discharge the mortgage on the property was insufficient and deficient and that the sellers’ failure to deliver a direction directing payment to the mortgagee, as required by the APS, disentitled them from terminating the APS. I agree with the sellers that those issues could have been rectified at the time of the transaction had they been raised and are insufficient to now disallow the sellers to terminate the APS.
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[44] From a legal perspective, there were two repudiations and the sellers had an election to make after each repudiation. After the anticipatory repudiation (the first repudiation), the sellers elected to affirm the contract, and as explained, were ready, willing and able to close at the closing deadline. The buyers were unable to close by the closing deadline because they did not have the funds, not because of anything the sellers did. They were in breach when they could not close. The sellers then elected to accept this second repudiation. Counsel for the sellers sent the following email at 6:33 p.m., informing the buyers that they were terminating the agreement:I acknowledge receipt of your correspondence of today’s date, received at 5:12pm, in which you have conveyed your client's request for an extension of the closing date of the above referenced transaction from today (Wednesday, December 15, 2021) to Monday, January 10, 2022. We hereby confirm that we are treating your request for an extension as an anticipatory breach of the Agreement of Purchase and Sale thereby discharging us of the obligation to tender. I also confirm that the time is now past 6:00 pm and, pursuant to the terms of the Agreement of Purchase and Sale as between our respective clients, your clients have failed to provide the closing funds and documents necessary to complete this transaction.
Please be advised that our clients are not in agreement to extend the closing date. Your clients' deposit is therefore forfeited to our clients and the Agreement hereby terminated.
Take notice that our clients will be relisting the property for sale in an effort to mitigate their damages and are hereby reserving their rights in law and equity to seek reimbursement of their damages as against your clients. Please advise your clients to govern themselves accordingly. [Emphasis added.] [45] Out of an obvious sense of caution, counsel for the sellers covered off both repudiations in his letter: the anticipatory repudiation and the repudiation in failing to close by the closing deadline. While anticipatory repudiation was not a proper basis to terminate the APS (given the election to affirm the contract), the mention of anticipatory repudiation in the email did not prejudice the buyers, who were not able to close at the agreed time due to a lack of financing. . Halliday-Shaw v. Grieco
In Halliday-Shaw v. Grieco (Ont CA, 2023) the Court of Appeal considered a repudiation attempt by the vendor in a real estate closing:[11] Nor do we see any error in the motion judge’s finding that Mr. Grieco was not ready, able and willing to close. An innocent party, the non-repudiating party, can accept a repudiation, putting an end to the contract: Ching v. Pier 27 Toronto Inc., 2021 ONCA 551, 33 R.P.R. (6th) 117, at para. 26. But Mr. Grieco was not an innocent party because he refused to abide by article 17 of the APS. Without compliance, he was not ready, able and willing to close. . Nguyen v. Hu
In Nguyen v. Hu (Div Court, 2023) the Divisional Court considers the contractual principle of repudiation as it bears on the date of assessment of damages:Did the motion judge err in principle by failing to properly apply the law concerning repudiation?
[27] According to Mr. Nguyen, the law concerning repudiation makes it clear that an agreement is not terminated until the repudiation has been accepted by the non-repudiating party. “If the non-repudiating or innocent party does not accept the repudiation, then the repudiation has no legal effect”: Ching v. Pier 27 Toronto Inc., 2021 ONCA 551. Mr. Nguyen argues that this means that when it comes to assessing damages, the date of repudiation cannot be used as the date when damages are assessed. Therefore, the motion judge erred in principle when he used that date.
[28] While we agree that a non-repudiating party is entitled to make an election as to whether to accept repudiation or affirm the contract and sue for specific performance, we do not agree that the decision in Ching means that damages can only be assessed when the non-repudiating party makes that election. To find otherwise would be to give non-repudiating parties an incentive to delay making their election as long as possible in order to maximize their return in a rising market. This would be unfair, especially in a case such as this one, where Mr. Nguyen admitted that he bought the property as a speculative investment and the motion judge found that there was nothing unique about the property from Mr. Nguyen’s perspective. He also found that there were other properties available for purchase in the same condominium building as of the date of the repudiation.
[29] This is not to preclude the possibility that in some cases, it may be fair to assess damages as of the date of acceptance of the repudiation, provided the non-repudiating party submits evidence as to why this is a fair date to choose. . Galt Machining & Plating Inc. v. MLS Group Ltd.
In Galt Machining & Plating Inc. v. MLS Group Ltd. (Ont CA, 2022) the Court of Appeal states a test for contractual repudiation:[14] MLS Group’s second argument is that by failing to make the first instalment on its due date, Galt Machining had repudiated the agreement to pay in instalments and could no longer rely on it. It does not appear that this argument was made to the application judge, and it would not be appropriate to allow it to be raised for the first time on appeal. In any event, we do not agree that, in the circumstances, the failure to make one instalment – representing one third of the security deposit – meets the test for repudiation, which requires a breach that deprives the innocent party of substantially the whole benefit that it was to obtain under the agreement: Place Concorde East Ltd. Partnership v. Shelter Corp. of Canada (2006), 2006 CanLII 16346 (ON CA), 270 D.L.R. (4th) 181 (Ont. C.A.), at para. 51. It is therefore unnecessary to consider how a repudiation would have affected the notice periods in the lease. . Ching v. Pier 27 Toronto Inc.
In Ching v. Pier 27 Toronto Inc. (Ont CA, 2021) the Court of Appeal usefully considered principle of repudiation:[31] In considering the issue of repudiation, it is helpful to address the governing principles.
[32] As noted by Cronk J.A. in Brown v. Belleville (City), 2013 ONCA 148, 114 O.R. (3d) 561, at para. 42, a repudiatory breach does not, in itself, terminate the contract. If the non-repudiating or innocent party[3] does not accept the repudiation, then the repudiation has no legal effect. In his text, The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011), Professor Gerald Fridman explains as follows, at p. 595:From the time that this kind of termination was recognized, it was accepted that there could be no such thing as unilateral repudiation. Just as the making of a contract requires the joint participation of both parties, an offeror and an acceptor, so the discharge of a contract, even where the discharge is by repudiation, in advance of the time for performance, also requires the conformity and acquiescence of both parties. [Emphasis in original.] [33] Accordingly, the consequences of a repudiation are stated to depend on the election made by the innocent party. If the innocent party accepts the repudiation, the contract is terminated (sometimes referred to as disaffirmation). Alternatively, the innocent party may treat the contract as subsisting (sometimes referred to as affirmation). See Guarantee Co. of North America v. Gordon Capital Corp., 1999 CanLII 664 (SCC), [1999] 3 S.C.R. 423, at para. 40.
(i) Disaffirmation (Acceptance of the Repudiation of a Contract)
[34] In Brown, at para. 45, Cronk J.A. explained that:[T]he election to disaffirm the contract must be clearly and unequivocally communicated to the repudiating party within a reasonable time. Communication of the election to disaffirm or terminate the contract may be accomplished directly, by either oral or written words, or may be inferred from the conduct of the innocent party in the particular circumstances of the case. [Citation omitted.] [35] Thus, the acceptance of the repudiation must be clearly and unequivocally communicated. That communication must be within a reasonable time. And, the communication may be express or inferred from conduct. The contract is terminated if the innocent party accepts the repudiation.
(ii) Affirmation (Treating the Contract as Subsisting)
[36] A failure to accept a repudiation does not necessarily mean that the innocent party has affirmed the contract. As with disaffirmation, the affirmation may be express or inferred from conduct. A party who “presses for performance” will be found to have affirmed the contract: Ali, at para. 24. The test is an objective one – what would a repudiating party reasonably understand from the words or conduct of the innocent party. For instance, in Dosanjh v. Liang, 2015 BCCA 18, 380 D.L.R. (4th) 137, Mr. Dosanjh’s lawyer sent a letter that Mr. Dosanjh was “ready, willing and able” to complete the transaction on the scheduled date. The British Columbia Court of Appeal noted that the letter was not consistent with an acceptance of repudiation, and the court concluded that Mr. Dosanjh had made an election to affirm the contract.
[37] The court in Dosanjh also stated that “[a] court will not find that an innocent party has affirmed a contract in the absence of clear evidence leading it to that conclusion”: at para. 35 (emphasis added). This is the flip side of the rule that the election to disaffirm a contract must be clear and unequivocal. However, what then does a court do if the innocent party does not clearly disaffirm the contract and does not clearly affirm the contract? This question is particularly vexing given that, as discussed, a repudiation does not terminate the contract. In my view, rather than asking whether the evidence is “clear”, the proper question to ask is whether, in the circumstances of the case, a person in the shoes of the repudiating party reasonably would have understood that the innocent party was electing to keep the contract alive until the date of performance.
[38] This approach is also consistent with the Supreme Court’s commentary in Gordon Capital. In that case, the court suggests that something less than actively “pressing for performance” may amount to affirmation of the contract. At para. 40, the court notes that “[i]f [the innocent party] treats the contract as still being in full force and effect, the contract ‘remains in being for the future on both sides’” (emphasis added). I read this as saying that conduct consistent with the contract still being in force may amount to affirmation, whether or not it can be said that the innocent party actively pressed for performance.
(iii) The Middle Way
[39] An innocent party need not make its election immediately and may be given a reasonable period of time to decide whether to affirm the contract or accept the repudiation: Dosanjh, at para. 37; Abraham v. Coblenz Holdings Ltd., 2013 BCCA 512, 53 B.C.L.R. (5th) 94, at para. 28; and Canada Egg Products Ltd. v. Canadian Doughnut Co. Ltd., 1955 CanLII 90 (SCC), [1955] S.C.R. 398, at p. 407. As stated in Dosanjh, at para. 37, “at least until that reasonable period of time has elapsed, a court should be slow to treat equivocal statements or acts as affirmations of the contract.”
[40] A leading text (Hugh Beale, ed., Chitty on Contracts, 33rd ed. (London, UK: Sweet & Maxwell, 2018)) puts it this way, at para. 24-002:There is a sense in which there is a middle way open to the innocent party in that he is given a period of time in which to make up his mind whether he is going to affirm the contract or terminate. This point was well-expressed by Rix L.J. in Stocznia Gdanska SA v. Latvian Shipping Co. (No. 2) when he stated: “In my judgment, there is of course a middle ground between acceptance of repudiation and affirmation of the contract, and that is the period when the innocent party is making up his mind what to do. If he does nothing for too long, there may come a time when the law will treat him as having affirmed. If he maintains the contract in being for the moment, while reserving his right to treat it as repudiated if his contract partner persists in his repudiation, then he has not yet elected. As long as the contract remains alive, the innocent party runs the risk that a merely anticipatory repudiatory breach, a thing ‘writ in water’ until acceptance, can be overtaken by another event which prejudices the innocent party’s rights under the contract—such as frustration or even his own breach. He also runs the risk, if that is the right word, that the party in repudiation will resume performance of the contract and thus end any continuing right in the innocent party to elect to accept the former repudiation as terminating the contract.” [Citations omitted.] [41] Depending on the circumstances, inaction may be read either as a failure to elect or affirmation of the contract. For instance, in his text, The Law of Contracts, 2nd ed. (Toronto: Irwin Law, 2012), Professor John D. McCamus states, at pp. 703-4:[A] mere failure to communicate an election to disaffirm to the repudiating party will not preclude a subsequent election to disaffirm unless the passage of time has resulted in significant prejudice to the repudiating party or, in the circumstances, the silence of the innocent party is reasonably interpreted as evidence of a decision to affirm the agreement.
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