ONCA Affirms: Annulment Clause Allows Vendors To Not Complete Sale of Property


One of the fundamental rights available to a vendor in an Agreement of Purchase and Sale is the statutory right to walk away from the sale of land if the vendor is unwilling or unable to remedy a title defect raised by a purchaser, and to which the purchaser is not willing to waive, prior to closing.

This was reaffirmed, albeit in a different context, by the Ontario Court of Appeal’s dismissal of an appeal by purchasers in Business Development Insurance Ltd. v. Caledon Mayfield Estates Inc. It’s noteworthy to point out that a reading of the motion decision is appropriate here before reading the scant analysis provided by the Court of Appeal here.

Neither the motion’s judge nor the Court of Appeal made any reference to the Vendors and Purchasers Act of Ontario. This light-weight Act carries a big punch: s. 4 grants the aforementioned vendor’s right to walk away.

FACTS

The Appellant (and Plaintiff in the action), Business Development Insurance Inc. (“BDI”), submitted an offer to purchase the property owned by the Respondent (and Defendant owners of the land), Caledon Mayfield Estates Inc. (“Caledon”), dated October 25, 2013. Title search (Requisition) date was set for November 25, 2015, wherein BDL would submit its requisitions to Caledon’s lawyer. Closing date was scheduled for December 16, 2015.

Requisition date is the date by which a purchaser’s lawyer submits a letter of requisitions to the vendor’s lawyer requesting a series of items to be addressed, and fall into either the conveyancer or title category.

Unbeknownst to Caledon, a Caution was registered against the property on November 13, 2013 by 2079664 Ontario Inc. (“207”).  This was brought to the attention of Caledon’s lawyer by BDL’s lawyer as part of its requisitions.

Prior to BDI’s agreement, Caledon and 207 had entered into an Agreement of purchase sale dated May 22, 2013; closing date was scheduled for August 22, 2013.  Closing date was amended to October 15, 2013, and a Development Condition was added permitting 207 to satisfy itself as to, among other things, the feasibility of developing the land; September 25, 2013 was the Condition date. This condition was never waived by the due date, and proposed amendments by 207 were never accepted by Caledon, thereby terminating the agreement. Furthermore, 207 did not pay an additional deposit at the date for waiver of the condition.

Caledon’s lawyer attempted to delete the Caution from title; the registry office was not prepared to do so until the expiry of the Caution, being December 15, 2016, a day prior to closing. However, on December 13, 2013, 207’s lawyer advised Caledon’s lawyer that a Certificate of Pending Litigation (“CPL”) was registered on title.

A series of letters between the lawyers for Caledon and BDI culminated with Caledon invoking s. 10 of the Agreement, namely: Caledon was unable to remedy a title defect on title, and because BDI did not waive its requisition to have Caledon lift the CPL prior to closing, the transaction was terminated.

One of the letters sent by BDI’s lawyer demanded the removal of the CPL, or damages would be pursued; in it, the lawyer did not request an extension. BDI thereafter commenced action for, among other things, specific performance. Caledon moved with a motion for summary judgment: a request to the court to determine the action without a trial. Caledon was successful; BDI appealed.

ANALYSIS

It’s imperative to draw from the motion Judge’s decision for the full details.

Two issues were before the motions Judge: can a summary judgment motion decide whether the Agreement between BDI and Caledon was at an end; and was the CPL a title defect that Caledon was unable or unwilling to remove?

The first issue was settled quickly in favour of Caledon, and the matter was appropriate for summary judgment. The primary question centered on whether the agreement was at an end following the vendor’s unwillingness or inability to remedy the CPL from title.

The motion judge’s analysis set out some principles of law applicable to the circumstances:

-In order to rely on the annulment clause, a vendor must act reasonably and in good faith: “This means that those rights must not be exercised in a capricious or an arbitrary manner”

-“…rescission is not readily available to a vendor who entered into the agreement recklessly and with full knowledge of his or her inability to remove a defect in title”

-If a deposit is not paid within a specified time, the purchaser is in breach of the agreement; if “the vendor does not waive that breach, the vendor is entitled to treat the breach as discharging the agreement and ending all obligations of each party.”

-“On the second stage of the analysis, a vendor is obligated to act in good faith and to make efforts to rectify the defect in title that has been raised by the purchaser. However, the law does not require the vendor to engage in litigation to remove an objection to title”

The motion judge found that Caledon had acted reasonably and in good faith in believing that the agreement with 207 was at an end and in entering into an agreement with BDI.

The Court then distinguished between a matter of conveyance and an objection to title.  A matter of conveyance is within the vendor’s control and may be discharged as of right; conversely, and in this case, if the vendor is not permitted to discharge a defect as a matter of right, then it’s an objection to title within the framework of the annulment clause.

BDI appealed to the Ontario Court of Appeal. The Court of Appeal disagreed with BDI; the Court relied on the letter sent by the appellant’s lawyer demanding the CPL be removed. According to the Court, “[t]he trial judge did not err in his interpretation of the letter, that it amounted to a demand to remove the CPL and not a request to extend closing.”

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