May 17, 2021
An agreement of purchase and sale of real estate, like any contract, will be interpreted in a way which does not lead to an absurd result.
In Joo v. Tran, the standard form agreement provided that the sellers would discharge any encumbrances, save and except minor utility easements. However, a schedule attached to the agreement provided that the sellers would discharge all encumbrances, without adding the wording about utility easements, either before closing or by way of a lawyer’s undertaking to do so after closing.
A survey revealed four utility easements.
The buyers refused to close. The sellers remarketed the property and sold at a substantially lower price. They sued the buyers for their loss.
The buyers argued that the schedule to the agreement imposed an unqualified obligation to remove the easements and that they did not have to close with the easements on title. The agreement did state that in the event of a conflict between a standard term and an added term, the added term governs.
There was no evidence that the easements would interfere with the use or enjoyment of the property.
Ontario Court of Appeal agreed with the motion judge that the schedule did not conflict with the standard form clause, but rather, that it was intended to allow the lawyer’s undertaking as an additional way to satisfy the obligation.
Reading the agreement as requiring the sellers to remove utility easements, which might be impossible to remove, and if removed might have drastic practical consequences – the removal of water, electrical and sewer services from the property and neighbours – would not make commercial sense. It would be an absurd result.
The rules of interpretation provide that where one impossible interpretation would result in absurdity and the other does not, the not absurd one must be correct.
The buyer’s arguments did not succeed.
While it is always better that contracts are carefully drafted to avoid two possible interpretations, it is comforting to know that the Ontario courts do not apply the law according to Monty Python.