July 11, 2024
Common sense and the duty of good faith in the performance of a contract may result in imperfect compliance with strict legal requirements being enforced in favour of the party performing in bad faith.
THE ISSUE
What happens when a real estate deal does not close on time but one side signs an extension agreement relying upon a representation by the other side’s lawyer that their client would sign the next morning?
THE CASE
The seller refused to sign and took the position that the amendments were not effective, and that the deal had expired.
In the context of Drag v. Mehta, the Ontario Court of Appeal agreed with a trial judge who ordered specific performance requiring the sale to be completed over the objections of the seller, who claimed the deal had expired.
Key findings were that:
- the email confirming the amendments was the result of a telephone conversation between lawyers.
- the seller’s lawyer’s statement meant that the timing to deliver a waiver of conditions would not be strictly enforced.
- the seller’s lawyer did not reply denying that there was a deal.
- the seller’s lawyer repeated that the buyer could rely upon his word.
As a result, the original time deadline to complete the sale was either deleted or could not be relied upon by the seller. There is what the Court of Appeal described as “abundant authority” for the proposition that a party cannot rely upon strict timely performance after they have indicated, by words or actions, that strict compliance is not required.
The contractual duty of good faith came into play to prevent the seller from taking undue advantage. The lawyer’s representations, though merely verbal, were intended to be relied upon, and were relied upon.
On appeal, the seller tried to suggest that the representations were not relied upon, but as usually happens, the Court of Appeal deferred to the trial judge on that issue of fact.
The Court of Appeal also considered that the normal remedy for a breach of the duty of good faith is damages, not specific performance, but upheld the trial judge’s decision that upon the particular facts of this case, specific performance was an appropriate remedy.
TAKEAWAYS
- Words matter, even when spoken, not written.
- Good faith performance continues to be a vibrant and evolving area of real estate law.
- The Court of Appeal will usually defer to a trial judge on findings of fact.
WHAT WEILERS LLP CAN DO TO HELP YOU
Our team of experienced commercial and real estate lawyers know how to get deals done. We understand the need for good faith, and common sense.
If you are unlucky enough to have a lawsuit over your agreement, our litigation team is skilled at locating, assembling, and presenting the evidence in the best possible way to attempt to assist you to claim the moral high ground favoured by the courts.
Whether you are entering into a new commercial or residential real estate deal, or in a dispute at the end of the deal, please call us and see if Weilers LLP are the right lawyers for you.