More Common Sense in the Courts

June 1, 2021

By Brian Babcock

The Ontario Court of Appeal continues to apply a common sense approach to interpreting agreements of purchase and sale. This is bad news if you want to rely upon a technicality to try to walk away from a deal. But good news if you have common sense.

In Hannivan v. Wasi, the agreement required that that the seller provide an existing survey. The seller’s lawyer provided the buyer’s lawyer with a document that they claimed was a survey – it was signed by an Ontario Land Surveyor. It did not show the buildings, fences, easements and other features required by the survey clause in the agreement.

The buyer claimed that the seller had breached the survey requirement, and refused to close. The seller remarketed the property, sold at a lower price, and sued for the difference.

There was a lot of evidence in the surrounding facts that suggested that the buyers were just using the survey issue as an excuse not to close. Among other points, the buyers did not complain about the survey until hours before closing even though they had a copy from the realtor months before.

The survey made no difference regarding zoning or financing. It did not go to the root of title. Even if the sellers failed to comply with the survey requirement, this requirement was not essential to the completion of the transaction, and the buyers were not allowed to use it as an excuse to walk away from the deal.

Although it is important to understand the precise terms of any contact including a real estate purchase, it is also necessary to apply common sense. We do not know why the buyer in Hannivan decided to back out, but they were held to their bargain. This is not a case of the courts failing to enforce a contract, but rather is an example where the true bargain was upheld.

Hannivan is the latest of a series of decisions by the Court of Appeal which emphasize this point, which is also consistent with the application of the principle of good faith performance of contracts that is developing in commercial cases.

It is worth noting that in addition to their own legal bills, the buyers were required to pay court costs to the sellers of $80,000.00 at the first level, and $7,500.00 for the appeal, in addition to the damages and interest. The $80,000.00 figure represents increased costs that reflect the conduct of the buyers and their lawyers in the law suit. This continued lack of common sense was expensive.

Bad faith reliance upon a technical term of a contract will not find favour in the courts. Courts will hold people to their true bargains. So, go out and make good deals, and expect that the courts will use common sense to interpret them.