Ontario Court Of Appeal Summaries (February 25 – March 1, 2019)

Good evening.

This week was a light week at the Court of Appeal, with only four substantive civil decisions.

The Court released another anti-SLAPP decision in New Dermamed Inc. v. Sulaiman, clarifying that the onus rests on a responding party resisting a motion to dismiss its defamation claim under section 137.1 of the Courts of Justice Act not to show that there is no possibility that the defence of fair comment could succeed, but rather, that it is reasonably possible that a trier of fact could conclude that the defence would not succeed.

In Benedetto v 2453912 Ontario Inc, the Court confirmed that a deposit paid under an agreement of purchase and sale by a promoter on behalf of a company to be incorporated and "with no personal liability" did not entitle the promoter to back out of the agreement and demand the deposit back, given that the vendor was innocent and the agreement was breached by the promoter. To find otherwise would have rendered the deposit meaningless. The deposit was not covered by the standard form terms of the agreement of purchase and sale, and the common law views deposits as security to encourage the performance of an agreement and as compensation to the vendor for giving up the opportunity to market the property to others and by revealing to the market the price at which the vendor was prepared to sell. In exchange, upon breach of the agreement by the purchaser, the deposit is forfeit unless the agreement clearly provides otherwise.

Other topics covered this week include the enforceability of restrictive covenants where the underlying contract for service has been frustrated, and secured creditors' rights of entry to repossess equipment.

Wishing everyone a pleasant weekend.

John Polyzogopoulos

Blaney McMurtry LLP

jpolyzogopoulos@blaney.com

Tel: 416 593 2953

Civil Decisions

Benedetto v 2453912 Ontario Inc, 2019 ONCA 149

[Hourigan, Miller and Paciocco JJ.A.]

Counsel:

A. Bloom, for the appellant

V. A. Ivanov, for the respondent

Keywords: Contracts, Real Property, Agreements for Purchase and Sale of Land, Pre-Incorporation Contracts, Deposits, Forfeiture, Business Corporations Act, RSO 1990, c B.16, s 21, Howe v Smith (1884), 27 Ch D 89 (CA), March Bothers & Wells v Banton (1911), 45 SCR 338, HW Liebig Co v Leading Investments Ltd, [1986] 1 SCR 70, Tang v Zhang, 2013 BCCA 52, Comonsents Inc v Hetherington Welch Design Ltd, 2006 CanLII 33779 (ONSC), Szecket v Huang (1998), 42 OR (3d) 400 (CA), 1394918 Ontario Ltd v 1310210 Ontario Inc (2002), 57 OR (3d) 607, Adamis v Aviks, 1983 CarswellOnt 3436 (Ont Co Ct)

Facts:

The appellant signed an agreement for purchase and sale of real property, stipulating that he was signing as a buyer "in trust for a company to be incorporated without any personal liabilities". The appellant provided a $100,000 deposit to secure the purchase. Subsequently, he advised the vendor that he would not be closing the transaction and sought the deposit's return. The respondent refused and brought a summary judgment motion. The motion judge held that the Ontario Business Corporations Act (the "Act") provisions addressing pre-incorporation contracts did not displace the common law rules governing deposits in real estate transactions and found that the deposit was forfeited to the respondent.

Issue:

(1) Did the motion judge err in his contractual and statutory interpretation?

Holding:

Appeal dismissed.

Reasoning:

(1) No, the motion judge did not err in his contractual and statutory interpretation. Where a purchaser gives a vendor a deposit to secure contract performance for a real estate purchase and sale, the deposit is forfeited if the purchaser refuses to close the transaction, unless the parties bargained to the contrary. The deposit stands as security for the purchaser's contract performance. The forfeiture prospect provides an incentive to complete the purchase. Should the purchaser not complete, the deposit's forfeiture compensates the vendor for the lost opportunity in having taken the property off the market in the interim and the loss in bargaining power resulting from the vendor having revealed to the market the price at which the vendor had been willing to sell.

The motion judge correctly noted that: a deposit is not part of the purchase and sale contract, but "stands on its own as an 'ancient invention of the law designed to motivate contracting parties to carry through with their bargains', 'something which binds the contract and guarantees its performance', and is an 'earnest to bind the bargain so entered into, and creates by the fear of its forfeiture a motive in the payer to perform the rest of the contract'".

A promoter may execute a contract on a company's behalf that is intended to be incorporated later. Section 21(1) of the Act establishes the promoter's personal liability which prevails unless either contracted out of pursuant to s 21(4) or displaced by the company's contract adoption subsequent to its incorporation pursuant to s 21(2). Thus, the personal liability default rule is subject to an opt-out under s 21(4) where the parties make it clear that is what they have chosen.

In the event of a pre-incorporation contract breach where s 21(4) applies-as in this case, where the promoter advised the vendor that he would not be completing the purchase-the vendor has no remedy for the breach. The vendor cannot obtain damages against the intended corporation because the intended corporation-if it even came into existence-did not adopt the contract. Neither can the vendor seek damages against the promoter because the vendor and the promoter contracted to the contrary.

The appellant argued that under s 21(4), where a contract provides that a promoter is not bound by the contract, neither can the promoter be bound by a deposit given to secure contract performance. The motion judge did not err in rejecting this argument. A forfeited deposit stands as security for contract performance. A purchaser's obligations under a purchase and sale contract are thus distinct from the obligation incurred by the deposit payer. A deposit's implied term is that on the purchaser's contract breach-or, in the case of a pre-incorporation contract, by the promoter on behalf of the intended purchaser-the deposit is forfeited to the vendor.

The appellant argued that the language "without any personal liabilities" was broad enough to exclude personal liability not only for damages for contract breach, but also with respect to the deposit. It was reasonable for the motion judge to interpret the foregoing phrase in the contract's context as a whole as not applying to the deposit. The contract had no express provisions concerning the deposit. As the motion judge correctly found, the interpretation offered by the appellant would render a deposit meaningless, providing no incentive to close the transaction, and no compensation to the vendor for failure to close.

New Dermamed Inc. v. Sulaiman, 2019 ONCA 141

[Doherty, Pardu and Nordheimer JJ.A.]

Counsel:

R. Hosseini and J. Kasozi, for the appellant

J.S. Winny, for the respondent

Keywords...