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Land Title and Land Registries Systems
Most property is now held under the Land Title Act system rather than the Registries Act
    under LTA you can’t get possessory title, under RA adverse possession can happen
       even if property is registered
    under LTA a fraudulent mortgage gives no rights to the mortgagee or mortgagor
    in LTA purchaser doesn’t have to investigate past dealing of the land, look beyond
       who has the title in name (i.e. if LTA says John Smith is the owner, then he is the
       owner)- under Land Registries System you must look back 40 years
    insurance principle- LTA guarantees the accuracy of the register, and will
       compensate buyer if there is a fraud
    Durrani case- LTA- if buyer knows people who are registered as owners are not
       the true owners (mortgagee behaved in a fraudulent manner), they have no right to
       the land
           o but mortgagor wasn’t aware of fraud, so their mortgage is good

Because of the rising number of instances of fraud, it is now a good idea to get title
insurance for residential properties- Prof thinks lawyers are essentially obligated to
recommend this
Title insurance- insures you against any deficiencies (i.e. minor mistakes in the
paperwork) that may appear in the title- this is not so important, more important is
ensuring against frauds

This is better than the insurance you have through the LTA- because it takes a long time
and is hugely expensive to get the title back through the land titles system


Standards of Conduct
Selkirk
V’s A makes an offer in P’s name in trust, because P asks him not to disclose their
identity
V refuses to pay commission because they say the never would have sold to this P had
they known their identity, and claim A had obligation to disclose who P was

Court ruled that A must act with strictest good faith to their client and for the client’s
exclusive benefit; must be full disclosure to principle of all material facts within agent’s
knowledge

SCC- the agent did disclose that the P didn’t want their identity known, and so V could
have refused to accept unless they knew P’s identity
Thus A had met his obligations and is entitled to commission

Ocean City
P tells V’s A he will pay full price, but wants half of A’s commission as a kickback
V finds out, refuses to pay A commission
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Court uses objective test- would a reasonable man in the position of the A have felt that
this could influence the conduct of this principle- if there is even some possibility that it
could, A must disclose

Here, the side-deal could have affected V’s conduct, and thus A should have disclosed
and is not entitled to commission

Raso
agent didn’t want to tell V that it was his brother that was buying the pp so the deal was
made in the wife’s maiden name
V finds out, refuses to close (because of his father’s objections, who was also an agent)

Court rules A breached fiduciary duty- V may have attempted to negotiate down the price
or get other people involved if they knew the truth- so the fact that his brother was the
true P was a material fact
     A must disclose all material facts
     So A cannot get commission

The fact that the price was fair is irrelevant “once it has been determined that there has
been non-disclosure by an agent relating to material matters constituting breach of
fiduciary duty, speculation as to what would have transpired if disclosure had been made
is not relevant”

Ps cannot get specific performance because they were party to the cover-up

Hodgkinson
Broker asked accountant for advice, accountant showed him multi-unit residential
properties that gave tax advantages
Accountant didn’t disclose that he was paid commission for selling these properties that
belonged to other clients
Property devalued, broker lost a lot of money, found out that acct got paid commission,
asked for the money he lost back
Accountants claimed they gave all the correct info, weren’t negligent- couldn’t have
predicted the rapid devaluation

SCC says acct had to give money back
   breach of fiduciary duty- broker relied on accountants (key in fiduciary duty
      questions)
   acct had to pay restitution, because simply giving up commission is not enough to
      deter breaches of fiduciary duty

Knoch
P hired A to find a property for them, but typically stipulate that they will not pay their
commission (V will of course pay the commission)
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In this case, the plaintiffs did not suffer a loss, but it appears that they could have sold the
property for more. Disgorgement of profits remedy is the incentive here. Can only get
disgorgement if fiduciary duty is owed

Does P’s A owe the V a fiduciary duty, as V are the ones paying A’s commission?

Principles:
     Where there is a listing agreement between P and their A, P’s A does not have
       fiduciary obligation to V (this was a change in the way the law had been applied
       until now)
     Even where no fiduciary duty is owed, A is under obligation not to deceive V
     P’s agent may be agent for V for limited purposes (may present offer to P and
       receive notices for V, etc.), but this does not automatically create a fiduciary
       relationship
     Have to look at the circumstances of the case and look for indicia of a true
       fiduciary relationship
     Here, there is no evidence relied upon or put their confidence and trust in P’s A-
       they could have found their own listing A
     If P’s A (the selling agent) had direct communications with V, there may have
       been reliance (previously, courts had not made this distinction)

Malpass
Agent didn’t disclose to P that the basement may not comply with zoning requirements
     made an offer to buy the property; agent didn’t recommend that they see own
         lawyer before signing agreement; also didn’t advise P to put in any conditions
         (i.e. that property complies with all zoning bylaw or that it is legally a 4 bedroom
         house)
P later finds out, but cannot back because there are no conditions- sues A

Court finds A was negligent was failed to discharge fiduciary duty, responsible for
damages
    agent has a duty to disclose to principle all facts concerning value of property and
        anything about the state that could affect its value
    must disclose anything that affects the property that may alter the purpose that the
        P wants the property for
    agent knew this was material and crucial requirement for the Ps; agent was
        experienced and therefore knew there could be a zoning problem
    in a situation where agent knows of P’s preferences and knows them to be a
        crucial aspect in the purchase, they agent will be liable if they fail to warn

Hennessy
Dual agent for V and P fails to disclose to P that they will not be able to build a house on
the land because it will disturb the habitat of endangered birds
     A was liable for damages- he knew this was material info as he knew plaintiffs
        wanted to build a house on the land
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This case illustrates conflict of interest that may arise for dual agents
Dual agents (acting for both sides), of course, must make full disclosure to both parties


Agent as Purchaser
Real Estate Business Brokers Act, Section 32
If agent wants to buy property from V for purpose of resale, even though agent won’t get
commission from V (of course), agent has to disclose that they are a real estate agent
     no such obligation if for personal use
If agent buying pp from principle, there is an obligation to disclose that you are an agent
(of course they would already know this) and you are obligated to talk about everything
you know about the property
     if client feels you have not met your duties, agent must prove that the action was
        a “righteous transaction”

Guttman
A buys property from principle, a few months later divides up the property into 5 lots and
sells for a big profit

A finds out and sues for disgorgements, claiming A didn’t disclose this could be done
A claims he did disclose this
     but he had no documentation to prove it

Court finds A couldn’t prove transaction was righteous and thus he had to pay for the loss
of profits
     this proves importance of documentation

Calandra
Agent had fid duty to P as well as V even if not getting commission from P
    although P didn’t want to pay the price asked by V, Court said that agent should
       have told P that he was considering buying the property

Lee
P hired A, A bought property herself in her husband’s name

Court rules in favour of P, imposes a constructive trust on A in which she is holding the
property in trust for P

A person who has a fiduciary duty, i.e. agent, has to avoid placing herself in a potential
conflict of interest with principle and has to make full disclosure
    if agents were allowed to occupy positions of trust and then act in direct
        competition with their principle, it would completely destroy the agency
        relationship
    agent purposely used position against principle and used info gleaned through
        relationship to deceive P
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      although property was in husband’s name, this cannot be used as a ploy to avoid
       responsibilities
            husband still used info gleaned through wife’s violation of fiduciary
              relationship

Soulos
This case is an example of P’s A breaching his fiduciary duty to P
Major case in law of restitution
Instead of informing P of purchase price, A had his wife buy the building

P wants a constructive trust, not damages- could not have got damages, A was broke
    to get this, needs to show unjust enrichment

SCC held that the constructive trust is an equitable remedy and plaintiff need not show
loss- Equity requires fiduciaries to perform at a certain level (good conscience)- Soulos
wins

There was unjust enrichment and a breach of fiduciary duty

Good conscience addresses not only fairness between the two parties but also the duty of
the courts to maintain the fiduciary relationship
     holds people in positions of trust to high standards of trust that commercial and
       social institutions require if they are to function effectively
     CT may be imposed where good conscience so requires
     equitable remedies are flexible and the reward is based on what is just in all
       circumstances of the case- analyzed on case by case basis

In Canada, under the broad umbrella of good conscience, constructive trusts are
recognized both for wrongful acts like fraud and breach of duty of loyalty

Davies
P looked to buy mobile home but couldn’t afford to buy it
Agent spoke to her about this, after satisfying self she wasn’t going to buy it, agent
bought the property and rented it to P for more than a year

Price went up in value so P sued saying that agent should not have gone into a conflicting
position with P

Court finds agent acted properly -accepted evidence of agent that P couldn’t buy mobile
home and that agent told P he was buying pp; P had no objections

Attempts to Evade Payment of Commission
In order to sue for commission, agents must almost always have something in writing
from the V
     this is why agent usually wants (exclusive) listing agreement
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Listing agreement is usually good for a certain, specified amount of time
     usually says that if pp is sold (enter into agreement of purchase and sale NOT
        closing) during listing agreement, agent will get commission
     usually contains a clause that if V gets any offers she is obligated to notify the
        agent (i.e. tell P to talk to V’s agent re offer)
     also usually contains a “hold over provision” which says that if a person was
        introduced to the pp during the listing agreement and entered into agreement
        during holdover period then the agent is entitled to the commission

What if someone was introduced before the listing period and purchased the pp during
the listing period?
     Courts have found that even though the person came to the house during open
         house and dealt with agent, “introduced” before listing period and therefore no
         commission for agent

Murray Goldman
V and P enter into final agreement, then P incorporated a new company, and a new
agreement was entered into with basically the same terms and conditions, only the P’s
name was different

Court said that everything was basically the same, purchasing company still controlled by
same person, although there were some changes the substance of the agreement was not
changed
    Ct. didn’t consider this to be a new deal but a way to avoid commission
    Also a breach of duty of good faith

Metropolitan Trust
The parties purposely waited until after the termination of the holding period
This was designed to avoid payment of the commission
The courts said this was fine

Mon Boulot
Later case (albeit in Manitoba, not Ontario)- again, parties purposely waited until the
expiry of the holdover period

Here, by contrast, even though the agreement of purchase and sale wasn’t in writing, the
court found the deal was essentially made during the holdover period
The agent was instrumental in making the deal
So the parties must pay commission

First City Realty
Vendor signed listing agreement with agent, later decided he also wanted to sell his
business, then signed a different listing agreement with the agent for the business

Listing agreement said the agent would get commission if business was sold between the
creation of the listing agreement and the end of the holdover agreement
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But new LA had a clause saying agent must give vendor the names in writing of the
people he claims he’s introduced to the property during the holdover period
Agent did not do this- although he claims vendor knew that he introduced the eventual
purchaser to the property

Agreement is signed during the holdover period, purchaser (of both the house and the
business) was introduced during the listing agreement
Vendor won’t give agent commission, claims his lawyers and accountants did all the
work

Court says they must enforce the clause- so that people using the form has have
confidence in its effectiveness
    here, courts strictly enforce the contract
Court says agent gets the commission for the property, not for the business (the assets)

No Agreement in Writing
George Dundas
Agent had on a few occasions attempted to obtain a listing
But the vendor had refused to list the property, because he didn’t want to give one agent
the exclusive opportunity to make the sale
V didn’t want to pay commission if he found a P himself, but promised to pay
commission if A found the P- this promise was not in writing

A found the P, was involved with negotiations, met with P’s lawyer, finally V and P met
without the agent and the property was sold

A wants commission- claims he obtained the offer, even if he was not present for the
final negotiations

SCC- suppose the A had only introduced the parties- the A would not be entitled to the
commission

SCC says V took advantage of the A’s help to draft an agreement, negotiate, etc.
Court says here the A did obtain the offer, is entitled to the commission

Robertson and Ball
There was a listing agreement, there was a holdover clause

V contacted A after holding period, A did work for V after holdover period
Then V and P entered into an agreement

V won’t pay commission because agreement was made after holdover period

This was a motion for summary judgment
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In the last 10 years or so, the doctrine of good faith is becoming more prevalent in the
law
Although of course there is still no independent cause of action for breach of good faith
Doctrine of good faith doesn’t apply as much to pre-contractual phase

Court here refers to Gateway Realty- Court said:
Law requires that parties to a contract exercise the rights under that agreement honestly,
fairly, and in good faith
This standard is breached when a party acts in a bad faith manner in the performance of
its rights and obligations under the contract
“good faith” = manner by which parties should pursue their mutual contractual
obligations

Here court finds there was a breach of good faith, agent is entitled to commission

Northwest Realty
P buys property for $1.3 million
Calls A to see if he can resell it for more
There is no listing agreement
A found a buyer

Agreement of purchase and sale says that if there is commission due, the new P must pay
it

Commission not paid- A cannot get money from p2, because he is broke- so he now sues
P1

Court asks- can P1 (the V of the second sale) stipulate ahead of time he will not pay the
A, even though he made use of his services?

Court refers to George Dundas, says A was the one who obtained this offer, V cannot
avoid payment of the commission through minor changes made without the A’s
knowledge
A is entitled to the commission

The agreement between V and P doesn’t affect the agent’s rights, unless the A consents
to that agreement (which he did not)
     so if P2 cannot pay, that is P1/V’s problem

Home Life Realty
A Lease- As always, commission paid based on the rent that will by paid by tenant,

Unknown to A, owner/vendor continued to negotiate using a second agent, only pays
commission to the second A
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First A had introduced T to V, negotiated terms with the T- typically, the negotiations
stopped for awhile, A went for a short holiday, when he came back he could not get ahold
of any of the parties

A1 did not have a listing agreement

While A was away, V met a second A, enters into a listing agreement with him, they
enter into a deal with the same T that A1 was dealing with
Used essentially the same terms that A1 negotiated, with a few changes

Court said the work of A1 (as in George Dundas, not just the introduction) was the link
between the start of negotiations and the final agreement
Both As played critical parts in the sale- there was continuity from the work of A1 to the
work of A2
A1 never abandoned the deal, never told to discontinue his efforts
So both agents entitled to commission


One thing to remember: all LAs say that A will get the commission if property is sold
during the holdover period, unless it is sold pursuant to a different listing agreement
     so V can enter into a new LA with a different A, if he doesn’t like the work of A1
     but in the above case there was no LA with the first A, so this doesn’t apply

Deposits
Most transactions require a deposit, applied towards the purchase price
     this is also a guarantee of performance by the P that he will go through with the
       transaction
General rule is that when the P defaults, because the deposit is a guarantee of
performance, it becomes the property of the V and the V doesn’t have to prove damages
If money is called “part payment” rather than a deposit, V must prove damages

However, if the deposit is unconscionably high, P may get “relief from forfeiture” under
equity

In practice, the first payment must always be called a deposit, but subsequent payments
can be called “part payments” if the parties agree to it

With condos, if P signs APS, there is by legislation a 10 day cooling off period- no
excuses, no conditions necessary- P can get always get out of the deal in that 10 day
period if desired

With condos, developers demand a rather big deposit
    usually demand 10% on signing of APS, then another 10% or so 30-60 days later,
       then another 10% 30-60 days after that- usually 30-35% in total (rather than 3-
       10% with houses)
    always get deposit back if you back out within 10 day after signing the APS
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Condo transactions- interim closing- P gets possession but not title
Final closing- condo is registered, P gets actual title (often occurs 2-6 months later)

Depalma
P ordered quantity of steel from Runnymede
Sent a check for $25K, but didn’t say if it was a deposit or part payment
P cancelled contract, V sold steel and didn’t lose any money

P sued for the return of the $25K- so was this a deposit or part payment?
Court of Appeal says this was a “guarantee of performance”, i.e. a deposit

Iver
P didn’t close the transaction, wants his deposit back
Judge finds because this was called a deposit, it was a guarantee of performance
Finds that as a percentage of the price, the deposit was not unconscionably high

Onus is on the party seeking to invalidate a clause to show that it inflicts undue penalty-
in this case, it was not unconscionable for V to keep the deposit

V is entitled to retain deposit without proof of damages

Stockloser
For deposit to be returned under equity, the sum must be of a penal nature (not meant to
simply recover damages), and it must be unconscionable for V to keep money

V cannot forestall equity by describing “an extravagant sum” as a deposit- i.e. if you have
paid 90% of the total price

Craig
P defaults, V resells property at a profit- so no damages
P sues to get back deposit

deposit was only 2% of total price
P was a shell company- a company that has no assets

Here there was no relief from forfeiture- V can keep money without proving damages

Cumberland Realty
Commitment is a promise by the mortgage company that so long as you comply with the
obligations outlined, you will get the money promised by the company
     so the lender (the mortage company) charges a commitment fee
     usually, if the loan is paid back the commitment fee is returned

Borrower wanted to borrow $3 mil from lender (Exelsior life)
L got a CF of $60K from the B
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B then decided it didn’t want to go through with the loan
L won’t give back CF, even if they kept some of the money to recover any costs they
may have incurred

“part payment” argument doesn’t apply in this case because it is a loan
L says this money is penal in nature- it is exorbitant

CA says that the CF was not unconscionable- it was a genuine estimate of damages given
the risky nature of the mortgage business

BC Preeco
V is suing principals of the purchasing company as they deliberately induced the V, by
claiming that the company they represented has assets that they did not actually have

When you are looking at fraud, court looks at what would have happened had the
misrepresentation not been made
    in this case, the V would have asked for a higher deposit ($500K instead of
       $100K)
    so the court finds the principals personally liable for $400K

Porto
$10K deposit, APS for $500K
P couldn’t close on closing date, asked for long-term extension
V asked for further deposit of $150K
P still couldn’t close under extended date

Was the deposit amount of unconscionable, thereby giving rise to relief from forfeiture?

Good basic rule- Court said deposits can safely vary between 3-10% of the purchases
price, depending on a variety of circumstances, including the time of the closing date- the
further away it is, a higher deposit than usual is justified

Court said you can sometimes take a deposit of over 10%, but it would be an unusual set
of circumstances that would allow it

Here, the court found the deposit (31% of purchases price) was too high- they reduced the
deposit, but did award damages

1473587 v. Jackson
Summary judgment that went to appeal

APS- property was valued at 1.8 million, deposit was 75K
   APS said deposit would be paid five days after the APS was accepted
   P (Loblaws) forgets to send in check on time, send it a few days late
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           o Agents said “ok” when P told him what they were doing, but court found
             this didn’t mean anything in terms of accepting the remedy of the breach,
             and anyway the A didn’t have the power to bind the V

Client gets a better offer from another P, accepts that offer, claims that the deal with
Loblaws was off because the deposit check was late

Court found that a deposit is a material time- Court said “certainty and precision is
important in language used in documents of business and commerce”- “time is of the
essence”

Court found V was under no obligation to assert its rights so quickly (cancel the contract
within only a few days after the breach)
    this was a fundamental breach, entitling the V to treat the contract as void (but of
       course they didn’t have to void it right away) and releasing them from their
       obligations


Conditional Contracts
Residential transactions- usual conditions:
    offers often conditional on financing- i.e. conditional on buyer’s ability to pay
           o but this in turn often comes with the condition that the V must commit
               within 48 hours (of course this time period is negotiable)- must find out
               whether they have adequate financing within 48 hours after the APS is
               made and the deposit given
           o this also often comes with an escape clause (probably when the time
               period is more than 48 hours)- this says V can cancel the agreement if they
               have another offer they are prepared to accept, so long as they give the P
               48 hours to commit- if P cannot commit within 48 hours, V can accept the
               other offer
    Ps often want inspection clause- agreement is conditional on P obtaining a
       favourable inspection report
Commercial transactions
    offers often made conditional on P being able to obtain zoning, building permits-
       here, closing date often a year or two after the agreement

If a CP is not satisfied P will usually get the deposit back- although the V can attempt to
negotiate otherwise

Turney
SCC case, very important
Condition in agreement said, “provided property can be annexed to the village of
Streetsville and a plan approved by the village council for subdivision”
     as the closing date approached, the property rose in value, plan was not approved,
        P wanted to buy anyway, waive the condition
     V refused, even though the disputed condition was put in for the P’s benefit
                                                                                          13



Court said, “obligations under the contract (on both sides) depend upon a future event,
the happening of which depends entirely on the will of a third party”- this is a true
condition precedent
     so P cannot waive the condition and buy the property

F.T. Developments
SCC- Like Turney, true CPs cannot be waived by the person for whose benefit they were
inserted

O’Reilly
SCC- Ps offer conditional on him buying an adjacent property
Court finds this was a true CP, P cannot waive it even though it was for his benefit
    Says the P could have inserted a right of waiver if he had so chosen

Barnett
P put it some conditions, some conditions had a right of waiver, but P and his lawyer
forgot to insert a right of waiver for open condition (plan of subdivision being approved)

P wanted to waive the condition (which was obviously for his benefit)
SCC said that in the interests of certainty and predictability in law, the Turney rule should
endure unless compelling reasons for change be shown
So rules in favour of V

Lestrange
Offer was conditional to P being able to get an offer that was reasonable for their own
house
Court found it was not a true CP, but rather a “simple” CP
    so case tells us conditions about selling your own house can be waived without a
       right of waiver

Beauchamp
P- said offer conditional upon his obtaining a first mortgage of $10K and a second
mortgage of $2.5K
     instead he got one mortgage of 12K

Court of appeal said the was not a true CP, but rather a simple CP- so condition could be
waived
    V got his money either way

Gaywood-Hall
P had right to waive condition, had to so by August 15
P told his lawyer to waive the condition, solicitor neglected to carry out his client’s
specific instructions until it was too late
                                                                                           14


Court said that the waiver was not communicated in time, so he P cannot waive despite
lawyer’s incompetence- although P can sue lawyer if he wants
    P could also have specified to whom notice must be given- could have stipulated
       that telling his lawyer was enough- since it was not specified, he maybe should
       have told V directly

McIlroy
Agreement contained condition required approval of a septic tank by June 22, otherwise
deal was off

House was being bought by parents for son, son then decided he didn’t want to move

V claimed approval obtained in time, approval faxed on June 24
On the fax, V changed the copy to make it look like approval was obtained on the 22nd
instead of the 24th

Lawyer failed to check fax against the original, and thus didn’t notice the fraud
P must buy property then sell it for a loss- they then sue lawyer (V had no assets so
couldn’t sue him)

Expert evidence (Rosenblatt himself) said that it was not standard practice to check
certificate against the original

Court said lawyer’s retainer was originally to act on the purpose of a transaction, but this
changed to the duty to get out of the transaction- so this makes his role different than that
described in the expert evidence
    so lawyer negligent in not finding the technicality that would have nullified the
       contract and thus satisfied his retainer
    an important part of getting out of a transaction is double checking everything

Novatec
Due diligence condition must be waived by 4:00 on the date specified
    condition- P had to do certain due diligence to satisfy itself that it really wanted to
       buy the property

At 3:10 P’s lawyer calls V’s lawyer and asks for extension of time for the waiver of the
condition, as the due diligence was not yet finished- asked for another day
    V’s lawyer said he would speak to his client but he didn’t think it would be a
       problem
    But then calls back and says no, my client isn’t allowing the extension
P waives a few minutes after 4:00- as always, time is of the essence

This case hinged on the words of the lawyer
Court said the words of the V’s lawyer could reasonably lead P to believe had an
extension had been granted- lawyer had essentially said “don’t worry about it”, and thus
                                                                                         15


created an atmosphere of reliance- a lawyer should be able to rely on the words of his
colleague
     lawyers must never be less than clear in their communications
     lawyers must only say, “I must get instructions”
     this is so especially when the lawyers are friends (as in this case)
     Rose doesn’t really agree with this case- because he thinks lawyer made it clear
       he had to get instructions, and afterwards gave a personal opinion
           o This case goes against collegiality amongst lawyers

Harland
P entered into APS conditional on being able to sell their own house- they were unable to
do so

A suggested they put in a firm offer under a different name (maiden name) which would
therefore be $10K cheaper (because conditions make the price higher)
     because V would not agree to simply subtract $10K in return for waiving the
        condition
     later V finds out p2 was really the same person, understandably unhappy

Was this fraud? Court found it was deceitful
   You can use your maiden name, shell company, etc. but not if you do so with the
       intent to misrepresent yourself and deceive the V

Obligation to Satisfy Conditions
If you own a parcel of land, you cannot divide it without getting the consent of the
Committee of Adjustments, or if the property is within a registered plan of subdivision
(obtained by applying to the municipality for this)
     cannot even divide land in a will
     can take 2 or 3 years to get a registered plan- government must make sure the land
        is in a decent area, i.e. relatively near to schools, has roads, etc.
     an APS is void if the V owns abutting (adjacent) land- i.e. buying a semi-detached
        house if the V owns the other semi-detached
             o unless there is a clause in the agreement saying purchase is conditional
                 upon compliance with the provisions of the Planning Act
                     this condition cannot be waived
             o this should specify whose obligation it is to get compliance with the
                 Planning Act

Aldercrest
There was clause that was provisional on the PA being complied with
V didn’t think he would get committee of adjustment’s consent- so told P deal was off
Court says this was not enough of an effort by the V to comply with the PA- a formal
application to the CA is required, otherwise it is mere speculation to conclude that
severance consent would have been withheld

Dynamic Transport
                                                                                           16


SCC- Again, V did not make formal application to CA
Nothing in the agreement saying the V had the obligation to do it

Court will imply that a party must do everything in their power to satisfy their obligations
Court said a V is under a duty to act in good faith, and to take all reasonable steps to
complete the sale

If the V didn’t make application, court can award damages (value of the land)- here,
however, court ordered a mandatory injunction (V must make application)

John Dodge
Clause in agreement said V would take all steps and do all things necessary to comply
with PA, obtain necessary consent

One of the conditions to the consent was that they would have to build a road (this would
be costly)
V doesn’t want to pay the cost, they never contemplated this
SCC said V had agreed to do all things necessary, thus it is their duty to do this
     V should have negotiated within this clause, i.e. added a sub-clause that said they
        would only assume the costs of compliance up to X amount

BEM Enterprises
Canada Safeway was a tenant in a plaza, wanted to expand their store
    CS must buy the additional properties needed to expand the store

Agreements were conditional, i.e. on CS buying a certain amount of properties

Defendant didn’t try very hard to satisfy their conditions (of an agreement with another
party), as they didn’t want deal to go through after they found out CS wasn’t going to
expand

Case stands for the proposition that you look objectively, not subjectively, when
determining whether party made reasonable efforts to satisfy the conditions
     so if party acted unreasonably but in good faith, that is their problem

so Ps got damages (difference between what they paid for the property and what it was
really worth)

Once again, defendant should have said the agreement was conditional on their
concluding the deal with CS
Could also have characterized their purchase as an “option”- if they give deposit, they
have “option” to purchase land- in this case, they don’t have obligations

Evans
Offer conditional on P obtaining necessary funds
P didn’t know interest rate was 18%, felt it was too high, didn’t apply for loan
                                                                                            17



Court of Appeal said that a P cannot unilaterally make the decision to withdraw from the
K without a reasonable effort to lay sufficient information before an appropriate lending
institution to determine whether financing is available and on what terms

Burden of proving reasonable efforts were made is on P
Interestingly, Court said that if the bank gave P a loan, the P doesn’t have to accept it if
the terms are beyond his financial capacity
     but P cannot simply say, “I’m not going to close the deal because I think the loan
        interest rate will be too high”- so V entitled to damages

Again, P should have said “conditional on obtaining necessary funds at a rate of not more
than X”
     simply saying, “necessary funds” or “satisfactory financing” is too vague

Barg
Condition upon purchaser being able to sell his own house
P didn’t list house for first 10 days (tried to sell it himself at first)- V argued he should
have listed it right away, court said no, he wasn’t required to list it right away unless the
APS specified it

The main problem- P received an offer at market value- P turned it down, as the market
was declining
Can an obligation be imposed upon a party to accept fair market value when the
contractual condition doesn’t specifically require it?
    court said no, P behaved reasonably, as market value was quite low
    V should have put in a clause specifically requiring it

Essex
P felt he needed permission to build about 155 townhouses- Chief Planner told him he
was not going to get it- so didn’t make the application

Court said P cannot rely on the condition with respect to zoning to avoid the agreement
unless it acted in good faith and used its best efforts to comply with the condition
    even when compliance is left to the discretion of the P, this discretion is still
        subject to good faith behaviour
    so even when the P has “sole discretion” to comply with the clause, they must
        make reasonable efforts
    however, in this case, P had no duty to submit a formal application after the chief
        planner had clearly told him such an application would fail- it was essentially a
        sure thing, and not “mere speculation”, that the application would fail

Angeli
Agreement provided there was a condition that the proposed development was
economically feasible- it was at sole and unlimited discretion of P
                                                                                              18


P said it was not economically feasible for him, wanted deposit back
V wanted evidence as to why P thought it was economically unfeasible
P refused, said it was his discretion to back out- even though P had a report saying it was
economically unfeasible

Court said P must provide V with some explanation capable of proving the exercise of
discretion was made in good faith and was reasonable- P did not do this, report only came
up at discovery at trial
So P had to give back deposit, but no interest was returned

Eastwalsh
V doesn’t meet duty to make reasonable attempts to register sub-division

Court of Appeal said that even if V had acted in good faith, he wouldn’t have gotten sub-
division registered anyway
So nothing more than nominal damages is justified

Borthwick
Purchase for new condo
Closing was conditional upon the V registering the condo within 14 months- the V could
extend this time period for another 6 months

V doesn’t obtain registration- says agreement is void, but tells Purchasers they can still
buy but they have to pay more (because value of condos have gone up)
28 Ps sued together

Court says V knew or should have known that the condo project could never have been
completed by the dates specified- it was reckless for him to create this time limit
    thus, the V cannot rely on these dates to nullify the agreement
    Court granted specific performance rather than damages in this case (unusual)

Thorman
Conditional on V being able to register a sub-division by a certain date
If not met, V would have option to extend commission for another 60 days

Plan wasn’t registered in time- V didn’t exercise the option, terminated the transaction
V later registered the plan within 60 days, P sues for specific performance

Court finds V had acted in good faith, had legitimately tried to register plan- so there is
no duty on his part to exercise an option that was put in for his benefit

P should have made the option be one that he could also exercise

O’Brien
A motion for summary judgment
                                                                                            19


Condition had no specific time limit- V said a “reasonable” amount of time had passed

Court of Appeal said you can’t say a “reasonable” time had passed- this is not a question
of law, but of fact- must look at all the circumstances- can’t dispose of the matter without
trial

Ontario Jockey Club
Condition that P had right to terminate if it believed that environmental conditions of the
land were such that would cause cost increases or time delays to the development of the
land

P gets environmental test, agreement said he had to give V a copy
The test said the conditions would increase costs and time delays

V gets this report, but doesn’t accept its validity

P asks for summary judgment- wants his deposit back
Court says there is nothing in the report that brings into question the expertise or
experience of the P’s experts
     thus, court says they don’t have to go into whether the report was actually right-
        as long as the experts were sufficiently qualified and competent, this is enough to
        entitle P to rely on their opinions
     P can rely on qualified expert’s opinions, this is acting reasonably- doesn’t have
        to then go and prove that his expert is right

Marshall
Conditional upon inspection
Deficiencies shown in the inspection report were minor deficiencies
P tries to back out- even though the trifling deficiencies could be corrected at .2% of the
total purchase price

Trial Judge said there were potential logistical difficulties in overcoming the problems,
however minor they might be
     P had essentially been promised “a perfect house”
     P had faced bad experiences with buying houses before
     So it was reasonable for P to back out- must use both objective and subjective
        standard to determine reasonability

CA said there were legitimate uncertainties and inconveniences which the Ps were
entitled to take into account- P acted in good faith

Acting on Both Sides – Independent Legal Advice
This is always dangerous, of course
But this is allowed in real estate transactions- usually the transaction is completed
without incident
                                                                                              20


Davey
V and P of the business were structuring a deal
Lawyers told them to negotiate the deal themselves, he would then handle the
documentation

Deal went bad, one of the parties lost a lot of money and they sued the lawyer
    claim he breached his solicitor-client duty in undertaking to represent the client on
      this transaction when he knew he had a conflict of interest which impaired or was
      highly likely to impair his ability to act with the plaintiff’s best interests solely
      and exclusively in mind

CA- lawyer has a fiduciary relationship to his client and must avoid potential conflict of
interest
Cannot act for two clients adverse in interest, unless the two clients have agreed in
advance (fully aware of the situation and implications) to do so
     clients must acknowledge they know you are acting for both parties- in this case
         there was an acknowledgment by the clients

Onus on lawyer to prove client had best professional assistance

CA says full disclosure and consent of clients is insufficient here
   in a complex transaction you simply cannot act on both sides- because here it is
      likely that conflicts may arise and so independent legal advice is needed
   before accepting the client, lawyer must decide as conscientiously as she can if
      she should represent the client of if client should seek representation elsewhere
   lawyer was too late in appreciating his conflict of interest position-
      acknowledgment and consent cannot exonerate him from his fiduciary duty to not
      accept the case (because of its complexity)

Smith
Plaintiff was P who was entering into agreement to buy farming property
V and P decided they would go to the same lawyer (V’s friend)
Offer conditional on P being granted landed immigrant status

Bank pressured V to make the deposit non-refundable- V told P that despite the wording
of the APS, he would actually give the deposit back if necessary
P said he was content to accept the V’s handshake on this

Lawyer doesn’t interfere with this- didn’t really explain to P the risk he was running in
signing the APS with a non-refundable deposit

Deal doesn’t go through, V had already given bank deposit, can’t give it back
P sues lawyer

Court says lawyer’s negligent conduct is the root of the difficulties at hand- the conflict
stemmed from the lawyer representing two parties whose interests were in conflict
                                                                                         21


      court says just because parties had agreed on the terms doesn’t mean lawyer can
       take on the case
      parties were not knowledgeable of the law, this was a major transaction
      and if lawyer felt he could take it on at the beginning, the circumstances changed
       when the deposit was made non-refundable- lawyer should have explained to P
       the import of the situation, should have told him to seek independent legal advice
       given the new conflict of interest

Korz
Lawyer was partner in business transaction
Lawyer had made himself “bullet-proof”- all his assets in other people’s names
Lawyer and his partners had taken a loan “jointly and severally” (bank can sue any one of
them for the full amount, that person can then ask the others for their share)- so lawyer
knew he was taking no risk because he had no assets, he was “judgment proof”
    sometimes this is legal, sometimes not
Lawyer never advised them to seek independent legal advice

Couldn’t make payments, bank sues everyone except lawyer, others sue lawyer
    he had no assets- but they are suing partnership, which has assets (and also for
      lawyer’s insurance)

CA said he still had fiduciary duty to former clients (his partners were former clients)
Lawyer had fiduciary duty to current and former clients to inform them of his “judgment
proof” status
    otherwise, lawyers could be put in an unfairly advantageous position- i.e. he
       already knows everything about his former clients, so he must tell them about
       himself

Marvo Color Research
Man and woman living together, woman’s parents owned a house
Wanted to get parents to sign a mortgage because they needed money
   told parents the form was a “renewal”, rather than a mortgage

Bank tries to enforce security

Is the defence of non es factum available to a party who knows a document has legal
effect, but fails to read the document and allows one party to perpetrate a fraud on
another? Who will suffer- bank or parents?
      NEF = signed but made fundamental mistake as to the nature of the document in
        question – can’t be due to negligence

Law has two objectives- relief to a signer whose consent is lacking- and protection to
third parties who have relied upon an apparently reliable document

Court said parents were both literate, English-speaking, has signed mortgages before-
they had acted carelessly- bank wins
                                                                                          22


      a person who executes a document without taking the trouble to read it is liable
       for its contents to a third party who has relied on its contents
           o so NEF doesn’t apply to innocent third parties who rely on the document
      we need security and certainty in commerce
      when there are two innocent parties, you must look at the circumstances of each
       specific case

Bertolo
Son wants to buy restaurant- requires a bank loan
Mother would be principle debtor for the loan- but was uneducated and took no part in
the negotiations- didn’t understand consequences of what she was signing (a mortgage)-
lawyers didn’t explain it suffficiently
Bank wanted security- this was fundamental to the loan

Bank recommended independent legal advice- law firm is acting for both the bank and
the son (but different partners)- Court says this does not count as independent legal
advice

CA says the specific lawyer cannot be viewed as an entity separate from the firm or the
specific lawyer acting for the other side for the purposes of determining conflict of
interest
     the lawyer is not unfettered by compromising interests or commitments to others
     lawyers were not deliberately trying to act unfairly, but this does not change the
         fact that the legal advice was inadequate (it was not independent)

Mother did not understand what she was signing (and was not given proper independent
advice, for the above reasons), there must be an “intervention of equity” to relieve this
woman of the consequences (losing her house)
Bank was aware woman didn’t have true independent legal advice (despite certificate
saying she did), so the transaction was unconscionable, so court said mortgage was
unenforceable

Premier Trust
Lender is a trust company

Mother (debtor) is a deaf/mute widow
Son wants to buy some houses so he can resell them later
Has very little money- needs mom to provide security (mortgage her house)

Bank sues mom, she defends and places a third party claim against the lawyer
Son’s lawyer also works for mom- doesn’t tell her to seek independent legal advice

Lawyer doesn’t have notes from the relevant meetings in this case- in such
circumstances, courts will usually accept the credibility of the client over the lawyer
     lawyer in Bertolo also didn’t take notes
                                                                                           23


Court says lawyer should have advised her to get legal advice, met with her without her
son present so he could freely explain full implication of her mortgage
Says lawyer did not explain the full nature of the transactions (i.e. the risks) involved in
the plan

So lawyer ends up having to pay the trust company

Webb v. Tomlinson
Husband and wife separated for 19 years- wife ended up with home (still had mortgage
on it)
Husband wants to start a business, want wife to take out a loan to lend him money-
business fails, wife is liable to the bank

Lawyer who acted for husband told wife to get independent legal advice- she does
Wife claims the risk was never truly explained to her- lawyer said he did, he took notes,
followed the standard of care
     court found lawyer was more credible, rules in his favour

This case simply shows that even lawyers who give independent legal advice are being
sued- you must always explain the risk, take detailed notes

Again, court said standard of care depends of level of sophistication and risk

Shoppers Trust
Motion for summary judgment
Bank wants security (mortgage on wife’s house) for loan to husband
Wife did not have independent legal advice, nor was she advised to seek it
Wife claims bank’s lawyer didn’t explain the risks to her

Court says generally, there is no onus on the lender to ensure borrower obtains
independent legal advice
But there can be fiduciary relationships in certain circumstances
Court says in scenarios in which the matrimonial home is at risk, counsel must ensure the
debtor is fully aware of the risks

Lawyer was obligated to ensure wife fully understood consequences of her actions
Court does say that the defence of non es factum is only available under compelling
circumstances- but here, lawyer has fiduciary obligation to at least recommend ILA

Court said intervention of equity may be required- so case goes to trial

Firstline Trust
Mother mortgaged her property to help her son

Bank’s lawyer told her she should get ILA, fully explained implications of the transaction
to the mother
                                                                                          24



Court finds mother entered into transaction voluntarily, understood what she was doing,
transaction was not unconscionable- court also finds that even if she did get ILA, she
would still have entered into the transaction- so equity does not have to intervene-
Court rules in favour of lawyer

Bank of Montreal
No presumption of undue influence in a marital situation

Shute
Couple had a mortgage, wanted to refinance
Bank asks her to get documents signed by husband- she forges his signature, bank’s
lawyer doesn’t notice- mortgage becomes null and void because of this
Bank sues lawyer

Court says lawyer must bring “reasonable care, service and knowledge”- standard of care
is that of the reasonably competent, ordinarily prudent lawyer

Court found there is a duty on behalf of the reasonable solicitor to ensure the mortgage
was properly executed by the mortgagor- lawyer here didn’t attempt to confirm the
documents with the lawyer, failed to notice some of the bad dates on the forged document
So lawyer’s professional dealing fell below the standard of care
     lesson learned is never send documents out to be signed if you can help it- and if
       you do, then follow up on it- make confirmations

Thibeault
General power of attorney- give person the right to execute any document as if you were
there- there are also more limited power of attorney- i.e. right to sign checks

Daughter had limited PoA- right to sign checks
Household Realty wanted to get mom and daughter to sign general power of attorney

HR’s lawyer gets mom to sign PoA- hours later daughter puts a mortgage on mom’s
house- eventually signs three more mortgages- mom didn’t know about any of these

HR knew mom didn’t know about these

Court said “lawyer has responsibility for fully explain the nature of the document (i.e. its
consequences) to the person executing it”- lawyer didn’t do that in this case
    HR should have given mom ILA to ensure she understood document

So both HR and lawyer are at fault- mortgages are void

Mackay
Daughter needed 15K for a trailer- already owed 20K to bank, and 10K in other debts-
bank gives 45K loan so she can consolidate her debts
                                                                                           25


Daughter gets mom to provide security for the loan (mortgage on condo)

Bank told mom to get ILA- mother felt she didn’t need to, that she understood
documents- so she signs a waiver saying she doesn’t need ILA

Court said there are certain cases where banker must insist borrower obtain ILA or else it
must refuse the loan- this would be more likely in cases where a parent is borrowing for
benefit of child
    must insist on ILA when such advice would result in the borrower being told that
        the transaction is completely foolhardy- lawyer could have thought of alternate
        solutions
    in this specific situation, bank cannot merely recommend, but must insist on ILA

lawyers should clarify what exactly client wants them to do- i.e. simply explain the effect
of the documents, or also give advice as to whether you should sign (this would cost
more)- when this is not clarified, now courts seem to imply the latter duty on the solicitor

Martin
Martin alleges that he went from $18M to nothing because of the fraudulent activities of
Axton- Axton had been convicted for fraud before- they each had the same lawyer
Lawyer didn’t tell Martin about Axton’s fraudulent past, at Axton’s request, who claimed
he had reformed

Lawyer obviously should have disclosed this to Martin, or refused to act for both parties
Lawyer must always disclose info that will influence his client’s conduct, operate on his
judgment- in this case, had Martin known, he would never have gone into business with
Axton
This was a “material fact” in terms of Martin’s financial well-being, and his decision to
go into business with Axton
Lawyer preferred the interests of Axton over Martin, and thus was in breach of duty

Another lawyer- although she was kept out of the loop somewhat, she still had or should
have had an idea as to what was going on, and thus was also liable


Obligations to Disclose – Caveat Emptor
Caveat emptor doesn’t apply to new homes and condos

“let the buyer beware”- the risk of any deficiencies or defects in the property falls on the
purchaser

Gronau
Serious crack along one of the walls
V made cosmetic repairs so crack wouldn’t be noticeable- but did not repair the crack
P buys, later finds out about the problem
Court rules in favour of P
                                                                                           26



Case stands for the proposition that you cannot actively conceal a defect- to do so is a
fraudulent misrepresentation, which entitles P to sue V after closing (if you only found
out about the fraud after closing)

McGrath
P buys house, there is a landslide after a short period of time- P has to move out
P sues, says V should have disclosed this defect
V says they didn’t know it was a problem- court believes this is true

Court says V had no obligation to disclose a latent defect they didn’t know existed
Obiter (but this is good law, this is a leading case): If V knows of a defect which P would
not be able to discover on ordinary inspection (i.e. latent defect), then V has a duty to
disclose this latent defect that render the premises dangerous, or likely to be dangerous
Has a duty to disclose latent defects that render the property unfit for habitation (because
it’s dangerous, or for another reason)

Remember that what counts as dangerous depends on the specific circumstances- i.e.
flooding in the basement may not be dangerous if they only intend to use basement for
storage, but is dangerous if it is a couple who wants to use basement as a nursery

Dankovic
After closing, P found that the furnace wasn’t operating
V knew of this latent defect- P couldn’t have discovered it on ordinary inspection
Court finds defect rendered premises dangerous- dangerous to light boiler given its leaky
conditions
Defect rendered premises uninhabitable- so P wins

Marathon Realty
APS signed
V knew P was buying the land for an eventual residential subdivision- price took this into
consideration
V had an appraisal done on the property- knew it would be downgraded from residential
to agricultural- so P cannot use it for his intended purposes- didn’t know about this until
after signing APS

There is no fraud (no duty to disclose) in this case, because only the price is affected by
the undisclosed information
     P should have gotten an appraisal himself, or put a condition in the APS

“Mere silence”, as to anything the other party which by proper diligence could have
discovered, is not fraudulent, unless a special trust or confidence exists between the
parties or is implied by the circumstances of the case

Sevidal
                                                                                           27


V knew that radioactive soil had been found in the area of the house, and there was a
hotspot across the street
APS signed
After APS, but before closing, V knew there was a contaminated area in their own
backyard

One difficulty for cases like this: How does the lawyer find out if the V knew of the
defect or not?- sometimes it’s their evidence against yours

Remember that if P backs out, they will be liable not only for the deposit, but also for
damages because V will get on a smaller sale price with the next P

Court found V did know of defect- Court finds defect is potentially dangerous so there is
obligation to disclose
Case extends McGrath rule to “potential danger”

Court- Vs also have a duty to disclose a change of circumstance relating to dangers or
potential dangers that occur after the APS

Ps also sued Agent for letting them waive condition on 16% financing when they should
have waited a bit longer (if they hadn’t waived , they could have got out of K, as
condition wasn’t quite met)
     Ps were new to Canada, unfamiliar with the rules, relied on A
Court said that A, allowing Ps to sign waiver prematurely, and not explaining the risk in
doing so, fell below the expected standard of confidence- A is liable

Goldstein
V crossed out clause that said property was not a “historic property” and could be
demolished (P knew he did this)- they had found out city intended to designate that house
a “heritage house”, which meant it would be difficult for Ps to demolish the house and
develop the property as they desired
Vs never told Ps about this
Ps had checked with city and were told developing the property would not be a problem-
this was before the city decided to designate it a heritage house- Ps didn’t find out about
this until after closing

Court says V should have disclosed- failure to disclose was a negligent (not fraudulent)
misrepresentation
    said there was a duty to disclose where it would materially affect price

Rose thinks this case was wrongly decided- says V crossing out clause that P had put in
should have raised a red flag, let P know there would be a problem with development
    thinks this case is similar to Marathon- there was “mere silence” which only
       affected the purchase price- lawyer for V erred in not citing Marathon at all in his
       arguments
                                                                                            28


Tony’s Broadloom
P buying property for industrial use- wanted to eventually change use to residential, but
V did not know this
Hazardous material had previously been used on the industrial property, V was aware
property was contaminated
APS, as is standard, gave P opportunity to inspect the property- P did not inspect property
for hazardous material at any time

P sues V after he finds out about contamination- it will prevent him from changing use of
land to residential

V claims defect was patent, not latent- there were many industrial machines and devices
on the property which served to mitigate the danger of the hazardous material- P could
have easily noticed these machines upon investigation of the property

Court- “A patent defect is a defect which a P is likely to discover if he inspects the
property with ordinary care. A latent defect is one which the P would not be likely to
discover if he inspects the property with ordinary care”
Court- V not bound to call attention to patent defects- the rule is caveat emptor- there is
no fiduciary relationship between V and P for the purchase and sale of land
Court- V has no obligation to disclose defects which only affect the price or the use of the
land, whether they be patent or latent

Here, court found defect was patent- P knew factory has been operating on industrial site
for many years, but still chose not to investigate property- P did not exercise reasonable
diligence
     P could also have made APS conditional on rezoning
In any case, V didn’t even know this was a defect because it didn’t affect the property’s
use as an industrial site- V didn’t know about P’s intention to use property for residential
purposes

We still don’t know if there is obligation to disclose patent defects that are dangerous-
Rose thinks there should be an obligation

Summach
Ps signed APS for house in November, in summertime they realized they were next to a
nude beach
Should V have disclosed? Even though it would not render premises uninhabitable for
most people, it arguably would for these specifics Ps

Court says no- cannot allow defects to be determined by individual preferences- this
would open the floodgates for litigation, and would make it impossible for Vs to
determine which defects should or shouldn’t be disclosed

Representations and Warranties
Representations
                                                                                          29


“this document shall constitute the entire agreement”- this is referred to the “exculpatory
clause”, “disclaimer provision”, or “four corners clause”
     no other documents are statements are part of the contract

But Courts will sometimes allow exceptions to this rule
This clause will not exclude fraudulent representations made outside (or inside,
obviously) the agreement by the V- this clause will not protect the V- liable for damages,
P can rescind, even after closing
If an innocent misrepresentation is made outside the agreement by the V, this clause
protects the V
If an innocent misrepresentation regarding a material fact is made inside the APS by the
V, P has a right to rescind the agreement before closing (Waxman)- but if P closes the
transaction, P cannot sue for rescission or damages
Negligent misrepresentation made outside of the K is protected by the exculpatory clause
(Hayward)
Negligent misrepresentation made inside K (or with no assent to clause) gives rise to
rescission and damages

Also- Condition (that is fundamental to the agreement)- P has right to rescind (or not, if
they don’t want to) and sue for damages (Fraser-Reid)

Inominant term is one that cannot immediately be characterized as warranty or condition
based on the term
    This is a question of fact to be determined on a case-by-case basis based on the
       parties’ intentions (Keen)

Waxman
Offer for hotel conditional on V’s assurance that the sale of beer exceeds a certain
amount
Didn’t exceed this amount, but V thought it did
Later says it’s not, refuses to allow an abatement, P closed then sued for damages

Were the words a condition, warranty or representation

Court found this was a mere representation (so innocent misrepresentation)- says P could
have rescinded before closing if they wanted, but they could not sue for damages after
closing
     of course, you can only rescind if the misrepresentation is made inside the K
        regarding a material fact

Parna
Clause in agreement said “subject to satisfactory evidence being provided about accuracy
of statements regarding income and expenses”

Vs had not made accurate representations- after closing, Ps realize income was less and
expenses were greater than they had been led to believe
                                                                                           30



CA says you can’t look at what P would have paid had statement been true- this is not the
proper measure of damages
Instead, you put P in same position they would have been in had the representation had
not been made at all
     Here P gets damages, but less than they would have had CA used the first method
       of calculating damages

SCC- defines fraudulent misrepresentation- fraud is a false representation made with a
knowledge of its falsehood, or recklessly without belief in its truth, with the intention that
it should be acted upon by the complaining party, and actually inducing him to act upon it
      so P had to (reasonably) rely on the statement, and had to have been induced to
        buy by that statement

SCC says P should have figured out the statements’ falsehood, didn’t rely on them,
wasn’t induced to buy because of them
    even though V knew statements were false, P’s reliance on the statement was
       unreasonable- so no damages
           o remember that “reasonability” is a subjective standard- here, P should
              have figured out falsehood because he was a “shrewd businessman”-
              another person might have been reasonable in relying on them

Olsen
A placed ad in newspaper saying property was a modern dairy farm which produced
approx. 1 million pounds per year- but P didn’t know that government had passed
regulation that if there was transfer of milk quota to a non-family member, quota would
be reduced by 25%
V knew about this, A didn’t
P finds out later, sues V’s A for negligent misrepresentation
P sues V for fraudulent misrepresentation

Did listing agent have duty of care towards P- must show duty of care (because there is
no contractual relationship in this case), that misrepresentation was negligent, that P
relied on misrepresentation
     obviously As cannot be protected by the exculpatory provision (there wasn’t one
        in this case anyway), as they are not party to the agreement

Court found milk quota was a material factor, as was the 25% reduction
There was sufficient recklessness on part of the V for misrepresentation to be fraudulent-
P relied on representation and it induced him into the K

Court- as usual in real estate cases, negligence is determined subjectively- agent held
herself out to be an expert in farm transaction- so her misrepresentation was negligent,
she had duty of care towards P
     an A who was not an expert in farm transaction would not have had a duty of care
                                                                                          31


Hayward
V said farm had 65 workable measures- V had never actually measured farm- only 52
workable acres
Exculpatory provision in agreement- so if P is going to be successful, must prove fraud

CA found this was not fraudulent- it was negligent representation (or maybe even
innocent)- made without personal knowledge, but relying on what he had been told (by
his father and grandfather)
Court- P would be entitled to damages, if not for the disclaimer clause (because statement
was made outside the K)

Semkuley
Property required a rezoning to have it turned into a fourplex- V tells A it will be no
problem doing this- A tells this to P
Applications to do this fail- P sues A
There is an exculpatory provision in APS

Court found A merely giving an opinion- she made it in good faith- Ps could not have
reasonably believed that she was in a better position than they to know about rezoning-
not reasonable to rely on these statements
Reasonable person (again, must look at specific circumstances and people) would have
regarded these as expressions of opinion- A did not hold herself out as having special
skill

Patay
P has lung problem, tells A she needs to live in a clean-air environment
A knew there were a number of landfill sites in area, including one that might go directly
across property
A didn’t disclose potential landfill site- said this property was good for clean country air

Before closing, P finds out potential landfill ran across this property
There is an exculpatory clause, so P must prove fraud to get out of agreement
But Ps refused to close transaction (they should have closed (they were legally obligated
to do so of course), then sued A for fraud)- so V sues Ps- they settle
P sues A (and listing agent)

P’s agents liable for negligence

Listing agent claimed he had no obligation towards P
But court says P specifically told A they were looking for a healthy property
A had duty to disclose all pertinent health-related information- A misled P as to character
and nature of the property- so liable for fraudulent misrepresentation (so V would also
have been liable had P sued him)

The agents’ obligations must be viewed with regard to the special circumstances
                                                                                         32


Roberts
P bought condo unit that was advertised as having maximum soundproofing between
homes- this was not true
After closing, P complained of intolerable noise
There was exculpatory clause

Fraud not proven
Court said this was negligent misrepresentation which induced P to enter into the
agreement

P had no independent legal advice, disclaimer clause not drawn to her attention- so
disclaimer clause not binding on the P, and V was responsible for damages

Beer
CA- Purchase of new condo
There is exculpatory clause- but Ps were rushed into signing APS, convinced they had to
do so immediately

V sues Ps for rescission- many of them backed out because market was in decline

CA- some of the Ps did not assent to the exculpatory clause- were inexperienced buyers,
clause was in fine print, not drawn to their attention
     also because of their inexperience, their reliance on the representations was
       reasonable
     So these Ps were entitled to rescind (because there was a negligent
       misrepresentation- A made it seem like there was a scarcity, prices would never
       come down)

As for the others, CA finds they should not have been induced into the contract by the
A’s representations

Can you sue for negligent misrepresentation outside the K? CA says that even if you
assented to clause, you may be able to sue in tort- so this is questioning Hayward

ADT Security
Rather than paying premiums, owner of jewellery store entered into K with security
company- alarm button was triggered, nobody from company responds, robbers are
successful

ADT security argues the most they are responsible is one year’s premiums (there was
clause in K that said this would be so in case of a breach)

CA- in the absence of fraud or misrepresentation, person is bound by agreement to which
he has put his signature, whether he has read it or not
     failure to read K is not a legally acceptable basis for refusing to abide by it
                                                                                           33


      limitation provision was actually highlighted in bold, black letters (unlike Beer or
       Roberts)- language was clear and unambiguous- signer didn’t have a lawyer, but
       nothing was done to mislead or pressure signers (thus this case is distinguishable
       from Beer)

Burrows
V selling roller rink- produced financial statements for business from first four months
(in which it was profitable)
Claimed business was profitable- but didn’t disclose that after the first four months
business began to slow significantly

P’s lawyer recommends he doesn’t close- but he does, even though by this time he knows
business is going bad- because he doesn’t want V to sue him

CA- once P knew of the fraud, but closed anyway, the fraud was “spent”- the
inducements arising from the fraudulent misrepresentations did not continue
    Rose doesn’t really agree with this decision- thinks court should have awarded
      damages but not rescission, like in Cubukgil

Cubukgil
If you know of a fraud then close, you can’t sue for rescission- but you can sue for
damages- because you might not know the extent of the fraud

Warranties
Warranty- statement that is collateral to the main agreement- in case of a breach, P cannot
rescind before closing, but after closing can sue for damages for breach of warranty
(except in merger deals)

Fraser-Reid
Merger = if there are any collateral warranties that are made in an agreement, those
warranties merge (i.e. are eliminated) on the closing

Clause in agreement that said “provided V has disclosed all outstanding infractions and
work orders”
Court calls this a warranty

After closing, P finds that tiles in house not installed properly
Did the above warranty merge with the agreement?

SCC- “warranty is a term in a K that does not go to the root of the agreement between the
parties but simply expresses some lesser obligation, of which the failure to perform can
give rise to an action for damages after closing but never the right to rescind”

Where agreement creates rights, or imposes obligations or stipulations collateral to the
conveyance of property, the question of whether those stipulations are to be extinguished
by merger depends on the intent of the parties
                                                                                          34


      so it’s always a good idea to put your intention down in writing so courts don’t
       have to guess

Court says there was never an intention to merge here- wouldn’t make sense to put in a
warranty then eliminate it- so P can get damages

Alves
After closing, P finds out driveway encroaches on the property- even though V signed
document saying this was not the case

Court says it’s a warranty- but it merged upon closing

Said P could have found out about encroachment before closing- could have put in
writing that warranty would not merge- or asked for an up-to-date survey before closing
     Ps were real estate agents, knew about surveys, so they should have known to do
       these things

Scholl
Formaldehyde was in homes- listing agent told P there was none
P suggested putting a clause in the agreement, listing agent was offended, said it was
unnecessary
P finds out formaldehyde is in home after closing
Exculpatory provision in APS

Exculpatory clause does not protect V from liability when their A makes fraudulent
misrepresentation (even when V doesn’t know about the fraudulent misrepresentations)
    By contrast, V’s are not liable for their A’s negligent misrepresentations if they
       don’t know about the statements- but if they do know of them, then they are
       liable, perhaps for fraud (as in Olsen)

So V liable for fraud to P- V then cross-claims against the A

DeMichele
Court found statement there was no formaldehyde was a warranty, did not merge
V responsible for A’s fraudulent statement (even though he wasn’t aware of it)

Glasner
P put in a clause that V warrants that building does not and has never contained
formaldehyde

V knew that at one time property had contained formaldehyde, but not anymore

V told A to draw up a new agreement- this only warranted that the building does not now
contain formaldehyde
P didn’t notice change, signed the agreement
Then A told P about the change, against V’s wishes- P wanted to back out
                                                                                            35


      court said A shouldn’t have disobeyed V’s instructions- should have simply told
       V she could no longer act for him, walked away from transaction before APS was
       signed
           o one good way for an agent or lawyer to get out of this situation without
               losing a client is to simply tell them doing this would be unwise because
               they will be held liable if their ruse is discovered

Court said presence of formaldehyde was material to the P

When an important amendment is being made, the knowledge of this amendment must
come to the other side- signer must be given a real opportunity to appreciate the change
(if they still don’t notice it because they are obtuse, or there lawyer screws up, then that is
their problem)

Equity will relieve against performance of a K obtained by a party who knew the other
side was under a unilateral mistake regarding a material fact, and took advantage of this
mistake
     equity will relieve against performance when one party knows or ought to of the
       other’s mistake regarding a fundamental term, but remains silent regarding the
       mistaken terms

In this case P obviously gets to rescind K

John Levy
You are responsible even for innocent breaches of warranty- but what if you say, “to the
best of my knowledge”?

V bought land, soon after decides to resell it at a profit
P inserted clause that there are not now nor will be at the time of closing that there are no
contaminated materials on the property

V didn’t really know because he only owned property for a short time
V put in clause that said, “to the best of this knowledge”, there are not now nor will be at
the time of closing that there are no contaminated materials on the property

P closed- then found out there was material that contaminated the property

Court said clause only placed duty on V to disclose contaminants it knew of- did not
place duty on V to make inquiries or tests to determine the existence of contaminants- not
an absolute warranty, only “to the best of his knowledge?

P not entitled to rescind
    P should have made V change the wording of the clause, or put in a condition on
       there being no contaminants- Prof says it’s much better to rely on conditions than
       warranties- can rescind K instead of closing than suing to damages
                                                                                             36


Jorian Properties
Clause said “V warrants to P that premises were a fiveplex”- V honestly thought this was
true- turned out property was zone as a triplex (so P can only rent out three instead of five
comes)

Was this clause a warranty or condition?

CA says mere use of a technical word should not obscure clause’s true nature- so this
clause is not necessarily a warranty just because APS calls it a warranty- what parties call
it is only prima facie evidence, a rebuttable presumption, as to what it truly is

Majority said clause was a warranty- P wanted the building, got the building- although
there is less rental income than bargained for, it was the specific property the P wanted,
not a precise amount of rental income- court said he could sue for these damages under
breach of warranty

Jonert
Sale and lease-back- owner of property sells building, then leases some or part of it back
from buyer

Here, Rothmans was selling property and was going to lease back part of it
Clause said, “V warrants this property has never contained asbestos- provisions of this
clause will not merge on closing”

P finds out it does contain asbestos- doesn’t want to close- also doesn’t want to close
because it doesn’t like the lease agreement proposed by Rothmans (R will be fumigating
building every month)

Was the clause a condition or warranty?

Court found this was a warranty- didn’t really say why- court said P was not entitled to
tell V to remove the asbestos, as they were trying to do
But Rothmans was wrong with its unreasonable lease- so overall the APS is void despite
the fact that clause was a warranty
This was actually good for Rothmans, because the property had risen in value

Rinzema
P buys house
Work must be finished by closing date- it wasn’t, P didn’t want to close

Court said that it was V’s fault work wasn’t finished- but P never obtained an estimate as
to the cost of repairs- P wasn’t able to show that the cost of repairs would be a strain on
the financial investment
     So this was a warranty rather than a condition
                                                                                             37


Note: it’s often a good idea for P to close, instead of not closing and then attempting to
sue for damages- because then you’re exposed, if court finds it’s a warranty and other
party sells, you get nothing- or maybe too little damages to even cover legal costs
Not worth going to court then not being able to prove clause is a condition
But if you have a strong case that clause is a condition, then don’t close

Hyrsky
Error in substantialibus- this is rare, happens in cases where there is a mutual mistake
regarding something that goes to the heart of the K
P and V were unsophisticated- both believed property to have 160 depth- 4 years after
closing P does survey, finds out depth is only 84

Court said there is an error in substantialibus (a virtual (not total) failure of
consideration)- i.e. difference between what he thought is received and what he did
receive is so great as to constitute a virtual failure of consideration- would not have
entered into K had he known of the discrepancy
     EIS usually involve quantities of land

P had ample opportunity to inquire, elected to close
But notwithstanding need for certainty in law of conveyancing, this policy consideration
must yield to desire of doing equity where there has been an EIS- so P entitled to
rescission

Kiani
Both parties thought license could be automatically transferred but after closing, P found
out about regulation that said license couldn’t be transferred

What P received after closing, an unlicensed and quotaless chicken farm was
substantially different than the licensed chicken farm which they thought they bought
    Exclusion clause does not cover error in substantialibus, P wins- no intention of
       merger on behalf of the parties

John Bosworth
P’s lawyer, started searching very late and, after making some phone calls, was told that
the land was zoned industrially and thus closes the transaction
When P tries to resell, lawyer finds out land wasn’t zoned for industrial use because a
bylaw had been turned down

Court said this was not an EIS, as P got consideration (the property), and the actual state
of the zoning could have been readily ascertained by researching the property
     Parties were sophisticated and were represented by lawyers
     Simply because P or P’s solicitor failed to pursue the standard investigation
        required to determine zoning is not sufficient reason to roll back the completed
        real estate transaction- rescission due to EIS will only be granted in limited
        circumstances
     Also, conditions merged in this case
                                                                                               38



Mariani
P buys home that was built by V (who had also lived in it)
Listing Agreement called the house-well built, but P didn’t see or rely on this LA
House had many defects

Just because V is the builder, there is no legal principle to support the finding that, as a
builder, he is deemed or presumed to know of defects in the structure
     but if the V is the builder, V is liable for the defective construction that renders
        the pp dangerous
     so unlike when V is not the builder, P only has to show that the defect was
        dangerous, but not that the V knew it was dangerous

Chapman
Knowledgeable P- The sketch is in the agreement saying that it has a floor area of 2688
square feet- upon inspection, finds it only has 2166 square feet- there is an exculpatory
provision in the agreement

Court finds this is a negligent misrepresentation (so P can sue after closing)- P gets
damages ((2688-2166) * (price he paid per square foot))
    Architects had warned the builder that, due to changes in construction, the square
        footage may have changed
    Exculpatory clause doesn’t apply because the sketch was in the agreement
        (Hayword)

DiVincenzo
Property was actually less square feet that was originally discussed
But nothing was said in APS regarding square footage of the property (no sketch included
in agreement)
Discovered shortage in square feet after closing transaction

P not successful
    V didn’t make any representations before closing
    Sale wasn’t made on basis of price/square foot but was a lump sum for the whole
        property


Keen
Ps learned that several steps would have to be added to the home that were not initially
contemplated- refused to close as this wasn’t their “dream home”

P gets rescission and a refund of their deposit
    Although V had the right to change the house, the changes that were made
        amounted to a fundamental breach of the k
                                                                                          39


           o To determine this, Court looked at the artists’ renderings, the verbal
             assurances and the fact that P wanted to build dream home (although
             normally saying this would not be a good argument)

Exculpatory clause did not save builder. They knew changes might have to be made even
before the agreement was signed and thus it would be unfair to allow them to rely on
exclusionary clause

Town Woods
P wanted a corner lot (and paid premium for it) with double door front entry- This was
written in the agreement
P enters into APS, later discovers it only has single door entry
P refused to close and argued that this was supposed to be their “dream home”

P not entitled to rescission
    Court found difficulty regarding Ps’ credibility (felt the declining market was the
       real reason the P didn’t want to close)

Court said the breach was not so fundamental as to entitled Ps to recission
    In this case, the Court applied the same legal principle as in Keen, but found the
       change was not fundamental, as it was in Keen

Israel
Plan showed full solarium of 7’2” by 12’3”- it was actually 4’5” by 7’1”- Ps refused to
close
Ps needed large solarium to accommodate his large extended family

There was an exclusionary clause in agreement saying “room sizes and specifications are
subject to change w/o notice. All room sizes are approximate”

P was not entitled to rescind, V got damages
Dimensions of the solarium were not a fundamental element of the agreement
Not a fundamental breach- again, Court felt the declining market was the real reason
behind Ps refusal to close
    Court will assess P’s credibility both subjectively and objectively

Grinberg
Brochures show 23 windows- actually 14 windows

Using both a subjective and objective standard, this misrepresentation was a fundamental
breach- P would not have purchased home had the known the true number of windows-
builder knew or should have known this was a material factor

Exculpatory clause didn’t really contemplate variations of this significance- even if it did,
it wasn’t brought to P’s attention and P didn’t assent to it (whether V needs to do this
depends on circumstances, i.e. whether or not P is sophisticated or has representation)
                                                                                           40



Court didn’t really examine market in this case

Wemyss
P tells A they want to be able to rescind if there is a problem with the septic tank
APS says that P can rescind if there is a problem that is structural in nature with the septic
tank- clause is not hidden, P’s A sees it but doesn’t tell P

There is a problem with the septic tank but it is not structural- P refuses to close, V won’t
let him- P sues A

Agent liable to P for damages (P’s lost deposit)
    When there are any changes to the agreement agent/lawyer should not only point
       it out to client but have to explain the meaning of those changes- A did neither of
       these things

Agent/lawyer has a duty to act with reasonable care and skill when reviewing a clause
with their client
    Duty includes the obligation to specifically draw to clients’ attention any clauses
       that are contrary to clients’ interests or instructions
    This duty is not circumvented by the fact that the client failed to read the
       agreement. Agent/lawyers are professionals and clients rely on their expertise

Swayze
P closed, discovered there was a significant leak in the basement
Ps had retained building inspector, who told them he suspected there had been some
water leakage

V and V’s A told P there was no leakage- turns out that V knew there was a leak

P entitled to damages for fraud- because the defect was dangerous or could render the
premises unfit for habitation (and thus V had obligation to disclose), and P relied on the
statements
     “unfit for habitation”- Court says whole residence doesn’t have to be rendered
        uninhabitable- must use a common sense approach based on the facts of each case
     look at: has defect caused any loss of use, occupation or enjoyment of any
        meaningful or material portion of the property that results in a loss of enjoyment
        of the property as a whole
     leak resulted in total loss of use of basement, which was an important feature to
        the enjoyment and occupation of the home as a whole- home was meant for
        family use
     leak also represented health and safety hazard


Does fraud of tort trump contract law? Court says no in recent case
                                                                                           41


      P bought property “as is”, but there is more contamination then P was led to
       believe– Court says V didn’t hide anything, agreement told P not to rely on
       anything V said
      But we don’t know if tort would trump contract if there was fraud in this case-
       Prof thinks no- P still didn’t rely on the statements

Fea Investments
Sale of income property
Agreement said if there was a breach of a warranty (i.e. statements regarding the amount
of income), P would only be entitled to rescission

P closed, found out warranties were untrue- wanted damages
Court said the exclusionary clause limiting liability didn’t apply to fraud, even though P
agreed to it, and P could get damages

Shelanu
Exclusionary clause in a franchise agreement- reasoning also applies to RE cases
Court said you can refuse to apply exclusionary clauses where to do so would be
unconscionable, unfair, unreasonable or otherwise contrary to public policy
    so perhaps you can use this reasoning where there is no fraud (probably no need
       to use this argument if there is fraud)

OBLIGATIONS OF A SOLICITOR
Strategeas
Demolition or sale clause gives landlord right to terminate a lease prior to termination
date in the event landlord wants to demolish building or sell the property

V who was selling business also owner of property- negotiates lease with P

APS said lease would be drawn up “in the usual form”
V’s lawyer charged with drawing up standard lease- include D or S clause
P’s lawyer had opportunity to review lease prior to closing- he didn’t look at the printed
version of the lease

In the middle of the lease, landlord tells P he is terminating lease

Court said P’s lawyer was negligent in not reviewing the lease
Court said V and V’s lawyer should have known the P and the P’s lawyer were making a
mistake- they had a duty to point out the D or S clause, as it made the K very different
than what the P thought he was signing

Court applies rectification principle- a remedy available where there has been a mistake
    rectification aimed at bringing document into harmony with what it was intended
       to be pursuant to a prior agreement- occurs when a mistake was made in the
       wording of the final contract, altering the effect in whole or in part of the K- court
                                                                                              42


       alters K in accordance with the evidence, so that it reflects the “real deal” the
       parties made

Performance Industries
Sale of golf course
V had option to buy a parcel of land at 480 by 110 yards- but the agreement said “feet”
not “yards”- P noticed this

SCC orders rectification- court says there is usually little scope for rectification- usually
courts will not correct mistakes because parties have an obligation to be careful
(especially when they are sophisticated and have representation)
     rectification is available for unilateral mistake (as in this case)
     rectification is an equitable remedy whose purpose is to not allow conduct in a
       manner similar to fraud- although you don’t have to prove fraud, mistake can be
       innocent
     Onus on party seeking rectification to establish that terms agreed to orally were
       not written down properly- party must also establish what the “real deal” was, and
       court will rectify K to meet this
     High threshold for rectification, as court doesn’t want to open floodgates for
       people dissatisfied with K
     As in the previous case, a party’s negligence will not preclude rectification

Fram
Agreement conditional on V registering plan of subdivision- P and V have option to
extend date of closing by six months- in case value of land goes up or down- V tells
lawyer to extend closing date, she types up letter but secretary forgets to send it until a
few days later

Was lawyer negligent? Yes, should have gone to greater lengths to ensure notice was
sent- i.e. sent by courier instead of faxed, called P to ensure they received notice, etc.
     lawyers must be very careful with items that are time-sensitive

Wong
Lawyer didn’t receive APS until after it was signed
Warranty regarding property income was false
V had no assets- so P sued her lawyer- claimed lawyer should have negotiated regarding
the warranty- i.e. gotten collateral security in exchange for the warranty

Trial judge ruled in favour of P
     but this is strange reasoning- essentially telling lawyer to commit an anticipatory
        breach (to refuse to close unless they get something that is not in the K)

Obviously if the was consulted before the APS was signed, he should have asked P if he
wanted to get security, informed P of risk of not getting security, etc.
                                                                                              43


CA- should always ask: what is the retainer of the lawyer? i.e. was he expected to give
business as well as legal advice, etc.?
    in this case, retained was simply to close transaction- deal had already been
       signed, lawyer’s retainer as not to negotiate deal- so lawyer not negligent
    in practice, to be safe lawyer should still warn about the dangers of not having
       security

Enns
APS already signed- P’s lawyer felt he had no choice but to close- obviously by closing
P’s exposure was worse than if they hadn’t

Court said solicitor has a duty to warn a client in the risk involved in a course of action
contemplated by the client- if P would not have taken the risk has he been warned,
solicitor is liable (as he was in this case)
     finding of bad faith not necessary
     if you hold yourself out as a competent practitioner, cannot be excused by a
        legitimate lack of professional skill or experience
     lawyers should explain both the risk of closing and the risk of not closing

Elcano Acceptance
Lawyer asked to renew promissory notes right away

In any contract, you must express any interest in terms of an annual rate- lawyer didn’t
know this, didn’t do this

Lawyer was at fault, court said it doesn’t matter that he was in a rush

Reilly
Limited retainer- client only wants lawyer to do certain parts of a job (to save money on
fees), not everything that needs to be done
     if client later claims lawyer should have done what was not part of his retainer,
        onus is on lawyer to prove the task in question was not part of his retainer

Lawyer (who had excellent reputation) didn’t search legality of the rents- lawyer claimed
there was a LR, claimed client said they would do this

Court found lawyer liable- there was no LR
    There was nothing in writing regarding a LR- so lawyers should always get LRs
       in writing
    Even in the cases of an LR, in your reporting letter (after you have finished your
       task) to client, lawyers should always mention anything unusual, even if this
       doesn’t deal directly with your retainer- lawyer didn’t do this
    Lawyers must always discuss the risk of closing and not closing with their client-
       even if you think the agreement is a done deal, or if this is not part of your
       retainer- lawyer didn’t do this
                                                                                          44


      Even if it was an LR, lawyer may have been negligent in not advising the client of
       the risk of an LR

Yamada
Case creates the minimum of lawyers’ obligations

Should lawyer have asked for ID in a mortgage deal? Court says yes
    “Lawyer must take reasonable steps to protect party he is serving”

Rose thinks this put too heavy an onus at a time when fraud was uncommon- but now,
simply asking for ID will almost certainly not prevent fraud- now, we should ask for ID,
but also take further steps to ensure legitimacy

Robinson
Husband forges wife’s name, takes out mortgage on property
They are working on reconciliation, so wife asks lawyer not to report husband

Husband and wife separate again, bank makes her pay because by not reporting the fraud
because she consented to it- Court agrees with the bank

Lawyer wasn’t sued, but could possibly have been held liable for not explaining the risk
of not reporting the husband

Harela
P asked lawyer if clause that was conditional on a building permit was satisfactory
P got building permit, but couldn’t build the cottage the way he wanted to (i.e. difficulties
with the exact location, etc.)- sued lawyer

Court says lawyer should have inquired as to the client’s specific intentions and then
carried out these intentions- i.e. by investigating the specific factors important to the
client
     otherwise, there is an unreasonable demand on the client that they should know
        what the lawyer ought to do
     lawyers should investigate all the zoning implications, and then tell client of any
        problems that could arise- always get as much information from (and for) your
        client as possible

Turi
Unsophisticated, high-risk client- lawyer retained to incorporate a company for client
Company went broke- one creditor sued owner personally, wins- because he didn’t use
the word “limited” in his orders to that creditor

Client then sues lawyer for not telling him to use the word “limited” in his orders to avoid
personal liability
                                                                                         45


Lawyer has notes showing he advised client to do so- but notes did not show that he told
client of the consequences of not using the proper words
     lawyer claims he advised of the consequences too- but court finds that because
        this is not in the note, he never advised of this- lawyer did not take reasonable
        efforts to advise client of the risk- again, make notes on everything
            o court says even if he did explain it, this may not be enough- should have
                 explained it then sent a memo in writing
     Rose thinks this is a very high standard- telling clients of consequences of not
        following your instructions is like treating your client as your enemy, especially
        as you may be doing so simply to cover your back

Court says sophistication or level of risk of client can affect the standard of care


Objections to Title and Rescission Clause
Clause sets out time limit in which you must set out any requisitions on title (here you are
investigating title, searches must be completed before requisition date)
    must submit letter of requisitions within time set out by this provision- if not, P is
        deemed to have accepted the title, save for any objection going “to the root of
        title”
             o “to the root of title”- a total failure of consideration, as the P would
                receive nothing at all- not even possession of property
             o i.e. Planning Act violation, encroachment (even if you only encroach a
                few inches onto adjoining property, the owner of that property can have
                your whole building razed) are valid requisitions- however, recently some
                courts have found that minor encroachments are not a valid requisition, so
                long as they don’t materially affect the “use and enjoyment of the
                property” (Goldenberg)
    clause says deal falls through if there are any outstanding titles- P’s lawyer will
        get this clause struck out
    V must make reasonable, genuine efforts to satisfy requisition (Mason v
        Freedman)- if not, P will have a right to get out of the APS and obtain damages
        (this obviously includes the higher value of the property, if the reason the V
        doesn’t want to sell is because the property value had gone up)
             o The clause says V doesn’t have to if he is “unwilling” or “unable”- but
                according to Mason and Mink, can’t just refuse to do it
             o but in Koccoris, husband would have had to pay his wife tons of money to
                sign- obviously he was able to do this, but his unwillingness was
                reasonable- he made reasonable efforts

Outstanding mortgages are a matter of conveyance (matters of title which are within the
control of the V to address)

Requisitions for zoning problems with by-laws must be made within the time limit
                                                                                             46


Requisitions for rights of way (right to use part of property) must be made within the time
limit- again if you don’t, only a valid requisition if it materially affects “use and
enjoyment” of property

Title Insurance- Insures you for a certain amount of searches- you don’t have to make
searches that you would normally have to make- Title insurance company will not sue
clients if they do perform the search but make a mistake (they will still protect against
this- i.e. pay you the value of the property you lost, or pay whatever needs to be paid to
rectify the problem [up to a certain amount of course])- for residential property, title
insurance companies will also protect against problems with fraud, identity theft


Easements
Requisitions for easements must also be made within the time limit- again if you don’t,
must see if easement materially affects “use and enjoyment” of property
    easement = Right to use land (which you don’t own) in a particular manner, or to
       prevent the owner of the land from using his land in a particular way (negative
       easement)

Stefanovska
Easement affected as a small and insignificant portion of the entire lot- did not affect “use
and enjoyment” of land- it only affected expensive landscaping, owner could still plant
flowers as she desired
     materiality of the affect of the easement is to be viewed mainly on an objective
       basis, but the subjective desires of the owner must also be taken into account- i.e.
       they have children, etc.
     but subjective views that are deemed to be capricious, or contrived to avoid
       contractual obligations, will be ignored


Description of Land
Le Mesurier
CA said shortfall of area of land was 12 feet, or 1.6% of the total property- objectively
the loss was trivial, not material- not a valid requisition
     P had said “maybe” this would affect their ability to get a garage- but they didn’t
        even try to get a garage
     P got substantially what she contracted for
     Vs and Ps owe a duty to each other to perform a K honestly made- shouldn’t try
        to get out of a transaction on a technicality


Mortgages
Sale Price – Deposit + reimbursement to V on the prepaid taxes that are actually P’s duty
to pay (because V pays taxes for the whole year, but if P will own house starting in Nov
then he owes V two month’s worth of taxes) = balance due on closing
                                                                                          47


When you sell a house with a mortgage of $180K on it- you can pay off mortgage then
sell house
     but if mortgage is a closed mortgage, there is no right to pay it off in advance,
        unless you pay a steep pre-payment penalty
     or maybe mortgage rates are less than market rate- so V won’t want to go out and
        raise money to pay off the mortgage

Or P can assume the mortgage- so balance due on closing is the same as above, but minus
the cost of the outstanding mortgage
Sometimes, if the P is short, V will reduce the up-front purchase price, P takes out a
second mortgage (from the V, not the bank) as security that he will pay the difference
(this second mortgage would be more risky than the first)

V has mortgage- instead of assuming the mortgage, P can send a letter of requisitions
requiring a disposition of the mortgage- Before V didn’t have to requisition mortgage
within the time limit, just promise to do so- McFadden changed this
    often funds are made payable to the law firm, who then undertake to discharge the
        mortgage

McFadden
After sending a letter of requisition, P is entitled to get the actual discharge of the
mortgage, not just a personal guarantee of the discharge

Polischuk
V’s lawyer accepts funds, gave undertaking to pay off mortgage, then died
So P now has a mortgage on the property- law firm would not pay it off because the dead
lawyer had behaved fraudulently, kept funds for himself
    obviously he can’t sue V, as he was not the one who promised to pay off the V

So P sues his own lawyer for accepting V’s lawyers undertaking, despite the fact that this
was standard practice at the time

CA- lawyer should have used a different method to close this transaction- if P really
wanted to close this transaction (and was not using the requisition as an excuse to get out,
as many people do), P could have directly paid the mortgagee, then paid the V that much
less- this has now become the main way of doing things, instead of sending V a letter of
requisition- by signing the standard agreement, P is contractually agreeing to accept this
instead of a discharge
     although lawyer met current standard of care, court said that they thought the
         standard of care was wrong, and thus lawyer could be held liable


Time Provisions and Tender
“Time is of the essence”- time is important, can’t simply shrug off deadlines
                                                                                            48


      Closing date is contractually agreed upon by both parties- but if neither party was
       “ready, willing and able”, the deal is not automatically off- one party can reinstate
       the transaction by contacting the other party and setting up a new closing date
      In practice, deals often do not close on time

Batson
Discharge of mortgage must be registered on or before closing
V has discharge on date of closing- but it was sent to V in escro (where document is
given to a third party, to be held on certain terms and conditions)- V asked for P’s
undertaking that he would close if V registered discharge- P refused, tried to get out of
transaction on grounds of time is of the essence

Court said- V had every right to ask for P’s undertaking- his refusal to do this showed
that he was not ready, willing and able- V gets damages

Koffman
P of residential property
Search of executions- P searches to see if there are judgments registered against the V-
because this would bind the land

P sees there is an execution against a very similar name to the V- P wants to get out of
deal
P asks for a requisition right before the closing of the deal- obviously V cannot satisfy- P
tries to get out based on time is of the essence

Court said you can’t “lie in the weeds”= P’s lawyer set a trap for the other party (by
taking out the clause that say P will accept direct payment of mortgagee instead of
requisition) by asking for something he knew V couldn’t do by the deadline- so P can’t
get out of deal

King
Where time is of the essence, but neither party is ready, willing and able to close, then the
agreement is not void


You need a mortgage statement (statement by mortgagee saying how much is required to
pay off the mortgage) if someone is going to assume the mortgage

Heck
P was going to assume a mortgage, but lawyer never requisitioned a mortgage statement
V gave him a statutory declaration instead

CA said that because P never asked for a mortgage statement, a statutory declaration is
good enough- are not entitled to a mortgage statement

272393 Ontario
                                                                                           49


If P requisitioned a mortgage statement, it is entitled to one on closing
If V does not produce it, V is not ready, willing and able to close, and thus P can get out
of transaction if they want

Fancsali
A domino series of transactions- when one defaults, the other transactions also collapse
(Ps can’t pay for new home if they fail to sell their own home)

V doesn’t have discharge- V’s lawyer gives P’s lawyer his undertaking they would have
the discharge
     as he should do, P’s lawyer says he will wait until date of closing to decide if he
        will accept undertaking (because then he will know if client wants to close or
        needs leverage to get out of the transaction)- in this case P didn’t want to close to
        his lawyer didn’t accept
            o V claimed P accepted the discharge beforehand, but he didn’t have this in
                writing
     at closing, V doesn’t have discharge, but P also doesn’t have money ready- so he
        could not get out of the transaction due to King

V then gets discharge, sets a new closing date for three weeks ahead (when you reinstate
an agreement, it must be a “reasonable time”- can’t be within a few days, or a few years)
     this time they had all their documentation ready, P wasn’t ready, V successfully
       sued P

Lucky Dog
V decided they didn’t want to sell property
Agreement provided for an estoppel certificate (document from tenant stating that
everything is ok, landlord has lived up to his obligations- so after P buys, his new tenant
cannot sue him for a leaky roof, etc.)

Tenant sent back the estoppel certificate, refused to sign because there was a problem
with the roof
    Vs decide to hold back this letter until the day before closing- so P must either
       refuse to close or ask for an extension, which would be refuse
    V was not trying to be dishonest- were legitimately looking for a legal way out of
       the deal

Ps eventually decide to close (although arguably they could have refused to close, then
sued based on the claim that failure to disclose the leaky roof was a breach of warranty),
get stuck in traffic, don’t make it to registrar’s office in time- V refuses to close
     Registar’s office closed at 5- however, you have until midnight of the closing date
        to close- so P was still reading, willing and able, V’s refusal to close was an
        anticipatory breach- but court doesn’t concentrate on this

Court said that by asking for a document to which you are not entitled (in this case, P
asked for a release), this often creates an anticipatory breach
                                                                                               50



However, in this case, Vs deliberately orchestrated the failure to close the transaction-
they intended to throw the P into disarray, and did so- again, it was “lying in the weeds”
     in these circumstances, the law precludes the V from the provision of making time
        of the essence
     This and other cases tell us you must avoid “sharp dealing”- there is a fine line,
        but generally you cannot manipulate these (or any other) rules to get out of a
        transaction

Jenkins
V selling contaminated property, P knew this
V all of a sudden wanted an indemnity
Court said this was not in the agreement, P didn’t have to give this document

Citation Realty
Agreement provided that a clean estoppel certificate would be produced
Tenant says everything is ok except for the rook

P says they’re entitled to an abatement- the next day V produces a certificate without
reference to the roof- this is obviously suspicious, P refuses to close (instead of closing
and suing for damages)
     it turned out, V set aside money for tenant to use to fix the roof if P didn’t fix it,
        so long as they signed a clean certificate

Court: Even though V met technical requirements of the certificate were met, V and V’s
lawyer behaved in bad faith (and perhaps even dishonestly)- V because of its conduct
could not rely on time is of the essence
    like Lucky Dog, V deliberately threw P into disarray

Leung
V wants to get out of deal- there was a small technicality in the power of attorney, could
be corrected in a few hours, but not before the registrar’s office closed- V refuses to
close, even though it could be corrected before midnight

Court- unless specifically stated otherwise, parties have until midnight to meet their
obligations
Also- duty to act in good faith to complete the K extends to cases involving minor
omissions and defects- although V hadn’t behaved in bad faith before this, he was trying
to get out of the transaction because the property value had gone up
     can’t take advantage of a minor technicality

Vandervliet
Sale of their own house fell through, must close their purchase of a new house- they are
still able to raise the money, so they are reading, willing and able, even though they don’t
really want to close the transaction
                                                                                            51


Lawyer found a technicality that you needed the town’s consent to transfer the property
    lawyer requisitions this at the last moment, so Vs won’t be able to obtain it by
      closing date- then Ps try to get out of the deal

Lawyer said this was a matter going to the root of title, so he had a right to raise it
whenever he wanted before closing
    Court said no- obligation on parties to act in good faith towards each other- as
      usual, can’t lie in the weeds to spring something on the other side you know they
      won’t be able to meet
    Ps failed to assist in time is of the essence

Damages
The innocent party should be placed in the same position they would have been had
contract been performed

The innocent party has an obligation to mitigate damages

In land transactions, P can also sue for specific performances (give him the house)-
technically, so could V, although this is almost never done
     if you are suing for specific performance, you don’t have a duty to mitigate (even
        if you are suing for both specific performance and damages, assuming you get
        specific performance)
     if you sue for both but the court only awards damages, they will infer that it was a
        mistake to sue for specific performance, and thus your duty to mitigate still begins
        at the date of trial

Vandervliet
Damages: Assessed within the time of the breach or a reasonable time thereafter (i.e. to
see if V will take a loss by selling the property to someone else at a lower press)
     damages can be quite high, given the volatility of the RE market- here, this was a
        $300K sale, and the damages were $166K plus interest (which was a lot because
        the trial ran four years)- including lost deposit, damages, interest and costs, case
        cost P $300K- but now they don’t have the house
            o so sometimes it’s too risky not to close based on a flimsy time is of the
                 essence argument (or any other argument)

Usually you sue for both specific performance and damages- you have a right to change
your mind and only sue for one or the other up until the date of trial
    If you had a right to sue for specific performance, but elect to sue for damages,
       damages can be assessed at the date of trial (not the date of breach)
          o because you don’t have a duty to mitigate until you give up your claim of
              specific performance

Asamerica
SCC- Principle of mitigation should prevail, unless there is a substantial and legitimate
interest represented by specific performance
                                                                                             52


      before a P can rely on a claim to specific performance so as to insulate himself
       from failure to procure alternate property in mitigation of his losses, substantial
       justification to his claim to performance is necessary
      there didn’t use to be this requirement, as the fact that all land is considered
       unique was considered enough

Semelhago
Sopinka- residential property arguably no longer has any unique properties- so shouldn’t
automatically enforce specific performance
     now you have to show there is a legitimate interest in getting specific
      performance
           o you must show damages would be an inadequate remedy
           o must give evidence that property is unique- i.e. a substitute is not readily
               available

1062609 Ontario v. 392602 Ontario
P trying to tie up property by issuing a certificate of pending litigation- because then
nobody else can buy, and thus specific performance will still be available

Court said P’s intent to convert the property to condos was not a sufficient basis for
specific performance- so court did not issue a certificate of pending litigation

Barzec
Court said land was not unique, did not grant a certificate of pending litigation
Purchased for purposes of in vestment, not occupancy
Focus was on loss of profits, which can be compensated by damages

Nothing unique architecturally about the buildings
Location was not unique- it was in a good commercial, but was not “aesthetically
irreplaceable”

11 Suntract
This property was very close to other land owned by the P- P wanted all its land for
development in one place- so it was irreplaceable
    court still said that specific performance should not be an automatic remedy

John Dodge
Property near Wonderland for the use of building a hotel
Here, specific performance was granted- would have been very difficult to replace this
property

Canamed (Stamford)
P buying a medical building, owned another medical building in the area
Found out just before closing that they were not getting a parking lot they were told they
were getting
P was ready to close, but said he would reserve his rights, V refused to close
                                                                                       53



P was entitled to specific performance- having the medical building in close proximity to
the other one would enable certain efficiencies- i.e. having the same maintenance crew

DeFranco
Ps wanted big house for their family that was within their price range
House also had safe area for kids to play outside, was close to parents’ workplaces,
childrens’ schools and relatives

Court- “unique” does not mean one-of-a-kind, something that cannot be duplicated
    awards specific performance

Bowser
There was not a comparable house in the area- specific performance awarded

Kasekas
P didn’t close- because of this, V1 wasn’t able to close on his own housing purchase, and
was sued by the V of that transaction
     so in addition to the regular damages, P also had to pay for the damages that V1
       had to pay to V2, as well as V1’s costs of that trial

Must ask: was it reasonably foreseeable that V would attempt to buy another house?
   usually P will be found to have ought to have known that V would buy another
       house
   P might actually know that V is buying another house- i.e. due to conversations
       they’ve had


Occupier’s Liability Act
Mortimer
Party attendee fell and suffered a serious spinal injury
Occupier must ensure that the premises are reasonably safe

Ekkebus
Plaintiff fell into hot tub
Insurance company paid, then sued previous owners for not complying with by laws (not
putting up a five foot fence around the hot tub)

Court said the current owners are responsible


Defaulted Mortgages- Basic Principles
Mortgagor is borrower, mortgagee is lender
Most mortgages are security to the lender for money advanced to the borrower

Every M has a principal amount
                                                                                           54


A M must be redeemable- there must be a provision saying when the M can be paid off in
full
Every M has a certain term (1, 3, 5 year mortage etc.)
      3 year mortgage has maturity date of three years- at the end of three years the
       whole amount becomes payable
           o The final payment sometimes referred to as a balloon payment
           o In practice, usually the Mor will usually renew the M at the current rate
               instead of paying it all off
      interest can be fixed rate (won’t change) or floating rate
           o floating rates usually start out lower, if they get as high as fixed rates you
               can change it too a fixed rate
                    the problem is that people are often reluctant to change it when
                       they get higher, in the hopes the rate will go back down- but then
                       the rate might keep rising, and by the time you fix it, it has become
                       higher than what you would have had if you had started out with a
                       fixed rate

All mortgages have interest and payments (monthly, yearly, etc.)
     usually monthly for residential mortgages

Interest only loans- all you pay until the maturity date is interest- these are obviously not
great loans
     most residential M’s have blended payments- principal and interest are paid
        together

Amortized M of 5 years- If the same payment was made every month for 5 years, the M
would be paid off

Conventional M- Lender is lending 75% of the value of the property (legislation says
they cannot lend more)

Insured M- M insured by the Canada Mortgage and Housing Corporation- gives bank
right to lend up to 95% of the property
     P would pay big premium to the government to get this kind of M- premium is
        calculated as part of the M
     CMHC insures the bank for any loss in the event of default by the P
            o P’s can always take out their own insurance policy for death and disability

Open mortgage- has a clause that says the Mortgagor has the right to pay any amount or
all of the principal at any time

Closed mortgage- you are only allowed to pay the pre-determined monthly payments
    some Ms say you can pay more than the monthly payments, but you must pay
       three months interest on the additional amounts
    some M’s have a prepayment provision- i.e. a 25% prepayment provision says
       that 25% of the principal can be paid each year without notice
                                                                                              55



Syndicated loans- where mortgage broker or lawyer will raise money from a group of
investors, each investor gets part of each payment

Participation loan- trust companies, but rarely banks, do this- where the mortgagee in
addition to interest, will participate in the income or the increased value of the property
     this is an option when the money is difficult to get for the P

In the event of default, mortgagee can sue on the covenant (the promise to pay)
     if the mortgagor misses a payment, mortgagee can sue for that payment
     every M contains an acceleration clause- say in the event of default, the whole
        amount becomes due and payable
           o Mor should always put in a contractual clause requiring 15 days notice of
                default

Most Ms now have a “do on sale” provision- Mee can say the whole M becomes due and
payable (by the Mor) if Mor wants to sell to a P2 that the Mee doesn’t approve of

Most Mees insert a clause allowing them to cancel any APS between the Mor and the P2.
   if Mor enters into an APS they lose the right to arbitrarily pay arrears

If Mortgagor sells to P2, P2 assumes M, then defaults- Mee can sue Mor and/or P2 (even
though there is no privity of K with P2)- but he cannot get judgment against both, only
one
     if Mee gets judgment against Mor, Mor can then sue P2
     would be suing Mor on the covenant, P2 under the Mortgages Act

If Mee likes P2, they ask him to sign an “assumption agreement” to assume to mortgage-
there is now privity of K between Mee and P2- so Mee can sue P2 if he sells the property
to P3 (and of course can still sue original Mor)- also, Mee can now get judgment against
both the Mor and P2- but if he gets judgment against them, cannot get judgment against
P3, and vice versa
     note that if Mor and P2 are in default for $50K, Mee doesn’t get $50K from each-
        he can get $50K from them jointly and severally, instead of from one or the other
     without this clause Mee could only sue P3 or Mor, but not P2
            o but Mor could still sue P2- because their APS said P2 agreed to assume
                the M- of course, P2 can sue P3 for the same reason
     Mee would still be suing P2 and Mor on the covenant, P3 under the Mortgages
        Act
     A sophisticated Mor may try to negotiate the he will be released from liability if
        he sells the land

All Ms contain a “without prejudice” clause- whether or not extension given by the Mee
to the Mor, and no matter what dealings Mee has with the current owner, this will in no
way prejudice the dealings of the Mee with the Mor- essentially means Mor will always
be on the hook
                                                                                        56



Doctrine of Novation- a trilateral agreement by which an existing K is extinguished and a
new K brought into being in its place- appropriate consideration is the discharge of the
original debt in return for a promise to perform some obligation
     so when P1 renews the M, the original Mor has no more obligations
     this doctrine has not usually been used in Ontario, generally courts find the
        “without prejudice” clause governs- although a few courts have used this
        reasoning

Property is $300K- Mor can only get M for $200K- takes out a second M for$100K- if
Mor is in default, Mee can only sue Mor, not the second Mee- although 1st M has priority
for funds paid off by the Mor
     second Mee could also perform a quit claim- they take over the Mor’s interest in
        the property (so now second Mee is the owner), and in return release Mor from
        the second M- but any experienced Mee will stipulate that in doing so he will not
        assume the first M, will not indemnify the Mor for any of his obligations

Financeamerica
P2 goes into default
Mee sues original Mor- Mor is only responsible for interest on original M, not the M that
was renewed by P2 after the first one became payable

Monarch Trust
Mee sues original Mor- Court says this is ok, Mor’s obligations have not been
extinguished
     court cannot simply step in and alter terms of the Mortgage K
     Mor agreed to the without prejudice clause

National Trust v Fuciarelli
Mor sells to P2, who sells to P3, who defaults
Mee sues Mor (can’t sue P2, P3 has no assets), Mor sues P2 under the APS

TD v Eichelberger
Court said there had been significant changes in the terms of the M (there were two
renewals by P2)
Mee always looked to P2 for payment, gave them warnings about default, renewal
notices, etc- not the Mor

Because of all this there was novation- so Mor not liable

Keir
Mee sues original Guarantors- they sue their lawyer for not explaining they would still be
on the hook after they sold to P2

Court found lawyer liable- did not warn client of risk involved in the proposed course of
action
                                                                                            57


      no matter how well-intentioned he was, did not have right to make decision that
       the transaction should proceed- should have informed guarantors of other possible
       courses of action

Manulife
SCC- clause said guarantor responsible in the event of an extension, not a renewal- so
guarantor was off the hook as this was a renewal
    this is strange because in practice it’s quite difficult to distinguish between an
       extension and a renewal- in practice, such clause would likely say the G is
       responsible in the event of extension or renewal

AGF
Husband forced wife to sign renewal agreement- later went into default, Mee sued
husband and wife for the deficiency

Wife said she wasn’t responsible- court said she was


Interest Act s. 8
Cannot put a term in a M that says if you are in default, your interest rate will go up

Tapio
Says interest is 12%, but if you always pay promptly the interest is 7%- so this uses the
language of a bonus, not a penalty
     Court says this is ok

Weirdale
If full amount is paid before maturity date, Mor doesn’t have to pay any interest
      Mee may want to do this as an inducement for Mor to buy his land
Mor couldn’t pay at this date, Mee said he owed two year’s interest

Court said this was a matter of semantics- s. 8 is concerned with the effect of the
provision- in determining the effect, court cannot take into account fine distinctions
    the real question is: “is this a penalty for not paying on time”
    court says it is, so Mor doesn’t have to pay interest
    now, you can try to argue Tapio, but would probably be unsuccessful

TD Trust v Guinness
Interest rate was 16.5%- One week before maturity the rate was to be changed to 24%

Court said law looks and substance, not form, when deciding what is or is not a penalty

Substance of provision was clearly to extract a higher rate of interest if the M as not paid
by the maturity date
     wording was meant to avoid s. 8- but had the effect of increasing the interest rate
       in the event of default- this was the true intent of the Mee
                                                                                        58



Reliant
Same circumstances and rule as above case- but has now been appealed


Exercising Power of Sale
Mee can issue a “notice of sale” if the Mor has been in default for 15 days- must give
Mor 35 day’s notice
    after this period, Mor has the right to use a self-help remedy and sell the property
    Mor has right to put the M in good standing at any time before the Mee sells the
       property
    if Mee does this, but the value of the property has gone down, the difference
       between the price the Mee got and the amount the Mor owes is the deficiency
    Mee can then sue on the covenant for the deficiency
           o Mee can sue on the covenant either before or after he sells the property
    if, by contrast, there is a surplus due to a rise in property value, this goes to the
       Mor (or P2, if they are current owner)
    If Mee sells the property improperly, Mor can claim there was an “improvident
       sale” (remedy for not getting enough out of the sale)

A notice of power of sale is sent out by registered mail to the Mor (and any other party
who is encumbered by the property, i.e. P2, 2nd Mee)
    both 1st and 2nd Mees have a right to do this
           o When 1st Mee exercises POS, 2nd M is wiped out- 2nd M will still get any
              surplus, can still sue for improvident sale- can also still sue Mor on the
              covenant (but not until that M is on default)- but the new owner will not
              inherit the 2nd M
           o When 2nd Mee exercises POS, it will be difficult for them to sell because
              any sale will be encumbered by the 1st M (any P will have to assume the
              1st M)- of course, 2nd Mee could always pay off the 1st M themselves if
              they think it’s worth it, in the hopes of making a better sale
                   Of course, 2nd Mee can only pay off an open, not closed, M

Arnold v Bronstein
Mor made 3 abortive attempts to refinance after receiving the notice of power of sale
Court- courts should not interfere in a notice of power of sale in all but the most
exceptional cases

General rule- a Mee acting in good faith and without fraud will not be restrained from a
proper exercise of their power of sale, unless Mor pays them the amount due

Here- Mor had not shown exceptional circumstances which would justify a departure
from the prevailing circumstances
    there was only a vague hope that the Mor would find new financial backing

Venpax
                                                                                         59


Mor alleges fraud (regarding the amount of rental income) even before M was in default-
this was a legitimate accusation
Court- there would be irreparable harm to the Mor if property was sold- should not allow
this, given the possibility of fraud- the injunction would be an extraordinary remedy, but
it was appropriate in the circumstances
     In a Vendor take-back there is the right of set off (as long as claims are made in
         good faith)
            o Nowadays, parties often contract out of this right
     If Mor gets damages for misrepresentation at trial, this will be set off against
         Mee’s claim for default

VTB- when V gives P a second M so P can afford to purchase the property- P’s first M
does not cover the cost of the property
    With NPS in a VTB, 1st Mee will issue Notice of Power of Sale to Mor and 2nd
       Mee- 2nd Mee can pay off arrears if he wants, then issue his own NPS

Aitia
Mor under impression lender would lend more money as construction proceeds
Mee was supposed to supervise the construction of the building
Mor defaults- sues Mee, claiming the construction was done improperly

Court grants an injunction- but Mor must pursue its own action expeditiously
    this didn’t really happen- Mor’s claim has still not gone to trial, but the injunction
       still stands
    the reason for this is probably that the Mee had various other forms of security-
       personal guarantees, mortgages on other property, etc.

Windy Ridge
Before 15 days period has expired, Mee issued NPS- demanded costs for the NPS-
refused to grant partial discharges unless costs for the void NPS were paid
Mor paid costs, then sued

Court said Mee had no right to demand increased costs for the improper NPS
    Court awarded Mor $40K in punitive damages

Standard of Care
Mee can never sell to himself, or anyone in his family
Mors will bring actions for improvident sale even in the case of a surplus, if they believe
Mee should have gotten more

Cuckmere
Mor brought action for improvident sale
Mee acted in good faith- but did not act reasonably- so they are liable

Wood v Bank of Nova Scotia
Bank sold property- Mor brought action for improvident sale
                                                                                            60


Property not advertised or listed anywhere
Court- inadequate efforts were made to bring the property to the attention of the market

Bank disregarded rights of Mor- not deliberately, but negligently and carelessly- so It’s
liable- for difference between price and market value
     duty of a Mee to take reasonable care to obtain a proper price
     Once Power of Sale has arisen, Mee can exercise whenever they choose to do so-
         but once you decide to sell, the duty to act reasonably is triggered

Sterne
Property advertised in Hamilton and Milton, but not Toronto
Did Mee exercise reasonable care?

Court- Mee knew or should have known property was a hobby farm- so a more
specialized market like Toronto would be more likely to show interest in the farm
So Mee was negligent in failing to ascertain the true market value, and failing to take the
necessary steps to obtain this market value

Manufacturers Life
Mee listed the property at too low a price
   Mee should have attempted to spruce up the premises before listing the property
   Asking price should have been 5-10% over the price the Mee actually wanted-
       because Ps will try to bargain the price down

Also- Mee sold the property too quickly- could have got a higher price

York Trillium
Mee cannot act too quickly, too slowly, or not at all
Here Mee did not act improvidently- “a bird in the hand is worth two in the bush”- had a
right to accept a perfectly good offer, even though it came very quickly

Lanee
2nd Mee brought action for improvident sale
Mee’s duty does not include responsibility to wait for the best possible offer
Must simply make reasonable efforts to obtain true market value
     here, Mee did not attempt to discover the true market value of the property- i.e.
       never tested it on the open market- so liable to Mor for the deficiency
     onus on Mor to prove what Mee could have gotten

Lay
Sale to other shareholders was not a sale by the Mee to itself- Rose doesn’t really agree
with this

Here, Mee failed to test the waters of saleability of the golf course- in this case, a month
was not enough time for Ps to consider the relevant information
    only token marketing and advertising efforts were made to the public
                                                                                         61



But here, Mor could not prove what the true market value would have been
    so here, the court simply dismissed the claim for the deficiency


Mortgagee Taking Possession
Another remedy for the Mee is to take possession of the Mor’s property- this is easier for
commercial property (i.e. Mee now has rights to the rents) than for residential property-
Mee obviously assumes the obligations as well

Non-disturbance agreement- says as long as you pay rent, Mee will preserve tenant’s
possession
    because in the event of default, Mee has priority over the Mor’s tenants for
       possession
    so if Mor is a landlord of apartments, nothing changes for the tenants- they are
       served with a notice of attornment upon the change of ownership

If Mor is living in a residential home, you can’t simply kick him out as a self-help
remedy- you must issue a claim for possession
     if house is vacant, you can simply go in and take possession of the house- don’t
       need to give notice

Theoretically, the Mee doesn’t have to spend its own money to make repairs to the
property (unless there is a surplus) (Capsule)- obviously there wouldn’t be a surplus if
Mee simply takes possession (unless there was a surplus in income)
    this doesn’t really happen in practice because of the legislation that affects Mees
    income from the property (if there is income) will be put towards the interest on
       the M, and if there is enough, towards the principle

Environmental Protection Act- imposes obligation on possessor of property for
environmental problems
    there are other similar potential liabilities- i.e. Occupier’s Liability Act,
       Residential Protection Act

Mee must still give notice of sale even if it is already in possession

Manufacturers Life
ML took possession of an apartment building

Mors say Mee failed to manage property in a prudent fashion, resulting in a loss of value
in the property when it is sold- sues for deficiency
     remember the Mee can still sell whenever it wants to sell

Court- Mee in possession must act prudently and diligently in the management of the
property
                                                                                              62


      in this case, Mee hired incompetent property managers (they are vicariously
       liable), rarely visited the property, etc.- on the basis of expert evidence this was
       not prudent or diligent management, so Mee is liable
      Mee couldn’t get money for replacing the balconies- because they failed to
       maintain them, which would have been much cheaper than replacing them (the
       Mee was allowed to subtract this lesser amount from the damage award)

Royal Trust
Mor was covering principle, interest, but not their percentage of the realty tax

Court- failure to pay taxes does count as a default

S. 42 of the Mortgages Act
Lee
During the 35 day period you cannot take any action- i.e. cannot issue or serve writs, take
possession, etc.

McKenna
Notice of sale issued- Mee issued writ during redemption period

Purpose of s. 42 is that the Mor shall not be subject to action during the redemption
period- provides Mor with opportunity to correct the default without the additional
concern of having to retain counsel and preparing a statement of defence

But in this case, policy considerations convinced court to use its discretion and give nunc
pro tunc order- Court gave leave to commence the action as if they had waited the correct
amount of time
    here, Mors hadn’t made a payment in over 5 years

Sections 22 and 23 of The Mortgages Act
Section 22- Mor can pay back arrears any time before sale (this means APS, not closing)-
as well as costs of issuing notice of sale
Section 23 deals with actions

Rennie
Mee entered into APS
Mor didn’t know default proceeding has been launched, as he was out of the country- ex-
wife hadn’t told him payments were in arrears

Court found P didn’t know of the default, had a genuine desire to pay the arrears,
demonstrated he had the ability to do so
    in these exceptional circumstances, to do justice the court must depart from the
       normal practice, and thus Mee can’t sell
    obviously this decision isn’t great for the bona fide purchaser- but the court must
       weigh the equities
                                                                                         63


In practice, most Mees selling under power of sale have a clause in the APS saying that if
the Mor puts the M into good standing, the Mee has right to terminate sale with new
purchasers if it so desires- Ps should not agree to this clause

Girard
Mor could pay back arrears after APS but before closing- unsurprisingly, court says Mee
can still sell to new P

Friendly
In Ms, especially when there is a VTB, Mor negotiates a right to renew the M for 5 years
on the same terms- usually say “when Mor is not in default”- or “when Mor has never
been in default”

No limiting words saying “when not in default”- This case says that Mor can renew even
after maturity, assuming an unreasonable amount of time hasn’t passed when there are no
limiting words

Colombine
Mor goes into default, pays arrears, then renews M
    court says this is ok, as clause said “not in default”

Pacella
Clause said “never in default”- Mor has been, but was not when he tried to renew- Mee
refused to allow this- court said this was ok

Prepayments of Mortgage
Knightsbridge
Equity may give relief against contractual terms in a M if they are oppressive or
unconscionable (i.e. unduly long closed Ms, which was the issue in this case)

In this case, there were two sophisticated parties- bargain was not oppressive

Interest Act s. 10
Says same thing as s. 18 of the Mortgages Act, which is the provincial legislation

If Mor is an individual, they can pay off the M any time after 5 years, as long as they pay
an additional 3 months interest (Hone)- whether it is closed or open M
     if an individual and a corporation are co-Mors, this is ok

If a corporation assumes the M, they can pay off the M after 5 years, as long as the M
was initially given to an individual

If a corporation has the original M, then an individual assumes the M, they don’t have the
right to pay off the M

Vale
                                                                                               64


Look at the identity of the Mor- don’t have to investigate further- i.e. in this case a
limited company owned by an individual could not exercise s. 10 rights

Foreclosure- Rules 64-66 of the Mortgages Act
Another remedy for the Mee is foreclosure- in such an action, you must bring a statement
of claim- a court proceeding, not a self-help remedy
     with foreclosure, there is no obligation for Mee to account for surplus (to Mor or
        2nd Mee)
     Mee will foreclose when the property has gone down in value, Mor doesn’t have
        the assets to cover the difference, but the Mee is confident the property will rise in
        value later

Unlike power of sale, notice is sent through the courts, not registered mail

Once Mee obtains order of foreclosure, Mee becomes owner of the property- if they later
sell the property, and there is any surplus, Mee can keep the surplus

Mor or subsequent encumbrancers have a number of remedies to prevent foreclosure
   Mor has the right to put the M into good standing (i.e. pay off arrears) any time
       before the final order- can move for a stay of proceedings to get further time to do
       this
   If Mor doesn’t have the money to pay the arrears and needs more time: Any time
       before the final order is signed, Mor can file a request to redeem (i.e. pay off the
       whole amount)- has 60 days after the accounting (where you determine how much
       is owed) to pay off the M- can also apply for extension, which is usually granted
   Mor can also file a request to sell- forces Mee to sell the property rather than
       foreclosing it (Mor then has right to a surplus)- the only difference between this
       and a regular notice of sale is that the Mee cannot be exposed to an improvident
       sale
            o 2nd Mee will also almost always file a request to sell (or else they will lose
               all their interest, although of course they could sue the Mor on the
               covenant)- so if there will be a surplus, it’s usually a waste of time for
               Mee to attempt to foreclose, because either the Mor or the 2nd Mee will
               file a request to sell
            o But when you don’t expect the sale to result in a surplus, Mor and 2nd Mee
               will not mind if you foreclose- so then it might be a good idea to do it
               (especially if you think the property will increase in value, if you think the
               Mor will not be able to account for the deficiency, etc.)
                     Often in such a case, the 2nd Mee will file a request to sell, 1st Mee
                        will try to sell, and if all the offers still result in a deficiency, they
                        can go back and obtain a new order of foreclosure
                     Another option for the 2nd Mee in such a case is to pay the arrears
                        themselves, and then they can do the foreclosure (2nd Mee would
                        do this if they think property will increase in value)

Nickerson
                                                                                            65


At any time before a final order for foreclosure, the court will extend the time for
redemption as long as you’re able to show that you’re attempting to raise the money and
there’s a reasonable chance you will be successful

Orenstein
3rd Mee bought M from 1st Mee- then they foreclosed and subsequently sold it for a large
profit

There is an inherent jurisdiction of the court to set aside a final order of foreclosure- 2nd
Mee wanted order set aside

Court said 3rd Mee did not act in an improper manner, 2nd Mee had ample time during
which they could have filed a request to sell

2nd Mee failed to protect its interests, that is its own fault

Dorval
Bank foreclosed, sold property, there was a deficiency
Bank tries to sue on a promissory note
    court says once you foreclose, the debt to the 1st Mee is extinguished

Golansky
Mee obtained foreclosure, was going to make a windfall profit

Court has equitable jurisdiction to set aside foreclosure, if there are special circumstances
that require the court to interfere

In this case, Mor had money to pay off the arrears, they should have done so when they
had the opportunity- so order not set aside

Once a Mortgage Always a Mortgage
A Mor is always entitled to their rights and remedies, these can’t be disguised by calling
the transaction something else

Arnal
Stands for the principle that “once a M, always a M”
    if a transaction is not called a M, but in substance is like a M, it must be treated as
       aM

Creswell
Same principle as above- whether or not the transaction is actually a M is a question of
fact

Unconscionable Transactions / Criminal Code

London Loan
                                                                                            66


On top of interest, Mee asks for something extra- Court says this is allowed

But- Unconscionable Transaction Relief Act
Court has a right under this act (as well as under their equitable jurisdiction) to set aside a
M transaction if the terms are unconscionable (i.e. excessively high interest)- they can
vary the terms, order interest to be reimbursed, etc.

Collins
A lender who deals with inexperienced borrowers of limited education must at his own
risk ensure that they understand the transaction

s. 347 of Criminal Code says you can’t charge a rate of interest in excess of 60% per year

Artell
Enforces the above rule- even though if they structured it differently they may not have
had such a high rate of interest

Barrie
Not a case of loan sharking or devious behaviour, but still had a criminal rate of interest-
so unenforceable
     Mor promised to pay back Mor an extra $10K (loaned 180K, would pay back
       190K even if paid on time)- with the regular interest rate, this worked out to more
       than 60% per year
     All bonuses and considerations are taken into account when calculating interest

Lawyer was found negligent for not telling parties transaction would be unsuccessful-
was responsible for the $10K)

Milani
Again, court struck out bonus feature because it caused a breach of s. 347

Transport North American
CA strikes out the excess interest to make agreement enforceable

Triggering the Mortgage
When Mor wants to pay back a closed M early, Mee may charge a penalty, or the interest
it would have earned

If Mee issues a claim for foreclosure, this triggers the M (North America Life, Municipal
Savings (here it was a notice of sale, not claim for foreclosure- this has the same effect))-
so Mor can simply not make payments, wait for foreclosure, then pay M- this gets around
the closed M

O’Shanter
                                                                                        67


Court finds that even when Mee issued a notice of sale on a closed M, Mor had to pay 3
months’ interest- said this is the maximum a Mor would have to pay back in such a
scenario

This is not an appeal court decision- reasoning used in Municipal is equally good law

Shankman
If Mee forecloses property, but only asks for payment of the arrears rather than the full
amount, this is merely protecting the security- so Mor can pay off arrears but not full M-
this does not trigger the M
     the same result would occur if Mee issued claim for arrears only

				
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