



COURT OF APPEAL FOR ONTARIO

CITATION: THMR Development Inc. v. 1440254 Ontario Ltd., 2018
    ONCA 954

DATE: 20181128

DOCKET: C65116

Lauwers, Hourigan and Pardu JJ.A.

BETWEEN

THMR Development Inc.

Applicant (Appellant)

and

1440254 Ontario Ltd.

Respondent (Respondent)

Gregory M. Sidlofsky, for the appellant

Micheal Simaan, for the respondent

Heard: November 5, 2018

On appeal from the order of Justice A. Pollak of the Superior
    Court of Justice, dated February 6, 2018.

By the Court:

[1]

The application judge dismissed the appellants application for specific
    performance of an agreement of purchase and sale between it, as the buyer, and
    the respondent, as the seller, of a mixed commercial/residential use property
    in Port Perry.

[2]

For the reasons that follow, we would allow the appeal and order the specific
    performance of the agreement of purchase and sale.

A.

The Factual Context

[3]

The application judges decision turned on her interpretation of the
    mortgage assumption provision in the agreement of purchase and sale, which
    required the approval of the mortgagee, Alterna Savings, to the assumption of
    the mortgage, on terms acceptable to the buyer. Because the Alterna mortgage
    was closed, the parties wished to keep the mortgage in place and avoid the
    prepayment penalty of $258,000.

[4]

The mortgage assumption condition provided:

The completion of this transaction
    is conditional until the 40th business day following the date upon which this
    Agreement is fully executed (the Assumption Approval Period) on the Buyer
    being approved by Alterna Savings and Credit Union Limited (Alterna) to
    assume the existing first mortgage on the Property (the Alterna Mortgage) on
    terms acceptable to the Buyer.
The foregoing condition is a true condition
    precedent and cannot be waived.
The buyer shall proceed diligently and
    expeditiously following the execution of this Agreement to seek approval of
    Alterna for the said assumption.  In the event that said condition precedent
    relating to the assumption of the Alterna Mortgage is not satisfied within the
    Assumption Approval Period this Agreement shall be at an end and the Deposit
    together without interest earned thereon shall be returned to the Buyer in full.
If the Buyer at Buyers sole and absolute discretion is not satisfied with
    the terms of the existing first mortgage or the terms of the said assumption of
    the existing first mortgage within the Assumption Approval Period
this
    Agreement of Purchase and Sale shall become null and void (Emphasis added.)

[5]

Alterna consented to the appellants assumption of the mortgage by
    letter, dated May 24, 2017. The letter was also addressed to the respondent,
    whose principal, William Zigomanis, denied having received it. However, he
    admitted he was told about Alternas approval during a meeting with the
    appellants manager, Ran Zha, on May 29, 2017.

[6]

Alternas approval letter listed a number of terms and conditions which
    had to be fulfilled before the closing date. The conditions were acceptable to
    the appellant, but there were two issues with Alternas letter that required
    correction.

[7]

The first, as Mr. Zigomanis admitted in cross-examination, was that the
    June 30 closing date in Alternas approval letter was incorrect; he expected
    the agreement to close by August 2, 2017. He testified that he personally was
    not in a particular rush to close the deal and that the closing date would
    not have been a deal breaker [f]or anyone. The uncontroverted evidence of the
    appellants lawyer was that Alterna agreed to correct the closing date and
    simply wanted to be notified once the closing date was finalized. There was
    also some ambiguity as to the appropriate interest rate for the mortgage
    assumption. The appellant resolved both issues by direct communications with
    Alterna.

[8]

Mr. Zigomanis admitted in cross-examination that by the middle of June,
    the appellant was asking for dates from the respondent to complete the final
    inspection of the property, although that was not required until July 2, 2017.

[9]

However, on June 20, 2017, counsel for the respondent wrote to counsel
    for the appellant, taking the position that the agreement of purchase and sale
    was at an end because the appellant had not formally accepted Alternas terms
    approving the mortgage assumption by signing and returning the approval letter before
    the end of the assumption approval period on June 6, 2017, together with the
    various fees that Alterna demanded.

[10]

Alternas
    approval letter also required the respondent and related guarantors, Mr.
    Zigomanis and his spouse, to sign. During oral argument counsel for the
    respondent raised the prospect that they might not sign because the assumption
    conditions left them responsible for the mortgage, which counsel suggested was
    not consistent with the basic concept of a mortgage assumption.

[11]

The
    difficulty with this suggestion is that it is not consistent with the facts.
    Alterna had advised Mr. Zigomanis by email, in February 2017, months before the
    agreement of purchase and sale was signed, that: on an assumption, Alterna
    does not release the existing guarantees. They will remain in place for the
    balance of the term. This explains why the mortgage assumption condition in
    the agreement of purchase and sale provided that acceptance was at Buyers
    sole and absolute discretion, referring both to satisfaction with the terms
    of the existing first mortgage or the terms of the said assumption of the
    existing first mortgage. The respondent did not have similar protection in the
    agreement of purchase and sale.

B.

The Decision under Appeal

[12]

The
    application judge described the mortgage assumption condition as a true
    condition precedent, which she found had not been satisfied by the parties by
    June 6, 2017, rendering the agreement null and void. She interpreted the
    wording of the condition:

[T]he only reasonable
    interpretation that the court can place on the obligations of the parties
    pursuant to that wording [of the mortgage assumption condition] is that, as a
    condition precedent,
the purchaser had to have accepted in a legal way to be
    bound by the terms and conditions proposed by Alterna.
It did not do so. I
    therefore find that I agree with the submissions of the respondent that the
    condition precedent was not satisfied and that the agreement of purchase and
    sale became null and void as of June 6, 2017. (Emphasis added.)

[13]

This
    interpretation rested on the application judges finding that the buyer had in
    no way agreed to be legally bound or had legally accepted the terms of the
    mortgage which Alterna was giving its approval to. She based this
    determination on the appellants failure to sign and return Alternas offer to
    approve the assumption. There is no evidence, she said, that the buyers did
    agree to be bound in any way by those terms. The application judge added in
obiter
:
    I would not have ordered specific performance of the agreement.

C.

Issues

[14]

There
    are two issues to be addressed on this appeal:

1.

Did the application judge err in
    determining that the agreement of purchase and sale was null and void because
    the condition precedent in the mortgage assumption provision had not been satisfied?

2.

Did the application judge err in
    finding that an order for specific performance would not be available to the
    appellant?

D.

Analysis

(1)

Did the breach of a condition precedent vitiate the contract?

[15]

A
    true condition precedent exists where the rights and obligations of the
    contracting parties under the contract depend on a future uncertain event, the
    happening of which is beyond the control of the parties and which depends
    entirely on the will of a third party. Until the event occurs, neither party to
    the contract has a right to performance: See
Zhilka v. Turney
,
[1959] S.C.R. 578, at pp. 583-584, and
Barnett
    v. Harrison
,
[1976] 2
    S.C.R. 531.

[16]

The
    application judge found that the jurisprudence on true conditions precedent was
    not applicable because the parties have clearly addressed their minds on what
    they want the consequences of a failure of the condition precedent to be by
    agreeing that this condition is a true condition precedent and cannot be
    waived.

[17]

In
    this case, the only third party was Alterna and the only true condition
    precedent was Alternas approval of the appellants assumption of the mortgage.
    This is the only part of the mortgage assumption provision that could properly be
    identified as a true condition precedent, and it was in place so that both the
    appellant, as buyer, and the respondent, as seller, were not penalized by the
    prepayment fee. The condition precedent was satisfied when Alterna sent its
    approval letter that was then altered slightly to the appellants satisfaction.
    In our view the appellant was then bound to close the transaction with the
    respondent, subject to any other conditions such as the possible fallout from
    possible surprises revealed by the property inspection refused by the
    respondent. Consequently, the application judge erred in concluding that the
    appellant was required to confirm its acceptance formally by signing and
    returning the assumption approval letter to Alterna to satisfy the condition
    precedent.

(2)

Was specific performance appropriate?

[18]

The
    application judge stated: I would not have ordered specific performance of the
    agreement as I find that, on the basis of the evidence, the applicant has not
    met its burden of establishing that the factors which are set out in the
    jurisprudence referred to by the applicant have been satisfied. She concluded
    that the value of that property to the applicant was for investment purposes,
    so that damages would be an appropriate remedy. She referred to
801 Assets
    Inc. v. 605446 Ontario Ltd.
, 2016 ONSC 2772, 71 R.P.R. (5th) 260 and
Campbell
    Pools Inc. v. Seville Group Inc.
, 2015 ONSC 2314, 44 B.L.R. (5th) 312. The
    application judges obiter analysis is limited to the few words that we have
    quoted. She did not address the evidence or the law in any detail. Her reasons
    are inadequate for appellate review within the meaning of
R. v. Sheppard
,
    2002 SCC 26, [2002] 1 S.C.R. 869.

[19]

The
    appellant submits that the application judge misconstrued the law relating to
    specific performance, and points out that in both
801 Assets Inc.
and
Campbell Pools Inc.
specific performance was granted in commercial
    circumstances.

[20]

The
    evidence in this case established that there were no suitable alternative commercial
    properties available in the Port Perry area. This is significant to the
    appellant because its other properties, employees, staff and contractor are
    located in the town. This is why, because of its unique attributes, the
    appellant has been trying to purchase the property since 2015.

[21]

This
    court is in as good a position as the application judge to deal with the issue
    of remedy because this case was argued on a paper basis without the involvement
    of live witnesses. In our view, the appellant has demonstrated the legal
    prerequisites for an order for specific performance and we would so order, subject
    to the following paragraph.

E.

Disposition

[22]

Alternas
    mortgage assumption approval has long since lapsed. If, in light of this
    decision, Alterna renews its approval on terms substantially similar to those
    in its previous approval letter, then an order for specific performance of the
    agreement of purchase and sale should issue. The appellant shall advise the
    court of Alternas position within 30 days of the date of release of this
    judgment. If Alterna refuses to approve the assumption of the mortgage by the
    appellant on terms substantially similar to those in its previous approval
    letter, then the appellant shall advise the court and make written submissions
    as to the appropriate disposition of this appeal, and the respondent may
    respond in writing within 14 days.

[23]

We
    reserve the costs decision pending the outcome of the actions ordered in the
    previous paragraph.

Released: November 28, 2018 PL

P.
    Lauwers J.A.

C.W.
    Hourigan J.A.

G.
    Pardu J.A.


