



COURT OF APPEAL FOR ONTARIO

CITATION:
Jeff Day Hospitality Inc. v. Heritage Conservation Holdings,
    Canada, Inc., 2022 ONCA 201

DATE: 20220311

DOCKET: C69601

Simmons, Harvison
    Young and Zarnett JJ.A.

BETWEEN

Jeff Day Hospitality Inc.

Applicant (Respondent)

and

Heritage Preservation Holdings,
    Canada, Inc.

Respondent (Appellant)

Jonathan Chen and Aoife Quinn, for the
    appellant

Charles Hammond, for the respondent

Heard: February 24, 2022 by
    video conference

On appeal from the judgment of Justice
    Robert F. Scott of the Superior Court of Justice, dated June 10, 2021.

REASONS FOR DECISION

[1]

The appellant appeals from a judgment that requires
    it to perform its obligations under an Agreement of Purchase and Sale (APS)
    dated January 20, 2020. In the APS, the appellant agreed to sell a hotel
    property in Jones Falls, Ontario to the respondent for a purchase price of
    $1,375,000. The judgment requires the appellant to close the sale in accordance
    with the terms of the APS; it also authorizes the respondent to hold back
    $500,000 from the purchase price pending determination of the cost of
    rectifying certain deficiencies, which the application judge held were the
    responsibility of the appellant.

[2]

The appellant raises three grounds of appeal: (i)
    that the application judge erred in finding that the parties had actually concluded
    an agreement on all terms in the APS (the contract formation issue); (ii) that
    the application judge erred in failing to find the respondent was in breach of
    the APS on the agreed closing date because the first mortgage it had arranged exceeded
    a limit on such financing found in an implied term of the APS (the implied
    term issue) ; and (iii) that the application judge erred in finding the repair
    of certain deficiencies to be the appellants responsibility under the APS (the
    deficiencies issue).

[3]

For the reasons that follow, we allow the appeal
    as to an aspect of the deficiencies issue. Otherwise, we dismiss the appeal.

(i)

The Contract Formation Issue

[4]

Between January 8 and 20, 2020, the parties
    exchanged written offers relating to the purchase of the appellants hotel.
[1]

[5]

The respondent first made an offer to purchase on
    January 8, 2020, which the appellant rejected. On January 10, 2020, the
    respondent made a revised offer; it made changes to its first offer and
    initialled them. On January 16, 2020, the appellant made a counteroffer; it made
    changes to the respondents revised offer and initialled those changes. On
    January 20, 2020, the respondent made a further revised offer, making certain
    changes to the terms proposed in the appellants January 16 counteroffer and
    initialling those changes.

[6]

On January 20, 2020, the appellant initialled
    the changes in the respondents further revised offer, except for the change to
    one term relating to the septic system.

[7]

The appellant argues that because it did not
    initial one of the respondents changes in the January 20, 2020 further revised
    offer, it did not accept all of the terms of that offer. It submits that the
    parties course of conduct indicates that changes were accepted by initialling.
    Accordingly, it submits that the application judge erred in finding that a
    binding agreement  namely the APS  had been reached on January 20, 2020 by
    the acceptance of the respondents further revised offer.

[8]

We disagree, and did not call on the respondent to
    address this issue in oral argument.

[9]

Although on January 20, 2020, the appellant did
    not initial one of the changes in the respondents further revised offer, the
    appellant did sign a Confirmation of Acceptance contained in it which stated:
    Notwithstanding anything contained herein to the contrary, I confirm this
    Agreement with all changes both typed and written was finally accepted by all
    parties at 2:50 p.m. this 20th day of January, 2020.

[10]

The application judge concluded that the appellant
    accepted the terms in the APS in their entirety. In our view, that finding was
    open to him.

[11]

Acceptance is constituted by conduct of the
    recipient that a reasonable person, in the position of the offeror, would
    consider constituted an acceptance:

Owners, Strata Plan LMS 3905 v.
    Crystal Square Parking Corp.
, 2020 SCC 29, 450 D.L.R. (4th) 105, at
    para. 33.

[12]

The Confirmation of Acceptance unequivocally communicated
    that all of the terms in the further revised offer presented on January 20,
    2020 were accepted, thus forming the APS.

[13]

Moreover, both parties and their agents acted
    on the basis that a binding APS had been reached on January 20, 2020. For
    example, on June 16, 2020, the parties executed an amendment, which stated: Per
    Agreement of Purchase and Sale mutually executed and accepted on January 20,
    2020. The position that no agreement had been reached on January 20, 2020 was
    not taken by the appellant until after there was a failure to close on February
    3, 2021 and litigation had ensued.

[14]

We therefore reject this ground of appeal.

(ii)

The Implied Term Issue

[15]

The APS provided that the respondent would pay a
    purchase price of $1,375,000. As part of the purchase price, the appellant
    agreed to take back a second mortgage in the amount of $500,000. The APS
    provided:

The Seller agrees to take back a 2nd
    Charge/Mortgage in the amount of Five Hundred Thousand Dollars ($500,000.00),
    bearing interest at the rate of 5.5% per annum, calculated semi-annually not in
    advance, repayable interest only, and run for a term of 2 years from the date
    of completion of this transaction.

[16]

The APS was silent on the amount of the first mortgage
    that could originally be placed on the property by the respondent ahead of the
    second mortgage to the appellant. It did contain terms about what would happen
    if that first mortgage were later replaced during the term of the second
    mortgage:

This Charge/Mortgage [i.e. the second mortgage
    to be taken back by the appellant] shall contain a clause permitting the removal
    or replacement of the existing first Charge/Mortgage at any time, provided that
    any increase in the principal amount of the new first Charge/Mortgage over the
    amount of principal owning under the first Charge/Mortgage at the time of
    renewal or replacement shall be applied in reduction of the principal amount of
    this Charge/Mortgage; and the Chargee/Mortgagee hereunder shall execute and
    deliver to the Chargor/Mortgagor such postponement agreement, Charge/Mortgage
    Statement, or other documents as the new first Chargee/Mortgagee may reasonably
    require, forthwith upon request.

[17]

When the respondent tendered on February 3,
    2021, it indicated that it proposed to place a first mortgage on the property of
    $1,000,000. The appellant argues that this constituted a breach of an implied
    term of the APS, the implied term being that the combined amount of the first and
    second mortgages could not exceed the purchase price as that would leave the
    second mortgage in part unsecured. In other words, there was an implied term
    that the first mortgage could not exceed $875,000.

[18]

The application judge refused to find such an
    implied term. As the Supreme Court affirmed in
M.J.B. Enterprises Ltd. v.
    Defence Construction (1951) Ltd.
, [1999] 1 S.C.R. 619, at para. 27, courts
    may imply terms in a contract:

(1) based on custom or usage; (2) as the legal
    incidents of a particular class or kind of contract; or (3) based on the
    presumed intention of the parties where the implied term must be necessary to
    give business efficacy to a contract or as otherwise meeting the officious
    bystander test as a term which the parties would say, if questioned, that they
    had obviously assumed.

The application judge considered the
    evidence led by each party as to whether there was a regular custom in mortgage
    and sale transactions to support such an implication. He concluded that this
    was not a case where the term could be implied based on custom or usage, nor to
    give business efficacy to the APS, nor based on the officious bystander test.
    Moreover, he noted that the APS contained an entire agreement clause limiting
    the agreement to the terms expressed in it.

[19]

We see no basis to interfere with the
    application judges conclusion. It was open to him to find on the evidence that
    no custom or usage supporting the implication of such a term had been
    established, and that no other basis for implying such a term existed.

[20]

The narrow circumstances under which terms may
    be implied based on business efficacy or the officious bystander test are
    concerned with the presumed intentions of the actual parties. They are not an invitation
    for a court to revise an agreement to make it accord with what reasonable
    parties might have done:

M.J.B. Enterprises
, at para. 29. Although
    it may have been wise for the appellant to have sought such a term before
    agreeing to the APS, it did not do so, despite having been professionally
    advised. The APS does not lack business efficacy without such a term, nor is it
    obvious that the respondent, if asked by the officious bystander, would have answered
    that such a term was included. The parties express terms indicate a contrary
    answer. The parties included specific provisions about the second mortgage and
    its relationship to the first without including the limit the appellant says
    should now be implied.

[21]

Nor do we see any error in the application judge
    having referred to the entire agreement clause as a factor in deciding whether the
    implied term contended for here accords with the presumed intentions of the
    parties, who stated that their entire agreement was to be found in the express
    terms of the APS:
Perkins v. Sheikhtavi
, 2019 ONCA 925, 16 R.P.R. (6th)
    42, at para. 22.

[22]

We therefore reject this ground of appeal.

(iii)

The Deficiencies Issue

[23]

The application judge dealt with three main categories
    of deficiencies and held that each was the responsibility of the appellant
    under the APS.

[24]

The first category was a foundation wall below
    the kitchen that was in a state of disrepair. The application judge found this
    to be covered by para. 5(f) of the APS, which provided:

To the best of the knowledge, information and
    belief of the Seller, all structural components of the Buildings and shoreline
    elements (Seawall, docks, etc) including any renovations/ additions/ improvements,
    are sound and in good and substantial repair, and meet all appropriate
    technical and safety codes;

[25]

The appellant does not contest that the wall was
    in a state of disrepair, and that this was known to the appellant. It argues
    that para. 5(f) only applies to matters within its knowledge, information and
    belief, and that this requires the appellant to have known, believed or been
    informed not only of the disrepair, but also that the wall was structural. The
    appellant submits that its principal gave evidence that it was not so aware,
    and that the application judge thus erred in finding that para. 5(f)
    applied.

[26]

We disagree.

[27]

The application judge described the wall as a foundation
    wall. He concluded, after reviewing photographs that the collapsed wall is
    structural. Implicit in the application judges approach is that whether the
    wall was structural is an objective issue  the knowledge/belief/information limit
    in para. 5(f) pertains to the walls state of repair. That interpretation is free
    of any extricable error, is reasonable, and is entitled to deference. The
    application judge was entitled to find that the wall was structural, based on its
    location and the photographic evidence. Given the appellants knowledge that the
    wall was in a state of disrepair, the application judge was therefore entitled
    to find that para. 5(f) of the APS made it the appellants responsibility.

[28]

The second category of deficiency related to the
    dining room fire separation, the kitchen exhaust, and the fire suppression
    system in the kitchen.

[29]

The application judge held that the appellant
    was responsible for each of these items under para. 5(h) of the APS, which provides:

The Seller has not received written notice of
    any work orders, deficiency notices or other similar notices from any
    municipality, public authority, or board of fire insurance underwriters, or
    from any tenant, or anyone else advising of any breach of any by-law, code
    regulation or standard or suggestion that any repair is necessary to the
    Properties or any part thereof (except as disclosed in writing to the Buyer
    within the Sellers Deliveries package and anything else prior to the end of the
    Buyers Inspection Period). The Seller agrees to remedy such items which
    currently exist or which may arise on or before the Close Date at the Sellers
    sole expense; The buyer acknowledges there is a work order on the ventilation
    and fire suppression
[2]
system on the kitchen commercial stove issued by the Rideau Lakes Township.

[30]

More specifically, the application judge found
    that para. 5(h) applied because it stated that the appellant was aware of a
    work order that required each of these deficiencies to be corrected.

[31]

In our view, although the application judges
    interpretation of the APS must be reviewed on a deferential standard, he made
    palpable and overriding errors in forming his interpretation of para. 5(h) as
    it pertains to this category of deficiency, justifying appellate intervention.

[32]

First, the application judge appears to have
    read para. 5(h) as though it referred to a specific work order that addressed
    the dining room fire separation concern. However, the work order specifically
    referenced in the last sentence of para. 5(h) refers to the ventilation and
    fire suppression system, not to the dining room separation issue. The
    application judge did not identify any other basis upon which remedying this
    deficiency would be the appellants responsibility under the APS. Second, the
    application judge appears to have read the paragraph as saying that the
    appellant was aware of the work order referred to in its last sentence, but not
    to say that the respondent was aware of the order, which is what the last
    sentence expressly acknowledges.

[33]

The interpretive question raised by the
    paragraph is who bears responsibility for this disclosed and acknowledged work
    order. The application judge did not address that question.

[34]

Paragraph 5(h) begins by stating the appellant
    has not received notice of work orders, except those disclosed to the
    respondent. It then refers to the appellants obligation to remedy such
    items. And it contains the respondents express acknowledgment that it has
    been advised of the work order mentioned in the last sentence. To read the
    paragraph as the respondent suggests, that the appellants obligation to remedy
    such items refers to items required under any work order  whether
    undisclosed or disclosed and acknowledged in the paragraph itself  does not
    accord with the interpretive principle that all the words of the agreement must
    be given meaning. This reading would give no effect to the respondents
    acknowledgement of its awareness of the specific work order. In our view, the
    appellants obligation to remedy under para. 5(h) does not extend to the
    work order that the respondent acknowledged had been disclosed to it. The
    application judge erred in so concluding.

[35]

The final category of deficiency relates to work
    to be done on the septic system under a Directors Order made by the Ministry
    of the Environment, Conservation and Parks on September 23, 2019. That Order
    virtually froze all sewage works at the hotels site and would have forced its
    closure until the system was brought into compliance with s. 53 of the
Ontario
    Water Resources Act
, R.S.O. 1990, c. O.40. The Directors Order also
    required that the appellant register a Certificate of Requirement on title to
    alert any potential purchaser to the non-compliance issues. Despite receiving
    the Directors Order in September 2019, the appellant did not register the
    Certificate of Requirement until February 25, 2020, after the parties had
    executed the APS, and never provided a copy of it to the respondent.

[36]

The application judge found that, on these facts,
    para. 5(h) applied to make this deficiency the appellants responsibility. We
    see no error in that conclusion.

Conclusion

[37]

We allow the appeal in part, and vary the
    decision of the application judge to delete the requirement that the appellant
    is responsible for remedying deficiencies in the dining room fire separation
    and in the kitchen exhaust and fire suppression system under the work order
    acknowledged by the respondent in para. 5(h) of the APS, as noted above. The
    appeal is otherwise dismissed. Due to the limited nature of the variation of
    the application judges decision, we would not change the holdback requirement
    he imposed since only the actual repairs for which the appellant is responsible
    will be charged against it.

[38]

The respondent requested costs of the appeal if
    completely successful in the sum of $11,593. The respondent enjoyed the greater
    measure of, but not complete, success on the appeal. Costs of the appeal shall
    be to the respondent in the sum of $7,500, inclusive of disbursements and applicable
    taxes.

Janet
    Simmons J.A.

Harvison
    Young J.A.

B.
    Zarnett J.A.





[1]
The buyer in the offers was Jeff Day & Core Lee or Assignee. On
    October 15, 2020, the APS was assigned to the respondent, and notice of the assignment
    was subsequently given to the appellant. For ease of reference, we refer to the
    respondent throughout, as each offer and the executed APS provided that upon
    assignment, the Assignee shall be deemed to be the party hereinbefore originally
    named as the Buyer.



[2]
This paragraph comprises typed text and handwritten additions. The
paragraph
    has been reproduced above to reflect the way both parties interpret the
    handwriting.


