Court File Number
SUPERIOR COURT OF
TIMOTHY FULLER AND
PATRICIA SWICK AND ONTARIO NEW HOME WARRANTY
GIVEN ORALLY BY THE
HONOURABLE MR. JUSTICE E.F. THEN AND THE HONOURABLE MR. JUSTICE A.E.
CUSINATO AND MR. JUSTICE P.A. CUMMING
on November 16th,
2002, at OTTAWA, Ontario.
Ms. C. L. Burn
for the Appellant
C. Arnold, Esq.
Counsel for the
Homes and Timothy
Fuller et al
November 26, 2002
Reasons for Judgment
appellant, Ashcroft Homes, appeals the decision of the License Appeal
Tribunal seeking three variations of the order of the Tribunal.
entered into a purchase agreement dated November 16th, 1997.
appellant vendor builder seeks to set aside the finding that the
respondent purchasers are entitled to compensation as a result of the
colour of the exterior siding finish being "grey" rather than "antique
appellant vendor's sales staff advised the purchasers that "antique rose"
would be the colour of the exterior siding, this promise being one item of
the Selection Sheet dated February 14th, 1998.
purchasers accepted this undertaking, which, thereby, became their
selection of siding. This promise by the vendor became a contractual
obligation by virtue of the addendum amendment dated February 14th,
1998, to the agreement to purchase.
view, as found by the Tribunal, the specific contract entered into, in the
instant situation, enabled the purchasers to make the selection to the
siding. There was a breach by the vendor of this contractual obligation.
submits that this undertaking is qualified by the provision in Schedule B
of the purchase agreement that "all exterior material...are subject to
architectural control." In our view, this provision does not imply an
arbitrary "control". First, the unqualified specific promise was made by
the vendor through the sales staff of "antique rose" siding. The expressed
promise constitutes an obligation outside the very general excepting
language of Schedule B. Second, there is not evidence in the record that
"architectural control" was, in fact, exercised in the situation at hand
such as to purportedly govern the selection of the siding for the
purchasers' home. Third, given that the siding became the agreed upon
selection of the purchasers, s. 18(1) of Regulation 892 R.R.O. 1990
provides that the vendor cannot make a substitution without the written
consent of the purchasers.
appellant submits that the purchasers were not entitled under the contract
to kitchen and bathroom cabinets made from natural maple wood and, hence,
are not entitled to compensation because the cabinets were, in fact, made
The Selection Sheet
re interior finishes, under the title "kitchen colour", has the written
words "natural maple", with the word maple underlined twice.
with the finding of the Tribunal that the purchasers intended to purchase
cabinets made of natural maple and that this was promised by the vendor's
sales staff (who did not testify and in any way contradict the purchasers
evidence on this point). This promise became a contractual obligation,
which was breached by the vendor. As well, s. 18(1) of Regulation 892
applies here, as it did in respect of the first issue.
Third, the appellant
seeks to set aside the finding of entitlement with respect to delay in
closing with the purchasers thereby being entitled to compensation. In our
view, the obligation was upon the vendor to provide an occupancy permit on
or before closing or an explanation as to why such a permit was not
necessary. This was not done, which justified the purchasers, then, on the
advise of their lawyer, not closing. We agree the circumstance also
justified compensation for the direct cost incurred.
reasons given, notwithstanding the able and thorough submission of Ms.
Burn, the appeal is dismissed. We add that, in our view, the Tribunal's
lengthy and detailed Reasons of Decision were well reasoned, thorough,
carefully stated and well supported by the evidence in the record.
v. McWilliams et al.
40 O.R. (2d) 158
COURT OF APPEAL
ARNUP, LACOURCIERE and GRANGE JJ.A.
OCTOBER 27, 1982
Barristers and solicitors Negligence Solicitor liable for
losses caused by collapse of part of house when he allowed his client to
occupy premises without attaining an occupancy permit Inspection of
property to obtain permit would have disclosed defects in construction
which led to collapse.
The defendant solicitor acted for the plaintiff on
the purchase of a house. The defendant failed to inform the plaintiff that
an occupancy permit was required. The plaintiff went into occupation and
subsequently part of the house collapsed due to defects in construction.
These defects would have been discovered had the municipal inspection
required to obtain the permit been carried out. The trial judge (33 O.R.
(2d) 32, 123 D.L.R. (3d) 141, 19 R.P.R. 137) held the defendant liable for
the costs of rebuilding the wall. The duty to inform the plaintiff of the
need for an occupancy permit fell within the obligations of a solicitor in
this transaction. The defendant appealed and the plaintiff cross-appealed
on two items of costs disallowed by the trial judge.
Held: the appeal of the defendant should be
dismissed; the cross-appeal of the plaintiff should be allowed in respect
of the cost of replacing a defective condition of the house, but dismissed
in respect of the claim to recover the legal fees paid to defendant. As
regards the latter claim, the fee has been earned in that the plaintiff
had now been given that which the fee entitled him to.
APPEAL and CROSS-APPEAL from a judgment by Lerner
J., 33 O.R. (2d) 32, 123 D.L.R. (3d) 141, 19 R.P.R. 137, against a
solicitor for professional negligence.
R. N. Bates, and I. Rogers, Q.C., for defendant,
T. Dunne, and E. Forster, for plaintiff, respondent.
The judgment of the Court was delivered orally by
ARNUP J.A.: This appeal by the defendant
McWilliams, a solicitor, is from the judgment of the Honourable Mr.
Justice Lerner delivered on May 28, 1981, and reported in 33 O.R. (2d) 32,
123 D.L.R. (3d) 141, 19 R.P.R. 137. There is a cross-appeal by the
plaintiff with respect to one item of the damage claimed to have resulted
from the acts of the solicitor.
The facts are dealt with in detail in the judgment
of the learned trial judge and I do not propose to repeat them here other
than such as are essential to give the background of the appeal and our
decision thereon. It is sufficient to say that the firm of the appellant
was retained to act for the plaintiff in the purchase of a residential
property which, it subsequently developed, had been constructed by the
vendor himself as his own contractor. In the course of his work as the
purchaser's solicitor, the appellant on October 1, 1975, wrote a letter to
the Town of Milton into which the former Township of Nassagaweya had been
incorporated since the house was built. In that letter the appellant
asked whether the location of the structure as shown on an enclosed survey
complied with the zoning regulations of the municipality; whether there
were any outstanding work orders against the lands and buildings; whether
the site, grading and elevation plan was approved at the time of the
issuance of the building permit; if the final inspection and subsequent
approval covering construction and lot grading had been given, and finally
(and most important in this case) whether an occupancy permit was required
prior to occupancy.
The municipality replied to this letter on October
8th by letter stating that the subject property complied with the building
and zoning by-laws, that the writer was not aware of any outstanding work
orders and stating:
An Occupancy Permit must be obtained prior to the
premises being occupied.
As found by the trial judge, and indeed not
disputed, the appellant did not communicate the statements in this letter
to his client and in fact did nothing with respect to the matter of an
occupancy permit. As the trial judge has found, a basement wall in the
property collapsed some considerable time after the purchase had been
completed; it was found by the trial judge as a fact that the wall had
been improperly constructed and that for the cost of making good the
collapsed wall and sundry other items related thereto, the defendant
McWilliams was liable.
In addition, it was asserted at the trial that the
weeping tile which was uncovered at the time of the work necessary to
repair the wall and eventually to reconstruct it, had been improperly
installed; it was above, rather than alongside, the footings. At the time
the purchase was closed, the weeping tile was, of course, several feet
underground, but evidence was led that the condition which the defective
weeping tile installation occasioned would have been discovered on
inspection because of the presence of a phosphoric efflorescence on the
interior walls of the basement, which in turn would have led to further
investigation, because it would have appeared that something was wrong
with the drainage of the property.
The cross-appeal relates to the cost of taking out
the old weeping tile and installing new weeping tile properly.
At the conclusion of the submissions of counsel for
the appellant, we indicated that we did not require to hear counsel for
the respondent on the main appeal. We then proceeded to hear full
argument on the cross-appeal.
In the particular
circumstances of this case, we think it was both reasonably foreseeable
and within the reasonable contemplation of the parties that if the
defendant had done what he should have done when he learned that an
occupancy permit was required and had never been obtained, the defects in
the construction in all probability would have been ascertained. The
plaintiff would then have had a right to refuse to close or to require an
occupancy permit to be obtained by the vendors, in which case the defects
in all probability would have been required to be fixed before the permit
was issued. We therefore think that the plaintiff should recover not only
the heads of damage allowed by the trial judge, but also the cost
referable to correcting the defective installation of the weeping tile.
We agree with the final conclusion of the trial
judge that on the question of damages in this case there is no difference
whether the damages are recoverable in tort or in contract. As the trial
judge said [at p. 50 O.R.]: "The losses here were both 'reasonably
foreseeable' and 'reasonably contemplated'".
We were asked, in connection with the cross-appeal,
to vary the judgment by including within the heads of damage the legal
fees of $610 paid by the respondent to the appellant. We do not allow this
claim. The plaintiff is theoretically made whole by the award of damages
that is embraced within our decision.
In the result, accordingly, the appeal of the
defendant McWilliams is dismissed with costs. The cross-appeal of the
plaintiff is allowed with costs and para. 1 of the formal judgment is
varied by adding thereto the following:
The costs referable to the defective installation
of the weeping tile and its replacement.
Appeal dismissed; cross-appeal allowed in part.
v. Regency Homes Inc.
David Aiken and Roseanne
Aiken, Plaintiffs, and
Regency Homes Inc., 478293 Ontario Limited, Israel Katz,
Joseph Fishman and Dorsam Investments Limited, Defendants
Action No. 268017/86
Ontario District Court - York Judicial District
November 30, 1989
William G. Dingwall, Q.C., and Thomas S. Kent, for the Plaintiffs.
Milton A. Davis and Suzette Blom, for the Defendants, Regency Homes
Inc., 478293 Ontario Limited, and Israel Katz.
Melvyn L. Solmon and Randall M. Rothbart, for the Defendants, Joseph
Fishman and Dorsam Investments Limited.
CORBETT D.C.J.: This action arises out of an
agreement of purchase and sale dated February 15, 1985 which was not
completed. The plaintiffs claimed specific performance against the
defendants Regency Homes Inc. ("Regency Homes") and 478293 Ontario Limited
("478"): damages against the defendants Katz and Fishman for inducing
breach of contract; general damages against all defendants for fraudulent
misrepresentation; and a declaration that the plaintiffs' claim for
specific performance ranks in priority to a charge registered against the
subject lands in favour of the derendant Dorsam Investments Limited ("Dorsam").
The defendant, Fishman, is the sole director and officer of Dorsam.
THE AGREEMENT OF PURCHASE AND SALE
On February 15, 1985 an agreement of purchase and
sale of lot 7, plan 65M-2210 in the Town of Vaughan was entered into
between the plaintiffs and Regency at a consideration of $210,000. The
vendor agreed to complete the construction of a dwelling house and the
closing date was July 15, 1985. By amendment to the agreement dated March
25, 1985, the closing date was extended to October 31, 1985, and time was
to remain of the essence.
Stanley Arbus, solicitor for the plaintiffs,
delivered a letter dated October 30, 1985 to Bernard Noik, solicitor for
the vendor, stating it was apparent the vendor would not be closing the
transaction and asked if the vendor was extending the closing for 90 days
as provided by the agreement of purchase and sale.
Mr. Noik advised Mr. Arbus that his letter was
referred to the vendor. No response was communicated to the purchasers
from the vendor until Mr. Noik's letter of November 20, 1985 where he
I confirm I advised that, based on my information
from my client, bricklayers will be on the site shortly along with
other forces necessary to complete the transaction of purchase and
sale. I have written my client and have requested specific information
and when same is available I will advise.
Mr. Arbus wrote Mr. Noik on November 21, 1985
requesting that the vendor inform him immediately of the final closing
date (Exhibit 1-8). He also referred to the vendor not being able to find
a bricklayer, to the vendor's refusal to hire a bricklayer suggested by
the plaintiffs, and to Mr. Noik's assurance that something would be done
towards completing the property.
By letter dated January 20, 1986, Mr. Noik offered a
choice to the purchasers through Mr. Arbus to close the transaction as of
that date subject to adjustments and subject to a hold back in the sum of
$50,170.00 for the uncompleted work or, in the alternative, that the
closing is extended to March 30, 1986, all other terms of the agreement of
purchase and sale to remain the same. By letter dated February 25, 1986,
Mr. Arbus advised his clients were pleased to complete the transaction in
accordance with the agreement of purchase and sale.
On March 18, 1986 Mr. Arbus wrote to Mr. Noik
requesting a new closing date as it appeared the vendor would be unable to
have the premises completed on the closing date. There was no response to
that letter and the second date fixed for closing went by.
After the date fixed for closing in March 30, 1986,
neither party acted to terminate the agreement. The plaintiffs remained
anxious, if not desperate, to have the house completed. in spite of
problems, neither the vendor nor its agents indicated the house would not
be completed. At a meeting with Mr. Katz on December 15, 1985 the
plaintiffs asked if there were financial problems and Katz replied, "We
are light years away from bankruptcy." Mr.
Aiken asked if they could return the money and consider the deal
null and void, but Katz refused because the home was custom-built for them
and he said he intended to complete it. This is confirmed in Mr. Noik's
letter to Mr. Aiken of December 16, 1985
By telephone conversation of May 8, 1986 Mr. Noik
offered to close if the purchasers would pay $32,000.00 and take the house
as-is. On or about May 13, 1986, David Aiken
met Mr. Katz who told the plaintiff that he had no further funds available
to complete the house, that the bank would take over, and that dealings
with him were at an end. David Aiken
knew generally that the real estate market was rising at this time. He
felt that if he did not agree to take the house in its existing state of
construction, the matter would end up in litigation. The plaintiffs agreed
to take the house as-is. However, Mr. Arbus subsequently advised the
plaintiffs not to close the transaction without an occupancy permit or the
HUDAC warranty. Mr. Arbus testified it was more prudent not to close since
there was no occupancy permit and because the house was not finished. The
plaintiffs accepted his advice and did not close the transaction.
By letter of May 13, 1986 delivered to Mr. Noik, Mr.
Arbus fixed the closing date for May 16. Mr. Arbus was provided with funds
to close. Although the plaintiffs pleaded that they notified Regency on
May 13, 1986 that the plaintiffs would be ready, willing and able to
complete the transaction with the dwelling in its then current stage on
May 16, 1986, the transaction did not close on May 16th. Tender was waived
by agreement between the solicitors.
On May 21, 1986 Mr. Noik wrote to Mr. Arbus advising
the vendor was prepared to close the transaction on an as is basis for the
full purchase price. Alternatively, Mr. Noik advised the vendor relied on
the provision of the agreement which provided that if the dwelling is not
completed the vendor may terminate the agreement. On May 22, 1986, Mr.
Noik proposed to complete the transaction on May 23, 1986. The plaintiffs
did not agree to this proposal and commenced this action on June 9, 1986.
LIABILITY FOR FAILURE TO COMPLETE AGREEMENT
The plaintiffs submit that the transaction did not
close solely because the defendants collectively and individually refused
to complete the house and made no reasonable efforts to do so.
The defendants submit that the agreement of purchase
and sale was at an end on March 30, 1986, and that there was a new
agreement entered into that the property should be transferred as-is on
May 13th. In the alternative, they submit that if the contract was not at
an end on March 30, 1986, the plaintiffs were obliged to complete the
contract and sue for damages in respect of the outstanding matters, namely
the lack of HUDAC warranty and the minor construction to be completed.
The oral agreement in May to take the house as-is
was not a new agreement and the original agreement of purchase and sale
continued. In my opinion, the oral agreement purported to amend the
original agreement and is unenforceable as it was made without
consideration. As a result, the rights of the parties are to be determined
as at March 30, 1986.
As at March 30, 1986, the house was not completed.
The course of construction was slow. The foundation was poured in May,
1985. There were difficulties in getting trades and the plaintiffs had
engaged their own contractors for certain work. Construction liens were
registered. In January, 1986, work began again after three months of
little being done. By May, 1986 the frame work, brick work, drywall,
stairs, roof, some electrical and plumbing work, ceramics, insulation, and
the windows were completed.
Mr. Katz testified the outstanding matters in May
were electrical completion work, some plumbing, painting, broadloom on the
second floor, paved driveway, sodding, and the kitchen cabinets. His best
estimate of the cost to complete was $10,000 to $12,000 and it would take
seven to ten days to complete.
The vendor agreed to construct and complete a
dwelling in accordance with plans and specifications. The agreement
provided as follows:
...Aside from delays and approvals, if for any
reason the completion of the house shall be delayed, the Vendor may,
at its option, further extend the Completion Date herein for ninety
(90) days in order to complete the house and the closing date shall be
extended accordingly to a date ninety (90) days after the date herein
provided or the extended date. If the Vendor should be unable to
substantially complete the house within such extension of time, the
deposit shall be returned to the purchaser by the Vendor without any
interest and the contract shall be at an end and the Vendor and its
agent shall not be liable to the purchaser in any way for damages, or
otherwise. Monies paid for extras ordered by this agreement or any
other authorization shall be non-refundable.
In the event that the house erected on the lands
should be substantially completed by the closing date or postponed
closing date... the sale shall be completed on that date and the
vendor shall complete any outstanding items of contruction required by
the Contract within a reasonable time thereafter, having regard to
weather conditions and the availability of trades and supplies. The
house shall be deemed to be substantially completed when the interior
work has been finished to permit substantial occupancy...
Schedule A to the agreement provides "Closing not
contingent on occupancy permit."
The plaintiffs pleaded the house was not complete by
March 30, 1986 and was not fit for habitation. The defendants pleaded that
they relied upon the agreement quoted above respecting inability to
complete after the 90-day extension.
While the failure to obtain an occupancy permit by
itself would not permit the plaintiffs to refuse to close the transaction,
I find as a fact that the house was not finished to the degree that would
permit substantial occupancy on March 30, 1986. Accordingly, the
plaintiffs were not obliged in law to complete the sale. I also find as a
fact on the evidence that the house was not substantially completed in
With respect to the HUDAC warranty, the agreement
provided as follows: "Vendor to provide HUDAC New Home Warranty. Vendor is
registered as a builder under the plan and the dwelling will be enrolled
under that plan." The registration of Regency Homes under the Ontario New
Home Warranties Plan Act had been revoked. By decision released March 10,
1986, the Commercial Registration Appeal Tribunal refused to renew the
registration of Regency Homes on the grounds that the company's
undertakings would not be carried out in accordance with law and integrity
and honesty as required by section 7 of the Ontario New Home Warranties
Had the lack of HUDAC registration been the only
outstanding matter, the parties would likely have closed the transaction
and, in such circumstances, an action for damages would have been an
appropriate remedy in respect of this breach of warranty.
At March 30, 1986, neither the vendor nor the
purchaser treated the agreement as terminated. The plaintiffs continued to
insist on performance until May, 1986. At that time the vendor refused to
complete the agreement in accordance with its terms and purported to
terminate the agreement.
In conclusion, the vendor breached the agreement of
purchase and sale and is liable to the plaintiffs for the failure to
RIGHT TO DAMAGES IN LIEU OF SPECIFIC PERFORMANCE
Although the plaintiffs sought specific performance
of the agreement, specific performance cannot be ordered because the
subject lands were sold under power of sale to Max
Aiken Limited on April 27, 1987 and
conveyed to third parties on June 8, 1987 for $340,000. David
Aiken is a director and 50% shareholder
of Max Aiken Limited. Max
Aiken is David
Aiken's father. The net surplus sale
proceeds have been ordered to be paid into court by the Supreme Court of
Ontario in prcceedings commenced by Dorsam and 478 against Max
Aiken Limited and the matter was
referred to the Master for an accounting. The plaintiffs were added as
parties to the reference.
In their statement of claim, the plaintiffs did not
claim damages for breach of contract as an alternative to specific
performance. At trial, evidence was lead respecting the plaintiffs'
damages as a result of the failure to complete the agreement of purchase
and sale. Because the claim for damages for breach of contract in addition
to or in substitution for specific performance was not pleaded, I invited
counsel to address me further on the issue.
The first issue to be determined is whether an
amendment to the statement of claim is necessary in order to recover
damages in lieu of specific performance. If an amendment is required, the
court must then determine if such amendment should be granted after the
conclusion of the trial and before judgment.
The plaintiffs submit that the disappearance of the
equitable claim for specific performance does not disentitle the
plaintiffs to damages and that the plaintiffs may elect the remedy of
damages at any stage in the proceeeding prior to judgment. The defendants
submit that by claiming specific performance without an alternative claim
for damages, the plaintiffs have in effect elected specific performance
and are bound by that election. The defendants further submit that by not
pleading damages in the alternative, a substantial benefit has been
obtained by the plaintiffs by the registration on title of the certificate
of pending litigation which the defendants may have moved to vacate had
the alternative claim for damages been pleaded.
Counsel for the plaintiffs and counsel for the
defendants relied upon Dobson v. Winton & Robbins Ltd.,  S.C.R. 775.
In that case, the plaintiff vendor sued for specific performance and, a
few days before trial, accepted an offer to sell the property. Mr. Justice
Judson stated at p. 777:
Any claim for specific performance had, therefore,
disappeared and the action, if properly constituted, had become one
for damages. The real question in the litigation emerged only at this
time--whether the plaintiff, by selling as he did, could go on with a
claim for damages and whether his pleading was adequate for this
In the Dobson case, the court reviewed the prayer
for relief which sought (a) specific performance, (b) damages for de1ay,
and (c) in the alternative to (a) and (b), forfeiture of the deposit and
punitive damages for failure to perform the contract. The court concluded
that (c) was clearly identifiable as a common law claim for breach of
contract and accordingly the court found that damages could be awarded on
In this case, the plaintiffs claimed:
specific performance on the agreement against
Regency and 478;
certificate of pending litigation;
general damages of $250,000 for inducing breach of
contract against the defendants Katz and Fishman;
the declaration that the plaintiffs' claim for
specific performance ranks in priority to a charge registered by
general damages of $250,000 for fraudulent
misrepresentation against all defendants;
special damages of $20,000 against Regency;
solicitor and client costs.
Clause (f) is a common law claim for damages, being
the claim for the return of deposit monies. However, no claim for general
damages for breach of contract in lieu of specific performance was
While the court has power under s. 112 of the Courts
of Justice Act, 1984 to award damages in addition to, or in substitution
for specific performance, in my opinion, I do not have the power to award
general damages for breach of contract on the statement of claim unless an
amendment is granted.
Pursuant to rules 26.02 and 26.06 of the Rules of
Civil Procedure, the court has jurisdiction to amend this statement of
claim at or after the trial. I have had regard to the following in
addition to the nature of the amendment sought:
prejudice or injustice to the opposing parties;
nature of the case met by the defendants: the
element of surprise;
c) delay and reason for delay in moving to amend;
whether opposing parties may be adequately
compensated in costs.
The plaintiffs submit that the evidence related to
the claim for damages was canvassed fully at trial and at discovery and
that the defendants were not taken by surprise. The plaintiffs submit that
no injustice would be done and rely on Legault v. Chapleau Realties and
Equities Ltd., 1 C.P.C. 220, 225. In that case an amendment to plead
waiver was allowed because the evidence relating to the plea was fully
disclosed at trial, the respondent was not taken by surprise, no injustice
would be done, and the matter could be compensated by costs.
The defendants submit that the proposed pleading is
improper in that no amount was claimed. In argument, the plaintiffs sought
$200,000 and I am dealing with the proposed amendment as one to add "or in
the alternative damages in the sum of $200,000" in paragraph 1(a) of the
statement of claim. In my view, a more precise pleading at this point may
be to delete the claim for specific performance and to claim damages for
breach of contract.
The defendants submit that allowing the amendment
prejudices the defence because they have not pleaded to such a claim for
damages. For example, mitigation may have been pleaded by the defendants.
The defendants rely on Burns v. Pocklington (1985), 5 C.P.C. (2d) 18
(C.A.) where MacKinnon A.C.J.O. denied an amendment which would require
the defence to meet a new issue of quantum meruit and where the defence
could not be compensated in costs.
The defendants submit that the issue of damages was
not canvassed as thoroughly as if the claim for damages for breach of
contract had been made by the Plaintiffs. The defendants referred to cases
including Skender et al. v. Barker et al. (1987), 24 C.P.C. (2d) 147 (B.C.S.C.)
and Color Your World Inc. v. Robert F. Avery Holdings Ltd. and Avery
(1987), 56 Alta. L.R. (2d)
190 (C.A.), Lion Oil Trading Co. Ltd. and Shell Canada Limited (1987),
10 W.D.C.P. 215 and Loucks v. Peterson (1988), 67 O.R. (2d) 325 (D.C.)
which discuss various circumstances where amendments were not permitted.
The evidence of damages adduced at trial by the
plaintiffs was thorough and was the same evidence which would have been
adduced by the plaintiff had the plaintiff claimed damages for breach of
contract. Certainly the plaintiffs were able to maintain the benefit of
having a certificate of pending litigation on the property up until the
sale to Max Aiken Limited, but there is
no evidence of prejudice to the defendants by their inability to move to
vacate the certificate of pending litigation.
Although the defence now submits further evidence
would have been adduced if the appropriate claim was made, I cannot find
this to be the case having regard to the issues canvassed at discovery and
to the nature of the other claims made, in particular, the claim for
damages for inducing breach of contract. Consideration of damages for
inducing breach of contract necessarily includes consideration of the
damages which flow from the breach itself.
Accordingly, I have allowed the plaintiffs to amend
their pleadings to claim damages for breach of contract.
The plaintiff also sought to claim pre-judgment
interest which was not pleaded. In my opinion, such a claim must be
Section 138 of the Courts of Justice Act, 1984
provides in part:
138(1) A person who is entitled to an order for
the payment of money is entitled to claim and have included in the
order an award of interest thereon at the prejudgment interest rate..
The plaintiffs sought pre-judgment interest during
the course of argument after the evidence was concluded. No formal motion
was made to amend the pleadings; nor was such a claim added to the motion
to plead damages in lieu of specific performance. In the circumstances of
this case and having regard to the lateness of the motion to amend the
statement of claim to claim damages, and having regard to the fact that
the proceeds of the sale were paid into court, I decline to permit the
plaintiffs to claim pre-judgment interest. In any event, I would exercise
my discretion and disallow such interest pursuant to s. 140 of the Courts
of Justice Act, 1984 having regard to the conduct of the proceeding.
Measure of Damages
The general measure of damages for breach of
contract is to place the aggrieved party in the same position as if the
contract had been performed. In respect of a contract for the sale of
land, the plaintiff may recover reasonably foreseeable out of-pocket
expenses and may also recover damages for loss of the bargain in certain
The plaintiffs sold their own home at the end of
October, 1985 and lived at Roseanne Aiken's
mother's home and paid her mortgage and condominium expense. The
plaintiffs claimed the cost of the mother's flight to Texas. The
plaintiffs incurred moving and storage charges for their furniture. The
plaintiffs rented a cottage from May to September, 1986 for $2,000. The
plaintiffs rented an apartment from October, 1986 to February, 1987 at
$470.72 per month for two months and $489.55 for three months. I would not
allow the alleged "key money" of $3,000 agreed to be for furniture of
sublessor. The plaintiffs purchased another home for $245,000 which closed
on February 26, 1987. If required to do so, I would assess reasonable rent
and storage expenses from November, 1985 to February, 1986 at the rate of
$500 per month for 16 months for a total of $9,000. The claim made
respecting kitchen cabinets was not adequately proved and was eventually
assumed by Max Aiken Limited.
On June 4, 1985, Regency Homes and the plaintiffs
agreed to ten modifications respecting construction (Exhibit 1-36). David
Aiken testified that Mr. Katz advised
him that the cost would be $7,000, but if he wanted to pay cash, the cost
would be $4,000, except that the receipt would say no charge. I find the
sum of $4,000 was paid by David Aiken to
Mr. Katz on June 6, 1985.
I find the plaintiffs made the following extra
||June 6, 1985
||March 9, 1986, garage
||March 24, 1986 whirlpool
||March 31, 1986 drywall
Damages for loss of the bargain are recoverable in
cases involving, among others, fraud or bad faith or wrongful repudiation
by the vendor. A vendor has a duty to make a genuine effort to obtain what
is necessary to carry out a contract. (Mason v. Freedman,  S.C.R.
In Cull v. Heritage Mills Developments Limited
(1974), 5 O.R. (2d) 102 (H.C.) where a defendant wrongfully repudiated a
contract for the sale of a house, the plaintiff was entitled to recover
damages in the amount of the difference between the contract price and the
market value of the property at the time of the breach.
Thompson, J. stated at page 110:
The right of the vendor to terminate in any event,
arises only if it is unable to substantially complete within the
meaning of the contract for reasons beyond its control.
He went on to find that:
The reason for delay and the failure to complete by
the time appointed by the contract was not the inability of the
Defendant within the meaning of the agreement, but simply its
Thompson, J. assessed damages to reflect the
increase in value to the time of the breach and would not have allowed the
plaintiff the cost of renting an apartment while awaiting the closing of
another house he purchased.
In Metropolitan Trust Co. of Can. et al. v. Pressure
Concrete Services Ltd. et al. (1973), 3 O.R. 629 (H.C.J.), Holland J.
assessed damages to include the increase in value of land from the date of
closing to the date of judgment.
If damages were assessed at the date of breach of
the contract. there being no evidence of the difference in value of the
property at the date of the breach, I assess them as follows:
||return of deposit
||rent and storage
If damages were awarded for loss of the bargain and
reflected the increase in value of the property, the appropriate date
would be spring of 1987 when the property was sold for $340,000. The
difference between the contract price and this resale price is $130,000.
On this basis, I would not allow the extra payments which are reflected in
the resale value. I would also deduct the amount of any allowances found
by Master Linton to Max Aiken Limited
from the sale proceeds which represents the increase in value from the
contract price and the resale price. For the purposes of assessing
damages, any relevant recovery by Max Aiken
Limited is recovery by the plaintiffs.
The defendants submit that the plaintiffs have the
benefit of the appreciation in value of their own home from February, 1986
to June, 1987. No evidence was adduced to determine such an amount. As a
result, I am not discounting the re-sale value. Further, there is no
evidence of any unreasonable delay by the plaintiffs in effecting the
The plaintiffs submit that the defendants Fishman
and Katz concocted a scheme to put them in a position to frustrate
creditors, exact additional consideration from purchasers, and to avoid
contracts. The defendants submit the failure to close was the result of a
lack of trades and a lack of funds to complete.
In order to determine whether the defendants
wrongfully refused to complete the agreement or acted in bad faith, some
description of the course of the project and surrounding circumstances is
The subject lands were one lot in a 38-unit housing
subdivision development in the Town of Vaughan financed by Counsel Trust
Company by way of mortgage. This project was also referred to as Regency
Manor. By transfer registered June 21, 1984. Regency Homes transferred
title to 478. Mr. Katz and Mr. Fishman were the sole directors of Regency
Homes and 478. It appears Mr. Fishman resigned from these companies
effective February 28, 1986. 478 was dissolved on June 16, 1986, and
Regency Homes was dissolved on November 30, 1987. On November 1, 1984, a
mortgage was registered by 478 in favour of Counsel Trust in the sum of
$350,000 on lot 7 and other lots. On June 27, 1985, a mortgage was
registered by 478 in favour of Counsel Trust in the sum of $97,000 on lot
7 and the sum of $41,000 was advanced under this mortgage.
On December 6, 1985, 478 agreed to sell 13 lots (not
including lot 7) in the subdivision to Tromwood Homes Inc. ("Tromwood"),
whose principals were Tuvia Sagi (Mr. Fishman's son-in-law) and Warren
Weiss, for $1,391.000, being $107,000 for each lot with a closing date of
December 10, 1985. Mr. Fishman testified that Counsel Trust had given an
ultimatum to sell the remaining lots and that no one else wanted to buy
them. He therefore sold the lots to Tromwood for no consideration except
repayment of financing on the sale of lots.
On December 16, 1985, an agreement (Exhibit 24) was
entered into between Tromwood, Katz and Fishman in trust, Mr. Fishman, Mr.
Katz, Tuvia Sagi and Warren Weiss. This agreement created a joint venture
respecting the 13 remaining lots in the Vaughan subdivision which were
sold to Tromwood whereby Tromwood and Katz and Fishman in trust would
share the profits, 60% for Katz and Fishman and 40% for Tromwood, if at
least ten houses were sold and closed by May 30, 1987. On December 17,
1985, Counsel Trust demanded payment from Regency Homes of outstanding
indebtedness in respect of a $4.9 million land loan registered on June 29,
1983 and executed by Regency Homes, Regency Investments Ltd., Katz and
Fishman, in respect of construction loans to 478 in the principal amount
of $456,030, and in respect of the $350,000 loan.
On January 15, 1986, an agreement (Exhibit 1-34) was
entered into between Ccunsel Trust, Regency Homes. Regency Investments
Ltd., 478, Kamron Holdings Inc., Fishman, Katz and Castlerigg Investments
Inc. Tromwood executed the agreement, but not as a party, which agreement
recited the indebtedness to Counsel Trust which had demanded payments by
December 30, 1985 (extended to January 15, 1986). Clause 2 of the
agreement provided that Fishman and Katz would advance on a timely basis
all funds required to accomplish, among others,
...payment on a timely basis of all amounts
required to be paid to third parties in order to close agreements of
purchase and sale with third party purchasers on lot 7, 8, 9, 10, 16,
35 and 36;...
This agreement required closing on or before January
30, 1986 of the "14" vacant lots at a price of $1,498,000. (Lot 24 appears
to be added as the 14th lot.)
Mr. Katz is the sole director and officer of Regency
Investments Ltd. and Kamron Holdings Incorporated (Kamron), both
incorporated in 1976. Mr. Fishman is the sole director and officer of
Castlerigg Investments Inc., incorporated April 3, 1985.
Lot 10 was transferred for $149,500 and registered
on March 5, 1986. Lot 16 was transferred for $224,900 and registered on
March 11, 1986. On March 19, 1986, a mortgage in the principal sum of
$150,000 was registered from 478, as mortgagor, and Dorsam, as mortgagee,
in respect to lots 7, 8, 35 and 36. Lot 9 was transferred for $269,104 and
registered on April 25, 1986. Lot 35 was transferred for $260,000 and
registered on May 2, 1986. On August 18, 1986, a deed was registered for
lot 36 from 478 to Tromwood and subsequently sold by deed registered
October 3, 1986 for $294,000.
Lots 7 and 8 were the only transactions which did
The defendants Katz and Fishman had been in business
together for about ten years. They were involved in three housing
projects: the subject subdivision in Vaughan, 36 units in Markham, and 25
units in Scarborough. The projects were carried out through various
companies. Mr. Fishman testified the subject project was carried on by
Regency Homes as trustee. There is no written agreement respecting the
relation between the defendants, Katz and Fishman, but they agreed that
profits and losses were to be shared equally and, for the most part, put
through their respective companies, Kamron and Dorsam. Generally, Mr.
Katz, who had been in the building and development business for ten years,
ran the day-to-day operations and was more involved with the site. Mr.
Fishman described his involvement as one of signing cheques. I find that
at all material times, the defendants Katz and Fishman were equal co-venturers
who used a variety of companies, which they alone controlled, to advance
their own interests.
Mr. Fishman testified that Regency did not have the
money to complete the house because Counsel Trust called their loan and
that Dorsam and Kamron put up huge amounts of money to complete the
houses. He testified that Mr. Katz was supposed to finish the last houses
in Vaughan, but that he abandoned the project. I do not accept the
defendants' contention that the plaintiffs requested excessive
modifications. In any event, all such modifications were approved by the
Mr. Katz testified under normal circumstances a
house like this one could be built in five to eight months. He agreed
other houses were completed before the plaintiffs' house. He agreed he had
authority to send workers where he wanted on the project.
When financial problems were experienced on the
project, a new account and ledger were used. Monies were transferred from
the Regency Homes account to the KGN account to pay trades and to avoid
lien claims against Regency Homes. Mr. Fishman testified his company put
up to $300,000 or $400,000 into the project, not including the March
It is extremely difficult to ascertain from the
documents and books of account what monies were used for which project and
for which house. For example, Exhibit 19-4 is a cheque from Dorsam to
Regency Homes for $20,000, which was endorsed by Regency Homes and
deposited in the Regency Centre bank account (another project). Mr.
Fishman testified he used the Regency Centre account to pay creditors of
Again, Exhibit 19-1A is a cheque dated March 7, 1986
from Asim Developments Inc. (Asim) to K.G.N. Developments for $4,000.
Exhibit 19-1B is a cheque for $38,000 dated March 17, 1986, to 478 from
Mold-Die Engineering Limited (Mold-Die). Mr. Fishman is the sole director
of Asim and both Mr. Fishman and Katz were the first directors of
Mold-Die. Mold-Die and Asim are two companies referred to in the books of
account for the Vaughan project. Mr. Fishman testified Mold-Die was a
trustee for Dorsam.
Paul Colodny, a chartered accountant, acted for
Regency Homes and Dorsam. He treated Mold-Die, Regency Homes, and 478 as
trustee companies, and no statements were done for trustee companies. He
was unable to ascertain what the monies going into and going out of the
accounts represented. I have no difficulty finding that money was
continually moved from one project to another, from one bank account to
another and from one company to another.
The bookkeeper for Regency Homes, Susan Aleong,
testified money came out of any convenient account and it would be
documented at year-end by inter-company loans at the end of the year. She
testified the books reflect that personal cheques were brought in to make
the personal mortgage payments. She expressed surprise and found it hard
to believe there were no entries in the credit journals. There were no
financial statements for Regency Homes for 1984, 1985, or 1986.
Neither Mr. Fishman nor Mr. Katz were credible
witnesses respecting the financial affairs of the project or the many
companies used by them. For example, Mr. Fishman testified that when
Regency Homes got into trouble, monies were placed in the KGN account to
pay trades. He testified that this was not to avoid creditors, but was
done so that creditors could get money for the work they were doing. Mr.
Fishman had earlier testified under oath that the KGN account was used as
a device to flow money through to avoid creditors of Regency Homes. I find
as a fact that monies were put through the KGN account in order to avoid
lien claims against Regency Homes.
Mr. Katz testified that personal bills were not paid
out of Regency Homes and, if they were, they were so marked. However, I
find that personal bills, such as mortgage payments on their residences,
OHIP, credit cards, of Katz and Fishman were paid from the corporate
accounts and were not so marked. Mr. Katz' testimony that funds and
accounts were intermingled solely for convenience, such as if the
appropriate deposit book was not available, is untenable. Mr. Katz gave
contradictory evidence at trial and at discovery. For example, despite the
fact profits were shared 60/40 with Tromwood, Mr. Katz stated at his
discovery that Tromwood was completely independent and had nothing to do
with Regency Homes.
I find that sufficient funds were advanced to
complete construction of the dwelling on lot 7 and that in spite of the
general difficulties experienced in getting trades, the defendants could
have completed the dwelling by the end of March, 1986, and wilfully
refused to do so. The vendor's right to terminate was not validly
exercised in these circumstances. Therefore, I find that the plaintiff is
entitled to damages for loss of the bargain in the sum of $130,000, plus
the return of the deposit in the sum of $20,000.
LIABILITY OF DORSAM INVESTMENTS LIMITED
The plaintiffs sought a declaration that their claim
for specific performance ranked in priority to a charge registered in
favour of Dorsam. By Reasons for Judgment delivered on November 1, 1989,
Master Linton, with the agreement of counsel, determined this issue in the
Supreme Court action. He found that Dorsam advanced $150,000 under the
mortgage with actual knowledge of the plaintiffs' agreement of purchase
and sale and concluded the plaintiffs' claim would rank in priorty to
Dorsam's claim. It is unnecessary, therefore, for me to determine this
The plaintiffs submit that the defendants Katz and
Fishman are personally liable on a number of grounds. To a large extent
these issues and the evidence relating to them overlapped. These grounds
fraud by the corporate defendants for which the
directors are liable or fraud by the personal defendants;
inducing breach of contract.
LIABILITY OF DEFENDANTS KATZ AND FISHMAN
On the first ground, the claim for fraudulent
misrepresentation related to the representation that Regency could convey
title and that the plaintiffs should have been told the company was a bare
trustee. This claim has not been pleaded with particularity and has not
been established by the plaintiffs. This claim is dismissed against all
With respect to fraud, the plaintiffs submit that
the defendants Fishman and Katz are personally liable because they
concocted an illegal fraudulent scheme designed to frustrate creditors and
to exact additional consideration from purchasers. The plaintiffs submit
the personal defendants were in a fiduciary position and were obliged as
officers and directors of the vendor to do all they could to ensure that
Regency completed the contract. The plaintiffs' pleading respecting fraud
is as follows:
23. The plaintiffs say that all of the
defendants entered into a scheme to defraud the plaintiffs when land
values increased by:
failing to complete the home in time for
encumbering the title to the lands so that Regency
could not be forced to complete;
demanding an increased purchase price as the price
of performing the contract already entered into...
The defendants submit that the failure to complete
the agreement was not part of a scheme to defraud the plaintiffs. The
defendants subnit financial difficulties were experienced when Counsel
Trust called its loan and there were difficulties in obtaining certain
In my opinion, the evidence falls short of
establishing fraud by the personal defendants or their companies in
relation to the plaintiffs. The plaintiffs also sought to establish
liability on the grounds that the personal defendants breached trustee
obligations in relation to the funds required to be held under the Ontario
Construction Lien Act, 1983. This issue was not pleaded with particularity
and I am unable to find the defendants Katz and Fishman liable for breach
On the remaining ground, the plaintiffs claimed
damages against the defendants, Katz and Fishman, for inducing a breach of
contract. The plaintiffs pleaded that Mr. Fishman wilfully prevented the
completion of the transaction by preventing 478 from conveying title on
the closing date and that the defendants 478, Katz and Fishman, together
knowingly and wilfully caused or induced Regency to breach the agreement.
I do not find that the failure to convey title was the reason for the
failure to complete the agreement.
In my opinion, any personal liability involves a
determination of whether these directors are personally liable as having
failed to act bona fide within the scope of a director's duties.
The general principle is set out in Said v. Butt,
 3 K.B. 497 where McCardie J. stated at page 506:
...if a servant acting bona fide within the scope
of his authority procures or causes the breach of a contract between
his employer and a third person, he does not thereby become liable to
an action of tort at the suit of the pcrson whose contract has thereby
It would appear that directors of officers who fail to
act bona fide within the scope of their authority may be personally liable
for inducing a breach of the company's contract. In McFadden v. 481782
Ontario Ltd. et al. (1984), 47 O.R. (2d) 134 Callon J. stated at page 146:
In short, if an officer or director of a
corporation is to be relieved, as an agent, of the consequences of his
otherwise tortious act of inducement, it is not because he is the
company's alter ego. Rather, it is because in so acting he acts under
the compulsion of a duty to the corporation. His act is thus
justified. But where he does not act under such a duty, as, for
example, where he fails to act bona fide within the scope of his
authority, his act is no longer justified, and he becomes liable. The
corporation remains insulated from the legal consequences of such an
act, inasmuch as the director or officer has acted outside the scope
of his authority.
The McFadden case was referred to in a brief submitted
by Mr. Davis and was not relied upon by the plaintiffs. I note that the
McFadden principle was approved in Fink v. 511996 Ontario Ltd. et al.
(1987), 39 C.C.L.T. 196 at 205 (B.C.S.C.): and Acme Bldg. & Construction
Ltd. v. Leadway Masons Group Inc. et al. (1986), 35 B.L.R. 17 at 23-24 (D.C.O.).
On the facts of this case, the defendants Katz and
Fishman acted together as joint-venturers through various companies, which
they controlled, including Regency Homes and 478. The vendor companies
were trustee companies incorporated to carry out the subdivision project
on behalf of the personal defendants and their own holding companies
Kamron and Dorsam.
At the relevant times, the degendants Katz and
Fishman moved corporate monies from one account to another and from one
project to anolher on an as-needed basis and to pay some creditors at the
expense of others.
The facts establish that the real estate market for
homes in this subdivision, and generally, was rising. The defendants Katz
and Fishman breached the agreement (Exhibit 1-34) to advance monies on a
timely basis to close this tansaction. The defendants Katz and Fishman
took advantage of the rising market to induce purchasers to take homes in
an as-is condition. Another purchaser in the same subdivision, Marvin
Dands, testified he closed his lot for the full purchase price when there
remained work outstanding of about $15,000. As I found earlier, the
defendants Katz and Fishman could have caused the vendor companies to
complete the dwelling as agreed, but willfully refused to do so. In these
circumstances, I find the defendants Katz and Fishman were acting male
fides and were not being bona fide in their functions as directors of the
vendor companies and were acting outside the scope of their authority as
directors. As a result, the defendants Katz and Fishman induced the vendor
company to breach its contract with the plaintiffs. The measure of damages
for the tort of inducing breach of contract is that for the breach of
There shall be judgment in favour of the plaintiffs
against the defendants Regency Homes Inc., 478293 Ontario Limited, Israel
Katz, and Joseph Fishman in the sum of $130,000, plus $20,000, for a total
of $150,000. There shall be no award of pre-judgment interest. The action
against the defendant Dorsam Investments Limited is dismissed.
Unless counsel wish to address me respecting costs,
the judgment shall be with costs to be assessed, save and except that
there shall be no costs awarded to the plaintiffs respecting the motion to
amend the pleadings.