****Pages 1-10 are a short summary****

Initial Approach to the Breach of a Real Estate Contract

1. There was a written Agreement of Purchase and Sale: Examine the terms of the contract;
courts will often show deference. Then ask:
a. Is it enforceable? Contracts may be unenforceable due to mental incompetence.
Bowser vs. Prager establishes that a party seeking to avoid a transaction on the
grounds of mental incapacity must est. that 1) they were mentally incompetent at the
time, and 2) that the other party had actual constructive knowledge of this. The court
may also find a contract unenforceable if executing the contract would cause and
undue hardship (1110049 Ontario Ltd. v Exclusive Diamonds Inc). In considering this
equitable remedy, the court looks only at the hardship of the party seeking relief from
their duties under the contract at the time the contract was enforced. The court in
McMullen v McMullen clarified that evidence of improvident decision making is not
sufficient to find an individual mentally incompetent. In addition, the court in Banton
v. Banton imposed a higher duty of care on lawyers who knowingly deal with
incompetent individuals. Where mental incompetence or undue hardship can be
proven by a party, the court may find the contract unenforceable.
b. Did the parties act in Good Faith? If you have a duty in the contract (promise to do
something, like check the zoning of the land), you must act in good faith in carrying out
that duty. If you breach that duty, you have breached the contract and are liable.
When determining whether a party acted in good faith, LeMesurier v. Andrus
proposed the following test: Can the party substantially perform their promises made
in the contract? This ensures that a vendor/purchaser who seeks to take advantage of
a clause which terminates the contract must exercise his right reasonably and in good
faith and not in a capricious or arbitrary manner. It should be noted that Peel
Condominium Corp. No. 505 v Cam-Valley Homes Ltd establishes that parties are not
obligated to bargain in good faith, only to carry out their contractual duties in good
faith.
c. Was the Lawyer liable for Contractual Deficiencies? Wong v   407527 Ont. Ltd
established that If the parties and the agents sign the contract and deliver it to the
lawyer after it is signed, the lawyer is not responsible for the flaws in the contract. If
the clients wish to extricate themselves from the deal, then it is the lawyer’s duty to
point out the flaws in the contract.
d. Are there Contractual Fiduciary Duties?

2. There was not a written Agreement of Purchase and Sale:

a. What effect does the Statue of Frauds have? The Statue of Frauds dictate that unless
there is a written singed contract between the parties, the contract is unenforceable.
This Statue was developed to protect parties who may be held to a non-existent
contract due to fraud. However, this may have an unfair effect on parties who entered
into an oral or non-written contract, who perform their end of the contract to their
detriment, and then see the other party withdraw from the contract relying on the
Statue of Frauds. In response to this problem, the Common Law developed the
concept of part performance to determine whether a plaintiff's conduct based on her

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 belief that a contract exists justifies enforcement of the contract even though it has
failed to comply with the statute of frauds. The leading case in establishing the
common law rule of part performance is Deglman v. Guaranty Trust, which dictates
that in order for acts to constitute part performance in a real estate deal, it must be
evident that the acts unequivocally related to the K for the purchase of the land.
Taylor v. Rawana further elaborates that “The doctrine was designed to ensure that
equity be done where the defendant has stood by and allowed the plaintiff, to his
detriment, to fulfil his part of the oral contract, and where it would be unconscionable
for the defendant to set up the statute by asserting that the contract is unenforceable
so that he might retain benefits which have accrued to him from the contract.”
Tavares v. Tavares (2001, Ont CA) establishes a threshold test for part performance,
where the court asks: in light of the actions taken by the party seeking to enforce the
contract, would it be unconscionable not to enforce the contract? However, there are
two cases which complicate the issue: Erie Sand and Gravel Ltd. v. Seres’ Farms Ltd
tool the doctrine of part performance to such an extreme that is essentially gutted the
Statue of Fraud. Following the decision in Erie, Simply discussing the basis on which a
deal may close and asking the other side to put in in writing could constitute part
performance, and the detriment would be not receiving the land. The judgment tries
to avoid this Pandora’s Box by saying it is unique facts having to do with the right of
first refusal – the court does not acknowledge that this holding potentially changes the
law. Wallace v. Allen found that a Letter of Intent became a binding contract where it
used the language of contract and a part can demonstrate part performance. This
could have a detrimental effect on the parties ability to enter into protected pre-
contractual negotiations. However, this decision is tempered by Peel Condominium
Corp. No. 505 v Cam-Valley Homes Ltd where the court applied the doctrine of Ad
Item (meeting of the minds) to conclude that there was no contract because the terms
were still in the process of being negotiated.
b. Are there non-contractual Fiduciary Duties?

3. Were there any False Statements that induced the non-contracting party to enter into the
contract? P may rescind the contract prior to closing for any misrepresentation (innocent,
negligent, or fraudulent) provided it is a false statement that is (1) material, (2) relied on by
purchaser, and (3) induced P to enter into the K. Under this same criteria, and injured party
may also seek damages for negligent or fraudulent misrepresentations. Post-closing, P may
only exercise the right to rescission based on a fraudulent misrepresentation. P may also
rescind based in undue influence, duress, non est factum, breach of FD, or illegality.

4. Did the breach result from either parties failure to perform a contractual duty which
constituted a Condition, Representation or Warranty?
a. A Condition is a set of events that must exist before a party is bound by its promises.
A contractual condition can be found to be either a Condition Precedent, or a True
Condition Precedent. The main difference is that a true condition precedent is
provided for the benefit of both parties, and depends on the will of a third party to
fulfill (Turney v. Zilka). Because the rule in Turney v Zilka can prove problematic,
parties can contract out of it (Barnett v Harrison). A condition precedent, on the other
hand, is only for the benefit of one party and within the control of the parties to fulfill.
The party for whose benefit the condition was drafted can waive a condition
precedent, whereas a true condition precedent cannot be waived. In addition, a

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 condition precedent doesn’t need to be strictly fulfilled, as long as party for who’s
benefit the condition exists is satisfied that it has been fulfilled Beauchamp v
Beauchamp). On the other hand, when a party is evaluating whether a condition
inserted for their benefit has been satisfied, they are expected to act reasonably - the
correct test in asking whether the efforts were satisfactory to a reasonable person with
all the subjective but reasonable standards of the other party (Flack v Sutherland). The
parties must act reasonably when assessing whether a condition has been fulfilled
even where the contract attempts to purport the standard of sole discretion (Marshall
v Bernard Place). If there is a breach of condition precedent, the innocent party may
elect to accept the repudiation, or attempt to enforce the contract through specific
performance. However, for a party to be found innocent they must prove they acted
in Good Faith. Marleau vs. Savage held that as long as you act reasonably to fulfill the
condition, you have satisfied your obligation - the test is not how another purchaser
might have acted, but did this purchaser act reasonably in light of the circumstances.
In addition, each party is required to make reasonable efforts to satisfy conditions
within their control (Chan v. Hayward).
In addition, Big Promises in the contract may be considered by the court to be
so integral that it rises from a warranty to the level of a condition. When determining
is a provision in the contract is a warranty, or if it rises to the level of a condition, the
court will look at the intention of the parties (Jorian Properties Ltd. v. Zellenrath). But
because the out come of such litigation can be unpredictable, it is safer to advise your
client to close and sue for damages than to rely on rescission. While language such as
‘provided that’ usually means a condition precedent, the court may find it was a
warranty in the fact that it is a lesser promise, the breach of which can lead to
remedies but not recession (Fraser-Reid v Droumtsekas). If there is a breach of
condition precedent, the innocent party may elect to accept the repudiation, or
attempt to enforce the contract through specific performance.
b. A Representation is characterized as a statement as to a state of affairs that is
intended to induce the party to enter into the contract. See #3 above.
c. Assuming a Warranty is not found to be so integral that it is characterized as a
Condition, then the only recourse is to close the deal and sue for damages. However,
in order to demonstrate entitlement to damages, you must be able to illustrate that
the promise did not merge on closing (merger means that when you register the deed,
the deed effectively says that I accept the property as is and cannot sue on any
promises). Court has determined that merger is a matter of intention – did the party
intend for the promise to carry-on after closing (courts typically hold that promises did
not merge)

5. If there has been a breach of a Big Promise, was Time of the Essence ? TofE is a triggering
device which constitutes a Big Promise Remedy. The courts of equity established that time
is of the essence in a real estate transactions, due to the fact that the market fluctuates
such that closing on a certain date could be fundamental to what you are buying. However,
the court of equity has said that in certain circumstances, parties could not have intended
for time to be of the essence. This is essentially an on/off system – if it is on and there is a
breach of a big promise, the injured party can accept repudiation or enforce specific
performance. If they accept repudiation, they are relieved of their duties. If one party is
ready to close on the closing date (innocent party), time of the essence is on. If both

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 parties default, then TotE is turned off and the contract is valid - either party can turn it
back on by giving reasonable notice of a new closing date.
Salama Enterprises (1988) Inc. v. Grewal complicates this remedy in the context of its
specific facts by giving equity the ability to qualify the right of an innocent party to
repudiate when the other party defaults and TiotE is on. In order to find for P, rather than
allow V to accept repudiation and end the contract in light of Ps default, the court twisted
the terms of the contract to find the Big Promise at hand was a ‘common intention’
meaning V had an implied promise to facilitate P in fulfilling their promise by, for instance,
allowing and extension or accepting an undertaking. The dissenting judgment strongly
criticized the finding of a ‘common intention’ as it essentially re-wrote the contract making
contracts less reliable. However, there are mechanisms via which the court can find that
TotE was off due to the actions of V, such as where V extended the closing and did not
make time of the essence, or V has waived TotE by giving a series of extensions leading P to
believe they would continue to receive extensions.
In a situation where both parties default turning TotE off (and the contract continues),
appropriate notice, such as a letter, must be given to turn TotE back on (King vs. Urban
County). Domicile v McTavish expanded on the rule in King v Urban Country stating that If
a mutually defaulting party makes in impossible to close the deal, they cannot turn TotE
back on. In addition, a party who insists on strict performance of the contract, and then
defaults if barred from turning TotE back on (Kwan v Cooper).

6. Was V able to provide Good and Marketable Title? Ontario has implemented a Title
System, which essentially means for every property registered in Land Title, the
government guarantees good title to P. This system operates on 3 principles: 1) the
government was erected a curtain around the title which P is not obligated to look behind,
the title search mirrors the real title, and should the title turn out to be deficient, the
government has insured the title meaning P will be compensated. Section 10 (p. 351) of the
standard Agreement of P&S is a title clause which states that P will take title “provided that
title to the property is good and free from all registered restrictions and, charged, lien and
encumbrances”. In order for character of the title to meet the requirements laid out in the
section, it must be marketable, meaning of the quality the courts would forced upon an
unwilling purchaser who is not compelled to take a title which would expose him to
litigation or hazard (Clement vs. Wyatt). The title clause has been interpreted as a ‘Big
Promise’, meaning that if V fails to provide good title, P can elect to accept the imperfect
title and sue for damages, or they can walk away form the contract. However, there are
some encumbrances on title which are not thought to impact a finding of good title such
as: registered restrictions and covenants that run with the lands which have been complied
with, registered municipal agreements if complied or security (Stefanovska vs. Kok), minor
easements supply of services to property or adjoining, and easements for serviced which do
not materially affect present use. Conversely, title defects which P will not be forced to
take include potential heritage designations (Goldstein vs. Davidson), demolition orders
(Kolan v. Solicitor), In addition, if the court finds that P bargained for title with a wart, then
P can be forced to take title subject to that wart (Tony’s Broadloom). The court in Tabatta
vs. Williams held that new construction requires a occupancy certificate in order to
constitute good title.
Where a defect in title is found that affects the marketability, such as a lease which
cannot be disclosed (11 Suntract Holdings Ltd), P must act in good faith when exercising
their right to repudiate the agreement (Green v. Kaufman). For instance, If the title defect

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 is immaterial, P has no right to repudiate (LeMeusier v. Andrus), the defect in title must
satisfy the de minimus principle (Toll vs. Marjanovic). In the case of an open contract with
no Title Clause, Yandle vs. Sutton complicated the issue by finding a patent defect on title,
which could lead Vs to argue that the title defect objected to by P is patent, so P is stuck
with it. However, the title clause affirms the standard of marketable title in contractual
relationships. The issue was clarified in Steiglitz vs.Prestolite where Justice Laskin affirmed
that the appropriate test was not whether the defect was patent or latent (as applied in
Yandle & Sons v. Sutton), but whether the purchaser was “faced w/ acceptance of property
which would be materially different from that for which he bargained…If the undisclosed
easement materially affects the land in question, then the objection to the easement is a
valid one”.
Simple Objections to Title must be requisitioned by the date listed in the
Agreement of P&S; if P fails to submit requisitions respecting objections to title w/in the
required time, they will be deemed to have accepted the vendor’s title (Majak Propertyies
Ltd. v. Bloomberg). Requisition of Conveyance (wholly within the control of V) can be
requisitioned at any time before closing. Toth v. Ho established at Requisitions going to the
Root of Title may also be requisitioned after the requisition date (i.e. extraordinary
situation where P would receive nothing).
If P requisitions a defect on title, the Rescission Clause in the agreement of P&S
allows V to rescind the contract provided that P made 1) a valid objection to title which is 2)
made in writing, 3) which vendor is unable or unwilling to remove remedy or satisfy or
obtain insurance and, 4) purchaser will not waive it, then, the agreement is at an end. This
is a vendor driven remedy system imported from Bain v. Fothergill to allow vendors who
are ‘bona fida’, once they discover their title is bad, to can call off the deal. Courts don’t like
this provision (they want purchaser to be able to take property and sue for abatement), so
they have put limits on the exercise of this clause. For instance, a reckless vendor is not
entitle to rescission (11 Suntract Holdings Ltd).

Liabilities of Specific Parties

Determining the Liability of the Purchaser Post-Breach

1. Determine who the Purchaser is: The Privity of Contract rule establishes that an injured
party can only obtain damages from the individuals they dealt with in the course of the
contract, except in the case of an agency relationship, where the agent is not liable for the
contractual obligations of their principle, unless the contract is under seal. Where a trustee
is party to the contract, the trustee is liable for any damages resulting from the breach.
However, Trident established that a bare trust, where the ‘trustee’ has no operations
discretion and acts as an arm of the principles, creates an agency rather than trust
relationship. In regards to a contract under sela, Friedmann Equity Developments Inc. v.
Final Note LTD established that the beneficial owner is not liable for breach of a sealed
contract, and that the law will enforce a contract under seal even without consideration.
Furthermore, the court held that a corporate seal equivalent to signature, and ,ortgages
automatically sealed contract. In situations were an individual signs for a company that is
to be incorporated before the completion of the contract, 1394918 Ontario Ltd. v. 1310210
Ontario Ltd stipulates that while the CL requires two parties to be liable under the contract
at all times, the Business Corporation Act protects persons signing for unincorporated

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 companies that fail to become incorporated by stating that they are not liable for the
contract (leaving only the other party contractually obligated).

Determining the Liability/Obligations of the Agent

How to Analyze a Real Estate Agent Fact Situation
1) Is there a contract?
2) If there is a contract, are there contractual Fiduciary Duties?
3) If there isn’t a contract, are there other Fiduciary Duties?
4) Were there any false statements that induced a non-contracting party to enter into the
agreement?
1. Is there a Contract (To whom does the Agent owe Duties)? While an agent is given the
authority to market the property under an agency contract, they don’t have authority to
offer the property (vendor is not making an offer to the world – this is an invitation to
treat); the purchaser makes an offer, and the vendor then decides to accept. An agent has
no authority to bind the vendor without explicit instructions (Peacock v. Wilkinson and
Tinck), and as such, cannot accept an offer without the explicit permission of their principle
(Hunter v. Baluke). An agents commission is only payable upon closing unless the vendor
arbitrarily terminates the deal (Luxor (Eastbourne) Ltd. (In Liquidation) and Others v.
Cooper). In addition, when a contractual disagreement arises, as between the listing
agreement and the agreement of P&S, the listing agreement will dictate the agency
contract (Leading Investments vs New Forest).
Under the former regime of Agency relationships in real estate, because Ps agents was
technically paid by V, Ps agent owed fiduciary duties to V. However, Knoch Estates v.
Picken corrected this conflict of interests saying “an agent cannot serve two principals
where their interests are in such basic conflict as that of purchaser and agent in a real
estate transaction.” The court added the qualification that “the purchaser’s agent may
create a situation where the vendor reposes trust and confidence in the agent to such an
extent as to put the agent in the position of a fiduciary”. However, the three concurring
judgements diverged on what circumstances give rise to Ps agent owing FDs to V. Griffiths
argued that Ps agent owes a limited duty to V to present offers and not directly mislead
them, but this limited duty does not give rise to broader fiduciary duties. Finlayson argued
that the payment mechanism does not create an agency relationship, nor does the MLS
agreement or presenting of the offer create. Doherty agreed there are no FDs owed by Ps
agent to to V, and refuses to use this case to clarify the duties of the Ps agent to the V.
These divergent judgments have not been resolved, so the legal consequences are still
confusing. If an agent is acting as a Dual Agent, Raso v. Dionigi, prescribes that the agent
has a duty to disclose material facts to both parties. This case makes it clear that where an
agent acts for both parties, the contract should make it clear that the agent is not bound to
reveal material facts communicated by cone client in confidence to the other. A Dual
Agency is not created where an agent accepts deposit monies from the non-contractual
party; instead, in the case of deposits, the agent is acting as a stakeholder for either the
third party or the principal, depending on who is ultimately entitled to it (Toll vs
Marjanovic). In terms of Vs agent owing a duty to P, Mucci v. C.M.F Realty Ltd established
that Vs agent may have a limited Duty to Advise if P relied on them for market and pricing
information

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2. What Duties does the Agent Owe (contractual/fiduciary)? All real estate agents owe the
FDs of confidentiality, candour, and loyalty to their clients (Hodgkinson vs. Simms).
Hodgkinson also sets out several indicia to assist in recognizing the existence of fiduciary
relationships established in Knoch Estates: (1) scope for the exercise of some discretion or
power; (2) that power or discretion can be exercised unilaterally so as to effect the
beneficiary's legal or practical interests; and, (3) a peculiar vulnerability to the exercise of
that discretion or power. However, these criteria are discretionary as it is possible for a
fiduciary relationship to be found although not all of these characteristics are present, nor
will the presence of these ingredients invariably identify the existence of a fiduciary
relationship. The law has also developed to obligate and agent to act as a reasonably
competent agent on their clients behalf, and depending on the case, there may be
additional contractual obligations imposed on the agent. The Duty of Loyalty was
breached by the agent in Soulos v. Korkontzilas; here the court imposed a constructive
trust as a result of a breach which met the following 4 criteria: 1) The defendant must have
been under an equitable obligation 2) The assets in the hands of the defendant must be
shown to have resulted from deemed or actual agency activities of the defendant in breach
of his equitable obligation to the plaintiff 3) The plaintiff must show a legitimate reason for
seeking a proprietary remedy 4) There must be no factors which would render imposition
of a constructive trust unjust in all the circumstances of the case. Phillips v. R.D. Realty Ltd
stresses the fact that parties seeking recovery after a breach must be able to prove
damages. Finally, the Duty of Candor was litigate in Ocean City Realty Ltd. v. A & M
Holdings Ltd where the court developed an objective test in order to determine the extent
of the duty by asking by what a reasonable man in the position of the agent would
consider, in the circumstances, would be likely to influence the conduct of his principal?
Knoch Estates v. Picken further clarified that Ps agent has no duty of candor to V, but they
cannot make misrepresentations.

3. Did the Agent Act Negligently? The standard of care for negligence in an agency
relationship is that of a prudent agent. Case law has established certain principles that help
clarify what constitutes negligence on the part of a real estate agent: an agent who
represents themselves as a specialist or expert has a higher duty of care (Olsen v. Poirier),
an agent who does not inform themselves regarding market conditions falls below the
standard of care of the prudent agent (Wong v   407527 Ont. Ltd), and an agent can be
found negligent for contractual deficiencies such as not securing a rental guarantee where
the rental income was relied upon (Wong v   407527 Ont. Ltd), or recommending their
clients rely on inadequate warranty statements, especially while simultaneously failing to
disclose material facts (Vokey v. Edwards). There are several possible consequence of an
agents negligence: an negligent agent will be disentitled to commission (11 Suntract
Holdings Ltd. v. Chassis Service & Hydraulics Ltd), the brokerage can be found jointly and
vicariously liable for the agents negligence (Vokey v. Edwards)

4. Were there any False Statements that induced the non-contracting party to enter into the
contract? ***See Above.

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 Other Importance Considerations

What is being Bought and Sold in the Transactions? Chattels v Fixtures and Legal Description
issues (see summary).

Does Equitable Conversion affect who is liable for Damage to the Property?
Lysaght v. Edwards established EC stating that the moment you have a valid contract
for sale, V becomes in equity a trustee for the purchaser, and the beneficial ownership passes to
P. V has a right to the purchase money, and may put charge or lien on the estate for the security
of that purchase-money (a vendor’s lean is a powerful contractual remedy which can be
enforced like a mrtg (Silaschi vs. 1054473)). If anything happens to the estate between the
time of sale and the time of completion of the purchase, it is at the risk of P. However, if V
willfully damages or injures the property he is liable to P; more than that, he is liable if he does
not take reasonable care of it (V. Rankin’s Mechanical contracting Ltd. v. First City
Developments Ltd and Lichtenberg v. Johnstone et. Al). In addition, if damages occurs at no
fault of V where V actively conceals it barring P from exercising rights under contract, V may
assume an a-typical liability (Abel v. McDonald).
Equitable conversion was developed to protect the interests of P from the time the
agreement is signed until closing, but it has some undesirable practical effects in terms of
liabilities. The modern Agreement of P&S contains a Contractual Risk Claus which reads “all
things being purchased shall remain until completion at the risk of the Vendor . . . in event of
substantial damage, P may either terminate agreement or take insurance proceeds”. In effect,
the parties saying by contract that they want the practical impact of the equitable conversion to
be reversed. Loewen v. Neumann held that the Risk Clause is to be treated as at least a
Warranty extended by V for the benefit of P (meaning the remedies associated with warrenties
would apply). However, there is no test for determining what constitutes ‘substantial damage’,
and P may not be entitled to Vs insurance money, as an insurance is a personal contract and
does not run with the land (Rayner v. Preston). Wile v. Cook elaborates as to the effectiveness
of the Risk Clause in reversing EC – ‘All the clause provides for is that if P elects to go through
with the purchase he is entitled to whatever insurance proceeds may be owing. It does not give
P any guarantee that the insurance is necessarily collectible’. The SCC, in Wile implied a term of
contract that the closing date will be extended for a reasonable time to find out what the
insurance is and also said that they need to tell P what the insurance is.

What is the Effect of Caveat Emptor?

***If there is concealment, fraud, or misrepresentation, a warranty, or a promise about the
condition/item, you do not need to discuss whether the defect is latent or patent
*** Ct says, if you could see it, you are stuck with it; if you couldn’t see it, maybe you will be
stuck with it, maybe you wont. Clause is meant to say you did inspect it, and you are stuck with
all patent defects. But if you don’t inspect you are still stuck with the patent defects. By giving
the purchaser the right to inspect you are shifting more things out of the latent box into the
patent box.

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 Caveat Emptor is a warning that notifies a buyer that the goods he or she is buying are
"as is," or subject to all defects. When a sale is subject to this warning the purchaser assumes
the risk that the product might be either defective or unsuitable to his or her needs. In
McGrath vs. McLean, Justice Laskin established that absent fraud or misrepresentation, you
take the property as you find it. There are several exceptions to CE which include: contractual
warranties, CL implied warranties (Fraser-Reid v. Droumtsekas, Jaremko v. Shipp Corp),
statutory warranties (Grudzinski v. Ontario New Home Warranty Program), misrepresentation
(Thiel vs. Milmine, Heightington, Patay v. Hutchings, Goldstein vs. Davidson) silence
amounting to a misrepresentation (Sevidal vs. Chopra), active concealment, fraud (Jung v. Ip,
Abel v. McDonald), error insubstantialus, and the existence of latent defects (a fault in the
property that could not be discovered by P).
Sellers are obligated to disclose material latent defects that they are aware of, but
buyers are expected to discover patent defects on their own. A latent defect is considered
material if it renders the property unfit for habitability, dangerous, creates a health and safety
hazard, or is something the reasonable purchaser would find material, and the onus is on P to
prove this (Ceolaro v. York Humber, Swayze vs. Robertson). There is no duty to disclose a latent
defect which V is not aware of (McGrath vs. McLean). The duty to disclose latent defect within
the knowledge of V also extends to latent defect in the neighbourhood (Sevidal vs. Chopra), but
again, P must prove such defects meet the criteria for actionability (Godin v. Jenovac) If a latent
defect only goes to the value of the property, you are not required to disclose it (i.e. a death on
the property).
The latent/patent defect regime transfers responsibility for discovering certain defects
to P. For example, the court places additional burdens on P, such as the duty to inspect if there
is an indication of a Patent Defect (Tony’s Broadloom & Floor Covering Ltd. v. NMC Canada Inc),
and the become informed by, for example, consulting public records (Marathon Realty v.
Ginsberg). However, in situations where P acted reasonable to detect defects, the court has
attempted to alleviate this burden – the court in Winnipeg Condominium Corp v. Bird
Construction, based on the facts of the case, held that a purchaser who takes reasonable steps
to Inspect is not liable for defects due to contractors negligence. In the broader picture, in order
to determine is something constitutes a defect in the land at all, the use of the land must be
taken into account (Tony’s Broadloom & Floor Covering Ltd. v. NMC Canada Inc).

Should the Party seek Specific Performance?

Specific Performance is a remedy whereby an injured party can enforce the terms of the
contract, possibly with abatement. Under the old law, SP was almost automatically available to
both P and V (Bashir v. Koper [1983] OCA). However, under the current system, in order to be
allowed to exercise SP, P must demonstrate that there is no suitable alternative (uniqueness),
and as such, damages are an inadequate remedy. When evaluating whether a suitable
alternative is available, the court will look at availability at the time of the breach (John E.
Dodge Holdings Ltd. v. 805062 Ontario Ltd). The party who is claiming the property is unique
has the burden of proof (904060 Ontario Ltd, 11 Suntract Holdings Ltd). Because of this
requirement, if P desires a property exclusively for profit, the remedy of SP is not available to
them bc a property purchased for profit cannot be unique (Domowicz vs. Orsa, Semelhago).
Once it is determined that a party is entitle to SP, the court needs to decide from what
date the damages flow – the date of breach, mitigation date (the date by which the injured
party should have or did mitigate their damages), or the date of the judgment. However, only in
extreme situations will the court evaluate damages at the time of judgment, so it is in the best
interest of the injured party to mitigate their damages (Annsdell v. Crowther); however, there

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are situations where the damages will be assessed later (Wroth and Another v. Tyler). A party
who is entitled to SP also has the right to elect to damages in lieu of SP (Semelhago). Were a
party seeks SP w/ and abaitment, the court considers the request on the standard of the
reasonable purchaser, and attempts to discern the intention of the parties from an agreement
which did not contemplate what actually transpired (11 Suntract). In very rare cases, V may be
able to enforce SP with an abatement where they are able to convey substantially what P
bargained for (LeMessurier v. Andrus).
There are equitable defenses that may be raised by the offending party when the
injured party seeks remedies such as SP – these include: the defenses of laches (Grauer Estate
v. Canada), ‘clean hands’ (Hong Kong Bank of Canada v. Wheeler Holdings), hardship (Stewart
v. Ambrosina et al, 11110049 v. Exclusive Diamonds), and unfairness (McCorkell v. McFarlane).

Did Fraud affect the validity of Title?

Once a party is defrauded out of their claim in land, the first thing that must be
discerned is their place in the chain of transactions relative to a forger or fraudster. Under the
immediate indefeasibility system, an innocent party on title is automatically given good title.
However, this is not the current law (although it was applied to an extent in CIBC Mortgages
Inc. v. Chan, but this approach was subsequently overruled in Lawrence vs. Wright). Ontario
purports to have a deferred indefeasibility system, such as the one applied in Durrani v. Augier,
where a person who deals directly with a forger does not get good title, but where the forgers
‘sells’ to a fraudster who in turn sells to an third innocent party, the third party would secure
good title. However, the court in Lawrence essentially created a double deferred indefeasibility
system it their ruling, without acknowledging that the law had been changed. Under DDI, you
can only get title from an innocent person - if you have title transferred to you by a forger or a
fraudster you do not have good title. However, the court in Rabbie added that in order to rely
on this, you have to have done due diligence. Then Ratvinsky elaborated saying that if you are
a bank, you never win (DDI plus) – in order to rely on DDI, it must be clear that you could not
have avoided the fraud by doing something more. In this case, said that banks can always do
more.

In terms of a lawyers culpability for fraud, a lawyer must be able to demonstrate they
took prudent steps to avoid the fraud such as requesting ID (Yamada vs. Mock), and they must
demonstrate that they were not blind to suspicious situations/redflags (Shute v. Premier Trust
Co).

How do you get out of the deal if you ‘want to’?

1. Condition Precedents: I do not want to be bound by my promises unless certain things
occur. The only thing that matters is was it fulfilled or not.
2. Promissory Condition System: If there is a breach of a big promise and you are the
innocent party, you can get out of the deal – you are relieved of your promises. You can
also sue for damages.
3. Rescission: Have to decide whether the misrepresentation is
fraudulent/negligent/innocent. As long as it is before the deal closes and your client
comes to you with a misrepresentation, they can get out. Once you closed, there is no
real remedy except proving fraud.
4. Duty to Disclose: If you discover a big defect before closing, you could frame it as a
promise, or a license for recession. Courts treat silence as a misrepresentation, and
concealment as fraud. Half-truths are treated like a misrepresentation.

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 5. Error in Substantialus: It is not clear how this comes into play. Could say if your not
getting anything then that might be a breach of a big promise, or a mistake.
These remedies relate to external factors, not the contract: No Ad Idum, Duress, Undue
Influence, Illegality, Unconscionability, Mental Incompetence

****Beginning of regular summary****

Issues Relating to the Enforceability of the Real Estate Contract

Mental Incompetence

Bowser vs. Prager [1999] OJ no. 1438 (SC): Established the test for Incapacity: A party seeking
to avoid a transaction on the grounds of mental incapacity must est. that 1) they were mentally
incompetent at the time, and 2) that the other party had actual constructive knowledge of this.
There is also authority for the proposition that where the party does not know of the
incompetence but takes unfair advantage the agreement should not be enforce.
(Waddams Law of Contracts)
Holding: Agreement enforced – he was not so incapacitated that he did not understand. No one
knew of his illness, and the price was fair. However, the court does not enforce specific
performance on the basis that it would inflict undue hardship on Prager
(SP is an equitable remedy). Awards damages in lieu.

1110049 Ontario Ltd. v Exclusive Diamonds Inc.: It is appropriate for the court to refuse specific
performance if the result would be an undue hardship to the defendant (equitable remedy).
***Look at hardship at the time the contract was enforced.

McMullen v McMullen (2006): Improvident Decisions do not equate to Mental Incompetence:

Evidence of improvident decisions is not enough to establish mental incompetence. Law allows
ppl to make bad choices, provided they are capable and their decisions do not harm others.

Banton v. Banton: Duty of Lawyer at Incapacity: Predatory Marriage“An attorney for a donor
who has mental capacity to deal with property is merely an agent and…the attorney’s primary
responsibility in such a case is to carry out the instructions of the donor as principal.  As an
agent, such an attorney owes fiduciary duties to the donor but these are pale in comparison
with those of an attorney holding a continuing power when the donor has lost capacity to
manage property.”

Stubbs v Erickson: Onus on party who knowingly deals w/ incompetent person: “Damages for
loss of bargain are not recoverable where a court exercises it’s discretion not to award SP in an
unconscionable bargain” (Author). Found that the purchasers, who lived next to seller for a year,
must have been aware of her alcoholism. However, the court believed the purchasers had acted
in good faith and did not exert undue influence. What distinguishes this case from authorities is
that seller had legal advice. The law must place on persons who knowingly deal with mentally
incompetent persons the onus to show that they gained no undue advantage as a consequence
or, at the very least, they did not knowingly gain such an advantage.

Statue of Frauds

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The purpose of the Statue of Frauds is to prevent the possibility of a nonexistent agreement
between two parties being "proved" by perjury or Fraud. This objective is accomplished by
prescribing that contracts not be enforced unless a written note or memorandum of
agreement exists that is signed by the persons bound by the contract's terms or their
authorized representatives. If the defendant can establish that the contract he has failed to
perform is legally unenforceable because it has not satisfied the requirement of the statute,
then the defendant cannot be liable for their breach. A strict application of the statute of frauds
can produce an unjust result. A party, who in Good Faith believes a contract exists and therefore
spends time and money to perform the contract, would be unable to force the other party to
perform because the agreement was not in writing. Therefore, courts often employ the
term part performance to determine whether a plaintiff's conduct based on her belief that a
contract exists justifies enforcement of the contract even though it has failed to comply with the
statute of frauds. Part performance refers to acts performed by the plaintiff in reliance on the
performance of the duties imposed on the defendant by the terms of the contract. The plaintiff's
actions must be substantial in order to demonstrate that he actually has relied on the terms of
the contract. The real test for Part Performance is one of unconscionability - would it be
unconscionable not to enforce this K in these circumstances?

Deglman v. Guaranty Trust: Leading case in Part Performance: For acts to constitute part
performance in a real estate deal, it must be evident that the acts unequivocally related to the K
for the purchase of the land (can't be related to some other K).

Erie Sand and Gravel Ltd. v. Seres’ Farms Ltd.: Guts the Statue of Frauds. 1)Simply discussing
the basis on which a deal may close and asking the other side to put in in writing could
constitute part performance, and the detriment would be not receiving the land. This is
dangerous as it may lead to enforceable oral contracts that the vendor did not mean to be
binding. The judgment tries to avoid this Pandora’s Box by saying it is unique facts having to do
with the right of first refusal. 2) In assessing part performance, it is not just a plaintiff’s actions
that are relevant, but also a defendant’s actions. “in addition to Erie preparing the offer and
providing a deposit which Seres accepted, the steps taken by Seres in delivering the offer to Tri-
B (right of first refusal) also contributed to the finding that there was part performance” (Article)
*** Changed the system: Prove the contract using part performance; demonstrate a detriment,
which can be losing the land. This effectively guts the Statue of Frauds. They don’t admit they
are changing the law, but its good they did bc it was stupid (Carter).

Wallace v. Allen: Test for when letters of intent become binding contracts: Where a Letter of
Intent uses the language of a contract, and a party can demonstrate part performance based on
the terms outlined in the LOI, the court may find a valid contract existed.
***Undermines the historical use of LOI to negotiate before and agreement is entered into.

Taylor v. Rawana (1990, Ont): Oral Contracts and Part Performance: “The doctrine was
designed to ensure that equity be done where the defendant has stood by and allowed the
plaintiff, to his detriment, to fulfil his part of the oral contract, and where it would be
unconscionable for the defendant to set up the statute by asserting that the contract is
unenforceable so that he might retain benefits which have accrued to him from the contract.”

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Tavares v. Tavares (2001, Ont CA): Test of Unconscionability: would it be unconscionable not to
enforce this K in these circumstances (helps determine what amount and type of part
performance is sufficient).

Ad Item

Hunter v. Baluke (1998, Ont): Test for Ad Item (meeting of the minds): A ‘substantial and
essential” term of the contract had not been agreed upon; therefor there was no ‘meeting of
the minds’ (standard = subjective). 2) “A plaintiff who relied on part performance to take an oral
agreement respecting land out of the operation of the Statute of Frauds must show that the acts
by themselves unequivocally refer to a deal with land”, and represent an inequitable detriment
to one party to the benefit of the other 3) There is no general rule that the payment of money
cannot constitute a sufficient act of part performance, however if the payment of money is to
be relied on, it has to be money which I the defendant has retained and not repaid and had
not offered to repay or cannot repay (the money in this case had been held in trust).

Good Faith
If you have a duty in the contract (promise to do something, like check the zoning of the land),
you must act in good faith in carrying out that duty. If you breach that duty, you have breached
the contract and are liable. There is no duty to bargain in good faith.

Peel Condominium Corp. No. 505 v Cam-Valley Homes Ltd [2001] (CA): There is no Duty to
Bargain in Good Faith: 1) “Purchasers are not buying paper plates, they are buying real estate, if
they do not read the documents, it is not the job of the courts out bail them out.” 2) There was
no misrepresentation because the builder intended, and the time of the contract, to complete
the project as advertised. The builders plan changed do too unforeseen market pressures, but
the changes did not violate the contract. 3) There is no fiduciary agreement between developer
and purchaser.

LeMesurier v. Andrus: Good Faith in Contract Performance: Can the party substantially perform
their promises made in the contract? This ensures that a vendor/purchaser who seeks to take
advantage of a clause which terminates the contract must exercise his right reasonably and in
good faith and not in a capricious or arbitrary manner. Here, the purchaser was entitled to take
the property with an abatement of the purchase price for an immaterial deficiency; the vendor
could enforce the k as he could “convey substantially what the purchaser had contracted to
get.” (standard for materiality = objective)

Illegality

Beer v Townsgate I Ltd [1995] (Gen. Div.) & CA: Criteria for declaring a Contract Void for
Illegality: If parties enter into a ‘illegal’ K with no intention of complying with the law, it’s
unenforceable. If there is a legal problem at the time the contract is signed, but the party can
demonstrate their intention to rectify the problem before closing, the contract is enforceable.
Illegality as to factual information must be distinguished from illegality as to the performance of
the contract - public policy favours that contracts should not be rendered unenforceable merely
because of technical deficiencies.

Duty of the Lawyer

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Law Society of Upper Canada: The general rule is that a lawyer should not act for more than
one side in a real estate transaction. However, there are times when a lawyer will decide to
make an exception to the rule, for any number of reasons. When he or she does so, it is
imperative that each party involved in the deal is informed in writing.

Wong v   407527 Ont. Ltd: Responsibility to the Lawyer for Contractual Deficiencies: If the
parties and the agents sign the contract and deliver it to the lawyer after it is signed, the lawyer
is not responsible for the flaws in the contract. If the clients wish to extricate themselves from
the deal, then it is the lawyer’s duty to point out the flaws in the contract.

Identity and Liability of the Purchaser

***Normally, only the parties to the agreement may be the sole persons or entities that can be
sued for breach of contract.

Trust: The trustee is liable should a law suite result, not the beneficiary.
Bare Trust: A bare trust acted as the trustee when an individual or group wanted to buy
property but be protected. Unlike a real trust, the bare trust did not exercise discretion, but
acted as an arm of the beneficial purchaser. Bc of Trident, Bare Trusts are no longer considered
an agency.
Agency Contract: Undisclosed principle is liable unless K is under seal, and if it is a registered
contract you get the benefit of a seal. When you buy a property as a principle’s agent, the
principle is on the hook.
Privity of Contract: You only get to sue the ppl you deal with; agency is an exception (many say
a stupid one).
Contract Under Seal: A contract under seal does not need consideration, has a limitation of 20
years, and gets around the undisclosed principle rule (only the agent can be sued). Gets around
the undisclosed principle rule that applies to trusts where parties not engaged in the contract
directly can be liable. For more on seals see text p. 61.
Business Corporations Act: Outlines the rules regarding contracts entered into prior to
incorporation (see text p. 27), and outlined who can be held responsible for breach of contract
where a corporation is involved (See text p. 30).
Obligations of the Vendor: As vendor, it is extremely important to identify all persons having an
interest in the lands. A decree of specific performance with respect to the totality of the lands
may be unavailable if all persons interested in the land are not bound by the contract. If a
purchaser is anxious to ensure that he or she will get all the lands, a subsearch of title is
indicated. However, a subsearch may not indicate all the interests that must be recovered.

Trident Case: Guts Bare Trusts: Deals with the Bare Trust concept employed until the 70’s.
Apartment bldg. owned by a bare trust with a bunch of individuals as the interested owner.
Electrical contractor sued the beneficiary owners. The trustee in a bare trust is merely an agent
when entering the contract (not a trustee capable of exercising discretion). Therefor the EC
could sue the beneficiaries.

Friedmann Equity Developments Inc. v. Final Note LTD: Contract Under Seal: The fundamental
difference between contracts under seal and simple contracts is in relation to the doctrine of

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consideration. The law will enforce a contract under seal even without consideration. 1)
Corporate seal equivalent to signature, 2) Mortgages automatically sealed contract. The court
held the contract was sealed, so the beneficial owners were not liable because they are not part
of contract. “To abolish the sealed contract rule would…[make] it possible for parties not
appearing on the face of the deed to have rights and obligations under it.”

1394918 Ontario Ltd. v. 1310210 Ontario Ltd: Business Corporations Act: Liability of Persons
signing for Unincorporated Company: The CL calls for both parties to be liable to contract: you
can enter into a contract on behalf of a company that doesn’t yet exist and the company can be
created later, but if the company is never incorporated and doesn’t adopt that contract then the
person that signed for it is liable. However, The Business Corporations Act allows for only one
party to be liable if a person signs on behalf of unincorporated company and expressly says in
contract that they are not liable. If the company is never incorporated, there is only the vendor
who is bound.

Wallace v. Allen: Test for when letters of intent become binding contracts: Where a Letter of
Intent uses the language of a contract, and a party can demonstrate part performance based on
the terms outlined in the LOI, the court may find a valid contract existed.
***Undermines the historical use of LOI to negotiate before and agreement is entered into.

The Real Estate Agency Relationship

How to Analyze a Real Estate Agent Fact Situation

5) Is there a contract?
6) If there is a contract, are there contractual Fiduciary Duties?
7) If there isn’t a contract, are there other Fiduciary Duties?
8) Were there any false statements that induced a non-contracting party to enter into the
agreement?

Multiple listing Service: MLS is a locally administered database that provides information about
homes for a sale in a given area, controlled by the local real estate board. Pursuant to a mls
agreement, commission is paid on the ‘completion of any sale’, or in the case of an option, upon
exercising the option (see 11 Suntract for complications). The service also determines the
division between the various participants in a real estate transaction. Today, the 50/50 split
remains, giving the listing agent as much commission as the agent producing the sale. Before
1993 all agents were working for the vendor – Knoch Estate clears this up.
Overhold Clause: The standard form listing agreement contains a holdover clause entitling the
agent to commission if an offer to buy the property is ACCEPTED by the seller within 90 days
after the listing period expires, provided that the buyer was introduced to or shown the
property during the listing period. 
Current Law: Agents have contract duties, fiduciary duties, and, in some circumstances, tort
liabilities. Tort liabilities are not owed to the vendor, but if the vendor’s agent makes
representations to the purchaser which the purchaser relies on, they could be liable in tort even
though there was no contract bn them.
(REBBA – Real Estate and Business Brokers Act; RECO – Real Estate Council of Ontario)
Typical Agent Agreements (Listing Agreement and Purchaser’s Agency Agreement): Normal
situation – vendor enters into a listing agreement. In terms of the purchase, there may not be a
formal contract, so you have to infer from their actions whether the pur was relying on the

15
agent to look after their interest. It is getting more common for purchasers agents to insist on a
Purchasers Agreement; these types of agreements protect the agent’s commission but not so
much the purchaser. Most of these contracts do not outline the actions the agents will take on
their clients behalf, so the law imposes parameters on the legal relationship: duty of a prudent
agent or solicitor (contracts have the option to limit the retainer within the contract). If there is
a dispute, the courts lean towards a finding for the client.
Duties of the Agent: MLA Doesn’t say what the agent will do (only what the vendor will do – i.e.
pay commission, tell agent about of interested parties)
Traditionally: law requires agent not to be negligent, but no positive obligations
Case Law: might be a positive duty on agents to work hard, make efforts to sell, etc - and if don’t
they may not get a commission and agreement may be terminated
Other Possible Fiduciary Duties: Loyalty, Duty to Exercise Care and Diligence, Duty to Advise on
Price Range or Inform Themselves, Duty to advise on Conditions of Purchase (i.e. financing),
Duty of Candour, Duty to Third Parties.
RECO Code of Ethics: Includes duty of confidentiality (Rule 8), Rule Against Misrepresentation or
Falsification (Rule 100), and a positive duty to Discover Facts, to avoid error, misrepresentation,
or concealment of pertinent facts (Rule 11).
Fraud: When we give an opinion on title, there is an implied exclusion for fraud.
However, the Law Society expects lawyers to be diligent and aware of fraud schemes that the LS
provides information on. For instance, you cannot rely on certified cheques anymore because
they are too easily created.
Misrepresentation: If the agent makes false, negligent, or fraudulent, makes statements that a
client relies upon to enter into the purchase contract, than there has been a misrepresentation.

Authority of Agent to Bind Purchaser

1) While an agent is given the authority to market the property, they don’t have authority
to offer the property (vendor is not making an offer to the world – this is an invitation to
treat); the purchaser makes an offer, and the vendor then decides to accept.
2) Does the agent have the authority to accept an offer made by a purchaser? The
standard is that they do not have the authority to do so, but it is possible if they are
given the authority.

Hunter v. Baluke (1998, Ont): Language used in Accepting and Offer must be Definitive, and
Agent cannot accept and Offer without explicit Permission from Vendor: An offer was made by
P to enter into terms negotiations, and the agent interpreted that as an offer which was in the
purview of V to accept. Court held that the agent did not use definitive language that would
indicate they were accepting an offer.
Note: What would have happened had there been definitive language? the court would have to
look at whether the agent had the authority to accept an offer on behalf of their clients (there
are marginal cases where the agent has bound the client).

Luxor (Eastbourne) Ltd. (In Liquidation) and Others v. Cooper (1941) ALL E.R. 33:
Agents Commission is only Payable upon Closing unless the Vendor Arbitrarily Terminates:
Agent agreed the contract was void due to fraud on the part of the purchaser, but argued that
the vendor can’t take any steps that deprive the agent of their contractual commission - claimed
vendor owed agent a duty to close the agreement and secure their commission. Court held that
the agent only gets commission when the deal closes, not when you bring someone who is
prepared to pay what the vendor asks. The vendor can refuse to sell. However, if the agent is

16
entitle to a commission on the sale of a property that they affect, where the vendor arbitrarily
terminates the agreement after it is a binding contract, the agent can sue the vendor. If the
Purchaser arbitrarily terminates the agreement, there is no remedy for the agent.

Leading Investments vs New Forest: As bn the Listing Agreement and the Offer, the Listing
Agreement Binds/Reasonable Expectations of the Parties: The purchasers Agreement said that
the vendor would pay the agent for introducing the purchaser, not for closing the deal. However
the Listing Agreement said commission would be payable upon closing. As bn the Listing
Agreement and the Offer, the Listing Agreement binds - the offer has no separate consideration.
The court was guided by the reasonable expectations of the party. In the circumstances of this
case for the respondent broker to succeed in its claim for commission, they were required to
procure a purchaser who at the date fixed for the closing was ready, willing and able to
complete the transaction. It failed to do so. Its claim failed.

Peacock v. Wilkinson and Tinck: Agent has no authority to bind the vendor without explicit
instructions: Series of sales and purchases that are void bc the original vendor had not signed –
final purchaser argued the agent had sold on original purchaser’s behalf.
Carter: Could have gone the other way - agent made a representation, that C had the
ownership, and breached their obligation by not checking this and leading A to think he had
bought the property.

Toll vs Marjanovic: Agent is a stakeholder holding for both parties - if the agent absconds,
they cannot go after each other: Vendor’s agent absconded with purchaser’s deposit.
Purchaser’s tried to sue vendor to recover, but court held that the vendor was not vicariously
libel for the actions of the agent. Whether a RE agent or broker becomes a dual agent by
implication appears to be a question of facts. On the facts of this case, court concluded that the
broker acted as a dual agent for both the vendor and the purchaser. When the agency receives
the money, they become a stakeholder for both parties

Who do Agents Represent?

Pre-Knoch and Post-Knoch: Pre-Knoch, both agents technically paid by the Vendor, meaning
both agents owed a fiduciary duty to the vendor. This put the pur at a bargaining disadvantage,
and the vendor at an economic disadvantage. After Knoch, you have to figure out who they
have a contract with, whether oral or written, to determine who they have a duty to.

Knoch Estates v. Picken: Purchaser’s Agent does not typically owe a Fiduciary Duties to Vendor
An agent cannot serve two principals where their interests are in such basic conflict as that of
purchaser and agent in a real estate transaction. The purchaser’s agent may create a situation
where the vendor reposes trust and confidence in the agent to such an extent as to put the
agent in the position of a fiduciary, but hose circumstances were not present here. If the selling
agent does not have any direct dealings with the vendor, there is no duty
Griffiths: Purchaser’s agent owes a limited duty to vendor to present offers and not directly
mislead them – this limited duty does not give rise to broader fiduciary duties.

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Finlayson: The payment mechanism does not create an agency relationship, nor does the
presenting of the offer create, nor does the MLS agreement.
Doherty: Agrees there is no fds duties owed by Picken to the Vendor. Refuses to use this case to
clarify the duties of the purchasers agent to the vendor.
*** Divergent judgments have not been resolved, so the legal consequences are still confusing.

Raso v. Dionigi: Dual Agent has a Duty to Disclose Material Facts to Both Parties: A fiduciary
who breaches his duty by non-disclosure of material facts is not entitled to prove that the
transaction would have concluded had disclosure been made. Since it was not likely that the
vendors would have signed the listing agreement had they known the true facts, the real estate
agent is not entitled to any commission. It also follows that the purchasers are disentitled to an
order for specific performance. Purchasers not only had knowledge of the agent’s breach, but
also actively participated in the stratagem designed to secure the property for themselves and
the commission for the agent. Purchasers are disentitled to equitable relief because they did not
seek it with “clean hands”.
***Equity: Was court influenced by the deviousness of the situation? Agent brought brother and
sister-in-law as purchasers and did not inform vendor of another purchaser who was willing to
pay more.
Note: However, if agent had disclosed the bottom line, they would be liable to the purchasers.
So, Ks need to outline the fact that they are a dual agent, and what facts they will not reveal
(i.e. Confidential info)

Toll vs Marjanovic: Agent who accepts deposit is a stakeholder holding for both parties:
The decision in Gray v. Murchison holds that a dual agency can be created from an agreement
to receive a deposit subject to an obligation to return it where the transaction fails to close. The
law on this issue has been somewhat refined in viewing the agent not as a trustee per se for the
purchaser, but rather as a stakeholder for either the third party or the principal, depending on
who is ultimately entitled to it. Certain consequences would seem to flow from this state of
affairs. 1) The risk of misappropriation of deposits (or other moneys) or their loss by brokers lies
with the parties entitled to the moneys and not necessarily with the principals, as would in
general be the case at common law. 2) Third parties entitled to moneys held by brokers can sue
only the brokers and not the brokers' principals (unless, of course, it has wrongfully been paid
the principals) for their recovery which, again, constitutes a change in the traditional position.
3) Trust funds are not available to the creditors of brokers upon their bankruptcy. Were I to
have held that the plaintiffs were entitled to the deposit monies, it would have been incumbent
upon them to seek their return from the real estate agent or to sue the broker for their recovery

Negligence of Agent
The agent is obligated to act as a reasonably prudent agent. If you fall below you are negligent.
It is a breach of contract to be negligent - there may are also tort claims.

Olsen v. Poirier: An Agent representing themselves as an Expert has a higher Duty of Care:
“While it may not have been negligent for a real estate agent unfamiliar with farm sales to know
of this marketing policy, I find that a person holding himself out to be an expert in the field
knowing that a person will rely upon him, has a higher duty of care than others. I find that Mrs.
Poll, while acting in the employ of the Poll company, made a negligent misrepresentation and

18
that both she and the poll company owed Olsen a duty of care. If you hold your self out to be an
expert you may be held to a higher standard than otherwise.

Wong v   407527 Ont. Ltd: Agents can be held Liable for not securing Guarantees of Rental
Incomes that are relied upon by Purchaser: Purchaser relied upon an unsecured rental
guarantee that there would be a specified rental income for a year. When that did not happen
(the tenant left and the vendor went bankrupt). Agent who had negotiated the contract did not
secure a guarantee was found liable 20% loss, and lawyer liable for 0% for not trying to secure a
guarantee, bc there was no way the vendor would agree to that after there was a signed
agreement.

Mucci v. C.M.F Realty Ltd.: Agent may be Negligent for not knowing Market Values/Vendor’s
Agent may sometimes owe a Duty to advise on price to Purchaser: Agent’s regularly advise
vendors on listing prices and hold themselves out as being able to do so. They have a
comparable obligation to purchasers to whom they owe a duty to advise on whether the asking
the asking price is unrealistically high. If the agent lacks such expertise or market knowledge, I
am satisfied that a real estate salesman has a duty to warn his principal that he cannot and will
not advise on the adequacy of the price.

11 Suntract Holdings Ltd. v. Chassis Service & Hydraulics Ltd.: An Agent’s Negligence may
disentitle them from receiving Commission on Closing: The vendor was forced to sell the
property at a lower price than was specified in the Listing Agreement, and that transaction
resulted in litigation due to the agents negligence. The vendor’s agent was denied commission
because they “represented themselves as agents who specialized in the sale of this type of
property. Colliers was required to bring to this transaction a high standard of skill, care and
diligence, which they did not do. As a result of Colliers' negligence, Chassis concluded an
agreement for the sale that was fundamentally flawed and which resulted in a lawsuit. Chassis
did not bargain for litigation but rather for services that would result in an enforceable
agreement of purchase and sale. Colliers' negligence amounted to a fundamental breach of
contract and the consideration for the agreement to pay commission failed.”

Vokey v. Edwards: The Brokerage is liable for Negligence of its Agents/Agent Liable for
advising to rely on inadequate Warranty Statement and Failure to Disclose: Purchasers notified
agent of wanting swimming pool, agent recommended against professional inspection, agent
told them they could fully rely on warranty, failed to advise of existence of Disclosure
Statement. Warranty in the contract was totally inadequate to match the reasonable
expectations of the plaintiffs and constituted both a breach of fiduciary duty and negligence in
the circumstances. These breaches by the agent directly led to the plaintiffs signing the
agreement to their detriment.

Fiduciary Duty of Agent

1) Confidentiality: Keep confidential info provided by client (however, agent cannot lie)
2) Candour: You have to tell your client every material fact that you know (ie. Raso v. Dionigi –
purchasers were brother and sister-in-law of the agent)
3) Loyalty: Can’t prefer your interests over the interests of your client - you can’t profit from
your fiduciary position (test in law: have to give full disclosure)
4) Contractual Relationship - K has certain requirements; an agent is retained to do certain
things. Law: agent obligated to act as a reasonably competent agent on your behalf.

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For some relationships, fd are implicit in the relationship (per se relationships), such as the
agency or solicitor relationship. Relationships where the fd are not so implicit in the relationship
but still exist, these are ad hoc fd. In per se relationships, the fd can be contracted out of. Ad
hoc fd can be imposed by the court if it is proven that the client relied on the agent to protect
their interest. Go through the contractual analysis, and look at fd separately.

Hodgkinson vs. Simms [1994] (S.C.C.): Enumerates Fiduciary Duties of Agents/how Fiduciary
Relationship is Formed: Liability flows from principles underlying FD. Fiduciary obligation
carries with it not only a duty of skill and competence; the special elements of trust, loyalty,
and confidentiality that obtain in a fiduciary relationship give rise to a corresponding duty of
loyalty. A party becomes a fiduciary where it, acting pursuant to statute, agreement or
unilateral undertaking, has an obligation to act for the benefit of another and that obligation
carries with it a discretionary power. Several indicia are of assistance in recognizing the
existence of fiduciary relationships: (1) scope for the exercise of some discretion or power; (2)
that power or discretion can be exercised unilaterally so as to effect the beneficiary's legal or
practical interests; and, (3) a peculiar vulnerability to the exercise of that discretion or power.

Knoch Estates v. Picken Creating Fiduciary Duties: In general, the fiduciary relationship arises
where one party places a trust or confidence in another or is dependent on the other in some
significant way. Relationships in which a fiduciary obligation has been imposed seem to possess
three general characteristics: 1) The fiduciary has scope for the exercise of some discretion or
power, 2) The fiduciary can unilaterally exercise that power or discretion so as to affect the
beneficiary’s legal or practical interests, 3) The beneficiary is peculiarly vulnerable to or at the
mercy of the fiduciary holding the discretion or power. Discretionary: It is possible for a
fiduciary relationship to be found although not all of these characteristics are present, nor will
the presence of these ingredients invariably identify the existence of a fiduciary relationship
***See Page 9

Duty of Loyalty

Agent as Purchaser or Vendor: Real estate brokers and agents buy and sell land for investment
and speculation. They require realty for homes and business premises. They will on occasion buy
from their clients. Section 31 of the Real Estate and Business Brokers Act sets out the statutory
minimum for their dealings in land. Dangers of dealing with clients, even within scope of
statutory strictures, require highest levels of disclosure and acknowledgement by the client or
person to whom a duty is owed.

Soulos v. Korkontzilas: Agent cannot buy property suitable for Client/Doctrine of Constructive
Trust: It is now established that a constructive trust may be imposed in the absence of wrongful
conduct like breach of fiduciary duty, where three elements are present: 1) The enrichment of
the defendant 2) The corresponding deprivation of the plaintiff 3) The absence of a juristic
reason for the enrichment (Pettkus v. Becker). A constructive trust may be imposed where good
conscience so requires. Court identify four conditions which generally should be satisfied: 1) The
defendant must have been under an equitable obligation 2) The assets in the hands of the
defendant must be shown to have resulted from deemed or actual agency activities of the
defendant in breach of his equitable obligation to the plaintiff 3) The plaintiff must show a
legitimate reason for seeking a proprietary remedy 4) There must be no factors which would
render imposition of a constructive trust unjust in all the circumstances of the case. Court

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awarded constructive trust without demonstrating unjust enrichment. Entitled to the property
even though the reason for wanting it was completely subjective.
Note: Agent found a property that suited his clients needs and then decided to buy it for
himself. When client asked what happened to it, agent said don’t worry about it. Court said
that S gets the property for the amount that K paid for it. K wins cause he gets his money back,
but the property had depreciated, so S pays more than the property worth. Constructive trusts
are not only based on an unjust enrichment, a way of enforcing the agents duties, making them
do what should be done in the first place
Carter: What if the vendor says I would have taken less if they had come back and made a
counter offer, and client says they’d buy it back for less? Open for a court to say – we can’t
figure out what you would have done, but we can create a number for the lost opportunity –
completely arbitrary.

Phillips v. R.D. Realty Ltd.: Where there is a breach of a Fiduciary Duty, client must show
Damages: P assert that they are entitled to claim the D’s profit on the resale of the property and
allege that failure of the D real estate agents to disclose that they were acquiring an interest in
the property constitutes a breach of fiduciary duty giving rise to an obligation to disgorge the
profit. Holding: Parties seeking recovery must prove that they have suffered damage. Absent
proof of actual damage the causes of action will fail. In my view the appellants have suffered no
damage from the alleged breach of contract and the alleged conspiracy and their claims based
on these causes of action were property dismissed.

Duty of Candor
The agent is under an obligation of candour to his principal and he is bound to disclose all facts
to his principal.

Duties to Third Parties

In the past the concept of “duties to third parties” has primarily meant duties to purchasers. The
field is now complicated by the fact that certain purchasers may, in fact be principals. Generally,
because the duties to principals are more extensive, the range of responsibilities to “third
parties” has been expanding. The Hedley Byren principle has been used to fix liability on listing
agents who misdescribed or misrepresented the property, the title, or zoning.

Ocean City Realty Ltd. v. A & M Holdings Ltd. (1987): Test for Disclosure/Candor: A real estate
agent's duty to his principal is to be construed strictly. The onus is on the agent to show that he
disclosed everything known to him respecting the subject-matter of the contract which would
be likely to influence the conduct of his principal. The onus is not confined to those instances
where the agent has gained an advantage in the transaction or where the information might
affect the value of the property, or where the agent is in a conflict of interest with his principal.
The test is an objective one to be determined by what a reasonable man in the position of the
agent would consider, in the circumstances, would be likely to influence the conduct of his
principal. The agent cannot arbitrarily decide what would likely influence the conduct of his
principal. Any doubt that the agent may have can be readily resolved by disclosure. Given that
the agent failed to satisfy the onus on her to justify her failure to fully disclose the vendor was
not required to give evidence of the effect such non-disclosure might have upon it. The agent
breached her fiduciary duty and as a consequence was not entitled to the commission claimed.

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Knoch Estates v. Picken: Purchaser’s Agent has no Duty of Candor to Vendor, but cannot make
Misrepresentations ***See Page 9

Conditions in the Agreement of Purchase and Sale

Remedies: The court attaches certain remedies automatically, but a well-drafted agreement can
overwrite these remedies and substitute their own.

Conditions, Representations, and Warranties

Rescission v. Repudiation
Rescission: right of an innocent party to rescind the contract because of a misrepresentation.
Put in the position as if the contract never happened. Purchaser can rescind for any
misrepresentation provided it is a false statement that is (1) material, (2) relied on by
purchaser, and (3) induced P to enter into the K. If you find out about misrepresentation before
closing you can rescind. If you do close transaction you can still rescind for a fraudulent
misrepresentation, but not for an innocent or negligent misrepresentation. Purchaser can also
rescind K for various other things: undue influence, duress, non est factum, breach of fiduciary
duty, illegality.
Repudiation: Arises from failure of a party to fulfill a condition; the innocent party has an
election: 1) they can try to hold the party to the bargain, or 2) they can accept the repudiation
and terminate the contract (put in the position if there hadn’t been a default). Sometimes
drafted as termination of rights rather than conditions precedent – “if I don’t get financing by
certain date I have right to terminate the K and get deposit back”

3 Main Contractual Terms:

Promises (including warranties): What you say you are going to do.
Representations: Statements as to a state of affairs that are intended to induce the party to
enter into the contract.
Conditions: A set of events that must exist before a party is bound by its promises. You are not
bound by a promise until a condition is satisfied (obtain financing).

Promises
.Promissory Conditions: big fundamental promises in the agreement. These are so integral, the
court considers them a condition rather than a warranty.
a. Subject to one of two Pre-Closing Remedies:
 Accept Repudiation, you are relieved of your promise, and sue for damages.
 Not Accept and sue for Specific Performance or Specific Performance with an
abatement (damages)
b. Post-Closing Remedies: Sue for damages for promises that did not merge
If you discover a breach after closing, you must determine if the promise merged upon
closing (merger means that when you register the deed, the deed effectively says that I
accept the property as is and cannot sue on any promises). Court has determined that
merger is a matter of intention – did the parties intend to have the promise carry on

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 after closing? Normally the courts find the promises did not merge on closing. Covenant,
warrant, promise, agree, are the word of promise in the agreement.
.Intermediate Promise/Warranty: can’t tell if this is a condition or a warranty on the day the
contract was signed. Need to wait for events to happen to make the determination. This is a
problem for lawyers because the other side breaches the contract before closing, your client
asks for advice, what do you do? You need to determine if it is a fundamental or non-
fundamental promise.
.Warranties: Smaller promises in the agreement. When smaller promises are breached, you must
close, but you can sue for damages
Note: You can make a promise that you are not currently able to fulfill.

Representations: statement as to a state of affairs that is intended to induce the party to enter
into the contract
1. Innocent Representation: Not a fraudulent representation – would have different remedies
than a fraudulent representation. You cannot sue for damages for an innocent
representation before or after closing. You only recourse is rescission.
2. Negligent Representation: You were reckless about making the representation; should
have looked into it further. You can claim rescission or damages before or after closing.
3. Fraudulent Representation: You know you are lying and you intend to deceive the other
side. You can claim rescission or damages before or after closing.
Pre-Closing Remedies: If you discover ANY incorrect representation before closing, you can
refuse to close. It must have been a material representation, you must have relied on it, and it
must be false. The law says Rescissions applies: that you relied on that representation to enter
into the contract, so if the representation is incorrect, time is unwound and made as if you had
never entered into the contract. Remedies depend on whether you close the deal or not. After
closing, if you discover there was a misrepresentation, you can only rescind if it is a fraudulent
misrepresentation.
Puffs: Marshall vendor says to purchaser this is a perfect house, this is a puff, there is no such
thing as a perfect house. Even though there was no guarantee for a puff, it tempered the case.
Court can interpret it as a representation, can use it to temper – depends on what the courts
want to achieve.

Conditions: A set of events that must exist before a party is bound by its promises. You are not
bound by a promise until a condition is satisfied (obtain financing). Fundamental promises,
whatever is fundamental to the contract, if there is a breach of a condition, the innocent party
has an election: elect to accept the repudiation, or elect to enforce the contract (specific
performance). The innocent party is relieved of the duty to fulfill their promises.
1. True Condition Precedent: Based upon the will of a third party. Have to go to the
municipality to get consent. If the condition is not met, the deal is off and the condition
can’t be waived. If you don’t get planning consent, you cannot sever your property. The
parties can’t contract because you can’t waive the condition (can’t have a contract without
the condition being met.) Cannot be waived, Discretion of third part, benefit of both
parties, you are obligated to make a good faith effort to fulfill the condition.
2. Condition Precedent: You can waive a condition that was for your benefit only. Still may
depend on a third party.
***The different bn a true condition precedent and a condition precedent is only waiver
***Representations and promises are very similar, but not interchangeable.

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‘Provided’ and ‘on condition’ that is the language of a condition in a contract. Lawyers may use
all the language (covenant, represent, warrant) to try and have all types of damages apply
should the deal go bad.
Fulfilling Conditions: Current language includes ‘satisfied to my sole and absolute condition’, but
the court still finds an embedded promise to act in good faith.

Fraser-Reid v Droumtsekas: Courts Discretion in Interpreting Contract (Promises): Court

concluded that there were no promises as to the quality of the house, but relied on the clause
stating that the vendor must disclose to the purchaser all outstanding infractions of the
municipal standard. Language = ‘provided that’ usually means a condition precedent, but may
be a warranty in the fact that it is a lesser promise, the breach of which can lead to remedies
but not recession. Read the provision as an undertaking or promise to disclose to the vendor all
infractions. When the vendor did not disclose their failure, the purchaser was deprived of their
right not to close, which generates a damage claim. So, the purchaser does not have to close
the deal if there is an infraction with the municipality. Court essential morphed a condition of
closing into a promise.
Notes: There were pre-existing implied CL warranties in existence: it is inhabitable, made in a
good and workmanlike manner, and made of new materials. However, the house was finished
when it was bought, so the implied warranties were not applicable.
***At about this time, the government created Terion program where promises are statutorily
imposed on new homebuilders.

Jorian Properties Ltd. v. Zellenrath: Intention and the interpretation of Conditions: Plaintiff
now argued it was based on a breach of a condition. Looked at the intentions of the parties –
was the 5-plex of critical importance? Because the purchaser settled with the new purchaser, it
appears the property was what was important to the plaintiff, not the characteristic of a 5-plex.
The purchaser should have closed the deal and sued for damages. As it stands, the purchaser
was in default and cannot claim damages.
Note: This was an unpredictable outcome – should advise clients to close and sue for
damages, which is safer than later arguing it was a big promise.

Conditions vs. Contingencies

Conditions Precedent: A set of events that must exist before a party is bound by its promises
Promissory Conditions: Big fundamental promises in the agreement. These are so integral, the
court considers them a condition rather than a warranty.

True Condition Precedent vs. Condition Precedent

Turney v. Zilka: What constitutes a True Condition Precedent? 1) Does it benefit both parties,
2) and does it depend on a third party. If it meets these criteria, then until the event occurs,
there is no right to performance on either side because no contract exists until the condition is
fulfilled. A true condition precedent cannot be waived, even though it is in favour of one party
only and the fulfillment of the condition is completely w/in the control of that one party.
Note: The court has found a condition precedent where no third party was involved. The scope
of the holding in is uncertain, as later cases have sought to limit its impact bc in some situations,
it is bound to produce absurd results.

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Beauchamp v Beauchamp: Fulfilling a Condition Precedent: A condition precedent doesn’t
need to be strictly fulfilled, as long as party for who’s benefit the condition exists is satisfied that
it has been fulfilled. Case is unclear regarding whether this was not a true condition precedent,
or whether the purchaser had fulfilled the condition.

Barnett v Harrison: Court Affirms Turney v. Zilka: Raised the question as to whether a
contracting party may waive a condition of the k on the ground it is intended only for his
benefit, and then bring an action for specific performance. Applied Turney v. Zilka, and upheld
it on the grounds that: 1) if the court allows a party to waive true conditions precedents (which
should void the contract), then the court is basically re-writing the contract 2) Removing the rule
would allow ppl to speculate on real estate 3) Application of the rule in Turney v. Zhilka may
avoid determination of two questions which can give rise to difficulty (i) whether the condition
precedent is for the benefit of the purchaser alone or for the joint benefit and (ii) whether the
conditions precedent are severable from the balance of the agreement 4) The rule in Turney v.
Zhilka has been in effect since 1959, and has been applied many times. In the interests of
certainty and predictability in the law, the rule should endure unless compelling reason for
change be shown.
Parties can contract out of Turney v. Zhilka: This case gave the SCC’s seal of approval to a
simple and practical way of getting around the difficulties of the Turney v. Zhilka situation. A
party can contractually provide that a condition is inserted for the party’s sole benefit and that
the party reserves either expressly or by necessary implication the right to waive the condition
that was inserted in the party’s favour. The courts have regularly given effect to such provisions.

Duty to Act in Good Faith to fulfill a Condition

Marleau vs. Savage: ‘Good Faith’ Test: As long as you act reasonably to fulfill the condition,
you have satisfied your obligation. Must use best efforts and act in good faith. Mrs. Savage
relied upon her consultants, and it was reasonable to do so, so she was reasonable to rely on
their advice not to precede any further. The test is not how another purchaser might have
acted, but did this purchaser act reasonably in light of their expert consultant. Mrs. Savage
acted in goof faith to discharge her obligation.

Chan v. Hayward: Reasonable Efforts: It is the "subject to financing" clause that causes all the
problems in this instance. While the word "waiver" is used in the agreement, the doctrine of
waiver is not strictly applicable because neither party is giving up a right to insist on the
performance of the contract according to its original tenor. Instead, each covenanted with the
other to allow the plaintiffs the right to "elect" whether they would complete if the plaintiffs got
suitable financing. The parties orally agreed to change the terms of the written agreement by
allowing the purchasers an additional period to acquire the money. Because no fixed date was
set, the purchasers had up to the completion date. At some point, the purchasers did tell the
vendors they could not get suitable financing and so the sale came to an end. Having made
reasonable efforts to acquire the money, the law required them to do no more. Since they did
not default under the terms of the contract, they are entitled to return of their deposits.

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Duty to Satisfy Self

Flack v Sutherland: ‘Reasonable Person’ Test for Satisfaction: “The correct test in asking
whether the financing sought to be obtained was satisfactory to a reasonable person with all the
subjective but reasonable standards of the respondent.” Agreement conditional on purchaser
obtaining 75% financing. The respondent had made his best effort to obtain financing and had
acted in good faith. There was no obligation on the part of the respondent to accept the
vendor's offer of financing. This would have constituted a new agreement to which the
respondent was not bound.

Marshall v Bernard Place: Contractual Discretion & Good Faith: Contract applied the standard
of sole discretion, but at the very least you have to act honestly and in good faith even if it is
completely subjective. No contractual discretion is absolute – you cannot arbitrarily exercise
discretion.
Test for Discretion: Discretion has to be exercised on the basis of the event supporting the
condition. Once the issue you are upset about falls within those criteria, then you can be as
subjective as you want to be. First objective analysis, then subjective analysis based on the
language of the contract.

What is being Bought and Sold in a Real Estate Transaction?

Fixtures and Chattels

 Futures are real property, chattels are personal property
 Chattels can become property if attached to the real property
 Chattels can remain chattels if they are attached to the property
 Fixtures can become chattels if detached from real estate, so long as it does not affect third
parties.
 You can find cases going both ways – very little guidance from the law
S. 15 of the Convincing and Law of Property Act
 Conveying includes: house, outhouses, barns, gardens, fences, etc.
 Seminal to litigation regarding what’s included in conveyance
Chattel vs. Fixture Test
1. Degree of Annexation – how attached is it to the real property?
2. Intention or Purpose of Annexation (was the intention to make the real property work
better, or to make the chattel work better)?
3. Constructive Fixture and Constructive Chattels – ex. the light bulb in a light fixture is a
chattel included to make a fixture work better, therefore it becomes part of the fixture

Stack vs. Eaton:Test for distinguishing a Chattel from a Fixture:

1. If it is attached by its own weight, it’s a chattel, unless the parties intend it to be a
fixture.
2. Even if it is affixed even slightly, then it is a fixture unless the parties intended it to be a
chattel.
3. Finally, the intention is to be presumed by the degree and object of the annexation.
***The circumstances showing the intention of the parties has to patent from the thing itself
(must be able to look at it and know why it was attached).
Facts: Landlord tenant dispute regarding removal of tenant improvements.

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Royal Bank of Canada vs Neilson: Degree of Permanent Annexation: Court applies Stack v.
Eaton test to a trailer on land where the owner was in bankruptcy and the mortgagee argues
that the mrtg applies to the trailer and the land. Court finds that if you wanted to remove the
trailer you could do so, but the court decided that even though it is only attached by its own
weight they are not going to presume it is a chattel. Found a degree of permanent annexation,
and granted the real property to the mortgagee.

Atlin Air v. McHeffey: Permanent Annexation vs. Occasional Annexation: Yukon Air owns land
where they service and land planes in NW territories. They rent a trailer for their pilots
accommodations. They sell the property to Atlin Air who assumes they now own the trailer.
When they do not pay the rent, the owner of the trailer contacts them and they refuse to pay.
During the winter the owner of the trailer seizes the trailer and destroys the lean-to that had
been attached. P has the obligation to demonstrate permanent annexation. Court held that the
trailer was not permanently annexed to the real property (despite the fact that a lean-to had
been built and the wires buried). They felt it was more unfair for the owner of the trailer to lose
his trailer bc of the problems bn the pur and ven.

Legal Description
Most Agreements use the municipal address, and at least part of the legal description: metes
and bounds description – uses feet and inches and describes based on the bounds of a
concession, or use the instrument number or PIN, or attach a survey/reference plan

Test/Language:
 ‘More or Less’ – covers small deficiencies in size descriptions
 ‘What you saw is what you get’ – important for urban properties, are you getting what
you bargained for?
 If you are buying a property based on quantity, then the court has the option to enforce
a price abatement
Pur can take what the vendor has with an abatement (the vendor does not have the right to
force the pur, unless the vendor can give substantially what was bargained for like LeMesurier)

Dynamic Transport: Where the Property is Badly Described, the Court can look at the
Intention of the Parties: Description of the portion of the land being bought was so badly
described the court could not determine what was being purchased. Court decides to look at
the parties intention and the surrounding circumstances. The lot was shaped so that there was
a discernable 4 acre portion, but it dissected the barn. As such, they used the more or less
language to move the boundary slightly to keep the barn intact.

Turney v. Zhilka: A Contract which does not Communicate the Intention of the Parties is not
Enforceable: vendor offered 60 acres, but intended to retain 5 acres where their house was
situated. When a new survey was conducted, they could only sell 62.75 acres. Purchaser
claimed a breach of big promise and sued for specific performance. Referred the deal to a
master to try and figure out what the parties agreed to, and could not. Referred back to the
judge, who allowed the vendor to retain ten acres – at the time, if the vendor kept ten acres you
did not need consent for a severance. The pur was now getting 52 acres for the price of 60, but
was happy with the judgment because the value of the land had gone up. The vendor appealed

27
the decision bc he wanted to make more money on the land, and was successful – the court
could not figure out what the deal was, and therefor no one was bound by the contract.

Murphy v. Horn: ‘More or Less’ does not cover Misrepresentations or Substantial Difference:
general principle: where a misrepresentation is made by V to a matter within his knowledge, and
even though it may be founded on honest belief in the truth of the representation, and P has
been misled by such misrepresentation, P is entitled to SP, so far as the vendor is able to do so,
and to have compensation for the deficiency. In sale of land when quantity is stated and the
price is stated in a lump sum the presumption is that the price was fixed with reference to the
quantity. In the absence in the case now before the Court of any description by metes and
bounds from which the purchaser could have checked up the quantity for himself, I think the
words “more or less” are not to be construed as the equivalent of “as estimated,” or “as
supposed,” but are construed to mean, “about the specified number of acres,” and as designed
to cover small errors as sometimes occur in surveys. The deficiency in the present case amounts
to substantially the difference between acres and arpents, or 16.5 per cent of the quantity of
land. Entitled to an abatement of the purchase-price on that basis, that is to say 16.5 per cent of
$16,000

Wilson Lumbar Co. v. Simpson: Application of ‘You Get what you See’: Unlike Murphy v Horn,
the vendor did not know there was an error in the dimension. In the case at bar, though the lot
is not described by its number, it is by the house number. The words “more or less” control that
statement, so that neither party would be entitled to relief on account of a deficiency or surplus
unless in case so great a difference as will naturally raise the presumption of fraud or gross
mistake in the very essence of the contract and upon the facts of this case no such presumption
is raised. Ps are not entitled to compensation, but if they choose to take what the D owes, they
may have judgment for SP without costs. If you could’ve went to the land registry office and
figured it out you wouldn’t get an abatement.

Pompeani v. Bonik Inc.: Deference to Clear Descriptions in the Agreement: It seems to me that
the fact that the plan specified the area of the lots provides further evidence of the considerable
clarity and specificity w/ which the lots were described. Further, the fact that the area has been
set out makes it difficult to accept that the parties’ intention was that the frontage dimensions
could be reduced…The subject-matter of the agreement was not lots upon which 16
townhouses could be built, as the tj found, but 16 lots conforming w/ the frontage dimensions
as set out in the plan. Whereas here, the agreement’s provisions are clear, they should not have
been ignored. The breach was not innocent; it had economic consequences quantified by the tj
at 350k – breach warranted termination of the agreement.

Interest of Parties Pending Closing – Issues of Risk

What are the duties after the agreement is signed

Equitable Conversion: When you enter into a contract to purchase a house, the purchaser
immediately becomes the owner of the house and the vendor is their trustee. Originally EC
occurred when pur accepted vendor’s title. Today, contract promises ‘good and marketable’
title, so the SP remedy is available when the agreement is signed. Agreements try to reverse EC
by saying that until closing, V is at risk for losses. EC was developed by the courts of equity to
ensure SP was an available remedy. EC gets cancelled if the pur walks.

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Equitable Conversion Interpretations
There are at least 3 ways in which to look at the situation:
1. The property analogy: After the agreement of purchase and sale is signed, the V retains
the legal title to the land, but P becomes the equitable owner of the land
2. The trust analogy: After the agreement of purchase and sale is signed, V becomes the
trustee of the land for the beneficiary P
3. The contract analysis: After the agreement of purchase and sale is signed, P acquires
contractual rights in the land, which may be enforceable by specific performance.
Concepts in the Equity Courts: Trust Law: X holds legal title and Y holds beneficial title;
Mortgages at CL: A mrtg is a legal conveyance to the lender (really a legal fiction – no one would
ever say the lender owns the house. The fiction was abolished in the 1980’s, but the remedies
that arose out of it still exist: foreclosure/possession); Vendor Lien: Created so that P, under
equitable conversion, does not fully own the house until they pay the purchase price. This is an
unregistered mrtg on title, and things can get messy if the balance is not settled on closing. V
can register this interest to protect themselves if a second purchase is made, bc that P is a P for
‘value w/o notice’, and they would not be responsible for the V lien.
Background to Equitable Conversion: A long time ago, if you had a contract for real estate, if
the V went into another contract the priorities were whoever completed the contract 1 st. When
we brought in the registry system – it became, the first one to register wins. Actual knowledge –
if the second purchaser knew of the first purchaser they couldn’t take title. Then we brought in
land titles – land titles reversed it again saying actual knowledge doesn’t apply (this isn’t the
case in Ontario though). To get around the common law, courts of equity created trusts, says P
is the beneficiary and V is a trustee

Agreement of Purchase and Sale

Insurance: “all things being purchased shall remain until completion at the risk of the Vendor . . .
in event of substantial damage, P may either terminate agreement or take insurance proceeds”
this language is standard in every agreement. The parties by contract say they want the
practical impact of the equitable conversion to be reversed. The language means virtually
nothing b/c it has to be read with the rest of the clause, creates a limited right for P to get out of
the deal or take insurance proceeds.
Problems: no test for substantial damage. Insurance is b/t V and insurance company. V does not
have to provide P with what insurance there is. Who pays the deductible?
Solutions: P could get own insurance. There has to be an interest in the property to obtain
insurance (equitable interest is enough). Advise client of risks and recommend insurance, esp.
in commercial.

Equitable Conversion

Lysaght v. Edwards: Establishes Equitable Conversion: The moment you have a valid contract
for sale V becomes in equity a trustee for the purchaser of the estate sold, and the beneficial
ownership passes to P, V having a right to the purchase money, a charge or lien on the estate for
the security of that purchase-money is paid, in the absence of express contract as to the time of
delivering possession. If anything happens to the estate between the time of sale and the time
of completion of the purchase it is at the risk of P. If V willfully damages or injures it, he is liable
to P; more than that, he is liable if he does not take reasonable care of it.

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Rayner v. Preston: A Contract for Insurance Does not run with the Land: Before closing,
property was destroyed by fire – P closed and sued for insurance money. However, the parties
to a contract of sale and purchase are the only persons the Court of Equity will, under certain
circumstances, decree a specific performance. The contract of insurance is a mere personal
contract for the payment of money. It is not a contract which runs with the land. If you want to
get the benefit of a contract you need to get an assignment. V got the insurance proceeds. The
court didn’t think he should get the proceeds; the insurance company sued V to get back the
proceeds and won.

Mortgage law
Equity transfers the legal title to the lender and the borrower holds the equitable title. The
lender has a charge – obligated to deliver possession/title back to the borrower. When V gets
purchase price they are obligated to give the title. The vendor has a charge on the property for
the unpaid purchaser price.

The Contract Provision

Wile v. Cook: Utility of the Contract Provision in reversing Equitable Conversion: Significantly
alleviates the harshness of the common law. Under that provision, the buildings and equipment
remain at the risk of V until closing. All the clause provides for is that if P elects to go through
with the purchase he is entitled to whatever insurance proceeds may be owing. It does not give
P any guarantee that the insurance is necessarily collectible. The SCC implied a term of contract
that the closing date will be extended for a reasonable time to find out what the insurance is
and also said that they need to tell P what the insurance is. The case is perfectly reasonable.

Vendor’s Duty

Abel v. McDonald: Deceit and fraud can create an A-Typical liability for V: unanimously
conclude the evidence and the record in the absence of any explanation from V, is sufficiently
compelling, not only to support but to warrant a finding of fraud through the active non-
disclosure on the part of V. There was also a specific clause stating that the property was at the
risk of V. appeal is allowed with costs. V is not responsible for the damage, if damage is
substantial they have normal election of options. Deceit prevented P from exercising their
rights under contract. They could have cancelled the deal and may not have closed. In this case
they had to pay P after closing the cost of repair. Even if it was a small problem, V would have
had to pay. But if they hadn’t been deceitful they would have had no liability.

Lichtenberg v. Johnstone et. Al.: Discretion of the Courts/V liable for leaving property Vacant:
Action arises out of an agreement of purchase and sale of a home. V moved out 3 weeks before
closing, house left vacant. Floor tiles in the rec room lifted. Contract provided that “all buildings
on the property and all other things being purchased shall be and remain until completion at the
risk of V”. Having abandoned the property, V placed himself in a position of not being able to
use reasonable care for the preservation of property. The case was argued on substantial
damage. The case is there to show how ridiculous the courts can be when attempting to get
around equitable conversion and imputing a duty on V. Using tools to hold V liable.

What falls under the risk (title) clause?

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Risk Conversion/Substantial Damage Clause: If there is substantial damage to the house before
closing, then P can, by contract, get out of the deal or close the deal and take the benefit of V’s
insurance (if any). However, not every risk is flipped to V.

Loewen v. Neumann: “At risk of V” Clause is at least a Warranty extended by V for the benefit
of P: P is entitled to rely on it to sue for damages. According to the terms of the agreement, P
was entitled to receive water on the possession date, that was of the same quality as existed
when the interim agreement was signed. Normally, purchaser would be responsible for change
to property that occurred through no fault of vendor. But, need to consider “substantially the
same condition at possession date” - clause does not apply directly (refers to buildings and other
items included), but shows intention of parties to hold vendor responsible for improvements.
Might be condition, but more likely warranty for benefit of purchaser.

V. Rankin’s Mechanical contracting Ltd. v. First City Developments Ltd.: Vendor’s Duty of Care:
The basis for finding an obligation on V in the ordinary real property transaction is the fact that
he is in possession and has control of the legal estate and will benefit from the completion of
the sale and therefore he has a responsibility to see that P gets what he paid for subject to
ordinary wear and tear and risks over which V has no control; this imposes on V an obligation to
take reasonable care of the premises pending completion. In the absence of an express
agreement that the property is at the risk of V pending closing, then, pursuant to the common
law, the property is at the risk of P. But this does not mean that P is responsible to care for the
property. There is a duty for V to take reasonable care of the property pending closing.

Vendor’s Liens

Silaschi vs. 1054473: What is a Vendor’s Lien: A vendor’s Lien is a very powerful remedy set up
by the courts to get around equitable conversion. This Lien arises when the agreement is
signed, and is for the entire purchase price. It can be enforced like a mortgage. The agreement
said V would get part of the purchase price on closing. V gets a vendor lien in 1 st position. They
got a vendor take back mortgage in 2nd position. V knew that P was getting a construction loan.
Property was sold for $120 – and there was a 20000 shortfall to pay back. The vendor agreed to
be in second position when their vendor take-back mrtg was registered in second position. As
such, vendor does not get their money out of that second deal – bank takes priority. Essentially,
the VTB mrtg postposed V lien in 1 st position.

Physical Defects

Caveat Emptor
 A warning that notifies a buyer that the goods he or she is buying are "as is," or subject to
all defects. When a sale is subject to this warning the purchaser assumes the risk that the
product might be either defective or unsuitable to his or her needs.
 This rule is not designed to shield sellers who engage in Fraud or bad faith dealing by
making false or misleading representations about the quality or condition of a particular
product. It merely summarizes the concept that a purchaser must examine, judge, and test
a product considered for purchase himself or herself.
 The modern trend in laws protecting consumers, however, has minimized the importance
of this rule. Although the buyer is still required to make a reasonable inspection of goods

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 upon purchase, increased responsibilities have been placed upon the seller, and the
doctrine of caveat venditor (Latin for "let the seller beware") has become more prevalent.
Generally, there is a legal presumption that a seller makes certain warranties unless the
buyer and the seller agree otherwise. One such Warranty is the Implied Warranty of
merchantability. If a person buys soap, for example, there is an implied warranty that it will
clean.
 If both the buyer and the seller are negotiating from equal bargaining positions, however,
the doctrine of caveat emptor would apply.
Laskin Quote (McGrath vs. McLean)
Caveat Emptor: Absent fraud or misrepresentation, you take the property as you find it. You
can also meet your duty or contract out of your duty to disclose latent defect in the contract.
 Duty to disclose and duty to warn.
 So often with the duty to disclose, parties will allege that silence amounts to fraud or
misrepresentation.
 PROFESSOR: Duty to disclose is a contractual duty, currently sort of a tort duty of
fraud/misrepresentation as proposed by Laskin.
There is conflict between whether this duty to disclose is based in tort or contracts.

Exceptions to Caveat Emptor

1) Contractual Warranties
2) Common law implied warranties: In certain circumstances purchaser has guarantees about
the quality of the property implied into your K
3) Statutory warranties: apply only to new homes.
4) Misrepresentations: Misrepresentation is a tort claim. Doesn’t matter if defect is latent or
patent if you have a misrepresentation.
5) Active concealment: Theory here is that vendor has converted a patent defect into a latent
defect. Akin to fraud – worst thing vendor can do. If you find a defect has been concealed it
doesn’t matter if its latent or patent – its fraud
6) Silence amounting to misrepresentation: Patay v. Hutchings: P’s agent knew this person
was buying this house b/c this house was clean and health. So knowing purchaser had
particular proclivity, silence can be misrepresentation if you don’t correct
misunderstanding. That is a hard test.
7) Error Insubstantialis: Substantial error or mistake such that purchaser is not getting what
she bargained for.
8) Latent vs. Patent Defect

Latent vs. Patent Defects

***If there is concealment, fraud, or misrepresentation, a warranty, or a promise about the
condition/item, you do not need to discuss whether they are latent or patent.
Latent Defects: A fault in the property that could not have been discovered by a reasonably
thorough inspection before the sale. Sellers are obligated to disclose material latent defects
that they are aware of, but buyers are expected to discover patent defects on their own. You
have to disclose a latent defect that makes the house:
1. Unfit for habitation
2. Dangerous
3. Health or Safety Hazard (this includes defects in the neighbourhood etc.)
4. Reasonable purchaser finds material (this is probably not a test, but there is some
indication in the JP that this 4th defect is being developed).

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If the latent defect just goes to the value of the property, you do not have to
disclose it (i.e. a death in the property). These include:
1. Goes to the value of the property
2. Immaterial
3. Should have been detected by the purchaser but wasn’t.
4. Things you have taken steps to remedy, and as far as you are aware, have been
remedied
Patent Defects: Those defects that can be discovered by conducting a reasonable inspection and
making pertinent inquiries about the property. You never have to disclose a patent defect.
Other Issues: What if you know that there is a defect, which will manifest in the future (i.e. must
replace the roof in 5 years)? If there were a defect that you temporarily fixed, the court would
most likely find that you concealed the defect. However, if you did the repairs long before you
listed the property, you did not intend to defraud the purchaser.
Before you even get into a defect, you have to establish that the vendor know about this
danger (likelihood).

Protections in Contract:
1. Para. 13 inspection clause – acknowledge and opportunity to inspect (walk around
inspection before signing) to discover defects
2. Para. 25 entire agreement clause -
3. Condition on inspection clause – after signing, there has to be an objective basis (broken
window sill), and then you can be subjective on whether you find it satisfactory or not ($1
million house, $1,000 repair, walk away)
4. UFFI warranty
5. Warranty about particular matters – add in whatever you want (no bats in attic)
6. Representations about particular matters

McGrath vs. McLean: The is no Duty to Disclose Latent Defects which V was not aware of: The
vendor could not have anticipated the tortious act of a third party, and there was no knowledge
that the vendor could have anticipated such a catastrophic landslide (did not know about the
potential danger). This is a legitimate ground to circumvent their duty to disclose.
Obiter: If V knows of a latent defect, which renders the property unlivable and makes false
representations regarding the defect, assuming they are aware of the ‘potential danger’ (higher
standard that theoretical), there may be a ‘duty to warn’ about dangerous circumstances.
Generally, vendors will not be held liable for latent defects discovered by the purchaser after
closing, if the vendor was unaware of these defects in the first place. The only exception to this
principle appears to be if the transaction involved the sale of an uncompleted home.
Notes: Court says little landslides are possible on this site, but they find no liability because: 1) it
is tortious/criminal 2) the vendor had no knowledge of this type of danger. Number 2 could also
have been argued that this danger was too remote.

Winnipeg Condominium Corp v. Bird Construction: A Purchaser who takes reasonable steps to
Inspect is not liable for defects due to Contractors Negligence: Contractors and builders,
because of their knowledge, skill and expertise, are in the best position to ensure the reasonable
structural integrity of buildings and their freedom from latent defect. The Condominium
Corporation acted with diligence in seeking to detect hidden defects in the building, they were
nonetheless unable to detect the defects or to foresee the collapse of the cladding in 1989. It is

33
not unreasonable to expect the constructor to envision a multiplicity of owners. It is further
reasonable that the builder should have the safety and health of all these owners in mind.
Decided in large part due to Policy Considerations: 1) Often latent defects do not manifest until
after purchaser has sold the property, 2) increasingly mobile people buy and sell more often, 3)
original buyer not always in a position to discover hidden defects, nor a subsequent purchaser
(ie, drilling), 4) consumer protection, able to rely on the fact that house will be fit for its
intended use, 5) by extension of duty to a subsequent purchaser, the builder will not be taken
unaware within a reasonable time when he already owes a duty, 6) if bar to recovery to
subsequent purchaser, then likely there will be sham first sales to limit liability, 7) Subsequent
purchaser is not the best placed to bear the risk of the emergence of latent defects.
Note: This illustrates the unreality of the assumption that the purchaser is better placed to
detect and bear the risk of hidden defects.

Fraser-Reid v. Droumtsekas: Houses under construction have Implied Warranties: There is no

way to perform an effective examination of house under construction. The CL provides relief for
defective house by implying warranty that houses under construction will be fit for habitation.
Criticism of Caveat Emptor: the doctrine of caveat emptor stems from the laissez-faire attitudes
of the eighteenth and nineteenth centuries and the notion that P must fend for themselves in
seeking protection by express warranty or by independent examination of the premises. The
assumption underlying the doctrine is that P is better placed than V or builder to inspect the
building and to bear the risk that latent defects will emerge necessitating repair costs. However,
this is an assumption, which is simply not responsive to the realities of the modem housing
market.

Tony’s Broadloom & Floor Covering Ltd. v. NMC Canada Inc.: If there is an Indication of a
Patent Defect, P has a Duty to Investigate: To make a determination as to whether something is
a defect in the quality of land, the intended use of the land must be taken into account. They got
what they bargained for – and industrial property. If it was a defect, then it was a patent one in
the circumstances. Note: Use this case to say there is an indication of patent defect – if there is
some indication of a problem, you are under a duty to investigate. However, this might be more
stringently applied to a professional developer. Also, argument that this is not a defect – when
the property can still be used the way it has been used. This, again, may be special to industrial
type properties.

Contract Provisions
When you are dealing with a real estate question the first place you look at what the agreement
of purchase and sale said. Usually ct will honour those rules.
Patent and Latent defects: Ct says, if you could see it, you are stuck with it; if you couldn’t see it,
maybe you will be stuck with it, maybe you wont. Clause is meant to say you did inspect it, and
you are stuck with all patent defects. But if you don’t inspect it you are still stuck with the patent
defects. By giving the purchaser the right to inspect you are shifting more things out of the
latent box into the patent box.

Fraser-Reid v. Droumtsekas: Intention may be read into a Contractual Clause and can Override
Technical Language: Court interpret the following clause: “providing that the Vendor has
disclosed to the Purchaser all outstanding infractions and orders requiring work to be done on
the premises issued by any Municipal or Provincial or Federal Authority in respect to the
premises referred to herein”: The words “providing that” ordinarily signify or denote a limitation

34
upon something preceding, or a condition on the performance or non-performance of which the
validity of the instrument may depend. That is not invariably so. It may also affirm that a
proposition of fact is true and take effect as a warranty. The mere use of a technical word
should not obscure its true nature. A warranty is a term in a k which does not go to the root of
the agreement b/w the parties but simply expresses some lesser obligation, the failure to
perform which can give rise to an action for damages, but never to the right to rescind or
repudiate the contract. An affirmation at the time of sale is a warranty provided it appears on
the evidence to have been so intended. No special form of words is necessary

Implied Warranties
In certain circumstances you get some guarantees about the property. They are implied into
your contract. These warranties only apply to a home that is not complete. These contractual
warranties are: Fit for habitation, Good workmanship, Good materials, etc.

Fraser-Reid v. Droumtsekas: Houses under construction have Implied Warranties: See above.
Justice Dickson: A breach was created in the doctrine that the buyer must beware, with
recognition by an English court of an implied warranty of fitness for habitation in the sale of an
uncompleted house. There is no implied warranty of fitness for human habitation upon the
purchase of a house already completed at the time of sale. A purchaser must fend for himself,
seeking protection by express warranty or by independent examination of the premises.

Jaremko v. Shipp Corp: ‘Quiet Enjoyment’: The vendor breached the covenant of quiet
enjoyment, which is implied when you give a deed. However, quite enjoyment in law means no
one else has the right to live in the unit. Remember there are different rules about condos and
disclosure.
Prof thinks this was wrongly decided: Possible Developer argument: it was a patent defect
because she knows it was the driveway. Caveat Emptor – they disclosed it was the moving
room. No evidence of fraud or misrepresentation, no error in substantialias. And, P was a real
estate agent with specialized knowledge.

Statutory warranties
Applies to new homes: Ontario New Home Warranty Program. Makes developer fix the
properties or prevents the builders from building in Ontario. Doesn’t matter if it is latent or
patent defect, if it falls under the warranty it gets fixed. P of a new home has to assure that the
builder is registered with ONHWP and pay a fee. At closing, P will complete the certificate of
completion and possession (CCP) provided by the builder/vendor and receives a warranty
certificate at that time. ONHWP acts as an impartial referee, objectively hearing both sides
before advising the parties or making a formal ruling, usually after making an on-site inspection.

Grudzinski v. Ontario New Home Warranty Program: Claim under the Ontario New Home
Warranty Program: I disagree with the Programs position that the homeowner to rely on this
aspect of the definition, must show the home i.e the entire home, is “virtually uninhabitable,
uncomfortable beyond reason, unsafe or in a state of imminent collapse. The functional
deprivation of the use of one third of a residence, whether the 1/3 area was intended for use as
storage, as recreation room, as studio or office, is of such magnitude that it can only be
described as material and adverse. Material means significant, of much consequence,
important, pertinent, germane or essential. What is significant is that they were precluded from
using and enjoying their basement, 1/3 of their home, for any reasonable purpose.

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Fraud

Abel v. McDonald: Deceit and fraud can create a Liability that Circumvents Caveat Emptor:
Basement floor sank, V concealed. Deceit and fraud can create a liability that you may not have
normally had. In this case they had to pay P after closing the cost of repair. Even if it was a small
problem, V would have had to pay. But if they hadn’t been deceitful they would have had no
liability.

Misrepresentations
Can be both a promise and a misrepresentation. Different remedies depending if it is a tort or
contract claim. Courts use this as a way of getting around Caveat Emptor. When dealing with a
fact situation, you have to ask yourself if there is a misrepresentation before you look at
whether it is latent or patent.

Thiel vs. Milmine: Negligent Misrepresentation Circumvent Caveat Emptor: At the very least,
the defendant made a representation to the plaintiffs that the basement was a dry basement
with reckless disregard as to whether it was true or false. Liability was found.

Heightington: A party must be proven to have knowledge in order to make a

Misrepresentation: The land was subject to radioactive contamination, but the action against
Ontario Housing Corporation, the vendor, was dismissed at trial because apparently it did not
know of the contamination and the trial judge found "[n]o representation was made here, and
on the evidence, it cannot, in my opinion, be shown that Ontario Housing Corporation was
'guilty of concealment' when the land was leased or sold." The province was found negligent for
not upholding the Public Health Act and liable for damages to the property caused by that
negligence.

Patay v. Hutchings: Where Agent does not perform Due Diligence their failure to inform client
can amount to Misrepresentation: Farm across the street is a secondary site for the garbage
dump. Found that the purchasers agent did not know about the potential site, but she had a
basic responsibility to make reasonable enquiries because she knew about the P poor health.
Agent was liable.
Note: Is this a latent defect or a misrepresentation case? You can use this case to argue does
the defect have to exist today, or can it be a potential defect?

Goldstein vs. Davidson: Must disclose potential Heritage Designations: Found both the vendor
and the agent liable in damages to the plaintiffs for the negligent misrepresentation of the agent
in failing to disclose a potential heritage designation.

Silence Amounting to a Misrepresentation

Sevidal vs. Chopra: Vendor has a duty to disclose the neighbourhood Danger: The court also
says they liable for fraudulently concealing the contaminated soil they found out about days
before closing. So, if you discover a latent defect that you didn’t know about, you must disclose
it to the purchaser even if you discover it after you sign the agreement.
Note: Theory of duty to disclose the latent defect can be used to protect the Savidal’s where
equitable conversion fails. Vendor’s have a duty to disclose the radioactive soil because it is

36
dangerous etc., except they had no knowledge of it when the deal was signed. However, they
had a duty to disclose neighborhood defects that go to health and safety. However, the vendor
argued that the gov’t told them not to worry about it, but the court doesn’t buy that argument

Active Concealments
Vendor converts a patent into a latent defect so the purchaser can’t find it. If there is a defect
being concealed it doesn’t matter if it is patent or latent b/c it is Fraud and the courts hate this
kind of thing.

Jung v. Ip: V who actively conceals a Latent Defect is Liable: The vendor had knowledge of the
defect, and this was a latent defect (termites). Court looked at Laskin, and held that a vendor
who is aware of the defect must disclose a latent defect. The fact that they were ignorant of
the law (as they had been duped) did not excuse them of their responsibility. Caveat Emptor
does not apply when there is fraud. Court said that silence amounted to concealment (prof
disagrees, think it should be misrepresentation). The cost consequences of fraud are much
different. Agents were also found liable because they should have known this was a termite
neighbourhood and they should have put clauses for termite investigation.

Abel v. McDonald: V who actively conceals a Latent Defect is Liable: Deceit and fraud can
create a liability that you may not have normally had. In this case they had to pay P after closing
the cost of repair. Even if it was a small problem, V would have had to pay. But if they hadn’t
been deceitful they would have had no liability.

Latent Defect in Property

Not all latent defects are the vendor’s responsibility – ones that affect, health, safety, use are
the vendor’s responsibility. Ones that affect only the value are the purchaser’s responsibility.

Ceolaro v. York Humber: P must prove Latent Defects go to Habitability, Health, etc: Court
agreed there was dangerous methane next door, and it was not something in theory that the
pur could have discovered, and it was not disclosed. Court, however, held that there was no
danger bc there had been no evidence of any methane leakage, and they had complied with all
the gov’t regulations and the gov’t felt that it was safe.
Note: In a condo, there are different statutory obligations to disclose, so it is unclear how this
would apply to a different type of residential property. Does this set up a fourth head under the
duty to disclose latent defects – material to a purchaser making their buying decision? Prof does
not think this is fair to broaden this to non-condo circumstances. This case is also used as an
authority to say that is the danger is so remote, and they have done everything possible to
alleviate the danger and the gov’t has said it is not a danger, this can guide the court.
***Distinguished from Sividal due to concealment and seriousness of health risk.

Swayze vs. Robertson: ‘Unfit for Habitation’: A latent defect that requires disclosure by the
vendor must be one that renders the premises uninhabitable. The term "premises unfit for
habitation" does not mean that the defect must be such that the entire residence must be
rendered uninhabitable. Application of the principle can and must mean something more
qualified. Any decisions regarding habitability of the premises must be made on a common
sense and reasoned approach based on the facts of each case. The correct approach must be to
consider it in the context of whether the latent defect has caused any loss of use, occupation
and enjoyment of any meaningful or material portion of the premises or residence that results

37
in the loss of enjoyment of the premises or residence as a whole. That, I find has been
established in the case at bar. The latent defect should have been disclosed (Basement was
prone to flooding).

Tony’s Broadloom & Floor Covering Ltd. v. NMC Canada Inc.: To make a determination of
whether something is a defect in the quality of land, the intended use of the land must be
taken into account ***See p. 25.

Latent Defects in Neighbourhood

Sevidal vs. Chopra: Where the vendors acquire knowledge of potentially dangerous latent
defect in property at any time before closing, they are required to disclose the defect to the
purchasers ***See Above.

Godin v. Jenovac: P must Prove Latent Defects in Neighbourhood Affect Health etc: The
proximity of landfill sites was held to be immaterial b/c they were considered not to pose a
health standard

Marathon Realty v. Ginsberg: P has Duty to Become Knowledgeable and Consult Public
Record: Property had been down-zoned and the pur bought it to develop it into a subdivision.
The vendor had no duty to draw attention to the published zoning change, which is deemed
public knowledge. Vendor made no representations. Good case for Caveat Emptor – you have a
duty to become knowledgeable as a purchaser, and protect yourself by contract.

Title Defects

Principles of the Title System:

Curtin: No one has to look behind the title bc it is guaranteed by the gov’t
Mirror: the title on the search mirrors the real title
Insurance: If there was an error on the title document provided by the government, the
government would have insurance in place to ‘resolve’ the issue
***Subject to Easements, government claims (taxes), breaches of the planning act, fraud, notice

Converting Ontario to Land Titles: Get a lawyer to do a search, tell the gov’t it is good, submit
this to the gov’t, send a notice to adjoining landowners. Gov’t mandated that every new sub-
division/condo was registered in land titles, and the gov’t moved everything else into land titles
itself. When you have absolute title, your neighbours have no claim, where as in LT qualified
(the gov’t registered the title without consent), your neighbours may have a claim. If an adverse
possession existed before the property moved into LT it would be protected.

Guaranteeing Title: Solicitors opinion system. Lawyer reviews title and tells pur they will have
good and marketable title. If there is a fraud on the title, the solicitor is not responsible. The
standard is one of a prudent solicitor.
Title insurance: Instead of lawyer giving opinion that the title is good, the title insurance
guarantees the title is good. Clients do not have to prove that someone made a mistake – if the
risk is covered you get paid. Purchaser’s lawyer now gives their opinion to the title insurance

38
company, and the title insurers will not sue lawyers unless there is fraud unless gross
negligence.

Title Clause
Section 10 (p. 351): Provided that title to the property is good and free from all registered
restrictions and, charged, lien and encumbrances. Tests: Title has to be marketable, If the court
would force title on P then it is marketable.
1) P can take less than marketable title and sue for an abatement
2) V can’t force title that is less than good on a P
3) If you can compensate with damages you can’t get SP
4) If defect it trivial or immaterial the title will be marketable
5) If title has to be litigated to prove it, it isn’t good and marketable.

Remedies: Title Clause is considered a Big Promise (Promissory Condition) – an event that has
to occur before parties’ promises are enforceable against them. Language read: ‘provided that’.
Title clause uses this language, so it appears to be a condition precedent, which would mean
that the purchaser would be allowed to walk from the deal, or elect to proceed. However, this
is actually considered a ‘big promise’, so the vendor may be responsible for damages – P can
accept crappy title and sue for damages, or they can walk.

Qualifications of Title
Covenants: negative covenants are also called restrictive covenants – these restrict the use you
can make of the property. Neg covs run with the land. Positive covs are where you promise to
pay money (i.e. shared road). These do not run with the land – they are personal. You have to
close the deal with a restrictive covs even if you didn’t know about it. You can amend the
agreement and take the clause out saying you will accept registered restrictions, or you can title
search before you sign the agreement.
Municipal Encumbrances: i.e. developer agrees to put in sewers. Positive covenants by the
municipal gov’t do run with the land, or provide a charge if it has to go do the work the pur
agreed to. These are encumbrances on the land you would be bound by. Lawyers write to the
municipality to ensure that the developer obligations have been met.
You must accept these ‘minor’ easements to the property that supplies services to the
property or adjoining property; anything else you put in the agreement that qualifies title.

Quality of Title: ‘Good and free of all encumbrances except for…(a few back downs)’ is the
quality of the title the purchaser is guaranteed to get in the agreement of P&S.
Good Title Test: Arose out of the remedy system of specific performance. What kind of title
would the court force the pur to accept = good title (bad definition, but that’s what it is). You
can force a possessory title on a pur, but you cannot force title the pur would have to litigate
to prove. Where there is clearly no title, it would be bad faith to elect to accept the repudiation.
In Le Messurier, they were forced to take it with an abaitment. Where there is an issue whether
the title is good, the courts may say that is the kind of title we can force on the pur. Are they
entitle to damages?
Note: For you to find that there was a patent defect you have to find that there was title subject
to a wart. Court can say that the parties agreed to take it, not creating a legal concept outside of
the agreement, the contract itself says to take that issue. If we force them to take this defect, is

39
P getting what he bargained for. If P bargained for title with a wart, then you can force P to take
it.

Back Downs from good title

1. Registered restrictions and covenants that run with the lands provided complied with
2. Registered municipal agreements if complied or security
3. Minor easements supply of services to property or adjoining
4. Easements for serviced which do not materially affect present use
5. Save as set out in agreement

Marketable Title

Clement vs. Wyatt : Test for Marketable Title: A vendor must show a good title. This means a
merchantable or, a marketable title: one which at all times and under all circumstances can be
forced upon an unwilling purchaser who is not compelled to take a title which would expose him
to litigation or hazard. One which is free from litigation, palpable defects and grave doubts and
couples a certainty of peaceful possession with a certainty that no flaw will appear to disturb its
market value. (Planning Act case: Found the lawyer was responsible; recovered damages against
the lawyer)
Note: Clements concerns the definition of "marketable titles". Where the purchaser is a builder
buying for immediate resale, the title, to be marketable, must be not only be one that the
purchaser's lawyers believe to be satisfactory, but also one that can be forced upon an unwilling
purchaser without any reasonable questions being asked about the title. This view casts
substantial doubt upon titles that rest upon technical evasions of The Planning Act. Any
purchaser of real estate, even if he does not intend to purchase the land for investment of
speculative purposes, should be able to treat his title like any other marketable security and be
able to sell it at his own volition w/out the handicap of a purchaser calling into question the
validity of his title.

Green v. Kaufman: P must act in Good Faith when Repudiating due to a Title Defect: Reason
for the repudiation was a construction lien that could be removed pursuant to a statutory right
of payment into court, which would clear the title. P refused personal undertaking of the V’s
solicitor to have the lien removed, or a one-day extension of the time for closing. Courts should
be reluctant to allow parties to escape honestly made contracts in situations such as this where
very small amounts of money are involved, since the final result is that P gets everything he
contracted for rather than something less with an abatement in the purchase price. In view of
these offers, P was then not acting reasonably or in good faith in repudiating the agreement.
Court said he had to close but could hold back the money required to hold the title.
Carter: Good result on these facts, but this is a tough principle to control. How valuable does the
lien have to be before the purchaser can justifiable rescind the k?

LeMeusier v. Andrus: If the Title Defect is immaterial, P has no right to R (de minumus
Principle): its both a good faith case and a defect in title case – regarding the latter, this defect
was minor and immaterial and didn’t affect use of property. Therefore purchaser was not free to
rescind.

Toll vs. Marjanovic: Reinforces de minimus Principle: A purchaser will be found to have a valid
objection to title where a defect will affect the purchaser's use or enjoyment of the property in a

40
significant way. The vendor's inability to give good title to 1.6 per cent of the property was not
sufficient to permit the purchasers to repudiate the agreement. His renovation plans are vague
and nonspecific. There is no evidence of this being mentioned at the time, and it is unclear how
the small strip of property at the south end would affect the coverage or the renovations. The
case law imports a de minimus principle to this determination. The Court of Appeal in
LeMesurier v. Andrus found a deviation of .16% to be inconsequent

Title Defects
Title Search Regime: Purchaser has a period of time to examine title to property and complain
about it (if lawyer doesn’t like it): Then V and P decide if its something they can “clean up” or
not. If cant clean it up, purchaser can refuse to close since they aren’t getting what they
bargained for. This clause sets up time frame – if purchaser don’t complain about title w/in time
frame (the requisition date), purchaser is deemed to have accepted it.

Carter: Ask: Is this an issue that goes to title, or to encumbrances that affect title? Different
analysis depending on which.

Yandle vs. Sutton: Patent Title Defect and Open Contracts: This isn’t our system – our system
relies on contractual provisions dealing w/ title, we don’t have open contracts. The concept of
patent title defect applies to case w/ no title clause – so this case in here dealing w/ this old
technical concept, could apply in open K case, but this is not how RE is bought and sold now.
Carter: The problem is you have these open K cases out there that the litigation lawyers will turn
to and use as another tool to help client recover, and courts read them and they are unclear as
to what the law is – struggle as to whether this is appropriate or not. SO VENDOR IN YOUR FACT
SITUATION CAN ARGUE PATENT DEFECT BASED ON YANDLE – but recall given Yandle even in an
open K it would be hard to come up w/ a set of facts where patent defect in title would apply –
implies you have to have understood significance of what you saw (well-worn path = public
right-of-way)

11 Suntract Holdings Ltd. v. Chassis Service & Hydraulics Ltd.: A Lease which is requisitioned
and cannot be discharged Constitutes a Title Defect: This was “title” requisition and since
vendor could not discharge, title was defective; purchaser received specific performance with
abatement. The vendor was reckless and thus could not rely on the rescission clause - If you
knew or should have known that your title was encumbered, it is your duty to deal with that as
part of your contract; V was reckless in giving a promise that you could not fulfill.
2 categories of requisitions: 1) “Title” (mortgage, tax, lease) 2) “Contract and conveyancing”
(fixtures, chattels, towers, eviction of tenants) Conveyance is an encumbrance which the vendor
can deal with by virtue of his own interest or power over the property or by the occurrence of a
party which the vendor can compel. The policy of the court ought to be in favour of
enforcement of honest bargains. To rely on clause, vendor must act reasonably and in good
faith. If lease occurred before vendor purchased property, possible to forget and get out of
contract.

Steiglitz vs.Prestolite: Test for Good Title: Laskin: The appropriate test was not whether the
defect was patent or latent (Yandle & Sons v. Sutton), but whether the purchaser was “faced w/
acceptance of property which would be materially different from that for which he bargained…If
the undisclosed easement materially affects the land in question, then the objection to the
easement is a valid one. The same criterion would apply to encroachments.”

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Land is essentially open to contingent future claims. The purchasers, therefore, can rescind the
agreement where the issue is not minor. Facts: There is a parcel of land where 6’ of the property
had been sold to city for the subway. The city had also gotten an easement over some of the
land to maintain a retaining wall. At the time the city did these conveyances, the building on the
land was on the 6’ and the easement. For whatever reason, the vendor was not aware of the
situation. The purchaser thought they were buying all of the land without a major easement
(not a permitted encumbrance). Purchaser did their search and said you don’t won part of the
property, so the purchaser requisitioned it. The vendor had another survey done, and said yes
your were right. The vendor went to the city, and the city would have given and encroachment
agreement saying you don’t have to take your building off our land, but they may in the future.
P won.

Tony’s Broadloom & Floor Covering Ltd. v. NMC Canada Inc: Patent Defect Creates Wart on
Title: For you to find that there was a patent defect you have to find that there was title subject
to a wart. Court can say that the parties agreed to take it, not creating a legal concept outside of
the agreement, the contract itself says to take that issue. If we force them to take this defect, is
P getting what he bargained for. If P bargained for title with a wart, then you can force P to take
it. ***See p. 25.

Other Title Defects

Goldstein vs. Davidson: Potential Heritage Designations Create a Wart on Title: ***See Above

Kolan v. Solicitor: A Demolition Order Constitutes a Defect on Title: Lawyer for P should have
located prior to closing. The obligation of V was to give a marketable title in fee simple, free and
clear of encumbrances. Breaches of zoning by-laws or failure to conform to a work order can be
considered defects of title which will entitled P to rescission, even though they relate to the
actual physical condition of the land. To affect marketability of the title they must be
expressly mentioned in the contract of sale as grounds for avoidance.

Tabatta vs. Williams: Occupancy Certificate Required for Good and Marketable Title in New
Construction: A solicitor was held liable for not assuring himself that an occupancy certificate
had been issued with respect to new construction. The lack of the occupancy certificate
indicated lack of a final inspection that might have revealed a construction defect.

Stefanovska vs. Kok: Municipal Easements on Title do not entitle P to Rescind: Judge found
that the easement herein was related "to the supply of domestic utility services to the property"
(an exception in the agreement of purchase and sale) but went on to say: "Again, the true and
overriding test to be applied in these cases is whether the impediment to title, in any significant
way, affects the use and enjoyment of the property. As earlier indicated, I have found this not to
be the case." (P argued easement interfered with planned garden) V succeeded.

Ceolaro v. York Humber Ltd.: If V has taken reasonable steps to remedy a Title Defect, Title
may be restored to Good and Marketable Condition: What if the defect has been remedied?
Definite gray area. You shouldn’t really have to disclose it if its been corrected, but underlying

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concern is have you really corrected it? i.e. car that has been in an accident? This affects value.
But strong argument that there is no real defect here.***See Above.

Rescission Clause

Rescission Clause (Vendor driven remedy system)

APS enshrines rule of Bain v. Fothergill – not open for purchaser to sue for sp w/ an abatement
where there is 1) a valid objection to title which is 2) made in writing, 3) which vendor is unable
or unwilling to remove remedy or satisfy or obtain insurance and, 4) purchaser will not waive it,
then, 5) the agreement is at an end. So, there is a system to allow vendors who are ‘bona fida’,
once they discover their title is bad, can call off the deal. Courts don’t like this provision – they
want purchaser to be able to take property and sue for abatement. So they have put limits on
the exercise of this clause.

11 Suntract Holdings Ltd. v. Chassis Service & Hydraulics Ltd: Reckless V is not entitled to
Rescission: AP&S provides for a title free of encumbrances, vacant possession on closing, and
ownership of all fixtures. It makes no reference to the Cantel tower, shed, lease, or easement. V
terminated the agreement, taking the position that P objected to its title and that it could not
satisfy the objection. P tendered, but V refused to close. If you knew or should have known that
your title was encumbered, it is your duty to deal with that as part of your contract (were you
reckless in giving a promise that you could not fulfill?)

Requisitions

Requisitions: The law makes a distinction as to three kinds of requisitions:

(1) Ordinary objections to title.
(2) Paragraph 10 makes reference to “objection going to the root of the title.” An example of
this is where the vendor has no title to give, that being the foundation of the agreement. It is
unlikely that courts will rule that a requisition goes to “the root of title” except in the most
extreme situations
(3) Requisition of conveyance: The theory is that, while an encumbrance (or flaw) may affect
title, to the extent that it is wholly w/in the power of the vendor to remove, it becomes a mere
matter of conveyance and not a true requisition on title. Examples are: obtaining the discharge
of an open mortgage, obtaining an affidavit of execution on a mortgage discharge, lifting a writ
of execution against the vendor, obtaining an estate tax release, producing a mortgage
statement where the vendor has undertaken to produce it, obtaining estate or succession duty
releases, obtaining a survey, and obtaining a discharge of a construction lien.
***The primary importance as to what kind of requisition is made is w/ respect to timing.
Requisitions as to title must be made by the requisition date, whereas the other two kinds
may be made up to closing.

Majak Propertyies Ltd. v. Bloomberg: Objections to Title must be Requisitioned by the

Requisition Date: If P fails to submit requisitions respecting objections to title w/in the required
time which will result in the purchaser being deemed to have accepted the vendor’s title.
Matters of conveyance may be said to be those by which V alone or with others persons whose
concurrence he can require is in a position to convey the title to the property. If V is not entitled
as of right to obtain a discharge of an encumbrance then it is an objection to title. The result in
this case is that none of the objections went to the root of title. They were thus merely

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“objections to title.” By failing to make them within the allotted period, purchaser is deemed to
have accepted the title, as far as they were concerned, as it stood.

Toth v. Ho: Objections to Title must be Requisitioned by the Requisition Date: Matters of
conveyance are those by which the vendor alone or with the other persons whose concurrence
he can require is in a position to convey the title to the property.
Where there is a closed mortgage, then the discharge of the closed mortgage would be a matter
of title (not conveyance). Thus, where there is a closed mortgage, the discharge of the closed
mortgage must be requested before the requisition date. Had they requisitioned in time, crt
could have said you have to close this deal and find a way to prepay mrtg, but bc the problem
going to the root of title was not requisitioned in time, V could not enforce SP (which would
have meant conveying title to P free of all encumbrances).
Objections going to the Root of Title: Are there any objections to title which are so serious that
the purchaser can still make them even though they were not submitted w/in the prescribed
time for making objections? The answer is that objections which to the “root of title” can still be
raised by the purchaser. If there is a total failure of consideration and the purchaser would
receive nothing at all, not even the possession of the property, an objection to title on such
grounds would go to the root of title…Apart from the situation where the vendor has no power
to sell, it is difficult to define accurately what objections go to the root of title. If the vendor
does not have the power to give the purchaser what it is intended y the K he shall have, then the
objection may go to the root of title.”

Replying to Requisitions and Methods of Satisfying or Dealing with Them : Courts will not
require V to search his own title and resolve any problems that might be discovered. Requisition
that is “only meant to preserve rights” and not a serious concern that might trigger the
rescission clause and lose the deal for the client.
The Land Titles Act: Where a serious technical defect is involved but there is little practical risk
of the assertion of an adverse claim, it may be possible to apply to have the property registered
under the Land Titles Act.

Time Provisions and Tender

Time of the Essence

A triggering device, not a promise, representation, or a condition. In real estate, courts of equity
has pretty much said that time is of the essence. The reason for that is that in RE the market
goes up and down, such that closing on a certain date could be fundamental to what you are
buying. But it doesn’t have to be that way if facts and circumstances lead the court of equity to
say that in these circumstances parties could not have meant time to be of the essence.
It is an on/off system – if it is on and there is a breach of a big promise, the injured party can
accept repudiation or enforce specific performance. If they accept repudiation, they are
relieved of their duties. If TotE is off, the contract is not terminated. This is a big promise
remedy system. The issue is when is it on and when is it off. Most contracts use the language
to turn it off, lacking that language, the courts determine if it is on or off. If one party is ready to
close on the closing date (innocent party), time of the essence is on. If both parties are not
ready, then TotE is turned off, but the contract is still on, and either party can turn it back on by
giving reasonable notice of a new closing date.

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Provisions in the Contract
Since most Ks don’t specify for which provisions time is essential, court will determine whether
all or some. Today there is no definitive answer to this question. But we know: Closing date is
essential. For requisition date, condition dates, and delivery of deposit. Carter suspects these
others are not essential, but inconclusive. An interesting question is: when the innocent party
elects to keep the K alive, is time of the essence? For our purposes, we are going to take the
position that when there is a unilateral default and the innocent elects to keep the K alive time
is no longer of the essence. When both parties default, clear that time is not of the essence.

Available Remedies upon default where Time was of the Essence:

1. A person who seeks specific performance must himself have been ready, willing, and
able to complete at the time fixed for performance
2. Where time is of the essence and the purchaser defaults, vendor who has been ready,
willing, and able to complete may but is not obliged to invoke contractual remedy
3. A party who defaulted on the date fixed for completion cannot resist an action for
specific performance on the footing that the other party was also in essential default
4. Where parties have expressly stated that time is of the essence, equity respects this
5. If contract by its terms imposes a duty on one party to extend the time in certain events,
then he must observe that term
6. If the contract contains condition, party cannot resist specific performance any more
than he could resist action on grounds of non-fulfillment of condition if he has
prevented its performance
Luther v. Wood – they must be considered to have taken into account the risk of all such
obstructions to their works as they allege

If both parties are in default time is no longer of the essence : So you have a continuing K –
theory is that either party can say to the other party that they are now ready to fulfill their
promise, and clock starts to run again – court allows either party to unilaterally make time of
the essence, but have to give “reasonable period of time in the circumstances” for other side
to fulfill their promise. So if upon closing the other side is still in default you have an election.
Note that the other side can flip this on you – if you turn time back on and then you aren’t ready
to close but they are, you are in default. If both aren’t ready, time if turned back off

Extensions
When you want to extend closing date:
1) Do it in writing
2) Say time is of the essence
3) Say all other terms unamended
4) Look at adjustments – the credits/debits to the purchase price resulting from pre-paid
expenses, i.e. pay interest on the money arising form the extension, or I’ve sold my house I
have nowhere to live let me live in house for two weeks before closing
5) Who should write the extension letter (lawyers or clients)? As a general rule as long as you
tell the other side as lawyer that you have authority of your client to extend the deal then
its reasonable to rely on this representation

How to Approach a TotE Question:

1. Determine if the was a Promissory Condition

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 2. Determine if time is of the essence (assuming you want to terminate the APS –
otherwise you can just ignore this breach and keep the k alive)
a. Innocent party can treat K as at an end and sue for damage
b. If condition was a ‘common intention’ contract is not at an end

Salama Enterprises (1988) Inc. v. Grewal: Equity has the Power to qualify right of Innocent
Party to call Contract at an end: The court is saying they are going to imply a promise by the
vendor to make it possible for purchaser to deliver the promise – the deal is that purchaser
promises to get road such that vendor can fulfill the promise, court turns this around and said
that V had promised to make it possible for purchaser to deliver its promise – so by repudiating
the agreement the vendor has breached his promise and as a result the vendor is in default.
R (Dissenting): “Equity shouldn’t rewrite Ks”. Is every vendor faced w/ a defaulting purchaser, in
order to avoid the devastating implications of a lawsuit to his bank balance, to abandon his legal
right b/c the courts may import into a simple piece of paper a concept which cannot be found in
its four corners? In my opinion, the decision of this Court when analyzed is, in reality, a revival of
the dictum of Lord Thurlow long exploded that time cannot be made of the essence of the K in
equity.
Carter: Two ways to look at this situation:
1. Purchaser is in default, it’s a condition, if time is of the essence vendor has right to
accept the default – but court feels bad for purchaser so it turns off time provision. Some
mechanisms available to do so:
- When vendor extended the deal you didn’t make time of the essence and therefore you
vendor can’t rely on it
- Vendor has waived time of the essence by giving a series of extensions
- Vendor is estopped from relying on time of the essence – you led purchaser to believe
that you would keep extending the deadline.
Seems pretty clear that Carter would approve this approach – consistent w/ established
principles – though also kind of penalizing vendor for being nice
2. Flip the promises around, say there is a common intention – like the court did here – fool
around w/ the K in order to get the result you want
Landbank Minerals Ltd v. Mesgeo Enterprises – generally, time extension is substitution and
does not affect time being of the essence.

King vs. Urban County: Appropriate Notice must be given to turn TofE Back On (Letter):
“Neither party was ready to close on the closing date. It has been uniformly held in this province
that that does not put an end to the k. A “time is of the essence” provision, and non-compliance
w/ it by a P, can be set up as a defence only by a party who was himself ready, willing, and able
to close on the agreed date…Normally, in this situation, when both parties let the time go by,
and one of the parties wishes to reinstate time as of the essence, it is necessary to serve a notice
upon the other party, fixing a new date for closing, which must be reasonable, and stating that
time is to be of the essence w/ respect to the new date.”– they did not do this, but court found
that since is was obvious you wanted to close (to V). And, it wasn’t that V couldn’t close, it was
that he didn’t want to.
*** Also est. principal that if the deal closes on a weekend, it closes on the Monday after.

Kwan v Cooper: A Party who Insists on Strict Performance of the Contract and then defaults if
barred from turning TotE back on: Similar facts to King v Irvine County – neither party was
ready to close. Vendor sued purchase. Makes distinction – day before closing vendor sent a

46
letter saying they would stand on the strict terms of the contract and require closing on the
date. However, on their date they couldn’t close either. Held vendor precluded himself from
relying on King when he tried to enforce the strict contract – when he could not close on the
date he terminated the contract – letter precluded them from the on/off system.
Carter: This makes no sense with King. If you say right before closing that you are ready and
then you are not, then you deprive yourself of king. Prof thinks this case is just wrong.
Ridiculous b/c every vendor wants the deal to close – every time there is a double default one
party thinks they have not defaulted
Kwon v. Cooper says deal is over – that’s the difference – opposite rules – good news is a
litigator can argue Kwon v. Cooper

Domicile v McTavish: Upheld King and Added: If a Mutually Defaulting Party makes in
impossible to close the deal, they cannot turn TotE back on: Both parties were unable to close
on closing date. Looks at King v Urban County and elaborates, a party who is not ready to close,
and who subsequently terminates the deal and makes it impossible to ever close has repudiated
the deal. Both parties were in default  K continues  time not of essence  Domicile goes
and sells to someone else – so court found that Domicile was fundamentally in default and liable
in damages:“a party who is not ready to close on the agreed date and who subsequently
terminates the transaction w/out having set a new closing date and w/out having reinstated
time of the essence will itself breach or repudiate the agreement.”
Carter: Thinks this is unfair bc McTavish is the one who could not close. The only rational
argument is that Domicile’s breach was so catastrophic to the deal – selling the property to
someone else – that that is the breach that in effect ends MacTavish’s obligation – its like an
anticipatory breach. Lawyers were hoping they would say Kwan v Copper was decided
incorrectly, but instead Laskin sort of ignores it.

Remedies

Anticipatory Breach: Has to be absolutely clear that purchaser has no intention of completing
the K. Unclear whether innocent party is expected to mitigate damages at time of anticipatory
breach or when the deal fails to close.

Purchaser’s Remedies (where the vendor defaults and the purchaser is not in default):
Specific performance w/out an abatement: If the vendor says I’m not closing, there is nothing
wrong but I just don’t want to close, then purchaser can sue for specific performance.
Specific performance w/ an abatement: Purchaser can take what vendor has and sues for
whatever the deficiency is, where applicable. If the purchaser sues for specific performance,
any time before trial specific performance can be converted into a damage action. In addition,
you can sue for specific performance and alternatively ask for damages in your claim.
How can P make sure property is still available to on closing?` Have to somehow put notice on
title that you are claiming interest in property: Register APS – APS is a conveyance of equitable
title to the purchaser – registry offices will allow you to register notice of the agreement to
recognize your equitable interest in the property – can do this at any time before closing. Can do
it after closing has not occurred. Register a certificate of pending litigation – brings into
question ownership of property. Note that in neither of these two situations is the vendor

47
precluded from selling to a third party, just that if you are ultimately successful the third party
will be bound by court order or you will have prior interest in the property.
***If the vendor already has a mortgage on title and then you register your certificate this does
not bind the mortgagee – he still stands in priority.
Complete Transaction & Seek Damages: where (i) breach of a condition (gives P election); (ii)
breach of a warranty (only option); (iii) negligent or fraudulent (not innocent) misrepresentation
or (P has elections to rescind or close and sue)(iv) negligence of vendor as equitable trutee. This
is your safest option where applicable. Innocent representation – the only option is to rescind.
Carter: A lot of Ps refuse to close w/ the defect and instead sue for specific performance +
abatement. This is not smart – better off closing and suing for damages. If you refuse to close
and you are wrong then you will be liable for damages. And if you are right but you are not
entitled to specific performance because damages are adequate then your damages will be
limited by the mitigation principle – so even if you’re right you could end up w/ less damages.
Rescind K: Purchaser wants to treat K as if its never occurred. Purchaser can rescind for any
misrepresentation provided it is a false statement that is (1) material, (2) relied on by purchaser,
and (3) induced P to enter into the K. If you find out about any types of misrepresentation
before closing you can rescind. If you do close transaction you can still rescind for a fraudulent
misrepresentation, but not for an innocent or negligent misrepresentation. Purchaser can also
rescind K for various other things: undue influence, duress, non est factum, breach of fiduciary
duty, illegality, unconscionability, error in substantialibus, failure to satisfy true condition
precedent or a condition precedent, frustration
Repudiate the K: Arises from failure of vendor to fulfill a true condition precedent.
Sometimes drafted as termination of rights rather than conditions precedent – “if I don’t get
financing by certain date I have right to terminate the K and get deposit back”. Damage and
destruction clause – if there is substantial damage to property the purchaser has election – take
insurance proceeds and close deal or terminate the K and get out of deal
Constructive trust: Available where agent steals property from would-be purchaser
Vendor and Purchaser application/Rule 14 Declaration: Not a remedy but a way of determining
what your rights are – if you are not sure what your rights are (title defect or not) these are
proceedings you can take to determine what your rights are ahead of time
Return of Deposit paid: Purchaser can bring action to get deposit paid back when they accept
repudiation by putting a lien on the property for purchase of the deposit. Treated in law just like
a mortgage, can be enforced just like a mortgage – if anyone else comes later and buys the
property they will be behind it in priority, however if subsequent party does not have
knowledge of purchaser’s lien that party will take property free of it – so you have to register
purchaser’s lien.
Injunctive relief: Enjoin the vendor from doing something – have to be creative as to when that
would be appropriate, b/c you have a set of other remedies.
Rectification: If there is a dispute b/w vendor and purchaser as to what the deal is, as part of
your relief you would bring an application to remedy/rectify the argument as to what the deal is
Do Nothing: P would lose deposit (and any other payments) and hope the vendor will forebear
suing her because of rising market or of cost of legal fees.
Sue Third Party: real estate agent, solicitor, appraiser, surveyor, builder, architect, engineer,
inspector, government, etc. for breach of contract, negligence, negligent misrepresentation etc.

Vendor’s Remedies (where Purchaser is in default)

SP With/Without Abatement & Damages (in Alternative): V may seek a claim for SP with or
without an abatement and with a claim for ancillary equitable damages, but this is unlikely

48
because V has to deliver everything that was bargained for and he can’t force an abatement on
P. But, in Le Messurier, the court gave an abatement where the discrepancy was minor.
Rescision: (i) duress, undue influence, unconscionability, want of contractual capacity, mistake,
non est factum, illegality or breach of fiduciary duty or authority; (ii) failure to satisfy a condition
precedent or a true condition precedent (e.g. approval of board. V can accept repudiation and
terminate); (iii) misrepresentation (unusual); (iv) termination right (contractual rescission clause
or damage and destruction clause).
Close and Sue for Damages for Breach of Promise: i.e. failure to close.
Don’t Close and Sue for Damages
Enforce Vendor’s Lien: if the deal closes and part of the purchase price is not paid e.g Solachi.
Judicial Determination of Contract: rule 14 or Vendor and Purchaser’s application or
rectification.
Claims Against Third Parties: title insurer, lawyers, agents, building inspector, government,
other professionals (e.g. accountant), etc.

Specific Performance
An equitable, court-ordered remedy arising out of equitable conversion that requires the precise
fulfillment of a legal or contractual obligation when monetary damages are inappropriate or
inadequate. It is subject to equitable defences (estoppel, lashes, acquiescence, hardship, clean
hands, unfairness & affect on third parties)..

Issues in SP
Uniqueness: Specific performance was historically available b/c real estate was considered to be
unique. And even though vendor is looking for money, not property, historically the view was
that if the purchaser could get sp then vendor should have it as well. It started out that this was
automatic – but since Semelhago this has evolved, test now is: can purchaser be adequately
compensated in damages? To work out this test you look to (1) uniqueness/(2) reasonable
substitute, among other factors
Mitigation: mitigation of damages doctrine requires P to take reasonable efforts to alleviate
effects of the injury or breach or to risk reducing recovery. Problem is that you cannot mitigate
when seeking SP b/c K lives until trial so the defaulting party could pay more if P elects to take
damages. A mitigation issue arises when the court can say a person did not act reasonably in
mitigating their loss so they don’t get to recover all losses. Problem is there wasn’t a sale at the
date of reasonable mitigation, so you need to get appraisal evidence. Ct picks the closing date as
the date from which to assess damages as a punishment for not mitigating within a reasonable
time.
Election of Damages: up until the trial, P can switch their claim for SP into a claim for damages
or request damages in the alternative.
Ready, Willing & Able: if you are arguing for SP, you have to be ready, willing and able to close
the deal until trial because the defaulting party could turn time of the essence back on by giving
you notice.

Objection to SP: Suing for SP essentially allows you to speculate on the market – if the property
goes down you get the damages you would have suffered, but if it goes up you get the
appreciation. The law is developing to counteract this by punishing you for suing for SP if you
are not entitle to it. However, There is a risk you will not get SP, so it is better to mitigate.
Incentive not to go for SP – if you lose, you may not get the same mitigation you would have
gotten if you sued for damages. In a declining market, where the vendor defaults the purchaser

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should accept repudiation and find a substitute property. If you force SP, you would get the
house for much less than it is worth at the point of the trial judgment.

Specific Performance (Vendor)

Mutuality: under the old, almost automatic system, SP was routinely available to V, on the basis
of the doctrine of mutuality (i.e. if P is entitled to it so to should be V)
Substantially Bargained: V, in using SP, must deliver to P substantially what P bargained for.
Suitable P: if you cannot find a P for your property at any price, then you, as a V, will be entitled
to SP because no suitable alternative. See Dick.

Specific Performance (Purchaser)

If you do get SP now, the date of trial is not date from which damages in lieu of SP are
calculated. It is only calculated from the day of close. You have to be put back in the same
position you would have been in from the day of close. So if the property goes up $100,000 at
the day of trial and $50,000 from the day of close, you get $50,000. Not only do you have to
make the decision at the time of close whether you want to use SP, you have to keep
reassessing whether you should continue with it because now the court will tell you not to be
continuing with you action.

Equitable Damages in Lieu of Specific Performance: If you are not in same position you were
upon closing the court can award equitable damages (i.e. if on date of closing mortgage rates
were at 5% now they are at 10% on date of specific performance). Have to look at if its
something that would not have arisen if you’d closed on closing date

Current Tests for Specific Performance

Investment Purposes: if P is buying the property for investment purposes, he may not be
entitled to SP even if the property is unique because P is really just looking for money so
damages likely will suffice. But, in a Soulis type situation, SP is still necessary despite the
investment property aspect.
Real and Substantial Justification: court ask P to prove that there is a real and substantial
reason for receiving this exceptional remedy. This can be done by showing that damages are
inadequate (i.e. property is unique).
Damages Inadequate: in order to obtain SP today, a P must demonstrate that common law
damages do not provide an adequate remedy. The uniqueness of the property is often at the
heart of this issue.
Suitable Alternative: to obtain an order for SP demonstrate that there is no suitable alternative.
***Mitigation date is not a fixed date: its what’s reasonable in the circumstances, so its hard for
court to pick a date. Dates court can choose from are closing date, mitigation date, and date of
trial, however date that court will often calculate damages from is date of closing or reasonable
period of time after closing (date that party should have reasonably mitigated its loss)

Bashir v. Koper [1983] OCA: Old Law: Where necessary conditions are satisfied, court will
almost invariably decree SP of a contract regarding land... Further, as the court will not interfere
in favour of one party and not of the other, V can maintain an action for SP as well as P.

Domowicz vs. Orsa (1993): A Property Purchased for Profit cannot be Unique: When you
breach a contract, there are some damages you don’t have to pay (too remote, could not have
anticipated, ect.). Subject to the inadequacy of money damages, SP may be appropriate, but a

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suitable substitute is the standard, not identical. Applied theory of efficient breach – where
damages can compensate the injured party, they are preferred, because then they will engage a
third party and increase a market economy. Criticism of previous judgments RE: SP - It has been
assumed in RE that inadequacy of damage is presumed, however this is not the standard test - Is
there some fair, real, and substantial justification for SP (Justice Adams). The court also found
that the purchasers should have mitigated their losses by purchasing another apartment when it
became apparent that the transaction would not close in the reasonably foreseeable future

Semelhago: SCC Affirmed Domowicz: Potential for P to make a lot of money on the vendors
default. At trial, the purchaser asks for damages in lieu of SP. SCC would not have awarded SP,
so the damages would have been in relation to what it was worth on the day of closing
(incentive to mitigate damages post-closing). However, everyone argued the case as if you
would have gotten SP, so that is what the court awarder, but obiter essentially, made it clear
that judges do not automatically give SP in Real Estate anymore.

904060 Ontario Ltd: Proving Uniqueness: Whoever has the burden of proof will loose because
they did not discharge their burden. “In my view the presumption of uniqueness has not (yet)
been replaced by a presumption of replaceability, and that what the SCC did in Semelhago was
to open the door to a critical inquiry as to the nature and function of the property in relation the
prospective purchaser”
Carter: This case arose b/c law was in state of flux, and they didn’t want to punish the purchaser
who didn’t bring any evidence of uniqueness – not clear that this case would be decided same
way today.

11 Suntract Holdings Ltd. v. Chassis Service & Hydraulics Ltd.: The party bringing the
application has the Duty to prove uniqueness: Came down to whether there was a suitable
alternative to this property. Test has always been would CL damages be insufficient bc the
uniqueness of the property. Ordered SP bc they needed this property to complete the
development. The Semelhago test is that absent evidence that the property is unique to the
extent that its substitute would not be readily available, specific performance should not be
granted as a matter of course. Although not dealt w/ explicitly in Semelhago, it seems to be
implicit in the judgment that uniqueness is a matter to be proved and not presumed. If this is
so, the proof should lie w/ the party seeking the remedy

John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd.: Suitable Alternative must be available at
the Time of the Breach: Excellent analysis of what judges should do in evaluating SP. Magna
proposed suitable alternative, but court held that they were not suitable (thought V’s were
arrogant bullies, may have coloured decision). The appropriate time to determine if a suitable
property is readily available is at the point of breach, bc that is when the innocent party has to
elect to sue for damages or SP. P is not required to prove a negative and demonstrate the
complete absence of comparable properties…It is important to keep in mind that uniqueness
does not mean singularity…The P need not show that the property is incomparable.

Equitable Damages in Lieu of Specific Performance

Semelhago: A party entitled to SP is entitled to elect Damages in Lieu: Rationale for assessing
the damages at the date of breach in the case of breach of K for the sale of goods is that if the
innocent P is compensated on the basis of the value of the goods as of the date of breach P can

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turn around and purchase identical or equivalent goods. P is placed in the same financial
situation as if K had been kept.

Assessing Damages: You can assess damages at three points: Date of breach, Mitigation date,
Date of trial/judgment.

Wroth and Another v. Tyler: Court assessed damages at the time of Assessment and not as at
the date of Breach of Contract: Husband entered into a K to sell the house, the wife entered a
claim in the charges register for rights of occupation. She would not remove this claim and the
transaction could not close, the value of the home rose from £6000 to £11500 b/t when the
agreement was made and the date of the trial. Consequently, P were entitled to damages of
£5,500 in substitution for a decree of SP. General rule of assessing damages as at the date of the
breach seems to defeat the general principle, rather than carry it out. It seems that on the facts
of this case there are strong reasons for apply the principle rather than the rule.

Annsdell v. Crowther: Reasons to Mitigate: Only in exceptional circumstances will the vendor be
able to obtain an assessment of damages as of the date of the trial. They could have mitigated
their damages by finding another purchaser.

Specific Performance with Abatement

LeMessurier v. Andrus: Vendor is entitled to specific performance with an abatement if they

are in a position to convey substantially what the contract called for: On an objective test, the
defect in title was very minor, and was not sufficient to justify the repudiation of the contract by
purchaser. V had amended to action for damages before judgment.

11 Suntract: SP w/ Abatement contemplated on basis of Reasonable Purchaser: The power to

order SP with compensation involved the court in the difficult task of attempting to discern the
intention of the parties from an agreement which did not contemplate what actually transpired.
P is at once asking the court to enforce the bargain that was made and to re-write the bargain
that was made. Reasonable P would have bought the land either as a retail development site or
for industrial use. P buying land for a retail purpose would have paid $750,000 with their
knowledge of the tower, lease and easement, so SP with an abatement of the Purchase price to
this amount.

Equitable Defenses

Grauer Estate v. Canada: The defense of Laches: A P in equity is bound to prosecute his claim
with out undue delay. This is in pursuance of the principle which as underlain the Statutes of
limitations. A court of equity refuses its aid to stale demands, where P has slept upon his right
and acquiesced for a great length of time. He is then said to be barred by his laches. The
equitable doctrine of laches refers to the P’s failure to bring her action in a reasonable amount
of time. In this case there is no deterioration in the D’s position, so the defence of laches fails.

Hong Kong Bank of Canada v. Wheeler Holdings : Clean Hands: respondents should be denied
relief they seek b/c they are guilty of misconduct. Equity will not apply the principle about clean
hands unless the depravity, the dirt in question on the hand, has an immediate and necessary

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relation to the equity sued for. Entire transaction does not become tainted b/c certain parties to
the transaction may have unclean hands.

Stewart v. Ambrosina et al: Hardship: If undue hardship would be inflicted upon a D in an

action for SP, then a Court may exercise its discretion and refuse a decree of SP. It turns on a
provision of s. 6 of the Dower Act and in light of that, I don’t think that it can be taken as an
authority for the proposition that undue hardship alone is a ground upon which the Court can
refuse to grant SP. Event if this wasn’t so, hardship must have existed at the time the contract
was made and cannot be hardship that has arisen subsequently from a change of circumstances.
SP was awarded.

11110049 v. Exclusive Diamonds : Hardship: Hardship which would result from an order of SP is
a factor to be taken into consideration in determining what remedy to grant. They found that
there would be substantial hardship. Agreement to sell jewelry business; agreement entered
after owner’s wife was murdered. Argued by appellant hat the sale was unconscionable b/c at
the time it was made, owner was suffering from deep depression. Found that his state of mind
cannot alone render the agreement unconscionable.

McCorkell v. McFarlane: Unfairness: SP in this case ought to be refused on grounds of

unfairness in maters extrinsic to the terms of the K itself and being found in the circumstances
under which it was made. The equality and fairness which is essential in order that the Court
may exercise its extraordinary jurisdiction in SP is to be judged at the time the K is made and not
by subsequent events. In judging fairness of a K the court will look not merely at the terms of
the K itself, but at all the surrounding circumstances. The unfairness in this case is to be found in
the circumstances of the D’s age and impairment of faculties. P is entitled to damages.

Rescission
The important thing about rescission is it puts you in position you would have been in if there
never was a K, damages and specific performance puts you in position you would have been in
had there been no default. This is an equitable, rather than a contract, remedy. CL made you
close your deal and sue for damages, but when that was unfair, equity stepped in. If the deal
had not yet closed you can rescind the contract if rescission is available to you
You are entitled to a rescission where there has been a Misrepresentation that: 1) induced you
to enter into the K, 2) was material, and, 3) was relied on
Three types misrepresentations: 1) innocent, 2) negligent, 3)fraudulent
Before closing you can rescind for any misrepresentation, after closing you can only rescind for
fraudulent misrepresentation
Purchaser can also rescind K for various other things: undue influence, duress, non est factum,
breach of fiduciary duty, illegality.
Executory K vs. executed K – executed K means K where the deal is closed, executory is when
you’ve signed but have not yet closed.
Rescision can occur where there is fraud, mutual mistake (If parties are (both) wrong about K it
shouldn’t be enforced), or error insubstantialis not getting anything (not sure ‘bout this)
There is a lot of discussion in text of rescission vs. repudiation – arises from judges using
rescission for wrong concept: Rescission – put back in pre-K position, Repudiation – when a
party defaults
*** In order to determine if it was a promise or representation, the court looks at the language
of the contract; look at statement, decide how you will categorize it, and then remedies should

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follow. What makes a representation material? – look at the intent of the parties. Prof.- the
language of the contract can make an immaterial representation material.

Johnson v. Agnew: Clarifies difference bn Rescission and Repudiation: it is important to

dissipate a fertile source of confusion and to make clear that although the vendor is sometimes
referred to in the above situation as 'rescinding' the contract, this so-called 'rescission' it quite
different from rescission ab initio, such as may arise for example in cases of mistake, fraud or
lack of consent. In those cases, the contract is treated in law as never having come into
existence. (Cases of a contractual right to rescind may fall under this principle but are not
relevant to the present discussion.) In the case of an accepted repudiatory breach the contract
has come into existence but has been put an end to or discharged. Whatever contrary
indications may be disinterred from old authorities, it is now quite clear, under the general law
of contract, that acceptance of a repudiatory breach does not bring about 'rescission ab initio'
This follows from the fact that, P having repudiated the K and his repudiation having been
accepted, both parties are discharged from further performance.

Sail Labrador: SCC gets rescission/repudiation mixed up: calling a repudiation a rescission.
Involved racing sale boat leased out with an option to purchase. There was a default. Ct had to
decide whether K was over. Bilateral contract where you have mutual promises. Cts will not
strictly enforce these promises. Unilateral contract, where one person has a right i.e. an option
to purchase P doesn’t have to purchase but V has to sell. When you exercise the option, then it
becomes bilateral. Unilateral contracts will be strictly enforced i.e. they have to be strictly
performed.

Guarantee of North America v. Gordon Capital: K can specify a Right to Rescission for breach
of a Promise where no Equitable right exists: SCC clarifies rescission/repudiation Distinction.
The parties can say in K that a failure to perform a big promise does give a right to rescind. What
the court is saying is that it will honour K where it provides the remedy of rescission or
specifically provides no remedy.
Carter: Doesn’t agree with this; he thinks in such a case, the big promise is actually treated as a
misrepresentation. This mucks up the distinctions between promises and misrepresentations.
He says we can choose to understand this either way.
Carter: On the same topic, if in the K you say no matter how big this breach is you must close
and sue for damages, we will say “parties have decided that this is a warranty and not a
condition” – b/c in case of warranty you must close and sue for damages. He really likes this
intellectual approach to this issue. Keep things straight.

Material Misrepresentation

Panzer vs. Zeifman: Material Misrepresentation give rise to the Right to Rescind, however that
right can be lost if ‘Fresh Steps’ are taken: Pur thinks he will be getting a private drive, but it
was a mutual drive. The contract was silent on the issue. Pur wants out of the deal. Pur says in
was a misrepresentation, whereas seller called it a title issue (title clause says it must be
requisitioned by the req date, and Mr. Panzer missed the req date. Argument became weather
it went to the root of title). Trial court sided with seller. COA treated it as a misrepresentation,
because when he was viewing the house someone pointed to the drive and said this is where
you park. However, after you knew you had the right to rescind, you took ‘fresh steps’ as if you
had a binding contract, so you lost your right to rescission.

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Carter: This case can be argued from several points of view: Can say 1) Mutual right of way –
look at title clause, didn’t get what I was supposed to 2) Promise issue: Didn’t get what I
bargained for. If it’s a condition I can accept repudiation of K or take what vendor has w/
abatement 3) Misrepresentation – represented to me that I would get a private driveway
Here it wasn’t in the K – so court said they misled you into thinking it was a private driveway,
therefore we will find misrepresentation by silence, it was material, you can rescind.Panzer
argued misrepresentation issue is b/c he missed the requisition period – their requisition on title
was too late, therefore they couldn’t rely on all their stuff on requisition b/c it doesn’t go to root
of title (although you could argue in this case that it did go to root of title). So court gets around
title issue, finds misrepresentation, and then in Carter’s opinion screws case up – says “you
Panzer affirmed K and so you can’t get rescission” – intellectual impression is that if you want to
rescind you have to make a decision – once you know the factors and you choose to carry on K
you’ve given up. That sucks. This guy just went to closing and brought quit claim deed. Why
shouldn’t the purchaser be able to do that and then when vendor can’t deliver decide whether
to rescind or accept repudiation?

Returning Property

Wandinger v. Lake et al.: Right of Rescission Post-Closing for a Fraudulent Misrepresentation:

P purchased a property after being led to believe it returned more profit than had been
disclosed. The right to rescind is a right which a party to a transaction sometimes has to set that
transaction aside and be restored to his or her former position. It is the equitable right to annul
the legal effect of K and to re-establish the parties to the position they were in before the
making of K. This remedy is available when a person has been induced into making a K by
material, false, fraudulent misrepresentations. The wronged party may rescind and also claim
damages for deceit.

Carter v. Golland: Where Rescissions is exercised post-closing due to Fraudulent

Misrepresentation, the expenses of P while owning property, any benefits they received, or
any depreciation in the value of the property, will be considered: The parties must be put in
status quo. It would be unjust that a person who has been in possession of property under K
which he seeks to repudiate should be allowed to throw that back on the other party’s hands
without accounting for any benefit he may have derived from the use of the property, or if the
property, through not destroyed, has been in the interval deteriorated without making
compensation for that deterioration. There must here be rescission. It must be referred to the
Master to take an account of the moneys paid, and to ascertain the amount of stock on hand as
compared with the stock on hand at the date of the conveyance, and to ascertain what should
be allowed to the plaintiffs for expenses in carrying on the business and what should be charged
against them for any benefit they have in the meantime received. The balance due to the
plaintiffs will constitute a charge upon the land and assets of the business. A reconveyance
subject to the charge will be settled by the Master

Beer v. Townsgate: When Puff becomes Fraudulent Misrepresentation given rise to right of
Rescission (unsophisticated P): The sales agents’ repeated statements to both P that the
investment was risk-free and guaranteed and to P that the V would buy back the unit at any

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time are in the category of fact. That Ps were unsophisticated further supports the conclusion
that their reliance in the circumstances was reasonable.

Cole v. Pope: Exception were an Innocent Misrepresentation resulted in Rescission Post-

Closing: An executed contract for the sale of a mineral claim, being an interest in land, will not
be rescinded for mere innocent misrepresentation. But where, by error of both parties and
without fraud or deceit, there has been a complete failure of consideration, a court of equity
will rescind the contract and compel the vendor to return the purchase money. Thus where, on
the sale of a mining claim, it turned out that the whole property sold was included in prior
claims, whereby the purchaser got nothing for his money, the contract was rescinded though
the vendor acted in good faith and the transaction was free from fraud.

Fraud

Yamada vs. Mock: Lawyer must take Prudent Steps to Prevent Fraud (Request ID): While
solicitor should not be expected to act as guarantor, should take reasonable steps to protect
party he or she is serving. While eliciting of ID may not prevent fraud, it would make it more
difficult. Failure to ask for ID is below standard of care of solicitors in this situation. If practice
were not to ask for ID in such circumstances, I see the risk in these circumstances to be plainly
foreseeable and, regardless of practice, the law would impose liability on the solicitor to deal
with the foreseeable risk.

Shute v. Premier Trust Co: 1) Lawyer cannot let documentation leave your possession for
execution, and 2) you cannot be blind to suspicious circumstances (Red Flags): There were
suspicious circumstances – wife ‘sent documents to Morocco’ for husband to sign, and they
came back the next day, and there was no notarial seal on them.
Note: Law Society publishes lists of red flags: flips, vendor take-back, big price increases
(property doubles in 6 months), certified cheques, direct deposits and bank drafts (supposed to
call and make sure the payment is legit – only safe course is wire transfers. Banks will now wait
for cert cheques to clear before they will let you draw on it), Mrtg money only deals, acting for
multiple parties.

Indefeasibility of Title: If title is indefeasible, it cannot be taken away. System protects an

innocent purchaser so that title is reliable. Now this system has been revised so that it is harder
to sell someone’s house from under them.
Concepts:
o Nemo Dat (first in time): You cannot sell what you do not own (this is no longer the system
we use for real estate, but it is the system for real property).
o Registry (first in registration): There is an element of unfairness to this – changed this
system to first in registration with notice. You also have to satisfy yourself that the person is
the actual owner – search the title for 40 years. Only applies to about 200 properties in
Ontario.
o Land Titles: the government says here is the owner, and you get to rely on it. Mirror (real
title mirrors the title search), Curtain (you don’t have to look behind it; draw a curtain at
the page you get), and Insurance (if somebody looses a valid interest in property by reason
of the system, then the government is insured to compensate them). In a real title system,
actual notice is irrelevant, bc people would be forced to register. However, if you have

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 actual knowledge of an interest, your title can be defeased (? Trust Case). This might apply
to a tenant who has not registered their lease.
o Exceptions to the Mirror: s. 44(1) of the Land Titles Act: claims by the government
(taxes), easement that is in use but not registered, fraud (could lose your title if there
was a fraud). Title insurance covers fraud.

When is your title Defeasible? : Fraud Clause: You never get title if you are a crook – lose it
under the fraud provisions

Is title indefeasible?: Is an innocent purchasers title indefeasible?

1. Immediate indefeasibility (not the law in Ontario) says that if you are on title and you
are innocent, your title is protected. There is a COA decision (Chan) where they said
immediate indefeasibility was the law in Ontario. Then formed a 5 panel COA to say it was
wrong.
2. Deferred Indefeasibility: Indefeasibility of your title is deferred one round. If you have
dealt w/ the forger, you cannot get good title. If you have dealt w/ a fraudster, who in turn
had title transferred to him by a forger, you have good title. Durrani Case said this was the
system in Ontario. This was the law up until 5 years ago, where the 5 panel COA in
Lawrence changed the rule and the statue – land titles said Ontario is a Deferred
Indefeasibility system, but then ‘mislead the court’ to create a new system, which is called
Double Deferred Indefeasibility. Used United Trust in order to rationalize their decision.
3. Double Deferred Indefeasibility: Can only get title from an innocent person. If you have
title transferred to you by a forger or a fraudster you do not have good title. There has to
be two innocent parties for title to be protected after a fraud – i.e. an innocent person buys
a house from a fraudster and sells it to another innocent party – their title is protected.
However, Rabbie says in order to rely on this, you have to have done due diligence. Then
Ratvinsky said that if you are a bank, you never win (DDI plus) – in order to rely on DDI, it
must be clear that you could not have avoided the fraud by doing something more. In this
case, said that banks can always do more.

Lawyers Responsibility (indefeasibility of title systems): Lawyers give an opinion about title -
this is not a guarantee. Lawyer acts prudently they are not liable if title is bad. We do not give
an opinion on whether the title is indefeasible bc of fraud. Lawyer also has to take reasonable
steps to prevent fraud.
Title Insurers: They do guarantee there has been no fraud.

Kinds of Frauds: Oklahoma (flip or value frauds, not forgeries): Fraudster sells a house to their
partner for more than it is worth in order to defraud the mortgagee. Before Lawrence this was
not a title issue, but with the recent changes you have to have two innocent parties, or the
transaction is void – fraudster one now gets the property back. Bc the mortgage is void the
bank must go outside the land titles system to recover against the property. Identity Fraud.
Certified Cheque Fraud.

There are other (common law) theories floating around:

(1) Rabi – negligence on the part of the lender turns indefeasible title in defeasible title – if
the court feels they didn’t do proper due diligence then that indefeasible title becomes
defeasible.

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 (2) One Transaction – treat the latter as one transaction and not two, and as a result its like
the lender is part of this fraudulent transaction and his interest would be voided under
double-deferred indefeasibility.
Forger  fraudster  innocent  lender (treat as one transaction)

Durrani v. Augier 2000 ONSC: Deferred Indefeasibility: Durrani’s have good title  Mortgage
(forgery) by Augier  gets a foreclosure order so he becomes owner on title  transfers the
properties to the two girls who are trustees for the agent  girls go out and get mortgage to the
bank: Court decided bank gets good title, found that girls did not get good title b/c they were
trustees for their mother who knew about the fraud – so Durrani would have to pay mortgage
to get title back (Land Titles insurance system would step in and give Durrani the money).

CIBC Mortgages Inc. v. Chan: Return to Immediate Indefeasibility/no more Nemo Dat
(overruled by Lawrence): Wife forged POA for husband and secured two mrtgs against their
house to pay gambling debt. Motions judge held husband's argument to apply doctrine of
deferred indefeasibility was not supported, as doctrine did not disentitle bona fide parties from
pursuing claims to property with fraudulent title. Husband and wife appealed. Appeal Dismissed.
Court mucked up what Duranni said bc went back to Immediate Indifeasability (but court didn’t
admit this). If the mortgages are gone, then innocent husband benefits, but so does the guilty
wife (court doesn’t want this). Ct analyzed LTA – s. 155 and s. 78(4) – looked at these and came
up with the concept that Nemo Dat isn’t the law in land titles. Court summarized deferred
indefeasibility and says that fraudulent document did not give good title to person who
perpetrated fraud. In this case, the bank is innocent and would be denied their right, and in
Duranni the bank was okay, but this is b/c of the difference of forgers and fraud. Ct in this case
misses the point. Test: are you innocent and do you have notice of the fraud? Without calling it
immediate indefeasibility they make it this (as long as you aren’t party to the fraud you are ok).

Rabi vs. Rosu: In order to rely on DD & DDI, you have to demonstrate you have done Due
Diligence: Unknown individuals posed as the purported vendors and as Ion Rosu, a purported
purchaser and mortgage applicant of the condominium unit in question.
These individuals completed a fraudulent transfer of the condo from the names of Rabi and
Shafiei into Rosu’s name and then obtained a mortgage loan from the TD Bank. Bank had not
exercised due diligence to prevent fraud and could not rely on deferred indefeasibility. You are
dealing with the fraudster and have the ability to avoid the fraud. Since you could avoid the
fraud you shouldn’t be protected. Ct says – moves towards a bit of a Nemo Dat rule – saying
legislation did not intend to change CL except in certain circumstances. If deferred indefeasibility
applied to this case the mortgage would be valid. Even in double deferred system, if the lender
didn’t to due diligence, then they might not get title. This could be over turned.
***Bank did not have interior inspection of premises performed, instead nelegating due
diligence to mortgage broker

Lawrence vs. Wright: Double Deferred Indefeasibility: Test: Did you take title from a crook
(forger or fraudster). Transfer will not be valid unless it was obtained from an innocent person
who has registered the property pursuant to a fraudulent transfer. So we arrive at double-
deferred indefeasibility, though the court calls it deferred. The court also explicitly overrules
Chan: “The mortgagees in Chan relied on the register which showed the parties as the
registered owners. In fact, the wife was one of the registered owners and her title was valid -- it

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had not been obtained by fraud. Even if an argument can be made that, in respect of the wife's
interest, the mortgagees took from a registered owner, the same cannot be said in respect of
the husband's interest. The result in Chan, at least in respect of the husband's interest in the
property, is inconsistent with the theory of deferred indefeasibility.”

Cases that take Lawrence even further – and take us away from the theory behind the LTA:

Reviczky vs. Meleknia: Negligence on the part of the lender turns indefeasible title into
defeasible title in Double Deferred Indefeasibility System as well: HSBC should have been more
vigilant, and as a result can’t rely on indefeasibility of title. 80 year-old owned a house that he
rented out to a fraudster. Fraudsters showed house, pretending to be owners. They forged his
signature and acquired power of attorney – claimed to be a relative, Aaron Reviczky. Went out
and sold property on the market to Meleknia. Everyone agreed that Meleknia had no interest
b/c bought from a forger. Meleknia gave a mortgage to HSBC – according to any theory this
mortgage should have been valid. “The relevant transactional attributes now include the
determinative one: whether a party to a transaction had the opportunity to avoid the fraud in
issue. If this appears to be inconsistent with the Land Titles Act, it should be remembered that,
in Dominion Stores [supra], the majority of the Supreme Court held that the common law
continues to be part of the law of Ontario in respect of land under the Land Titles Act except
where it is expressly abrogated.”

St. Onge v. Willowbay Investments Inc.: Applies Lawrence (sort of): S bought land from W; W
then sold 6’ of that land again to new purchaser (F). S sues to assert title to the land, and F
claims they are a bona fide purchaser. Ct treats it as a fraud because of equitable conversion. W
is just a trustee for S and when he held himself out as owner to city it was a misrepresentation.
Court says it is not a fraud but a misrepresentation – F cannot get title. The court is saying
Lawrence could apply as F didn’t get title from an innocent party.

New Fraud Legislation: Govt was originally promoting deferred system, then switched to double
deferred system. People were losing their homes and there was an outcry. Compensation was of
no value b/c people were losing their homes. But that is theory of land titles and if you take this
away then you are really going back to a registry system. Land titles inherently was set up so
that in certain situations, people could lose their homes. This became a political issue, govt
wanted a system to protect peoples homes. So created an extra round of indefeasibility. Now
we have double deferred indefeasibility. Legislation could go further and take it beyond what
govt intended. And courts could also take this further. There is no end to where these Lawrence
things could go. Lawrence says the test is whether you could have avoided the fraud. But this
isn’t what is in LTA, this is what the courts made up.

Title Insurance
Title insurance is now available to provide more extensive and secure coverage. Title insurance
is "an agreement to indemnify, up to face amount of policy, a specific named insured, regarding
a specific interest in a specific property, in event that loss ever arises from one or more of the
specified causes." 'A title insurance policy is a K bt title insurer and purchaser (and/or the
lender) that has been drafted by the title insurers and, therefore, like any insurance policy,
covers certain risks but also excludes others.
A title insurance company will usually offer 2 types of title insurance policies, an "owner's
policy" and a "lender's policy." An owner's policy provides indemnification against loss or

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damage suffered through title defects or encumbrances, enables owner to protect himself from
the unpredictable. A lender, who has a vested interest in property and thus wants to ensure that
property is free from title defects, is able to purchase a lender's policy to ensure that he has a
valid and enforceable charge on title.
Extent of Title Insurance Policy: Title insurers will want to consider degree of probability that a
claim will be made before selling a policy for a specific property. A title insurance policy
coverage section is drafted quite broadly in order to cover all potential title defects. A real
estate lawyer should carefully review general exclusions and specific exceptions in a policy to
discover what losses are actually covered and whether coverage is at least as broad as a
solicitor's opinion in order that he can accurately advise a client as to the advantages and
disadvantages of title insurance in a specific transaction.
Title Insurance and the Traditional Role of the Lawyer in Land Transactions: Traditionally, all
aspects of a residential real estate transaction have been handled by lawyer once agreement of
P&S has been signed, but most important role has been provision of a title opinion. Bt
elimination of this role and creation through mechanization and centralization of document
processing, there does appear to be a genuine threat to lawyer's role. It is clear that some title
insurers want elimination of regulation 666, which they regard to be only obstacle preventing
title insurers from issuing policies without involvement of a lawyer providing an opinion. In
addition, problems of conflict of interest are inherent in the situation. Lawyer, in a typical
situation, acts for P, mortgagee, and title insurer and provides legal opinions to all, at the
expense of P. Obviously, this situation will have to be sorted out.
Difference b/t non title insurance system and a title insurance system: as a lawyer you give
your opinion of title based on your training. Where there is title insurance you are getting a
contract/guarantee that title is good. If there is an event where there is not good title, insurance
company has to pay. But if there is no insurance (lawyer opinion system) you have to show
lawyers opinion was negligently given before you can get to recover. There is very little practical
diff bt 2. Cts have tended to hold real estate lawyers to a high standard. It is close to perfect title
anyways in a lawyer system. Cts aren’t supposed to know if you have insurance but often they
do. Reality, there aren’t many title problems that would come out that aren’t covered by title
insurance or lawyers insurance. Title insurance is good for lawyers, large deductible, time
wasted in lawsuit, attack on credibility.

Mortgages

Legislature and Cts seek to balance interests of mortgagor/borrower to ensure that lack of
bargaining power is not taken advantage of, with interests of mortgagee/lender, who advances
funds, that represent earned value. The relationship turns on central loan transaction that is
rendered special by fact that repayment is secured by land, rather than being left to vagaries of
judicial system and uncertainties of debtor's economic situation in future. Historically, a
mortgage was a Conveyance of land as a security for payment of a debt or discharge of some
other obligation. The mortgage, upon payment of debt or satisfaction of obligation, was
redeemable, debtor could demand reconveyance of land conveyed by way of security. At CL,
mortgagee, as a result of conveyance creating mortgage, became "owner" of mortgaged
property. However, in equity, an equitable right to redeem developed, and equity enforced duty
to reconvey upon payment of debt. In Land Titles system, charge developed under a different
premise. A charge arises by K but without a transfer of title or possession of interest charged,
but it has annexed to it certain incidents by statute that it otherwise would not have had.

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Charge does not vest in chargee any legal estate and hence chargor's interest in land is not
equitable but remains legal.

"Disguised" Mortgages: Part of concern for fairness wrt borrowers has resulted in equity
looking through disguised forms of mortgage. In application of equitable maxim that substance
not form of transaction is key, equity will intervene when a conveyance, absolute in form, is
intended to operate as security only, and equity will provide to "the vendor" the usual right of
the mortgagor to redeem.
"Equitable" Mortgages: An equitable mortgage is one that does not transfer legal estate in
property to mortgagee, but creates in equity a charge on property. Most common of these is
"second" or subsequent mortgage bc anything beyond first mortgage was viewed not as a
mortgage of the legal estate that had been transferred to first mortgagee but as a mortgage of
ever-diminishing equity of redemption.

Mortgages and Insurance: Mortgages usually go to 75% of value. If there is a title problem and a
mortgage, borrower still has to pay mortgage. Lender would want a survey showing location of
house. Title insurance will give a policy for cheaper than cost of a survey. So borrower will go get
a lender’s policy to protect from survey problem. Advantage: traditionally a lawyer’s opinion
didn’t insure over fraud. Title insurance does cover fraud. So now it makes sense. Everyone in
real estate business is there to reduce risk – surveyor, municipality (zoning). Theory is, when risk
happens, and there is a loss, it has already been paid for.

Alienation of the mortgagor’s and mortgagee’s interest: equity of redemption is an alienable

interest. When a home is mortgaged it is equity of redemption that is subject to any subsequent
sale of property. CL- mortgagor can’t escape liability under mortgage simply by selling property;
obligation to repay loan survives as a matter of K law. A right of indemnity will be implied as a
matter of construction in favour of original mortgagor. Mortgagee also has an interest that can
be transferred: right to enforce loan. At CL, right to sue on debt, a chose in action is not
assignable. Equity permits these transfers.

Mortgage Remedies
There are 5 remedies available to mortgagee once default has occurred: Bring an action against
the mortgagor on the personal covenant, Take possession/Appoint a receiver, Foreclose, Sell the
land (Power of Sale or Judicial Sale)
Action on the Covenant: Sue (usually when the borrower has assets). Umbrella term ‘personal
covenant’ can be used to refer to set of K promises made by mortgagor. Key term is promise to
repay loan. ‘amortization’ is a term describing the time required to pay off the debt (including
interest) were the blended payments to run their full course.
Taking possession or appoint a receiver: The way the lender takes position of the secured
property. Usually you need possession to sell it. Two ways to get possession: self-help – no one
is in the property and you change the locks, or through the courts – if someone is living in the
house.
Receivership: Another way of taking possession. Instead of the mortgagee taking possession
you appoint a receiver. You can do this contractually (a private receiver), or the courts can
consent or order it (a court appointed receiver). A private receiver is considered in law the
agent of the borrower not the lender in terms of caring for the property. In practice, the lender
becomes liable because the receiver would demand on indemnification. However, when a
private receiver takes remedies against the property they are the agent of the lender. A court

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appointed receiver is an officer of the court there to protect everyone. It is very expensive to
have a court appointed receiver – it would really only be done for a large corporation with lots
of property, or a property with sever environmental problems.
All of these remedies are based on the abolished fiction that a mrtg conveys the property to
the lender. Mrtg’s today have a contractual right of redemption that states that once the
promise to pay is fulfilled, they get the property ‘back’ by automatic defeasance. This is a mrtg
concept – it is not a conveyance back, it means that as a matter of law the contract
automatically ends. It deems the conveyance to the lender had conceptually not occurred as a
matter of law. The lender is in law the owner, but the owner is the beneficial owner with the
right to redeem – the right to tender the amount owing to the lender and have the conveyance
defeased and get the property back. You only need this equitable right to redeem if you loose
the contractual right to redeem.
Foreclosure (and redemption): Used less than power of sale in modern Canada (1% or 2% of the
cases). The concept of foreclosure is central to the mortgage – it is a matter of law, not
contract. When a foreclosure takes place, the lender becomes the owner of the property.
Historically, foreclosure was a catastrophic remedy, not only did the lender get the land; the
debt was not whipped out. Because foreclosure is an equitable remedy, the courts have the
power to undue it as long as no third parties are prejudiced (there is only a handful of cases
where this has occurred). A lender would exercise this option if they want the property – the
law is set up generally so the lender does not get the property, and if the lender is going to make
a profit the courts will generally stop it – convert to judicial sale. A lender may want the
property if they believe the market will recover and they were get the money back in the future,
or maybe if the property is a ‘trophy property’ and they just want it.
o Action taken in the courts is a claim for foreclosure – the borrower can give notice to
defend, a notice desiring the opportunity to redeem where they can get 60 days to come
up with the money, or a notice desiring the opportunity to sell (judicial sale). You may get a
summary judgment on the defense, or be granted the 60 days or the right to sell.
o What are the arguments for the lender and foreclose: Positive: you become the owner, if
the land is worth more than the debt you get the profit (not really, probs won’t get it if
borrower/other lender are paying attention), you can fix it up and make a property, you
can’t get sued once you finish a foreclosure bc it is court supervised. Negative: you pay
land transfer tax, you lose all other security for the debt, there may be a shortfall bn the
property and the covenant to pay, if the cottage is worth more you will not likely get it, it
takes a long time to foreclose (6 months to years), which can also make it very expensive –
time and expense, and the risk of judicial sale, are why this is not the most exercised
remedy.
Sale: Power of Sale: It is the right of sale of mortgaged lands that, in end, is often mechanism
that winds up being used to obtain money due under a mortgage in default. In ON a K power of
sale is implied under statute. mortgagee may sell property as is; no obligation to improve it to
make land more attractive on market. The law states that when the 1 st position lender sells the
property by power of sale, everything behind the mortgage in priority is removed from title. If
the 1st position lender recovers more than that which they are entitled to, the excess goes to the
lender in second position. There is also a statutory pos in the mrtg act that can be granted and
exercised. The lender can sell their legal title, but the borrower would retain their equity of
redemption, so the power of sale system fixes that in the law – as soon as the lender enters into
an agreement of P&S, but the borrower will likely out in a contractual clause saying that if the
borrower shows up with the money before closing, they don’t have to sell. Lagozo – this does
not give the borrower the equity of redemption, but rather gives the lender the right to

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terminate. However, if a conditional agreement gets terminated, the EoR returns to the
borrower until a new agreement is signed and ultimately executed.
 Pros: Cheap – contractual remedy in the mrtg which does not require and action in court,
fast – can be through the process in 90-100 days, don’t give up the covenant if you suffer a
short fall, you don’t give up your other security, you don’t pay land transfer, other parties
cannot get an injunction to stop a power of sale – can only sue after the fact once they have
the money
 Cons: Must follow all the rules or you can be sued for improvident sale: 1) send a notice to
everyone with an interest to wipe out their EoR, 2) you must wait 15 days from the default,
and you must give interested parties 35 days to give them a change to redeem you, 3) you
must get fair market value to attempt to take care of subsequent encumbrances, if you sell
for less than its worth you are liable unless you can prove you took reasonable steps (get
appraisals, list it for sale with an agent, can’t take first offer without negotiation) –
however, someone has to have money to sue you for an improvident sale. You don’t make
a profit, this did not go through the courts so there may be litigation, you may have to go to
court to get possession, can’t fix the property unless you can increase the value dollar for
dollar.
Judicial Sale: The court gives you a judgment for sale, he says sell the property, come back, and I
will make all the decision. Judicial sale may also be involved in family fights over real estate.
Pros: No land transfer bc you don’t become the owner, gets adjudicated in court so the process
resolves disputes, if there is a shortfall you haven’t given up your covenant so you still have
remedies, you don’t lose your security in other assets; Cons: its time consuming and expensive
(power of sale is quicker and cheaper), you cannot get a profit (but you probs wouldn’t be able
to anyway),

The interrelationship of remedies: There is no obstacle to mortgagee relying on any or all

possible remedies contemporaneously. While all of remedies may be pursued, following 1
course of action can wind up precluding others.
Relief from acceleration: As a general matter ability of mortgagee to continue on a campaign of
enforcement is predicted on ongoing default of mortgagor. Mortgages frequently provide that
on default entire indebtedness becomes due, or is ‘accelerated’. With full debt thundering down
on mortgagor ability to rectify deficiency is obviously going to be impeded.
The Interest Act: Act is designed mainly to promote full disclosure of liability for interest
assumed by a borrower. Under what is called a ‘closed’ mortgage, borrower is not entitled to
pay off principle sum totally before maturity date of mortgage has arrived.
Lien: general kind of security interest, it can attach to either chattels or to real property and
essentially it is a response to typically work done. Lien attaches to real property when there is
work done on real property. It provided for a K in which the transfer of property was deferred to
some future time when payment was made (a sale on condition of payment). The buyer could
have possession in the mean time.

Right to Redeem: I you are late one day on your mrtg payment, you have lost your contractual
right to redeem. However, they retain the equity of redemptions, which is an equitable remedy
so that people don’t loose their houses for being late a day. The right of redemption is a
property right, so it can be protected in equity. This is a ‘forever system’ – equity will always
allow you to pay off the debt and get the property back. But, bc equity is a fairness system, this
was unfair to borrower bc they cannot be expected to wait around forever. So, equity created
foreclosure, which in time, terminates their equity of redemption. A mortgagee in second

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position does not get legal title to the real estate, but instead gets the first mrtg of redemption.
That means it has the right to pay out the first mortgage – steps in the shoes of the owner.
However, the owner still have the equity of redemption interest in the second mrtg, so they can
pay off mrtg 2, then get the eor on mrtg 1 back and pay that off (although its more confusing bc
they can really still deal with mortgagee 1). If the first mortgagee forecloses, the 2 nd mortgagee
loses their RtR, and the owner loses their RtR on the 2 nd mtrg. If the 2nd mortgagee forecloses on
the property, they become the owner subject to the 1 st mrtg. Basically, foreclosure affects the
equities of redemption. The government had to come up with a mechanism to let the world
know automatic defeasance has occurred = discharge of mrtg.
Charge: New term. Used in the land titles act.

Battle between borrowers and lenders.

Amortization: if you make you payments every month for the amortization period you will owe
nothing at the end. Result of this is that in first 60% of amortization you are paying off more
interest than principle and at end you are paying off more principle than interest.
Mortgage: is a promise to pay a debt (the borrower) and secondly it is security against the land
of the borrower.
Borrower at any time can show up with cheque and equity would force lendor to defease the
mortgage. If the contract doesn’t permit to pay ahead of time then equity wont step in.

How to get security in the land:

Mortgage (Fixed Charge)

Debentures (Floating Charge): Mrtg. + security against personal assets; usually when it is a
business. The key to a floating charge is that it does no become fixed to physical objects until
default. That way, the owner can deal with their inventory freely unless they default. Since the
personal security act, GSA’s have effectively replaced this, but you have diff remedy systems bn
land an personal property.
Assignment of Leases: A lease is an interest in land, and when you are a lender you want to be
able to sell that income stream should the borrower default. That is complex bc the rental
stream is a personal property.
***If you get security in two items (land and/or personal property), once your loan is satisfied
you lose all other interest under the personal security act.
How to get security in the personal property (chattels or rights associated w/ the business):
 General Security Agreement
 Assignment of leases, contract, rents
 Pledges (i.e. shares in the company)
 Guarantee: promise to pay by someone other than the borrower – i.e. parents. They
are treated as a protected person in the law, and they get better defenses than the
primary borrower.
***Lenders often want to secure their loan more than one way. Lenders also want the ability to
take over all valuable assets that compliment the property – i.e. hotel reservation system w/
hotel. When the lender wants to take remedies, they have to decide which guarantee to action.

Planning Act
***Don’t bring the Planning Act unless you are specifically asked

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How to approach a Planning Act Question:
1. Is land in a registered plan of subdivision (has an M-####)?
a. Yes – 50(5); Go to Q. 2
b. No – 50(3); Go to Q. 3
2. Is it the whole of the lot or block (lot is where you build your house, and blocks are
everything else)?
a. Yes – you are out of the Planning Act (the municipality has already vetted it)
b. No – go to Q. 3
3. Is it a prohibited transaction?
a. Will the transaction involve a conveyance of land?
b. Will the transaction involve mortgaging land?
c. Will the parties enter into an agreement of purchase and sale?
d. Will there be a use of land for more than 21 years (add in options to extend)?
e. Is it an easement for more than 21 years?
f. If the answer is YES to any of these, they cannot be done unless they comply with the
Planning Act, so the Planning Act applies.
g. If the answer is NO, you are out of the Planning Act.
h. Assigning a mrtg is not a prohibited transaction, so the vendor can take a mrtg on the
land and assign it to the bank if they are seling land to their neighbor that will merge.

4. Are there abutting lands (does not apply to easements/lease/mortgage lending over
abutting lands)?
a. Does the person conveying the land, giving the mrtg, granting the use of the land for
more than 21 years, own any abutting land not including in the transaction? (do no
care if the purchaser, lessor, mortgagee, owns any abutting land). Trying to figure out
if the land is being subdivided illegally.
b. What are abutting lands? Lands that abut ‘vertically’ abut on the plan view, lands that
abut ‘horizontally’ include land you sell under the plan view (i.e. subway tunnel) to not
breach the Planning Act. The horizontal rule was developed for mining claims.
c. Say specifically what you think are the abutting lands
5. Are there exemptions (see s. 50: 50(3), 50(5), 50(2), 50(9), 50(22), 50(21), 50(14))?
a. Government
b. Consent (applies to small subdivision of land, larger subdivisions need a plan of
subdivision)
c. In a subdivision, if your abutting lands are the whole of one or more lots or blocks
within the plan of subdivision or another plan of subdivision, you do not breach the
planning act
d. In a subdivision, if the only reason you don’t own the whole of the lot is bc the
municipality took part of it from you, you have an exemption
e. Horizontal abutting exemption
f. Mining rights
g. There is exemptions for leasing floors in your building, which technically breaches the
Planning Act (if there is anything outside of the building like surface parking, you do
not get the benefit of this exemption).
h. Prescribed statements - If you breach the planning act by selling part of what you own,
if you put a statement in the agreement saying you will comply with the planning act
before the transaction, that’s ok. Every agreement has this clause just in case, except

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 if oral agreements, which would be unenforceable wo this clause if there is a
subdivision
i. Once a consent, always a consent – once you get a consent for a parcel of land, it
continues to be conveyable, as long as it is the identical parcel of land. Unless, the
consent says this is a one time consent.
j. A condo projects, subdivision, or consent cures historical breaches.
k. If there is a breach of the planning act there can be no conveyance, so if there was a
historical breach, it would affect title until it is corrected. However, it can be hard to
cure title to land you do not technically own. If there is a plan of sub, a consent, a
condo, the breach was pre-1967 or 1970 and there was no bylaw, then the prior
breach is cured. If the vendor and lawyer, and pur lawyer sign statements saying they
were not aware/did not discover a breach of the planning act then prior breaches are
cured (50(2)?) - once you see the statements on a transfer, you don’t have to look
behind it.
l. 50(6) – subdividing, you get a consent for what you are conveying. If you are
conveying the remaining lands, the consent for the first parcel makes it possible to
convey the subdivided lands. Consents only last a year, but you can convey your land
o yourself in order to extend it.
Important Dates:
July 15, 1967 – if a breach occurred before this date, they were automatically cured by statue.
Before 1970, municipalities had to opt-in an apply the planning act to their jurisdiction. In 1970,
Ontario said it applies everywhere despite whether they have passed a bylawUp to 1968, there
was a 10 acre exemption – if the lands retained were more than 10 acres, the planning act did
not apply.
If you are out of the Planning Act at any point, the answer is that there is no breach of the
Planning Act.***A whole of a lot on a concession (not a subdivision) is irrelevant from the
Planning Act***If you breach the Planning Act, you get nothing

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