Does A Breaching Party Have to Have Gained For Another Party To Have a Loss Of Benefit When A Contract Is Breached?
May 31, 2019
Being on the wrong end of a failed real estate transaction is never a good thing. Fortunately, if you’ve suffered a loss as a result of a broken contract, there are legal remedies available to pursue. It’s natural to think that if one party suffered a loss, then the other party (or parties) must have enjoyed a benefit from the broken contract. But that’s not always the case. In a recent decision issued by the Court of Appeal for Ontario, the court looked at whether the would-be purchasers of real estate could sue for loss of benefit when the vendors did not experience any benefit from breaking the contract.
The failed transaction
The purchasers entered into an agreement with vendors to buy land located in Toronto. The land had a mortgage on it in the amount of $250,000. The vendors had agreed to sell the property to the purchasers for $500,000. The agreement was signed on May 11, 2016, but the closing date was pushed back seven times over a period of 18 months.
It later came to be known that the vendors had not made a mortgage payment in over 20 years prior to the signing of the agreement of purchase and sale. With the mortgage in substantial arrears, the mortgagee would not allow it to be discharged for $250,000, which would have made the mortgage interest free. The mortgagee asked for $505,000, but the vendors informed them they had already agreed to sell the property for $500,000. The mortgagee became worried that the property was being sold below market value.
Ultimately, the vendors were unable to sell the home themselves. The purchasers then reached an agreement with the mortgagee to purchase the property at a new price of $687,500. The purchase did not directly involve the vendors. The purchasers sued the vendors for $187,500, the difference between the price they paid and the price they had agreed to originally buy it for.
The original trial
The case had been decided by summary judgment before reaching the Court of Appeal. The motion judge ruled that there was no actual loss suffered by the purchasers, writing “There was no wrongful appropriation of a benefit by the (vendors). The benefit that (the purchasers) assumed it was denied was illusory and did not in fact exist. Accordingly, the (vendors) have no liability to (the purchasers) for loss of bargain.” The motion judge also found that the purchasers had not been able to show the vendors “appropriated the benefit” that would have otherwise been available to the purchasers.
The court did not agree with the motion judge’s determination that there was no benefit stripped from the purchasers, writing,
“With respect, there was no “illusion” of a bargain between the (purchasers) and the (vendors). There was a real bargain. There was an agreement to sell the property at an agreed-upon price. When the (vendors) did not close the transaction, despite several extensions, the (purchasers) lost the benefit of that agreement.”
The court also disagreed with the motion judge’s finding that the purchasers had to show the vendors “appropriated the benefit,” finding instead that the difference between the price it was purchased for and the original amount agreed upon is how to measure damages.
The court ruled in favour of the purchasers, requiring the vendors to pay damages of $185,500.
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