Defaulting Purchaser Regains Deposit #164

Dec 01, 1990

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By Gerry Neely
B.A., LL.B.

The advantages to a vendor of the use of the Norfolk v. Aikens addendum to the standard form contract {Column 155) is apparent from a decision delivered October 24th, 1990, which allowed a defaulting purchaser to recover a $40,000 deposit. The purchaser's offer was made prior to the Norfolk v. Aikens decision on the standard form contract of purchase and sale which requires the vendor to deliver title free from financial encumbrances.

There were two mortgages on title in favor of one mortgagee which the vendor's solicitor undertook to discharge upon receipt of the sale proceeds. When the purchaser's solicitor refused to agree to this method of closing, the vendor's solicitor did what virtually any other lawyer would have done pre Norfolk v. Aikens.

He arranged to obtain discharges of the mortgages to be available for registration on the closing date, to demonstrate that his client was ready, willing and able to clear title. The undertaking given to the mortgagee prevented him from applying to register the discharge unless payment of the sale proceeds would be made to him. The vendor's solicitor arranged to have an articled student attend at the Land Title Office with the original closing documents. No one appeared on behalf of the purchaser and the purchaser's solicitor then confirmed that he didn't have sufficient funds to close.

When the vendor sued for the deposit, he was met by judicial comments of Southin, J.A. in Norfolk v. Aikens that a title may be clear if the mortgage has been paid or it may be clear if an application has been made to register the discharge. However, if neither has occurred, then the title cannot be said to be clear of financial encumbrances. The judge accepted this reasoning to hold that the vendor was not ready, willing and able to deliver clear title. Since this meant that the vendor could not enforce the terms of the standard form contract, the purchaser was entitled to the return of the deposit plus costs.

The case has been appealed and the question the Court of Appeal is being asked is whether in these circumstances, a vendor should only have to be able to demonstrate an ability to clear title by doing what this vendor did. If the answer is no, a vendor will have to obtain bridge financing and register a discharge or with the mortgagee's concurrence, take the risk of applying for registration in the expectation that the application can be withdrawn before registration takes place. This would be an acceptable risk only in the rarest of circumstances.1

* * *

The decision in the next case also returned to a defaulting purchaser its deposit. The purchaser refused to complete, alleging that the property was non-conforming. Although this turned out to be untrue, the purchaser sued for rescission of the contract and the return of the deposit.

The basis for the claim for rescission was a clause in the contract which stated that the purchaser was to assume a first mortgage of "approximately $635,000 at 10 1/2% due 1993." The rate of interest in fact was 10 3/4%.

The vendor argued that the word "approximately" modified the rate of interest as well as the principal sum. This argument falls under the category that any defense is better than none because the judge had no difficulty in deciding that the word approximately modified only the principal sum. He found further that the rate of interest was a fundamental term of the contract upon which the purchaser had relied, and the purchaser was entitled to the return of the deposit.2

  1. Gross v. Cottier, SCBC Vancouver Registry C901214, October 24, 1990.
  2. M and M Investments Ltd. v. Edwin Investments Ltd., SCBC Vancouver Registry F890387, August 3, 1990.

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