Norfolk v. Aikens Addendum; Mortgage Insurance - Unavailable When Needed #193

By Gerry Neely
B.A. LL.B

Column #164 discussed a pre-Norfolk v. Aikens offer to purchase which was interpreted using the Norfolk reasons to the advantage of the purchaser who sued for the return of his deposit, but to the disadvantage of the vendor. The purchaser was unable to pay the purchase monies on the completion date and although the vendor had in his hands two registerable discharges of title, he couldn't register them without the necessary undertakings from the purchaser's lawyer that the vendor would receive the monies owed to the mortgagees.

The Norfolk case said that for a vendor to fulfill his obligation to clear title, he had to either provide proof of payment of the mortgages or apply to register them. Since the vendor could do neither, the court held that his default entitled the purchaser to the return of the $40,000 deposit. The vendor appealed and while he was successful, the reasons of the Court of Appeal confirm the value for both parties of the continued use of the Norfolk addendum to the standard form of contract.

When a purchaser is in default, the vendor's usual remedies are to sue for specific performance if he wants the buyer to complete, which he might do in a falling market, or sue for the deposit if the vendor thought he could resell his home advantageously. The action in the Norfolk case was for specific performance, a more complex matter at law than an action for the deposit. The appeal court decided in this case that the standard imposed by Norfolk on a vendor attempting to clear title should not apply where the claim was only for the deposit.

In what is an eminently sensible judgment the court said that the obligation of a purchaser to pay the purchase price, and of the vendor to clear title, are mutually dependent covenants which are expected to be carried out contemporaneously. If one party appears to be unable to unwilling to perform its obligation, the other party is not expected to actually fulfill its obligation.

Since both parties were in default, how did the court decide who was entitled to the deposit? The purchaser's solicitor chose not to meet the vendor's solicitor at the Land Title Office on the closing date. The vendor's solicitor was there prepared to clear title. The neglect or refusal to pay the purchase price broke the chain of registration and was a default by the purchaser which entitled the vendor to the deposit.

While this decision helps vendors whose only action is for a deposit, it does not assist a vendor who wants to sue for specific performance. It is for that reason that the Norfolk v. Aikens addendum is an important addition to the standard form of contract.¹

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The larger mortgage lending institutions customarily offer to the borrower an opportunity to purchase term life insurance in an amount sufficient to cover the principal amount of the mortgage. A serious illness however, may leave the borrower unprotected just when the insurance is needed. A couple had been with the same financial institution for over 15 years during which time they had taken out a five-year mortgage which they renewed for three consecutive five year terms. Upon each renewal they were required to complete fresh applications for insurance. At the time of the third renewal the husband had been diagnosed as having cancer.

Through a misunderstanding of the time period in which they were to identify the absence of treatments or diagnosis of cancer they stated that neither had been treated or diagnosed for it. Following the husband's death, the insurance company denied liability under the policy because of his innocent misrepresentation. They also stated that even if he had correctly answered the health questions on the application he still would not have been accepted as an insurance risk.

In view of this history, it would be prudent for people applying for their first mortgage loan or any renewal of it, to check the differences in premium rates to see whether they can afford the premium for a personal term policy taken out by the borrower with a specific life insurance company where the policy provides that it can be renewed without proof of the health of the borrower.

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