This article has been contributed by Darrell Gold LLB with Robins Appleby LLP.
Virtually every agreement contains a notice clause and, if you do not follow it carefully, you do so at your own risk.
In a December 2014 decision of the Ontario Court of Appeal (High Tower Homes Corporation v Stevens, 2014 ONCA 911) the failure to follow a notice provision in an agreement of purchase and sale proved lethal to a purchaser trying to acquire the vendor’s property at an unintended (to the vendor) price below market value.
Stevens owned a property (“Parcel 1”) and, together with his spouse, owned the adjacent property (“Parcel 2”), which was their principal residence. Stevens and his spouse decided to sell both properties together to maximize their value. For tax planning purposes, they wanted to allocate as much of the aggregate purchase price as possible to Parcel 2 (as the principal residence, the gain on it would not be subject to tax).
The purchaser wanted both properties and used the OREA form of agreement for each one, supplemented with a schedule of additional provisions. Each offer was conditional on the sale of the other parcel (the “Adjacent Parcel Condition”).
A series of further offers and counter-offers ensued until the final terms were accepted by the vendor. However, unbeknownst to the vendor, the purchaser had revised the “Adjacent Parcel Condition” for Parcel 1 to provide that the sale of Parcel 1 was not conditional on the sale of Parcel 2. The change was not “black-lined” and the purchaser did not tell Stevens about it. No change was made to the corresponding clause in the Parcel 2 offer.
The highest price allocation in negotiations was given to Parcel 2 (Stevens’ home) and the price attributed to Parcel 1 was less than its market value and even less than what Stevens had paid for it in 2008.
The agreements had buyer conditions that could be waived by written notice to the vendor on or before Feb. 22, 2013 and, if not waived, the agreements would become null and void.
S. 3 of the OREA form provides (emphasis added):
“… any notice to be given or received pursuant to this Agreement … shall be deemed given and received when delivered personally or hand delivered to the Address for Service provided in the Acknowledgment below, or where a facsimile number or email address is provided herein, when transmitted electronically to that facsimile number or email address, respectively, in which case, the signature(s) of the party (parties) shall be deemed to be original.”
No address for service was specified in the “Acknowledgment” section and no facsimile number or email address was added where provided for in the agreement.
On Friday, Feb. 22, 2013, the purchaser’s lawyer gave notice to the vendor’s lawyer by fax (not personal delivery), purporting:
A. to waive the purchaser’s conditions for Parcel 1; and
B. to seek an extension of time for the waiver of conditions for Parcel 2 (which meant the deal for Parcel 2 became null and void as the conditions were not waived).
Stevens was shocked when he realized the deal for Parcel 1 was now firm and the deal for Parcel 2 was null and void.
On Feb. 25, 2013, Stevens’ lawyer advised the purchaser’s lawyer the Parcel 1 deal was dead due to failure to give the waiver notice by personal delivery.
The purchaser sued for specific performance of the agreement for Parcel 1 or damages for breach of contract. The purchaser lost at trial and subsequently appealed.
The purchaser lost the appeal so the agreement for Parcel 1 was null and void for failure to waive in the manner provided by the agreement.
Despite the use of fax at times by both counsel, the court would not imply it into the agreement as a valid service method for the following reasons:
1. The wording of the “Notice” clause and the “Entire Agreement” clause providing that the agreement was the entire agreement.
2. Reading in “facsimile” as a method of delivery was not necessary to give “business efficacy to the agreement.”
3. The vendor had not evaded service and the purchaser made no effort to serve the notice personally as required.
4. Despite the use of fax by counsel:
a. The vendor did not waive its right to insist on strict compliance with the notice provision.
b. It did not result in an “unambiguous promise” by the vendor leading the purchaser to believe he would not insist on strict compliance under the notice section. The doctrine known as “promissory estoppel” requires: the party raising it to have “clean hands.” The promise relied upon must be unambiguous, and the purchaser must have known that it was important to the vendor that the properties be sold together. The motion judge said the purchaser’s conduct was “hard and pointed” and the purchaser’s “past record in the transaction” would be sufficient to deny relief under the doctrine.
1. Surprisingly, there was no comment in the decision about why the revision was not black-lined and brought to the vendor’s attention.
2. The purchaser’s conduct may also have been contrary to the recently established “duty to act honestly and in good faith” (see my February 14, 2015 Legal Corner on Bhasin v Hrynew, 2104 SCC 71.)
3. Always try to maintain strict compliance with the notice provision of your agreement, especially where material notices are involved, such as default and exercise of unilateral rights or options.
4. If personal delivery is required for a corporation at a specific address, it can be left the “address for service” even if no one is there so long as it is left in a secure place (e.g. behind a locked door) and “would surely be found … by a responsible person.”
Disclaimer: This article is for general information purposes only and is not intended as or to be relied upon for legal advice. Consult with a lawyer for your unique situation.
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