Three recent cases

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By Donald H. Lapowich

In a recent court case, the plaintiffs as purchasers agreed to buy the vendor’s shares in a co-operative housing development. The purchasers thought they were buying a condominium unit – there is a distinct difference between a co-operative and a condominium. The purchasers paid a $10,000 deposit “subject to the purchaser’s solicitor being satisfied after reviewing a status certificate that owning shares were in their best interest.”

The purchasers elected to rescind the agreement but the vendors refused to refund the deposit. Thus an action was brought by the purchasers for the return of the deposit.

Surprisingly, the court held that the purchasers were entitled to reject the status certificate because they acted honestly in good faith and reasonably. Their solicitor had given a reasonable recommendation from both an objective and subjective perspective, that it was not in the purchaser’s interest to complete a transaction, which was totally different from what they had expected.

This is an unusual decision, because normally the solicitor’s approval has to do with title matters or other relevant elements, rather than a purchaser’s misinterpretation of what they were buying.

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In a British Columbia decision, a fraudster represented that he was the true owner of a property and conveyed it to his buddy, who then mortgaged the property on two occasions. The real owner brought an action against the fraudsters, as well as the mortgage companies and land titles, seeking to restore title to him free of mortgages.

An order was made that the title be placed back into the true owner’s name. However, the action seeking cancellation of the mortgages was dismissed. The true owner appealed and through the Appeal Court, the mortgages were cancelled on the basis that a fraudster cannot give an interest to a mortgage company, since such interest was void at common law.

This decision follows the Ontario courts but through a different process of reasoning.

The Ontario courts look at the mortgage companies and if there are circumstances or suspicions that the mortgage companies have not investigated, they will not be entitled to maintain their status as mortgagees. It is a true balancing of interests. The real owner is not at fault. But the mortgage company appears to be taking a valid mortgage from an individual registered on land titles, who is apparently the true owner. Certainly there is a large degree of equity involved. The courts have now come down on the side of the true owner, believing that that individual should not be deprived of ownership or stuck with encumbrances for which they were not at fault.

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In the Doucette case, a vendor agreed to sell property and in the Agreement of Purchase and Sale stated, “To the best of the seller’s knowledge, no building on the property contains UFFI (urea formaldehyde foam insulation).

Before the closing, the vendor went to her solicitor, who had her sign a Statutory Declaration that the “property …… has not been insulated with UFFI….” That is much wider than the Agreement’s wording.

When UFFI was found, the purchaser sued the vendor based on the declaration, rather than proving the seller had “no knowledge” as set out in the Agreement of Purchase and Sale. The vendor added her solicitor as a third party to the action.

The third party claim was struck because it showed no cause of action. The broader declaration did not involve any consideration given by the purchaser, who could not rely on it as additional to a contract term already entered into. The purchaser was obligated to close the deal and if he wished to continue the action, he would have to prove seller’s knowledge.

Donald H. Lapowich, Q.C. Hon. FRGD is a partner at the law firm of Koskie, Minsky LLP in Toronto, where he practices civil litigation, with a particular emphasis on real estate litigation and acts for professionals including lawyers, real estate agents, insurance brokers/agents and dentists.

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