642947 Ontario Ltd. v. Fleischer et al., (2001) 152 O.A.C. 313 (CA)

JudgeAbella, Laskin and Rosenberg, JJ.A.
CourtCourt of Appeal (Ontario)
Case DateFriday December 07, 2001
JurisdictionOntario
Citations(2001), 152 O.A.C. 313 (CA);2001 CanLII 8623 (ON CA);2001 CanLII 8623 (NS CA);56 OR (3d) 417;209 DLR (4th) 182;[2001] OJ No 4771 (QL);110 ACWS (3d) 568;152 OAC 313;16 CPC (5th) 1;47 RPR (3d) 191

642947 Ont. Ltd. v. Fleischer (2001), 152 O.A.C. 313 (CA)

MLB headnote and full text

Temp. Cite: [2001] O.A.C. TBEd. DE.029

642947 Ontario Limited (plaintiff) v. Jules Fleischer and Melvin Newton (defendants)

Jules Fleischer and Melvin Newton (plaintiffs by counterclaim) v. 642947 Ontario Limited and Burnac Corporation (defendants by counterclaim) and Sweet Dreams Delights Inc., Paradox Developments Inc., Larry Krauss and George Halasi (third parties)

(C27257; C27338)

Indexed As: 642947 Ontario Ltd. v. Fleischer et al.

Ontario Court of Appeal

Abella, Laskin and Rosenberg, JJ.A.

December 7, 2001.

Summary:

Newton and Fleischer owned property which was leased to Sweet Dreams Delights Inc., a company controlled by Halasi and his partner Krauss. Sweet Dreams Lease contained a right of first refusal on any offer to buy the property. In August 1989, 642947 Ontario Ltd., a nominee of Burnac, agreed to buy the property for $2,000,000. Sweet Dreams exercised its right of first refusal, but later terminated the agreement. Then, in late September 1989, 642947 resubmitted its original offer to Fleischer and Newton, who accepted it and took the position that Sweet Dreams' right of first refusal was spent. Sweet Dreams, however, obtained an interlocutory injunction restraining the sale, giving the usual undertaking to pay any damages caused by the injunction. On the injunction application, 642947 and Burnac requested and were granted an extension of the closing date until after the injunction proceedings had concluded. In 1990, the real estate market in the area collapsed. The property fell in value, and both Burnac and Halasi lost interest in it. Sweet Dreams' injunction was dissolved in November 1990 and a new closing date for the sale to 642947 was fixed for December 1990. But 642947 refused to close, citing the downturn in the real estate market. 642947 sued for a declaration that its agreement with Fleischer and Newton had been terminated and for a return of its deposit. Fleischer and Newton counterclaimed for damages for breach of the agreement, and 642947 and Burnac sought to be indemnified by Sweet Dreams, Halasi and Krauss on the undertaking to pay damages.

The Ontario Court (General Division), in a decision reported 29 O.T.C. 161, held 642947 and Burnac liable for breach of the agreement of purchase and sale and assessed damages at the date of closing (December 1990). The court also held that Sweet Dreams' undertaking required it to indemnify 642947 and Burnac for their loss and that Halasi and Krauss were jointly and severally liable on the undertaking because Sweet Dreams had no assets and was simply their alter ego. All parties appealed.

The Ontario Court of Appeal dismissed the appeal by 642947 and Burnac regarding liability for breach of the purchase and sale agreement. The court also dismissed the cross-appeal by Fleischer and Newton regarding calculation of damages at the date of closing instead of the date of trial. The court, however, allowed the appeal by Sweet Dreams, Halasi and Krauss because the damages awarded against 642947 and Burnac were not caused by the injunction but by the fall in the real estate market and by their deliberate refusal to close the transaction. The court opined, however, that had it found Sweet Dreams liable on its undertaking, it would have upheld the trial judge's conclusion that Sweet Dreams' principals, Halasi and Krauss, were also liable.

Agency - Topic 4103

Relations between principal and third parties - Principal's liability for contracts by agent - Undisclosed principal - The Ontario Court of Appeal noted that the Supreme Court of Canada had recently affirmed the continuing validity of the sealed contract rule - The court stated that "This rule holds that where a contract is made under seal, only the parties to the contract may sue or be sued on it. Therefore, an undisclosed principal is not liable on a sealed contract. This rule is an exception to the general rule that a principal, whether disclosed or not, may sue or be sued on a contract made on its behalf by the principal's agent." - See paragraph 27.

Agency - Topic 4103

Relations between principal and third parties - Principal's liability for contracts by agent - Undisclosed principal - A trial judge found that 642947 (a purchaser) and Burnac (an undisclosed principal) were liable to Fleischer and Newton (vendors) for breaching a purchase and sale agreement - The agreement was not made under seal - Burnac appealed, arguing that under the sealed contract rule an undisclosed principal could not be sued on a contract made under seal - Burnac claimed that it could rely on the rule because 642947 intended to execute it under seal and the court should give effect to that intention - The Ontario Court of Appeal rejected Burnac's argument - The mere intention, unaccompanied by any act of sealing was insufficient to bring the sealed contract rule into play - The court stated that "the rule, at once historical and technical, should not be given any wider effect than necessary. To invoke it, more than an agent's intention is required. That intention must be accompanied by the deliberate application of the seal" - See paragraphs 27 to 30.

Agency - Topic 4103

Relations between principal and third parties - Principal's liability for contracts by agent - Undisclosed principal - A trial judge found that 642947 (a purchaser) and Burnac (an undisclosed principal) were liable to Fleischer and Newton (vendors) for breaching an unsealed purchase and sale agreement - Burnac appealed, arguing that as an undisclosed principal it could rely on sealed contract rule because s. 13(1) of the Land Registration Reform Act deemed all conveyances and charges to be treated as sealed documents for all purposes - Burnac argued that the agreement was a "charge" under s. 13(1) because 642947 was entitled to a purchaser's lien to the extent of the deposit - The Ontario Court of Appeal rejected this argument, noting that in order to come within s. 13(1), the charge must be created by a document, whereas the purchaser's lien for deposit money was a charge created by equity and as such not included in s. 13(1) - Even if it was, the lien ended when 642947 and Burnac wrongfully repudiated the agreement - See paragraphs 31 and 32.

Agency - Topic 4103

Relations between principal and third parties - Principal's liability for contracts by agent - Undisclosed principal - A trial judge found that 642947 (a purchaser) and Burnac (an undisclosed principal) were liable to Fleischer and Newton (vendors) for breaching a purchase and sale agreement - Burnac appealed, arguing that the vendors chose to contract with 642947 knowing that it was a nominee for an undisclosed principal and, having elected to so contract, the vendors could not thereafter look to hold the principal Burnac liable - The Ontario Court of Appeal rejected this argument - The court noted that 642947 was a bare trustee under its trust agreement with Burnac - However 642947 was also an agent when it came to making contracts on behalf of the principal - Here the agency relationship predominated over the trust relationship and therefore the agent's principal, Burnac, though not disclosed and not a party to the agreement was still liable for the agreement's breach - The vendors were therefore not estopped from suing Burnac for breach of the agreement - See paragraphs 32 to 35.

Company Law - Topic 314

Nature of corporations - Lifting the corporate veil - Fraudulent conduct, conversion or conveyance by company officers - Newton and Fleischer (vendors) owned property which was leased to Sweet Dreams Delights Inc., a company controlled by Halasi and Krauss - The vendors entered into a purchase and sale agreement with 642947 Ontario Ltd., a nominee of Burnac (the purchasers) - Sweet Dreams obtained an injunction restraining the sale and gave the usual undertaking to pay any damages caused by the injunction - The purchasers obtained an extension of the closing date until the injunction proceedings were over - However, when the injunction was ultimately dissolved, the real estate market had collapsed and the purchasers repudiated the agreement - The vendors sued the purchasers, who in turn sought indemnity from Sweet Dreams based on its undertaking - The Ontario Court of Appeal held that Sweet Dreams was not liable to the purchasers on its undertaking - The court opined, however, that had it found Sweet Dreams liable on its undertaking, it would have upheld the trial judge's conclusion that Sweet Dreams' principals, Halasi and Krauss, were also liable - Sweet Dreams had insufficient assets and this was an appropriate case to pierce the corporate veil - See paragraphs 58 to 72.

Contracts - Topic 9004

Rights and liabilities of strangers to contract - General - Contracts under seal - [See first, second and third Agency - Topic 4103 ].

Damages - Topic 6153

Contracts - Sale of land - Breach by buyer - Time for assessment - A trial judge found that 642947 (a purchaser) and Burnac (an undisclosed principal) were liable to Fleischer and Newton (vendors) for breaching a purchase and sale agreement - The judge assessed damages as of the closing date - The vendors argued that the trial judge erred by assessing damages in a falling market at the date of closing instead of at or near the date of trial - The trial judge found that the property was worth $1,130,000 at the date of closing in 1990, but only $410,000 at the time of trial - The Ontario Court of Appeal held that the trial judge did not err - Fairness dictated that the vendors' damages be assessed as of the closing date - See paragraphs 41 to 45.

Deeds and Documents - Topic 1521

Execution - Sealing - General - [See first, second and third Agency - Topic 4103 ].

Injunctions - Topic 1665

Interlocutory or interim injunctions - Undertaking as to damages - Damages - Calculation of - Newton and Fleischer (vendors) owned property which was leased to Sweet Dreams Delights Inc., a company controlled by Halasi and Krauss - The vendors entered into a purchase and sale agreement with 642947 Ontario Ltd., a nominee of Burnac (the purchasers) - Sweet Dreams obtained an injunction restraining the sale and gave the usual undertaking to pay any damages caused by the injunction - The purchasers obtained an extension of the closing date - However, when the injunction was ultimately dissolved, the real estate market had collapsed and the purchasers repudiated the agreement - The vendors sued the purchasers, who in turn sought indemnity from Sweet Dreams based on its undertaking - The Ontario Court of Appeal held that Sweet Dreams was not liable to the purchasers on its undertaking because the damages were not caused by the injunction but by the fall in the real estate market and the purchasers deliberate refusal to close the transaction, after seeking an extension of the closing date to preserve their interest in the property - See paragraphs 47 to 57.

Injunctions - Topic 1665

Interlocutory or interim injunctions - Undertaking as to damages - Damages - Calculation of - The Ontario Court of Appeal noted that some authorities have suggested that in assessing damages for the wrongful granting of an injunction a court is not limited by contract law principles but has a wider equitable discretion to do what is "fair and reasonable" or what is "just" in all the circumstances - Further the authorities suggested that a judge awarding damages under an undertaking has some discretion to depart from contract damages principles, particularly on the issue of remoteness - The court stated that "even assuming that a wide discretion to order damages in the absence of a causal connection does exist in some jurisdictions, I doubt that an Ontario court could invoke it in the face of the wording of rule 40.03, which focuses the inquiry on causation." - See paragraphs 55 to 57.

Sale of Land - Topic 7672

Remedies of vendor - Damages - Measure of - [See Damages - Topic 6153 ].

Cases Noticed:

Claiborne Industries Ltd. et al. v. National Bank of Canada et al. (1989), 34 O.A.C. 241; 59 D.L.R.(4th) 533 (C.A.), refd to. [para. 22].

Brock v. Cole (1983), 40 O.R.(2d) 97 (C.A.), refd to. [para. 22].

Friedmann Equity Developments Inc. v. Final Note Ltd. et al., [2000] 1 S.C.R. 842; 255 N.R. 80; 134 O.A.C. 280, refd to. [para. 27].

Trident Holdings Limited v. Danand Investments Ltd. (1988), 25 O.A.C. 378; 64 O.R.(2d) 65 (C.A.), refd to. [para. 35].

100 Main Street Ltd. v. Sullivan (W.B.) Construction Ltd. (1978), 20 O.R.(2d) 401 (C.A.), refd to. [para. 41].

Rice v. Rawluk (1992), 8 O.R.(3d) 696 (Gen. Div.), refd to. [para. 42].

Bitton v. Jakovljevic (1990), 75 O.R.(2d) 143 (H.C.), refd to. [para. 42].

Hoffmann-LaRoche & Co. A.G. et al. v. Secretary of State for Trade and Industry, [1975] A.C. 295 (H.L.), refd to. [para. 50].

Village Gate Resorts Ltd. v. Moore et al. (1999), 130 B.C.A.C. 267; 211 W.A.C. 267; 71 B.C.L.R.(3d) 1 (C.A.), refd to. [para. 50].

Vieweger Construction Co. v. Rush Tompkins Construction Ltd., [1965] S.C.R. 195, refd to. [para. 50].

Air Express Ltd. v. Ansett Transportation Industries (Operations) PTW Ltd. (1979-81), 146 C.L.R. 249, refd to. [para. 55].

Salomon v. Salomon & Co., [1897] A.C. 22, refd to. [para. 67].

Clarkson Co. Ltd. v. Zhelka et al., [1967] 2 O.R. 565 (H.C.), refd to. [para. 67].

Kosmopoulos et al. v. Constitution Insurance Co. of Canada et al., [1987] 1 S.C.R. 2; 74 N.R. 360; 21 O.A.C. 4, refd to. [para. 67].

Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 2 O.T.C. 146; 28 O.R.(3d) 423 (Gen. Div.), affd. [1997] O.J. No. 3754 (C.A.), refd to. [para. 68].

Statutes Noticed:

Land Registration Reform Act, R.S.O. 1990, c. L-4, sect. 13(1) [para. 31].

Rules of Civil Procedure (Ont.), rule 40.03 [para. 51].

Authors and Works Noticed:

Gower, L.C.B., Modern Company Law (4th Ed. 1979), p. 112 [para. 67].

Spry, The Principles of Equitable Remedies (5th Ed. 1997), p. 660 [para. 55].

Waddams, The Law of Contracts (4th Ed. 1999), p. 518 [para. 42].

Counsel:

Ronald E. Carr, for 642947 Ontario Limited and Burnac Corporation;

Valerie E. Edwards and Duncan Embury, for Jules Fleischer and Melvin Newton;

Brian Morgan and Monica Creery, for George Halasi;

Robert L. Falby, Q.C., for Sweet Dreams Delights Inc. and Larry Krauss.

This appeal was heard on December 4 and 5, 2000, before Abella, Laskin and Rosenberg, JJ.A., of the Ontario Court of Appeal. The following decision was released for the court by Laskin, J.A., on December 7, 2001.

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