Do sellers have a duty of care to ensure buyers have financing in place when entering an agreement of purchase and sale? A recent decision by the Ontario Superior Court of Justice says no.

In Rosehaven Homes et al. v. Aluko et al., the plaintiff and defendant entered into an Agreement of Purchase and Sale (the APS) dated April 13, 2017, to buy a newly-built home with a building completion date of November 2018. The property’s purchase price was $1,502,990, but the buyers had only arranged to finance a property of up to $1.2 million. The buyers eventually defaulted on the purchase. The plaintiff re-sold the property in July 2019 for $1,060,000 and sued the buyers for damages arising from the sale price difference.

The buyers contended that the APS was not legally enforceable based on the following:

• Plaintiff did not check the defendants’ ID prior to signing the APS or accepting the deposits.
• Plaintiff did not review the APS with the defendants nor direct the defendants to the repercussions of a breach of the APS.
• The APS was a contract of adhesion.
• The defendants did not have access to legal counsel at the sales office.
• The defendants were dissuaded from obtaining independent legal advice.
• Whether the Plaintiff did not verify the defendants’ pre-approval for financing prior to entering into the sales office.
• The APS is not valid for being unconscionable and that Plaintiff was willfully blind.

No Legal Obligation on Sellers

The court stated that the defendants did not provide any legal basis that imposed a legal obligation on the sellers to have:

• directed the defendants to the terms of the APS that deal with repercussions for failing to close the transaction
• inquired with the defendants if they had pre-approved financing and reviewed the amount of the financing with the defendants
• offered or made available independent legal advice at the sales office

As the court stated:

 The defendants have not provided the Court with any legal principle, be it a duty of care or a contractual obligation, that imposes an obligation upon the Plaintiff to perform any of the three obligations presented above. From my review of the APS, there is no contractual obligation. From the circumstances, the defendants have not provided any foundation, in law, for a duty of care that the Plaintiff owes to the defendants, the purchasers.

The APS is Not a Contract of Adhesion

A contract of adhesion is an agreement where one party has substantially more power than the other in setting the contract terms. For a contract of adhesion to existing, the offeror must essentially supply the offeree with standard terms and conditions. A contract has been deemed a contract of adhesion, and its terms will be strictly construed against the drafting party.

In interpreting a contract, a court must review the whole of the agreement. The court must examine the ordinary meaning of the wording to determine if the wording is clear or ambiguous. There is no reason to go outside the terms of the agreement. If the terms are not clear and unambiguous, the court may go outside the terms of the agreement to ascertain the intention of the signatories to the agreement and the meaning of provisions in the agreement.

In reviewing the APS, the court found the wording and intention clear. Specifically, it noted a provision in the APS providing that the plaintiff shall have the right to recover all additional losses and damages arising out of a default on the part of the Purchaser pursuant to any provision contained in the APS.

No Wilful Blindness or Unconscionability

The defendants contended that the terms and settings of the APS execution were unconscionable. The Plaintiff was wilfully blind in not determining whether or not the defendants received prior financial approval that would allow them to purchase the Property.

The defendants signed the APS at the plaintiff seller’s sales office. In dismissing the wilful blindness argument, the court stated:

I fail to grasp how the mind of the Plaintiff falls within the realm of willful blindness. First, I have already found that there is no obligation on the Plaintiff to ascertain that the defendants obtained financing to purchase the Property. The email makes clear that the defendants should have their approval ready. The Plaintiff will only accept firm deals. The Plaintiff will not accept any conditions on financing. The onus is on the defendants to ensure they have the necessary money to purchase the property they wish. The email, in my view, makes that clear.

How is the Plaintiff willfully blind by not enquiring of the defendants if they obtained prior financial approval and to the amount of that approval? Where is the need for the Plaintiff to make such an inquiry?  Where is the suspicion that would lead the Plaintiff to make such an inquiry?  There was no evidence lead on the subjective mind of the Plaintiff. Nor was there any evidence lead that would make the Plaintiff inquire of the financial approval obtained by the defendants.

The defendants further argued that they were in an inequitable bargaining power situation in that the plaintiff was an experienced developer and they were school teachers. They argued that the APS was a “take it or leave it agreement” and was therefore unfair and the terms should not legally bind them.

In dismissing this argument, the court did not find inequality of bargaining power that resulted in improvidence. The defendants were aware of what they were doing. They took steps to purchase the Property. They paid further deposits to allow them time to attempt to obtain the required financing to purchase the Property. They knew the extent of their financing approval when they executed the APS. There was no evidence presented that persuades me that the defendants were, in effect, take advantage of. The defendants did not have to purchase the Property. They could have simply walked out of the sales office or purchased a residential property that was not as expensive without the lot upgrades and interior upgrades they desired.

Photo Identification

Section 6.1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act provides:

Verifying identity

6.1 Every person or entity referred to in section 5 shall verify the identity of a person or entity in accordance with the regulations.

The court recognized that this legislation binds real estate brokers and sales representatives. However, the evidence provided was unclear as to whether the plaintiffs failed to satisfy this legislative obligation.

In finding the plaintiffs, the court awarded damages for $331,922.27 plus prejudgment interest.

Oakville Real Estate Lawyers Helping Clients with Real Estate Transactions

At Campbells LLP, our team of knowledgeable real estate litigators have ample experience advising and representing clients on a broad range of residential real estate matters. We are here to assist in purchasing and selling your home to ensure that it goes as smoothly as possible. To speak with a lawyer about your real estate needs, contact us online or at 905-828-2247 to schedule a consultation.