Real Estate practitioners on both the transaction side and the litigation side should take note of the recent decision in Malek v. Tanbakookar, 2012 BCSC 1742 (CanLII) where Mr. Justice Armstrong decided a summary trial application in favour of a defendant purchaser represented by Jeremy West of Watson Goepel LLP.

In brief, the plaintiffs and defendant entered into a contract of purchase and sale in respect to a residential property. The day prior to the closing date the plaintiff (vendors) delivered to the defendant (purchaser) certain closing documents including a power of attorney. Unbeknownst to either party the power of attorney was ineffective. The following day (the closing date) the defendant wrote to the plaintiffs and informed them that she was not in a position to close due to financial reasons.

The sale did not complete. In the following week the plaintiffs wrote to the defendant on two occasions and stated they would be seeking damages; claiming the deposit; and relisting the property for sale. About a week later it came to light that the power of attorney was ineffective. The defendant wrote to the plaintiffs accepting the plaintiffs’ repudiation of the contract (based on the ineffective power of attorney and the two letters). About a month later the plaintiffs commenced an action seeking damages only (i.e., they did not seek specific performance).

At the hearing it was common ground that neither party was ready, willing and able to close on the closing date (the plaintiffs due to the ineffective power of attorney and the defendant for financial reasons). In such a situation the agreement remains “alive”, is binding on both parties, and it remained open to either party to fix a new completion date: Norfolk v. Aikens (1989), 41 B.C.L.R. (2d) 145, 64 D.L.R. (4th) 1 (C.A.).

The court found as follows:

[55] In my view, the vendors clearly and unequivocally elected to terminate the Agreement by their lawyer’s letters on November 13 and 14, 2008. The plaintiffs said they were claiming the deposit in accordance with the terms of the Agreement in addition to maintaining their rights to sue for damages. Mr. Stoller’s November 13 letter told the defendant that the plaintiffs were listing the property for sale and would be claiming damages. He also said that the plaintiffs were claiming the deposit money and might sue them for further damages. The next day, Mr. Scouten said that the plaintiffs reserved the right to claim damages for the breach claiming the defendant had already committed a breach by failing to complete on the originally scheduled completion date. The plaintiffs announced that the Agreement was at an end and requested delivery of the deposit. The Scouten letter repeated the position that the defendant had repudiated the contract, and that they elected to treat the Agreement as at an end. Although the plaintiffs did not use explicit words accepting the defendant’s repudiation, it is my view that the two letters leave no doubt that the plaintiffs were accepting her repudiation and were terminating the Agreement.

[56] I conclude that the November 13 and 14 letters coupled with the plaintiffs’ demand for forfeiture of the deposit were their election to treat the Agreement as terminated.

[57] The defendant’s breach by failing to pay the purchase price did not relieve the plaintiffs of their continuing obligation to perform their obligations under the contract or entitle them to terminate the Agreement.

[58] In Norfolk the court said when one party is in default, it is not open to the other to accept repudiation of a contract by the other. However, on this point the facts in this case are distinguishable. Here Mr. Fairburn [for the defendant] clearly and unequivocally accepted the plaintiffs’ repudiation of the Agreement on November 17, 2008…

[59] Prior to Mr. Fairburn’s communication, the plaintiffs repudiation of the Agreement did not result in the termination of the Agreement and it was open to either party to re-set the completion date for the Agreement; however Mr. Fairburn’s November 17 letter referred back to the November 14 letter and communicated an acceptance of the plaintiffs’ repudiation and termination of the Agreement; this altered the state of affairs and after that point the Agreement was at an end. At this juncture, I have concluded that the parties had reached a mutual understanding that the Agreement was terminated.

[63] In this case, both parties were in breach of the Agreement on the date set for completion and the plaintiffs’ claim for damages cannot succeed. Further, the plaintiffs had no right to the deposit monies because they were not ready and able to complete the sale on the completion date.

[66] Had the parties remained ready to complete the Agreement as described in Norfolk, the plaintiffs would have been entitled to reset time of the essence. They abandoned that position and lost the right to claim damages for the breach of the Agreement and the defendant was not obliged to complete the transaction on December 19, 2008.

[70] The combined effect of the plaintiffs’ communications and actions [including commencing a law suit for only damages] is that, the Agreement was at an end and the defendant was entitled to the return of her deposit.