Contracts ‑‑ Purchase and sale ‑‑ Premises damaged by fire ‑‑ Purchaser either to cancel the agreement or to complete the sale and take insurance proceeds ‑‑ Questions raised as to amount of insurance and as to whether insurance would be paid ‑‑ Statutory declaration registered by purchaser, prior to closing date, requiring restoration or insurance sufficient for restoration ‑‑ Vendor treating agreement as void ‑‑ Tender made after closing date on clarification of insurance issue ‑‑ Whether or not specific performance should be granted.
Appellant agreed to buy a parcel of land with a building from respondent. The agreement of purchase and sale, in the standard form of the Nova Scotia Real Estate Association, contained a provision that the building remained at the risk of the vendor until closing and that the vendor held all insurance policies and their proceeds in trust for the parties in the case of damage. In the event of damage, the purchaser could either have the insurance proceeds and complete the purchase, or cancel the agreement and have the money paid out returned. The agreement provided that time was of the essence.
The building was destroyed by fire prior to closing and the closing date was postponed to allow appellant's solicitors time to enquire about the insurance coverage. The vendor, however, denied a request for a further extension to allow for settlement of a dispute between the insurer and the vendor as to whether the insurance proceeds would be paid. Before the new closing date, the purchaser registered a statutory declaration stating that he elected under the agreement of purchase and sale to complete the purchase if the premises were restored or if there were enough insurance to restore them and so informed the vendor. Neither party tendered on the extended closing date. Subsequently, the vendor's solicitor informed the purchaser's solicitor that he considered the agreement of purchase and sale null and void. The purchaser's solicitor later learned that the insurer was prepared to cover the loss and endeavoured to tender the balance of the purchase price. This action was brought when the tender was refused. Specific performance was ordered at trial but set aside on appeal.
Held: The appeal should be dismissed.
When damage ensues to the property subject to the agreement, the purchaser is entitled to be granted time both to sort out what he is to do and to obtain the details of the insurance coverage from the vendor. This right is assured by the duty of trustee imposed on the vendor by the clause. The clause, however, does not accord the purchaser the right to wait and see if the insurer will pay. If the purchaser is concerned about this, he can elect to cancel the agreement.
The right claimed by the declaration went far beyond what the purchaser was entitled to require under the agreement. The purchaser was not making an election under clause 5 but rather was dictating different terms. This action amounted to a refusal to complete the agreement as written and constituted a repudiation of the agreement which the vendor was entitled to accept.
The "time of essence" clause and the question of whether, absent repudiation, a reasonable time might have been required had neither party been ready to tender on closing day became irrelevant in the circumstances.
APPEAL from a judgment of the Nova Scotia Court of Appeal (1984), 63 N.S.R. 14, 141 A.P.R. 14, allowing an appeal and setting aside an order for specific performance granted by Nathanson J. (1983), 56 N.S.R. (2d) 711, 117 A.P.R. 711. Appeal dismissed.
B. A. Crane, Q.C., and Paul Miller, for the appellant.
D. A. Miller, for the respondent.
The judgment of the Court was delivered by
1. La Forest J.‑‑This appeal relates to a claim by a purchaser for specific performance of an agreement for the sale of land, or in lieu thereof damages. The trial judge Nathanson J. of the Supreme Court of Nova Scotia granted specific performance, but his judgment was reversed by the Supreme Court of Nova Scotia, Appeal Division which, by majority, declared the agreement rescinded and dismissed the action. It also dismissed a counterclaim by the vendor for the deposit, a matter that is not in issue here. Leave to appeal to this Court was granted on October 22, 1984.
2. The appellant as purchaser and the respondent as vendor entered into an agreement of purchase and sale dated January 23, 1981 with respect to a piece of land in Hants County, Nova Scotia for a price of $43,662. The agreement set February 27, 1981 as the closing date. It was in the standard form of Nova Scotia Real Estate Association and contained the following provisions:
5. All buildings and equipment upon the real property shall be and remain at the risk of the Vendor until closing. Pending completion of the sale, the Vendor will hold all insurance policies and the proceeds thereof in trust for the parties as their interests may appear and in event of damage to the said premises, the Purchaser may either have the proceeds of the insurance and complete the purchase, or may cancel the Agreement and have all moneys theretofore paid returned without interest.
9. Time shall in all respects be of the essence in the Agreement.
3. On February 26, the day before the closing date, the building on the property was destroyed by fire. The parties thereupon agreed to extend the time for closing by two weeks, setting March 13, 1981 as the closing date. Between the date of the fire and the new closing date, the purchaser's solicitor made enquiries about insurance coverage and neither party disputes the Court of Appeal's finding that he learned that there was at least enough to cover the total encumbrances against the property, i.e. $35,000, even though he did not know the exact terms of the policy. Indeed, at the trial, the purchaser testified that his solicitor had told him there was $50,000 coverage on the property. He also learned, however, that there was some question whether the insurer would deny liability on the ground that the fire was deliberately set, a ground the vendor consistently stated had no basis.
4. The purchaser's solicitor then asked that the closing date be delayed to allow time for the dispute between the vendor and the insurer to be settled. This request was denied by the vendor, who also refused to supply any information as to whether the property was covered by insurance and the particulars of any such coverage. We saw, however, that the purchaser had through his own enquiries obtained much of this information. I agree with the Court of Appeal's finding that what really concerned the purchaser was not the exact amount of the insurance coverage but whether any of it would be paid because there was evidence suggesting arson.
5. This finding is borne out by the next step taken by the purchaser. On March 10, 1981, three days before the new closing date, he registered a statutory declaration which, after reciting the basic facts regarding the agreement and its aftermath, set forth the purchaser's position as follows in clause 5:
5. THAT pursuant to clause five (5) of the aforementioned Agreement of Purchase and Sale I elect to complete the purchase once:
a) the premises are restored to the same condition as when I signed the Agreement of Purchase and Sale, or
b) it is determined that an amount of insurance sufficient to restore the premises to the same condition as when I signed the Agreement of Purchase and Sale will be paid, and in the event of either (a) or (b) above,
c) the premises are either restored or it is determined that sufficient insurance proceeds will be paid within a reasonable period of time.
Clause 6 of the declaration went on to say that the declaration was made for the purpose of giving notice of the purchaser's interest in the property to others.
6. On the day the declaration was registered, the purchaser's solicitor spoke to the vendor's solicitor and informed him of what he had done, and he later confirmed this by a letter dated March 13, 1981 (the day set as the new closing date) with which a copy of the declaration was enclosed. A passage in this letter reveals the purchaser's position that the election set forth in clause 5 of the declaration represented his understanding of clause 5 of the agreement. The passage reads:
As you will see from clause 5 of the above mentioned Declaration, my client elects to complete the purchase once the conditions contained in clause 5 are met.
7. Neither party tendered on March 13. The vendor's solicitor asserted that, in view of the statutory declaration, he knew the purchaser would not tender so he did not prepare a deed but made arrangements with another solicitor in his office to do so if this became necessary.
8. On April 3, 1981, the vendor's solicitor wrote the purchaser's solicitor. After acknowledging the latter's letter of March 13 regarding the statutory declaration, he informed him that since the proposed transaction did not close on the extended closing date, the vendor considered the agreement of purchase and sale null and void. According to the vendor's solicitor, he had, on his return from holidays in late March, communicated this message by telephone to the purchaser's solicitor.
9. On May 13, 1981, the vendor completed a proof of loss claim with the insurer in the amount of $50,000. On July 10, 1981, the purchaser's solicitor learned that the insurer was prepared to cover the loss in the amount of $40,000. On the same day he endeavoured to tender the balance of the purchase price, but the tender was refused so this action was brought.
10. In this Court, counsel for the appellant purchaser made a three pronged argument, one based on the meaning of clause 5 of the agreement, another on the "time of the essence" clause, and a third on the question of whether the Court of Appeal wrongly reversed findings of fact by the trial judge.
11. In my view, the case can be disposed of largely on the basis of the interpretation to be given to clause 5 of the agreement. To understand the meaning of that clause, it is useful to refer to the situation that would prevail at common law in the absence of this provision. As McKeigan C.J.N.S. notes in giving the majority judgment of the Court of Appeal, the common law is harsh on a purchaser of real property that is damaged by fire or otherwise between the date of the agreement of sale and the date of closing. Unless otherwise provided by the agreement, the purchaser must go through with the purchase and pay the full purchase price. And he is not at common law entitled to the proceeds of any insurance on the property in the absence of express or implied arrangements for the purpose.
12. Clause 5 significantly alleviates the harshness of the common law. Under that provision, the buildings and equipment remain at the risk of the vendor until closing, "and in the event of damages to the said premises, the Purchaser may either have the proceeds of the insurance and complete the purchase, or may cancel the Agreement and have all moneys theretofore paid returned without interest". But the clause does not set forth any specific amount of insurance. Indeed, the vendor is under no duty to take out any insurance. All the clause provides for is that if the purchaser elects to go through with the purchase he is entitled to whatever insurance proceeds may be owing. It does not give the purchaser any guarantee that the insurance is necessarily collectible. Prudence may dictate that a purchaser himself obtain coverage during the period before closing, but I would not wish to be taken as making any comment regarding a solicitor's duty to so advise him in circumstances like the present.
13. I have no doubt that when damage ensues to the property subject to the agreement, such as occurred in this case, the purchaser is entitled to be granted time to sort out what he is to do, and he is also entitled to obtain the details of the insurance coverage from the vendor. McKeigan C.J.N.S. notes how the latter right can, if necessary, be enforced by application to a court in chambers in Nova Scotia. But as I mentioned before, the purchaser was not really concerned with finding out the details of the coverage. He had obtained considerable information about this through his solicitor's investigation. What was really dissuading him from going through with the transaction was the fear that the insurer would not pay. As I mentioned before, clause 5 of the agreement does not guarantee him this. On the occurrence of a fire, he is entitled to be given a reasonable time to assess his position, and to be informed of the facts concerning coverage. The duty of trustee imposed on the vendor by the clause assures him of this. But as already stated, the clause does not accord him the right to wait and see if the insurer will pay. If the purchaser is concerned about this, he can elect to cancel the agreement.
14. On the assumed basis that clause 5 entitled him to wait until he knew what the insurer would do, the purchaser filed the statutory declaration already mentioned and forwarded a copy to the vendor setting forth the nature of his right to elect as he understood it. But the right claimed by the declaration went far beyond what he was entitled to require under the agreement. Indeed he went beyond requiring that the insurance be collectible, but elected to complete the purchase once the premises were restored to the condition they were in when he signed the agreement, or it was determined that insurance proceeds sufficient for this purpose would be paid within a reasonable time. In a word, he was not making the election provided for under clause 5 of the agreement, but was in effect dictating different terms. This, as McKeigan C.J.N.S. points out, amounted to a refusal to complete the agreement as written; it constituted a repudiation of the agreement. The vendor was then entitled to accept this repudiation, which he did, originally by a telephone call in late March of 1981 and then formally by letter dated April 3, 1981. The "time of essence" clause, as can be seen, is irrelevant in the circumstances, as in consequence is the question whether, absent repudiation, a reasonable time might have been required if neither party was ready to tender on closing day.
15. Nor do I think the different view of certain facts taken by the trial judge and the Court of Appeal affect the matter. The most important argument made in this context was that the statutory declaration did not constitute a repudiation of the agreement. This is not so much a finding of fact as a conclusion based on facts, and as I have indicated, I agree with the conclusion reached by the Court of Appeal.
16. For these reasons, I would dismiss the appeal with costs.
Appeal dismissed with costs.
Solicitors for the appellant: Miller and Associates, Lower Sackville.
Solicitors for the respondent: Stewart, MacKeen & Covert, Halifax.
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