Bob Aaron bob@aaron.ca

February 3, 2007

Buyer pays for pouncing on seller’s error

An interesting case which was heard in the Superior Court in Whitby last year provides a classic example of why real estate deals belong in the registry office and not the courtroom.

Although it involved a commercial transaction, it could just as easily have happened in a residential scenario, and the lessons to be learned from it remain the same.

Marie Theresa Dol wanted to buy a commercial property in Bancroft to expand her stepson’s chip wagon business. Through her real estate agent, she entered into an agreement of purchase and sale to buy a property owned by Marlene Musclow Insurance Agency Ltd.

The agreement, which had already been signed on a blank form before the details were filled in, inadvertently described the property as having a frontage of 165 feet (50.29 metres) and a depth of 54 feet (16.46 metres).

In fact, the figures were reversed. The property actually has a street frontage of 54 feet and a depth of 165 feet.

The agent who filled in the blanks on the offer form neglected to verify the dimensions of the land. In fact, when the case got to trial some 30 months later, Justice Hugh R. McLean said that the offer was either prepared "in a great hurry or that absolutely no thought was put into the exact terms."

Bancroft, in the offer, was described as "the City of Bank." The numbers and figures for the purchase price did not correspond to each other, and had to be corrected to read the intended price of $190,000.

The registered reference plan of survey showing the correct measurements was properly referred to in the offer but was not attached to the document.

"Obviously," wrote Justice McLean, "this was not a well-considered document."

The morning after the offer was signed and accepted, the seller’s agent realized the mistake with the frontage and depth, and contacted the buyer’s agent to amend the contract. At that point, the buyer refused to agree to any change.

In the days prior to the intended closing, the seller’s solicitors were trying to get the purchaser to rectify the defective agreement, and the buyer’s solicitors were trying to renegotiate the price based on the mistake.

The transaction was supposed to close Nov. 17, 2003. The buyer at that point was apparently willing to pay between $145,000 and $150,000, which was what she decided the reduced price should be.

No money was tendered by the buyer to the seller on the date of closing, and the deal died.

Notice of the agreement of purchase and sale was registered on title by Dol, effectively blocking Musclow from selling the property to anyone else.

Eventually, the buyer sued the seller, demanding the property be sold to her at a reduced price. The seller counterclaimed for damages as a result of the buyer’s refusal to close and for preventing her from selling it by clouding the title with notice of the agreement.

It was left for the court to decide whether it would force the sale of the property at a reduced price, or declare the deal dead and award damages to the seller.

In his decision last year, Justice McLean found that the buyer did not come to court with "clean hands." She knew the dimensions were wrong on the day after the contract had been signed, and she should have known the correct dimensions by looking at the reference plan at the time the offer was presented.

The court concluded that when Dol became aware of the mistake, "she attempted to gain the maximum advantage" from the mistake made by Musclow and her agent. Under the circumstances, it would have been "unfair" to force the seller to convey the property at a reduced price.

That, however, did not end the matter. When the buyer decided not to close, the agreement was at an end. By wrongly registering notice of the agreement of purchase and sale on title to the property, the judge ruled that the buyer was responsible for "slander of title," and for the resulting damages suffered by the seller.

Those damages included ongoing property expenses such as mortgage payments, taxes, insurance and utilities, and came to slightly more than $40,000 plus interest. In addition, the buyer was ordered to pay costs of $32,000 to the seller, Musclow. At the same time, the seller was ordered to pay court costs of $17,323 to her agent.

In the end, the buyer who tried to take advantage of the mistake in switching dimensions has to pay the seller more than $72,000, along with her own lawyer’s fees.

The real estate agents for both parties were sued, but were not held responsible. The seller who won the case against the buyer has now appealed the dismissal of her claim against the real estate agent.

There are several useful lessons which come out of the case of Dol v. Musclow.

Bob Aaron is a Toronto real estate lawyer. He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.
Visit the Toronto Star column archives at https://www.aaron.ca/columns for articles on this and other topics or his main webpage at www.aaron.ca.