When parties have a dispute about a contract, and specifically, whether a party is bound by the contract, a court may order specific performance as a remedy. These issues can arise, for instance, where one party asserts that the contract has been terminated or materially breached, and the other party asserts that it is binding. If a court orders specific performance, the party claiming that the contract has been terminated or breached will be required to follow through on their contractual obligations.
The remedy of specific performance is not automatically awarded when the court finds that one party has failed to live up to their contractual obligations. Instead, the court will look at and analyze three factors to determine if specific performance is the appropriate remedy.
This blog post will review the recent case of Sarai et al. v Singh et al., which examined whether specific performance would be awarded in the context of an agreement of purchase and sale pertaining to a real estate dispute.
The applicants in this case entered into an agreement of purchase and sale to buy a 14-acre property from the respondents for $3 million. The applicants were interested in the property because they were searching for a large property conducive to expanding their trucking business.
One of the three respondents tried to resile from the agreement, claiming that the applicants provided their deposit too late. The agreement of purchase and sale stated that the applicants would provide their deposit to the respondents’ lawyer within 48 hours of the agreement’s execution. However, the respondents did not provide the name of their lawyer to the applicants until four days after the agreement was signed. Upon receipt of this information, the applicants provided their deposit 24 hours later. The deposit was accepted by the lawyer and the respondents raised no issue at this time.
Months later, the day before the closing date, one of the respondents notified the applicants in writing that the deal would not close. The correspondence stated that the applicants had provided the deposit late and therefore the agreement was nullified because the applicants breached a fundamental term.
The applicants applied to the Court to declare that the agreement of purchase and sale was binding and sought an order for specific performance.
First, the Court considered whether the agreement was binding and whether the applicants breached a fundamental term of the contract in delivering the deposit late. The Court held that the applicants did not fundamentally breach the contract such that the respondents could consider the agreement nullified.
The respondents had made it impossible for the applicants to deliver the deposit on time, as stipulated in the agreement, as they had not disclosed their lawyer’s name within 48 hours. Further, their lawyer accepted the deposit, waiving strict compliance with that deadline.
Once the Court had determined that the contract was binding, it needed to determine the appropriate remedy. In this case, the applicants sought an order for specific performance.
A court will consider three factors to determine whether an order for specific performance of an agreement of purchase and sale is appropriate, namely:
- the nature of the property involved;
- the inadequacy of damages as a remedy; and
- the behaviour of the parties.
A court does not need to find that all of these factors weigh in favour of specific performance. The court will balance the factors and determine if any merit has more weight than others in making its determination.
The more unique a property is (and therefore more difficult to replace), the more likely it will be that a court orders specific performance. Uniqueness is assessed from the buyer’s perspective at the time the contract was signed. It does not mean that the property is incomparable but that “the property has a quality (or qualities) making it especially suitable for the proposed use.”
In this instance, the applicants provided evidence that the property was unique for their needs of running a trucking business as it included almost 14 acres of rural property with a residence; easy highway access; truck parking; gravel yard; truck repair shop; and municipal water.
Whether damages will be adequate is also related to the property’s uniqueness. The first factor looks at the “subject and objective qualities of the property itself,” whereas this factor looks at “whether damages would be an adequate remedy for the plaintiffs in light of their propose[d] use.” The court will assess the risk that translating the impact of the breach into financial damages may not be accurate.
In this case, the Court found that damages were inadequate because a calculation of monetary damages would risk inaccurately assessing the impact of the breach on the applicants and further, it would be a time consuming and expensive exercise. It would be made more difficult because there is a lack of similar properties and because the applicants required the property to accommodate their growing business.
In this case, the Court focused on the behaviour of the respondent. The Court noted that there was evidence that the respondent had acted in bad faith, or at the very least, unreasonably. This was because the respondent had “manufactured” a reason after the fact not to close the transaction and did not notify the applicants of his view until the day before the closing. Further, the other two respondents did not oppose the sale and were willing to close the transaction.
Since all three factors favoured the granting of specific performance, there was no need for the Court to weigh the factors. The Court ordered that the respondents were required to fulfill their contractual obligations and transfer the property in accordance with the agreement.
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