DOES THE LEGAL DUTY TO ACT IN “GOOD FAITH” REQUIRE A VENDOR TO AGREE TO AN EXTENSION OF THE CLOSING DATE?

by Howard Oldham

 

The Superior Court of Ontario, in 2336574 Ontario Inc. v. 1559586 Ontario Inc. [2016] ONSC 2467, recently ruled that a Vendor does not have a legal obligation to extend a closing date even for a day.  In this case, the purchaser asked for a brief extension of one day without giving a reason for doing so.  The Vendor refused to grant the extension, also without giving a reason.  The purchaser sued to complete the transaction and alternatively asked for relief from forfeiture of their deposit.  On the other hand, the vendor sued to keep the deposit.  Interestingly, both parties argued that the other party failed to live up to their legal obligation to act in good faith and to deal fairly with the other.

                         

The court found that where parties have a long-term, ongoing relationship, a level of good faith may require them to be more flexible and agree to requests which may not conform to the strict wording of the contract.  However, in cases such as this one where the parties are involved in a singular transaction (i.e. not a long-term ongoing relationship) and are experienced in real estate transactions – “Good Faith” meant that the parties had to abide by the strict wording of the contract.  As such, the court allowed the vendor to keep the deposit and the purchaser was not entitled to complete the transaction.

 

In their arguments, both the vendor and purchaser relied on the Supreme Court of Canada’s judgment in Bhasin v. Hrynew, [2014] S.C.J. No. 71 which requires contracting parties to deal with each other in “good faith” and “fair dealing”.  The court in this case, clarified that the duty of good faith required by contract law is measured by the specific relationship between the parties.  The test being “whether, in the particular context, the conduct would be regarded as commercially unacceptable by reasonable and honest people”.

 

 

Since this was a “one-off” deal between an experienced commercial vendor and purchaser, the court found that the duty of good faith meant “…  sticking to the contract, not bending the contract – even just a little bit – to one side’s will”.