The Ontario Superior Court of Justice decision in Ballestin v. 1304478 Ontario Inc., 2018 ONSC 2969, involved a dispute between parties that entered into an arrangement for the purposes of flipping a house during the surging real estate market in 2016.
In the fall of 2016, the Plaintiffs were interested in purchasing, renovating and re-selling a property for a profit, however, they were unable to obtain financing for their house flipping venture. During an open house, the Defendant homeowner suggested that they enter into an agreement with an extended closing date to provide the Plaintiffs with sufficient time to renovate and sell the property to a third party prior to the closing date.
The terms of the agreement included: (a) a deposit of $25,000; (b) a purchase price of $600,000; (c) the balance owing to the Defendant was $605,000 less the deposit and less the difference between $5,000 and actual legal fees paid; and (d) any profit above $605,000 less the deposit was payable to the Plaintiffs.
The house flipping venture was profitable and the renovated property was sold for $225,000 over the original purchase price. Shortly after the sale, the Defendant demanded that the profit payable to the Plaintiffs was only $150,000 due to property management fees, liability fees, accounting and legal fees. The Plaintiffs stated that was not the agreement but the Defendant told them it was “take it or leave it”. The Defendant refused to provide any payment until the proposed variance was accepted. The Plaintiffs eventually relented and agreed to vary the agreement because they had to pay the contractor and other creditors.
At trial, the Court found that the parties did not agree to vary the agreement because there was no consensus ad idem between the parties and no consideration was received by the Plaintiffs. The Court also found that, in the event it was wrong and the parties did actually agree to vary the agreement, the variance would be void for economic duress based on the following four factors: (1) the Plaintiffs protested the proposed variance; (2) the Plaintiffs had no alternative course available but to accept the offer of $150,000 due to their financial liabilities to the contractor and creditors; (3) the Plaintiffs did not obtain independent legal advice in respect to the variance; and (4) the Plaintiffs took immediate steps to avoid the variance by retaining counsel and commencing an action.
As a result, the Court held that the Defendant was liable to pay $212,224.63 to the Plaintiffs, consisting of the profit minus the real estate commission fees, plus prejudgment interest and costs.