The recent Court of Appeal decision in Preiano v. Cirillo, 2017 ONCA 615, involved a residential real estate Agreement of Purchase and Sale which required the purchasers to deliver a deposit of $25,000 in the form of a negotiable cheque to the vendors’ brokerage within 24 hours of acceptance of the agreement. The closing date was scheduled to take place about three months later. The agreement included a “time shall be of the essence” clause.
The purchasers had initially submitted a personal cheque in the amount of $25,000 with the offer but the vendors’ brokerage requested the deposit be paid in certified funds. The purchasers subsequently delivered the deposit in the form of a bank draft to the vendors’ brokerage but it was about one day late. The vendors’ brokerage did not take issue with the late delivery and provided a receipt for the deposit.
Six days before the scheduled closing date, the vendors took the position that they would not be closing on the transaction because the purchasers had failed to provide the deposit in time. The purchasers, not surprisingly, sued the vendors for specific performance.
The vendors brought a motion for the determination of a question of law, including the issue of whether the personal cheque was an acceptable negotiable cheque which would have been delivered prior to the deadline. Although the decision did not expressly state, it appears that the parties had agreed the “time shall be of the essence” clause would properly entitle the vendors to terminate the agreement if the personal cheque was not an acceptable form of deposit. The motion judge found that the personal cheque was “not capable of yielding funds upon negotiation” because the records showed insufficient funds in the chequing account, and dismissed the action because the actual deposit was delivered one day late.
On appeal, the Court held that the motion judge erred in drawing the inference that the personal cheque was not negotiable because there was no evidence about the purchasers’ financial capacity or their arrangements with the bank in respect to their chequing account. The Court also noted that the purchasers were able to provide the deposit funds in the form of a bank draft within two days of acceptance of the agreement. As a result, the motion decision was set aside and the case was restored to the trial list.
This case serves as a reminder that timing is everything in real estate Agreements of Purchase and Sale where an action is required by the parties within a certain deadline including the delivery of a deposit, making requisitions, closing the transaction, etc. The Ontario Real Estate Association’s standard form Agreement of Purchase and Sale includes a “time shall be of the essence” clause which reads as follows:
- TIME LIMITS: Time shall in all respects be of the essence hereof provided that the time for doing or completing of any matter provided for herein may be extended or abridged by an agreement in writing signed by Seller and Buyer or by their respective lawyers who may be specifically authorized in that regard.
Courts will generally apply the principle that, when time is of the essence, any time limits agreed upon by the parties are to be strictly adhered to. Any delay, even one day, may be found to be a fundamental breach of contract which entitles the innocent party to terminate the agreement.