In Forest Hill Homes (Cornell Rouge) Limited v. Wei,
2020 ONSC 5060 (CanLII), Justice F.L. Myers applied the Supreme
Court of Canada’s recent review of the doctrine of
unconscionability in Uber Technologies Inc. v. Heller,
2020 SCC 16 (CanLII) to a residential real estate purchase
transaction.
The Defendant, Wei, had agreed to purchase a home in a
subdivision from the Plaintiff, Forest Hill Homes (Cornell Rouge)
Limited (“Forest Hill”). The transaction was aborted
because Wei was not able to obtain sufficient financing to close
the sale and the Plaintiff refused to decrease the purchase price.
Forest Hill sold the home to another buyer for a lower amount and
sued Wei for the difference.
Wei defended Forest Hill’s claim for damages on the basis
that she had not been advised that the offer was irrevocable for 10
days. Wei took the position that the irrevocability clause was
unconscionable.
As noted by Myers J., irrevocability clauses are an anomaly in
contract law since, despite the use of the word
“irrevocable,” an offer that has not yet been accepted
to form a binding contract is in fact “revocable.”
Accordingly, for an offer to purchase to be truly
“irrevocable” there must be some other independent
agreement made between the seller and the buyer.
In the circumstances, Forest Hill took the property off the
market as soon as Wei made the offer and it declined to seek
competing offers or to try to create an auction. Accordingly, it
took a step to its own detriment which was sufficient in law to
create a mutually binding agreement.
As to whether the irrevocability clause was unconscionable,
Justice Myers reviewed the two-step test outlined by the Supreme
Court of Canada in the Uber decision:
First, the judge should consider whether there was an inequality
of bargaining power between the parties. If so, the judge will then
consider whether that inequality resulted in an improvident
bargain. An improvident contract entered into between parties of
unequal bargaining power will be found to be unconscionable and
will not be enforced.
Justice Myers had no difficulty agreeing that there was an
inequality of bargaining power between Wei and Forest Hill.
Although nobody had forced Wei to make an offer to buy the house,
and there were plenty of other houses on the market, Forest Hill as
the builder had the ability to dictate its terms. This was
manifestly evident in Forest Hill’s use of a standard form
contract with schedule upon schedule of fine print.
Conversely, other than a 20% interest charge buried in the fine
print (which Forest Hill conceded was unenforceable), Myers J.
found that there was nothing improvident or unusually onerous about
agreeing to a period of irrevocability in a residential real estate
transaction. In the case at hand, Forest Hill had specifically
agreed not to look for competing offers during the irrevocability
period. Further, there was no evidence that when Wei signed the
offer, she had any reasonable expectation that there would be any
type of “cooling off” period. In Justice Myers’
words: “Considering the surrounding circumstances at the
time, the price, and the commercial setting, there is nothing
improvident in the bargain. It was a standard purchase of the type
that happens every day all over the province.”
In the result, Wei was liable to Forest Hill for the sum of
almost $180,000 resulting from her failure to complete the purchase
of the property.
Originally published by Gardiner Roberts, August
2020
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