COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:

Peterson v. 446690 B.C. Ltd. (Seymour Arm Hotel & Restaurant),

 

2017 BCCA 394

Date: 20171117

Docket: CA44281

Between:

Rodney L. Peterson

Respondent

(Plaintiff)

And

446690 B.C. Ltd. operating as the Seymour Arm Hotel & Restaurant,
Mira Gajewski, and Julian Gajewski

Appellants

(Defendants)

Before:

The Honourable Madam Justice MacKenzie

The Honourable Mr. Justice Harris

The Honourable Mr. Justice Fitch

On appeal from:  An order of the Supreme Court of British Columbia, dated
February 14, 2017 (Peterson v. 446690 B.C. Ltd. (Seymour Arm Hotel &
Restaurant)
, 2017 BCSC 234, Kelowna Registry S78924).

 

Counsel for the Appellants:

D.A. McMillan

 

Counsel for the Respondent:

A.C. Kempf & J.A. Burgess

 

Place and Date of Hearing:

Vancouver, British Columbia

October 19, 2017

 

Place and Date of Judgment:

Vancouver, British Columbia

November 17, 2017

Written Reasons by:

The Honourable Mr. Justice Harris

Concurred in by:

The Honourable Madam Justice MacKenzie

The Honourable Mr. Justice Fitch


 

Summary:

The appellants and respondent contracted for the purchase and sale of a resort property. After termination of the contract via a fundamental breach, the appellants sought damages for loss of bargain and for collateral contracts. They appeal a decision dismissing their counter-claim and say the trial judge erred by finding (i) the termination disentitled them to damages because there was no contract upon which to ground a claim, and (ii) that no collateral contract for $150,000 existed. Held: appeal allowed in part. A fundamental breach entitles the innocent party to both terminate the contract and seek damages. The trial judge found the contract did not include any clause limiting damages and the non‑refundable deposit was not a penalty for breach of contract. The trial judge erred in denying damages were available and the appellants are entitled to damages for loss of bargain. There was no error that would permit interference with the trial judge’s decision regarding the collateral contract.

Reasons for Judgment of the Honourable Mr. Justice Harris:

[1]             The issue on this appeal is whether a trial judge made an extricable legal error when, in relation to a failed real estate transaction, he concluded that the vendors of the property lost their right to claim damages because in terminating the contract in the face of a fundamental breach by the purchaser, they brought the contract to an end and with it the right to claim damages.

[2]             The judge reached this conclusion in a trial on a counterclaim brought by the vendors. Previously, he heard a summary trial which principally focused on whether a portion of a deposit paid by the purchaser was refundable.

Facts

[3]             The real estate transaction involved parcels of land owned by the appellant vendors, whom I will refer to as the Gajewskis, on which they ran a resort, referred to by the judge as Seymour Arm. The purchaser, Mr. Peterson, had dreams of developing the resort into a large lakeshore resort and condominium complex.

[4]             In mid‑September 2006, Mr. Peterson offered to buy Seymour Arm for $9 million. The Gajewskis accepted the offer via a handwritten agreement. What followed was a series of agreements, each replacing previous agreements. In part, at least, the series of agreements arose as a result of Mr. Peterson not fulfilling his obligations under an existing agreement. Ultimately, the parties agreed to the “March 2007 Agreement”. The judge found this to be a valid and binding contract and the one applicable to the dispute.

[5]             This agreement was drafted by Mr. Peterson, who was the plaintiff in the litigation. The judge described it thus in the summary trial reasons indexed as 2016 BCSC 158:

[20]      The March 2007 Agreement is the agreement the plaintiff seeks to enforce in these proceedings. Similar to the previous agreements, it was drafted by the plaintiff without the benefit of legal advice. It was not made subject to financing. It provides that the plaintiff will purchase the lands for $9,000,000, to be paid as follows:

(a)     $445,000 deposit paid to date;

(b)     $50,000 on or before March 30, 2007;

(c)     $405,000 on or before May 1, 2007; and

(d)     $8,100,000 on closing subject to the usual or agreed adjustments.

[21]      A key paragraph of the March 2007 Agreement provided when $400,000 of the Deposit would become non‑refundable:

b) The Purchaser will decide on or before October 1, 2007 if the progress of the Official Community Plan is satisfactory to him and if it is then $400,000.00 of the deposit to date shall be non‑refundable. If, after October 1, 2007, the purchase does not proceed for any reason the balance of the deposit (excluding the non-refundable $400,000) will be repaid to the Purchaser by the Vendor on or before October 1, 2008 and this agreement will be terminated.

[Emphasis added by Weatherill J.]

[22]      The plaintiff was to satisfy himself as to:

1.      zoning and other land-use regulations governing the lands; and

2.      whether a development permit and all permits or licenses necessary for the development of the lands for the intended resort would be issued,

(the “Conditions”).

[23]      The closing date was defined to occur “30 days from the date of the adoption of the Official Community Plan for Electoral Area F in British Columbia” (“OCP”).

[24]      The non-refundable $400,000 portion of the Deposit was not made subject to the adoption or finalization of the OCP.

[6]             Mr. Peterson paid a total of $900,000 in deposits before October 2007.

[7]             Later, as found by the judge, the parties agreed that the transaction would close on October 1, 2007, thereby replacing the closing date of 30 days after the adoption of the OCP. Lawyers were retained to produce the documents necessary to complete the transaction. When it became apparent that it would not close, the closing date was extended by agreement to October 15, 2007. It did not close on that date either. Mr. Peterson was unable to raise the financing he needed to pay the purchase price. The transaction never did close.

[8]             For current purposes it is sufficient to note that, in November, shortly after the transaction failed to complete, the Gajewskis took the position that the Agreement had terminated and there was no longer an enforceable agreement, although their correspondence contemplated the obligation to return the balance of the deposit referred to in the Agreement on or before October 1, 2008. Mr. Peterson took the position that the Agreement remained valid and binding, that the Gajewskis had repudiated it, and that he was ready, willing and able to complete. In the meantime, the parties made unsuccessful efforts to negotiate a new agreement.

[9]             Mr. Peterson started an action against the Gajewskis claiming specific performance. Later, that claim was amended and he only sought the return of the deposits. He also reversed his position on whether the Agreement was valid. The Gajewskis defended the claim and counterclaimed. They claimed that $400,000 of the deposit was non‑refundable because he had waived the subject condition. In their counterclaim, they took the position that they had suffered damages for breach of contract, particularized what they characterized as a series of collateral contracts, and claimed damages set‑off against the remaining $500,000 deposit.

[10]         Mr. Peterson’s claim was decided by way of summary trial. The judge decided that Mr. Peterson had forfeited the $400,000 portion of the deposit because he was satisfied by October 1, 2007 with the progress of the OCP and the parties had agreed the deposit would become non‑refundable at that point. The judge went on to conclude that Mr. Peterson was entitled to return of the $500,000, subject to the claim for damages in the counterclaim. He refused to deal with or dismiss the Gajewskis’ counterclaim, but gave directions to bring it to trial.

[11]         After the trial, the judge dismissed the counterclaim in its entirety. He concluded that the defendants had lost their right to sue for loss of bargain, namely, the difference between the contract price and the value of Seymour Arm, and also dismissed the claim based on three alleged collateral contracts.

[12]         This appeal is taken from only two elements of the dismissal of the counterclaim; the loss of bargain claim and a claim to $150,000 said to have been agreed to as the price of the Gajewskis effectively closing the resort in 2007 in anticipation of the sale.

Discussion

Damages for Loss of Bargain

[13]         At this stage, it is necessary to focus on the findings underlying the trial judge’s analysis. This is necessary in part because we must apply the correct standard of review in our analysis. That standard has been recently summarized by this Court in Arbutus Bay Estates Ltd. v. Canada (Attorney General), 2017 BCCA 374 at paras. 28‑9:

In Sattva, the Supreme Court of Canada mandated a deferential approach to appellate review of the interpretation of contracts. It held that contractual interpretation involves issues of mixed fact and law because the words of the written contract must be considered in light of the factual matrix (para. 50), which is of heightened importance in the case of easements. As a result, the standard of review is one of palpable and overriding error unless an extricable error of law can be identified. Extricable errors of law include “the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor” (para. 53).

This deferential approach is grounded in the trial judge’s enhanced position to assess the factual matrix. However, the Supreme Court of Canada warned that the factual matrix should not govern over the wording of the document:

[57]      While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement (Hayes Forest Services [Hayes Forest Services Ltd. v. Weyerhaeuser Co., 2008 BCCA 31], at para. 14; and Hall [Geoff R. Hall, Canadian Contractual Interpretation Law, 2nd ed. (Markham, Ont.: LexisNexis, 2012)], at p. 30). The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 30‑32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement (Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), 101 B.C.A.C. 62).

[14]         Here, the Gajewskis contend that the judge made an extricable legal error by applying an incorrect principle to the facts found by the judge.

[15]         The judge began his analysis by accepting the findings he had made at the summary trial. These were detailed at para. 32:

a)      The March 2007 Agreement was binding on the parties;

b)      The purchase was to be subject to the plaintiff’s satisfaction with the progress of the Official Community Plan and by October 1, 2007, he was so satisfied;

c)      The parties initially agreed to a completion date for the purchase of October 1, 2007, and later agreed to extend it to October 15, 2007;

d)      The plaintiff’s inability to close the purchase on October 15, 2007, was because of lack of financing;

e)      The plaintiff’s failure to complete the purchase made $400,000 of the Deposit non‑refundable whether or not the purchase completed later and was forfeited; and

f)       The forfeited $400,000 was not a pre‑determination of liquidated damages, but was forfeited to the defendants on October 1, 2007, because that is what the parties agreed to in the March 2007 Agreement.

[16]         The conclusion that the forfeited $400,000 was not a pre‑determination of liquidated damages is particularly important. I take it as a finding that the clause dealing with the deposits was not a genuine pre‑estimate of damages. We must defer to that finding. Further, in a clarification ruling arising out of the summary trial, the judge said that the non‑refundable portion of the deposit was not a prepayment to any damages the Gajewskis might prove at a trial of their counterclaim. Further, the judge said elsewhere that that portion of the deposit became non‑refundable, regardless of whether the deal closed: see summary trial reasons at para. 73. He reiterated this point at para. 47 of his reasons, reproduced below, when he confirmed that the deposit became non‑refundable, not because of Mr. Peterson’s failure to complete, but because by October 1, 2007, the condition that he be satisfied with the progress of the OCP had been satisfied.

[17]         The essence of the judge’s analysis of the loss of bargain claim follows:

[34]      This issue largely turns on whether the March 2007 Agreement is still valid and enforceable or whether it was terminated.

[35]      When the purchase did not close on October 15, 2007, as the plaintiff had hoped, the defendants’ clear position was that the March 2007 Agreement had terminated. …

[36]      Indeed, the Counterclaim reflects this position at paras. 15 and 16:

15.  The Purchase Agreement contained the following provision:

“If, after October 1, 2007, the purchase does not proceed for any reason the balance of the deposit (excluding the non‑refundable $400,000) will be repaid to the Purchaser by the Vendor on or before October 1, 2008, and this agreement will be terminated.”

16.  The plaintiff was not ready, willing, and able to complete, and the Purchase Agreement did not proceed on or before October 1, 2008, and the Purchase Agreement is therefore terminated.

[Emphasis added by Weatherill J.]

[37]      It was not until the defendants’ current lawyer’s letter to the plaintiff’s current counsel on March 13, 2014, that the defendants first mentioned that they would be seeking the contract price of $9 million as damages for the plaintiff’s failure to complete.

[44]      The March 2007 Agreement was a binding contract that lacked a specific closing date; rather, closing was to occur 30 days after the adoption of the Official Community Plan. Despite that uncertain closing date, the parties later agreed on an October 1, 2007 closing, later extending it to October 15, 2007.

[45]      Following the failure to complete, both parties attempted to negotiate new terms, including a later closing, price adjustments and vendor financing.

[46]      During the course of these negotiations, the defendants’ position was clear: the March 2007 Agreement was cancelled. The plaintiff did not accept that it was, and continued in a hopeless attempt to obtain financing and permits to proceed with the purchase - which he had until October 1, 2008 to complete under the March 2007 Agreement, at which point it terminated on its terms.

[47]      It is important to emphasize my finding in the Summary Trial Reasons that the forfeiture of the $400,000 non‑refundable deposit was as a consequence of the plaintiff’s satisfaction with the progress of the Official Community Plan prior to October 1, 2007. It was not because of his failure to complete. Indeed, the evidence is clear that the plaintiff affirmed his intentions to proceed with the contract which he had until October 1, 2008 to complete. After that date, the defendants were free to deal with the property as they wished.

[48]      In Mantar Holdings Ltd. v. 0858370 B.C. Ltd., 2014 BCCA 361, the Court of Appeal recited what the consequences of a fundamental breach of contract are, which I find occurred in this case, at para. 11:

[11]      Although circumstances constituting a fundamental breach of contract may sometimes also constitute a repudiation of the contract, the doctrines of fundamental breach and repudiation are distinct. A fundamental breach of a contract occurs where the failure of one of the contracting parties to perform a primary obligation under the contract has the effect of depriving the other party of substantially the whole benefit which the parties intended that party to receive: see Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426 at 499, 57 D.L.R. (4th) 321. Repudiation occurs when a party to the contract, either by words or conduct, evinces an intention not to be bound by the contract: see Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423 at para. 40, 178 D.L.R. (4th) 1. The remedy for fundamental breach and repudiation is effectively the same – the innocent party may elect to terminate the contract or to accept the repudiation bringing the contract to an end. In either case, the parties are discharged from future obligations under the contract, and the innocent party may look to the other party for damages.

[Emphasis added by Weatherill J.]

[49]      I am satisfied that the defendants elected to terminate the March 2007 Agreement in November 2007, almost one year before the October 1, 2008 express termination date. They wanted nothing further to do with the plaintiff or his continued hopes of being able to purchase the Property and build the Future Resort. In electing to terminate the March 2007 Agreement, they lost their ability to sue for the balance of the $9 million purchase price. When that occurred, there was no longer any agreement upon which the defendants could ground their claim for damages for breach of contract: Zippy Print Enterprises Ltd. v. Pawliuk, 100 B.C.L.R. (2d) 55, [1994] B.C.J. No. 2778.

[50]      Accordingly, the defendants’ claim for damages for breach of the March 2007 Agreement fails.

[18]         Several critical findings are embedded in this discussion, to which we must defer, and which also define the circumstances to which the legal principles are applied. The parties had agreed to a closing date of October 1, 2007, later extended by agreement to October 15, 2007. Mr. Peterson’s failure to complete was a fundamental breach of contract. The Gajewskis elected to terminate the agreement in November 2007. It is implicit, I think, that the judge accepted that the Gajewskis were entitled to elect to terminate the agreement because of the fundamental breach. Nowhere does he suggest that this termination was itself an anticipatory repudiation of the agreement. He does note, however, that the election to terminate occurred one year before the agreement would have terminated by its express terms.

[19]         In my view, the judge correctly set out the law in para. 48. An innocent party may elect to accept a fundamental breach, thereby discharging the innocent party from future obligations under the contract. The innocent party may look to the breaching party for damages. It is often said that terminating a contract in the face of fundamental breach brings the contract to an end, but this is perhaps not the best way to put the proposition. As S.M. Waddams observes in The Law of Contracts, 7th ed (Toronto: Thomson Reuters 2017) at para. 635:

Thirdly, the expressions “put an end to” and “rescind” are unclear in meaning. They may indicate the release of the innocent party from future obligations, but they are sometimes used to indicate total abrogation of the contract with all its obligations. A repudiation puts an end to the contract in the sense that it releases the innocent party from the duty of further performance, but it does not abrogate the whole contract – the innocent party can sue for damages. This was clearly stated by Lord Porter in Heyman v. Darwins, Ltd.:

To say that the contract is rescinded or has come to an end or has ceased to exist may in individual cases convey the truth with sufficient accuracy, but the fuller expression that the injured party is thereby absolved from future performance of his obligations under the contract is a more exact description of the position. Strictly speaking, to say that on acceptance of the renunciation of a contract the contract is rescinded is incorrect. In such a case the injured party may accept the renunciation as a breach going to the root of the whole of the consideration. By that acceptance he is discharged from further performance and may bring an action for damages, but the contract itself is not rescinded.

Further, any obligations that have accrued before the termination of the contract remain enforceable.

[20]         It is at this point that the judge falls into a clear and extricable legal error. The statement in para. 49 that “[i]n electing to terminate the March 2007 Agreement they lost their ability to sue for the balance of the $9 million purchase price” is a clear error. The effect of electing to terminate the agreement in the face of a fundamental breach is to preserve the right to sue for damages. Certainly, the parties might contract in advance of a fundamental breach to stipulate the remedies arising thereon, for example, by agreeing to a liquidated damages or genuine pre‑estimate of damages clause, but that is not the basis on which the judge grounded the proposition that the Gajewskis had no basis to assert a claim for damages. Equally, the assertion that by terminating the contract there was no longer any agreement upon which they could ground their claim for damages, misses the point. The claim for damages does not depend on the continuing existence of the contract in that sense. Zippy Print simply is not authority for the proposition asserted by the judge.

[21]         In short, the principle on which the judge appears to have grounded his judgment is in error. On the basis of the findings of fact in the judgment, the judge erred in concluding that the termination of the contract in the face of fundamental breach extinguished the claim to damages.

[22]         If the effect of electing to terminate the contract did not extinguish the basis of a claim to damages, where does this leave the parties? In principle, the Gajewskis have a prima facie right to claim damages measured by the loss of their bargain. Such a claim would, however, be subject to any enforceable agreement the parties had made that defined the remedies available to the parties in the event of fundamental breach.

[23]         Mr. Peterson submits that this is the situation here. He says that the Agreement unambiguously contemplates that the parties agreed that if the purchase did not complete for any reason before October 1, 2008, then the Gajewskis were obliged to return the non‑refundable portion of the deposit, no further claim for damages could be made and the agreement would terminate. In support of this argument, they point to several statements in the various reasons in which the judge concluded that the $400,000 was forfeited as a penalty. Mr. Peterson argues that the effect of the penalty clause is that damages for breach of the agreement are limited to the penalty.

[24]         Courts will, of course, generally give effect to agreements whereby parties agree to define or limit the remedies available on breach of the agreement. Complex law has developed defining the circumstances in which courts will declare such clauses to be unenforceable, for example, because they are found to be a penalty rather than say a liquidated damages clause. It is not necessary to rehearse that law here. It appears clear to me that it was open to the judge to find that the clause had the effect of defining available remedies for fundamental breach. Had he done so, he might have had to go on to consider whether the clause was enforceable.

[25]         The difficulty for Mr. Peterson is, however, that even though the judge described the non‑refundable character of the $400,000 as a penalty forfeited on the satisfaction of a certain condition, he expressly rejected the proposition that the $400,000 was a prepayment towards contract damages or involved a genuine pre‑estimate of damages arising from a breach. Indeed, the forfeiting of the $400,000 did not depend on a breach by Mr. Peterson. In that sense, it is not a typical penalty discussed in the case law and I do not think the judge was using the word “penalty” as a term of art.

[26]         The general law relating to penalties was summarized recently by Mr. Justice Goepel in Do v. Nichols, 2016 BCCA 128:

[20]      With the greatest respect, the trial judge erred in finding the mortgage provision to be a penalty. The question of penalty or liquidated damages only arises in the context of the breach of an agreement. This is explained in Chitty on Contracts, 31st ed., vol. 1 (London, UK: Sweet & Maxwell, 2012) at 1873:

The law on penalties is not applicable to many sums of money payable under a contract. Thus, it is not relevant where the claimant claims an agreed sum (a debt) which is due from the defendant in return for the claimant’s performance of his obligations, or which is due upon the occurrence of an event other than a breach of the defendant’s contractual duty owed to the claimant.

[21]      Fridman in The Law of Contract in Canada, 6th ed. (Toronto: Thomson Reuters Canada, 2011) at 726‑727 notes that the doctrine of penalty is not designed to grant relief from a commercially imprudent bargain:

A penalty is a sum that is fixed in advance as being subject to forfeiture or payment in the event of non-performance of a contract, or some kind of misperformance, for example, a late payment fee for non‑payment of rent on time in accordance with the contract, or a holding deposit which could be forfeited if the intended lease was never signed. A distinction has been drawn between payment of a sum in the event of non‑performance of a contractual obligation (where the sum of money may amount to a penalty) and payment of a sum of money on the happening of an event. In the latter situation no question of penalty arises, and the courts will not grant relief. The penalty area has been limited to a “narrow field”. The doctrine is not designed to relieve a party from the consequences of what might in the event prove to be an onerous or even commercially imprudent bargain.

[Emphasis added by Goepel J.A.]

[27]         The basis of the judge’s finding that the $400,000 was forfeited as a penalty was that the condition agreeing to forfeit it had been satisfied, not that the contract did not complete. In that sense, the money was not properly described as a penalty. Moreover, it is clear that notwithstanding the finding that the $400,000 was forfeited as a penalty, the judge treated entitlement to prove damages for breach to be at large and not limited or extinguished by agreement. In short, the judge’s findings entail a rejection of the proposition advanced by Mr. Peterson that the parties had agreed to limit any damage claim to $400,000 by agreeing that the remaining portion be returned by October 1, 2008 if the purchase did not complete for any reason.

[28]         In my view, we are required to defer to the judge’s interpretation of the deposit clause. It is exactly the type of finding that the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, has instructed should be shown deference absent palpable and overriding error. I am unable to find such an error here, even if Mr. Peterson’s interpretation would have been reasonably available to the judge.

[29]         It might be thought that this would be the end of the matter, but it is not. The judge found in his counterclaim reasons that the defendants had elected to terminate the contract thereby bringing it to an end. The effect of doing so is to relieve the parties of their future obligations under it. If the deposit clause is not tantamount to a liquidated damages clause, then the defendants would be entitled to their contract damages in the ordinary course. In other words, the obligation to return the refundable portion of the deposit would have been extinguished.

[30]         The judge, however, made findings in his summary judgment reasons which might be taken to be inconsistent with these conclusions. At para. 71 he found:

For the reasons that follow, I conclude the following:

5.         the plaintiff was free to continue his plans to purchase Seymour Arm until October 1, 2008, and if it did not complete for any reason, the balance of $500,000 had to be re-paid to the plaintiff by October 1, 2008; and

6.         on October 1, 2008, the March 2007 Agreement terminated, meaning the defendants were no longer bound to sell the property to the plaintiff.

[31]         This conclusion reflected the original pleaded position of the defendants as the judge recognized:

[75]      In their original statement of defence, the defendants acknowledged that they were liable under the terms of the March 2007 Agreement to repay $500,000 to the plaintiff on or before October 1, 2008, but claimed a set off for damages they allegedly suffered.

[32]         He went on to explain why the $500,000 had to be returned:

[97]      When placed in context of the dealings between the parties, the March 2007 Agreement is clear and must be given its plain meaning. The defendants were tired of the plaintiff’s prior broken promises and were prepared to give him until October 1, 2007, to proceed with the purchase. Regardless of his ability to fund the purchase, or any other reason, the plaintiff agreed that $400,000 of the Deposit would be forfeited to the defendants on October 1, 2007, and the balance of $500,000 would be returned to him by October 1, 2008.

[98]      There is no ambiguity in the March 2007 Agreement of the defendants’ obligation to refund $500,000 of the Deposit if the deal did not close.

[99]      I am satisfied that the defendants knew that if the March 2007 Agreement did not complete, they would be obliged to return the Deposit to the plaintiff, less the non-refundable $400,000, by October 1, 2008.

[100]    Subject to the defendants’ right of set-off as discussed below, the plaintiff is entitled to return of $500,000 of the Deposit. Because that amount should have been returned to the plaintiff by October 1, 2008, he is entitled to interest on that sum, pursuant to the Court Order Interest Act, R.S.B.C. 1996, c. 79, after October 1, 2008.

[33]         These conclusions all assume that the Agreement was still in effect and binding on both parties on October 1, 2008 and that it terminated on that date. Only thus can effect be given to the obligation to return the deposit. But the finding in the counterclaim reasons is that the contract was terminated in November 2007 by election in the face of fundamental breach. The judge’s conclusion dismissing the claim for contract damages rested on the finding that the contract no longer existed, not that the deposit clause survived the termination and limited the remedy. Put correctly, the finding is that the Gajewskis are no longer bound by their future obligations under the contract. Indeed, the judge rejected the proposition that the deposit clause did so limit the damage claim. There was no claim to damages, the judge found, because there was no contract, not because the defendants were bound by the agreement to limit their claim to the non‑refundable portion of the deposit.

[34]         It appears to me that the apparent inconsistency in the findings in the two judgments can be dissolved when it is remembered that at all times the judge was aware of the claim for breach of contract damages pleaded in counterclaim and that he refused to “clarify” his reasons in a manner that would effectively have precluded the breach of contract damage claim. I take the judge to have recognized that his finding that $500,000 of the deposit was to be returned was subject to the claim for contract damages. In that sense his conclusions should be taken to be provisional or conditional. Indeed, he recognized that the contract damage claim could exceed the refundable portion of the deposit: see 2016 BCSC 1318 at para. 5. In short, I do not take the judge or the parties to have used the term “set‑off” as a term of art or in its technical sense which would presuppose valid but closely connected cross-obligations. While the collateral contracts claim might genuinely give rise to a set‑off, I do not think the same can be said for claim for damages for breach of the contract itself.

[35]         In the result, the implicit conclusions that the contract was still in existence and binding on October 1, 2008, and that it terminated on that date, must be read as provisional conclusions since they were subject to the breach of contract claim that formed part of the foundation of the counterclaim. In substance, the findings that the deposit clause was not tantamount to a liquidated damages clause and that the contract was terminated in November 2007 by election in the face of fundamental breach displace any conditional findings that the contract remained valid and binding until October 1, 2008. The October 1, 2008 was simply a date that defined the latest time by which the purchase and sale could compete, but it ceased to be relevant once the contract was terminated in the face of fundamental breach.

[36]         In my opinion, the judge was not helped by the argument advanced before him that the breach occurred in October 2008. The case was not put on the basis that the contract terminated by the acceptance of a fundamental breach in 2007. Indeed, the Gajewskis argued that there was no accepted repudiation of agreement by either side in late 2007. Nonetheless, the judge made a finding that there had been a fundamental breach leading to an election to terminate in November 2007. He then misapplied the law to that finding.

[37]         It may well be that the unfortunate complications arising in this case result from the shifting legal positions of both sides, both in the aftermath of October 15, 2007 and in the litigation. It may also be another example of the risks inherent in litigating in slices. Here, the status of the contractual obligation to return the refundable portion of the deposit is inextricably connected to the consequences following from an election to terminate the contract in the face of fundamental breach. It is not clear how the question whether the Gajewskis were obliged to return the $500,000 could unconditionally be decided without examining the fundamental breach/termination issue.

[38]         In the result, the judgment should be set aside. The Gajewskis are entitled to an award of damages for breach of contract. The question is whether this Court is in a position to make that award on the record before us.

[39]         The judge did not assess damages. In the normal course, assessing damages would involve making findings of fact, possibly in the face of conflicting evidence. This Court is not equipped for that task.

[40]         The Gajewskis contend that the applicable principle for assessing damages is not in question. As a general rule, damages for a failure to complete a real estate transaction will be the difference between the contract price ($9 million) and the market value on the date of breach, making reasonable allowance for mitigation. The uncontradicted evidence was that the property was worth $2.54 million in October 2008 and $1.35 million in June 2016. They say that the worst-case scenario for them is a fair market value of $2.54 million at a high point in the market before the financial crisis depressed real estate prices. They, in effect, waive any claim to their best-case damage assessment because they say the judgment will almost certainly be a dry judgment in any event.

[41]         I am inclined to accept the pragmatic concession made by the Gajewskis. It seems to me that it would not serve the interests of justice to require the parties to return to the Supreme Court to have the damages assessed, when it is most improbable that the award would be based on less than the fair market value in October 2008, a market high. It is most improbable, on this record, that damages for loss of bargain would be less than $9 million minus $2.54 million. Accordingly, I would be prepared to assess damages in that amount.

Collateral Contract

[42]         I turn now to deal with the appeal in respect of the claim based on a collateral contract. The Gajewskis claimed that the $150,000 added to an earlier agreement styled the Interim Agreement was compensation for their ceasing operations on the property for the summer of 2007 to allow for the demolition of some buildings. Mr. Peterson denied the agreement and argued that if it did exist, that amount was absorbed into the non‑refundable deposit required under the subsequent March Agreement.

[43]         The judge determined that because the March 2007 Agreement had superseded any previous agreements, there was a presumption that it constituted the entire agreement between the parties. After considering the testimony and the documentary evidence, the judge concluded that the Gajewskis had not rebutted this presumption and no damages were awarded on this basis.

[44]         The Gajewskis say that the judge made an extricable error of law in concluding that any such agreement was displaced by the March 2007 Agreement.

[45]         I am unable to agree. A review of the reasons shows that the judge considered the evidence of the dealings between the parties before concluding:

[70]      I am ultimately not persuaded that the defendants have rebutted the presumption that the March 2007 Agreement constituted the entirety of the agreement between the parties. Rather, I prefer the plaintiff’s version of the events; when the non-refundable deposit was increased in March 2007, from $45,000 to $400,000, that amount included the $150,000 provided for in the October Interim Purchase Agreement. Indeed, the type written portion of the March 2007 Agreement provided for a non-refundable deposit of only $250,000. When it was presented to the defendants for signature, that amount was increased to $400,000. I find that was intended to include the $150,000 from the Interim Purchase Agreement.

[71]      I find that the March 2007 Agreement superseded all prior agreements, including the earlier agreement providing for the payment of $150,000. If the plaintiff failed to complete the purchase, his obligation was only the forfeiture of the $400,000 non‑refundable portion of the deposit.

[72]      In the result, the defendants’ claim under the $150,000 Collateral Agreement fails.

[46]         The judge’s conclusion involves the interpretation of the relationship between the Agreement and alleged other agreements in light of his assessment of the factual background. This is the type of issue that calls for this Court to defer to the findings of the judge in the absence of palpable and overriding error. I am not persuaded the judge made any extricable legal error. Accordingly, I would dismiss this ground of appeal.

Conclusion

[47]         In the result, I would allow the appeal on the loss of bargain claim, set aside the term of the order dismissing the Gajewskis’ claim in respect of that matter and substitute an award of damages as set out above. I would dismiss the appeal insofar as it relates to the collateral contract claim. In my view, the Gajewskis have been substantially successful on this appeal and I would order them costs in this Court. The issue of costs in the Supreme Court should be addressed by that court in light of the ultimate outcome of the litigation.

“The Honourable Mr. Justice Harris”

I agree:

“The Honourable Madam Justice MacKenzie”

I agree:

“The Honourable Mr. Justice Fitch”