Kimberley Homes Ltd. v Steinke, 2012 ABQB 709

Court of Queen ’ s Bench of Alberta Citation: Kimberley Homes Ltd. v Steinke, 2012 ABQB 709 Date: 20121116 Docket: 1103 19442 Registry: Edmonton Between: Kimberley Homes Ltd. Appellant - and - Daryl Steinke and Eunice Steinke Respondents _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice Robert A. Graesser _______________________________________________________ Appeal from the Judgment by The Honourable Judge K. Haymour Dated the 3 rd day of November, 2011 Filed on the 4 th day of November, 2011 ( 2011 ABPC 322 , Docket: P0990304582)

Introduction [ 1 ] This is an appeal by Kimberley Homes Ltd. from the decision of Haymour, PCJ dated November 3, 2011, Steinke v. Kimberley Homes Ltd. , 2011 ABPC 322 . In that decision, he awarded Daryl and Eunice Steinke $21,000.00, damages of $1,503.59, prejudgment and costs in the amount of $2,450.00. [ 2 ] The plaintiffs' claim arose out of an aborted real estate transaction. Background [ 3 ] Kimberley Homes Ltd. is a homebuilder. Mr. and Mrs. Steinke were home-buyers. In 2005, the Steinkes attempted to buy a lot from Kimberley. Mr.

Steinke executed a lot reservation agreement and gave Kimberley a $1,000.00 deposit. The agreement was never signed or accepted by Kimberley. After several months, he unsuccessfully attempted to contact the salesman he had been dealing with, Kimberley's area manager, David Garvin. A year after that, he drove out to the subdivision and saw that a house had been constructed on the lot. He successfully contacted Mr. Garvin and met with Mr. Garvin and Kimberley's president, Mr. Ruggiero. Mr.

Ruggiero agreed to "make things right" and arranged for construction on a different lot. [ 4 ] A new lot reservation agreement was entered into for a price of $310,000.00. A subsequent agreement was made November 12, 2007, (the "Agreement") as a result of meetings with Mr. Garvin and Mr. Ruggiero. That Agreement had the Steinkes purchasing the new lot and having a new home constructed on it for a total purchase price of $904,479.79. The Agreement acknowledged as an initial deposit the $1,000.00 which had been paid in 2005 for the first lot reservation agreement.

A further $20,000.00 deposit was required to be paid by November 19, 2007 (and was). The Agreement provided that a further $300,000.00 was to be paid no later than December 1, 2007. [ 5 ] As noted by Judge Haymour, the Agreement made no mention of financing.

There is also an "entire agreement" clause 27, which provides: This Agreement shall constitute the entire agreement between the parties and no representations, warranties and previous statements made by any persons or agents other than those in writing in this Agreement signed by the Parties shall be binding on the Parties so as to vary the terms of this Agreement. [ 6 ] The Steinkes' evidence, which was accepted by the trial judge, was that at the meeting on November 12 when the Agreement was made, they discussed with Mr. Garvin and Mr. Ruggiero the difficulties they were having regarding financing.

They were concerned about their ability to raise the $300,000.00 December 1 payment if they were unable to sell their current home. Mr. Ruggiero put them in touch with a mortgage broker to assist them with financing. [ 7 ] According to the Steinkes, Mr.

Ruggiero agreed that Kimberley would pay interest charges on their financing for the one year estimated term of construction, and if their house did not sell when it came time to take possession of the new home, they could simply reverse the transaction. [ 8 ] The Steinkes met with the mortgage broker, and were concerned about a $14,850.00 "lender's finance fee" they were told about. Mr. Steinke testified that he spoke to Mr. Ruggiero about this and Mr.

Ruggiero told him that Kimberley would look after that, and the Steinkes only had to pay the brokerage fee. [ 9 ] A commitment letter was given to the Steinkes on November 21, but it was not completed and returned to the mortgage broker until December 16.

[ 10 ] Mr. Ruggiero testified that to help the Steinkes, he agreed to pay the lender's finance fee of $14,850.00 and to pay interest on the financing for the first six months. He denied ever agreeing to reverse the transaction if the Steinkes could not sell their home before possession of the new home. Because he wanted to work with the Steinkes, he did not enforce the $300,000.00 payment obligation on December 1. [ 11 ] Notwithstanding that the $300,000.00 payment had not been made, Kimberley apparently started construction on the house.

On January 25, 2008, Kimberley's solicitors delivered a trust letter to the Steinkes' solicitor. The trust conditions made no mention of Kimberley's agreement to pay the lender's finance fee or interest on the financing for any period. [ 12 ] When the Steinkes met with their solicitor, they pointed out to him the absence of the three issues that were key to them: the lender's finance fee, interest on the financing, and their ability to reverse the transaction if they could not sell their home.

The Steinkes did not complete the mortgage documentation at this time, although it had been provided to their lawyer by the mortgage lender. [ 13 ] When Mr. Steinke attempted to contact Mr. Ruggiero to discuss his concerns about the documentation, he learned that Mr. Ruggiero was not immediately available so he met with Mr. Garvin on February 2, 2008.

A letter confirming the Steinkes' concerns was sent to Kimberley via email on February 11, 2008. [ 14 ] In the meantime, however, Kimberley's solicitors had sent by registered mail a notice of default to the Steinkes dated February 8, outlining that their failure to pay the $300,000.00 on December 1, 2007 rendered them in default of the Agreement and that they had seven days from receipt of the notice to rectify the default, failing which Kimberley would declare the Agreement null and void and would retain all monies paid to date as liquidated damages. [ 15 ] Mr.

Ruggiero responded to the Steinkes ’ February 11 email on February 12, but to his solicitor and to Mr. Garvin and not directly to the Steinkes. Mr. Garvin forwarded Mr. Ruggiero's email to the Steinkes that day. In the email, Mr. Ruggiero confirmed that Kimberley would pick up the cost of the lender's fee and that Kimberley would pay interest charges on the financing beyond six months but would recover any such amount from the Steinkes at the time of possession.

As to reversal of the agreement if the Steinkes could not sell their home, he indicated that in such circumstances, Kimberley would foreclose on the Agreement and would refund the purchase price, less any damages Kimberley incurred. [ 16 ] Despite this email, no amended trust letter was provided by Kimberley's solicitors to the Steinkes' solicitor. The February 15 "default" deadline came and went.

Thereafter, the Steinkes ’ solicitor wrote to Kimberley's solicitors advising that Kimberley's failure to put in writing the matters that had been collaterally agreed to was a breach of the contract, and demanded return of their deposit. [ 17 ] The issues considered by Judge Haymour at trial were: 1. Whether the November 12 Agreement was the sole governing agreement between the parties; 2. Whether that Agreement was supplemented by a collateral oral agreement entered into between the parties after November 12; and 3.

Did the Defendants breach the terms of the collateral agreement by refusing to reduce that Agreement to writing in the trust letter. [ 18 ] The trial judge found that on November 12, Mr. Ruggiero was aware of the Steinkes' problems regarding financing, and that he subsequently agreed to the payment by Kimberley of the lender's finance fee.

He found, at para. 25, that "At the very least, the parties agreed to modify the terms of the Purchase Contract, by the Defendant agreeing to pay the lender's finance fee." He found this to be a collateral agreement, and that the Agreement was not the whole contract between the parties (at para. 26).

[ 19 ] He also found that there had been no meeting of the minds with respect to Kimberley's payment of interest or the potential reversal of the transaction. He further held at para. 28 that the Steinkes had not breached their contractual obligations. [ 20 ] As to the issue of breach by Kimberley, the trial judge found that the trust letter sent to the Steinkes' solicitor contained errors and failed to address the collateral agreement for which the parties were ad idem . [ 21 ] He accepted Mr. Steinke's evidence that he had unsuccessfully tried to contact Mr. Ruggiero through Mr. Garvin after he and Mrs.

Steinke had reviewed the trust letter with their solicitor in late January. The default letter of February 8 was sent without addressing or correcting the error relating to the lender's finance fee. Despite Mr. Ruggiero's email to his solicitor and Mr.

Garvin, no steps were taken to amend the trust letter to correct the error. [ 22 ] At para. 31, Judge Haymour held that "by sending a notice of default instead, the Defendant had clearly resiled from fulfilling the subsequent collateral agreement between the parties, thus discharging the Plaintiff from performing any obligations under the contract." He concluded: By failing to remedy the "honest mistake", the Defendant was clearly in breach of contract, thus, discharging the Plaintiff from its obligation under the same. [ 23 ] He ordered that Kimberley refund the Steinkes the $21,000.00 deposit (which included the $1,000.00 deposit under the first lot reservation agreement).

He assessed damages at $1,503.59, representing the Steinkes' legal costs in relation to the aborted purchase and the mortgage transaction, together with prejudgment interest and costs. Grounds of Appeal [ 24 ] Kimberley appeals the whole of the decision, stating the issue as being: Was there a valid and enforceable collateral agreement between the Steinkes and Kimberley Homes?

Standard of Review [ 25 ] Kimberley correctly points out that the standard of review in relation to questions of law is correctness; questions of mixed fact and law attract a standard of palpable and overriding error except when the question of law can be extracted in which case the standard is again correctness: Ron Ghitter Property Consultants v.

Beaver Lumber Co. , 2003 ABCA 221 . [ 26 ] As to the formation of a contract, they note that there must be a meeting of the minds as to the intention to contract, and the essential terms of the contract must be able to be determined with a reasonable degree of certainty: Klemke Mining Corporation v. Shell Canada Limited , 2007 ABQB 176 . [ 27 ] Kimberley acknowledges that an oral agreement subsequent to the creation of a written contract may create a collateral contract, citing Troika Land Development Corp. v.

West Jasper Properties Inc. , 2009 ABQB 590 . [ 28 ] In applying those principles to the facts here, Kimberley argues that there was no valid and enforceable collateral agreement between the parties as the evidence demonstrated that there was no consensus on all of the fundamental terms of the alleged collateral agreement.

[ 29 ] Kimberley acknowledges, however, that there was agreement that Kimberley would pay the lender's finance fee. [ 30 ] Essentially, as I understand the argument advanced on behalf of Kimberley, it is that the collateral agreement alleged by the Steinkes was that Kimberley would: 1. Pay the lender's finance fee; 2. Pay interest on their financing until possession of the new home, at least up to a year; and 3. They could reverse the transaction and get their deposit back if they could not sell their home before the time came to make the final payment to Kimberley.

While there may have been agreement and a meeting of the minds on item 1, there was no meeting of the minds on the others. Since the agreement alleged by the Steinkes related to all three elements, there was no meeting of the minds, and thus no collateral agreement. [ 31 ] Kimberley's argument relies on all three elements being essential terms of the collateral contract. In some cases, that might be correct, as in the case of a contract for the purchase of land where the parties must have agreed on at least the identity of the parties, the property to be bought and sold and the price to be paid.

Absent agreement on other details, the court can fill in the rest as part of the “ open contract ” principle. [ 32 ] Here, the agreement for Kimberley to pay the lender's finance fee was not conditional on Kimberley agreeing to pay interest on the financing, or to provide an escape clause in the event the Steinkes could not sell their existing residence. Those other matters were not essential terms of the agreement to pay the lender's finance fee. [ 33 ] Kimberley does not argue that its agreement to pay the lender's finance fee was conditional on anything else.

It does not argue either that it did not intend to be legally bound by that agreement. Kimberley disputes any agreement to pay a year's interest and says instead that it was prepared to pay only six months' interest. As found by the trial judge, there was no consensus ad idem on that issue. The Steinkes may have believed there was an agreement, but their belief was in error. The trial judge made no adverse credibility findings against Mr. Garvin or Mr. Ruggiero. [ 34 ] Kimberley denies any agreement on allowing the Steinkes to reverse the transaction if they could not sell their house.

While this was important to the Steinkes, there was no meeting of the minds as to what would happen in that event. [ 35 ] But there was a clear, uncontradicted and binding agreement for Kimberley to pay the lender's finance fee. [ 36 ] That agreement constituted, by itself, a valid collateral contract, intended by the parties to modify the Purchase Agreement. It was not inconsistent with the Agreement and did not contradict any specific term in it but was rather supplemental. Nor does the purchase agreement prohibit oral amendments to the Agreement itself. [ 37 ] Mr.

Atwal on behalf of Kimberley argues that the agreement on the part of Kimberley to pay the lender's finance fee was itself an incomplete agreement as there was no agreement as to when the payment was to be made. The timing and method of payment of the lender's finance fee was left unclear and vague. In my view, the timing and method of payment are not essential elements of the agreement to pay the fee. It is clear who the parties were, what the payment was and to whom it was to be paid.

There was nothing uncertain in the agreement regarding the lender's finance fee preventing a valid and binding agreement from being formed.

[ 38 ] The tying together of these three issues came from Mr. Ruggiero's email of February 12, where he proposed a solution to the three concerns raised by the Steinkes in the context of Mr. Steinke wishing "for the agreement to proceed prior to default occurring this coming Friday." Mr. Ruggiero states in this email "It should be noted that all of these items have been previously agreed upon and are now impacting Kimberley Homes' ability to construct in accordance with the original budget.

If the Steinkes are not prepared to proceed with construction in accordance with the agreement, Kimberley Homes is not prepared to reconsider the construction of this home." [ 39 ] He acknowledges that there was some discussion between him and the Steinkes concerning interest; his understanding being that six months was agreed to whereas the Steinkes believed 12 months had been agreed to.

He denies any agreement regarding a guarantee of the deposit funds. [ 40 ] To the extent that an issue of law might be extracted from the question of whether there was a collateral contract (which by itself would be a question of mixed fact and law), that issue would be whether the accepted (or non-contradicted) facts support the formation of a contract. [ 41 ] On that basis, the correctness standard might apply. I do not see, on any basis, that Judge Haymour erred in his application of the facts to the legal issues surrounding the formation of a contract.

He correctly identified the uncontradicted agreement that Kimberley would pay the lender's finance fee to be a binding collateral contract.

I cannot see how it could be characterized otherwise. [ 42 ] As to the trial judge's determination that Kimberley had breached its obligations by sending a trust letter that did not recognize this collateral agreement, and then by failing to correct the trust letter when the error was brought to their attention, such determination was clearly not unreasonable; it was not affected by any palpable and overriding error, and in my view it was correct. [ 43 ] The consequences which followed the erroneous trust letter were caused by Kimberley.

The trust letter of January 25, 2008 should, in the first instance, have reflected the agreement regarding the lender's finance fee. That resulted in all likelihood from miscommunication between Mr. Ruggiero and his solicitors. No closing deadline was imposed. Once the Steinkes became aware of the trust letter, they had legitimate concerns. There was no recognition of the agreement by Kimberley to pay the lender's finance fee, and their other concerns (interest and the consequences of their inability to sell their home) were not addressed. [ 44 ] Mr. Steinke immediately communicated with Mr.

Garvin and expressed his concerns. Despite that, a default notice was sent to the Steinkes relating to the outstanding December 1 payment. Undoubtedly, Kimberley was entitled to reinstate time of the essence into the transaction. It had never waived that deadline. Whether seven days' notice was reasonable in the circumstances does not need to be determined. [ 45 ] As noted by Judge Haymour, the matter might have been decided differently had Kimberley instructed its solicitor to revise the trust letter to recognize their obligation to pay the lender's finance fee.

The trust letter would then have been in accordance with the binding agreements between the parties. The Steinkes would have had to have been given a reasonable time to complete in accordance with the corrected trust letter, and the default notice would have had to have been withdrawn. [ 46 ] Neither of those events occurred. Thus the Steinkes were entitled to treat Kimberley as being in default of its obligations, and accept Kimberley's default notice as a repudiation. The trial judge's decision in this regard is consistent with Ridge View Developments & Holdings Co. v. Howell , [1987] A.J.

No. 559 (C.A.) . [ 47 ] I find no error in the trial judge's determination of the consequences of Kimberley's default or in his assessment of damages. Conclusion [ 48 ] The trial judge's decision as to the formation of a valid collateral contract was correct. His determination that Kimberley was in default of its obligations to the Steinkes was also correct. The appeal is dismissed, with costs.

Heard on the 11 th day of October, 2012. Dated at the City of Edmonton, Alberta this 15 th day of November, 2012. Robert A. Graesser J.C.Q.B.A. Appearances: Malkit S. Atwal Duncan & Craig LLP for the Appellant Murray L. Engelking Engelking Wood for the Respondents