Harter v. Longhorn Ventures Inc., 2013 ABQB 491

Court of Queen ’ s Bench of Alberta Citation: Harter v. Longhorn Ventures Inc., 2013 ABQB 491 Date: 20130828 Docket: 0803 12182 Registry: Edmonton Between: Alvin Adam Harter Plaintiff - and - Longhorn Ventures Inc. Defendant _______________________________________________________ Memorandum of Decision of R. Wacowich, Master in Chambers _______________________________________________________ [ 1 ] The Applicant Longhorn Ventures Inc. ( “ Longhorn ” ) seeks relief from forfeiture of payments made by it to the Respondent, Alvin Adam Harter ( “ Harter ” ) pursuant to an Agreement for Sale dated July 6, 2007.

Pursuant to the agreement Longhorn agreed to purchase for the purposes of redevelopment the Respondent ’ s farm located near Sherwood Park, Alberta. The parcel contains 150.86 acres of vacant farmland. [ 2 ] The Agreement for Sale states that the Purchase Price is $2,958,038.74 and Longhorn agreed to pay:

a. $150,000.00 by way of Deposit; b. The sum of $1,000,000.00 towards the Purchase Price on or before July 5, 2007; and, c. $1,808,038.74 (the “ purchase Price Balance ” ), plus a penalty fee of $120,000.00 on or before June 29, 2008. [ 3 ] Longhorn paid Harter the $150,000.00 deposit and the sum of $1,000,000.00 towards the Purchase Price but subsequently defaulted on payment of the Purchase Price Balance. [ 4 ] The Agreement states: 17.

If the Purchaser fails to fulfill and carry out in their entirety such covenants, provisions, terms, conditions or stipulations, and if any such default shall continue for Thirty (30) days after written notice is given to the Purchaser by or on behalf of the Vendor of the default and of the Vendor ’ s intention to therefore cancel this Agreement, then at the expiration of such Thirty (30) days, this agreement shall, without further notice, become void and at an end, and all rights and interests hereby created or then existing in favour of the Purchaser shall thereupon cease and determine, and the Lands shall revert to and revest in the Vendor free from all claims or interest of the Purchaser or of any person claiming by, through or under him, all without further declaration of forfeiture, notice or act of re-entry and without any other act by the Vendor to be performed and without bringing or taking any suit or legal proceedings and without any right on the part of the Purchaser for any compensation for monies paid or for any other act or thing, and the Purchaser shall and will forthwith deliver up to the Vendor quiet and peaceable possession of the Lands. 18 ...... (

e) The whole of any unpaid Principal shall, at the option of the Vendor, become due and payable. (

f) At the Vendor ’ s option the Purchaser shall be deemed to have deliberately repudiated this Agreement and unqualifiedly abandoned the same and the Vendor shall, at the Vendor ’ s option be entitled to terminate this Agreement and retain all monies paid hereunder. 19.

In any event, in the event the Purchaser is in default of payment in full by June 29 th , 2008, it is hereby agreed by both the Purchaser and the Vendor that the Purchaser has forfeited all rights and monies paid to date .... (emphasis added) [ 5 ] Harter filed an Originating Notice on August 29, 2008, returnable on September 16, 2008 in morning chambers for a declaration that he be entitled to retain all the monies paid by the Applicant with regard to the sale of the Lands as liquidated damages - among other relief. [ 6 ] On September 19, 2008 Harter adjourned the Hearing and extended the closing date for 3 months to December 1, 2008 for a $10,000.00 payment each month, which Longhorn paid. [ 7 ] On November 27, 2008 Harter adjourned the Hearing and extended the closing date for 2 months to March 2, 2009 for a $12,000.00 payment each month, which Longhorn paid. [ 8 ] On March 10, 2009 Harter adjourned the Hearing and extended the closing date for 9 months to November 30, 2009 for a $11,500.00 payment each month, which Longhorn paid including legal costs on March 24, 2009.

[ 9 ] Harter adjourned the hearing and extended the closing date for 11 months to October, 2010 for a $11,500.00 payment each month, which Longhorn paid, and a further sum of $2,326.96 paid for Harter ’ s Legal costs on December 10, 2009. [ 10 ] On October 1, 2010 Harter adjourned the hearing and extended the closing date for 6 months to June 1, 2011 for a $12,000.00 payment each month which Longhorn paid, plus $1,000.00 of legal fees. [ 11 ] On December 3, 2010 Longhorn paid the legal fees of $1,000.00 to the Harter ’ s solicitor. [ 12 ] To date, Longhorn has paid a $150,000.00 deposit, $1,000,000.00 towards the Purchase Price, plus an additional $392,000.00 in payments for a total of $1,542,000.00, plus $3,326.96 of Harter ’ s costs to date. [ 13 ] Longhorn ’ s Affidavit of Value and Valuator ’ s Report of Anthony Dungale, sworn October 12, 2011 contains an appraisal that states that as of July 15, 2011, the Market Value of the Lands is $3,545,000.00. [ 14 ] That appraisal used comparable sales from 2010 and current July 2011 listed but unsold properties.

It shows there were no 2011 sales of similar properties. In my view, using unsold properties distorts the valuation of the property. Reference should be made only to sold properties of a similar nature. The last recommended listing price by the Applicant ’ s realtor was $3,250,000.00 and by the Respondent ’ s realtor was $2,490,000.00. [ 15 ] The Respondent has obtained a more current appraisal. As of November 19, 2012, the appraised market value of the Property was $1,180,000.00, with a forced sale value of $1,000,000.00. This appraisal is based upon sales of similar properties to August 7, 2012.

It properly ignores similar properties listed but not sold. [ 16 ] Pursuant to various Orders, the Property was listed for judicial sale twice, first for 90 days at the price of $3,345,000.00 with Respondent ’ s realtor, and then for 120 days at the price of $3,500,000.00 with the Applicant ’ s realtor. No offers were received in either instance or at any time. [ 17 ] By Order granted myself on October 19, 2012 and filed November 15, 2012, the Agreement was determined, with the question of whether the Applicant is entitled to relief from forfeiture adjourned a hearing before the Court which is this hearing.

Issue Is the Applicant entitled to relief from forfeiture? [ 18 ]

Section 10 of the Judicature Act , RSA 2000, c J-2, states that “ the Court has power to relief against all penalties and forfeitures and, in granting relief, to impose any terms as to costs, expenses, damages, compensation and all other matters that the Court sees fit. ” This legislation allows the Court the authority to grant relief against forfeiture. [ 19 ] Digger Excavating

(1983) Ltd. v. Bowlen, 2001 ABCA 214 , [2001] A.W.L.D. 555 at para. 35 , states that “ the loss of the deposit, the loss of purchase moneys [and the loss of the monthly extension payments] can be characterized in law as a penalty [and therefore,] subject to relief from forfeiture ” pursuant to s. 10 of the Judicature Act . [ 20 ] National Bank of Canada v.

Merit Energy Ltd. , 2001 CarswellAlta 1038 , 2001 ABQB 680 , 294 A.R. 36 , at para. 32-33 states that: “ The enforceability of this provision .... will ultimately depend upon its classification as either a valid pre-estimation of damages or an unenforceable penalty imposed in terrorem. A clause that represents a genuine pre-estimate of damages (a “ liquidated damages ” clause)

aims to avert the difficulty in assessing damages .... [by encompassing] only those events which would most likely happen and, in turn,cause damage, and not those events which represented only a remote possibility of occurring. In contrast, a penalty clause does notattempt to pre-estimate damages. Rather, it serves as a threat to encourage compliance with the contract. In determining if [the clause] is a penalty clause or a liquidated damages clause, the key is whether the provision is unconscionable oroppressive, given the entire circumstances of the case.

The relevant considerations are those which occurred at the time of the breach. Ifthe factors of this particular case reveal that the provision is oppressive or unconscionable, it is a penalty clause and will not beenforceable.” [21] In the case of Digger Excavating, supra, at para. 35-36, the Court provides clarification as to when a party is entitled to relieffrom forfeiture: “Where the loss of the deposit or the loss of purchase moneys can be characterized in law as a penalty, the loss may be subject to relieffrom forfeiture ...

The requirements for establishing that a party is entitled to relief from forfeiture are, generally, that the sum is out of allproportion to the damage suffered i.e. a penalty; and second, that it would be unconscionable for the vendor to retain the money:Stockloser v. Johnson, [1954] 1 Q.B. 476 (Eng. C.A.), at 490; British Columbia Development Corp. v. NAB Holdings Ltd. (1986), (BC CA), 30 D.L.R. (4th) 560 (B.C.

C.A.), at 572. [22] Digger Excavating at para. 33 states that a forfeiture of deposit provision is “described as compensation to the vendor for theproperty being off the market and for the loss of bargaining power incident upon disclosing the price at which the vendor would bewilling to sell .... [and] is generally not considered a penalty”. [23] The key to the issue of forfeiture is to a large extent dependant on the current value of the land. There is a considerabledifference between the appraisal of Longhorn and the appraisal of Harter. As indicated, the Appraisal of Mr.

Chopko for Harterdetermines the property to be worth $1,180,000.00. On the other hand the Affidavit of Mr. Dungale, Longhorn’s appraiser, values theproperty $3,470,000.00. [24] The law with respect to relief from forfeiture is well established. The courts are loathe to alter the terms allowing forfeiture ina contract voluntarily entered into by the parties. The courts will only grant relief from forfeiture where certain conditions are met,namely that: (

a) the funds in question are in nature of a penalty rather than liquidated damages, i.e., a genuine pre-estimate of damages;and (

b) more importantly, that forfeiture is unconscionable. [25] As part of that analysis, it is well established in law that if the value of the property sold has decreased, it cannot beunconscionable for the vendor to retain the funds forfeited. [26] Accordingly, the evidence of the value of the property is of significant importance. The Chopko valuation [27] Longhorn offers substantial argument, but little evidence, in urging this Court not to accept Mr. Chopko's valuation of theproperty. [28] At his Questioning on Affidavit on January 16, 2013, Mr.

Chopko produced additional evidence of the recent sale of acomparable property, which had occurred on January 3, 2013, after his Affidavit of Value was completed. [29] Mr. Chopko indicated that this property recently sold was very similar to the subject property and "the closest of all thecomparables", noting that:

a) it was within the same County and within half a mile of the subject property;

b) it had the same zoning as the subject property;

c) it was exactly the same as the subject property with respect to water and sewage;

d) it had similar long-term future development potential to the subject property; and

e) it was the same distance from Sherwood Park as the subject property. [ 30 ] The value of this recent sale supports Mr. Chopko's conclusions as to the value of the property. The best and most up-to-date evidence before this Court as to the value of the property is that of Mr. Chopko. The Applicant's proposed valuation [ 31 ] Longhorn's appraisal relies on old sales of listed but unsold properties. Mr.

Chopko's more recent evidence of comparable property values now stands unanswered. [ 32 ] Longhorn's position as to the value of the property has already been put to the test in the marketplace: the property has been listed for judicial sale twice, with two different realtors, once for 90 days at $3,450,000 and once for 120 days at $3,500,000. In neither case was a single offer received. The true value of a property is determined by what will be paid for it.

In my view, the Chopko comparable of the sale on January 3, 2013 is the best evidence as to the value of this property. [ 33 ] Longhorn having now been given ample opportunity to prove its position as to the value of the property both in the marketplace and through additional evidence, and having failed to do so, the only possible conclusion is that the property has considerably decreased in value since the time of the contract at issue. [ 34 ] By operation of law it cannot be unconscionable to permit Harter to retain the forfeited funds, and Longhorn's application must be dismissed. [ 35 ] In Digger Excavating at para. 37 relief from forfeiture regarding the deposit paid was denied because the deposit in that case was not out of all proportion to the damages suffered as it only represented a mere 1.75% of the total purchase price. [ 36 ] However, the fac ts at hand can be differentiated from that of Digger Excavating v.

Bowlen . The $150,000.00 deposit paid by Longhorn represents 5% of the total purchase price. Longhorn submits that the 5% deposit paid is substantially more than the 1.75% in Digger Excavati ng . Further, based on the Affidavit of Scott MacMillian and the Affidavit of Value and Valuator's Report of Anthony Dungale, there can be said to be substantial appreciation of the lands, or at the very least, the lands have maintained its value with regar d to the Purchase Price. Accordingly, the sum paid is out of all proportion to the damages suffered which they say is nil based on the Dungale appraisal.

Therefore, relief from forfeiture of the $150,000 should be granted. As indicated, the Dungale appraisal cannot be relied on. Its two main supporting properties are non-arms length sales which cannot be relied on. The best property comparison is Chopko ’ s January 3, 2013 sale. [ 37 ] In the case of MacDonald and MacDonald v. Paterson Park Ltd. [1983] A.J. No.897 ; 42 A.R. 272 , Master Funduk dealt with an application for

summary judgment in a case similar to this matter. Master Funduk made the following observations:

26 In this case, the issue can be dealt with by jumping directly to the second test enunciated by McDermid, J.A., in Popky v. WesternSavings & Loan Association (1969), (AB CA), 67 W.W.R. (N.S.) 684; 3 D.L.R. (3d) 511, which is referred to in bothCoronado Developments Ltd. and World Land Ltd., (AB KB), 24 Alta. L.R. (2d) 34. The test is whether it would beunconscionable for the vendor to retain the purchase money. For the purpose of this application it is necessary to decide whether it ispossible that the retention of the purchase money may be unconscionable.

If it is possible, then the defendant’s claim for relief fromforfeiture of all or part of the purchase money should not be dealt with summarily. 27 The question above posed could be answered by comparing what the plaintiffs would have received if the defendant hadperformed all its obligations under the agreement with what the plaintiffs will receive if they are allowed to both retain all the purchasemoney paid and get the land back.

If what the plaintiff “receive”, in economic terms, by retaining the purchase money and getting theland back does not exceed what they would have received, in economic terms, if the defendant had fully performed its obligation, it isnot possible to say that it may be unconscionable for the plaintiffs to retain the purchase money. 39 In Coronado Developments Ltd., Cawsey, J., refers to Di Castri, The Law of Vendor & Purchaser (2nd Ed.), and quotes thefollowing from p. 604: [page279] The relief granted is not necessarily the return of all monies paid, and the vendor is entitled to such damage as he has sustained becauseof the purchaser default and if he can be so compensated that is enough to justify the remedy.

I believe it implicit that Cawsey, J., is stating the position of the vendor in economic terms must be looked at. If the purchase moneypaid and the present value of the land exceed what the vendor would have received if the purchaser had fully performed, the excess or"windfall" might be subject wholly or partially to relief from forfeiture. 40 However, the converse is that if there is no excess or windfall there cannot be a case for relief from forfeiture of the purchasemoney. To do so would be to inflict damage on the vendor.

If the purchase money paid and the present value of the land are less thanwhat the vendor would have received had the purchaser fully performed, then to grant relief from forfeiture of any part of the purchaseprice would be to increase the vendor’s damage. 41 The agreement in question was made in July, 1980. The defendant agreed to pay $575,000.00 for the land. At that time thedefendant must have been of the view that was the value of the land. The present market value of the land is $277,000.00. The appraisersreport tells the story. 42 The land is about 980 acres of vacant agricultural land.

It is about 28 kilometres west of Bonnyville, Alberta. The time ofpurchase, the nature of the land and its location immediately tell the story to anyone in this province who has been conscious the lastthree years. It can be summed up in one word - speculation. It is the same story as in Coronado Developments Ltd. [38] Master Funduk also makes an observation which came to my mind in reviewing the submissions of counsel in this matter. Hestates at para. 45: 45 If the defendant's expectations had come to fruition, would it have shared its profit with the plaintiffs.

If the defendant had made aprofit and the plaintiffs had asked for a share of it, what would the likely response of the defendant have been? Why should the plaintiffsbe now required to share part or any of the defendants loss? The purchase money paid is a loss to the defendant in the truest sense, notbecause of its forfeiture but because the present value of the land is less that what would still be owed. In other words, where there is noexcess or windfall what is already paid is a true loss.

If the defendant was to get back any part of what it has already paid it would be ....requiring the plaintiffs to share part of the defendant’s loss. The plaintiffs should not be made unwilling partners to share the defendantsloss. [39] In this case the vendor Mr. Harter had his property unavailable for sale from 2007 to 2012. In that time the land decreasedconsiderably. The Master’s Court consistently and frequently deals with property values given its responsibility in foreclosure matters.This land was purchased at a time when the real estate market was high in value and subsequently the prices dropped.

This land waspurchased with the intent of subdivision and there has been no movement in surrounding properties for subdivision including bringing in

various utilities. The vendor has clearly suffered a loss and it is clear in my mind that this is not a situation where there should be relief from forfeiture. The land was purchased for redevelopment purposes and unfortunately for the purchaser no redevelopment was possible. Additionally the interest for the property was at zero percent interest. Longhorn was a developer attempting to capitalize on a 2007 rising realty market. [ 40 ] Mr.

Harter deposes in an Affidavit of November 23, 2012 as follows: During the past 5 years, I have been responsible for the upkeep, maintenance and taxes associated with the Property, as well as the expenses for readying the Property for transfer and associated with the Applicant's breach of the Agreement, details of which include but are not limited to the following:

a) To facilitate the sale to the Applicant, in 2006 I expended $18,000.00 to conduct a land survey of and re-zone part of the Property;

b) The said re-zoning resulted in a significant increase in the annual property taxes which I have continued to pay in accordance with the Agreement. Since 2007 I have paid $30,537.12 in property taxes;

c) I paid 3% commission to the realtors involved in the transaction, which amounted to approximately $88,700.00;

d) Income Taxes were assessed by the Canada Revenue Agency against me on the whole of the purchase price under the Agreement, notwithstanding that I did not receive the full of the purchase price as a result I have paid $522,019.00 on the sale plus $153,660.00 on the extension fees for a total of $675,6749.00; and

e) Since the Applicant's breach of the Agreement, I have incurred legal and professional fees of no less than $14,932.00. [ 41 ] Longhorn asserts that the $150,000.00 deposit should be returned. As indicated, the developer Longhorn freely entered into this agreement and relief from forfeiture will not be granted. The same applies to the $352,000.00 that Longhorn freely entered into in extending the life of the Agreement for Sale.

Further, the $1,000,000.00 was an amount that the developer Longhorn freely entered into and for all of the reasons enunciated above there is no reason to relieve from forfeiture. [ 42 ] Had it been necessary to refer the second part of the test, that being the unconscionability, I do not see anything unconscionable about this transaction. [ 43 ] Counsel for Harter brought to my attention the case of Brennenstuhl Estate v. Trynchy , 2007 CarswellAlta 1591 , 2007 ABQB 703 , 63 R.P.R. (4 th ) 55 , 37 E.T.R. (3d) 71 , 84 Alta. L.R. (4 th ) 265 , [2008] A.W.L.D. 726 , [2008] A.W.L.D. 753 , [2008] 5 W.W.R. 549 .

Graesser, J. states that: 110 The Alberta Court of Appeal in Cain v. Clarica Life Insurance Co. , [2005] A.J. No. 1743 (Alta. C.A.) set out the following 4- pronged test for unconscionability: (1) a grossly unfair and improvident transaction; (2) the victim ’ s lack of independent legal advice or other suitable advice; (3) an overwhelming imbalance in bargaining power caused by victim ’ s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and

(4) the other party’s knowingly taking advantage of this vulnerability. 111 Those tests were recently repeated by the Alberta Court of Appeal in Cope v. Hill, 2007 ABCA 32 , [2007] A.J. No. 83(Alta. C.A.) and at paragraph 21 the Court reiterated that these tests are sequential and each element must be established. 131 In any event, the Estate has satisfied the test of showing an overwhelming imbalance in bargaining power. Further, Black’s Dictionary, Fifth Edition, West Publishing Co., 1979, states as follows: Unsconscionability.

Basic test of “unconscionability” of contract is whether under circumstances existing at time of making of contractand in light of general commercial background and commercial needs of particular trade or case, clauses involved are so one-sided as tooppress or unfairly surprise party. Division of Triple T Service, Inc. v. Mobil Oil Corp., 60 Misc. 2d 720, 304 NJ.Y.S. 2d 191, 201.Unconscionability is generally recognized to include an absence of meaningful choice on the part of one of the parties, to a contracttogether with contract terms which are unreasonably favorable to the other party. Gordong v.

Crown Central Petroleum Corp., D.C.Ga.,423 F.Supp. 58,61 Typically the cases in which unconscionability is found involves gross overall one-sidedness or gross one-sidedness of a termdisclaiming a warranty, limiting damages, or granting procedural advantages. In these cases one-sidedness is often coupled with the factthat the imbalance is buried in small print and often couched in language unintelligible to even a person of moderate education. Often theseller deals with a particularly susceptible clientele. Kugler v. Romain, 58 N.J. 279 A, 2d 640. Unconscionable bargain.

An unconscionable bargain or contract is one which no man in his senses, not under delusion, would make, onthe one hand, and which no fair and honest man would accept, on the other. [44] There is nothing unconscionable about this transaction. Longhorn purchased the property when the market was high hopingthat it would be able to obtain the necessary utilities and authorizations to subdivide the property for its profit. The fact that it failed in itsproject does not mean that the Agreement for Sale was unconscionable.

It was not. [45] The Application for relief from forfeiture is dismissed with costs to the Respondent, Mr. Harter. Heard on the 20th day of August, 2013. Dated at the City of Edmonton, Alberta this 28th day of August, 2013. R. Wacowich M.C.C.Q.B.A.

Appearances: Robert Bishop, Q.C. Nigel Forster Bishop & McKenzie LLP for the Plaintiff/Respondent Robert Hladun, Q.C,. Hladun & Company for the Defendant/Applicant