The Rural Voice, 1992-04, Page 18Fgi!'I ;1 1 Il'
1
A DEAL GONE WRONG
It is the day before closing and
you receive a telephone call from
your lawyer. He tells you that that
nice couple who signed an agreement
to buy your farm can not, or will not,
close the deal. They may be looking
for an excuse not to close, grasping at
straws to avoid fulfilling their legal
obligations.
This problem is not one which is
unique to farm sales, and has been li-
tigated in our courts many times. As
land prices drop or the cost of bor-
rowing increases, the deal looks Tess
attractive. The purchaser may simply
Iosc faith in his ability to carry the
debt so he abandons the deal; how-
ever, in the meantime, you may have
made plans to use the money that was
to come to you from the sale of your
farm. What can you do about it?
Whcn a deal takes a wrong turn,
the innocent vendor must be in a po-
sition to show that he was ready, will-
ing and able to complete the transac-
tion. If he can prove that, then he has
certain remedies in law available to
him to redress this wrong.
One of the options available to a
vendor is to commence a lawsuit ask-
ing the court to require the purchaser
to live up to his end of the bargain.
This remedy is known as "specific
performance." This relief is only
practical where the purchaser has the
means to complete the deal, but for
some reason, has elected not to do so.
For example, if the purchaser suffers
an unexpected financial loss so that
he could not complete the deal even
if he wanted to, there is little point in
asking the court to force him to do so.
Accordingly, specific perform-
ance is generally used where:
1. The price was favourable to the
vendor;
2. The vendor was ready, willing
and able to close; and
3. The purchaser can do the deal.
Obviously, if the vendor wants the
court to force the purchaser to com-
plete the transaction, the vendor can-
not sell the property in the meantime.
This means that the vendor has to
hold the property until the lawsuit is
completed, which in some cases, can
take 2-3 years. Although the courts
may occasionally direct specific
performance at an early stage in the
lawsuit, this rarely happens where the
action is contested and the purchaser
is seriously seeking to avoid his
responsibilities. In that case, the
court will allow the matter to proceed
to trial. This is the biggest drawback
to an action for specific performance.
The vendor is also entitled to seek
damages from the purchaser in an
action for specific performance.
Those damages can include interest
paid on mortgages on the property,
rcpair and maintenance costs, taxes
and compensation for time and effort
in looking after the property.
Many vendors elect not to try to
hold the property to force the sale. In
that case, the vendor can elect to treat
the purchaser's refusal to close as a
breach of contract entitling the ven-
dor to damages. The contract is at an
end, and it is for the court to put the
vendor in the position he would have
been in had the purchaser fulfilled his
obligations. If the vendor elects to
pursue this option, he is required to
take reasonable steps to mitigate or
lessen his damages. Thus, the vendor
is required to re -list the property for
sale and to take reasonable steps to
sell the property for as close as
possible to the earlier contract price.
Obviously, if the property is sold for
more, the purchaser has done the
vendor an unwitting favour.
Where the property is re -sold for
less than the original contract price,
then the damages suffered by the ven-
dor will include, at a minimum, the
difference in sale prices. In addition,
the vendor may be entitled to recover
any additional legal fees incurred,
mortgage interest payments, repair
and maintenance costs, utilities costs,
etc.
Under this approach, the vendor is
also entitled to recover any additional
costs he incurs because the money
was not available when it was
supposed to be from the original deal.
For example, if the vendor enters into
an agreement to buy another piece of
property because he believes that he
will have funds from the sale of his
own property, then he may have to
obtain bridge financing to pay for the
second piece of land. The interest
payable under that mortgage, and any
mortgage broker's fees are recover-
able from the defaulting purchaser.
Similarly, if the vendor misses a busi-
ness opportunity that he would other-
wise have taken advantage of but for
the purchaser's default, he may be
entitled to recover the profit that he
would have made from that venture.
A purchaser who chooses to walk
away from a binding Agreement of
Purchase and Sale to buy a farm can,
by that simple act, cause financial
devastation to the vendor. The deci-
sion to pursue specific performance
and damages or damages alone is not
an easy one. It should be made with
input from a lawyer and a sound
understanding of the prospects for re-
sale. The vendor does not have to
roll over and take it. After all, a deal
is a deal.0
Agrilaw is a syndicated column
produced by Cohen llighley Vogel &
Dawson, a full service London law
firm. Russell Raikes, a partner in the
firm, practises in the area of
commercial litigation, including land
disputes. Agrilaw is intended to
provide information to farmers on
subjects of interest and importance.
The opinions expressed are not
intended as legal advice. Before
acting on any information contained
in Agrilaw, readers should obtain
legal advice with respect to their own
particular circumstances.
14 THE RURAL VOICE