Prospective home buyers should know that if they walk away from a contract to purchase, they could be liable to the seller for the difference between what was in the contract and a lower price that the house subsequently sold for.
A Calgary couple faced that situation in a case reported in Giustini v Workman, 2021 ABCA 65. A couple named Workman had been renting a house from a couple named Giustini for an unspecified period before entering into a residential real estate contract with them. Mr. Guistini owned a residential home construction company called Canterra Custom Homes which had built the house.
On November 30, 2012, the Giustinis accepted the Workmans offer to buy the home for $1,150,000. The closing date was set for one year hence, November 30, 2013. The Workmans paid a $35,000 purchase price deposit, a damage deposit for their lease of $5,250, and a deposit to Enmax for a total cost of $40,674. The decision did not say whether this was a rent-to-own arrangement.
However, on October 30, 2013, the Workmans said they could not complete the deal because they were unable to assume a First Calgary Financial mortgage the Giustinis had registered against the title. Furthermore, the Workmans were unable to arrange any other financing to pay out that existing mortgage. They subsequently moved out the same day, though they paid the rent and other related costs for November. The Giustinis then relisted their home for $1,240,000 on November 22, 2013, where it remained on the market until being sold on April 14, 2014, for $1,090,000. Subsequently, the Giustinis sued the Workmans for $124,147.91, which represented the $60,000 difference between the contracted purchase price with the Workmans and the final sale price; the listing realtor’s commission of $17,500; and $46,647.91 in carrying costs, i.e., utilities, mortgage payments, insurance, and property taxes. Then, in an amended claim, Mr. Giustini’s company Canterra was added as a party because it had been making the mortgage payments to First Calgary. The Workmans’ defense centred on an allegation that the residential purchase contract was not enforceable because it was the last step in a mortgage fraud against First Calgary that was engineered by the Giustinis and Canterra.
The matter was first heard by a Master in Chambers. A Master is a lawyer appointed to hear civil cases involving procedural matters where there is not a substantial dispute over facts; they have a limited range of jurisdiction that is less than that of a judge. The Master dismissed the Giustinis’ claim and ordered them to return the security deposit and the deposit on the purchase price to the Workmans’, which represented $40,250 plus costs. The Giustinis appealed. A Queen’s Bench Justice reversed the Master’s decision, allowing the Giustinis claim for $60,000 but also allowing the Workmans claim for $40,250 which was set off against the Giustinis claim, netting them $19,250. The Canterra claim was dismissed. The Workmans appealed to the Alberta Court of Appeal seeking to have the Giustinis’ $60,000 judgment set aside. The appeal court upheld the Queen’s Bench decision, with a minor adjustment recognizing the Workmans’ Enmax deposit must also be factored in.
The Court of Appeal noted that the parties had acknowledged from the get-go the facts were not in dispute. Canterra, a residential construction company of which Mr. Giustini was the principal, had built the house at issue. Construction was financed by a mortgage with the Werklund Capital Corporation; in early 2009, the Alberta Treasury Branch Financial did a financial appraisal of the house assigning it a market value of $1.6 million. Canterra subsequently transferred the property to the Giustinis as a joint tenancy occupancy with the purported reason being the Giustinis could get better terms on a residential mortgage than the company could get from its financiers.
The Affidavit of Value on the transfer named the sale price of $1,640,000. First Calgary advanced mortgage funding of $1.2 million, with Canterra providing its guarantee for the loan. From the mortgage proceeds, the Giustinis paid out the Werklund mortgage and retained $10,661.95 after expenses. The Giustinis were left owing $440,000 to Canterra; there was no evidence led that the amount was ever repaid. The Giustinis never lived in the house and Canterra continued to pay the mortgage payments and any associated maintenance and other costs until the house was sold in April of 2014.
In March of 2011, Mr. Giustini signed a trust declaration as trustee with regard to the property in favour of Canterra as the beneficial owner of the property. Consideration said to be paid from Canterra to Mr. Giustini for the trust declaration was $1.2 million, which Mr. Giustini said was the home’s value. However, the consideration was not actually paid by Canterra to Giustini but was recorded as a debt owed by the company to him, as sole shareholder, in the amount of $1,186,000; presumably, this was to be set off against Mr. Giustini’s debt to the company of $440,000. However, Mrs. Giustini never signed a trust declaration. Her evidence was that she was unaware of any trust made by her husband, and she believed the home was owned by them until it was eventually sold in April of 2014.
In looking at the Workmans allegation of fraud, the Court of Appeal paid deference to the lower court’s finding, alluding to the need for a resisting party like the Workmans to have led evidence of fraudulent activity rather than simply putting it out there in hopes that a better record could be established at trial. The Queen’s Bench judge in looking at the relationship and dealings between Mr. Giustini and his company acknowledged that although they could give rise to a suspicion of improper conduct, there was no evidence to support an allegation of fraud on the balance of probabilities. At the end of the day, the Giustinis’ dealings were examples of “sloppiness of accounting and business practices.” Finally, First Calgary Financial had not suffered any loss.