What Happens In a Situation Where a Sophisticated Real Estate Seller Imposes Harsh Terms Within a Contract?

Contracts Containing Harsh One-Sided Terms In Favour of a Seller, Where the Seller Offered the Contract On a Take It or Leave It Basis Without Genuine Opportunity to Negotiate and Without the Seller Pointing Out the Harsh One-Sided Terms, Are Often Unenforceable As a Contract of Adhesion.

Understanding the Concerns For Whether An Agreement of Purchase and Sale Is An Unenforceable Contract of Adhesion

Seller of Realty With Standard Contract Document Within the common law, meaning actual case decisions made by judges, there is contract law principle whereby courts should hesitate to enforce harsh terms upon the weaker party in a contract using a standard form referred to as a contract of adhesion unless the stronger party brought special attention to the harsh terms.

The Law

Realty dealings commonly use prepared forms, such as an Agreement of Purchase and Sale, whereupon many terms are pre-printed.  Additionally, builders of residential properties may, and often do, use prepared forms that contain terms that are pre-printed, rather than negotiated through a genuine back-and-forth bargaining process.; and accordingly, such terms are, or may be perceived, as unnegotiable.  Generally, a contract entered into where the stronger party, meaning more legally sophisticated or in some position of a stronger footing in the deal, tables a contract document containing pre-printed terms, the contract is known as a contract of adhesion.  The concept of, and principles applying to, a contract of adhesion were well explained in the case of in Tilden Rent-A-Car Co. v. Clendenning, 1978 CanLII 1446 wherein it was said:

In modern commercial practice, many standard form printed documents are signed without being read or understood.  In many cases the parties seeking to rely on the terms of the contract know or ought to know that the signature of a party to the contract does not represent the true intention of the signer, and that the party signing is unaware of the stringent and onerous provisions which the standard form contains.  Under such circumstances, I am of the opinion that the party seeking to rely on such terms should not be able to do so in the absence of first having taken reasonable measures to draw such terms to the attention of the other party, and, in the absence of such reasonable measures, it is not necessary for the party denying knowledge of such terms to prove either fraud, misrepresentation or non est factum.

In the case at bar, Tilden Rent-A-Car took no steps to alert Mr. Clendenning to the onerous provisions in the standard form of contract presented by it.  The clerk could not help but have known that Mr. Clendenning had not in fact read the contract before signing it.  Indeed the form of the contract itself with the important provisions on the reverse side and in very small type would discourage even the most cautious customer from endeavouring to read and understand it.  Mr. Clendenning was in fact unaware of the exempting provisions.  Under such circumstances, it was not open to Tilden Rent-A-Car to rely on those clauses, and it was not incumbent on Mr. Clendenning to establish fraud, misrepresentation or non est factum.  Having paid the premium, he was not liable for any damage to the vehicle while being driven by him.

As Lord Denning stated in Neuchatel Asphalte Co. Ltd. v. Barnett, [1957] 1 W.L.R. 356 at p. 360: "We do not allow printed forms to be made a trap for the unwary."

At first glance, it would seem that many standard real estate forms, especially where an agent is uninvolved, such as where purchasers are dealing directly with a builder, would meet the criteria of a contract of adhesion; however, in the case of Rosehaven Homes et al. v. Aluko et al., 2022 ONSC 1227, the court stated:

[39]  In dealing with the submission of contract of adhesion, I am not persuaded by this argument.

[40]  In SR Petroleum Sales Ltd. v. Cdn. Turbo[6], the Court was concerned whether a lease agreement was a contract of adhesion. In that case, the lease agreement was a “take it or leave it” contract. The Court described a contract of adhesion as follows:

[33]  The expression "contract of adhesion" has been used by the Supreme Court of Canada, by Lord Diplock, and by the American courts; in Canada, it is more familiar to civilians in Quebec than to common law lawyers in the rest of Canada. The term has been explained in Brissette Estate:

The American courts have reasoned that insurance policies are contracts of 'adhesion' and therefore ambiguities contained in them should be resolved in favour of the insured. A contract of 'adhesion' has been defined as a written contract with the following characteristics:

1.  drafted by one party to the transaction;

2.  on a form regularly used by the drafter;

3.  presented to the adherent on a take-it-or-leave-it basis;

4.  one in which the adherent enters into relatively few such transactions as compared with the drafting party;

5.  one in which the principal obligation of the adherent is the payment of money.

[41]  The Court in SR Petroleum Sales Ltd. further stated at paragraph 34:

[34]  The effect of designating a contract as a contract of adhesion is that the contract will be interpreted strictly against the dominant party. This is, of course, a slightly different notion than that of "contra proferentum". Ambiguity or no, this contract will be interpreted strictly against Turbo because it is a contract of adhesion….

[42]  The defendants argue that whether there is an ambiguity in the APS or not, the APS is a contract of adhesion and all its terms must be interpreted strictly against the Plaintiff.

[43]  The defendants argue that paragraph 7 of the APS, ‘Breach of Contract’, should be strictly construed against the Plaintiff and the Plaintiff is limited to only the amount of deposits and upgrades paid as damages. Paragraph 7 reads:

a)  Any breach by the Purchaser of any of the provisions (including but not limited to non-payment of deposits as per agreed upon schedule, non-payment of extras/upgrades contracted for by the Purchaser and NSF cheques) of this Agreement shall entitle the Vendor, in addition to any rights or remedies that the Vendor may have in law or otherwise, to give notice to the Purchaser declaring this Agreement  void, whereupon all deposit monies paid hereunder, and any monies paid for extras, shall be forfeited to the Vendor as liquidated damages and not as a penalty.

[44]  In interpreting a contract, the Court must review the whole of the Agreement. The Court must examine the ordinary meaning of the wording to determine if the wording is clear and ambiguous. There is no reason to go outside the terms of the Agreement. If the terms are not clear and unambiguous, the Court may go outside the terms of the Agreement to ascertain the intention of the signatories to the Agreement and the meaning of provisions in the Agreement.

[45]  Justice Doherty in Glimmer Resources Inc. v. Exall[7] states at paragraphs 16 and 17:

16. When interpreting the provisions of a written contract, the court must look first at the language used in that contract. If the language reveals no ambiguity, there is no need to go outside of the agreement for assistance in the interpretive exercise. As Iacobucci J. recently said in Eli Lilly and Co. v. Novopharm Ltd. 1998 CanLII 791 (SCC), 161 D.L.R. (4th) 1 at 27:

The contractual intent of the parties is to be determined by reference to the words they used in drafting the document, possibly read in light of the surrounding circumstances which were prevalent at the time. Evidence of one party's subjective intention has no independent place in this determination.

[46]  The Supreme Court of Canada in British Columbia Hydro and Power Authority v. BG Checo International Ltd[8], a case concerning contract interpretations, sets out the general principles of contract interpretation as follows:

It is a cardinal rule of the construction of contracts that the various parts of the contract are to be interpreted in the context of the intentions of the parties as evident from the contract as a whole. (Citation omitted) Where there are apparent inconsistencies between different terms of a contract, the court should attempt to find an interpretation which can reasonably give meaning to each of the terms in question. Only if an interpretation giving reasonable consistency to the terms in question cannot be found will the court rule one clause or the other ineffective. (Citation omitted) In this process, the terms will, if reasonably possible, be reconciled by construing one term as a qualification of the other term. (Citation omitted) A frequent result of this kind of analysis will be that general terms of a contract will be seen to be qualified by specific terms - or, to put it another way, where there is apparent conflict between a general term and a specific term, the terms may be reconciled by taking the parties to have intended the scope of the general term to not extend to the subject-matter of the specific term.

[47]  Paragraph 9(a) in Schedule X indicates that the Plaintiff shall have the right to recover all additional losses and damages arising out of a default on the part of the Purchaser pursuant to any provision contained in the APS.

[48]  In reviewing the APS as a whole, and in particular paragraphs 7(a) and 9(a) in Schedule X, the wording and intention is clear. Without determining whether the APS is a contract of adhesion, I determine that even if the paragraph should be strictly interpreted, it is clear to me that the paragraph in question permits the Plaintiff to seek damages over and above the amounts paid by the defendants in deposits and /or the upgrades. The Plaintiff is not so limited as argued by the defendants. The wording “in addition to any rights or remedies that the Vendor may have in law or otherwise” in paragraph 7(a) and right to recover all damages arising from a default in paragraph 9(a), I interpret as providing the Plaintiff with the right, if it so desires, to seek damages for breach of contract over and above the amount of the deposits and extras paid by the defendants. In addition, the issue of forfeiture of the deposits is not a live one in this proceeding. The Plaintiff has not sought forfeiture of the deposits and amount paid for the upgrades as relief claimed in its motion.

[49]  I do not accept this contention by the defendants and conclude that the terms of the APS are clear and in particular paragraph 7(a) quoted above. The Plaintiff may claim for damages over and above the amounts paid by the defendants in deposits and upgrades.

Interestingly, in Rosehaven Homes, at paragraph 39, the court stated, "In dealing with the submission of contract of adhesion ..." and then at paragraph 48, after reviewing case law on what constitutes as a contract of adhesion, the court stated, "... Without determining whether the APS is a contract of adhesion ..." and thereby, apparently, leaving the issue unanswered.  Whether this apparent unanswered question will become the subject of an Appeal is currently unknown.

"We do not allow printed forms to be made a trap for the unwary."
~ Lord Denning

Summary Comment

Standard form realty transaction documents, such as an Agreement of Purchase and Sale, when presented on a take it or leave it basis without a true bargaining of the terms, and especially when presented by a builder or other sophisticated seller of realty and to unrepresented buyers while attending the showroom of the builder, appear as contracts of adhesion; however, and despite the Rosehaven Homes case purporting to address the issue, the question of whether an Agreement of Purchase of Sale qualifies as a contract of adhesion seems unanswered.

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