Frequent readers of this blog will recall a post from September of this year where we wrote about an interesting case from the B.C. Supreme Court in which a defaulter under a purchase and sale agreement involving certain real property was able to avoid a claim for damages. The court had found that the vendor did not properly mitigate her damages thereby relieving the defaulting purchaser of any consequences for her failure to close the transaction. In a falling real estate market, after the purchaser’s breach of contract, the vendor resold her property rather quickly at a significant loss which she then sought to recover from the purchaser.
In a decision released on October 28, 2010, the B.C. Court of Appeal allowed the vendor’s appeal. In so doing, the court held that the defaulting purchaser was liable to pay the difference between the original contract price and the price at which the vendor eventually was able to resell the property. The court appeared to be influenced by the fact the real estate market was declining rapidly at the time of the failed transaction. The court also stated the vendor was not obliged to sell the property to the defaulting purchaser at a reduced price which had been offered to her after the default even though that offer was significantly higher than the ultimate price the vendor obtained. The court further confirmed that the onus was on the purchaser to prove the vendor had failed to mitigate her losses which, in this case, she was unable to do.
It is difficult to argue with the result in this case. By selling the property when she did, the vendor perhaps avoided an even larger loss which could have been laid at the feet of the defaulting purchaser. Given the evidence of the falling market that was before the court, the price the vendor obtained was likely within the range of a reasonable market value at that time. The defaulting purchaser was presumably acutely aware of the state of the market at the time of the default (thus her subsequent offer at a reduced price) and therefore ought to have been aware that the vendor could suffer significant damages if the contract was breached. The likely lesson from this case is yet further confirmation that an aggrieved vendor must take reasonable steps to avoid all losses arising from a breach of contract by a purchaser, but the reasonableness of any such steps will be determined in all the circumstances. It just so happened that the prevailing circumstance on these facts was the falling real estate market. Mind you, without a falling market, there may not have been a breach in the first place.