I recently had an experience that was, for a litigator and author on contract law, very discouraging. I was acting for a sophisticated commercial entity which had entered into a contract with another sophisticated commercial entity. A dispute arose over the effect of the contract. From the perspective of contract law, the outcome was easy – even a first year contracts student could have concluded what the bargain was, how the bargain should be enforced, and would have ruled in favour of my client. However, the result was harsh to the breaching party. The judge clearly wanted to avoid that outcome, and engaged in a result-oriented analysis which rewrote the bargain to avoid the harsh result.
As a litigator, the case was a difficult one to lose. As an author on contract law who has written that the main role of a court in contractual interpretation where the parties are sophisticated is to correctly discern and enforce their bargain, the case was discouraging. Many years ago, I did a graduate program in law and encountered Critical Legal Studies professors ("Crits"), who believed (among other things) that law is indeterminate and that cases are decided on the basis of what the particular judge wants the outcome to be. I have resisted that view for nearly three decades, believing that judges decide cases based on legal principle applied in an intellectually honest manner, without engaging in result-oriented reasoning. But my case caused me to think that the Crits might be correct.
I have been tempted to write a critique of the case that I lost, but I fear that such a piece would seem like sour grapes, and I do not regard criticism of cases which are wrongly decided to be particularly constructive. I was therefore delighted to read 3 Gill Homes Inc. v. 5009796 Ontario Inc. (Kassar Homes), 2024 ONCA 6 ("3 Gill"), which did the exact opposite of the judge in my case, enforcing a contractual bargain between sophisticated parties despite the harshness of the result to the breaching party. 3 Gill also elegantly deals with a time is of the essence clause, a provision that is often misunderstood. I have therefore decided to write a comment on 3 Gill – how things should be done – and refrain from critiquing a case that only serves to show how things should not be done.
A purchaser (3 Gill Homes Inc., whose principal was a Mr. Gill) contracted to purchase a new residential home. Mr. Gill wanted it for investment purposes. The initial closing date was missed because of construction delays. The contract was then amended to provide for a closing date of January 28, 2022. The contract included a time is of the essence clause, and a provision requiring the purchase price to be paid no later than 3 pm on the closing date. That provision clearly stated that failure to pay the purchase price by 3 pm on the closing date would entitle the vendor to terminate the agreement.
Leading up to the closing date, the principal of the vendor (a Mr. Kassar) reminded Mr. Gill that funds had to be delivered by 3 pm on the closing date or the agreement would be terminated. Three days before the closing date, the vendor's lawyer delivered another reminder. One day before the closing date, Mr. Gill requested an extension of the closing by three days. The request was refused. Later that day, Mr. Kassar provided yet another reminder that funds needed to be paid by 3 pm the next day or the contract would be terminated.
The funds were delivered 35 minutes late. The vendor refused to accept them and treated the contract as terminated. The Court of Appeal for Ontario (Roberts, Sossin and Dawe JJ.A.) affirmed a decision below that had agreed with the vendor and had dismissed the purchaser's claim for damages.
3 Gill was blunt about the result of enforcing the parties' bargain. "This appeal concerns a dispute over a real estate transaction where the purchasing party missed the time stipulated for paying the funds to close the transaction by 35 minutes", noting that the outcome in favour of the vendor "was indeed harsh".
However, the bargain was clear, and the court was bound to enforce it given that there was no unconscionability or other reason to invalidate the contract. "The wording of the contract and the warnings provided by the respondent beforehand were clear." Indeed, not enforcing the agreement as drafted would be a failure to fulfil the judicial role: "It would be an unwarranted intervention into the freedom of contract for a court to alter the APS and its closing time."
3 Gill is also noteworthy for its correct treatment of the time is of the essence clause. Such clauses are often ill understood, but they have a very specific legal meaning and effect. Quoting the Court of Appeal's prior decision in Di Milllo v. 2099232 Ontario Inc., 2018 ONCA 1051 at para. 31, 3 Gill explained that: "A 'time is of the essence' clause is engaged where a time is stipulated in a contract. The phrase 'time is of the essence' means that a time limit in an agreement is essential such that breach of the time limit will permit the innocent party to terminate the contract."
One way of thinking about a time is of the essence clause is to consider the difference between law and equity. Historically, courts of law required strict performance of contracts, including time limits, while courts of equity were extremely forgiving of non-performance where there was no prejudice to the other party. When the courts of law and equity were merged in the 19th century, the rule was adopted that rules of equity prevail over rules of law. Hence equity's easy attitude to time limits became the prevailing rule. A time is of the essence clause restores the position in law, and requires strict performance of time limits even where a court of equity would be forgiving. That is of course exactly the situation in 3 Gill: the parties bargained for strict enforcement of time limits, so that is what they got – even if it meant that the purchaser lost a deal because he was a mere 35 minutes late in delivering the purchase price.
3 Gill serves as a refreshing reminder of the court's role in a contract case, and shows that my temporary belief that the Crits might be right was a misguided one. In the absence of unconscionability or other contractual invalidity, the role of a court is to discern and enforce the parties' bargains. It is not to impose, after the fact, what the court thinks is fair, or to manipulate the outcome to avoid harsh implications to a breaching party. Indeed, the just result is to enforce the bargain, even if the outcome is harsh to the breaching party. Contract law respects the freedom of contracting parties to craft whatever bargain they think is in their individual self-interest, and uses the power of the state to enforce the contract as crafted by the parties. The necessary implication of the parties' freedom to choose their bargain is to hold them to that bargain, and refrain from changing the bargain where events transpire that make the result seem harsh to the breaching party. 3 Gill fulfilled that task perfectly.
Case Information
3 Gill Homes Inc. v. 5009796 Ontario Inc. (Kassar Homes), 2024 ONCA 6
Docket: COA-23-CV-0355
Date of Decision: January 3, 2024
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