Date Issued: January 25, 2021

File: SC-2020-005061

Type: Small Claims

Civil Resolution Tribunal

Indexed as: Chan v. Xu, 2021 BCCRT 87

Between:

KIN SING CHAN

Applicant

And:

SHANGKUN XU

Respondent

INTRODUCTION

1.    This dispute is about a deposit for a private loan. The applicant, Kin Sing Chan, agreed to borrow money from the respondent, Shangkun Xu, to purchase a townhouse. Mr. Chan sent Ms. Xu a $3,500 deposit to be applied to her lender fees. Mr. Chan says Ms. Xu cancelled the loan and he claims a refund of the $3,500 deposit.

2.      Ms. Xu denies the claim. She says Mr. Chan did not comply with the contract and the deposit is non-refundable, so she is entitled to keep it.

3.      Both parties are represented by family members.

JURISDICTION AND PROCEDURE

4.      These are the formal written reasons of the Civil Resolution Tribunal (CRT). The CRT has jurisdiction over small claims brought under section 118 of the Civil Resolution Tribunal Act (CRTA). Section 2 of the CRTA states that the CRT’s mandate is to provide dispute resolution services accessibly, quickly, economically, informally, and flexibly. In resolving disputes, the CRT must apply principles of law and fairness, and recognize any relationships between the dispute’s parties that will likely continue after the CRT process has ended.

5.      Section 39 of the CRTA says the CRT has discretion to decide the format of the hearing, including by writing, telephone, videoconferencing, email, or a combination of these. Here, I find that I am properly able to assess and weigh the documentary evidence and submissions before me. Further, bearing in mind the CRT’s mandate that includes proportionality and a speedy resolution of disputes, I find that an oral hearing is not necessary in the interests of justice.

6.      Section 42 of the CRTA says the CRT may accept as evidence information that it considers relevant, necessary and appropriate, whether or not the information would be admissible in a court of law. The CRT may also ask questions of the parties and witnesses and inform itself in any other way it considers appropriate.

7.      Where permitted by section 118 of the CRTA, in resolving this dispute the CRT may order a party to do or stop doing something, pay money or make an order that includes any terms or conditions the CRT considers appropriate.

ISSUE

8.      The issue in this dispute is to what extent, if any, is Mr. Chan entitled to a refund of the $3,500 paid deposit.

EVIDENCE AND ANALYSIS

9.      In a civil proceeding like this one, the applicant, Mr. Chan, must prove his claim on a balance of probabilities. I have read all the parties’ submissions but refer only to the evidence and argument that I find relevant to provide context for my decision.

10.   Mr. Chan entered into a sale and purchase contract of a townhouse on March 1, 2020 (purchase contract). The purchase contract says the estimated completion date was April 8, 2020. The purchase contract also says the transaction can close in escrow if the strata plan is not registered at the Land Title Office by the estimated completion date. If so, Mr. Chan could move into the property before the title was transferred and there would be an extended completion date.

11.   On March 6, 2020, Mr. Chan’s spouse sent the purchase contract to a mortgage broker to secure financing. The mortgage broker contacted Ms. Xu who agreed to privately lend Mr. Chan $440,000 to purchase the property. Mr. Chan and Ms. Xu signed a letter of intent on March 8, 2020.

12.   The letter of intent has the following terms:

•         Ms. Xu would lend Mr. Chan $440,000 to be secured by a mortgage.

•         The funding date is April 7, 2020.

•         The interest rate is 6.23% annually, compounded monthly.

•         There will be 3.5 months of interest, totaling $7,005.17, to be deducted upfront from the loan proceeds.

•         The loan term is 3.5 months, due on July 22, 2020.

•         The lender fee is $6,600 which will be deducted from the loan proceeds, less a credit for the deposit.

•         Mr. Chan must deliver a non-refundable deposit of $3,500 to be credited towards the lender fee.

•         Mr. Chan must pay all legal fees and disbursements.

•         The purchase agreement must be acceptable to Ms. Xu.

13.   I find that Mr. Chan and Ms. Xu entered a binding contract based on the letter of intent’s terms.

14.   On March 16, 2020, Mr. Chan sent the $3,500 deposit to Ms. Xu’s lawyer in trust. Mr. Chan also emailed the purchase contract to Ms. Xu’s lawyer on March 16, 2020. On March 17, 2020, Mr. Chan’s lawyer notified Ms. Xu’s lawyer that the transaction would likely be completed by escrow closing. This is a title transfer procedure where a buyer pays a portion of the purchase price into escrow and receives possession of the property. The balance of the purchase price is paid later when the title is transferred.

15.   Ms. Xu says she was not notified that the transaction would be completed by escrow closing until April 6, 2020. However, I find that Ms. Xu’s lawyer was aware of this likely closing procedure when Mr. Chan’s lawyer notified them on March 17, 2020.

16.    Ms. Xu says that under an escrow closing, she would not have to advance the loan funds until the title was transferred to Mr. Chan and the mortgage was registered. Ms. Xu says that this was not contemplated in the letter of intent and Mr. Chan was attempting to change their agreement’s terms. I agree. The letter of intent says the loan will fund on April 7, 2020. However, under the escrow closing procedure, the loan would not fund until the title was transferred at a future date.

17.   Ms. Xu says she was only agreeable to these new terms if Mr. Chan paid the interest and fees in advance. On April 22, 2020, Ms. Xu’s lawyer told Mr. Chan’s lawyer that Mr. Chan must pay all interest and fees in advance, in trust, before Ms. Xu would send the loan funds. Mr. Chan’s lawyer objected, saying that Mr. Chan was not obligated to do so under the contract. The letter of intent says the interest and the lender’s fees are to be deducted from the loan proceeds. I find that there is no agreement that the interest and fees would be paid in advance and held in trust as Ms. Xu demanded on April 22, 2020.

18.   On April 27 2020, Ms. Xu’s lawyer emailed Mr. Chan’s lawyer saying that if Mr. Chan did not agree to pay the requested interest and fees in advance, then the loan would be cancelled. On May 1, 2020, Ms. Xu’s lawyer wrote to Mr. Chan’s lawyer saying that the agreement had been cancelled because Mr. Chan did not respond to Ms. Xu’s demand for prepaid interest and fees. The letter also said that the $3,500 deposit had been released to Ms. Xu. Mr. Chan’s lawyer demanded the deposit’s return on May 2, 2020. It is undisputed that the deposit has not been returned.

19.   As discussed above, I find that under the letter of intent’s terms, the parties did not agree that the loan would fund at a future date under an escrow closing procedure as requested by Mr. Chan. Also, I find that the parties did not agree that the interest and fees would be paid in advance and held in trust as demanded by Ms. Xu. I find that both parties have requested substantial changes to agreement after it was entered. Since the agreement is binding, neither party was obligated to agree to the new terms requested by the other party.

20.   However, based on the parties’ lawyers’ emails, I find that Mr. Chan breached the contract by not being ready and willing to accept loan funding on April 7, 2020 as agreed in the letter of intent. I find that Ms. Xu’s lawyer’s April 22, 2020 email was an offer to change the agreement to accommodate the new closing procedure and I find that Mr. Chan refused to do so.

21.   Where a party fails to fulfill a primary obligation of a contract in a way that deprives the other party of substantially the whole benefit of the contract, it is a fundamental breach (See Hunter Engineering Co. v. Syncrude Canada Ltd., 1989 CanLII 129 (SCC). Put another way, a fundamental breach is a breach that destroys the whole purpose of the contract and makes further performance of the contract impossible (See Bhullar v. Dhanani, 2008 BCSC 1202).

22.   For a fundamental breach, the wronged party can terminate the contract immediately. If the wronged party terminates the contract because of a fundamental breach, they do not have to perform any further terms of the contract (See Poole v. Tomenson Saunders Whitehead Ltd., 1987 CanLII 2647 (BC CA). The test for whether a breach of contract is a fundamental breach is an objective test. That means that I must assess the nature of the breach from the perspective of a reasonable person in Ms. Xu’s shoes.

23.   Applied to this case, if Mr. Chan fundamentally breached the contract, Ms. Xu was entitled to terminate the contract and be relieved from any further performance of the contract. Although Ms. Xu agreed to provide a short-term 3.5 month loan, I find that Mr. Chan’s escrow closing procedure required Ms. Xu to keep her loan funds available to an unspecified future date. Further, since the interest and fees were payable from the loan advance, I find that the new escrow closing procedure also delayed Ms. Xu’s interest and fees to an unspecified future date. Also, I find Ms. Xu’s argument persuasive that, under the new escrow closing procedure, the transaction may never complete and she could lose her interest and fees even though she would need to keep her loan funds available while the transaction was pending. For the above reasons, I find that a reasonable person would consider the agreement to be completely undermined by Mr. Chan’s failure to accept loan funding on April 7, 2020 and his request for escrow closing.

24.   So, I find that Mr. Chan fundamentally breached the contract and Ms. Xu was entitled to cancel the contract. Since the deposit was non-refundable and Mr. Chan breached the contract, I find that Mr. Chan is not entitled to a deposit refund. I dismiss his claim.

25.   Under section 49 of the CRTA and CRT rules, the CRT will generally order an unsuccessful party to reimburse a successful party for CRT fees and reasonable dispute-related expenses. I see no reason in this case not to follow that general rule. Since Mr. Chan was not successful, I dismiss his claim for reimbursement of his CRT fees.

ORDERS

26.   I dismiss Mr. Chan’s claims and this dispute.