Canada: Agricultural Law Netletter - January 7, 2017 Issue 363


* The Ontario Court of Appeal has rejected an appeal by the purchasers of a hog barn who alleged it was a term of an agreement for the purchase of the barn that it would have had hogs in it at the time of closing. The Court also rejected arguments that the vendor had breached its duty of good faith by failing to advise the purchaser in advance of closing that there would be no hogs in the barn; that the vendor had negligently misrepresented its arrangement with a hog supplier and that provisions in the sale agreement which provided for an adjustment on closing for the proceeds of a hog contract and management services could be interpreted as a provision that there would be hogs in the barn at the time of closing. (Eureka Farms Inc. v. Luten, CALN/2017-031, [2016] O.J. No. 6630, Ontario Court of Appeal)


 Eureka Farms Inc. v. Luten;


Full text: [2016] O.J. No. 6630;

2016 ONCA 969,

Ontario Court of Appeal,

R.J. Sharpe, P.D. Lauwers and B. Miller JJ.A.,

Contract of Purchase and Sale -- Hog Barns.

Roelof Luten and Roelofje Remmells-Luten (collectively the "Lutens") appealed to the Ontario Court of Appeal from a judgment of the Superior Court of Justice which dismissed their claim for damages when the Lutens were forced to sell a hog farm they had purchased from Eureka Farms Inc. ("Eureka") at a loss, because they could not secure a supply of hogs for the farm.

The Lutens had entered into an agreement to purchase a hog farm from Eureka. The agreement contained a condition which gave the Lutens the right to extract themselves from the agreement if they were not able to satisfy themselves that there would be a supply of hogs for the barn.

The Lutens had met with Eureka's supplier who told them that he was prepared to supply them with hogs, but only on the basis of an oral "turn by turn" agreement. The supplier declined to enter into a written or long term agreement. After this meeting, the Lutens waived this condition in the agreement.

The Lutens learned that the hog barn was empty prior to closing, but did not ask for an extension of the closing date to verify their source of supply, nor did they refuse to close on the basis that Eureka was in breach.

Prior to closing, Eureka had entered into a new agreement with the supplier pursuant to which Eureka financed the supply of hogs for the barn when they came into the barn and then resold them to the supplier when the hogs left.

Eureka did not disclose this arrangement to the Lutens

Decision: Sharpe, Lauwers and Miller, JJ.A. dismissed the Lutens' appeal [at para. 14].

The Court of Appeal considered three issues:

1. Duty of good faith:

The Court rejected the Lutens' argument that Eureka had breached its duty of good faith, based on the principles in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, by failing to advise the Lutens, well in advance of closing, that there would be no hogs in the barn when the transaction closed.

The Court agreed that at the time the agreement was concluded, both the Lutens and Eureka expected there would be hogs in the barn, however the Court concluded that the Lutens knew that they had no assurance of an ongoing supply of hogs and that by waiving the condition in their favour prior to closing, they assumed the risk that market conditions could change and that the supply of hogs could dry up.

Even if Eureka should have told them in a more timely fashion that the barn would have no hogs in it at the time of closing, this would not have amounted to a breach of the duty of good faith sufficient to trigger a remedy for the Lutens given the terms of the contract, and the way it allocated the risk of market change.

The allegation of bad faith was not sufficient to overcome the fact that the Lutens knew they had no guaranteed source of supply and had assumed the risk by waiving the condition and closing the transaction with full knowledge of the fact that the barn was empty.

2. Negligent misrepresentation:

The Court rejected the argument that Eureka had made a negligent misrepresentation by failing to disclose that its agreement with the supplier involved financing the hogs by purchasing them when they came into the barn and reselling them to the supplier when they left. The Court held that this argument was excluded by an entire agreement clause in the agreement for sale. Further, the Lutens had met with the supplier and discussed an arrangement for a supply of hogs with the supplier if they purchased the barn. The Lutens decided to proceed with the purchase of the barn based on this arrangement, and the terms of the previous arrangement with Eureka was irrelevant.

3. Contractual obligations to have hogs in the barn on closing:

The Court rejected the argument that the terms of the agreement for purchase and sale required Eureka to have hogs in the barn at the time of closing. There was no provision to this effect in the agreement. Provisions in the agreement providing for an adjustment on closing regarding the proceeds of hog contracts, and an agreement to provide management and guidance for a 4 week period could not be interpreted as creating a contractual obligation to ensure there were hogs in the barn at the time of closing.

4. No damages:

The loss was sustained as a result of the fact that there were no hogs in the barn at the time of closing because the supplier could not supply the Lutens with hogs because of adverse market conditions. There was no evidence that this supply contract was related to the fact that the Lutens had acquired a farm with an empty hog barn. The real cause was a significant rise in the price of hogs, which was an adverse market condition which, based on a reading of the agreement for purchase and sale, had been assumed by the Lutens.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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