Fact Pattern

Remember Assignment #1? As a refresher, you sorted through the madness between Guiseppi Holdings ("Guiseppi") and Precious Properties ("Precious"), where Guiseppi was looking to sell two of its bare land lots (Lots 27 and 28) in North Hillwood, British Columbia.

Anyways, in this assignment, the facts have changed (but as you'll soon see, they haven't necessarily gotten any better for the parties!).

On April 1, Mr. Guiseppi called Ms. Jafari, the president of Precious, offering to sell Lots 27 and 28 for $5.5 million. On April 2, Ms. Jafari called Mr. Guiseppi to accept the offer, and later that day, the parties entered into a written contract. The completion date for the transaction (i.e., the day when Precious would pay for the properties and Guiseppi would transfer the legal title to the properties) was May 15.

Question 1 (5 marks)

The signed contract contained a clause stating the following:

This contract is subject to Precious obtaining satisfactory mortgage financing, on or before April 12, for an amount of at least $4.0 million at an interest rate not to exceed 3.0% per annum.

On April 6, Ms. Jafari heard a rumour (from a credible source) that the Hillwood city council was seriously considering building a new subway system in South Hillwood. Therefore, real estate development would be much more profitable in South Hillwood, as opposed to North Hillwood. As a result, Precious abandoned any effort to find mortgage financing for Lots 27 and 28, and on April 12, Ms. Jafari called Mr. Guiseppi to tell him

that Precious had not obtained mortgage financing for Lots 27 and 28, and therefore, the contract was

terminated.

Has Precious acted within the law in discharging this contract?

Question 2 (5 marks)

Ignoring the facts within Question 1, imagine that Precious obtained appropriate financing and communicates

to Guiseppi on April 12 the intention to proceed with the contract.

Precious wished to build on Lots 27 and 28 as soon as possible, so on April 2, it hired an architectural design

firm to help them with the design of the development. On April 5, an employee of the architectural firm

visited Lots 27 and 28 to get an exact measurement of their sizes. She measured the total size to be 104,564

square feet. Ms. Jafari was surprised at this number, as the contract she signed with Guiseppi had a term in it

stating the following:

The total size of Lots 27 and 28 is 108,100 square feet.

A second company hired by Precious verified the architectural firm's measurements. Therefore, on April 11,

Ms. Jafari called Mr. Guiseppi to tell him that, because Guiseppi has breached the contract with respect to the

size of Lots 27 and 28, Precious is entitled to terminate their contract, and they would do so.

Is Precious correct here?

Question 3 (5 marks)

Ignoring the facts within Questions 1 and 2, imagine that Precious obtains appropriate financing and

communicates to Guiseppi on April 12 the intention to proceed with the contract. Furthermore, the

architectural design firm hired by Precious measured Lots 27 and 28 to be 108,100 square feet, as stated in

the contract.

On April 10, Mr. Guiseppi called Ms. Jafari with some bad news. His company had miscalculated how much

they would be left with after the sale of Lots 27 and 28. Remember (from Assignment #1), the objective

behind selling these lots was to help cover the skyrocketing costs it was facing in another development

project. Mr. Guiseppi's financial advisors simply instructed him that he could not sell Lots 27 and 28 at such a

low price ($5.5 million). Mr. Guiseppi tried to convince Ms. Jafari to amend the contract to a sale price of $6.5

million, but after she refused, Mr. Guiseppi told her that they would not be completing the sale to Precious on

April 12.

Ms. Jafari was furious and, shortly after April 12 came and went, she initiated a lawsuit against Guiseppi for

breach of contract, asking the court for the remedy of specific performance.

What types of arguments must Precious make in order to succeed in obtaining specific performance, and do

you think they will ultimately succeed?