Calculating Damages for a Failed Real Estate Transaction

By Slonee Malhotra

Legal Case Analysis: Preiano v. Cirillo, 2024 ONCA 206 (CanLII)

This case involves a failed real estate transaction and raises important issues about contract law and the application of damages. The dispute arose when Giuseppe and Antonia Cirillo, who later passed away, agreed to sell their property to the Preianos for $480,000. However, the transaction was not completed by Giuseppe and Antonia Cirillo on the scheduled closing date. The primary dispute was whether Giuseppe and Antonia had breached the agreement, and whether the Preianos were entitled to specific performance of the sale or compensation in damages. The trial judge ruled in favour of the Preianos, finding that Giuseppe and Antonia had breached the agreement by failing to close the transaction. However, the judge did not order specific performance (the completion of the sale) but awarded the Preiano’s $1 million in damages, along with prejudgment interest and costs. The appellants, Giuseppe and Antonia’s daughter, Ms. Cirillo, represented her parents' interests in court and inquired as to whether the trial judge had erred in awarding damages to the Preianos and in determining the proper amount of damages to be awarded.

Court's Ruling

Assessment of Damages

The trial judge had relied on an appraisal expert’s evidence to determine the value of the property at the time of trial, ultimately awarding the Preianos $975,000 in damages—based on the difference between the contract price and the property’s market value. However, the court found that the trial judge had made a legal error in applying the wrong measure of damages. The correct legal principle is that, in cases of breach of a purchase and sale agreement, the measure of damages is typically the difference between the contract price and the property's market value at the time of the breach, not at the time of trial. 

In this case, the breach occurred in November 2013, and the evidence presented by the Preianos’ appraiser suggested that the property was valued at $550,000 in August 2013. As no evidence was presented that the property value had decreased by the time of the breach, the court decided to base its damage award on the appraisal value from August 2013, which was $550,000. The difference between the contract price of $480,000 and the appraised value of $550,000 amounted to $70,000 in damages. From this amount, the court deducted the Preianos' $25,000 deposit; as a result, the final award for damages was set at $45,000.

Conclusion

The appellate court allowed the appeal in part, reducing the damages awarded to the Preianos from $1 million to $45,000, after adjusting for the correct measure of damages and considering the Preianos' deposit. The case serves as an important reminder of the legal principles surrounding breach of contract in real estate transactions, particularly in relation to how damages should be assessed and the circumstances under which mitigation of damages is required.

For additional information pertaining to remedies and specific performance, please read Slonee Malhotra’s article titled “Remedies Available to Buyers in Failed Residential Real Estate Transactions”

For any questions related to this article or legal assistance regarding agreements of purchase and sale, we encourage you to reach out to one of our experienced real estate lawyers at SorbaraLAW.