Executive Summary: Key Legal and Evidentiary Issues

• A binding contract was found to exist based on the auctioneer’s declaration, satisfying The Sale of Goods Act requirements.

• Defendant failed to pay the deposit and balance after being declared the successful bidder at a public auction.

• Attempts to claim rescission or fundamental breach were dismissed as inconsistent with the “as is, where is” auction conditions.

• The defendant’s argument that the auctioneer's declaration was inadmissible due to being a photocopy was rejected under summary judgment evidentiary standards.

• The court found the plaintiff unreasonably rejected a $175,000 offer, failing to mitigate damages.

• Summary judgment granted with damages calculated based on the contract price minus the $175,000 mitigable offer.

Background facts

Antonio Pollichieni, the plaintiff, brought an action for breach of contract against 6685821 Manitoba Inc. following a failed public auction sale of a mortgaged property in the Rural Municipality of St. Laurent, Manitoba. The property had been subject to mortgage default, and the plaintiff, as mortgagee, obtained an Order for Sale under The Real Property Act, C.C.S.M. c. R30. A public auction was conducted on May 3, 2023.

The auction terms, which were publicly available and read aloud, made clear that the property was sold on an “as is, where is” basis without any warranties or representations. These conditions explicitly required the purchaser to rely on their own inspection and stated that the highest bidder would be the purchaser. They also provided that failure to complete the purchase would entitle the mortgagee to sue for the balance of the purchase price and seek liquidated damages.

The defendant, 6685821 Manitoba Inc., submitted a bid matching the reserve price of $267,803.19 and was declared the successful bidder by the auctioneer. Li Peng Yu, the president of the defendant, acknowledged that he understood he had won the bid. He began traveling to deliver the required deposit to the plaintiff’s lawyer, but stopped at the property en route and observed the mortgagors removing items. Although he had already seen the mortgagors removing items prior to the auction, he chose to raise the issue only after the auction when delivering the deposit. Upon being told by the lawyer that they could not address the issue, Mr. Yu decided not to leave the cheque.

The plaintiff later attempted a second public auction on July 25, 2023, which yielded no qualifying bids. The property was then listed for sale through other means but remained unsold.

Was there a contract?

The court held that a contract had been formed. The auctioneer's declaration that the property was sold to the defendant for $267,803.19 met the requirement of The Sale of Goods Act, subsection 59(b), which provides that a sale by auction is complete when the auctioneer announces its completion “by the fall of the hammer, or in other customary manner.” Despite the absence of a literal hammer fall, the declaration was found to be sufficient. The defendant’s own conduct—acknowledging the bid and attempting to deliver the deposit—supported this conclusion.

The defendant also argued that the auctioneer’s declaration, being a photocopy and not the original, was inadmissible under subsection 58(1) of The Manitoba Evidence Act. The court rejected this, holding that affidavits in summary judgment motions can attach such copies in accordance with rule 39.01(4) of the Court of King’s Bench Rules. Therefore, the declaration was admissible.

Claims of rescission and fundamental breach

Defences of rescission and fundamental breach were raised but not pursued in oral submissions. The court nonetheless addressed and dismissed them.

Regarding rescission, the court cited the four-part test from Canada Life Insurance Company of Canada v. Canada (Attorney General), 2018 ONCA 562. It concluded there was no evidence of a common misapprehension between the parties. Clause 4 of the auction conditions specifically stated that no error, misstatement, or mistake would annul the sale.

As to fundamental breach, the court applied the principles in Hunter Engineering Co. v. Syncrude Canada Ltd., finding that the essential terms of the contract had not been defeated. The defendant had knowledge of the removal of fixtures before bidding and took no steps to prevent further removal post-auction. Given the “as is, where is” terms, the contract’s foundation remained intact.

Damages and failure to mitigate

The court began the damages assessment from the contract price of $267,803.19. However, it found the plaintiff failed to mitigate his losses after rejecting an offer of $175,000 on or about October 17, 2023. This offer fell within the range of two independent valuations: $157,000 by Art McCoubrey and $180,000–$185,000 by L.J. Baron Realty. The plaintiff argued that he acted on the advice of his agent in rejecting the offer, but the court found this explanation insufficient given the existing valuation evidence.

The court awarded damages of $92,803.19, representing the difference between the original contract price and the $175,000 offer. Additional compensation included:

• Property tax arrears from January 1, 2023 to October 17, 2023

• Interest at 14% on both the damages and property tax arrears until October 17, 2023

• Second auction fees of $157.00

• Appraisal fee of $2,940.00 (McCoubrey)

• Market opinion fee of $315.00 (L.J. Baron Realty)

Costs were also awarded to the plaintiff, subject to agreement or further submissions.