No Penalty, No Relief: A Line In The Sand

The Ontario Court of Appeal recently released its judgment in 660 Sunningdale GP Inc. v First Source Mortgage Corporation, 2024 ONCA 252 ("Sunningdale v First Source"), on appeal from 2023 ONSC 2129.

In this case, the Ontario Court of Appeal has set a precedent in the enforceability of contractual payments, distinguishing between penalty clauses and non-contingent contractual obligations.

In considering a $426,500 disputed lender fee for a loan that was never advanced, the Court reversed the decision of the trial judge in determining that the entire fee is enforceable and payable to the lender since it was not contingent on the advancement of loan monies. In doing so, the Court drew a line between (i) payments triggered by breach of the payor in an agreement, which can be considered penalty clauses and thus unenforceable at common law when excessive, and (ii) general contractual payments not contingent on default, which are not subject to the same scrutiny. This