Morgan Trust Company of Canada v. Falloncrest Financial Corporation

Morgan Trust Company of Canada v. Falloncrest Financial Corporation Collection Decisions of the Court of Appeal Date 2006-11-20 Docket numbers C45210 Judges Weiler, Karen Merle Magnuson; Rosenberg, Marc; LaForme, Harry Smith Subject Civil Decision Content DATE: 20061120 DOCKET: C45210 COURT OF APPEAL FOR ONTARIO WEILER, ROSENBERG and LaFORME JJ.A. B E T W E E N : MORGAN TRUST COMPANY OF CANADA Plaintiff (Respondent) Alfred J. Esterbauer, for the appellants Paul Albert Wolscht and the late Mary Lou Wolscht by her estate trustee Paul Albert Wolscht - and - FALLONCREST FINANCIAL CORPORATION, PETER FALLON JR., MATER’S MANAGEMENT LTD., 787266 ONTARIO LIMITED, 650620 ONTARIO LIMITED, 650621 ONTARIO LIMITED, 650622 ONTARIO LIMITED, 650623 ONTARIO LIMITED, 650624 ONTARIO LIMITED, 650625 ONTARIO LIMITED, 650619 ONTARIO LIMITED, 694726 ONTARIO LIMITED, 645166 ONTARIO LIMITED, 668321 ONTARIO LIMITED, 676072 ONTARIO LIMITED, 860179 ONTARIO LIMITED, 641727 ONTARIO LIMITED, 860618 ONTARIO LIMITED, 863951 ONTARIO LIMITED, 798334 ONTARIO LIMITED, THE VERONA SHOPPING CENTRE INC., 820001 ONTARIO INC., ALBERTO DOCOUTO, 748749 ONTARIO LIMITED and VOLANTE DEVELOPMENTS INC. Defendants (Respondents) Marco Drudi, for the respondent 1422754 Ontario Limited Beth Posno and Pamela Huff for the respondents KPMG Inc. et al Heard: September 8, 2006 On appeal from the order of Justice G. B. Morawetz of the Superior Court of Justice dated May 16, 2006. LaFORME J.A.: [1] KPMG Inc. (“KPMG”), the respondent receiver and manager, successfully moved for a declaration that an option held by the appellants, Paul Albert Wolscht and the late Mary Lou Wolscht, by her estate trustee, Paul Albert Wolscht (“Wolscht”), to purchase certain lands under the administration of KPMG was void and of no force or effect. Wolscht’s cross-motion for relief validating the option to purchase, which included a plea for rectification, was dismissed. As a result, Wolscht is required to vacate the home he and his family have occupied for some thirty-eight years. [2] Wolscht appeals the decision of the motion judge and asserts that the option agreement is valid and enforceable and complies with the Planning Act, R.S.O. 1990, c. P.13. Alternatively, Wolscht submits that the option agreement should be rectified so that it complies with the Planning Act. BACKGROUND [3] In 1968, Wolscht acquired a seventy-four acre farm in Mount Albert, Ontario. Since then, the Wolscht family has continuously resided on a certain parcel of this farmland (the “Residential Parcel”), which is the subject of this dispute. Paul Albert Wolscht is now seventy-three years of age. His spouse died in October 2005. Together they raised five children in the two residences that are situated on the residential parcel. [4] In May 1988, Wolscht sold the entire seventy-four acre farmland to Brian Corbett for $850,000 (the “Purchase Agreement”). The Purchase Agreement contains an addendum that was allegedly drafted to allow Wolscht to acquire title to the farm’s Residential Parcel if the rest of the property was ever subdivided. The transaction was completed on October 27, 1988, at which time the title to the property was taken by 787266 Ontario Limited (“787”), a nominee of Mater’s Management Ltd. (“Mater’s”). [5] On the closing of the acquisition of the Wolscht farmland in October 1988, 787 and Wolscht executed a Tenancy and Option to Purchase Agreement (the “Option Agreement”), which is central to this appeal. It was not registered against title until January 13, 2003. [6] In 1988, Mater’s mortgaged the land in favour of the Morgan Trust Company of Canada (“Morgan Trust”) in the principle sum of $3,000,000 and subsequently fell into receivership. In 1990, Morgan Trust, as trustee for individuals who invested in the mortgage, successfully moved for an order appointing KPMG receiver and manager of 787 and all of the other corporate members of Mater’s. [7] In 1991, KPMG entered into an agreement with Law Development (Mount Albert) Limited (“Law Development”) to develop certain of Mater’s lands in Mount Albert, including the seventy-four acre Wolscht farmland. Law Development never actually developed the lands, but in 2001 assigned the right to develop to 1422754 Ontario Limited (“Beaverbrook Homes”). Beaverbrook Homes has since developed a portion of the lands, and has registered a plan of sub-division that includes the Wolscht farmland. [8] Counsel for the Wolschts first raised the Option Agreement by letter dated January 8, 2003, approximately 15 years after the date on which the Option Agreement was executed. KPMG, Law Development, and Beaverbrook Homes believed the Option Agreement to be void and successfully moved for a declaration to that effect in June 2005. [9] The motion judge held that the Option Agreement contravenes s. 50 of the Planning Act, because it creates an equitable interest in the optioned land while purporting to allow the grantor to retain the abutting lands. The motion judge further concluded that the contravention is not remedied by s. 50(21) of the Planning Act. ISSUES [10] The background facts are generally not in dispute. Rather, what is disputed is the interpretation to be given to the various documents that made up the sale of the Wolscht property to 787. The issues on this appeal are, whether the motion judge correctly: 1. held that the Option Agreement contravenes s. 50 of the Planning Act and is accordingly void and of no force or effect; 2. refused to rectify the Option Agreement to contain an express condition pursuant to s. 50(21) of the Planning Act; 3. concluded that the Option Agreement is void because it fails to provide a mechanism by which Wolscht could specifically enforce the option during its term; and, 4. held that the Option Agreement is void due to uncertainty of its terms, namely, the description of the property. [11] In my view, this appeal can be disposed of by the first two issues only. That is, even assuming that the Option Agreement is not void, but rather that it amounts to a valid option, it still does not comply with the requirements of the Planning Act, nor can it be rectified so that it does comply. Accordingly, although it may appear to some to be a harsh result, I conclude, for the reasons that follow, that the motion judge made no error and the appeal from his decision must be dismissed. ANALYSIS [12] I propose to deal with the issues in the following order. First, I will examine the Option Agreement and its non-compliance with s. 50 of the Planning Act. I will then address why reading the Option Agreement together with the Purchase Agreement does not remedy the Planning Act contravention. And finally, I will explain why rectification is not available to the appellants. [13] The appellants’ principle submission in this case is that the Option Agreement meets the requirements of s. 50(3). Alternatively, they argue that the Option Agreement alone, or read together with the Purchase Agreement, provides an exception to the Planning Act. That is, they argue that these documents together establish that all the parties intended to enter into a legal and binding contract concerning specifically defined property, and moreover, demonstrate that the Planning Act was to be complied with. (i) Does the Option Agreement contravene s. 50 of the Planning Act? [14] The Option Agreement provides an option to purchase two houses existing on the property conveyed by Wolscht to 787 and two acres “immediately subjacent thereto”. It does not include a sketch or description of the boundaries of the property to be conveyed. The material portion of the Option Agreement provides: The Vendors shall be entitled to an option to purchase the two houses existing on the lands conveyed by them to the Purchaser, together with the two acres immediately subjacent thereto, forthwith after registration of any plan of subdivision on the lands, or the severance of the lands, or for a period of twenty years from the date hereof, whichever shall first occur, at an option price of $2.00 per house and lot, if the lots are then separated, or at an option price of $2.00 if the houses remain on one lot. [15] Section 50 of the Planning Act controls the subdivision of land in Ontario. Section 50(3)(b) provides that “no person shall convey” any interest in land where such person retains an interest in “any land abutting the land that is being conveyed or otherwise dealt with”, unless the abutting land “is the whole of one or more lots or blocks within one or more registered plans of subdivision.” Non-compliance with the Planning Act is fatal to an agreement. [16] An agreement in contravention of s. 50(3)(b) may be remedied by s. 50(21) of the Act, which provides that: An agreement, conveyance, mortgage or charge made, or a power of appointment granted, assigned or exercised in contravention of this section or a predecessor thereof does not create or convey any interest in land, but this section does not affect an agreement entered into subject to the express condition contained therein that such agreement is to be effective only if the provisions of this section are complied with. [Emphasis added.] [17] In Dical Investments Ltd. v. Morrison (1990), 75 O.R. (2d) 417 at 423-424 (C.A.), leave to appeal to the S.C.C. refused [1991] 3 S.C.R. v, this court held that options to purchase are subject to the application of s. 50(3) of the Planning Act. In this case 787 purchased all seventy-four acres of the Wolscht property and then granted an option to purchase back two acres of the property to the Wolschts while retaining abutting lands that are not the whole of one or more lots or blocks within a registered plan of subdivision. The Option Agreement is therefore in violation of s. 50(3) of the Planning Act. Accordingly, the motion judge was correct in deciding this issue as he did. [18] The motion judge also held that the Option Agreement is not remedied by s. 50(21) of the Act because it does not expressly stipulate that the agreement is to be effective only if the provisions of s. 50 of the Planning Act are complied with. Again, he was correct. [19] In Dical, supra, at 425, this court held that the term “express condition” in s. 50(21) of the Planning Act must be given its plain meaning. This conclusion explains the court’s earlier narrow construction of the term at 424: The impugned option contains no reference to s. 49 [now s. 50] of the Planning Act, 1983 nor does it contain an “express condition” that the option is to be effective only if the provisions of s. 49 are complied with. The provisions of the Planning Act, 1983 preclude a court from finding that the parties, by impliedly agreeing to make their contract effective only on compliance with s. 49, can circumvent the “express” provision requirement. See Nepean Carleton Developments Ltd. v. Hope, [1978] 1 S.C.R. 427, 71 D.L.R. (3d) 609, 13 N.R. 7, at p. 431 S.C.R. In the present case, since the necessary “express condition” is absent from the option, it cannot be implied. [20] Section 50(21) of the Planning Act therefore remedies an agreement that contravenes the Act only where the agreement is subject to an express condition contained therein “that such agreement is to be effective only if the provisions of [s.50] are complied with.” The Option Agreement, by itself, does not contain such an express condition and consequently is not remedied by s. 50(21) of the Act. [21] The appellants argue that this court ought to undertake a “purposive approach” to the interpretation of the Planning Act, consistent with the dissenting opinion in Dical. Respectfully, I reject this argument given that the majority in Dical overruled the authorities that were relied upon in the dissenting opinion, and which are now relied upon by the appellants in this appeal. (ii) Does the Option Agreement, when read together with the Purchase Agreement, contain an express condition pursuant to s. 50(21) of the Planning Act? [22] The appellants argue that Clause 12 of the Purchase Agreement, a standard provision, was incorporated into the Option Agreement as a result of the language employed in the latter agreement. They say that the incorporation amounts to an express condition that satisfies subsection 50(21) of the Planning Act. I disagree. [23] Clause 12 of the Purchase Agreement reads as follows: Provided that this Agreement shall be effective to create an interest in the property only if the subdivision control provisions of The Planning Act are complied with by Vendor on or before completion and Vendor hereby covenants to proceed diligently at his expense to obtain any necessary consent on or before completion. [24] In addition, the addendum to the Purchase Agreement provides, in part: Purchaser and Vendor agree that for the sum of TWO DOLLARS ($2.00) the Vendor shall receive the existing 2 houses on 2 Acres, from the Purchaser, Brian Corbett, when the 2 Acres are severed or the Purchaser has registered a Plan of Subdivision with the Town of East Gwillimbury. The Two Acres to accommodate The 2 present Septic Systems. The Vendors reserve a right of way for ingress, egress and regress over the lands being purchased and when a Plan of Subdivision is drafted and approved the Vendors remaining 2 homes must have access to a Street and services to the lot line. The Vendors/mortgagees consent to the purchaser’s development applications on the land, the purchaser’s land titles application, the registration of a plan of subdivision and a subdivision agreement.… [25] Finally, the preamble to the Option Agreement stipulates that it is “in accordance with the Agreement of Purchase and Sale”. [26] Incorporation of terms into a contract by reference to an outside document should not occur unless notice of the terms to be incorporated has been provided in a manner that would lead the reasonable person to conclude that they were to be incorporated in the contract: S.M. Waddams, The Law of Contracts, 5 ed. (Toronto: Canada Law Book Inc., 2005) at 347. [27] In the within case, the words “in accordance with the Agreement of Purchase and Sale”, in my view, are too general and fall short of being sufficiently clear to meet the test. That is, the words do not provide notice of which terms of the Purchase Agreement were to be incorporated into the Option Agreement. The notice therefore does not enable a reasonable person to conclude that the Option Agreement contained an express condition pursuant to s. 50(21) of the Planning Act. I rely on the following reasons in support of this conclusion. [28] It is clear from the Purchase Agreement and the addendum in the Purchase Agreement that Wolscht and 787 intended to ensure that Wolscht could obtain certain houses and land after a contemplated severance or subdivision. Moreover, the Option Agreement plainly intended that Wolscht was to continue to occupy the houses and land as described, even though 787 owned the entire seventy-four acres. Nevertheless, in my view, the motion judge was correct in holding that Clause 12 in the Purchase Agreement refers to the sale of the seventy-four acres of land as opposed to the land described in the Option Agreement, and that the Option Agreement was entered into following the Purchase Agreement. [29] I agree with KPMG’s position that the definitions of the terms in Clause 12 make it impossible to relate it to the subsequent completion of a purchase by Wolscht pursuant to the Option Agreement. Wolscht is the vendor under the Purchase Agreement and the purchaser under the Option Agreement, whereas 787 is the purchaser under the Purchase Agreement and the vendor under the Option Agreement. [30] Clause 12 of the Purchase Agreement therefore clearly relates to the completion of the sale of “the property”, defined therein as all seventy-four acres of the Wolscht property, and not to the optioned property. It relates to the completion of the sale by the “Vendor”, defined in the Purchase Agreement as Paul and Mary Lou Wolscht. Accordingly, this provision cannot provide the express condition required by s. 50(21) of the Planning Act to remedy the Option Agreement. I would therefore dismiss this ground of appeal. [31] The appellants’ reliance on Marcrob Estates Ltd. v. Servedio (1976), 1 R.P.R. 344 (H.C.J.), upheld [1977] O.J. No. 800 (C.A.), is of no assistance. Unlike in the case at bar, the court in Marcrob found that notice had been given of the terms of the original agreement of purchase and sale that were to be incorporated by reference into a subsequent assignment including an express condition to comply with the Planning Act. (iii) Can the Option Agreement be rectified to contain an express condition pursuant to s. 50(21) of the Planning Act? [32] The motion judge declined to rectify the Option Agreement so that it complies with the Planning Act because he found there was no evidence that the parties had a prior oral agreement to reference the Planning Act, but mistakenly did not do so. [33] In order to obtain rectification of a term of a contract, Wolscht must establish that all of the parties were in complete agreement as to the terms of their contract, but wrote them down incorrectly: H.F. Clarke Ltd. v. Thermidaire Corp. Ltd. (1973), 33 D.L.R. (3d) 13 at 20-21 (Ont. C.A.), reversed on other grounds (1974), 54 D.L.R. (3d) 385 (S.C.C.). Clear and compelling evidence is required to show that the written contract does not correspond with a prior oral agreement. The Supreme Court of Canada in Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd. (2002), 209 D.L.R. (4) 318 at 330 (S.C.C.) articulated the principle as: Rectification is predicated on the existence of a prior oral contract whose terms are definite and ascertainable. The plaintiff must establish that the terms agreed to orally were not written down properly. [34] The appellants provided no evidence, either in the form of written documents or sworn statements, that the parties had a prior agreement to reference the Planning Act in the Option Agreement, but mistakenly did not do so. At its highest, the evidence is that Wolscht believed that the Option Agreement would allow him to obtain title to the area described as the Residential Parcel and that the Wolschts relied on their lawyer in this respect. [35] The evidence in this case falls far short of that which is necessary to support the claim for rectification. The evidence does not support a finding that Wolscht and 787 made a prior oral agreement to condition the effectiveness of the Option Agreement on compliance with s. 50 of the Planning Act. Once again, the motion judge was correct on this issue. [36] For these reasons, I would dismiss the appeal. Disposing of the appeal in this fashion renders it unnecessary to decide whether the Option Agreement is void for lack of an enforcement mechanism in favour of Wolscht or for uncertainty of its terms. DISPOSITION [37] I would dismiss the appeal. I would award costs to the respondent, KPMG, in the amount of $15,000 inclusive of GST and disbursements. I would also award costs to Beaverbrook Homes in the amount of $4,500, also inclusive of GST and disbursements. RELEASED: “NOV 20 2006” “KW” “H.S. LaForme J.A.” “I agree K.M. Weiler J.A.” “I agree M. Rosenberg J.A.”