McFarland v. Hauser et al., [1979] 1 SCR 337

Supreme Court of Canada

McFarland v. Hauser et al., [1979] 1 S.C.R. 337

Date: 1978-10-03

Barry Glen McFarland (Plaintiff) Appellant;

and

John Hauser (Defendant) Respondent;

and

Thomas F. Sunderland (Defendant) Respondent.

1978: March 7, 8; 1978: October 3.

Present: Laskin C.J. and Martland, Ritchie, Spence and Estey JJ.

ON APPEAL FROM THE SUPREME COURT OF ALBERTA, APPELLATE DIVISION

Real property—Dower—Agreement for lease of farm lands—Clause giving lessee first option to meet or decline purchase offer—Compliance with provisions of Dower Act as to spouse’s consent and acknowledgment—Second respondent’s option to purchase subject to appellant’s right of first refusal—Specific performance—The Dower Act, R.S.A. 1970, c. 114, ss. 5, 6—The Land Titles Act, R.S.A. 1970, c. 198, ss. 144, 152, 203.

H, an Alberta farmer, farmed 1,040 acres of land and resided with his wife on one of the quarter-sections. He entered into a lease agreement with McF for a period of three years, commencing on April 1, 1972, and expiring on March 31, 1975. The lease included the entire 1,040 acres owned by H, but permitted him to remain in the farm home. A clause in the lease read: “Both parties hereby agree that in the event of the land being sold, the lease will terminate at the end of the term then in progress, being further agreed that the Lessee shall at all times have first option to meet or decline the purchase offer.” H’s wife signed the dower consent on the form of lease, and a commissioner for oaths signed the certificate of acknowledgment.

The parties proceeded under the terms of the lease and McF farmed the lands in the years 1972 and 1973. On January 18, 1974, a real estate agent, S, approached H and made an offer to purchase the lands for a consideration of $182,000. H told S that McF had a lease on the farm for one more year and that he had first chance to buy the land, providing that he met the exact terms of sale. At this time he gave his copy of the lease to S for perusal.

Shortly after the offer had been made, H told McF that he had received an offer of $175 an acre, that he

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didn’t think he was going to take it, and that he was going to demand $200,000 for the lands.

A couple of weeks later S and H had further discussions. H stated that he had spoken to McF about the offer and that the latter had said nothing in reply. He also stated that he wanted $200,000 for the lands but S replied that this was definitely too much but that he would raise his first offer to $190,000.

This price of $190,000 proved satisfactory, and an option agreement dated February 28, 1974, was executed by H, his wife and S granting to the latter an option to purchase the property for $190,000, the option being open until March 8, 1974. The option provided that it was subject to the lease from H to McF. S exercised the option on March 7, 1974.

Conversations took place between H and McF, but there was no mention made of the proposed purchase price and McF was still under the impression that the price was $200,000. H refused to show the option agreement to McF, and referred him to his lawyers.

McF consulted his own lawyer and a caveat, based on the “lease option” was filed on March 21, 1974. This came to H’s attention and on March 26, 1974, his lawyer wrote a letter to McF’s lawyers revealing the sale price of $190,000 and stating that the closing date was April 1, 1974. This was the first time that the terms of the agreement between H and S were made known to McF or his representative.

On April 8, McF’s solicitor wrote to H’s solicitor contending that terms imposed by the latter in a letter dated March 28, 1974, were unreasonable. He requested a copy of the offer to purchase. Receipt of a copy of the option was acknowledged by letter dated April 17. The letter stated that McF was prepared to purchase the property. On April 30 McF’s solicitor wrote to H’s solicitor advising that financing was confirmed and advising that the purchase price would be paid on receipt of a transfer clear of all encumbrances.

S had filed a caveat on April 9, 1974. McF’s caveat lapsed on July 26, 1974, because, although he took proceedings pursuant to S’s notice on May 27, 1974, pursuant to s. 144 of The Land Titles Act, R.S.A. 1970, c. 198, he failed to file a lis pendens as required by that section.

In his action brought on May 31, 1974, against H and S, McF claimed, as against H, a declaration that he was entitled to be registered owner of the lands upon the payment of $190,000 to H. As against S he asked for a

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declaration that S’s caveat be removed from the title. McF succeeded at trial. An appeal from the trial judgment was taken by S, but not by H, and was successful, with one of the five judges who heard the appeal dissenting. McF appealed from the judgment of the Appellate Division to this Court.

Held: The appeal should be allowed and the judgment at trial restored.

The submission that McF had not duly exercised any right of first refusal should be rejected. The Court agreed with three of the judges in the Court below as well as the trial judge that McF did exercise his right of first refusal. The covenant was clear and unambiguous and must be construed with reason.

The principle stated in Senstad v. Makus, [1978] 2 S.C.R. 44, was applicable in this case and the defence based on s. 6 of The Dower Act, R.S.A. 1970, c. 114, should not succeed. In the Senstad case it was held that the failure of a spouse to acknowledge consent under s. 6 does not render a disposition of a homestead ineffective where the spouse has consented to the disposition under s. 5 and has not attacked the validity of the consent. In that case the wife, who had signed the required form of consent, did not give evidence. In the present case, H’s wife did give evidence and, as found by the trial judge, her evidence made it clear that she desired “that the lease to McF would come into being that he would have under its terms a right of first purchase.”

The covenant of H as to McF’s right of first purchase did not, by itself, constitute a disposition of an interest in land. That clause did, however, contemplate a possible disposition in the future if H received a purchase offer which he wished to accept. When that occurred, McF would have an option to purchase upon the same terms. By attaching her consent to the lease agreement, H’s wife was giving her consent to such a disposition. There was no other reason for her signing the form of consent, because the lease alone, being for a three-year term, was not a disposition within the provisions of The Dower Act, by virtue of para. A of subs. 2(a)(ii). Section 3 of The Dower Act contemplates a written consent from the spouse being made before a disposition is made and H’s wife did consent to a sale being made to McF if certain events occurred.

S’s contention that, following the lapse of McF’s caveat, s. 152 of The Land Titles Act gave his option priority over McF’s rights and that, because of s. 203, his position is not affected by his knowledge of the existence of McF’s rights was not accepted. When S entered into the transaction he knew well that whatever he could get from H was subject to the right of first

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purchase held by McF. That right was defined in the lease from H to McF, a copy of which was given to S before the option to him was prepared. The option given to S provided that it was subject to the lease. The option acquired by S was subject to McF’s right to purchase, and that situation was not altered by the filing of the caveat.

S was not entitled to succeed by virtue of s. 203. This was not a case of a purchaser acting in reliance upon the register although actually aware of a prior unregistered interest. S was not only aware of McF’s interest when he obtained the option from H, the option itself was made subject to that interest and he was not entitled to obtain from H more than the option provided.

This Court did not support S’s contention that an order for specific performance could not be granted against S because there was no privity of contract as between S and McF, and McF did not have an interest in the lands. While McF’s right of purchase was, initially, a contractual right, it was converted into an option to purchase upon H’s having received an offer which he was prepared to accept. McF thereupon had an equitable interest in the land.

Title to the land throughout remained with H, with whom McF had contracted. A document of transfer of the lands from H to S was executed, after the present action had been commenced, and was forwarded by letter dated September 17, 1974, to S’s solicitor, but the letter expressly provided that it should not be registered until all litigation concerning the lands was completed, and that it should be returned, unused, to H’s solicitor if McF’s action for specific performance succeeded.

In the result, McF did not require an order for specific performance as against S. If he had a valid claim for specific performance as against H, H was in a position to comply with it. The judgment at trial was for specific performance against H and for removal of S’s caveat. The interests of McF and of S in the lands were equitable and they were in competition with each other. McF’s equity was entitled to priority over that of S and he was entitled to require specific performance of his agreement with H.

Senstad v. Makus, [1978] 2 S.C.R. 44, followed; Canadian Long Island Petroleums Ltd. and Sadim Oil and Gas Co. Ltd. v. Irving Industries (Irving Wire Products Division) Ltd. and Irving Industries (Foothills Steel Foundry Division) Ltd., [1975] 2 S.C.R. 715, referred to; St. Mary’s Parish Credit Union Ltd. v. T.M. Ball Lumber Co. Ltd., [1961] S.C.R. 310, applied.

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APPEAL from a judgment of the Supreme Court of Alberta, Appellate Division[1], allowing an appeal from a judgment of Milvain C.J. whereby the appellant was granted specific performance of a contract for the purchase by the appellant from the first respondent of certain lands for the sum of $190,000. Appeal allowed and judgment at trial restored.

R.F. Babki and J.N. LeGrandeur, for the plaintiff, appellant.

W.D. Maxwell, for the defendant, respondent Hauser.

R. Kambeitz and M.J. Sychuk, for the defendant, respondent Sunderland.

The judgment of the Court was delivered by

MARTLAND J.—This is an appeal from a judgment of the Appellate Division of the Supreme Court of Alberta which allowed an appeal from a judgment of the trial judge which had granted the appellant, hereinafter referred to as “McFarland”, specific performance of a contract for the purchase by McFarland from the first respondent, hereinafter referred to as “Hauser”, of the lands in question in this action for the sum of $190,000.

Hauser was a farmer in the Carmangay district of Alberta. He farmed 1,040 acres of land, hereinafter referred to as “the lands”, and resides with his wife on one of the quarter-sections. McFarland was also a native of Carmangay and had known Hauser for many years. McFarland knew that, because of his health condition, Hauser had some desire to sell his land and to retire. Various discussions took place between the two but it became obvious that McFarland would find the financing of a purchase onerous. A solution was arrived at whereby it was agreed that Hauser would give a lease of the land to McFarland and he would also give him an opportunity of buying it in priority to others should the time come that an acceptable offer to purchase be made to Hauser.

As a result of these discussions a lease was drawn up and executed on Sunday, November 7, 1971. The lease agreement provided for a lease for

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a period of three years, commencing on April 1, 1972, and expiring on March 31, 1975. The lease included the entire 1,040 acres owned by Hauser, but permitted him to remain in the farm home. The rent was one-third of the crop, with the lessor paying the taxes and the lessee providing the seed and the fertilizer. There was a clause added in handwriting which read:

Both parties hereby agree that in the event of the land being sold, the lease will terminate at the end of the term then in progress, being further agreed that the Lessee shall at all times have the first option to meet or decline the purchase offer.

Hauser’s wife signed the dower consent on the form of lease, and a Commissioner for Oaths signed the Certificate of Acknowledgment.

The parties proceeded under the terms of the lease and McFarland farmed the lands in the years 1972 and 1973. During this time, Hauser did have approaches made to him by others interested in purchasing the lands, and their approaches were always made known to McFarland and always on the basis that Hauser was not considering them.

The difficulties which ultimately gave rise to this action arose in January of 1974 when McFarland was approached by the other respondent, hereinafter referred to as “Sunderland”, a real estate agent. On January 18, 1974, Sunderland made an offer to Hauser to purchase the lands for a consideration of $182,000. Hauser replied that he wanted some time to think it over. He also replied that, in any event, McFarland “had a lease for one more year on the farm and that he had first chance to buy the land providing he meets the exact terms of sale”. At this time he gave his copy of the lease to Sunderland for perusal.

Shortly after the offer had been made, Hauser told McFarland that he had received an offer of $175 an acre, that he didn’t think he was going to take it, and that because he either knew or suspected that the Hutterites were behind the offer he was going to demand $200,000 for the lands.

A couple of weeks later Sunderland and Hauser had further discussions. Hauser stated that he had spoken to McFarland about the offer and that the

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appellant had said nothing in reply. He also stated that he wanted $200,000 for the lands but Sunderland replied that this was definitely too much but that he would raise his first offer to $190,000.

This price of $190,000 proved satisfactory, and an option agreement dated February 28, 1974, was executed by Hauser, his wife and Sunderland granting to the latter an option to purchase the property for $190,000, the option being open until March 8, 1974. The option stated that it was subject to “lease on land held by Barry McFarland, Carmangay, expires on January 1, 1975”. At the time of signing the option, Hauser asked Sunderland whether or not he, Hauser, should telephone McFarland and have him come over. Sunderland replied that such action was not necessary.

On March 7, 1974, Sunderland signed and delivered to Hauser a document stating that he exercised the option, that a cheque in the amount of $10,000 would be delivered to Hauser’s solicitor on March 8 and that the remaining balance of $180,000 would be paid on or before April 1, 1974.

A second document, apparently made on the same day, was signed by Sunderland, which stated:

I have this day delivered to your solicitor, Mr. Ronald A. Jacobson, a cheque in the amount of $10,000 with the remaining balance of $180,000 to be paid on or before possession date of the 1st of July, 1974.

This document included a receipt of the notice and of the cheque signed by W.D. Maxwell of Mr. Jacobson’s firm.

The developments were not made known to McFarland by Hauser until considerably later. Conversations took place between the two, but there was no mention made of the price and McFarland was still under the impression that the proposed purchase price was $200,000. Hauser refused to show the option agreement to McFarland, and referred him to his lawyers.

McFarland consulted his own lawyer and a caveat, based on the “lease option” was filed on March 21, 1974. This came to Hauser’s attention and on March 26, 1974, his lawyer wrote a letter

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to McFarland’s lawyers revealing the sale price of $190,000 and stating that the closing date was April 1, 1974. This letter concluded as follows:

Therefore, may I please be advised whether or not your client, Mr. Barry Glen McFarland of Carmangay, Alberta, wishes to meet or decline the offer of $190,000.00. If he is to meet the offer of $190,000.00 cash payable on or before the 1st day of April, 1974 then I would want a deposit of 10% of the purchase price ($190,000.00) deposited in my trust account in favour of my client as an indication of your client’s bona fides and to protect my client from the possibility of [loosing] the sale of his land.

If your client opts to meet the aforenoted offer please be advised his written acceptance as well as a deposit via a certified cheque in the amount of $19,000.00 must be received in this office no later than 4:00 p.m. on the 29th day of March, A.D. 1974 otherwise, this offer will terminate at that time.

This was the first time that the terms of the agreement between Hauser and Sunderland were made known to McFarland or his representative.

In a letter written to McFarland’s solicitor on March 28, 1974, Hauser’s solicitor stated that if McFarland opted to meet the offer which Hauser had received, he would require written notice, a certified cheque for $19,000 by 4 p.m. on March 29, and the balance of $180,000 to be paid no later than 5 p.m. on April 1.

On April 8, McFarland’s solicitor wrote to Hauser’s solicitor contending that the terms imposed by the latter were unreasonable. He requested a copy of the offer to purchase. Receipt of a copy of the option was acknowledged by letter dated April 17. The letter stated that McFarland was prepared to purchase the property.

In reply, Hauser’s solicitor wrote to McFarland’s solicitor requesting an indication of bona fides in the form of a payment of $10,000 by return mail. On the same date, another letter was sent to McFarland’s solicitor in the following terms:

As you know, Mr. Sunderland, via his agent Sutherland & Yuzda, has filed a caveat on the 9th of April,

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1974 against the said Hauser lands claiming an interest under an option to purchase the said property.

As you appear quite certain of your position and as my client is anxious to dispose of the property as soon as possible may I please be advised by return letter as to whether or not. Mr. McFarland is prepared to purchase this land subject to Mr. Sunderland’s caveat, as well as indemnify and save harmless Mr. & Mrs. Hauser from any and all claims which may arise out of a conveyance to Mr. McFarland subject to the caveat of Mr. Sunderland.

McFarland had taken steps to arrange for financing of the land purchase. On April 30 his solicitor wrote to Hauser’s solicitor advising that financing was confirmed and advising that the purchase price would be paid on receipt of a transfer clear of all encumbrances.

On April 9, 1974, Sunderland had filed a caveat against the lands, and this was followed on May 27, 1974, by a “Notice to Caveator to take Proceedings on Caveat” pursuant to s. 144 of The Land Titles Act of Alberta, R.S.A. 1970, c. 198, which was sent to McFarland. That section provides that, 60 days after service of such notice on the caveator, the caveat will lapse unless, within that time, proceedings on the caveat are taken and a certificate of lis pendens is filed with the Registrar.

McFarland, on May 31, 1974, brought action against Hauser and Sunderland. He neglected to file a certificate of lis pendens, and, as a result, his caveat lapsed. In his action he claimed, as against Hauser, a declaration that he was entitled to be registered owner of the lands upon payment of $190,000 to Hauser. As against Sunderland he asked for a declaration that Sunderland’s caveat be removed from the title.

At trial, McFarland succeeded. The trial judge held that the clause in the lease agreement gave him a right of first purchase and that he had taken all steps reasonably required to exercise that right. He rejected the contention that the agreement was rendered invalid by the Lord’s Day Act. He held that the face of the document indicated proper compliance with The Dower Act of Alberta, R.S.A. 1970, c. 114, and that there was not suffi-

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cient evidence to support an attack on the validity of the document on that ground. He held that Sunderland’s rights under his option were subject to McFarland’s right of first purchase. He ordered specific performance of Hauser’s agreement with McFarland and directed the removal of Sunderland’s caveat.

An appeal from this judgment was taken by Sunderland, but not by Hauser, and was successful, with one of the five judges who heard the appeal dissenting. There were seven grounds of appeal, which were listed by McGillivray C.J.A. as follows:

1. That the right of first refusal was void by reason of non-compliance with The Dower Act;

2. That the right of first refusal was void by reason of the same having been entered into in contravention of The Lord’s Day Act;

3. That McFarland had waived his rights under the right of first refusal;

4. That the right of first refusal was void for uncertainty;

5. That McFarland had in any event not duly exercised any right of first refusal which he did have;

6. That the remedy of Specific Performance was not available to McFarland as against the purchaser Sunderland;

7. That Sunderland was, by reason of the provisions of the Alberta Land Titles Act, entitled to priority over McFarland.

These points were also argued in this Court. None of the judges in the Court below accepted Sunderland’s submissions with respect to points 2, 3 or 4. I am in agreement with the views expressed in the Courts below as to these points and do not propose to deal with them further.

With respect to point 5, McGillivray C.J.A. was of the view that Sunderland was entitled to succeed on this submission. Clement J.A. expressed no opinion on this point. The other three judges, Morrow and Moir JJ.A., and Moore J., as well as the trial judge refused to accept this submission. I

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agree with this conclusion. I would adopt what was said by Moore J.:

As to ground 5, in my view McFarland did exercise the right of first refusal. The covenant does not stipulate detailed intricacies as to exercise of the right conferred. It is a clear and unambiguous covenant and must be construed with reason. McFarland should be given a reasonable time or opportunity to meet the terms of the offer. Hauser’s solicitor attempted to impose unreasonable conditions on McFarland by not only insisting on the funds in a shorter period of time than that required of Sunderland, but in also insisting on an indemnity.

McFarland stated through his solicitor that he was prepared to purchase the property and that is in my mind a proper exercise of the right of first refusal. Based on the evidence a reasonable time for tendering the funds could extend to the fall of 1974 when finally both McFarland and Sunderland apparently had funds available to complete the transaction. Once Hauser introduced the necessity of being furnished with an indemnity from McFarland he has sought to impose an unreasonable demand on McFarland arising out of an awkward predicament that Hauser suddenly found himself in. In these circumstances McFarland should only have to come forward with the money in a reasonable period of time and the money was available within a reasonable period.

In this case, it is clear that Hauser and Sunderland had more than one meeting. Sunderland originally offered $175.00 per acre and finally offered $190,000.00 as a final price. Hauser and Sunderland entered into the option agreement on February 28, 1974. Sunderland had until March 8th, 1974 to exercise the option. It is clear that McFarland first saw a copy of the document when it was sent to his lawyer’s office with a letter of April 16, 1974 (exhibit 4). Up to that time he knew Hauser had committed himself in some fashion, he initially thought the dollars involved were $200,000.00 (exhibit 5, page 379). He also knew there was a farm loan mortgage on the property so that he would require funds sufficient to pay cash to mortgage.

Unknown to McFarland in April was the amount of deposit made by Sunderland and unknown to him was the date for completion by Sunderland. In fact demands were made upon him for a $19,000.00 deposit when in fact only $10,000.00 had been deposited by Sunderland. And, though he was hurrying to raise funds, he did not know the date for Sunderland’s completion was July 1, 1974.

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What did McFarland do? McFarland said “I’m prepared to purchase the land at $190,000.00” (April 17). Within eight days (April 25) he had arranged financing with the Alberta Agricultural Development Corporation. Denise Blanchard, senior legal officer of the Alberta Agricultural Development Corporation gave evidence at the trial and stated that $190,000.00 was totally available to McFarland as of April 25th. He not only met the terms of the Sunderland offer but he bettered these terms as he had the money available by April 25th. I am satisfied that McFarland did exercise his right of first refusal.

I will now deal with the other three points.

THE DOWER ACT

It was the contention of Hauser and Sunderland at the trial and of Sunderland on appeal that the agreement between Hauser and McFarland, contained in the lease, was not enforceable because there was not a proper compliance with the provisions of The Dower Act, R.S.A. 1970, c. 114. The relevant provisions of that statute are as follows:

2. In this Act,

(a) “disposition”

(i) means a disposition by act inter vivos that is required to be executed by the owner of the land disposed of, and

(ii) includes

(A) a transfer, agreement for sale, lease for more than three years or any other instrument intended to convey or transfer an interest in land,

(B) a mortgage or encumbrance intended to charge land with the payment of a sum of money, and required to be executed by the owner of the land mortgaged or encumbered,

(C) a devise or other disposition made by will, and

(D) a mortgage by deposit of certificate of title or other mortgage that does not require the execution of a document;

…

3. (1) No married person shall by act inter vivos make a disposition of the homestead of the married person whereby any interest of the married person will vest or may vest in any other person at any time

(a) during the life of the married person, or

(b) during the life of the spouse of the married person living at the date of the disposition,

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unless the spouse consents thereto in writing, or unless a judge has made an order dispensing with the consent of the spouse as provided for in section 11.

(2) A married person who makes any such disposition of a homestead without the consent in writing of the spouse of the married person or without an order dispensing with the consent of the spouse is guilty of an offence and liable on summary conviction to a fine of not more than one thousand dollars or to imprisonment for a term of not more than two years.

5. (1) A consent required for the disposition inter vivos of the homestead shall be contained in or annexed to the instrument by which the disposition is effected and whenever that instrument is produced for registration under The Land Titles Act, the consent shall be produced and registered therewith.

(2) The consent in writing of the spouse of the married person to any disposition shall, in Form A in the Schedule or to the like effect, state that the spouse consents to the disposition of the homestead and has executed the consent for the purpose of giving up the life estate of the spouse and other dower rights of the spouse in the homestead to the extent necessary to give effect to the disposition.

…

6. (1) When the spouse of a married person executes a consent to a disposition as required under this Act or executes a disposition containing the consent, the spouse shall acknowledge apart from the married person

(a) that the spouse is aware of the nature of the disposition,

(b) that the spouse is aware that The Dower Act gives the spouse a life estate in the homestead and the right to prevent disposition of the homestead by withholding consent,

(c) that the spouse consents to the disposition for the purpose of giving up, to the extent necessary to give effect to the disposition, the life estate and other dower rights given by The Dower Act in the homestead, and

(d) that the spouse is executing the document freely and voluntarily without any compulsion on the part of the married person.

(2) The acknowledgment may be made before a person authorized to take proof of the execution of instruments under The Land Titles Act, and a certificate of the acknowledgment, in Form C in the Schedule or to the like effect, shall be endorsed on or attached to the disposition executed by the spouse.

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(3) A judge upon being satisfied of the due execution of a consent and the making of an acknowledgment, whether the consent was executed and the acknowledgment made within or without the limits of the Province, may authorize the registration of the disposition notwithstanding that the proof of the execution of the consent or of the making of the acknowledgment is defective.

Hauser’s wife signed the form of consent required by s. 5. The certificate mentioned in subs. 6(2) was signed by a commissioner for oaths and was endorsed on the lease. It was, however, contended that there had not been due compliance with s. 6 because, on the evidence, it appeared that the commissioner for oaths was not familiar with the taking of such an acknowledgment, that he did not require Mrs. Hauser to acknowledge anything and that it was not shown that an acknowledgment was made by her apart from her husband.

The trial judge held that the evidence was insufficient to support the attack on the document and that it took more than a veiled suggestion for a court to find that an officer, permitted to take an oath, or acknowledgment, had so misconducted himself as to render the result invalid. The majority of the Appellate Division, on a review of the evidence, found that there had not been a proper compliance with s. 6 and that this rendered the agreement unenforceable.

Clement J.A., took a somewhat different approach, being of the view that the clause in the lease per se did not constitute a disposition within the meaning of The Dower Act. He was also of the opinion that Mrs. Hauser’s consent could not constitute a valid consent to a sale to McFarland after the clause took effect because the clause did not spell out the terms of sale and she could not give a carte blanche consent to a sale by Hauser.

With respect to the position taken by the majority of the Court as to the impact of s. 6, the judgment of the Appellate Division was delivered prior to the judgment of this Court in Senstad v. Makus[2]. In that case it was held that the failure of

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a spouse to acknowledge consent under s. 6 does not render a disposition of a homestead ineffective where the spouse has consented to the disposition under s. 5 and has not attacked the validity of the consent. In that case the wife, who had signed the required form of consent, did not give evidence. In the present case, Mrs. Hauser did give evidence. The trial judge, who heard her evidence, said:

…it is made clear to me on the evidence that Mrs. Hauser in fact desired also that the lease to McFarland would come into being that he would have under its terms a right of first purchase. I am sure she intended to do these things and was desirous of having them done.

This finding is supported by the evidence and none of the judges of the Appellate Division has expressed any disagreement with it.

On these facts, the principle stated in the Senstad case is applicable and the defence based on s. 6 of The Dower Act should not succeed.

Regarding the point raised by Clement J.A., I agree that the covenant of Hauser as to McFarland’s right of first purchase did not, by itself, constitute a disposition of an interest in land. This is in accord with the view expressed by this Court in Canadian Long Island Petroleums Ltd. and Sadim Oil and Gas Company Ltd. v. Irving Industries (Irving Wire Products Division) Ltd. and Irving Industries (Foothills Steel Foundry Division) Ltd.[3] That clause did, however, contemplate a possible disposition in the future if Hauser received a purchase offer which he wished to accept. When that occurred, as was said in the Canadian Long Island case (p. 732), McFarland would have an option to purchase upon the same terms. In my opinion, by attaching her consent to the lease agreement, Mrs. Hauser was giving her consent to such a disposition. There was no other reason for her signing the form of consent, because the lease alone, being for a three-year term, was not a disposition within the provisions of The Dower Act, by virtue of para. A of subs. 2(a)(ii). Section 3 of The Dower Act contemplates a written consent from the spouse being made before a disposition is made and Mrs. Hauser did consent

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to a sale being made to McFarland if certain events occurred.

In my opinion, the defence based upon The Dower Act fails.

THE LAND TITLES ACT

On his appeal to the Appellate Division, Sunderland made the submission, which had not been made at the trial, that his option to purchase was entitled to priority over McFarland’s right of first purchase because of the caveat filed by Sunderland in respect of the option, and the resultant operation of the provisions of The Land Titles Act, R.S.A. 1970, c. 198.

It will be recalled that McFarland had filed a caveat on March 21, 1974. Sunderland filed a caveat on April 9, 1974. McFarland’s caveat lapsed on July 26, 1974, because, although he had taken proceedings pursuant to Sunderland’s notice on May 27, 1974, pursuant to s. 144 of The Land Titles Act he failed to file a lis pendens as required by that section.

The relevant sections of The Land Titles Act are as follows:

136. Any person claiming to be interested in any land for which a certificate of title has been issued or in any mortgage or encumbrance relating to that land

(a) pursuant to

(i) any will, settlement or deed, or

(ii) any instrument of transfer or transmission, or

(iii) any unregistered instrument, or

(iv) an execution where the execution creditor seeks to affect land in which the execution debtor is interested beneficially but the title to which is registered in the name of some other person,

or

(b) by virtue of the provisions of any Act of Alberta under which that person acquired any right with respect to that land, mortgage or encumbrance, or

(c) by virtue of

(i) having acquired through the owner or any prior owner thereof, otherwise than under clause (a) or (b), an interest in that land, mortgage or encumbrance after the first certificate of title was issued for that land, or

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(ii) being the owner or previous owner of an interest in that land, otherwise than under clause (a) or (b), where that interest arose after the first certificate of title was issued for that land, or

(iii) being the owner or a previous owner of the mortgage or encumbrance, otherwise than under clause (a) or (b),

may cause to be filed with the Registrar a caveat on his behalf in Form 33 in the Schedule against the registration of any person as transferee or owner of, or any instrument affecting, the estate or interest, unless the certificate of title or instrument, as the case may be, is expressed to be subject to the claim of the caveator.

152. Registration by way of caveat, whether by the Registrar or by any caveator, has the same effect as to priority as the registration of any instrument under this Act, and the Registrar may in his discretion allow the withdrawal of a caveat at any time and the registration in lieu thereof of the instrument under which the person on whose behalf the caveat was lodged claims his title or interest, if the instrument is an instrument that may be registered under this Act, and, if the withdrawal of the caveat and the registration of the instrument is simultaneous, the same priority is preserved to all rights under the instrument as the like rights were entitled to under the caveat.

203. Except in the case of fraud, no person contracting or dealing with or taking or proposing to take a transfer, mortgage, encumbrance or lease from the owner of any land in whose name a certificate of title has been granted shall be bound or concerned to inquire into or ascertain the circumstances in or the consideration for which the owner or any previous owner of the land is or was registered or to see to the application of the purchase money or of any part thereof, nor is he affected by notice direct, implied or constructive, of any trust or unregistered interest in the land, any rule of law or equity to the contrary notwithstanding, and the knowledge that any trust or unregistered interest is in existence shall not of itself be imputed as fraud.

Sunderland contends that, following the lapse of McFarland’s caveat, s. 152 gave his option priority over McFarland’s rights and that, because of s. 203, his position is not affected by his knowledge of the existence of McFarland’s rights.

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This issue was not dealt with by the trial judge because it was not presented to him. It was accepted by three of the judges of the Appellate Division.

With respect, I do not reach the same conclusion.

Sunderland had more than mere notice of McFarland’s interest in the land. When Sunderland first approached Hauser with a view to purchasing his land Hauser told him that McFarland had a lease on the farm for one more year and that he had first chance to buy the land, providing that he met the exact terms of sale. Furthermore, Hauser gave to Sunderland his copy of the lease to McFarland. The trial judge found that this all occurred before the option to Sunderland was executed, and that finding has not been reversed. It is in the light of this evidence that it becomes of great importance to note that the option agreement provides:

This option shall be subject to the following lease on land held by Barry McFarland, Carmangay, expires Jan. 1, 1975.

The lease contained the provision, previously noted, that:

Both parties hereby agree that in the event of the land being sold, the lease will terminate at the end of the term then in progress, being further agreed that the Lessee shall at all times have the first option to meet or decline the purchase offer.

In my opinion, the provision contained in Sunderland’s option was sufficient to make it subject to McFarland’s right of first purchase. It is significant that when the option was drawn up on February 28, 1974, Hauser suggested to Sunderland that he, Hauser, ought to see McFarland or have him come down. Sunderland said he did not think it was necessary. McFarland was never told by Hauser that the lands had been sold for $190,000.

The issue in the present case is analogous to that decided in this Court in St. Mary’s Parish Credit Union Limited v. T.M. Ball Lumber Company Limited[4]. In that case the payment of a loan of money to a building contractor was secured by an

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equitable mortgage in favour of the lender, a credit union. The borrower deposited his duplicate certificate of title with the lender, as security. The borrower became indebted to the plaintiff in this action for building materials purchased from him. The contractor executed an equitable mortgage in favour of the plaintiff after telling it of the equitable mortgage in favour of the credit union and of the deposit of the duplicate certificate of title with the union. The second equitable mortgage was stated to be upon “his equity in the land”. A caveat was filed in respect of the mortgage. The plaintiff sought a declaration that it had a valid charge against the land and claiming foreclosure of its mortgage. It claimed priority over the earlier equitable mortgage by reason of the registration of the caveat.

It was held in this Court that the filing of the caveat could not create a charge upon more than that which had been charged by the instrument itself. After registration of the caveat the plaintiffs position could be no better than if the mortgage to which it related could have been and had been itself registered. That mortgage only charged the mortgagor’s equity in the land. It related to a limited interest, i.e. the interest of the mortgagor subject to the earlier charge. The Court concluded that the plaintiff did not, by filing its caveat, obtain priority for its equitable mortgage over the earlier equitable mortgage of the credit union.

The situation in the present case is similar. The trial judge has found that when Sunderland entered into the transaction he knew well that whatever he could get from Hauser was subject to the right of first purchase held by McFarland. That right is defined in the lease from Hauser to McFarland, a copy of which was given to Sunderland before the option to him was prepared. The option given to Sunderland provided that it was subject to the lease. In my opinion the option acquired by Sunderland was subject to McFarland’s right to purchase, and that situation is not altered by the filing of the caveat.

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Sunderland is not entitled to succeed by virtue of s. 203 of The Land Titles Act. This is not a case of a purchaser acting in reliance upon the register although actually aware of a prior unregistered interest. In the present case, Sunderland was not only aware of McFarland’s interest when he obtained the option from Hauser, the option itself was made subject to that interest and he is not entitled to obtain from Hauser more than the option provided. On the authority of the St. Mary’s case, I am of the view that the defence founded upon s. 203 fails.

SPECIFIC PERFORMANCE

Three of the judges of the Appellate Division supported Sunderland’s contention that an order for specific performance could not be granted against Sunderland because there was no privity of contract as between Sunderland and McFarland, and McFarland did not have an interest in the lands. The decision of this Court in the Canadian Long Island case, previously referred to in these reasons, was considered. That case involved an agreement between two companies, each of which had an undivided one-half interest in certain lands, in respect of the joint operation and development of the lands for the production of oil. It provided that if either party received a bona fide offer to purchase its interest, which it was willing to accept, written notice would have to be given to the other party, which would then have 30 days within which to purchase at the same price and on the same terms as the offer.

Sadim, one of the parties to the agreement, offered to sell its interest to Long Island, and the offer was accepted. Irving later received notice of the sale and sought to exercise its right of first refusal. Sadim transferred its interest to Long Island. Irving sought specific performance as against both Sadim and Long Island.

The main issue before this Court was as to whether the agreement as to a right of first refusal offended the rule against perpetuities. It was held that it did not, because the right of first refusal was a contractual right and did not, by itself, create an interest in land. It was pointed out that if Sadim did receive an offer to purchase which it

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was prepared to accept, Irving would then and only then have a 30-day option to purchase upon the same terms.

In the present case, similarly, while McFarland’s right of purchase was, initially, a contractual right, it was converted into an option to purchase upon Hauser’s having received an offer which he was prepared to accept. McFarland thereupon had an equitable interest in the land.

In the Long Island case the matter of the right to obtain specific performance as against a person not a party to the agreement was of importance because there had been an actual transfer by Sadim to Long Island of Sadim’s interest before the action commenced. Specific performance was ordered because it was found that the provision as to sale was made for the protection of each party’s half interest and involved a negative covenant not to part with that interest without first giving the other party a chance to buy. Long Island had full knowledge of the restriction when it obtained its title.

These problems do not arise in the present case because title to the land throughout has remained with Hauser, with whom McFarland had contracted. A document of transfer of the lands from Hauser to Sunderland was executed, after this action had been commenced, and was forwarded by letter dated September 17, 1974, to Sunderland’s solicitor, but the letter expressly provided that it should not be registered until all litigation concerning the lands was completed, and that it should be returned, unused, to Hauser’s solicitor if McFarland’s action for specific performance succeeded.

In the result, McFarland does not require an order for specific performance as against Sunderland. If he has a valid claim for specific performance as against Hauser, Hauser is in a position to comply with it. The judgment at trial was for specific performance against Hauser and for the removal of Sunderland’s caveat. The interests of McFarland and of Sunderland in the lands are equitable and they are in competition with each other. For the reasons already given, I am of the

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opinion that McFarland’s equity is entitled to priority over that of Sunderland and that he is entitled to require specific performance of his agreement with Hauser.

I would allow the appeal and restore the judgment at trial. McFarland is entitled to costs in the Appellate Division and in this Court against Hauser and Sunderland.

Appeal allowed with costs.

Solicitors for the plaintiff, appellant: Rice & Co., Lethbridge.

Solicitors for the defendant, respondent, Hauser: Jacobson & Maxwell, Lethbridge.

Solicitor for the defendant, respondent, Sunderland: Fleming, Neve, Kambeitz & Pottinger, Calgary.