Montreal Trust Co. v. Gulf Securities Corp. Ltd. et al., [1978] 1 SCR 708

Supreme Court of Canada

Montreal Trust Co. v. Gulf Securities Corp. Ltd. et al., [1978] 1 S.C.R. 708

Date: 1977-01-25

Montreal Trust Company (Plaintiff) Appellant;

and

Gulf Securities Corporation Ltd. (Defendant) Respondent;

and

Tidewater Oil Company, Triad Petroleum Development Ltd., Marathon Oil Company, Canada Cities Services Petroleum Corporation, Atlantic Richfield Company (Defendants) Respondents.

1976: November 3, 4; 1977: January 25.

Present: Laskin C.J. and Martland, Judson, Ritchie, Spence, Pigeon, Dickson, Beetz and de Grandpré JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR SASKATCHEWAN

Mines and minerals—Royalties—Assignment—Notice—G’s interests under oil and gas permits assigned to T—G entering royalty trust agreement with M—G assigning to M all royalty payments payable by T or its successors or assigns to G—T acknowledging notice of assignment—T intending to surrender leases to Crown—G exercising right of election to take over lands to be surrendered—G calling upon T to assign its interest under leases to third party—M entitled to royalties payable by third party to G—M not entitled to enforce as against T obligations which T had undertaken to G.

The respondent Gulf received certain petroleum and natural gas permits from the Crown in the right of Saskatchewan. By an agreement dated June 6, 1949, with the respondent Tidewater, Gulf assigned its interests under these and other permits to Tidewater. Tidewater agreed, inter alia, that during such time as it retained its interests in the lands covered by the permits it would pay to Gulf 2½ per cent of the sale value of oil and gas produced from these lands. Clause 10 of the agreement empowered Tidewater, without Gulfs consent, to assign all or any part of its interest in the lands, but, subject to the condition that such assignment “be made subject to the assumption by the assignee thereunder of all rights and obligations of [Tidewater] under said lands and under this agreement with respect to the lands covered thereby”. Clause 10 also permitted Tidewater to surrender its interest in the lands in whole

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or in part. However, if Tidewater proposed to surrender such interest it was obligated to give Gulf 30 days’ notice of that intent. Within that time Gulf had the right, by written notice, to elect to take over the lands proposed to be surrendered. If it so elected, any reassignment was to “be made subject to the foregoing conditions of assumption and release”.

On May 15, 1950, Gulf entered into a royalty trust agreement with the appellant Montreal Trust. Under cl. 2 of this agreement Gulf assigned to Montreal all royalty payments which, by the terms of the Tidewater agreement, became payable by Tidewater, or its successors or assigns, to Gulf. On the same day Gulf gave a notice of the assignment to Tidewater. Tidewater acknowledged and accepted this notice of assignment and undertook to make payments to Montreal in accordance with the terms of the notice.

On September 14, 1956, the Crown granted Tidewater two petroleum and natural gas leases covering the lands in question. In 1960 Tidewater notified Gulf that it intended to surrender a number of leases to the Crown including the two aforementioned leases. Subsequently, Gulfs solicitors wrote to Tidewater electing to take assignment of some of the acreage to be surrendered by Tidewater. Arrangements were made by Gulf with Imperial Oil to have the latter take over the two leases. Gulf made an agreement on April 20, 1960, with Imperial reserving an overriding gross royalty of 2½ per cent in respect of the leases. Tidewater was not a party to this agreement. An agreement dated September 6, 1960, was entered by Tidewater, Imperial and Gulf under which, inter alia, Tidewater assigned the leases to Imperial. The assignment made no reference to the overriding royalty to be paid by Imperial. Imperial obtained production of oil from the lands covered by the leases and paid to Gulf the royalties stipulated in the agreement with Gulf dated April 20, 1960.

Montreal brought action against Gulf, against Tidewater and against the other four respondents. As against Gulf it claimed entitlement to the royalties paid and payable by Imperial and sought an accounting and payment of the amount found to be payable. As against Tidewater it claimed damages because Tidewater had failed to stipulate, in the assignment to Imperial, for the assumption by Imperial of the obligation to make the royalty payments to Montreal. Montreal contended that this obligation rested upon Tidewater by virtue of the assignment made by Gulf to Montreal and accepted by

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Tidewater. The four respondents, other than Tidewater, were alleged to constitute a syndicate, with Tidewater, on behalf of which Tidewater made its agreement with Gulf.

Montreal succeeded at trial as against Gulf. The action against Tidewater was dismissed on the ground that there was no contractual obligation by Tidewater to Montreal. The Court of Appeal allowed Gulfs appeal and dismissed Montreal’s cross-appeal as against Tidewater. Montreal then appealed to this Court.

Held (Pigeon, Dickson and de Grandpré JJ. dissenting in part): The appeal as against Gulf should be allowed; the appeal as against Tidewater and the other respondents should be dismissed.

Per Laskin C.J. and Martland, Judson, Ritchie, Spence and Beetz JJ.: Contrary to the opinion of the Court of Appeal, what had occurred here could not be equated to an outright surrender by Tidewater of its interest in the two petroleum and natural gas leases. Had such a surrender been effected to the Crown those leases would have been terminated. But they were not terminated. Instead, Gulf called upon Tidewater to assign its interest under the leases to Imperial. The leases, which Tidewater had obtained, by performance of the conditions attached to the permits, remained in effect and Imperial became the assignee of Tidewater’s interest under them. Clause 10 of the Tidewater agreement contemplated the assumption by Imperial of Tidewater’s royalty obligations in respect of them. In view of these circumstances, Imperial was an assignee of Tidewater and the royalty payments required to be paid by Imperial to Gulf were within the provisions of cl. 2 of the royalty trust agreement. When Gulf made its commitment to the holders of the royalty trust certificates under cl. 2 of the royalty trust agreement it gave to them the benefit of royalties payable to Gulf by any assignee of Tidewater if such assignment was effected by virtue of the operation of cl. 10 of the Tidewater agreement.

As to the appeal as against Tidewater, Montreal was not an assignee from Gulf of the Tidewater agreement. It did not become entitled to enforce, as against Tidewater, the obligations which Tidewater had undertaken to Gulf under cl. 10 of that agreement.

Tidewater was under no contractual obligation to Montreal. Its only legal duty to Montreal was to honour the notice of assignment of royalties which it had received, and which related solely to royalties which

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might become payable by Tidewater in respect of its production from the lands described in the Tidewater agreement.

The provisions of the royalty trust agreement applied to royalties payable by Imperial which, at the instance of Gulf, had become the successor or assign of Tidewater. The obligation to require payment to Montreal rested solely upon Gulf. Notice of the assignment of Gulfs royalties effected by cl. 2 of the royalty trust agreement should have been given to Imperial by Gulf or by Montreal. No duty to give such notice was imposed upon Tidewater.

Per Pigeon, Dickson and de Grandpré JJ., dissenting in part: The appeal as against Gulf should be allowed for the reasons given by the majority and the appeal against the other respondents should be allowed as well. If the overriding royalty had become payable by Tidewater and had been paid to Gulf rather than to Montreal, the latter would have had a good cause of action against Tidewater by virtue of the assignment, the notice thereof and the acknowledgment and acceptance. In the second place, the assignment, although not of the entire agreement but of the royalty only, covered the royalty becoming payable by an assignee of Tidewater as well as the royalty becoming payable by Tidewater itself. However, at Gulfs request, Tidewater made an assignment of the lease to Imperial in such terms that the royalty became payable to Gulf by the assignee. It could not be less of a breach of Tidewater’s obligation to Montreal to have the royalty paid by its assignee to Gulf than to so do itself.

Tidewater must be held to have known that the assignment of the royalty to Montreal was made for the purpose of enabling Gulf to deal with the royalty trust certificates and the purpose of the notice of assignment was to ensure that Tidewater would not pay the royalty to Gulf but to Montreal. When Tidewater assigned the lease to Imperial, it was therefore bound to stipulate for payment of the royalty to Montreal, not to Gulf. This did not need to be spelled out in so many words. If Tidewater assigned the lease its obligation was to stipulate for payment to no other than the true creditor of the royalty.

APPEAL from a judgment of the Court of Appeal for Saskatchewan[1], allowing an appeal by Gulf Securities Corporation Ltd. from a judgment

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of Bence C.J.Q.B. and dismissing a cross-appeal by Montreal Trust Company against Tidewater Oil Company and certain associated companies. Appeal allowed in part, Pigeon, Dickson and de Grandpré JJ. dissenting in part.

W.M. Elliott, Q.C., for the plaintiff, appellant.

M.C. Shumiatcher, Q.C., R. Bamford, L.H. McDonald, Q.C., and R.B. Laschuk, for the defendants, respondents.

The judgment of Laskin C.J. and Martland, Judson, Ritchie, Spence and Beetz JJ. was delivered by

MARTLAND J.—The respondent, Gulf Securities Corporation Ltd., herein referred to as “Gulf”, obtained from the Crown, in the right of the Province of Saskatchewan, a number of permits which authorized Gulf to conduct geophysical surveys, examinations and investigations with respect to lands in which petroleum and natural gas were owned by the Crown. These included permits numbered 159 and 160. Upon compliance with the regulations under which the permits were issued, Gulf had the right to obtain petroleum and natural gas leases from the Crown in respect of portions of the lands defined in the permits. The land which is the subject of this appeal is the North Half of Section 32, Township 6, Range 4, West of the 2nd Meridian (included in Permit 159) and the East Half of Section 6, Township 6, Range 2, West of the 2nd Meridian (included in Permit 160).

By agreement dated June 6, 1949, hereinafter referred to as “the Tidewater agreement”, Gulf assigned its interests under these and other permits to the respondent Tide Water Associated Oil Company, which later became Tidewater Oil Company, hereinafter referred to as “Tidewater”. Under this agreement Tidewater agreed that, during such time as it retained its interest in the lands covered by the assigned permits, whether under permit, lease or other form of title from the Government of the Province of Saskatchewan, it would pay to Gulf 2½ per cent of the sale value of oil produced

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from the lands covered by the permits, 2½ per cent of the sale value of gas produced from those lands and 2½ per cent of the sale value of 35 per cent of the gasoline extracted from gas produced from those lands.

Clause 10 of the Tidewater agreement provided as follows:

10. It is expressly agreed that Assignee does not intend to create and does not hereby create any joint tenancy, or tenancy in common, in any interest in said lands, or in the oil, gas and other hydrocarbons which may be produced therefrom, and Assignor hereby expressly disclaims any right, title, interest or estate in said lands, or any of said products, by reason of any of the provisions of this agreement; that Assignee, in its operation on said lands, shall have full discretion to conduct such operations in whatever manner it shall see fit without incurring any liability whatsoever to Assignor; that nothing herein contained shall be deemed to obligate Assignee to produce, save or sell, or otherwise dispose of oil, gas, or gasoline from said lands and that Assignee may, and is hereby irrevocably empowered to, at any time at its election, without any consent or participation by Assignor, modify, surrender, assign, terminate or otherwise dispose of its interest in said lands with respect to all or any part of said lands, and upon any surrender or termination of Assignee’s interest in said lands, this agreement shall ipso facto terminate with respect to said lands covered by such surrender or termination; provided, however, that if Assignee shall assign or otherwise dispose of its interest in said lease as to all or any part of said lands, said assignment or other disposition shall be made subject to the assumption by the Assignee thereunder of all rights and obligations of Assignee under said lands and under this agreement with respect to the lands covered thereby, and thereafter Assignee shall be released and discharged of and from all further obligations and liabilities hereunder with respect to the lands covered thereby; provided, further, however, that in every instance of the proposed surrender or termination of said lands, in whole or in part, Assignee shall give Assignor thirty (30) days’ written notice of such intention within which time Assignor shall have the right to elect whether or not to take over that part of the lands proposed to be surrendered or terminated by giving written notice to Assignee, and any reassignment to Assignor shall be made subject to the foregoing conditions of assumption and release.

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On May 15, 1950, Gulf entered into an agreement with the appellant, hereinafter referred to as “Montreal”. This agreement, hereinafter referred to as “the royalty trust agreement” contained the following relevant recitals and provisions:

AND WHEREAS Gulf is desirous of issuing certificates for its two and one-half per cent (2½%) royalty, as defined in the preceding recital and in the Tidewater Agreement, and for that purpose desires to assign to the Trustee all its, right, title and interest to all royalty payments to which it may, by the terms of the Tidewater Agreement, become entitled;

AND WHEREAS the Trustee has agreed to accept the assignment of Gulfs royalty aforesaid upon the terms and conditions hereinafter set forth;

…

2. ASSIGNMENT OF GULF’S ROYALTY:—

Gulf does hereby forever set over, transfer, assign, convey and deliver unto the Trustee all royalty payments which may by the terms of the Tidewater Agreement become hereafter payable by Tidewater, or its successors or assigns, to Gulf.

3. ROYALTY CERTIFICATES:—

The royalty payments, by the preceding clause hereof assigned to the Trustee … shall be regarded as divided into one hundred and eighty thousand (180,000) units, to be known and hereinafter referred to as “Gross Royalty Units”. The Trustee shall issue royalty certificates, hereinafter referred to as “Gross Royalty Trust Certificates” covering the said Gross Royalty Units, which said Gross Royalty Certificates shall be in the form as set out in Schedule “B” hereto. Such Gross Royalty Trust Certificates shall forthwith upon the execution of this Agreement, be issued by the Trustee to, and in the name of Gulf, or to, and in the name of, such person or parties as Gulf may designate or nominate to the Trustee in writing, and each Certificate shall be respectively issued in the proportions designated by Gulf to the Trustee in writing.

4. …

Each full Gross Royalty Unit issued under this Agreement shall entitle the holder to one one hundred and eight-thousandth part of the two and one-half per cent (2½%) royalty assigned to the Trustee hereunder, less and subject only to deductions for income and other taxes, if any, and of the costs and expenses, including those of the Trustee, as hereinafter set forth and provided.

…

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15. EXERCISE OF RIGHTS ORDER SUBLEASE:—

Nothing in this Agreement herein contained shall be taken or construed as an assignment or transfer of the Tidewater Agreement itself, but in the event of any default by Tidewater in the payment of the royalty made payable by the terms of the Tidewater Agreement, Gulf shall, on being indemnified as to its costs, charges and expenses in connection therewith, itself take, or permit the Trustee to take in its name, such steps or proceedings as counsel for the Trustee may advise with respect to any such default and the enforcement of Gulfs rights to the royalty payments agreed by Tidewater to be paid, pursuant to the terms of the Tidewater Agreement.

The Tidewater Agreement was annexed to the royalty trust agreement as Schedule A and was declared to be a part of it.

On the same day, May 15, 1950, Gulf gave a notice of the assignment to Tidewater. It reads as follows:

NOTICE OF ASSIGNMENT

TO: Tide Water Associated Oil Company,

79 New Montgomery Street,

San Francisco, California,

U.S.A.

WHEREAS, by a certain Agreement in writing dated the 6th day of June, 1949, made between the undersigned, Gulf Securities Corporation Ltd. (hereinafter called “Gulf”) of the one part, and Tide Water Associated Oil Company (hereinafter called “Tide Water”), of the other part, Gulf Securities Corporation Ltd. did assign, transfer and set over to Tide Water certain oil and gas exploration Permits theretofore granted to Gulf by the Province of Saskatchewan, the lands covered by the said Permits comprising an area of approximately nine million (9,000,000) acres, situated in the Province of Saskatchewan aforesaid;

AND WHEREAS, in consideration of the assignment of the said Permits by Gulf to Tide Water, the said Agreement of June 6th, 1949, provided that Tide Water, so long as it should retain its interest in any lands covered by the said Permits, would account for, and pay to, Gulf, from the proceeds of sale of oil, gas and gasoline produced, saved and/or sold from the lands covered by the said Permits, certain royalty payments, all as provided in and subject to the terms of, the said Agreement of June 6th, 1949;

AND WHEREAS, by the terms of a Royalty Trust Agreement, dated the 15th day of May, 1950, and made between Gulf Securities Corporation Ltd., of the one part, and Montreal Trust Company, of the other part,

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Gulf has assigned to Montreal Trust Company all Gulfs right, title and interest in all future payments of the royalty which may become payable by Tide Water pursuant to the provisions of the Agreement of June 6th, 1949, first above mentioned, such assigned payments of royalty to be subject, in all respects, to the provisions of the last-mentioned Agreement;

NOW, THEREFORE, Gulf hereby gives notice to Tide Water that it has assigned to Montreal Trust Company all future payments of royalty which, by the terms of the said Agreement of June 6th, 1949, may become payable to Gulf; that the said Assignment to Montreal Trust Company is an absolute assignment of all Gulfs right, title and interest in the said payments, and that Montreal Trust Company is, by virtue of the terms of the said Royalty Trust Agreement, dated the 15th day of May, 1950 entitled to receive all such future payments of royalty, and to give a binding receipt therefor;

AND Gulf Securities Corporation Ltd. in consideration of the acceptance of this Notice by Tide Water, does hereby covenant that it will at all times save harmless and indemnify Tide Water against all claims and demands which may be made by it, or by any other person or corporation by reason of any royalty payments hereafter made by Tide Water directly to Montreal Trust Company, in accordance with the terms of this Notice;

ALL royalty payments aforesaid shall be made to Montreal Trust Company at its office at 112—Seventh Avenue West, Calgary, Alberta, Canada.

On July 17, 1950, Tidewater acknowledged and accepted this Notice of Assignment and undertook to make payments to Montreal in accordance with the terms of the notice. The operative portion of the acceptance reads as follows:

TIDE WATER ASSOCIATED OIL COMPANY, Operator, hereby acknowledges and accepts the above Notice of Assignment of royalty payments by Gulf Securities Corporation Ltd. to Montreal Trust Company, and hereby agrees that all payments of royalty pursuant to the agreement of June 6, 1949, accruing hereafter and prior to a termination in any manner of the Royalty Trust Agreement dated May 15, 1950, and referred to in said Notice of Assignment, will, subject to the terms and conditions of the said Agreement of June 6, 1949, be made by Tide Water Associated Oil Company directly to Montreal Trust Company, in accordance with the terms of the above Notice.

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On September 14, 1956, a Crown, Petroleum and Natural Gas Lease No. PN 1310 was granted to Tidewater covering lands in Permit No. 159 which included the N1/2 32-6-4-W2. Similarly, a lease, No. PN 1572, was granted by the Crown on September 14, 1956, to Tidewater covering the E1/2 6-6-2-W2 which arose out of Permit No. 160. Both leases were from July 1, 1956, for 21 years renewable for further terms of 21 years.

By letter dated February 26, 1960, Tidewater notified Gulf that it intended to surrender a number of leases to the Crown including Leases PN 1310 and PN 1572.

Subsequently, by letter dated March 24, 1960, Gulfs solicitors wrote to Tidewater electing to take assignment of some of the acreage to be surrendered by Tidewater. The letter read as follows:

Re:	Gulf Securities Corporation Ltd. request for Assignments of leases on 58,995 acres in Saskatchewan.

Please be advised that our client, Gulf Securities Corporation Ltd., hereby exercises its right to take Assignments of 58,995 acres, more or less, being some of the lands covered by notices given by your Company. The said 58,995 acres are more particularly described in Schedules “A” and “B” to this letter.

…

The lands in question in this action were covered by this letter. Arrangements were made by Gulf with Imperial Oil Limited, hereinafter referred to as “Imperial”, to have the latter take over the leases. Gulf made an agreement on April 20, 1960, with Imperial reserving an overriding gross royalty of two and one-half per cent (2½%) in respect of the leases. Tidewater was not a party to this agreement.

An agreement dated September 6, 1960, was entered by Tidewater, Imperial and Gulf under which Tidewater assigned to Imperial, inter alia, Lease No. PN 1310 as it related to the N1/2 32-6-4-W2 and Lease No. PN 1572. The assign-

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ment made no reference to the overriding royalty to be paid by Imperial.

In due course the Assignment of Lease No. PN 1572 was recorded in the records of the Department of Mineral Resources and a separate lease was issued to Imperial numbered PN 4879 to cover the N1/2 32-6-4-W2 which was cancelled from Lease No. PN 1310.

Imperial obtained production of oil from the lands covered by these leases and paid to Gulf the royalties stipulated in the agreement with Gulf dated April 20, 1960.

Montreal brought action against Gulf, against Tidewater and against the other four respondents. As against Gulf it claims entitlement to the royalties paid and payable by Imperial and seeks an accounting and payment of the amount found to be payable. As against Tidewater it claims damages because Tidewater had failed to stipulate, in the assignment to Imperial, for the assumption by Imperial of the obligation to make the royalty payments to Montreal. Montreal contends that this obligation rests upon Tidewater by virtue of the assignment made by Gulf to Montreal and accepted by Tidewater. The four respondents, other than Tidewater, are alleged to constitute a syndicate, with Tidewater, on behalf of which Tidewater made its agreement with Gulf.

Montreal succeeded at trial as against Gulf. The learned trial judge stated his reasons as follows:

Insofar as Gulf is concerned I have reached the conclusion that by virtue of the contract between the plaintiff and Gulf, which is found in the provisions of the Tidewater Agreement and the Royalty Agreement which incorporated the Tidewater Agreement, that Gulf was bound to pay to the plaintiff the 2½% of the sale value of those products referred to in paragraph 5 of the Tidewater Agreement which it, Gulf, might receive from the production of lands under the leases obtained pursuant to said permits. It could not avoid its liability by following the course of a direct assignment to Imperial. It was the party which imposed upon Tidewater the conditions of assumption referred to in the latter part of clause 10 of that Agreement and if it became an assig-

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nee or the nominator of an assignee I believe it should be bound by those conditions.

He dismissed the action against Tidewater on the ground that there was no contractual obligation by Tidewater to Montreal. Its duty to Montreal would arise only in respect of production which Tidewater obtained from the lands in question.

The Court of Appeal allowed Gulfs appeal and dismissed Montreal’s cross-appeal as against Tidewater. The conclusion is as follows:

It appears to me that in order to sustain the judgment of the learned trial Judge, I would have to hold that all lands covered by the Tidewater agreement, with the possible exception of those surrendered directly to the Government, were impressed with an irrevocable payment of a two and one-half per cent royalty to Gulf. To reach this conclusion, I would have to ignore the real terms of the Tidewater agreement and render futile the specific provisions respecting termination and surrender. The provisions respecting termination and surrender are, in my view, clear and unambiguous and effect must be given thereto. As I have already stated, lands surrendered in accordance with provision of the Tidewater agreement would be effectively removed from the contract, and in respect of which there could be no royalty payments which would be subject to the Royalty Trust agreement.

APPEAL AS AGAINST GULF

I will deal first with Montreal’s appeal as against Gulf. The liability of the latter to the former must be determined on a consideration of the obligations assumed by Gulf under the provisions of the royalty trust agreement. In cl. 2 of that agreement Gulf assigned to Montreal all royalty payments which, by the terms of the Tidewater agreement, became payable by Tidewater, or its successors or assigns, to Gulf. (The emphasis is my own.)

Although Tidewater had, by performance of the relevant conditions, qualified to obtain and had obtained the petroleum and natural gas leases involved in this matter, it had never obtained production of either substance so as to entitle Gulf to claim from it the appropriate royalty on production. However, the royalty trust agreement is not limited to royalty payments by Tidewater, but also

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includes royalty payments which, by the terms of the Tidewater agreement, become payable to Gulf by Tidewater’s successors or assigns.

The term of the Tidewater agreement which is all important in this connection is cl. 10, which has been cited. That clause empowered Tidewater, without Gulfs consent, to assign all or any part of its interest in the lands in question, but, subject to the condition that such assignment “be made subject to the assumption by the Assignee thereunder of all rights and obligations of (Tidewater) under said lands and under this agreement with respect to the lands covered thereby”.

It is clear, therefore, that, had Tidewater elected to assign its interest under the two petroleum and natural gas leases involved here, it would have been obligated to insist that the assignee should assume the royalty obligation to Gulf imposed by the Tidewater agreement. It is equally clear that, in such event, the royalties payable by Tidewater’s assignee to Gulf would have been caught by the provisions of cl. 2 of the royalty trust agreement.

Clause 10 also permitted Tidewater to surrender to the Crown its interest in the petroleum and natural gas leases. If that had been done those leases would have terminated. However, that right of surrender was subject to a condition. If Tidewater proposed to surrender such interest it was obligated to give to Gulf 30 days’ notice of that intent. Within that time, Gulf had the right, by written notice, to elect to take over the lands proposed to be surrendered. If it so elected, any reassignment was to “be made subject to the foregoing conditions of assumption and release”. The foregoing condition of “assumption” relates back to the requirement, on an assignment by Tidewater, that the assignee assume all Tidewater’s rights and obligations under the agreement. One of those obligations was in respect of royalty payments to Gulf.

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In the event, Tidewater desired to surrender the two petroleum and natural gas leases. Gulf exercised its right to ask for a reassignment, but, instead of requesting an assignment of the leases to itself, requested Tidewater to assign its interest under the leases to Imperial. Under the provisions of cl. 10, that assignment was required to be made subject to Tidewater’s royalty obligation to Gulf.

The question in issue is, therefore, whether Imperial was a successor or assign of Tidewater within the meaning of cl. 2 of the royalty trust agreement.

The Court of Appeal, without specifically referring to cl. 2 of the royalty trust agreement, said this:

The surrender could be effected in two ways. There could be a direct surrender to the Government. In such a case, clearly the lands would be effectively removed from the contract and would be of no further concern either to Tidewater or to Gulf. The surrender could also be effected by a re-assignment to Gulf and Gulf electing to take over the lands proposed to be surrendered. If, as a result of such election, the lands were re‑assigned to Gulf, they would, in my opinion, be as effectively removed from the contract as if they had been allowed to revert to the Government. Upon such re‑assignment, the only obligation undertaken by Gulf was the assumption of the obligations to the Government in respect of such lands which had been assumed by Tidewater under the Tidewater agreement. To suggest that in such a case the re‑assignment would be subject to payment to itself of the sums provided for in clause 5 of the agreement is not only illogical, but contrary to the whole purpose and intent underlying the provision for termination or surrender.

In my view, the fact that Gulf, in exercising its right to take over the lands which Tidewater proposed to surrender, directed that the assignment be made to Imperial Oil rather than to itself in no way altered the situation. Such assignment was made pursuant to the provision relating to surrender and was not that type of assignment contemplated by clause 10, to which obligations under paragraph 5 would attach.

In my opinion the Court of Appeal erred in equating what occurred here to an outright surrender by Tidewater of its interest in the two petroleum and natural gas leases. Had such a

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surrender been effected to the Crown those leases would have been terminated. But they were not surrendered. Instead, Gulf called upon Tidewater to assign its interest under the leases to Imperial. The leases, which Tidewater had obtained, by performance of the conditions attached to the permits, remained in effect and Imperial became the assignee of Tidewater’s interest under them. Clause 10 of the Tidewater agreement contemplated the assumption by Imperial of Tidewater’s royalty obligations in respect of them. In view of these circumstances my view is that Imperial was an assignee of Tidewater and the royalty payments required to be paid by Imperial to Gulf were within the provisions of cl. 2 of the royalty trust agreement. In my opinion, when Gulf made its commitment to the holders of the royalty trust certificates under cl. 2 of the royalty trust agreement, it gave to them the benefit of royalties payable to Gulf by any assignee of Tidewater if such assignment was effected by virtue of the operation of cl. 10 of the Tidewater agreement.

APPEAL AS AGAINST TIDEWATER

Montreal alleges that Tidewater owed a duty to it to ensure that, upon the assignment of its interests to Imperial, the overriding royalty stipulated by Gulf should be payable by Imperial to Montreal and not to Gulf. Montreal seeks damages from Tidewater for the alleged breach of that obligation.

The only contractual obligations undertaken by Tidewater under the Tidewater agreement were to Gulf. Tidewater’s duty, under cl. 10 of that agreement, to do certain things in the event of its surrendering or assigning its interest was a duty owed solely to Gulf. Montreal was not the assignee of Gulfs rights under the Tidewater agreement. The opening words of cl. 15 of the royalty trust agreement specifically provide that:

Nothing in this Agreement herein contained shall be taken or construed as an assignment or transfer of the Tidewater Agreement itself.

[Page 723]

The assignment made in cl. 2 of the royalty trust agreement was solely an assignment by Gulf to Montreal of royalty payments payable to Gulf by the terms of the Tidewater agreement by Tidewater or by Tidewater’s successors or assigns. It was Gulfs obligation to see that such royalty payments were received by Montreal.

In implementation of that obligation Gulf gave to Tidewater a notice of the royalty assignment which it had made in favour of Montreal.

I have already recited the terms of the actual notice of assignment. It makes no reference to the assignment made in the royalty trust agreement of royalties payable by Tidewater’s successors or assigns. It refers only to royalties payable by Tidewater. It is nothing more than a notice requiring Tidewater to pay to Montreal royalties which might be payable by it to Gulf under the Tidewater agreement.

Section 2 of The Choses in Action Act, R.S.S. 1940, c. 292, which was in effect at the time the assignment was made, provided as follows:

2. Every debt and every chose in action arising out of contract shall be assignable at law by any form of writing containing apt words in that behalf, but subject to such conditions and restrictions with respect to the right of transfer as may appertain to the original debt or as may be connected with or be contained in the original contract; and the assignee thereof may bring an action thereon in his own name as the party might to whom the debt was originally owing or to whom the right of action originally accrued, or he may proceed in respect of the same as though this Act had not been passed.

This provision could not give to Montreal, in respect of its assignment from Gulf, anything more than the statutory right to claim against Tidewater any royalty payments which it, in the absence of the assignment, would have been compelled to pay to Gulf. Tidewater never obtained production of petroleum or natural gas from the lands in question and so no obligation to pay royalties ever arose.

Tidewater acknowledged the notice of assignment, and, for the purposes of convenience of reference, I repeat that acknowledgment:

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TIDE WATER ASSOCIATED OIL COMPANY, Operator, hereby acknowledges and accepts the above Notice of Assignment of royalty payments by Gulf Securities Corporation Ltd. to Montreal Trust Company, and hereby agrees that all payments of royalty pursuant to the agreement of June 6, 1949, accruing hereafter and prior to a termination in any manner of the Royalty Trust Agreement dated May 15, 1950, and referred to in said Notice of Assignment, will, subject to the terms and conditions of the said Agreement of June 6, 1949, be made by Tide Water Associated Oil Company directly to Montreal Trust Company, in accordance with the terms of the above Notice.

Montreal seeks to construe this acknowledgment as involving a commitment by Tidewater to it to ensure that payments of royalty, not by Tidewater, but by its successors or assigns, should be made to Montreal and not to Gulf. It stresses the words “all payments of royalty pursuant to the agreement of June 6, 1949”.

To support this contention it is necessary to construe the acknowledgment as creating a contractual obligation by Tidewater to Montreal. But the acknowledgment was not a contract between Tidewater and Montreal. The notice of assignment was given to Tidewater by Gulf. It was a notice by a potential creditor to a potential debtor that the debt had been assigned. Tidewater’s acknowledgment of the assignment was given to Gulf. This acknowledgment could not impose on Tidewater an obligation beyond the payment to Montreal of its own debts to Gulf. This contention overlooks the concluding words of the acknowledgment, “be made by Tide Water Associated Oil Company directly to Montreal Trust Company, in accordance with the terms of the above Notice”. Tidewater was certainly not committing itself to pay royalties payable by its successors or assigns.

In my opinion the notice of assignment and its acknowledgment by Tidewater relate only to royalties which might have become payable by Tidewater.

It is contended that because Tidewater was obliged to pay to Montreal royalties due from it to Gulf it was also obligated when its leases were

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assigned to Imperial to stipulate that Imperial should pay the overriding royalty to Montreal. In considering this submission it is necessary to recall the circumstances in which that assignment was made.

Tidewater did not seek to exercise the powers given to it under cl. 10 of the Tidewater agreement to assign the leases. It sought to exercise the power, given by that clause, to surrender the leases to the Crown. Before it could do so, Gulf had the right to require the assignment of the leases to itself, and it elected to do so. Tidewater was then obligated to assign the leases to Gulf. Gulf made an agreement with Imperial, to which Tidewater was not a party, to assign the leases to Imperial, Imperial agreeing to pay to Gulf the overriding royalty.

Instead of taking an assignment to itself and thereafter assigning to Imperial, Gulf arranged for an assignment to be made directly from Tidewater to Imperial, under an agreement to which all three companies were parties. That agreement related that:

And Whereas Tidewater is desirous of surrendering the leases to the extent that the same cover or relate to the said lands (hereinafter called “the said leases”) and pursuant to the said agreement dated the 6th day of June A.D. 1949, Gulf has elected to take over the said leases.

Tidewater in the agreement then assigned the leases to Imperial. The agreement made no reference whatever to any overriding royalty payable by Imperial to Gulf. In making that assignment Tidewater was performing its contractual duty to Gulf, which arose, under cl. 10 of the Tidewater agreement, when it sought to surrender the leases. That clause imposed no duty on Tidewater in favour of Montreal, because, as already pointed out, the royalty trust agreement did not assign to Montreal the Tidewater agreement itself.

The only legal duty owed by Tidewater to Montreal was that resulting from the notice of assignment of royalties, i.e. to pay to Montreal any royalties which under the terms of the Tidewater agreement might become payable by it to Gulf.

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In summary, the following points are of importance:

1. Montreal was not an assignee from Gulf of the Tidewater agreement. It did not become entitled to enforce, as against Tidewater, the obligations which Tidewater had undertaken to Gulf under cl. 10 of that agreement.

2. Tidewater was under no contractual obligation to Montreal. Its only legal duty to Montreal was to honour the notice of assignment of royalties which it had received, and which related solely to royalties which might become payable by Tidewater in respect of its production from the lands described in the Tidewater agreement.

3. The provisions of the royalty trust agreement applied to royalties payable by Imperial which, at the instance of Gulf, had become the successor or assign of Tidewater. The obligation to require payment to Montreal rested solely upon Gulf. Notice of the assignment of Gulfs royalties effected by cl. 2 of the royalty trust agreement should have been given to Imperial by Gulf or by Montreal. No duty to give such notice was imposed upon Tidewater.

In the result, I would allow the appeal of Montreal as against Gulf, set aside the judgment of the Court of Appeal in respect of Gulf and restore the judgment at trial, with costs in this Court and in the Court of Appeal. I would dismiss Montreal’s appeal as against Tidewater and the other respondents, with costs.

The judgment of Pigeon, Dickson and de Grandpré JJ. was delivered by

PIGEON J. (dissenting in part)—I have had the advantage of reading the reasons prepared for delivery by my brother Martland. I agree with him on the appeal as against Gulf Securities Corporation Ltd. (“Gulf”), but I have to differ as against Tidewater Oil Company (“Tidewater”) and the other respondents.

I will start by saying that I do not think anyone will deny that, if the overriding royalty had become payable by Tidewater and had been paid

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to Gulf rather than to Montreal Trust Company (“Montreal”), the latter would have had a good cause of action against Tidewater by virtue of the assignment, the notice thereof and the acknowledgement and acceptance. Even apart from The Choses in Action Act, Gulf being a party to the action, the assignment was enforceable in equity if not in law, and this requirement is only a matter “of procedure and not of substance”: Regas Ltd. v. Plotkins[2], at p. 571.

In the second place, it is clear from the reasons stated by Martland J. on the appeal as against Gulf that the assignment, although not of the entire agreement but of the royalty only, covers the royalty becoming payable by an assignee of Tidewater as well as the royalty becoming payable by Tidewater itself.

However, at Gulfs request, Tidewater made an assignment of the lease to Imperial Oil Limited (“Imperial”) in such terms that the royalty became payable to Gulf by the assignee. I fail to see how it could be less of a breach of Tidewater’s obligation to Montreal to have the royalty paid by its assignee to Gulf than to so do itself.

Tidewater must be held to have known that the assignment of the royalty to Montreal was made for the purpose of enabling Gulf to deal with the royalty trust certificates and the purpose of the notice of the assignment was to ensure that Tidewater would not pay the royalty to Gulf but to Montreal. When Tidewater assigned the lease to Imperial, it was therefore bound to stipulate for payment of the royalty to Montreal, not to Gulf. I cannot agree that this needed to be spelled out in so many words. If Tidewater assigned the lease its obligation was to stipulate for payment to no other than the true creditor of the royalty.

In a case where solicitors completed a settlement without taking care to protect the bank that was the transferee of the claim, this Court held that the debtor was liable to the bank: The Saint John and Quebec Railway Co. v. The Bank of British

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North America and The Hibbard Co.[3], Mignault J. said (at pp. 352-353):

I have no doubt that Mr. Hanson acted in absolute good faith, for solicitors as a rule object to any change in resolutions drafted by them for the payment of moneys by their clients, the more so if the disposal of the moneys is, by such changes, made subject to conditions or restrictions. But the fact still remains that the addition made to the first draft of the resolution should have put Mr. Hanson on inquiry as to what were the rights of transfer and subrogation of the bank. In plain English it stated that the bank was a transferee of the claim and was subrogated in any right of recovery of the Hibbard Company. Mr. Hanson could not close his eyes to this plain intimation and make an unconditional settlement with Mr. Gall without running the risk of the trouble that has arisen from the action of Mr. Gall in illegally paying himself out of moneys of which, even under Mr. Hanson’s draft resolution, he was a trustee. The bank, at the time of the trial, was still a creditor of the Hibbard Company for more than $5,000.00, and, although it had possibly ample security, it had the right to receive any moneys due to the Hibbard Company under the transfer the latter had made to it.

As another illustration of implied terms in an assignment of a future debt, I would refer to the case of Fraser v. Imperial Bank of Canada[4].

Duff J. (as he then was) summarized as follows the conclusions of the majority in this Court (at pp. 380-381):

It was only after the contract had been completed by Fraser’s exertions and at his own cost and Garson was in his last illness that the claim to appropriate the reward of Fraser’s work under the bank’s assignment was, for the first time, suggested. It would be something of a reproach upon the law if in such circumstances such a claim could be allowed to prevail in a court of justice.

To summarize for the sake of clearness these rather lengthy reasons for disagreeing with the court below. The evidence, and notably that which discloses the conduct of the parties, conclusively justifies the finding of the trial judge that there was in April an arrangement

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between Garson and Fraser by which Fraser was to assume the building of the stations on the Outlook Branch in performance of Garson’s contract with the Canadian Pacific Railway Co. and that by the same arrangement the moneys paid under that contract by the railway company to Garson were by him to be paid over to Fraser. It is, moreover, established that the bank had notice that an arrangement of this character had been made between Fraser and Garson at least as early as July. The proper inference from the facts in evidence (including the course of the bank in the conduct of its defence) is that no obligation from Garson to the bank which came into existence as early as July, and for which the assignment was to stand as security, is still unsatisfied. It follows that assuming the assignment of June to have been taken without notice of the appellant’s rights and to have the effect of vesting in the bank the legal title to moneys (as soon as such moneys should be earned) which should become payable to Garson under the Outlook contract—still the bank having had notice of Fraser’s rights before any debt was incurred for which it is now entitled to hold the assignment as security, cannot on well-known principles successfully assert any claim upon those moneys as against Fraser.

Remedies for breach of obligations do not require to be specified in a contract. In Re Polymer Corp.[5], it was held that, under an arbitration clause in general terms, a board of arbitrators could award damages suffered by reason of a strike held in breach of a collective agreement, although the agreement embodied no express stipulation for such remedy. In Lounsbury Co. Ltd. v. Duthie and Sinclair[6], this Court held that an unpaid vendor was liable in damages for breach of his obligation under the contract to effect a provident sale and that this obligation was not destroyed by the vendor making an assignment of the contract to a third party in consideration of the payment of the balance due.

It was strenuously contended that, because Tidewater had first given a notice of intention to surrender the lease and made the assignment to Imperial on the instructions of Gulf after the latter had elected to have the lease assigned back to it,

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the obligations of the parties should be determined as if, instead of a direct assignment by Tidewater to Imperial, there had been an assignment to Gulf followed by another assignment by Gulf to Imperial. In my view this contention is wholly ill-founded not only for the reasons given by Martland J. on the appeal as against Gulf, but also because, even on that view of the operation, the legal result should be the same. Tidewater having had notice of the assignment of the royalty to Montreal could not assign the lease to Gulf otherwise than subject to the obligation of paying the royalty to Montreal. The royalty was no longer in favour of Gulf, therefore, Gulf could only take an assignment subject to the obligation of paying this royalty to Montreal. Tidewater would have been in breach of its obligations to Montreal just as if it had made an assignment of the lease to Gulf without protecting Montreal’s rights. The situation would have been exactly the same in that respect as in The Saint John and Quebec Railway case, supra.

I would allow the appeal against all respondents with costs in this Court and in the Court of appeal and restore the judgment at trial but vary the same by substituting for the dismissal against the defendants other than Gulf, a declaration that all the defendants are jointly and severally liable in damages to the plaintiff so that in the aggregate the plaintiff will recover damages to the date of judgment equivalent to the amount of royalty the plaintiff is entitled to receive together with interest.

Appeal allowed in part, PIGEON, DICKSON and DE GRANDPRÉ JJ. dissenting.

Solicitors for the plaintiff, appellant: MacPherson, Leslie & Tyerman, Regina.

Solicitors for the defendant, respondent, Gulf Securities Corporation Ltd.: Shumiatcher & Associates, Regina.

Solicitors for the defendants, respondents, Tidewater Oil Company and associated companies: Balfour, Moss, Milliken, Laschuk, Kyle, Vancisse & Cameron, Regina.