David M. Wilson (Plaintiff) Appellant;
and
Milton H. Ward (Defendant) Respondent
1929: October 7; 1929: December 9.
Present:—Anglin C.J.C. and Duff, Rinfret, Lamont and Smith
JJ.
ON APPEAL FROM THE APPELLATE DIVISION OF THE SUPREME COURT OF
ALBERTA
Contract—Construction—Nature of transaction—Whether loan
secured on land or agreement of sale of land with option of
re-purchase—Admission of parol evidence—Findings on the evidence—Transaction in
substance a loan on security—Stipulation for right of purchase in lender, void
as repugnant to equitable right of redemption.
[Page 212]
It was held, reversing judgment of the Appellate
Division, Alta., 24 Alta. L.R. 48, and restoring judgment of Boyle J. at trial,
that the agreement embodied in the document in question, between P. (appellant's assignor) and
respondent, was, not for the sale of land from P. to respondent with an option of repurchase, but for a loan
from respondent to P. on security
of the land. The document, taken by itself, in certain respects favoured the
latter construction. But, further, the parties' rights were not to be
determined exclusively by examining the terms in the document; evidence was
admissible, not only of the surrounding circumstances, but also of all the oral
or written communications between the parties relating to the transaction, for
the purpose of determining its true nature (Lincoln v. Wright, 4
De G. & J. 16, at p. 22; Maung Kyin v. Ma Shwe La, 45 Indian
L.R. [Calcutta series], 320, at p. 332, and other cases cited). Even where the
instrument professes fully and clearly to give the reasons and considerations
on which it proceeds, collateral evidence is admissible to shew that the
transaction is not thereby truly stated, although, in such cases, only the most
cogent evidence avails to rebut the presumption to the contrary (Barton v.
Bank of N.S.W., 15 App. Cas. 379, at p. 381). In the present case, in
view of the summary character of the document and the superficial incoherence
of its terms, resort to parol evidence was peculiarly appropriate; and upon all
the evidence (as viewed by this Court, and with the findings thereon by the
trial judge) the substance of the transaction must be held to have been a loan
on security. In such case the court will disregard, as repugnant to the
equitable right of redemption, a stipulation professing to confer upon the
lender the right of purchase, even if the parties, between themselves, had
intended that it should be binding (G. & C. Kleglinger v. New
Patagonia Meat & Cold Storage Co. Ltd., [1914] A.C. 25, at p. 52, and
other cases, cited).
APPEAL by the plaintiff from the judgment of the Appellate
Division of the Supreme Court of Alberta which
held, reversing the judgment of Boyle J. at trial, that the agreement set out
in the document in question (quoted
[Page 213]
in full in the judgment now reported),
made between one Pellon (who later transferred to plaintiff his interest in the
land in question and in said agreement) and the defendant, was an agreement of
sale of land from Pellon to the defendant, and not, as contended by the
plaintiff, in effect a mortgage to secure a loan from the defendant to Pellon.
By the judgment now reported the appeal was allowed, with
costs in this Court and in the Appellate Division, and the judgment of the
trial judge was restored.
W. N. Tilley K.C. for the appellant.
E. Lafleur K.C. and A. A. Ballachey K.C. for the
respondent.
The judgment of the court was delivered by
DUFF J.—In May, 1927, A. L.
Pellon was the registered owner of section 23 and of the south half and
the north-east quarter of section 25, Township 20, Range 24, Alberta (1120
acres), subject to a lease in favour of the respondent for two years from the
1st of February, 1927, and to a charge securing a balance of purchase money
owing to the Crown, and to certain executions. The beneficial owner of the
lands in section 25 was the appellant, and for some years Pellon had farmed
both parcels, for the appellant and himself as partners. Pellon had become
involved in financial difficulties, judgments had been recovered against him,
and executions thereunder had been filed against the appellant's land as well
as his own.
In these circumstances Pellon applied for a loan on the 13th of May, 1927, to the respondent, who paid to Pellon, on the same day, $1,500 by
cheque. The issue in the appeal is: What was the character of the transaction,
between these parties, of that date?
The appellant, to whom, in April, 1928, Pellon transferred
section 23, says that Pellon borrowed from the respondent $1,500, and that this
sum, together with $300 borrowed in March of the same year, was made a charge
upon section 23, the whole principal of $1,800, with interest from the dates of
the respective loans, being repayable in ninety days. The respondent denies the
loan and avers
[Page 214]
that the agreement between him and Pellon
was an agreement for the sale of section 23 on terms set forth in a document of
that date.
The trial judge found that the agreement was in fact of the
character contended for by the appellant, and his judgment was reversed by the
Appellate Division, who
held that the transaction was a sale.
The document is in these words:
This Agreement is made in duplicate
this 13th day of May, 1927, Between
Arthur L. Pellon, party of the first part,
and
Milton H. Ward, party of the second part.
Whereas the party of the first part is the owner of Section
23, Township 20, Range 24, West of the Fourth, and is desirous of obtaining a
loan on the same for the sum of $1,800, and whereas the party of the second
part is willing to advance the said amount on the following conditions:
Namely that in consideration of the said loan the party of
the first part hereby agrees to sell the said lands to the party of the second
part at or for the sum of $24,320. The sum of $1,800 being paid on the
execution of this Agreement, receipt is hereby acknowledged, and the balance to
be paid at the rate of $5,000 per year on December 1 of each year until paid,
beginning with December 1, 1927.
Providing, nevertheless, that an option is hereby granted to
the party of the first part to purchase back the said lands from the party of
the second part herein within 90 days from the date hereof, at or for the sum
of $1,840, said option to be exercised by him within 90 days from the date
hereof.
In witness hereof both of the parties hereto have set their
hands and seals this 13th day of May, 1927.
Arthur L. Pellon (Seal)
M. H. Ward (Seal)
The document is unusual in form, and upon the construction of it
as it stands, there is room for divergent views. On the part of the respondent,
it is contended that it embodies an agreement for sale and purchase of the
lands mentioned for the sum of $24,320, of which $1,800 is acknowledged as paid
on the execution of the agreement, and of which the residue is to be paid
according to the terms stated; with a stipulation in favour of the vendor
awarding him an option of re-purchase at the price of $1,840, to be exercised
within ninety days of the date of the document, that is to say, on or before
the 11th of August ensuing.
[Page 215]
This view of the document was accepted by the Court of Appeal. It
is a view, however, open to criticism. In the first paragraph, the parties
declare that the appellant is desirous of obtaining a loan of $1,800, secured
on the property in question, and that on the "following conditions"
the respondent is willing to "advance the said amount." The
"conditions" are then set forth. It is important, in considering the
document, that while the subsequent paragraph contains the terms of an
undertaking to sell on the part of Pellon, this undertaking is expressed to be
in "consideration of the said loan"—that is to say, if the words are
not to be emptied of all meaning, in consideration of a loan, by the respondent
to Pellon, secured upon Pellon's property.
The view for which the respondent contends necessitates the
rejection of this recital with which the document opens and which professes to
declare its central purpose. By that I mean, that the application for the loan
is affirmed, that the assent of the lender to grant the loan is affirmed; true,
the assent is upon conditions, but when the conditions are stated, they are
stated as conditions agreed to in consideration of the loan, which has been
arranged between the parties. The basis of the transaction is a loan. All this,
if we are to accept the respondent's construction, must be deleted as
meaningless. A "loan" which does not involve an obligation of
repayment is a contradiction in terms.
The appellant's construction is by no means free from difficulty,
but in truth it involves no such radical operation as that required by the
respondent's. Strictly, to establish the appellant's contention, it is
necessary to ascribe to the recital its full effect and to read the proviso
giving an option to Pellon to repurchase the land as a proviso for redemption
on repayment of the loan with interest. That, of course, would be a departure
from the literal meaning of the words, but in that manner of reading them one
would be doing only what, in countless cases, the courts have done in similar
circumstances.
Reading the document thus, it would present no difficulty from
the legal point of view. The agreement for sale, on this hypothesis, is part of
the security transaction, that is to say, it is one of the terms of the loan,
and is a term which, on failure by the borrower to exercise the contractu
[Page 216]
al right of redemption, imposes a fetter
upon the equitable right, or rather limits and circumscribes the equitable
right in such a way as to entitle the lender to require the borrower to
transfer the subject of the security to him on the payment of certain specified
sums of money. To this subject it will be necessary to recur. For the present
it is sufficient to say that such a term, where the transaction is primarily
and substantively a loan on the security of the debtor's property, will be
disregarded by the courts.
It is unnecessary to say more on the construction of this
irregular document. In its terms it is not indubitably a contract of sale or a
contract for security, and the rights of the parties are not to be determined
exclusively by an examination of those terms. The learned trial judge rightly
held that evidence was admissible, not only of the surrounding circumstances,
but as well, of all the oral or written communications between the parties,
relating to the transaction, for the purpose of determining whether they were
truly effecting a sale of Pellon's property to Ward or a loan on the security of
Pellon's land. The pertinent rule is founded upon principle, and the principle
is thus stated by a great equity judge, Turner L.J., in Lincoln v.
Wright:
The principle of the Court is that the Statute of Frauds was
not made to cover fraud. If the real agreement in this case was that as between
plaintiff and Wright the transaction should be a mortgage transaction, it is,
in the eye of this Court, fraud to insist on the conveyance as being absolute,
and parol evidence must be admissible to prove the fraud.
This passage was approved and adopted by the Judicial Committee
(the Board including Lord Dunedin, Lord Shaw and Lord Sumner) in Maung Kyin v.
Ma Shwe La; and
the rule is enunciated or exemplified in a great number of reported cases. England
v. Codrington; Vernon
v. Bethell; Reeks
v. Postlethwaite; Hodle
v. Healey; Barton
v. Bank of New South Wales ; G.
& C. Kreglinger v. New Patagonia Meat and Cold Storage
Co. Ltd..
[Page 217]
Even where the instrument in question professes fully and clearly
to give the reasons and considerations on which it proceeds, collateral
evidence is admissible to show that the transaction is not thereby truly
stated, although in such cases, only the most cogent evidence avails to rebut
the presumption to the contrary, Barton v. Bank of N.S.W..
In the case before us, in view of the summary character of the document and the
superficial incoherence of its terms, resort to parol evidence is peculiarly
appropriate.
Pellon gave a plain statement of his dealings with the respondent.
He said that in March, 1927, he had borrowed $300 from the respondent, and that
on the 13th of May, the date of the document, he requested a further loan on
the security of lot 23. He suggested a mortgage; the respondent was doubtful
about the suggestion, in view of the fact that there were judgments and
executions against Pellon, and finally after interviewing his banker, he
informed Pellon that the banker had made a suggestion which was this: that
Pellon should give to the respondent an option on his property, which the
respondent could use as security for a loan from the bank, which was necessary
to enable the respondent to make the advance. To this Pellon assented, and they
went together to a solicitor, who drew up up the document in question, which they
executed. Some discussion arose as to the price to be named in the agreement,
and Pellon, according to his story, said that, in the circumstances, the price
was wholly immaterial, and the arbitrary figure of $38 an acre was inserted, on
that footing. At first, Pellon desired credit for only fifteen days, and
eventually ninety days was agreed to. In sum, Pellon's account is, that both
the respondent and himself understood the transaction to be, as described in
the recital, a loan upon security, and that the agreement was given the form in
which we find it solely to conform to the requirements of the banker.
Pellon fully expected to repay the loan on the stipulated date,
but finding that the source, from which he hoped to provide himself with the
means of doing so, had failed him, he informed the respondent of this by
telegram on the 20th of July, and requested him to make arrangements to bor-
[Page 218]
row, on the security of Pellon's share of
the crop, for the purpose of liquidating the debt. Receiving no answer to the
telegram, he went to Arrowwood, travelling from Montana, only to find that the
respondent was absent in Eastern Canada. Later, on his return home, he found a
letter purporting to be signed by the respondent, in these terms:
Arrowwood,
Alberta,
August 11, 1927.
Mr. Arthur L. Pellon,
Linton, Oregon, U.S.A.
Dear Sir:
Register and Return
Re All of Section Twenty-three (23) in Township
Twenty (20), Range Twenty-four (24). West of the 4th Meridian, Province of Alberta.
In connection with our Agreement of Sale dated the 13th day
of May, 1927, as you have not exercised your option to repurchase this land
from me within the 90 days as set out therein, I am now presuming that the land
is mine and that you have decided to carry out the Agreement according to the
tenor thereof as I have not heard from you to date.
Yours
very truly,
M. H. Ward.
Copy sent to the addressee at Linton, Oregon, U.S.A. and at Greybull,
Wyoming, U.SA., and at Northern Hotel, Billings, Montana, U.S.A.
On receiving this letter, Pellon wrote to the respondent as
follows:
Greybull, Wyo. 8/21/27.
M. H. Ward, Esq.,
Arrowwood, Alta.
Dear Sir,—
Upon my return to Greybull after an absence since July 12, I
find your letter of August 11, and am surprised at its contents.
I wired you from Twin Falls, Idaho, about July 20, about
this loan and never received a reply and then I went to the expense of coming
up to Canada to see you and arrange with you to get a loan on my share of the
crop and reimburse yourself to the extent of $1,840, but you were absent in Eastern
Canada so my trip was for nothing.
To make a long story short, I was called back here on a very
important business matter and could not wait longer in Calgary—having been
there over a week waiting for your return.
You are hereby authorized to secure the amount of loan
$1,840 and use as security, my share of crop. This will take care of you if you
can not carry the loan until you can sell sufficient wheat to do so.
Certainly you remember you said this agreement was only for
the purpose of getting the money from banker, and for that purpose alone.
That land would cost you at least twice the price mentioned
in agreement and after I personally explain the situation believe you will
carry out our plan as originally agreed, and, as I believe, mutually
understood.
[Page 219]
Your letter smacks too much of Lyle-Hempleman procedure to
come from one whom I have always considered a square-shooter and a friend.
Better follow suggestion as above and let me hear from you again.
Yours
very truly,
A.
L. Pellon.
No reply to this letter was received or sent, and after a lapse
of some days, Pellon again went to Arrowwood, and this time succeeded in
interviewing the respondent. The respondent's testimony as to what occurred on
that occasion will be noted in some detail; in the meantime it is sufficient to
say that Pellon, according to his own account, having interrogated Ward as to
the meaning of his letter of the 11th, was met by excuses. Ward said the letter
was necessary for his own protection because of the seizure of the crop by
Pellon's execution creditors, but that the matter would be cleared up
satisfactorily when the crop was threshed. Pellon's words are:
Q. What conversation did you have with him?
A. Well, I said to him, "You surely didn't mean what you
said in your letter that I received a few weeks ago, did you?
Q. Meaning the letter of August 11th?
A. Yes, and he said, "I had to do that to protect my
own interests and to satisfy the banker. They have been hounding the life out
of me every week about that."
Q. Yes.
A. And he went on to say that he had to do it, too, because
these fellows had made a seizure of all the crop and that is about the gist of
the conversation, there was not very much of anything said further than that,
except as soon as he got threshed it would be all fixed up.
Q. As soon as you got threshed?
A. Yes.
Q. Was there a good crop on the land?
A. Yes.
Q. What did half the value of the crop amount to on this
land in 1927?
A. Something a little over $5,000.
Q. Something over $5,000 from half the crop?
A. Yes.
Q. And one-half of that one-half of course had to be paid to
the Dominion Government?
A. Yes.
Q. And the other half was yours?
A. Yes.
Ward believed, there can be no doubt, that in the document of the
13th of May, he was armed with an instrument that enabled him to maintain the
rights of a purchaser, subject to an option of repurchase vested in Pellon,
which at
[Page 220]
this time had lapsed by reason of the
expiry of the time limit. Nor is it, on the evidence, doubtful that the form of
the transaction, whether suggested by the banker or not, was not in fact
dictated by the necessity of conforming to the wishes of the banker, in order
to enable Ward to obtain an advance from the bank, but was proposed by Ward for
the purpose of enabling him to assert such rights, and in full confidence that
Pellon would not exercise his option within the stipulated period.
If Pellon's evidence, therefore, is to be accepted, the
conclusion of the learned trial judge appears to be unassailable. Ward permitted
the appellant to believe that he was entering into a transaction, the essence
of which was a loan upon security, while he himself was confident that the
effect of it, in law, was to make him a purchaser, and from the beginning
intended to take advantage of the transaction, in that sense, in asserting the
rights of a purchaser. Beyond that, indeed, if Pellon's evidence is credible,
Ward procured Pellon's assent to the transaction, in the form in which he
proposed it, by misrepresenting material facts, as to the necessity, namely, of
giving the agreement that particular form in order to enable him to make the
advance to Pellon.
Assuming these facts, the legal result is not open to
controversy. It is quite true that, prima facie, a sale, expressed in an
instrument containing nothing to show the relation of debtor and creditor is to
exist between the parties, does not cease to be a sale, and become a security
for money, merely because the instrument contains a stipulation that the vendor
shall have a right of repurchase. Alderson v. White;
Manchester, Sheffield & Lincolnshire Railway Co. v. North Central
Wagon Co.. But
where the language of the instrument points to the existence of such a
relation, the courts, as Lord Hardwicke said, have endeavoured to treat such
instruments as securities. Longuet v. Scawen;.
In Douglas v. Culverwell;
Knight Bruce L.J., after stating that the plaintiff had executed the conveyance
there in question with the inten-
[Page 221]
tion that it should take effect, not as
an absolute conveyance, which it was in form, but as a security for money,
proceeded thus:
I am satisfied also that this understanding—this view of the
matter— the plaintiff, before and on the occasion of his execution of the deed
and before and when he received the money, was allowed, knowingly allowed, by
the defendant to entertain. I am satisfied that the deed, at the time of its
execution by the plaintiff, was accepted by the defendant with full knowledge
that the plaintiff so understanding the matter so received the £101.
In these circumstances, the Lords Justices held that the
instrument was to be treated as creating a security only. Here, according to
the evidence of Pellon, not only did Ward fully know the state of Pellon's
mind, the express arrangement was that the document was to be used as security.
Such being the substance of the transaction, the law, as already
observed, would disregard the stipulations professing to confer upon the
respondent the right of purchase, even if the parties, between themselves, had
intended that these should be binding. Such stipulations are repugnant to the
equitable right of redemption; they would have the effect of converting what
was intended to be a security into something entirely different. It has long
been settled that equity will not allow a mortgagee to enter into a contract
with the mortgagor, at the time of the loan, for the absolute purchase of the
subject of the mortgage for a specific sum in case of default in payment of the
mortgage money at the appointed time. The rule had its origin in the
Ecclesiastical Courts. In the Court of Chancery, it was a rule of policy based
upon a recognition of the disposition of money lenders to use their power of
dictating the form of a security transaction, in order to shape it in such a
way as to make it possible to "wrest the estate out of the hands of the
mortgagor." Mellor v. Lees; Price
v. Perrie ; Willett
v. Winnell; Bowen
v. Edwards; Re
Edwards. And
it applies, not only to mortgages, strictly so called, or to mortgages
containing a contractual proviso for redemption, but, as well, to mortgages
containing no such express proviso, and to agreements creating only an
[Page 222]
equitable charge. If it is clear that the
transaction is a transaction of loan, and that the interest in the property
affected is vested in the lender by way of security only, then such
stipulations are void as repugnant to the equitable right of redemption. As
Lord Parker said in G. & C. Kleglinger v. New Patagonia Meat and
Cold Storage Company, Limited, in
such a case
the right to redeem is from the very
outset a right in equity only, and it is merely the right to have the property
freed from the charge on payment of the moneys charged thereon. If the charge
is for payment of a specified sum on a specified day, payment on that day will
set the property free, and if the day passes without payment there will still
be an equity to have the property so freed notwithstanding any provision in the
nature of a penalty, such penal provision being a clog on the equity.
Here the learned trial judge held that
the true nature of the transaction is disclosed by the recitals and the
statement of the consideration. Although he has expressed his opinion that such
is the effect of the document he had to consider, apart from the oral evidence
as to what occurred between the parties, he has not limited himself to that; he
has considered the evidence; assessed the relative weight of the testimony of
the two principal witnesses, Pellon and the respondent; and stated his
conclusions of fact. Among other things, he has held that Pellon's account of
the transaction of May the 13th is true and should be accepted, and the
cardinal question in the appeal is whether or not in this he is right, or
rather, whether or not there are adequate grounds for holding he is wrong.
The learned trial judge, it may be said, in applying himself to
the questions of fact, realized that he was confronted with a disagreeable duty
of deciding for himself and expressing his decision, whether it was Pellon or
the respondent who was endeavouring to mislead the court. And there was really
no middle course open to him. If the respondent was honestly relating the facts
as he recollected them, there could be no room for doubt that Pellon was
dishonestly trying to escape from the bargain he had made; and it will also
appear as I proceed, that if Pellon was telling the truth, it is
impossible to reconcile that conclusion with the honesty of the respondent.
[Page 223]
I pass now to an examination of the respondent's account of these
matters. He opens the story of his dealings with Pellon by a statement that
during the negotiations for the lease executed in the autumn of 1926, Pellon
said that he hoped the respondent would become the purchaser of sections 23 and
25. He says he lent Pellon at that time $1,000, Pellon promising to repay him
when he sold his land, with a bonus of $4,000. Pellon says that the respondent
paid him $1,000 at this time, but that this payment was a bonus on the lease,
for which he had been offered, as bonus, still larger sums. The respondent
admits that Pellon told him he had been offered a bonus of $1,500. The learned
trial judge in delivering his judgment observed that he did not believe this
story of the respondent, and counsel for the respondent intervened with the
remark, "We withdrew that $1,000, my Lord, in our argument."
Proceeding with the material incidents, in order of date, the respondent says,
that in March, 1927, he paid Pellon $300. He says there were negotiations
between him and Pellon for the purchase of Wilson's interest in section 25, and
that, although these negotiations had not been concluded, this sum of $300 was
paid to Pellon as an advance on account of the purchase money. On his
examination for discovery, he persisted in declaring that this $300 formed no
part of the sum of $1,800, the payment of which was acknowledged by the
document of the 13th of May; that this latter sum was paid in two cheques, one
for $1,750, and one for $50 on the last mentioned date. At the trial he
abandoned this, admitting that only $1,500 had been advanced in May, that the
sum of $1,800 acknowledged in the document comprised this advance together with
the advance of $300 made in March.
His evidence, both on discovery, and in the early part of his
examination at the trial, evinced a determination not to admit that any part of
the sum of $1,800 had been advanced as a loan. Being obliged, at the trial, to
admit that the $300, advanced in March, was included in it, he once more
resorts to the position that the last mentioned advance was not a loan, but a
payment on account of a prospective agreement of purchase. This, eventually, he
is constrained to withdraw. The same anxiety is disclosed concerning the sum of
$40, part of the $1,840 in the repayment or redemp-
[Page 224]
tion clause. Pellon had explained that
this sum was made up by calculating interest on the two loans of $300 and
$1,500 (together comprising the $1,800), from their respective dates to the end
of the ninety days period of credit, which, at 8% came to $39. The Appellate
Division seems to accept this account of the matter. On his examination for
discovery, the respondent denied, at the outset, in the most explicit way, that
this sum represented interest; later he declared that it was added by Pellon as
interest on two sums, one, the $300, already mentioned, and the other, a sum of
$200, for which he had given a cheque, some time before March, 1927, both sums
being on account of purchase money for lot 25. At the trial, in his examination
in chief, he again, in the most definite way, denies that the $40 was added as
interest, declaring it was offered by Pellon, as a "bonus" for what
he, the respondent, "had done"; finally he admits it was interest
calculated, as he had said on discovery, on these two sums of $300 and $200. On
further cross-examination, after an adjournment, he withdraws his statement
that he had given a cheque for $200 prior to May, 1927, declared he had made an
advance, which might have been of any amount between $100 and $300, and that
this advance was a loan. Why the amount of this loan was not included in the
sum secured (or credited, as the respondent contends) by the document of May,
no reason is suggested. Throughout, Ward persists in denying that any part of
it represents interest on the $1,500 advanced in May. But, as an account of the
fixing of the redemption price at $1,840, his story is, of course, valueless;
and the learned trial judge naturally would have none of it.
I have mentioned more than once the respondent's statement that
prior to the execution of the lease in the autumn of 1926, Pellon had initiated
negotiations for the sale to him of both Pellon's and the appellant's property,
and his affirmation, many times repeated, that the payment of $300 in March was
made as part of the purchase money under a prospective agreement for the
purchase of section 25. As a witness, Ward displayed some persistence in
picturing Pellon as the eager vendor. This is part of his evidence:
[Page 225]
A. About the time the lease was drawn Mr. Pellon made the
suggestion he would sell the land or eventually he would sell both parcels of
land to me.
Q. And when next was the matter discussed?
Q. Well it almost continued at that time, off and on until
such time as the deal was closed.
Q. That is until you ultimately purchased?
A. Purchased.
Q. Well it continued with which parcel of land?
A. Well, 25 was under negotiations for an agreement for sale
from that time on until it was purchased and Mr. Pellon offered Section 23 for
sale in May, 1927.
In pursuance of these efforts he asserts that, on the 13th of
May, Pellon "seemed anxious to sell his land." Eventually, confronted
by his examination for discovery, and by Pellon's proposal, which he admits, of
a credit of only fifteen days, he is obliged to concede that Pellon told him he
wanted to keep his land. The learned trial judge, very justly as it seems to
me, treated this story, in its various elements, as to Pellon's suggestion
about the sale of section 23 at the time of the execution of the lease, as to
the character of the advance of the $300 in March, and as to Pellon's anxiety
to sell in May, as unworthy of credence.
Another feature of the respondent's testimony, concerning the
occurrences of the 13th of May, deserves notice. The learned trial judge
comments upon the manner in which the respondent meets Pellon's evidence giving
an account of his excuse for insisting upon the agreement for sale as a
necessary part of the document evidencing the loan.
He seems determined, as the learned trial judge says, to make it
appear that Pellon's narrative is wholly baseless. In answer to questions as to
what he had told Pellon about his visit to the bank, he insists and reiterates
that he did not "have to borrow" from the bank; and, later, that he
did not in fact borrow "for such a purpose." He is forced to admit
that on that day he did borrow $1,500 from the bank, and that this same amount
of money he paid to Pellon in two cheques; but he declares that the loan from
the bank had nothing to do with his advance to Pellon. Contrast this with his
evidence on discovery:
Q. Did you have to make any arrangement with your banker in
order to loan it to him or give it to him or pay it to him?
A. Not necessarily.
[Page 226]
Q. Did you, as a matter of fact, make any arrangements with
your banker before you advanced this $1,800 to him?
A. I borrowed some money that day from the bank.
Q. For the purpose of making this advance to Pellon?
A. Yes.
This effort to discredit Pellon naturally affected the learned
trial judge unfavourably. I will
not multiply instances of such exploits of evasion. After carefully reading
Ward's evidence, I am driven to
the conclusion that the characterization of Ward by the trial judge, in the
following passage, does him no injustice.
But I must say that in my opinion Ward was a very evasive
and hedging kind of witness. It was very difficult indeed to get him to answer
frankly the questions which were asked, he was anything but a frank witness. He
was frank enough with respect to anything which was in his favour but he
appeared to have a very keen sense of the situation and with respect to
anything which was not in his favour it was extremely difficult to nail him
down and get him to answer the questions directly which were asked him.
Ward's counsel emphasizes a letter written on November 15, 1927.
Before examining this, one further passage in the evidence of Ward requires
attention. I have already
mentioned the interview between Ward and Pellon on the occasion of Pellon's
visit to Arrowwood after his failure to get an answer to his letter of the 21st
of August. Ward discusses the interview several times during his
cross-examination. This is one passage in which he gives his account of it:
Q. So you say that all you can think of concerning the
reason for Pellon's visit in August, 1927, was to see how the crop was getting
along?
A. That is all.
Q. The crop on 25?
A. He just asked about his crop.
Q. His crop?
A. His crop.
Q. Did he mention 25?
A. He didn't mention any particular section.
Q. No, just his crop?
A. Just his crop.
Q. He didn't mention 25 or 23?
A. No, he didn't.
Q. Nothing said about that?
A. No.
Q. But he must have referred to 25, must he not?
A. He simply asked 'how his crop was, in that way, that is
all.
Q. Do you know where he came from to see you at the end of
August?
A. No, I don't exactly.
Q. Do you know he motored 800 miles to see you?
[Page 227]
A. No, I don't.
Q. Did he tell you that?
A. He told me that. I don't know where he came from.
Q. To see how his one quarter of the crop on Wilson's land
was getting along?
A. He came there and asked me about the crop.
In substance this account is repeated more than once. That Ward,
having Pellon's letter of the 21st of August before him, could have doubted the
object of Pellon's visit, is difficult to believe. That the interview could
have been of the character described in this passage seems almost incredible,
and the cross-examiner did succeed in dragging out of Ward the admission that
Pellon begged him to say that he "didn't mean" the letter of the
15th. To this admission he afterwards adds that he told Pellon he must insist
on carrying out the agreement. Here, as elsewhere, Ward's evidence is marked
very conspicuously by lack of candour. Further discussion of this interview
naturally falls into place with the consideration of the letter of November, to
which I now come.
This is a letter written by Mr. Mavor, acting not for Pellon but
for Wilson, and in order to appreciate the point made for the respondent, it is
necessary to understand the circumstances in which it was prepared. The three
quarter-sections of section 25, although owned by Wilson, were, as already
stated, in Pellon's name, and executions had been filed against this property
under judgments against Pellon. Wilson and Pellon together conceived the idea
(Pellon being in debt to Wilson in about $25,000) of getting a settlement with
Pellon's creditors at fifty cents in the dollar; and, in order to carry this
plan into execution, they contemplated a sale to Ward of Wilson's interest in
section 25, which Ward was most anxious to buy. Pellon was then to transfer
section 23 to Wilson, and himself drop out. The letter in question was a letter
addressed to Pellon's creditors generally, and it stated that Pellon had sold
his interest in section 23 to Ward in May, and suggested the likelihood of Ward
cancelling his agreement on the return of what he had paid. Pellon and Ward
were both aware of the terms of this letter, and the fact that Pellon allowed
the despatch of the letter, in these terms, without exception, is relied upon
as an admission by him as to the nature of the transaction of May. Whether or
not his conduct
[Page 228]
constitutes an admission, depends
entirely on the circumstances; because the statement itself could only be
evidence against him as imparting significance to his conduct. It must be
remembered that Pellon had, by his letter of the 21st of August, taken up his
position. Ward had not answered the letter, and if Pellon's evidence is
credible, he had, on the occasion of Pellon's visit to him, acted as if he
accepted Pellon's view of the transaction of May. Pellon's evidence is explicit
that there was an understanding, between him and Ward, that Ward would accept
the redemption money of $1,840, while he, on his part, had promised to sell
section 23 to Ward on terms to be arranged. Pellon says that Ward offered him
$43 an acre; Ward admits that there was some such understanding, but treats the
subject with his usual lack of candour. At one time he says he is unable to
remember whether or not he offered Pellon $43 an acre, at another that he made
such an offer, but that the offer was conditional. Again he admits that he knew
Mr. Mavor and Pellon believed that he was going to assent to a fresh
arrangement, but avers that he himself had no intention of doing so. Pellon's
evidence as touching the letter is that when it was read to him, he raised, in
Ward's presence, the question of the suitability of the expressions now relied
upon on behalf of Ward, but that, in view of the understanding with Ward, the
letter was not thought to be calculated to mislead the creditors to their
prejudice. Pellon says that from time to time the subject of the arrangements
about section 23 was opened up with Ward, but that Ward insisted on postponing
it until the title to section 25 was settled.
In May, 1928, after the creditors had been paid, and the title to
section 25 transferred to him, Ward, for the first time, since the letter of
August 11, declared to Pellon that he was the owner of section 23. The view of
the learned trial judge is expressed in these words:
I am satisfied that the characteristic that distinguished
Ward in the witness box is one of his natural characteristics and that he is
not frank, and I am satisfied that he was not frank with Pellon. I accept
Pellon's evidence, because, while it was not admitted by Ward, Ward finally,
after being closely examined and being closely pressed by Counsel, finally
admitted that he had some discussion with Pellon about a new agreement, but he
was not prepared to admit that Pellon was right in saying that they were to
agree to the terms upon which he would buy the land.
[Page 229]
His statement was, that if he felt like it and if he was
well off and felt himself well off, or something to that effect, he might, out
of generosity, pay Pellon something. I am satisfied that Pellon is telling
substantially the truth as to what took place and that Ward hedged and evaded
Pellon until he had secured the title to 25 and that he was anxious to do that
and that he paid the money voluntarily, his main motive was to get the title to
25 and after he had obtained the title to 25, then he was prepared to stand
strictly upon what he considered to be his legal rights and he is standing on
those legal rights to-day.
I see no reason to disagree with this, and in this view the
letter of November, 1927, is of little importance. All this has a bearing upon
another aspect, also, of the case, which has been emphasized by the defence. On
the 6th of October, 1927, a receiver by way of equitable execution was
appointed, under one of the judgments against Pellon, to receive "the
rents, profits and moneys whether payable as rent or purchase price" in
respect of sections 23 and 25. In November, Ward entered into an agreement with
the appellant and Pellon for the purchase of the appellant's interest in
section 25, at the price of $15,000, payable in cash, and $6,000 in promissory
notes. The intention was to apply the proceeds of this sale in liquidating the
debts of Pellon who was thereafter to convey section 23 to the plaintiff, which
was done. Ward paid the whole of the sum of $15,000 to the receiver or to the
appellant's solicitors acting as receivers, and it is alleged that he also paid
certain additional sums, which it is now contended could only have been payable
under the alleged agreement of May. As to this, it is to be observed that Ward,
as lessee, was responsible for the payment to Pellon of one-half of the
threshed crop on both properties in each year, and, as one-quarter of the crop
was payable to the Indian Department, on account of the lessor, the net rental
in kind receivable by Pellon under the lease was one-fourth of the crop of
1927, which it appears was not threshed until the summer of 1928. Ward, it
should be observed, claimed that the effect of the document of May, 1927, was
to put an end to the lease. Obviously, it had no such effect. Ward was not, on
his own construction of it, entitled to a transfer of section 23 until the
whole of the purchase money had been paid. Until then, he was entitled, under
the agreement, neither to possession nor to the benefit of the rents or
profits. In December, he estimated the value of the crop on section 23 as
$12,000, out of which Pellon
[Page 230]
would be entitled to $3,000 as his share
after the payment of the share due to the Government; as to the value of the
crop on section 25, we have no information.
Ward, it is to be observed in this connection, did not carry out
the terms of the agreement of the 13th of May, even on his own construction of
them. According to that construction, $5,000 was payable on the 1st of
December. Ward paid $2,000 to the receiver by a cheque, expressed to be in
payment of this sum of $5,000, after deducting $3,000, described as payable to
the Indian Department as the Government's share of the crop. On Ward's own
construction of the document, this sum of $3,000, which would be payable out of
Pellon's share of the crop, was plainly not deductable from the instalment
payable under the agreement. For this deduction of $3,000 there was no excuse;
and on his own view of the transaction of May, Ward was in default after the
1st of December.
The defence as based upon the alleged overpayments could only be
sustained on the ground that they were made in circumstances such as to
establish a fresh agreement, on the part of Pellon or the appellant, to sell
the equity of redemption in section 23 on the terms of the document of May, or
an equitable estoppel precluding the appellant from denying the existence of
such an agreement. In order to reach such a conclusion, one must find that
Pellon's conduct amounted to an assent to such a fresh agreement, or that it
was of such a character as to make it a fraud on his part to deny the existence
of such an agreement. Willmott v. Barber.
In examining Pellon's and the appellant's conduct, it must not be
forgotten that the respondent, as he admits, was aware that Pellon and the
appellant believed that the respondent had agreed to accept the redemption
price of section 23, on the understanding that there was to be a fresh
agreement for sale, on terms to be agreed upon, while he, the respondent, had
no intention of carrying out such an arrangement; and that, such being the
state of mind of the parties, this matter of section 23 had, at the repeated
suggestion of the respondent, been allowed to stand until the title to section
25 was cleared up. In light of this, and
[Page 231]
of Ward's default in the payment due (as
he alleges) on the 1st of December, and in view of the passage in the judgment
of the trial judge just quoted, it would be impossible to hold that the
respondent was misled by any conduct of Pellon or the appellant into thinking
that they were assenting to a fresh agreement to deal with the equity of
redemption in section 23 on the terms of the document of May. The truth
obviously is, as the learned judge finds, that the respondent believed he had a
binding agreement for sale under that document, which he intended to assert,
and was not in any way influenced, in his course of conduct, by anything which
either the appellant or Pellon did. I agree with the learned trial judge that
the appellant's rights are not prejudiced by any of the transactions subsequent
to May.
The appeal should be allowed with costs, both here and in the
Appellate Division, and the judgment of the trial judge restored.
Appeal allowed with costs.
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