Newport Industrial Development Co. v. Heughan, [1929] SCR 491

Supreme Court of Canada

Newport Industrial Development Co. v. Heughan, [1929] S.C.R. 491

Date: 1929-04-30

The Newport Industrial Development Company (Plaintiff) Appellant;

and

Susie P. Heughan (Defendant) Respondent.

1929: March 5; 1929: April 30.

Present: Duff, Newcombe, Rinfret, Lamont and Smith JJ.

ON APPEAL FROM THE APPELLATE DIVISION OF THE SUPREME COURT OF ONTARIO.

Contract—Landlord and tenant—Action for rent under alleged lease—Whether relationship of landlord and tenant constituted, or any contract made between the parties—Mere negotiation—Offer by signing draft lease as lessee not accepted within reasonable time.

Plaintiff sued defendant for arrears of rent under an alleged lease.

Held, affirming in the result the judgment of the Appellate Division, Ont., 62 Ont. L.R. 364, that defendant was not liable. The relationship of landlord and tenant had not been constituted between the parties. On the evidence of what took place, they never got beyond the stage of mere negotiation. While a draft lease was signed by defendant (the findings below to this effect being sustained) and the signed copy received by plaintiff, this, under the circumstances, evidenced nothing more than an offer to become lessee upon the terms set forth, and plaintiff could not rely upon that offer beyond a reasonable time; and plaintiff did not itself sign or deliver the lease, or agree to do so except upon a condition never fulfilled, until after such lapse

[Page 492]

of time and material change of circumstances as rendered it too late for plaintiff to be entitled to make the lease effective and engage defendant’s liability by executing and forwarding a copy. Defendant had never entered or exercised any possession; and it was a certain company (contemplated to be the actual occupier of the property, and originally proposed as lessee) and not the defendant, who was at all times recognized by plaintiff as having the use and occupation of the property.

APPEAL by the plaintiff from the judgment of the Appellate Division of the Supreme Court of Ontario[1], which, reversing the judgment of Kelly J., held that the plaintiff’s action, which was for arrears of rent claimed to be payable by the defendant under an alleged lease, should be dismissed. The material facts of the case are sufficiently stated in the judgment now reported. The appeal was dismissed with costs.

I.F. Hellmuth, K.C. and F.C. Betts for the appellant.

D.L. McCarthy, K.C. and S.A. Hayden for the respondent.

The judgment of the court was delivered by

NEWCOMBE J.—The plaintiff sues for arrears of rent alleged to be payable by the defendant under a lease dated 20th April, 1926. There are two volumes of testimony and documents; but the material facts for the disposition of this appeal are comprised in the following narrative:

The plaintiff company was incorporated in 1923, under the laws of the State of Rhode Island, for the purpose of promoting industrial development and the employment of labour at the City of Newport, Rhode Island, in co-operation with the Chamber of Commerce. In January, 1926, it acquired, for the price of $85,000, which it borrowed from the local banks, a property situate at Newport, which, having been used as a chewing gum factory, had recently been abandoned by the previous tenants. The plaintiff was evidently desirous that the city should not be left without a chewing gum factory, and the employment which its activities would afford, and, in seeking a new tenant who would carry on the industry, came into touch with the Everybody’s Chewing Gum Corporation, then operating a factory in Newark, N.J. There were negotiations for a

[Page 493]

lease, in which the latter company was represented by Henry E. Short and his son, Percy H. Short, its President and Treasurer, respectively; of whom Percy H. Short appears to have been the principal director of the business.

Proposals were submited and favourably entertained, and the plaintiff, by letter of 6th January, 1926, agreed, upon the terms and conditions therein stipulated, to lease the vacant property, with an option of purchase, to the Everybody’s Chewing Gum Corporation, for a period of twenty years, to begin 10th February, 1926, at the rent of $10,000 per annum for the first ten years, payable monthly in advance; and, during the second ten years, at a rent, payable in like manner, to be agreed upon, or, if the parties could not agree, to be fixed by arbitration. By the fifth clause, it was stipulated that

The lessee shall furnish to the lessor a guarantee in writing with surety or sureties satisfactory to the lessor, whereby the said surety or sureties guarantees or guarantee the payment of all rents provided for in said lease for said full term of twenty years, including that to be fixed by arbitration.

Options of purchase were provided for, and also the various details. This offer proved acceptable, and by a note, written at the foot of the letter,

Everybody’s Chewing Gum Corporation hereby accepts the provisions of the above contract, subject to the conditions therein stated.

The letter was signed, for the plaintiff company, by Charles Tisdall, President, and Thos. B. Congdon, Treasurer; and the acceptance, for the Everybody’s Chewing Gum Corporation, by Henry E. Short, President, and Percy H. Short, Treasurer; and the document, as so executed, was returned to the plaintiff by letter of 9th January, signed “Everybody’s Chewing Gum Corporation, H.E. Short, President,” and addressed to Walter Clemens Campbell, the Secretary of the Newport Chamber of Commerce. There is no question about Mr. Campbell’s authority to receive this communication on behalf of the plaintiff company; he is treated throughout the case as having competent authority for the business which he transacted. There is an entry in the plaintiff’s minute book of 14th January, that an agreement had been reached in accordance with the terms submitted by the Board of Directors at its meeting on 6th January, and it was resolved that, upon the acquisition of the title and performance of the other conditions as stipulated,

[Page 494]

the President and Treasurer be authorized to sign and execute for the Newport Industrial Development Company a lease to the Everybody’s Chewing Gum Corp. in accordance with said agreement of January 6th, 1926.

In this posture of affairs it would appear that the Everybody’s Company, with the plaintiff’s consent, entered into possession of the premises; and it remained in possession uninterruptedly until February or March, 1927, when it became bankrupt.

In a letter of 20th January, signed “Apple Gum Corporation, P.H. Short, Secretary,” and addressed to Mr. Campbell, referring to security for payment of the rent, which was to be given by the United States Fidelity and Guaranty Company, it is said, “Enclosed find cheque on Canada.” It is not perfectly clear, but apparently the business transacted at Newark, N.J., had been carried on under the name of the Apple Gum Corporation, and on that account some confusion is apt occasionally to be introduced into the correspondence, which relates entirely to the Everybody’s Company. The cheque referred to was not, in fact, enclosed, and Mr. Campbell wrote to Mr. Short on 21st January,

You also indicate that a cheque was enclosed, but through some oversight it was not enclosed with your communication of the 20th.

On the following day Mr. Short wrote to Mr. Campbell,

I hasten to forward cheque which I intended to enclose in my previous letter.

The explanation is found in a letter written on the same day by Percy H. Short to his Aunt Susie, the defendant, and Uncle William Heughan, her husband, jointly, who reside and carry on a dry goods business at London, Ontario. In this letter Mr. Short says,

* * * I have figured out that I don’t want Newport Industrial Co. to get any money from Everybody’s, so have asked them to return Everybody’s cheque of $833.34, and I’m sending them cheque of same amount as though it is from you. I enclose you exact copy of cheque I sent them, so on Monday when I get cheque back from them, will send you cheque of $833.34, and will you please deposit in your account, and give Mr. Goodall your cheque for $833.34 to pay the cheque I have drawn.

To make it clear.

I gave cheque as per copy to Newport, $833.34.

I will send you our cheque for $833.34.

You deposit our cheque $833.34 in your bank.

You give Mr. Goodall, Imperial Bank cheque of $833.34 to pay cheque I gave Newport.

Each month I will send you $833.34 to mail. * * *

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Mr. Goodall was the Manager of the Imperial Bank at London. Mr. and Mrs. Heughan were carrying on business there as partners under the name of “Heughan & Co.” In consequence of this communication of 22nd January, Mrs. Heughan sent her cheque, or that of Heughan & Co., for $833.34, to the plaintiff company, that being the amount of one month’s rent, plus one cent; and, in fact, as resolved by Mr. Short, in accordance with his letter, throughout the period during which rent was paid on behalf of the Everybody’s Corporation, namely, until January, 1927 inclusive, the rent was paid in the manner indicated; that is to say, a cheque of the Everybody’s Company was deposited at London to the defendant’s credit, and the defendant sent Heughan & Co’s cheque to the plaintiff. Meantime there had been no communications whatever between the appellant company and the defendant, and the cheques, when acknowledged by the plaintiff, were acknowledged, not to the defendant, but to Percy H. Short, or to the Everybody’s Company. For example, on 26th January, Mr. Campbell wrote to Mr. Short, at 342 Madison Avenue, New York, where he or the Everybody’s Company had an office:

I am returning herewith the cheque from the Everybody’s Gum Co. forwarded to me some time ago.

I also wish to acknowledge receipt of cheque for $833.34 on the Imperial Bank of Canada.

There is an extract from the plaintiff’s income book shewing credits for the cheques of Heughan & Co. so received, as follows:

1926:

February 3, Everybody’s, etc., $830.22.

March 12, Everybody’s, etc., $833.34.

April 14, Everybody’s, etc., $833.34.

May 17, Susie Heughan for “Chewing Gum Co.”, $833.34.

June 10, Heughan & Co., “for Gum Co.”, $833.34.

July 13, Heughan & Co., “for Gum Co.”, $833.34.

August 12, Heughan & Co., “for Gum Co.”, $833.34.

September 22, Everybody’s Chewing Gum Co., $833.34.

October 13, Everybody’s Chewing Gum, $833.34.

November 19, Everybody’s Chewing Gum, $833.34.

December 20, Everybody’s Chewing Gum, $833.34.

1927:

January 21, Everybody’s Chewing Gum, $833.34.

A formal lease for execution was prepared under the instructions of the plaintiff company, bearing date the day of March, 1926, in which the plaintiff is described

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as the lessor, and Everybody’s Chewing Gum Corporation as the lessee. It contains a covenant on the part of the lessee to pay rent at the rate of $833.33 monthly in advance for the term of ten years, beginning 10th February, 1926; and, for the remainder of the term, at an agreed rate, or as fixed by arbitration.

It had been orally proposed, on the part of the Gum Company, that Percy H. Short’s aunt, the defendant, should guarantee payment of the rent for the entire period of the lease, and the plaintiff had made some enquiries as to her means, and, in consequence, was apparently satisfied to accept her as a guarantor, provided a guaranty company became an additional surety. Accordingly, there was endorsed on the form of lease, which the plaintiff sent to the Gum Company, a formal guaranty, to be executed under seal by the defendant, whereby she was to guarantee “the payment when due of rent for the entire period of 20 years.” The Gum Company referred the draft lease to its solicitors, and they suggested some alterations, which were accepted, and, on 9th March, Messrs. Sheffield & Harvey, the plaintiff’s solicitors, wrote to Messrs. Thomas & Freedman, who represented the Gum Company, enclosing a re-draft and saying:

We are, therefore, enclosing the lease redrafted, and would ask you to kindly have this executed in duplicate, returning both copies to us for signature, and accompanying same with a vote of your corporation authorizing the President and Treasurer to execute the lease.

We understand that under an arrangement with the company Miss Heughan is going to guarantee the payment of this rent and that the United States Fidelity and Guaranty Company will deliver, simultaneously with it, a bond in the sum of $10,000, guaranteeing the performance by the company.

But, on 24th March, Percy H. Short wrote Mr. Campbell:

I expect to be with Thomas & Freedman to-morrow and go over the leases with Mr. Freedman which your attorney sent. I wish you would please write me if it will be satisfactory to your people to have the lease made out to Susie P. Heughan, and guaranteed by Everybody’s Chewing Gum Corp. It will mean a good deal to me to have the lease made out in this way, and I trust therefore, that you will write me that this is satisfactory.

And, by letter of 27th March, Mr. Campbell replied:

The Industrial Development Co. would be agreeable to your changing the lease to Susie Heughan, lessee, and guaranteed by Everybody’s Gum Corporation, provided the security as outlined in the form of lease forwarded to you is obtained.

We cannot, of course, say that it will be entirely satisfactory to our banks, but we will be glad to submit the lease to them and urge their acceptance when you have returned same properly executed.

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On 30th March, the Gum Corporation acknowledged this letter, saying:

We appreciate your information regarding the lease, and we naturally expect to furnish the security as outlined.

The plaintiff then caused to be prepared and delivered to Mr. Short a corresponding draft lease, in duplicate, wherein the defendant is described as lessee, and the Gum Company is substituted for the defendant as guarantor of the rent, and, on 22nd April, Mr. Short wrote Mr. Campbell:

Enclosed lease signed by my Aunt. I note they did not sign duplicate, but after your folks execute the duplicate and mail it to us, I can have our copy signed up, and you keep the original.

On 8th May, Mr. Campbell wrote Mr. Short:

I am getting in a real “jam” on account of not having the bond to accompany the lease. Is there not some way to rush it through promptly so that I may have it first of next week, Tuesday at the latest.

Mr. Short’s reply is dated 10th May, and he says:

Just received your favour of the 8th inst., and I sincerely regret that the bond has not reached you, and I’m getting right into this matter, and will not be contented until same is in your hands.

* * *

Will go right after the bond as I must get you out of the “jam.”

On 25th May, Thomas B. Congdon, the plaintiff company’s Treasurer, wrote Mr. Short:

At the request of Mr. Campbell we enclose herewith a copy of the lease from the Newport Industrial Development Company to Susie Heughan for your use with the surety company whose bond you propose to furnish us in accordance with the agreement with the directors of the Newport Industrial Development Company. Upon receipt of the Surety Company bond and its approval by our attorney we will send to you the issue duly executed.

It is agreed that the antepenultimate word of this extract should read “lease,” instead of “issue.”

On 27th May, Mr. Short wrote Mr. Campbell:

Received copy of lease yesterday, and had a meeting with the representative of the bonding company.

We can secure Ten Thousand Dollar bond, but the charge for same for one year is ($500) Five Hundred Dollars.

This price or charge seems to me to be exorbitant, and even though we were willing to go to this expense, I don’t think your folks in Newport would expect us to go to such a tremendous expense.

* * *

In the event your people insist on bond, I will immediately commence negotiations to purchase the plant, as it is within our power to do so, although with the extensive sales program we are inaugurating, the purchase plan would deter our production. In our opinion, your people are desirous that we attain a large production as quickly as possible, so as to make openings for a large number of employees, and this is the direction in which we are working.

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Mr. Campbell again wrote Mr. Short on 11th June:

We have canvassed the situation here with the banks quite carefully, and it seems to be considered as a part of the agreement to furnish the bond with the lease, and that the agreement should be kept.

It will be to the advantage of all concerned to keep this agreement and prevent any adverse criticism in case future banking accommodations are required.

This is the crux of the situation, as I see it, and while the price is high for the bond, yet it will be worth it in good will and confidence that will be established.

On 1st July, Mr. Campbell wrote the Mercantile Credit Company, of 321 Broadway, New York City:

The Everybody’s Chewing Gum Corporation, 342 Madison Ave., New York, have leased a plant in this city, formerly occupied by the William Wrigley Co., for which they are paying $10,000 a year rental from February 10, 1926. The rent has been paid promptly in advance of the date due each month.

And he gave some further particulars with regard to the constitution and standing of the Gum Company.

The plaintiff’s solicitors, Messrs. Sheffield & Harvey, on 30th October, wrote to Hockstein & Zimmerman, 104 West 42nd St., New York City, enclosing form of guaranty bond “for the rent of Everybody’s Chewing Gum Corporation property to the Newport Industrial Development Company,” and enclosing a form of bond, whereby Everybody’s Chewing Gum Corporation bound itself for payment of the rent. On 11th November, the Lancashire Agency Ltd. wrote Messrs. Sheffield & Harvey: “Re indemnifying lease Everybody’s Chewing Gum Corporation,” making some suggestions and enquiries, to which the solicitors answered, on 12th November, as follows:

Your letter of November 11th about the lease of the Newport Industrial Development Company to Everybody’s Chewing Gum Corporation is duly received. Unfortunately after this lease was originally drawn they changed the name of lessee and failed to let us know about this, so that we did not have in our files a correct copy; as yet no lease has been executed.

We enclose herewith a copy of the document as completed thus far. We understand that the Lessor has not signed this because one of the conditions of signing was that the lease should give satisfactory guarantee from an insurance company.

There was a meeting of the plaintiff company on 23rd November, the minutes of which are produced. They relate to a conference with Percy H. Short as to guaranty of the lease, wherein he related “the difficulties which they (the Gum Company) had encountered in trying to secure a bond to cover the lease for a period of years,” and evidence a final decision that

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* * * the best they (the Gum Company) could do would be to give a bond for $10,000 covering the lease for one year, the same to be renewed for each year to follow, and the bonding company would require the name of Susie Heughan to be released from the lease and placed on the bond as surety.

The Vice-President advised Mr. Short that this would not be a satisfactory arrangement and that the banks would require more surety to cover the lease.

Mr. Short then advised that the Everybody’s Chewing Gum Corporation would proceed to purchase the building at the optional price mentioned in the lease; namely, $85,000, and that it would probably require about sixty days to consummate the purchase.

On 27th November, Mr. Campbell wrote Mr. Short:

Answering your request for information covering the buildings on Third Street now occupied by your company under lease from the Newport Industrial Development Company, we submit the following:

and he mentions the various units and submits valuations of the land and buildings.

On 1st December, Mr. Congdon, the plaintiff’s Treasurer, wrote Mr. Short:

Please be advised that we have received checks in payment for rent of the factory of the Newport Industrial Development Company, on Third Street, which is leased to Everybody’s Chewing Gum Corporation, each check covering rental for one month in advance, as follows:

and he proceeds with a statement of the monthly payments of rent received by the plaintiff, beginning 3rd February and ending 19th November, ten months in all.

On 8th December, Messrs. Sheffield & Harvey received a communication from the Lancashire Agency Ltd., reminding them that the documents relating to the surety bond for Everybody’s Chewing Gum Corporation had not come to hand, and the solicitors replied that “The matter is being temporarily held up, pending a decision on the part of the lessees to purchase.”

There was another meeting of the plaintiff company on 29th December, in which the financial condition of the Gum Company was considered; and on 5th January, 1927, Messrs. Sheffield & Harvey suggested to the Lancashire Agency that the latter should communicate directly with the Chewing Gum Company. Then there was a meeting of the plaintiff company on 1st March, of which the minutes read as follows:

The report of the committee having under consideration the financial condition of the Everybody’s Chewing Gum Corporation was given by the Vice-President. He outlined the method followed in advancing loans to the Everybody’s Chewing Gum Corporation on the receipt of open accounts with bills of lading attached. The total loans amounting to

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$13,000 have been extended to the Corporation and arrangements made with local banks as to plans for additional credit of $30,000.

The report was received.

The President reported the lease on the Third Street Building as having been signed by the president and treasurer.

It was moved by Titus, seconded by Friend, that the copy of the lease on the Third Street Building be forwarded to Mrs. Susie Heughan. Motion carried.

It may be inferred from the evidence that about this time the defendant received a copy of the lease by registered letter, and that she sent the document to Edwin J. Tetlow, of Providence, R.I., a lawyer. Her reason for this is stated in her testimony as follows:

Well, I had received a letter from Percy some time before telling me that anything I received from Newport I should send to Tetlow, and not bother with it at all, because he thought these things might and would worry me.

She says the copy which she received was not signed at all, and that

It was the first and only thing I had ever seen in the way of a lease.

There is a letter, without date, postmarked at Newport 9th March, 1927, signed “Percy H. Short for Susie P. Heughan,” addressed to and received by the plaintiff company, stating:

This is to notify you that through failure on your part to deliver to me within a reasonable time after our negotiations an executed lease of the premises described as the Gum Company on the easterly side of Third Street in said City of Newport, bounded westerly on Third Street, southerly on land of A.B. Cascambas, easterly on land of the New York, New Haven & Hartford Railroad and northerly on land of Kate Hunter Dunn, I will not now accept delivery of the lease of said premises which you drafted and dated the     day of April, 1926, and proposed to execute and deliver to me for the term of 20 years from February 10. 1926, or any other lease of said premises.

To this the plaintiff company replied by James T. Kaull, Secretary, on 10th March, as follows:

The Newport Industrial Development Company received yesterday by registered mail a letter undated, signed by Percy H. Short, purporting to act for you, in which it is stated that because of our failure to deliver “to me” an executed lease of the Gum Company property, that the signer of the letter will not now accept any lease.

We beg to inform you that the Newport Industrial Development Company holds a lease of said premises, duly executed by you; that a copy of this lease was delivered, with your consent, to Percy H. Short, then acting for you; that you have, since the execution of said lease by you, entered into possession thereunder, paid rent provided for under the terms of said lease, and that the lessor will hold you liable and responsible for the performance of the covenants to be performed by you under said lease, including the payment of rent, for the full period of 20 years, as therein provided.

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It appears from a subsequent letter of 5th November, 1927, from the plaintiff’s solicitors in this cause to the defendant’s solicitors, that the plaintiff company had released the premises to a Delaware corporation for a period of five years from 1st November, 1927, at an annual rent of $7,000.

The action was brought by a specially endorsed writ of 12th May, 1927, claiming $3,333.33 for the stipulated payments of February, March, April and May, 1927, then overdue, and the defendant, in her affidavit of merits, alleges, among other defences:

That there is not now and never has been any privity of contract between me and the plaintiffs in respect of the said lands or otherwise howsoever.

The action was tried without pleadings, and Kelly J., the learned trial judge, found that the defendant had signed the lease, and that she was clearly under an obligation to pay, either as lessee or as guarantor; and he held, moreover, that nothing had happened to relieve her from her obligation to pay.

The appeal was heard by five learned judges of the Appellate Division, who, for various reasons, which were stated, agreed that the action failed[2], and Middleton J.A., one of these learned judges, expressed the view which, upon the foregoing evidence, appears to be perfectly sound, that

The negotiations between the parties never got beyond the stage of mere negotiation. There never was any actually completed transaction.

The defendant never entered or exercised any possession, and it was the Gum Company, and not the defendant, who was at all times recognized by the plaintiff as having the use and occupation of the property. There is no proof that either the Gum Company or Percy H. Short was the defendant’s agent. That suggestion is denied by the defendant, and Short was not called. The defendant testifies that she did not sign the draft lease, but the signature looks like hers, and that issue has been found against her, both at the trial and upon the appeal, and these concurrent findings must stand. It required something more, however, to constitute the relationship of landlord and tenant between the parties.

The plaintiff company, although it received a copy of the lease, signed by the defendant, as early as April, 1926,

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did not itself sign or deliver the lease, or agree to do so, except conditionally, upon receiving the stipulated security of a guaranty company, which never was furnished, and it was not until the plaintiff company’s meeting of 1st March, 1927, that it was resolved to execute and deliver the lease. Up to this time the plaintiff had not communicated at all with the defendant. Meantime the Gum Company had been continuously in possession, under the agreement of 6th January, 1926, and had not only utterly failed in the performance of the condition upon which the plaintiff would accept the defendant as its lessee, but also had made default in payment of the February rent, and had become insolvent; and it was by that time too late for plaintiff company, as said in its minutes of 1st March, 1927, “having under consideration the financial condition of Everybody’s Chewing Gum Corporation,” to make the lease effective and engage the defendant’s liability by signing and forwarding to her a copy. The defendant’s signature, which is found to be written upon the copy that the plaintiff received from Percy H. Short, evidenced nothing more than an offer at that time to become lessee upon the terms set forth, and the plaintiff could not rely upon that offer beyond a reasonable time, or, after nearly a year had passed, and when the conditions, under which the defendant was content to accept the responsibility of lessee, had disappeared, or materially changed, by reason of the collapse of the gum business at Newport.

There are other serious difficulties in the plaintiff’s way, which were considered in the Appellate Division, and urged on behalf of the respondent at the hearing in this Court; but holding the view which I have expressed, it is not necessary new to consider whether these can be overcome.

The appeal will be dismissed with costs.

Appeal dismissed with costs.

Solicitors for the appellant: Cronyn & Betts.

Solicitors for the respondent: McCarthy & McCarthy.