Hashman et al. v. Anjulin Farms, [1973] SCR 268

Supreme Court of Canada

Hashman et al. v. Anjulin Farms Ltd., [1973] S.C.R. 268

Date: 1972-11-22

Sam Hashman, Ted Riback and Bel-Aire Estates Ltd. (Defendants) Appellants;

and

Anjulin Farms Limited (Plaintiff) Respondent.

1972: October 23; 1972: November 22.

Present: Abbott, Martland, Ritchie, Spence and Laskin JJ.

ON APPEAL FROM THE SUPREME COURT OF ALBERTA, APPELLATE DIVISION

Sale of land—Option to purchase—Building restrictions agreement—Purchaser’s solicitor excluding one lot from restrictions—Vendor’s solicitor overlooking reference to exemption from restrictions attached to transfer—Intention of parties not to merge all provisions of building restrictions agreement in transfer—Lot not released from operation of provisions of agreement.

On June 15, 1959, the respondent granted to the appellants H and R an option to purchase approximately 67 acres of land. On the same date the parties executed a “building restrictions agreement” which provided, inter alia, that if H and R accepted the option, the lands would be used for residential purposes only and would conform to the standards of “R.1” zoning as prescribed under the existing zoning by-law; i.e., one-family dwellings, parks and private garages. The appellant Bel-Aire Estates Ltd., a company wholly controlled by the appellants H and R, was the assignee of these appellants. The option was accepted on October 9, 1959.

A transfer of the lands purchased by Bel-Aire was executed under date of January 11, 1960, and was registered on January 22, 1960. The respondent’s solicitor overlooked a reference to the exemption of a portion of the lands (Lot B) from the restrictions attached to the transfer. The appellants’ solicitor had excepted it from those restrictions, when he drafted them: “Because Lot B was not carved up into residential lots, and it was a parcel of land that had been set aside for future development.”

The respondent sued for a declaration that Lot B was subject to the restrictive covenants and conditions as provided for by the agreement of June 15, 1959. At trial the statement of claim was amended to ask for rectification of the transfer so as to make

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Lot B subject to the restrictive covenants contained in the transfer. The trial judge refused rectification of the transfer, but declared that the building restrictions agreement was still applicable to Lot B. From this judgment the appellants appealed to the Appellate Division of the Supreme Court of Alberta and the respondent cross-appealed against the trial judge’s refusal to rectify the transfer. The Appellate Division sustained the trial judge’s decision that the restrictive covenant agreement was not merged in the transfer, and they found it unnecessary to deal with the question of rectification. From this decision the appellants appealed to this Court and the respondent again appealed in respect of the failure to have the transfer rectified.

Held: The appeal and the cross-appeal should be dismissed.

It is not in every case, where an agreement for the sale of land is followed by the execution of a conveyance of the land, that the provisions of the agreement must, of necessity, be merged in the conveyance. What the Court must do is to “endeavour to see what was the contract according to the true intention of the parties”. In this case the parties had clearly intended that the exemption of Lot B from the provisions of the building restrictions agreement would have to depend upon further negotiation between them.

On the evidence, the parties did not intend to merge all of the provisions of that agreement in the transfer, and the exception of Lot B from the restrictions attached to the transfer did not have the effect of releasing that land from the operation of the provisions of the building restrictions agreement. Having reached that conclusion, it was unnecessary to express an opinion on the issue of rectification.

Knight Sugar Co. Ltd. v. Alberta Railway and Irrigation Co., [1938] 1 W.W.R. 234; Leggott v. Barrett (1880), 15 Ch. D. 306; Palmer v. Johnson (1883), 12 Q.B.D. 32, affirmed 13 Q.B.D. 351, referred to.

APPEAL and CROSS-APPEAL from a judgment of the Supreme Court of Alberta, Appellate Division[1], dismissing an appeal from a judgment of Riley J. Appeal and cross‑appeal dismissed.

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R. Kambeitz, for the defendants, appellants.

W.A. McGillivray, Q.C., for the plaintiff, respondent.

The judgment of the Court was delivered by

MARTLAND J.—The respondent obtained a judgment, at trial, against the appellants declaring that Lot “B” in Block Two (2) of record in the Land Titles Office for the South Alberta Land Registration District as Plan Bel-Aire Calgary 5815 H.T., excepting thereout all coal and other mines and minerals, (hereinafter referred to as “Lot B”) was subject to the restrictive covenants and conditions contained in an agreement dated June 15, 1959, made between the respondent and the appellants Hashman and Riback. It was also declared that the said agreement was in full force and effect except as to those covenants specifically superseded or amended by restrictive covenants in a transfer registered in that Land Registration District as No. 5873 H.U.

The appellants’ appeal from this judgment was unanimously dismissed by the judgment of the Appellate Division, from which the present appeal is brought by leave of this Court.

The respondent was the owner of some 77.14 acres of land in the City of Calgary. On June 15, 1959, the respondent granted to the appellants Hashman and Riback an option to purchase approximately 67 acres of this land. On the same date the parties executed a second agreement (hereinafter referred to as “the building restrictions agreement”) which recited that:

the Option Agreement shall be subject to the terms and conditions hereinafter set forth and that in the event of acceptance of said option the terms and conditions hereof shall apply to the same extent and with the same force and effect as if contained in the Option Agreement.

It provided that:

1. In the event of acceptance by the Purchasers of the said option the Purchasers covenant and agree with the Vendor as follows:

(a) The said lands shall be used for residential purposes only, and shall conform with the stan-

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dards of “R.1” zoning under the existing Zoning By-Law of the City of Calgary as at this date, subject however to the specific provisions regarding lot sizes hereinafter set forth.

(b) The said lands may be transferred by the Vendor to the Purchasers, and shall in any event be transferred by the Purchasers to any and all successors in title, subject to covenants running with the land providing substantially as follows:

(i) and (ii) (These stipulate minimum lot sizes ranging from 8000 square feet to 10000 square feet, and house areas ranging from 1200 square feet to 1400 square feet, depending upon location within parcels.)

(iii) That not more than one single family dwelling house with garage shall be constructed on each lot.

(iv) (Provision for set back of houses on each lot.)

(v) That no trade or commercial enterprise shall be carried on.

2. The parties hereto shall consult together from time to time and co-operate in a reasonable manner for the purpose of giving effect to this Agreement according to its true intent and purpose.

The “R.1” zoning referred to in the above agreement is designated as One-Family Residential Districts. Permitted uses are one-family dwellings, parks, and private garages. Neither the permitted uses nor the transitional nor conditional uses include apartments.

The appellant Bel-Aire Estates Ltd. (hereinafter referred to as “Bel-Aire”), a company wholly controlled by the appellants Hashman and Riback, is the assignee of these appellants and it is admitted that it stands in their place in respect of their rights and obligations under these two agreements. The option was accepted on October 9, 1959.

The appellants prepared a plan of subdivision of the lands purchased. It was registered in the Land Titles Office for the South Alberta Land Registration District on December 22, 1959. Lot B was shown on this plan as a rectangle of 3.62 acres abutting on Elbow Drive.

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Evidence given at the trial showed that the appellants Hashman and Riback desired to construct luxury apartments on the land adjacent to Elbow Drive. The respondent was not prepared to agree to this, but it was indicated by the respondent’s solicitor that if, subsequent to the execution of the agreements, the appellants wished to ask the respondent to agree to this development: “they may not find Mr. Graburn (president of the respondent) to be too unreasonable”.

On January 5, 1960, prints of this plan were furnished by the appellants’ solicitor to the respondent’s solicitor. The accompanying letter contained the following paragraphs:

On registration of the plan lot A in block 2 and blocks C, 8 and 9 vested in the City of Calgary and the remaining lots are now to be transferred to Bel-Aire Estates Ltd.…

Pursuant to the agreement made on June 15, 1959 between Anjulin Farms Limited and Messrs. Hashman and Riback, I enclose a copy of the building restrictions for the plan of subdivision which we would ask you to embody in the transfer of land.

The draft of the building restrictions referred to in this letter commenced with the following paragraph:

1. The convenants, conditions and restrictions hereinafter mentioned shall not apply to Lots A and B in Block 2, Lot 12 in Block 5, and Blocks C, 8 and 9 in the said plan of subdivision.

The provisions that followed conformed to the intent of the building restrictions agreement and are appropriate to the lots to which they were made applicable.

A transfer of the lands purchased by Bel-Aire was executed under date of January 11, 1960, and was registered in the Land Titles Office on January 22, 1960. This transfer was of individually designated lots according to the plan, but did not include the parcels of community reserve, which, together with the streets and lanes, had become vested in the City of Calgary. The covenants and conditions annexed to the transfer commenced with the following paragraph:

1. The covenants and conditions hereinafter mentioned shall not apply to Lot B in Block 2 and Lot 12 in Block 5 in the said plan of subdivision.

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The consideration stated in the transfer was as follows:

in consideration of the sum of Four Hundred and Four Thousand and Seven Hundred Dollars ($404,700.00) and in further consideration of the covenants and conditions pertaining to all the said lands except Lot “B” in Block 2 and Lot 12 in Block 5 in the said plan which are annexed hereto and made part of this transfer

The respondent’s solicitor had full opportunity to observe the exception of Lot B from the building restrictions, both in the draft and in the transfer. His evidence was that his attention was concentrated on an examination of the details of those documents to ensure their compliance with the detailed requirements of the building restrictions agreement and such variations as had been or were then in fact agreed to. There was nothing present to his mind about Lot B; he was not directing his mind to the description of the lands, but towards the terms of the restrictive covenants and conditions. The letter of January 5, 1960, as above shown, drew attention to certain parcels but not to the exception of Lot B; and there had been no discussions on the point between the solicitors, nor instructions from their respective clients.

The evidence of the solicitor for Bel-Aire on the point is summarized in the following questions and answers from his testimony:

Q. And, sir, can you tell me why Lot “B” was excepted from the Covenant and Conditions Exhibit 28? (i.e. those annexed to the transfer).

A. Because Lot “B” was not carved up into residential lots, and it was a parcel of land that had been set aside for future development.

…

Q. Now, having regard to the fact that you were aware that Mr. Graburn was not prepared to agree in the agreement that was signed to Lot “B” being excluded, any part of the land being excluded from the restrictive covenants, how did you come to exclude Lot “B” without specifically pointing that out in your letter to Mr. Robertson?

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A. I excluded Lot “B” because it was obvious from the plan that had been signed by the parties and registered that Lot “B” was not carved up for residential lots, and that the understanding was—

Q. This is your assumption of what the understanding was, isn’t it?

A. No, not my assumption, because this is the reason why that particular parcel of land was not carved up for residential lots, because it was reserved for future development and future re-zoning.

The respondent in this action sought a declaration of the kind made by the learned trial judge. At trial the statement of claim was amended to ask for rectification of the transfer so as to make Lot B subject to the restrictive covenants contained in the transfer.

The learned trial judge refused rectification of the transfer, but declared that the building restrictions agreement of June 15, 1959, was still applicable to Lot B. The Appellate Division sustained his judgment on the latter point, and found it unnecessary to deal with the question of rectification.

The issue before this Court was as to whether or not the building restrictions agreement continued to be applicable to Lot B after the execution by the respondent of the transfer and its subsequent registration. The appellants relied upon the decision of the Privy Council in Knight Sugar Co. Ltd. v. Alberta Railway and Irrigation Co.[2] Their contention is that the restrictive covenants contained in the building restrictions agreement, in so far as they related to Lot B, were merged in the transfer, and that, upon registration of the transfer, those restrictions ceased to have any application to Lot B.

The Knight Sugar case was concerned with an agreement between the Knight Sugar Company and the Railway Company, under the terms of which the latter had agreed to sell certain large parcels of land in Alberta to the former. The

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vendor’s title contained a reservation to the Crown of all coal mines, coal pit seams and veins of coal and the right to work the same. The lands subject to the agreement were transferred from time to time to the purchaser or to purchasers from it. The transfers each contained an exception in the following terms:

excepting therefrom all coal and other minerals in and under the said land and the right to use so much of said land or the surface thereof as the Company may consider necessary for the purpose of working and removing the said coal and minerals.

The titles which issued, following registration of these transfers, contained the words “excepting thereout all coal and other minerals”.

The transfers had all been completed by about the end of March 1913. More than 17 years later the Knight Sugar Company claimed the right to all minerals, other than coal. The Privy Council upheld the judgments of the Courts below dismissing this claim.

The substance of the decision is contained in the following two paragraphs, at pp. 237-8:

As regards the major question, there can, their Lordships think, be no doubt that the true construction of the sale agreement would not warrant an exception in the transfer of any minerals except coal. But it is well settled that where parties enter into an executory agreement which is to be carried out by a deed afterwards to be executed, the real completed contract is to be found in the deed. The contract is merged in the deed: see Leggott v. Barrett (1880), 15 Ch. D. 306. The most common instance perhaps of this merger is a contract for the sale of land followed by conveyance on completion. All the provisions of the contract which the parties intend should be performed by the conveyance are merged in the conveyance, and all the rights of the purchaser in relation thereto are thereby satisfied. There may, no doubt, be provisions of the contract which from their nature or from the terms of the contract survive after completion. An instance may be found in Palmer v. Johnson (1883), 12 Q.B.D. 32, 53 L.J.Q.B. 78; (1884), 13 Q.B.D. 351, 53 L.J.Q.B. 348, in which it was held that a purchaser could, after conveyance, rely upon a provision of the contract and obtain compensation. The founda-

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tion of this decision was that upon the construction of the contract the provision for compensation applied after completion; in other words, the parties did not intend it to be performed by the subsequent deed and it was therefore not satisfied by or merged in the deed.

There can be no question in their Lordships’ view that, so far as parcels were concerned, the parties in the present case intended that the provisions of the sale agreement should be performed by the transfer and the subsequent certificate of title, and that accordingly, subject to a point next to be mentioned, the real contract as regards parcels is to be found not in the executory agreement but in the completed transaction.

Leggott v. Barrett, which was relied upon in the Knight Sugar case, involved the dissolution of a partnership. The parties signed an agreement for dissolution, which provided specifically that a proper deed of dissolution should be prepared and signed. A formal deed was duly executed. Subsequently one of the parties sought an injunction to restrain the retiring partner from dealing with customers of the old firm. It was held that the basis for such an injunction would have to be found in the deed, which represented the real completed contract between the parties.

In the later case of Palmer v. Johnson, also referred to in the Knight Sugar case, the plaintiff purchased from the defendant, at a sale by auction, a parcel of land. The property was described, in the particulars of sale, as producing a net annual rental of £39. One of the conditions of sale provided that if any error, mis-statement or omission in the particulars was discovered the sale would not be annulled, but compensation would be allowed. A conveyance of the land was made by the defendant to the plaintiff, who subsequently discovered that the £39 rental was a gross rental, the net rental being substantially less. The plaintiff successfully claimed compensation. Leggott v. Barrett was cited in support of the defendant’s position.

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Bowen L.J., at p. 357, said this:

Now it is commonly said, that where there is a preliminary contract for sale which has afterwards ended in the execution of a formal deed, you must look to the deed only for the terms of the contract, but it seems to me one cannot lay down any rule which is to apply to all such cases, but must endeavour to see what was the contract according to the true intention of the parties. Suppose the parties should make a parol contract, with the intention that it should afterwards be reduced into writing; and that that which is reduced into writing shall be the only contract, then, of course, one cannot go beyond it; but if they intend, as they might, that there should be something outside such contract, they might agree that that should exist, notwithstanding it was not in the contract which was put into writing. In the same way, when one is dealing with a deed by which the property has been conveyed, one must see if it covers the whole ground of the preliminary contract. One must construe the preliminary contract by itself, and see whether it was intended to go on to any, and what, extent after the formal deed had been executed.

Fry L.J. said, at p. 359:

In Leggott v. Barrett, 15 Ch. D. at pp. 309, 311, Lord Justice James and the present Master of the Rolls laid down what is indubitably the law, that when a preliminary contract is afterwards reduced into a deed, and there is any difference between them, the mere written contract is entirely governed by the deed, but that has no application here, for this contract for compensation was never reduced into a deed by the deed of conveyance. There was no merger, for the deed, in this case, was intended to cover only a portion of the ground covered by the contract of purchase.

It appears, therefore, that it is not in every case, where an agreement for the sale of land is followed by the execution of a conveyance of the land, that the provisions of the agreement must, of necessity, be merged in the conveyance. What the Court must do, in the words of Bowen L.J., is to “endeavour to see what was the contract according to the true intention of the parties”.

The building restrictions agreement, in clause 1(a), contained a covenant by the purchasers

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that the land being sold should be used for residential purposes only, and should conform to the standards of “R.1” zoning as prescribed under the existing zoning by-law; i.e., one-family dwellings, parks and private garages. This is the general governing provision.

Clause 1(b) goes into detail regarding lot sizes, and provides for the means whereby the general object of clause 1(a) may be incorporated in the form of restrictive conditions in transfers of the land. The wording of clause 1(b) is significant. It provides that the lands “may” be transferred by the vendor to the purchasers, and “shall” in any event be transferred by the purchasers to any successors in title, subject to the covenants running with the land as defined in that paragraph. It follows that the vendor might have given an outright transfer of the lands with no restrictive conditions attached to it, but, if so, the building restrictions agreement would still be applicable as between the parties, and the purchasers would still be obligated to impose such restrictions in any transfers of the land made by them.

Certain of the other provisions of this agreement could not be incorporated in restrictive conditions attached to the transfers. Paragraph 1(d) prevented water and sewer mains being laid within 25 feet of Parcel C, being a parcel retained by the respondent, and also the existence of any lane bordering on any part of that parcel.

Paragraphs 1(e) and 1(f) contemplated continuing control by the vendor in certain areas. They read as follows:

(e) Notwithstanding the foregoing provisions with respect to the convenants running with the land to be contained in the transfers thereof, the Purchasers shall not subdivide the land so as to allow any lots of an area less than Twelve Thousand Five Hundred (12,500) square feet bordering Parcel C without the written consent of the Vendor first had and obtained.

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(f) That in any subdivision of Parcel A made by the Purchasers the lots to be laid out in the Northwest Corner of Parcel A bordering Parcel C within a distance of Three Hundred and Thirty-five (335) Feet South from the Northerly Boundary of Parcel A shall be of a size and shape satisfactory to the Vendor, provided that the Vendor shall not act unreasonably in withholding its approval.

Clause 2 of the agreement provides for consultation from time to time between the parties and for co-operation in a reasonable manner to give effect to the agreement.

It is, therefore, apparent that this agreement, by its terms, contemplated its continued existence after the lands, the subject of the option, had been transferred from the vendor to the purchasers. Can it then be said that, when Bel-Aire decided to have restrictive conditions of the kind contemplated by para. 1(b) incorporated into the transfer of the land from the respondent to Bel-Aire, but excluding Lot B from their application, it was thereby intended that Lot B was to be excluded from the application of the provisions of the building restrictions agreement?

I do not think that it can. There was clearly no agreement to this effect. At the time the transfer was registered there had been no request by Bel-Aire, and no acquiescence by the respondent to having Lot B freed from any restrictions. The appellants had not instructed their solicitor to that effect, and the respondent had not instructed its solicitor to agree to it. The respondent’s solicitor had overlooked the reference to the exemption of Lot B from the restrictions attached to the transfer. The appellants’ solicitor had excepted it from those restrictions, when he drafted them: “Because Lot B was not carved up into residential lots, and it was a parcel of land that had been set aside for future development.”

The exception of Lot B from the restrictions applicable to the residential lots, when the transfer was registered, is quite understandable. If those restrictions were to become, by registration, permanently applicable to Lot B, then it would only have been possible, thereafter, to erect

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upon it a single-family dwelling house. But that exception, in my opinion, cannot be interpreted as an intention to exempt Lot B from the provisions of the building restrictions agreement. On the evidence, the parties had clearly intended that the exemption of Lot B from those provisions would have to depend upon further negotiation between the parties.

Counsel for the appellants contended that consideration of the extrinsic evidence, while permissible on the issue of rectification, was not permissible on the issue of merger, which should be determined only on the construction of the written instruments. The latter issue is, however, to be determined according to the true intention of the parties. The extrinsic evidence introduced in this case did not seek to contradict or vary the meaning of the written instruments, but related to the issue of the intention of the parties when the building restrictions agreement was made.

In my opinion, on the evidence, the parties did not intend to merge all of the provisions of that agreement in the transfer, and the exception of Lot B from the restrictions attached to the transfer did not have the effect of releasing that land from the operation of the provisions of the building restrictions agreement. Having reached this conclusion, it is unnecessary to express an opinion on the issue of rectification.

I would dismiss the appeal with costs, and would dismiss the cross-appeal without costs.

Appeal dismissed with costs; cross-appeal dismissed without costs.

Solicitors for the defendants, appellants: Fleming, Neve, Kambeitz & Pottinger, Calgary.

Solicitors for the plaintiff, respondent: Fenerty, McGillivray, Robertson, Prowse, Brennan, Fraser, Bell & Hatch, Calgary.