Whisper Holdings Ltd. v. Zamikoff, [1971] SCR 933

Supreme Court of Canada

Whisper Holdings Ltd. v. Zamikoff, [1971] S.C.R. 933

Date: 1971-04-27

Whisper Holdings Limited (Respondent) Appellant;

and

Morris Zamikoff, Edyth Nadborny, Eva Davis and Rae Tobias (Applicants) Respondents;

and

Benjamin Lundy (Respondent).

1971: February 23, 24; 1971: April 27.

Present: Martland, Ritchie, Hall, Spence and Pigeon JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Contracts—Purchase of land—Agreements under seal signed by four partners—Forfeiture provision—Deed taken in name of two original partners and two new partners—New partner in default—Whether interest in property lost by new partner—Novation.

On May 18, 1956, MZ executed an offer to purchase approximately 46 acres of land for the price of $73,600. By an agreement under seal, dated July 18, 1956, MZ agreed with RT, ED and BL for the holding and sale of the said lands on joint account. Under this agreement RT was to have a one-third interest, ED a one-sixth interest, BL a one-third interest and MZ was to retain a one-sixth interest. MZ was to manage the lands, and the expenses were to be borne by the parties in proportion to their respective interests.

On June 2, 1960, the parties entered into another agreement under seal which agreement amended and added to their previous agreement of July 18, 1956. It was provided, inter alia, that should a partner be in default of a payment of a requisition the remaining partners not in default might send him by registered mail a notice signed by each of them that he was in default and that the defaulting partner should cease to be a partner and forfeit his rights in the partnership and in the land.

A deed was given to EZ (who took over the interest previously held by MZ), ED, RT and WH Ltd. (a company owned by BL and his son, which took over the interest previously held by BL). A mortgage from those grantees to the vendor was

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prepared bearing the same date as the deed, May 27, 1960, and MZ joined in that mortgage. On these documents, the transaction for purchase and sale was closed on June 7, 1960.

The mortgage payments were made up to and including November 1961, but following the failure of WH Ltd. to pay its proportionate share of a payment due in May 1962, MZ was informed by BL’s son that WH Ltd. was withdrawing from the syndicate. A notice of default was then sent to BL and/or WH Ltd.

In 1963, a small part of the lands, 5.6 acres in area, was sold. The registered title stood in the name of WH Ltd., inter alia, and, therefore, the execution by it of the conveyance was requested and this request was granted. The lands later very much increased in value and in 1968 an offer of $270,000 for the parcel was received. WH Ltd. acquiring knowledge of this fact manifested the desire to be considered as still having an interest in the transaction.

An application for an order declaring that BL and WH Ltd. had no interest in the lands was granted with respect to BL but was dismissed with respect to WH Ltd. BL did not appeal. The applicants did appeal and the Court of Appeal unanimously granted the appeal and declared that WH Ltd. had no interest in the lands. WH Ltd. then appealed to this Court.

Held: The appeal should be dismissed.

It was well established that when an instrument is executed under seal only those who are expressed in it to be parties thereto can sue or be sued on a covenant contained in the said instrument. However, although the agreements of July 15, 1956, and June 2, 1960, were both under seal and WH Ltd. was not a party thereto, the subsequent circumstances demonstrated beyond doubt that there was a novation of that contract all parties old and new agreeing to the novation whereby EZ replaced as a partner her father MZ, and WH Ltd. replaced as a partner its director and controlling shareholder BL. Therefore WH Ltd. became bound by the provisions of the said agreements. Having been in default of its obligations thereunder and having received due and proper notice of such default, and failing to cure the default, the appellant had, in accordance with the agreement, lost all interest in the property.

Porter v. Pelton & Holden (1903), 33 S.C.R. 449, referred to.

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APPEAL from a judgment of the Court of Appeal for Ontario[1], allowing an appeal from a judgment of Addy J., dismissing an application for an order declaring that the appellant company had no interest in certain lands. Appeal dismissed.

W.J. Smith, Q.C., for the appellant.

B.J. MacKinnon, Q.C., and J.E. Sexton, for the respondents.

The judgment of the Court was delivered by

SPENCE J.—This is an appeal from the judgment of the Court of Appeal for Ontario pronounced on January 13, 1970. By that judgment, the Court of Appeal allowed an appeal from the judgment of Addy J. pronounced on September 23, 1969. In the latter judgment, the learned judge of first instance had found that the respondent Benjamin Lundy had no interest in the lands and premises in question but dismissed an application for a similar declaration as to the respondent (here appellant) Whisper Holdings Limited. Benjamin Lundy did not appeal the decision of Addy J. and has not appeared on this appeal. The applicants (respondents in this Court) did appeal to the Court of Appeal for Ontario and that Court unanimously granted the appeal and declared that the respondent (here appellant) Whisper Holdings Limited had no interest in the said lands. From that judgment of the Court of Appeal for Ontario, this appeal was taken.

In the Court of Appeal for Ontario, Schroeder J.A., with Kelly J.A. concurring, granted the relief upon two grounds: firstly, that under the circumstances to which reference will be made hereafter, there was a novation of the contract between the original partners so that the appellant Whisper Holdings Limited was bound by the provisions of that contract, and, secondly, that those circumstances created an estoppel as against the said appellant. Laskin J.A., in separate reasons for judgment, agreed that there had been a novation but did not agree that the appeal should also be allowed for the additional reason that an estoppel had resulted. I have come to the conclusion that the unanimous judgment of the

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Court of Appeal upon the proposition that a novation had occurred should be supported and, therefore, I have refrained from dealing with the question of estoppel.

It is necessary to outline the circumstances in some detail.

On May 18, 1956, the respondent Morris Zamikoff entered into an agreement for the purchase of certain lands from a Harry Clark. The lands, being about 46 acres, in the Township of Toronto, were to be purchased for the price of $73,600 payable as follows:

$5,000.00 cash by way of deposit, $5,000.00 on January 15th. 1957, $5,000.00 on May 18th. 1957, the balance of $58,600.00 to be secured by a mortgage for a term of 10 years with interest at 5% per annum payable half-yearly and half-yearly payments of principal of $500.00 each. The mortgage was to provide that a partial discharge or discharges would be granted as to any parcel containing 5 acres or more upon payment of $1,200.00 per acre plus interest to date.

The transaction for the purchase of the lands was to be closed on May 18, 1957. By an agreement under seal, which bears the date July 18, 1956, the said respondent Morris Zamikoff agreed with Rae Tobias, Eva Davis and Benjamin Lundy for the holding and sale of the lands, the subject of the agreement for purchase aforesaid, on joint account. Under this agreement, Rae Tobias was to have one-third interest, Eva Davis was to have one-sixth interest, Benjamin Lundy was to have one-third interest, and the offeror under the agreement for purchase Morris Zamikoff was to retain one-sixth interest. The complete covenants in that agreement were as follows:

1. Morris Zamikoff, the party of the first part, hereby acknowledges the interests of the respective parties in the said lands shall be as set out above.

2. All profits, expenses and losses shall be borne according to the ratio of the interest the parties of the first part and the parties of the second part will have in the said lands as set out above.

3. It is hereby understood by all of the parties hereto that the said Morris Zamikoff is to have the power to manage the said lands and to sell the said lands according to his discretion, provided that the majority of the said parties representing more than a one‑half interest in the said lands shall not be opposed to any such decision.

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Negotiations between the vendor and purchasers proceeded and there were some amendments of the agreement for purchase which are not relevant to the questions here discussed. On June 2, 1960, the said Morris Zamikoff, of the first part, and Rae Tobias, Eva Davis and Benjamin Lundy, of the second part, entered into another agreement under seal which agreement amended and added to their previous agreement of July 18, 1956.

I quote that agreement, apart from the execution provision, in full:

                                                 RE: CLARK FARM HOLDING:

1. (a) WHEREAS Morris Zamikoff of the first part may serve requisitions on the partners from time to time, by registered mail, advising as to the date, amount and purpose for which funds are required.

(b) Such requisitions shall be of such amount and specify such due date, that when payment is received from all partners, sufficient funds will be on hand to meet obligations payable within ten days plus the building up and/or maintenance of a reserve not to exceed $300.00.

(c) Should any partner be in default on any such requisition, the remaining partners not in default may send to him, by registered mail, a notice signed by each of them that he is in default.

(d) The defaulting partner shall cease to be a partner and shall forfeit all his rights in the partnership and in the land.

2. All sums paid to [sic] him to that date shall be treated as non-interest-bearing loans to the remaining partners, payable out of the cash proceeds of sale of the land.

Proceeds of sale of the land shall be applied:

(1) To pay the obligations of the partnership as they become due and payable.

(2) To repay to the partners, including the defaulting partner or partners, pro-rata, the sums invested by each of them in the partnership.

(3) To pay to the partners, pro-rata, the share of profits to which each is entitled.

PROVIDED HOWEVER that no payment shall be made on account of profits until the amount invested by each partner, including the defaulting partner or partners, has been paid in full.

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(e) A defaulting partner or partners shall remain liable for his share of expenses, including mortgage interest and taxes, incurred up to the date of default, whether or not such expenses were then payable, but shall not be responsible for expenses subsequently incurred.

Arthur Lundy, the son of the respondent Benjamin Lundy, who at this time was acting for the group, i.e., the parties to these two agreements, proceeded to the closing of the transaction for purchase and sale. A deed of land from Harry Clark, as vendor, to Edyth Zamikoff, Eva Davis, Rae Tobias and Whisper Holdings Limited, was prepared, executed and delivered. A mortgage from those grantees to Harry Clark was prepared bearing the same date as the deed, May 27, 1960, and the respondent Morris Zamikoff, who had been the purchaser who had made the offer, joined in that mortgage in these words:

AND I, MORRIS ZAMIKOFF, THE PARTY OF THE THIRD PART, do hereby covenant, promise and agree to pay the said mortgage payments as and when the same fall due and to carry out all the terms and conditions of the mortgage herein as if I were the original mortgagor of the said mortgage.

On these documents, the transaction for purchase and sale was closed on June 7, 1960, Arthur Lundy acting for the purchasers on the closing.

The grantee and mortgagor, Whisper Holdings Limited, the present appellant, was a company incorporated under the laws of the Province of Ontario. Benjamin Lundy and Arthur Lundy were directors thereof and the mortgage was executed by the said Whisper Holdings Limited over the signature of Arthur Lundy as secretary thereof.

On June 10, 1960, Arthur Lundy wrote to “Messrs. Zamikoff, Davis and Tobias” reporting on the purchase. Two paragraphs of that reporting letter are of interest. The first reads:

This property has been registered in the names of Rae Tobias as to a one-third interest, Eva Davis and Edyth Zamikoff as to a one-third interest, and Whisper Holdings Limited as to the remaining one-third interest.

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And the second paragraph reads:

In view of the fact Morris Zamikoff was obliged to sign the mortgage back as guarantor, Albert Tobias, Sydney Davis and Benjamin Lundy signed a separate indemnification agreement, wherein each party is responsible to Morris Zamikoff to the extent of their interest in the said property.

It is to be remembered that Edyth Zamikoff and Whisper Holdings Limited were not parties to the agreements dated July 18, 1956, or June 2, 1960, but that both of them were grantees under the conveyance aforesaid and both of them executed the mortgage as mortgagors. It is, of course, quite apparent that Edyth Zamikoff took over the one-sixth interest previously held by Morris Zamikoff and Whisper Holdings Limited, a company incorporated by Benjamin Lundy and Arthur Lundy and owned by them, took over the one-third interest previously held by Benjamin Lundy.

In his letter reporting of June 10, 1960, to which I have referred above, Arthur Lundy shows that Benjamin Lundy was actually contributing one-third of the further amounts payable to the vendor on closing. After closing, payments of principal and interest were made up to and including November 18, 1961, pursuant to the requirements of the mortgage and were contributed to by the grantees named in the deed of May 27, 1960, in the same amounts and in the same manner as the parties to the agreements of July 18, 1956, and June 2, 1960, had bound themselves to make such payments. Those payments due from Morris Zamikoff under the said agreements were made by Edyth Zamikoff, later Nadborny, and those payments due under the agreements from Benjamin Lundy were made by Whisper Holdings Limited.

A mortgage payment fell due on May 18, 1962, and not receiving any funds from either Whisper Holdings Limited or its controlling director Benjamin Lundy, the respondent Morris Zamikoff, who had always acted as manager of the partnership under the agreements aforesaid, spoke to Arthur Lundy, Benjamin Lundy’s son, asking for such payment. Morris Zamikoff testi-

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fied in his cross-examination upon his affidavit as to his conversation with Arthur Lundy as follows:

Q. When is the last time you spoke to Arthur Lundy about this matter?

A. The last time was in 62, when Mr. Tobias was doing my correspondence, when he came to send letters out for payments. And he wrote me a letter to send his cheque. Well, when I don’t get the cheque on time I inquire, I phone him why I get other cheques and I don’t get his cheque. And that is the time he said the land was a way down at that time, which there was no selling and no buying. And he thought that we just carrying something that will never go through, it kept going down. He said it is useless to carry this land because the price went down. And he said, “I am pulling out from the syndicate.” So, I said to him, “What are we going to do now?” So, he says, “You can do as you like. We have agreement, follow agreement.” That is the last time I had any conversation with him.

Acting on that invitation, on June 15, 1962, Morris Zamikofï gave to Benjamin Lundy and/or Whisper Holdings Limited in care of Arthur Lundy a notice in these words, “In accordance with the agreement dated the 2nd of June 1960, we hereby notify you that you are in default.” It is to be remembered that the agreement of June 2, 1960, which I have quoted above provided that should a partner be in default of a payment of a requisition the remaining partners not in default might send to him by registered mail a notice signed by each of them that he was in default and that the defaulting partner should then cease to be a partner and forfeit all his rights in the partnership and in the land.

Schroeder J.A., in his reasons, found that the positive evidence produced by the applicants before Addy J., i.e., the respondents in this Court, as to the service of the relevant requisition for payment and notice of default upon the respondents on the application, i.e., the appellant Whisper Holdings Limited, stood uncontradicted. With respect, I agree with this finding.

Thereafter, the respondents proceeded with the management of the lands without reference to the appellant Whisper Holdings Limited until 1963,

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when a sale of a small part of the lands, 5.6 acres in area, was made to the Hydro Electric Power Commission of Ontario. The registered title stood in the name of the appellant Whisper Holdings Limited, inter alia, and, therefore, the execution by the appellant of the conveyance to the said Hydro Electric Power Commission was requested and this request was compiled with. This fact was relied on by the appellant in this Court as evidence to show that Whisper Holdings Limited still had an interest in the lands and that the respondents were not entitled to the declaration which they had claimed on the original application. Whisper Holdings Limited received no part of the proceeds as the proceeds were paid to the mortgagee Harry Clark to be applied to both interest and principal due on the mortgage. I do not view the execution of the conveyance to the Hydro Electric Power Commission of Ontario by Whisper Holdings Limited as evidence of any weight that this appellant was acknowledged to have any interest in the lands. To obtain its execution of the conveyance was much easier and more economical than an application to the Court for a declaration. This latter procedure only became necessary upon the appellant later asserting its alleged interest. The respondents negotiated with Mr. Clark an arrangement whereby he agreed to accept payment of interest only deferring the obligation to pay the unpaid balance of principal until the maturity of the mortgage which was to occur on May 18, 1970. After the appellant’s default in the payment of the requisition due on May 18, 1962, it paid no further amount and the respondents have continued to pay interest. At the time of the hearing before Addy J., over $16,000 had been paid to the mortgagee Clark.

The lands later very much increased in value and in December 1968 the respondents received an offer of $270,000 for the parcel. The appellant acquiring knowledge of this fact has manifested the desire to be considered as still having an interest in the transaction and therefore this litigation arose.

It is, of course, well established that when an instrument is executed under seal only those who are expressed in it to be parties thereto can sue or be sued on a covenant contained in the said

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instrument. No further authority is required than Porter v. Pelton & Holden[2], where Nesbitt J. said at p. 455:

The cases for over a century establish the rule of law firmly that where partners contract under seal they are bound by the form of the instrument, and where parties so signing are merely acting as agents and are so described, only the parties signing can be bound. A principal or partner cannot be bound unless he has given authority for his signature under seal, and is designated as a party to the deed. A cestui que trust cannot either sue or be sued upon a covenant made by and in the name of a trustee on his behalf.

With respect, however, I am in agreement with Schroeder J.A. that although the agreements of July 18, 1956, and June 2, 1960, were both under seal and Whisper Holdings Limited was not a party thereto, the subsequent circumstances demonstrated beyond any doubt that there was a novation of that contract all partners old and new agreeing to the novation whereby Edyth Zamikoff (later Nadborny) replaced as a partner her father, the respondent Morris Zamikoff, and the appellant Whisper Holdings Limited replaced as a partner its director and controlling shareholder Benjamin Lundy. With respect, I am in agreement with Schroeder J.A. that all the elements of a novation are present and that therefore the appellant Whisper Holdings Limited became bound by the provisions of the agreements of July 18, 1956, and June 2, 1960, and that having been in default of its obligations thereunder, having received due and proper notice of such default, and failing to cure the default the appellant has now, in accordance with the agreement, lost all interest in the property. As noted by Schroeder J.A., the same agreements provided that defaulting partners should have repaid to them their investment after the repayment of disbursements and before any distribution to the remaining partners.

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I am, therefore, of the opinion that the judgment of the Court of Appeal is correct. I would dismiss this appeal with costs.

Appeal dismissed with costs.

Solicitor for the appellant: W.J. Smith, Toronto.

Solicitors for the respondents: MacKinnon, McTaggart, Toronto.