Tanenbaum v. Sears, [1972] SCR 67

Supreme Court of Canada

Tanenbaum v. Sears, [1972] S.C.R. 67

Date: 1971-05-31

Max Tanenbaum (Defendant) Appellant;

and

Sydney Sears (Plaintiff) Respondent;

and

Sydney Sears Real Estate Limited (Plaintiff);

and

Downsview Meadows Limited (Defendant).

1971: February 24, 25; 1971: May 31.

Present: Judson, Ritchie, Hall, Spence and Laskin JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

[Page 68]

Contracts—Pre-incorporation agreement—Four parties agreeing to cause proposed company to pay selling commissions on sale of lots—Commissions to be paid to real estate firm owned by one of the parties—Payments not made—Three parties and nominees dropping out of company—Action on agreement dismissed.

Four persons, including the plaintiff Sears and the defendant Tanenbaum, entered into a pre‑incorporation agreement for the purpose of completing the purchase of certain lands which were to be developed and sold. Under cl. 17(b) of the agreement the parties agreed that on the sale of each lot, whether sold by Sydney Sears Real Estate Ltd. or not, they would cause the company that was to be incorporated to pay to the said real estate firm, a selling commission of $50 per lot. After the proposed company was incorporated, the lands were purchased and 484 lots were sold but the commissions were not paid.

In an action brought on cl. 17(b), the plaintiff joined as co-plaintiff his wholly-owned corporation Sydney Sears Real Estate Ltd., and he named as co-defendants Tanenbaum and Downsview Meadows Ltd., which was the corporation brought into being under the agreement. The trial judge dismissed the action against this corporation, and also dismissed the claim in the action made by Sydney Sears Real Estate Ltd. No appeal was taken from these dismissals. Sears succeeded against Tanenbaum; he was granted damages in the amount of $24,200 which was to be paid to him in trust for Sydney Sears Real Estate Ltd. On appeal, the Court of Appeal varied the trial judgment and Tanenbaum was ordered to pay the sum of $24,200 directly to Sydney Sears Real Estate Ltd. Tanenbaum then appealed to this Court.

Held (Ritchie and Spence JJ. dissenting): The appeal should be allowed and the action dismissed.

Per Judson, Hall and Laskin JJ.: A company controlled by Tanenbaum had become the owner of Downsview; the other three original parties to the pre-incorporation agreement and their nominees had dropped out of the company before any attempt was made to have cl. 17(b) implemented. It was a reasonable inference, in the events that happened, that the parties to the agreement abandoned what they had agreed to under cl. 17(b).

Clause 17(b) could not be read as involving separately enforceable obligations of each of the parties thereto to cause Downsview to provide for

[Page 69]

the payments to Sears’ real estate firm. It envisaged a collective obligation, or one that it was open to Sears to seek to enforce against his co-contractors while asserting his own readiness and willingness.

The Court of Appeal’s statement that specific performance would not be ordered where the effect would be to cause a third person to discharge an obligation under an agreement to which it was not a party, especially where that obligation was not one assumed by the third party, was a proper view of the case. The Court of Appeal’s second ground for denying specific performance, i.e., because it would oblige Tanenbaum, in his capacity as president and a director of Downsview, to vote or act in a particular way in a matter in which the company was not involved, reinforced the above-stated view of the nature of the obligation created by cl. 17(b).

The basis on which the Court of Appeal put Tanenbaum’s liability could not be accepted. Clause 17(b) did not imply a personal covenant by Tanenbaum to pay Sear’s firm.

Per Ritchie and Spence JJ., dissenting: There was adequate and convincing evidence that the pre‑incorporation agreement remained a valid and subsisting agreement and that there was no abandonment thereof. Contrary to the view of the Court of Appeal, a personal covenant of Tanenbaum to pay could not be substituted for the covenant set out in cl. 17(b). The reasons given by the Court of Appeal for concluding that Sears was barred from obtaining a decree of specific performance were not accepted.

The appeal should be allowed only to the extent of substituting for the order of the Court of Appeal a declaration that cl. 17(b) is a binding contract between the plaintiff Sears and the defendant Tanenbaum, and directing that the said defendant specifically perform the said contract by causing Downs-view to pay to Sydney Sears Real Estate Ltd. a sum of $24,200.

[Beswick v. Beswick, [1968] A.C. 58; Ringuet v. Bergeron, [1960] S.C.R. 672, considered.]

APPEAL from a judgment of the Court of Appeal for Ontario[1], varying a judgment of Stark J. Appeal allowed, Ritchie and Spence JJ. dissenting.

[Page 70]

Sydney L. Robbins, Q.C., for the defendant, appellant.

F.M. Catzman, Q.C., and M.A. Catzman, for the plaintiff, respondent.

The judgment of Judson, Hall and Laskin JJ. was delivered by

LASKIN J.—The focus of this appeal is the proper construction and application of cl. 17(b) of a pre‑incorporation agreement of February 28, 1955, to which the plaintiff Sears and the defendant Tanenbaum were parties. Two other persons, Percy Wright and Erneice Shanoff, were also parties to the agreement, but not to the litigation to which it gave rise. Clause 17(b) reads as follows:

The parties hereto covenant and agree that on the sale of each lot, whether sold by Sydney Sears Real Estate Limited or not, they will cause the company so to be incorporated to pay to Sydney Sears Real Estate Limited, a selling commission of Fifty Dollars ($50.00) per lot.

In the events that happened (and to which I will refer below), action on the clause was brought on June 19, 1964. It was tried by Stark J. on an amended statement of claim dated April 7, 1967, and on a fresh statement of defence dated May 18, 1967. Sears had joined as co-plaintiff his wholly-owned corporation Sydney Sears Real Estate Ltd., and he had named as co-defendant Downsview Meadows Ltd., which was the corporation brought into being under the agreement. Stark J. dismissed the action against this corporation, and also dismissed the claim in the action made by Sydney Sears Real Estate Ltd. No appeal was taken from these dismissals. Sears succeeded against Tanenbaum under a formal order reading as follows:

2. AND THIS COURT DOTH FURTHER ORDER AND ADJUDGE that the plaintiff Sydney Sears do recover from the defendant Max Tanenbaum the sum of $24,200.00 in trust for Sydney Sears Real Estate Ltd.

[Page 71]

The Ontario Court of Appeal varied this order by substituting therefor paras. 2 and 2A in these terms:

2. THIS COURT DOTH DECLARE that clause 17 (b) of the agreement dated the 28th day of February, 1955 referred to in paragraph 5 of the amended statement of claim in this action is a binding contract between the plaintiff Sydney Sears and the defendant Max Tanenbaum for the payment to the plaintiff Sydney Sears Real Estate Limited of the sum therein referred to, and that the same ought to be specifically performed by the defendant Max Tanenbaum and DOTH ORDER AND ADJUDGE THE SAME ACCORDINGLY.

2A. AND THIS COURT DOTH ORDER AND ADJUDGE that the defendant Max Tanenbaum do forthwith pay to the plaintiff Sydney Sears Real Estate Limited the sum of $24,200.00.

Tanenbaum was thus held answerable in both Courts but, as will appear more clearly after reference to their respective reasons, upon different theories of liability.

There is no dispute as to the amount of the judgment if it is collectible from Tanenbaum personally. It represents the prescribed fee under clause 17(b) for 484 lots of land which were sold by Downsview after its incorporation on March 1, 1955, but in the main from 1962 until the date of the action. These lots were from a tract of land which was the substratum of the pre-incorporation agreement. Percy Wright owned the purchase rights to the tract, and the arrangement between the parties to the agreement was that the proposed company would complete the purchase, and that shares would be issued to the contracting parties to represent their assigned portions of the deal. Tanenbaum agreed to be the main financier and to guarantee necessary bank loans, subject to indemnification agreements from his co‑contractors to the extent of their respective stakes.

The pre-incorporation agreement provided that the proposed company would be capitalized with both common and preference shares, the latter to be issued to Tanenbaum in an amount equivalent to the bank advance that he would

[Page 72]

secure. (Clauses 5 and 18(a) of the agreement in this behalf were in the language of clause 17(b), in that the parties were to cause the proposed company to issue the preference shares to Tanenbaum. In similar language, clause 18(b) provided for a mortgage to be given to Tanenbaum on the land as collateral security for procuring the bank advance.) There were to be 200,000 common shares of no par value which were to be issued in the following proportions:

            Max Tanenbaum...........................................    47%

            Percy Wright..................................................    32%

            Sydney Sears................................................    16%

            Erneice Shanoff............................................      5%

Sears paid Percy Wright $75,000 (the money did not go to the company or to Tanenbaum) for his participating interest, and 32,000 shares were subsequently allotted to him at one cent each. Proportionate allotments were made to the others.

The terms of the pre-incorporation agreement respecting allotment of shares, the issue of preference shares and a mortgage of the land to Tanenbaum were carried out the week following the incorporation of the company. The agreement had provided in cl. 3 that “the parties hereto shall cause the following persons to be elected permanent directors of the company… as well as officers [thereof]”, and Max Tanenbaum, Sydney Sears, David L. Shanoff and Stephen W. Laughlin were named in the clause as president, vice-president, treasurer and secretary respectively. Shanoff, a solicitor, was the husband of Erneice Shanoff, and Laughlin, also a solicitor with whom Shanoff was associated, was the nominee of Percy Wright. Clause 20 of the agreement permitted such substitution in stating that “each of the parties hereto may with the consent of the other parties hereto, cause a nominee to sit for them as a director and/or shareholder of the company… and to cause the said nominee to hold the shares of any of the parties hereto in trust.” The original subscriptions for common shares showed that Tanenbaum had his 94,000 distributed to himself (14,000) his wife (30,000), his daughter (10,000) and his accountant (40,000); that Percy Wright took his allotment of 64,000 shares in the name of Laughlin; and that of Mrs. Shanoff’s allotment of

[Page 73]

10,000 shares one share was taken in her husband’s name and the balance in the name of a family holding company. Sears held his 32,000 shares in his own name but for less than three months. On May 20, 1955, he sold all but one share to Keele Investments Ltd., a company in which he had a small interest and which was in fact incorporated to take over his 16 per cent interest in Downsview; and he held the remaining share as nominee and in trust for Keele.

Sears continued to be a director of Downsview in his nominee capacity until July 6, 1964 (which was after action brought) when Keele sold its shares to Pinetree Investments Ltd., a company in which Tanenbaum and members of his family had interests. Pinetree became, for all practical purposes, owner of Downsview by that date as a result of a series of transactions reaching back six years. Before Pinetree came into the picture Tanenbaum had personally bought Wright’s shares; half were purchased in September, 1955, and the remaining half in 1957. In 1958, Tanenbaum, his wife and the accountant transferred their holdings in Downsview to Pinetree, save for one qualifying share retained by Tanenbaum. In 1959, Pinetree purchased the Shanoff holdings, save as to the one share held by David Shanoff, but it was transferred in 1960 to one Harold Tanenbaum.

Both at the trial before Stark J. and in the Ontario Court of Appeal, Sears advanced the contention that Downsview was owned or controlled by Tanenbaum personally. The trial judge refused so to find, being of opinion that there was no evidence that Tanenbaum owned or controlled Pinetree. The Court of Appeal took a different view, and, in my opinion, it could properly find on the evidence that Tanenbaum controlled Pinetree, and thus controlled Downsview. Whether this finding can provide a basis for the judgment in appeal is what must now be explored. In this connection, I propose, first, to examine cl. 17(b) in the context of the agreement of which it is a part, and then to review the course of the litigation to which it is central.

[Page 74]

The pre-incorporation agreement was one by which the parties bound themselves “to cause” various things to be done by the company which they were promoting. They were “to cause” certain named persons to be directors and officers; “to cause” the issue of preference shares to Tanenbaum; “to cause” the opening of a special trust account to contain deposits made on the sale of lots; “to cause” the company to use a solicitor-approved form of agreement for the sale of lots; “to cause” the granting of a mortgage to Tanenbaum for procuring and guaranteeing a bank loan; and by cl. 17(b) they were “to cause” the company to pay the prescribed selling commission to Sears’ real estate firm. Clause 19 was a general “residuary” provision as follows:

The parties hereto covenant and agree that they will as Directors and/or Shareholders of the Company so to be incorporated, cause the said Company so to be incorporated to do all things required to be done by the said Company so to be incorporated under the terms of this agreement. The parties hereto moreover covenant and agree that they will deliver such further and other assurances and documents as may be required in order to effectuate more fully the terms and intent of this agreement in every respect.

The parties would discharge their reciprocal promises by seeing to the incorporation of the company and to the allotment of shares and to the other things that were to be done by the company as such. The only personal financial obligation undertaken was by Tanenbaum with respect to the procuring of a bank loan, and by the others with respect to proportionate indemnification of Tanenbaum if he should be called on to honour his guarantee of the bank loan. In fact, what the parties agreed to cause to be done was substantially done through the incorporation of Downsview and through approvals given and resolutions passed at board of directors’ meetings. No steps were taken, however, to implement cl. 17(b); there is no evidence to indicate that Sears sought its implementation in the formative period of the company’s existence or that either Tanenbaum or any of the others opposed its implementation at that time. Despite the difficulties that the company encountered in registering a

[Page 75]

plan of subdivision and in proceeding with the development of the land, selling efforts were made very early although many proved abortive. It was not until 1962 that the project could move forward, and in the interval Tanenbaum had been obliged to provide considerable money.

Sears’ evidence (the only other evidence was that of Tanenbaum on discovery, read in as part of the plaintiffs’ case) was that it was after the project became profitable that he spoke to Tanenbaum about the implementation of cl. 17(b). A letter or account of March 23, 1964, from Sears’ real estate firm addressed to Downsview c/o Max Tanenbaum made a demand for $24,200 “as per agreement dated February 28, 1955, Section 17(b), and as previously requested”. This was followed by a letter of April 24, 1964, from Sears’ solicitors, also addressed to Downsview, c/o Max Tanenbaum, demanding payment of the aforementioned sum. Sears testified that when he discussed the matter with Tanenbaum the latter had agreed to look into it and said that he would take care of it. Tanenbaum’s discovery evidence contains a denial of any such personal commitment. It was unnecessary to make any finding on this conflicting evidence because, as counsel for Sears candidly admitted, no claim was made against Tanenbaum personally on the basis of any undertaking to Sears subsequent to February 28, 1955.

The evidence by Sears also reveals that he never proposed any resolution to have Downsview assume the commitment set out in cl. 17(b), and that there is no minute or any other record of his real estate firm and no auditors’ report or statement that indicates any contingent liability of Downsview to that firm.

It is a reasonable inference, in the events that happened, that the parties to the agreement of February 28, 1955, abandoned what they had agreed to under cl. 17(b). There were other terms that went by the boards when some of the original parties to the agreement and their nominees dropped out of Downsview. For example, agreements for the sale and purchase of lots were to have Tanenbaum’s and Wright’s

[Page 76]

approval and were then to be executed on behalf of the company by Sears and Shanoff (cl. 15); deposit moneys under such agreements were to be held in trust by Sears and Shanoff (cl. 16). When Wright, Sears and the Shanoffs sold their interests, these clauses died. Again, the provision in the agreement (cl. 3) that Tanenbaum, Sears, Shanoff and Laughlin were to be elected permanent directors had no lasting force; and Sears was elected an officer after he had ceased to have any beneficial interest.

If Sears’ evidence be taken literally, the $50 per lot sold was not a commission to his firm but rather a fee for him (directed by him to the firm) for supplying the $75,000 which he paid to Wright. I have no doubt that he could have insisted on provision being made for payment while remaining beneficially interested as a shareholder of Downsview. In my view, on ceasing to be so interested, he was no longer in a position to force the implementation of cl. 17(b). Neither of the remaining parties nor their nominees did so; and if there was some scintilla of an obligation that survived the radical change in the ownership of Downsview’s shares, there was no one to enforce it. Keele Investments was never a nominee of Sears; the reverse was the case.

Although the defendants in the action as framed for trial pleaded the rescission of cl. 17(b), the trial judge found that it was valid and subsisting, and the judgment of the Court of Appeal proceeded on that footing. The amended statement of claim asserted that Sears entered in the pre-incorporation agreement as agent of, or alternatively as trustee for his real estate firm. The prayer for relief was for (1) a declaration that Tanenbaum was required to cause Downsview to do what was necessary to have Downsview pay the real estate firm; (2) an order to this effect; and (3) in the alternative, damages in the sum of $24,200. At the opening of the trial Sears’ counsel abandoned the contentions of agency and trusteeship, and also stated that he was not claiming damages for Sears personally, having regard to the difficulty of proving any personal loss; rather, he was seeking specific performance of cl. 17(b) at the suit of Sears, through a direction that Tanenbaum carry out his

[Page 77]

covenant to cause Downsview to pay the real estate firm and, in the alternative, that the Court, in lieu of specific performance, order Tanenbaum personally to pay damages for breach of that covenant. At the conclusion of the plaintiffs’ case the defendants moved for a non-suit, electing to call no evidence but their motion was denied.

The trial judge thought that the principle reflected in Beswick v. Beswick[2] was applicable so as to entitle Sears to have his alleged contract with Tanenbaum carried out. However, in view of the finding that there was no evidence that Tanenbaum controlled Downsview, the trial judge concluded that a decree of specific performance would not be enforceable, and that he should therefore provide for alternative relief by way of full damages against Tanenbaum personally, such damages to be paid to Sears in trust for the real estate firm.

I advert to the trial judge’s conclusions because the respondent Sears, by a cross-appeal, asked for the restoration of the order at trial if this Court should find the order of the Court of Appeal untenable. I do not see how the trial judge could hold that Sears was entitled to a decree of specific performance (although it was not enforceable), when the other parties to the agreement were not before the Court and when it was clear that at the time the agreement was made Tanenbaum did not have the controlling voice in Downsview nor (on Stark J.’s finding) did he have it at the time of action brought. I do not read cl. 17(b) as involving separately enforceable obligations of each of the parties thereto to cause Downsview to provide for the payments to Sears’ real estate firm. It envisaged a collective obligation, or one that it was open to Sears to seek to enforce against his co-contractors while asserting his own readiness and willingness. Holding this view, I am unable to agree that the case was one for damages in equity in lieu of specific performance; and certainly not damages against Tanenbaum for the whole of amount claimed.

[Page 78]

The Court of Appeal took two different grounds for concluding that specific performance could not be granted. (Neither Downsview nor Sydney Sears Real Estate Ltd. was before that Court). First, it stated in its reasons that specific performance would not be ordered where the effect would be to cause a third person to discharge an obligation under an agreement to which it was not a party, especially where that obligation was not one assumed by the third party. This view of the case, a proper view in my opinion (and additional to the point already made as to deficiency of parties, having regard to the nature of the obligation under cl. 17(b)), distinguishes it from Beswick v. Beswick.

That was simply a case where A agreed with B to pay C, and not one where, as here, A, B, C and D agreed among themselves to cause X to pay Y, neither X nor Y being a party to the agreement. The agreement in the present case was concluded on the footing of the four parties thereto being in a position to effectuate it. There was no provision restricting any party from selling his shares or obliging him to sell or offer them first to the others; and the obligation to see that the company committed itself to Sears’ firm was not one that passed to a transferee shareholder in the absence of some indication in the agreement or other evidence from which a novation could reasonably be inferred against such a transferee. There was no such indication or evidence here. Clause 17(b), like the other provisions, was part of the organizing scheme and was not a provision that had a continuing rationale regardless of changes in company ownership.

I need not consider what the situation would have been if one of the parties other than Sears had sold his interest, and then Sears had insisted on the remaining three carrying out the commitment. The fact is that he was first out, and he was followed by two of the others before any attempt was made to have cl. 17(b) implemented.

As a second ground, the Court of Appeal rejected specific performance because it would

[Page 79]

oblige Tanenbaum, in his capacity as president and a director of Downsview, to vote or act in a particular way in a matter in which the company was not involved. The company owed no money either to Sears or to his real estate firm, and there was the possibility of a conflict of interest as between Tanenbaum’s personal position and his duty as chief officer of the company. The Court of Appeal referred to the judgment of this Court in Ringuet v. Bergeron[3] in support of the foregoing. In the view I take, I do not find it necessary to determine whether the principles considered in Ringuet v. Bergeron have any application here. I would observe, however, that this second ground taken by the Court of Appeal for denying specific performance reinforces the view that I have formed of the nature of the obligation created by cl. 17(b).

Having regard to considerations that I have canvassed, the claim of Sears as framed and as pursued should fail. However, the Court of Appeal put Tanenbaum’s liability on another basis which I set out in its own words:

Nevertheless, if the matter were to end with refusal of specific performance as prayed, appellant who has achieved a position of control over the defendant company to the exclusion of respondent and the other parties to the agreement of 28th February, 1955, would be permitted to take the benefits of that agreement while refusing to honour his own contractual obligation under it; such a result is not only unjust but fails to give business efficacy to the contract between appellant and respondent. In the circumstances, the obligation of appellant under cl. 17 should be treated as his personal covenant to pay. So viewed, appellant is in breach of the covenant and all of the relevant parties being before the Court, judgment should go against appellant in respondent’s favour decreeing payment by appellant to Sears Limited.

I cannot accept the premises upon which this conclusion is founded because they do not accord with the facts in the record, nor do I think that the language of cl. 17(b) involves by implication a personal covenant by Tanenbaum to pay Sears’ firm.

There was nothing sinister in the way Tanenbaum gained control of Downsview. The other

[Page 80]

parties sold their interests and there is nothing to show that they did so other than willingly. Tanenbaum did not take any benefits under the pre-incorporation agreement that were not his due, and this was equally so with his co-contractors. The contractual obligation which it is said that he refused to honour was one that his co-contractors must have equally dishonoured (and this includes Sears during the time he had a beneficial interest), assuming that it survived until their sell-out of their Downsview holdings. The fact is that there was no contract between Sears and Tanenbaum alone. The language of the Court of Appeal suggests that there was, but it could only be so on the basis of a novation resulting from Tanenbaum’s acquisition of control of Downsview and his assumption of a personal obligation to Sears to redeem the collective obligations stipulated in cl. 17(b). There is no evidence for such a conclusion and no claim was advanced on such a theory. Of course, if the theory was supportable, there would be every reason to consider the applicability of the principle in Beswick v. Beswick.

There was evidence that Sears and his firm helped in the sales of some of the lots, bringing offers which were in some cases accepted. No separate claim was made based on such services, and in so far as a right to compensation exists nothing in these reasons militates against the right of Sears’ firm to pursue it.

I would allow the appeal, set aside the judgments below and dismiss the action. Tanenbaum is entitled to costs throughout.

The judgment of Ritchie and Spence JJ. was delivered by

SPENCE J. (dissenting)—This is an appeal from the judgment of the Court of Appeal for Ontario pronounced on December 22, 1969. By that judgment, the Court of Appeal varied the judgment of Stark J. pronounced after trial on June 10, 1968.

Stark J. had granted to the plaintiff, the respondent Sydney Sears in this Court, damages in the amount of $24,200 which was to be paid to the said Sydney Sears in trust for Sydney Sears

[Page 81]

Real Estate Limited. The Court of Appeal varied this judgment to provide for a declaration in the following terms:

2. THIS COURT DOTH DECLARE that clause 17 (b) of the agreement dated the 28th day of February, 1955 referred to in paragraph 5 of the amended statement of claim in this action is a binding contract between the plaintiff Sydney Sears and the defendant Max Tanenbaum for the payment to the plaintiff Sydney Sears Real Estate Limited of the sum therein referred to, and that the same ought to be specifically performed by the defendant Max Tanenbaum and DOTH ORDER AND ADJUDGE THE SAME ACCORDINGLY.

2A. AND THIS COURT DOTH ORDER AND ADJUDGE that the defendant Max Tanenbaum do forthwith pay to the plaintiff Sydney Sears Real Estate Limited the sum of $24,200.00.

On this appeal, I have had the advantage of reading the reasons of my brother Laskin and therefore I will not repeat an outline of the facts adopting those outlined by my brother Laskin except where I desire to emphasize the said facts in some particular. I regret, however, I cannot agree with my brother Laskin’s disposition of the appeal.

The learned trial judge concluded his judgment with the statement:

In my view, although the plaintiff Sydney Sears is entitled to a decree for specific performance of the agreement such a decree would not be enforceable. The majority of the shares of this company, according to the evidence, are not owned by the defendant Max Tanenbaum nor is there any evidence that he is in control of them. Therefore, as in the Beswick case this is a proper situation for alternative relief by way of damages in the sum of $24,200. These damages should be payable by the defendant Max Tanenbaum to the plaintiff Sydney Sears in trust for Sydney Sears Real Estate Limited.

Brooke J.A., giving judgment for the Court of Appeal for Ontario said:

The learned trial judge was of the view that there is no evidence as to the actual distribution of the shares of Pinetree Investments Limited. However, having regard to all of the evidence, I am forced to the conclusion that the learned trial judge erred in this respect and should have found that on the balance of probabilities appellant controlled Pine-

[Page 82]

tree Investments Limited whether the shares of the company stood in his name or in the names of members of his family; I think upon a consideration of all of the evidence no other conclusion is realistic.

Brooke J.A., however, despite this finding, was of the view that a decree for specific performance of the covenant set out in cl. 17(b) of the pre-incorporation agreement could not be granted for two specific reasons: firstly, that the effect of such a decree was to obtain payment from the defendant company, that is, from Downsview Meadows Limited, even though that company had not been a party to the pre-incorporation agreement and never assumed any obligation to pay, and, secondly, because specific performance would not lie to cause an officer or director of a company to vote in a particular manner in a matter in which the company was not really involved.

To come to its judgment, the Court of Appeal made two basic findings, firstly, it accepted the finding of the learned trial judge that the pre-incorporation agreement remained a valid and subsisting agreement and that there had been no abandonment thereof. Brooke J.A., in giving the reasons for the Court of Appeal, said:

By his judgment the learned trial judge held there was a valid and subsisting agreement between the respondent [here appellant] and appellant [here respondent] Sydney Sears and that while respondent was entitled to a decree of specific performance such a decree could not be enforceable…

I am of the opinion that such a finding has adequate and convincing basis in the evidence. I need not recite all the different acts taken by the parties which were in accordance with the agreement; they have already been referred to in the judgments below, but I do stress the fact that although the respondent Sydney Sears transferred all but one of his 32,000 shares to Keele Investments Limited on May 20, 1955, that is, immediately upon the issuance of the shares to him, the appellant Max Tanenbaum, many months later, required the respondent Sydney Sears and not Keele Investments Ltd. to indemnify him against his liability to the bank for financing up to the 16 per cent of the shares which had been

[Page 83]

issued to Sydney Sears. And again, when it became necessary to expend about $500,000 in the installation of a sewer and water system before Downsview Meadows Ltd. could obtain an approval of its plan of subdivision, the appellant advanced such a sum, which has subsequently been repaid, and again, relying on the provisions of the agreement, called upon the respondent Sydney Sears to indemnify him to the extent of Sears’ original interest. This occurred years after Sears had conveyed his shares to Keele Investments Ltd.

In both cases, it is apparent that the appellant was relying on cl. 8 of the pre-incorporation agreement. I therefore accept the finding that this pre-incorporation agreement, despite the variations as to the officers of Downsview Meadows Ltd. who were elected from time to time when the share transfers to which I shall refer hereafter took place, was a subsisting agreement up to the time of the issuance of the writ in this action.

The second basic finding of the Court of Appeal was that which I have recited above, that on the balance of probabilities the appellant Tanenbaum controlled Pinetree Investments Limited whether the shares of the company stood in his name or in the name of members of his family.

Since Pinetree Investments Ltd., as of July 6, 1964, held 189,997 shares of Downsview Meadows Ltd. and the other shareholders were, respectively, the appellant Max Tanenbaum, his son, and his nominee Lou Fruitman, holding one share each, and Minda Feldman, a daughter of the appellant Max Tanenbaum, holding 10,000 shares, there can be no doubt that the appellant Max Tanenbaum, by his control of Pinetree Investments Ltd. and his control of the few shares of Downsview Meadows Ltd. held by other than the said Pinetree Investments Ltd., had complete and absolute control of the common shares of Downsview Meadows Ltd.

It would appear, therefore, that unless the respondent Sydney Sears was barred by either or both of the reasons referred to by Brooke J.A. in giving his reasons for judgment for the Court of Appeal for Ontario, the said respondent should

[Page 84]

be entitled to a decree for specific performance of the covenant in cl. 17(b) of the pre‑incorporation agreement. In his reasons giving the judgment for the Court of Appeal for Ontario, Brooke J.A., having concluded that the respondent was so barred, found that in the circumstances the obligation of the appellant Max Tanenbaum under the said cl. 17(b) should be treated as his personal covenant to pay and that so viewed the appellant was in breach of the covenant and all the relevant parties being before the Court judgment should go against the appellant in favour of the respondent Sears decreeing payment by the appellant to Sydney Sears Real Estate Ltd. My difficulty with such a determination is that cl. 17(b) of the pre-incorporation agreement, which reads:

17. (b) The parties hereto covenant and agree that on the sale of each lot, whether sold by Sydney Sears Real Estate Limited or not, they will cause the Company so to be incorporated to pay to Sydney Sears Real Estate Limited, a selling commission of Fifty Dollars ($50.00) per lot.

does not contain any such personal covenant by the appellant Max Tanenbaum to pay Sydney Sears Real Estate Ltd. and despite the fact that to so interpret the covenant would attain an equitable result I do not think that a Court is entitled to take a clause in plain words in an agreement under seal and interpret that clause to give rise to a personal covenant not contained in the clause. The clause is one of many in the agreement, as my brother Laskin has pointed out, whereby the covenators agreed to cause “the company”, that is, Downsview Meadows Ltd., to do something, and, in my view, any further extension of the duty on the covenantors under that clause is not justified. It is true that after many vicissitudes the venture carried out by the parties through the agency of Downsview Meadows Ltd. turned out to be a highly successful one but if perchance Downsview Meadows Ltd. had become insolvent no matter how many lots had been sold in the meantime how could it be said that under cl. 17(b) the appellant or any of the other covenantors were under a duty to pay Sydney Sears Real Estate Ltd. a commission of $50 per lot. With respect, therefore, I cannot agree with the view of Brooke J.A. that this personal cove-

[Page 85]

nant can be substituted for the covenant set out in the said cl. 17(b).

However, in my view, this does not dispose of the appeal. I turn to examine the two reasons upon which Brooke J.A. based his opinion that specific performance of the covenant in cl. 17(b) of the pre‑incorporation agreement could not be decreed. The first of those was that the effect of such a decree was to obtain payment from Downsview Meadows Ltd. although it was not a party to the agreement and never assumed any obligation to pay. With respect, I do not consider this is a valid bar to the plaintiff obtaining a decree for specific performance. The authority which Brooke J.A. cites, Fry on Specific Performance, 6th ed., at pp. 466-7, deals with cases in which a husband has entered into a contract to sell the estate of his wife and then fails to obtain her consent thereto. In my view, cases of that type do not govern a situation such as the present. Here, the various signators to the pre‑incorporation agreement, i.e., the appellant Max Tanenbaum, the respondent Sydney Sears, Percy Wright and Erneice Shanoff, agreed under seal to do many things which need not be listed here and to cause many other things to be done by a company which they agreed to form. That company was Downsview Meadows Ltd. By cl. 17(b) of the said agreement, which was dated February 28, 1955, these said signators agreed to cause Downsview Meadows Ltd. to pay to Sydney Sears Real Estate Ltd. a selling commission of $50 per lot. The agreement was under seal and, therefore, the respondent Sydney Sears need not prove consideration but, in fact, the respondent Sydney Sears and Sydney Sears Real Estate Ltd. did, both before the incorporation of Downsview Meadows Ltd. and after that incorporation, perform a great variety of such services and if consideration were necessary certainly consideration has been proved.

By a series of transactions between the various signators and their nominees and companies which they controlled, which transactions stretched from May 20, 1955, to July 6, 1964, all of the shares of Downsview Meadows Ltd. have come into the hands of the appellant Max

[Page 86]

Tanenbaum, members of his family, or Pinetree Investments Ltd., which he controls and of which he is, with the exception of qualifying shares, the sole shareholder. Therefore, there can be no question that the covenant which was originally a joint covenant by four persons can now be performed by one person, the respondent Max Tanenbaum. Fry on Specific Performance, 6th ed., in para. 990 at p. 463, states:

990. But in contracts positive and not conditional, the incapacity of the defendant to perform his part of the contract, whilst it furnishes no answer to an action for damages, affords a ground of defence against specific performance. This contention does not, like that in the case of conditional contracts, rest upon the nature or terms of the contracts, nor, like that grounded on the capacity of the plaintiff to perform his part, rest upon any principle of justice that operates in favour of the defendant, but is based upon the necessity of the case arising out of the nature of the relief sought.

In this case, there is no impossibility of performance. As I have said, Downsview Meadows Ltd. received consideration. There is nothing improper in decreeing specific performance by the person who now alone has the power to perform of a covenant to cause that company to make the payment intended by all the original signators including, of course, the appellant.

The second reason advanced by Brooke J.A. as a bar to a decree of specific performance is that such a remedy will not lie to cause an officer or director of a company to vote in a particular manner in a matter in which the company is not really involved. I am of the opinion, of course, that in this particular the company Downsview Meadows Ltd. was deeply involved. The agreement was an agreement for the incorporation of that company and to determine the distribution of the shares of that company and the direction of its efforts.

The respondent Sydney Sears had been instrumental, perhaps chiefly instrumental, in obtaining the asset, this great block of land, which it was intended would be the source of the profits of the company to be incorporated.

I am in agreement with counsel for the appellant when he submitted that what was intended by cl. 17(b) of the said agreement was that $50 per lot was to be segregated from the profits of

[Page 87]

the company first to go to Sears Real Estate Ltd., as a prior charge, and that thereafter the various signators would divide the profits in accordance with their holding of the shares in the company.

When various persons agree that they shall cause a company which is to be formed to perform certain acts their agreement should be interpreted to mean that they will vote the shares which are allotted to them to carry out that purpose. Judson J., in the very authority cited by Brooke J.A., Ringuet v. Bergeron[4], characterized such agreement at p. 684 in these words:

There is nothing illegal or contrary to public order in an agreement for achieving these purposes. Shareholders have the right to combine their interests and voting powers to secure such control of a company and to ensure that the company will be managed by certain persons in a certain manner. This is a well-known, normal and legal contract and one which is frequently encountered in current practice and it makes no difference whether the objects sought are to be achieved by means of an agreement such as this or a voting trust.

I, therefore, am not ready to accept this second reason as being one which would bar the respondent Sydney Sears from obtaining a decree for specific performance. That A is entitled to a decree for specific performance of a covenant made by B in an agreement with A that B should pay C a specific amount of money is firmly established now after Beswick v. Beswick[5]. I adopt the words of Lord Upjohn at p. 98:

It is in such common sense and practical ways that equity comes to the aid of the common law and it is sufficiently flexible to meet and satisfy the justice of the case in the many different circumstances that arise from time to time.

That no case precisely in point has been found is, to use the words of Kerwin J., as he then was, in Gray v. Cameron et al.[6], at p. 404, “no insurmountable objection”.

For these reasons, I would allow the appeal only to the extent of substituting for the order of the Court of Appeal for Ontario a declaration that cl. 17(b) of the agreement dated February

[Page 88]

28, 1955, referred to in para. 5 of the amended statement of claim in this connection, is a binding contract between the plaintiff Sydney Sears and the defendant Max Tanenbaum, and directing that the said defendant Max Tanenbaum, here appellant, specifically perform the said contract by causing Downsview Meadows Ltd. to pay to the respondent Sydney Sears Real Estate Ltd. a sum of $24,200. The parties have agreed throughout the litigation that the latter amount represents a proper calculation of the so-called commission dealt with in cl. 17(b).

I have not considered in these reasons the development revealed upon the hearing of the appeal and set out in the affidavit of Leonard Rubenstein. It would appear that long after June 19, 1964, when the writ in the action was issued, and June 10, 1968, when judgment was given after trial, i.e., on February 27, 1969, at a general meeting of Downsview Meadows Ltd., an agreement was approved to amalgamate that company with four other companies and that thereafter on February 28, 1969, letters patent of amalgamation were granted by the Provincial Secretary of the Province of Ontario. In my view, the matter must be judged as of the date of the issuance of the writ and subsequent dealings by Downsview Meadows Ltd. or its shareholder Pinetree Investments Ltd., which again is solely controlled by the appellant Max Tanenbaum, cannot affect the situation.

Although in these reasons I materially altered the order of the Court of Appeal for Ontario, the net result of the disposition of the appeal is still in favour of the respondent Sydney Sears and there is nothing in the material to indicate that he will not recover the full benefit of such judgment.

I, therefore, believe that the respondent has had substantive success in this Court and is entitled to the costs of this appeal as well as the costs awarded to him by the judgments below.

Appeal allowed; action dismissed with costs, RITCHIE and SPENCE JJ. dissenting.

Solicitors for the defendant, appellant: Robins and Robins, Toronto.

Solicitors for the plaintiff, respondent: Catzman and Wahl, Toronto.