Miller v. Ameri-Cana Motel Ltd., [1983] 1 SCR 229

Supreme Court of Canada

Miller v. Ameri-Cana Motel Ltd., [1983] 1 S.C.R. 229

Date: 1983-02-08

John W. Miller and James Miller (Plaintiffs) Appellants;

and

Ameri-Cana Motel Limited (Defendant) Respondent.

File No.: 16527.

1982: June 2 and 3; 1983: February 8.

Present: Dickson, Beetz, Estey, McIntyre, Chouinard, Lamer and Wilson JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Real property—Options—Abutting lands—Subdivision control—Tender made pursuant to option rejected—Specific performance sought—Whether or not grantor of option retained fee in abutting lands also subject to option making compliance with option agreement contrary to The Planning Act—The Planning Act, R.S.O. 1970, c. 349, s. 29.

Appellants gave respondent, by the same contract, a five-year lease on a parcel of land with an option to purchase at any time during the course of the lease or the five-year renewal term and a second option on abutting lands, exercisable on notice of intention to sell or during the last thirty days of the option’s twelve-year term in the absence of such notice. The subject lands were in an area of subdivision control. The agreement, however, was not made subject to the express condition that it be effective only if the provisions of s. 26 (now s. 29) of The Planning Act were complied with. Respondent successfully sought specific performance when its tender in each case was rejected. The issue here was whether or not the grantor of an option retained the fee in abutting lands also subject to an option pending the exercise of the option. If the grantor did retain the fee, appellants would be relieved of their obligations because they could not be performed without violating s. 29 of The Planning Act.

Held: The appeal should be dismissed.

Neither the agreement of March 1965 with its option nor the exercise of the option violated s. 29 of The Planning Act. The word “fee”, considered in the context of s. 26 (now s. 29) of The Planning Act, does not have its technical common law meaning of an estate in land unrestricted in time and capable of descending to the heir. Rather, “fee” must be equated with the kind of

[Page 230]

interest in land which carries with it dispositing power. The grantor of an option retains no control over the alienation of the optioned lands and is bound by agreement—one which is specifically enforceable—to dispose of those lands only to the optionee during the course of the option.

The transactions here were not artificially devised to circumvent The Planning Act.

Re Redmond and Rothschild, [1971] 1 O.R. 436, applied; Yield Investments Ltd. v. Newton (1976), 11 O.R. (2d) 554; Re Forfar and Township of East Gwillimbury, [1971] 3 O.R. 337, affirmed [1972] S.C.R. v, considered; Reference Re Certain Titles to Land in Ontario, [1973] 2 O.R. 613; Re Carter and Congram, [1970] 1 O.R. 800, referred to.

APPEAL from a judgment of the Ontario Court of Appeal (1981), 120 D.L.R. (3d) 89, 31 O.R. (2d) 577, dismissing an appeal from a judgment of Carruthers J. granting respondent specific performance of its agreement. Appeal dismissed.

Claude R. Thomson, Q.C. and Mark P. Frawley, for the appellants.

E.R. Clifford, for the respondent.

The judgment of the Court was delivered by

WILSON J.—On March 10, 1965 the appellants agreed in writing to lease certain lands to the respondent for a five-year term commencing on June 1, 1965 with a right of renewal for a further five-year term and an option to purchase the lands at any time during the subsistence of the lease or renewal for the fixed price of $30,000.

In the same agreement the appellants gave the respondent another option, this one to purchase all the abutting lands owned by the appellants for the fixed price of $95,000. This option was exercisable by the respondent at any time during the period of twelve years from June 1, 1965 upon receipt of a notice from the appellants that they intended to sell. In other words, this option survived the option on the leased lands by two years but was contingent on the appellants giving the appropriate

[Page 231]

notice. The agreement also provided, however, that this option could be exercised by the respondent in the absence of such notice during the last thirty days of the twelve-year term.

This litigation arose from the fact that the lands covered by the options were in an area of subdivision control and the agreement was not made subject to the express condition that it was to be effective only if the provisions of s. 26 of The Planning Act, R.S.O. 1960, c. 296 (subsequently s. 29 of The Planning Act, R.S.O. 1970, c. 349) were complied with.

On March 14, 1975 the respondent sent the appellant John Miller a notice by registered mail that it intended to exercise the option on the leased lands. However, when the respondent’s agent tendered on the appellant John Miller on May 30, 1975 he refused to close. No tender was made on the appellant James Miller. An action for specific performance of the option agreement was commenced in October 1975.

On May 17, 1977 the respondent notified the appellants by registered mail that it intended to exercise the option on the abutting lands. Again tender was refused and another action for specific performance was commenced. These actions were consolidated at trial since they raised the same issue, namely the validity of the options having regard to the provisions of The Planning Act.

The relevant section of The Planning Act, R.S.O. 1970, c. 349, s. 29, provides in part:

29. …

(2) No person shall convey land by way of a deed or transfer, or grant, assign or exercise a power of appointment with respect to land, or mortgage or charge land, or enter into an agreement of sale and purchase of land or enter into any agreement that has the effect of granting the use of or right in land directly or by entitlement to renewal for a period of twenty-one years or more unless,

(a) the land is described in accordance with and is within a registered plan of subdivision; or

[Page 232]

(b) the grantor by deed or transfer, the person granting, assigning or exercising a power of appointment, the mortgagor or chargor, the vendor under an agreement of purchase and sale or the grantor of a use of or right in land, as the case may be, does not retain the fee or the equity of redemption in, or a power or right to grant, assign or exercise a power of appointment with respect to, any land abutting the land that is being conveyed or otherwise dealt with; or

…

(e) a consent is given to convey, mortgage or charge the land, or grant, assign or exercise a power of appointment with respect to the land or enter into an agreement with respect to the land.

…

(7) An agreement, conveyance, mortgage or charge made, or a power of appointment granted, assigned or exercised in contravention of this section or a predecessor thereof does not create or convey any interest in land, but this section does not affect an agreement entered into subject to the express condition contained therein that such agreement is to be effective only if the provisions of this section are complied with.

The appellants put forward a number of defences at trial alleging improprieties in the tenders, in the notice of intention to exercise the second option and in the proposed closing date on the second option. The learned trial judge did not give effect to any of these defences. He made an order for specific performance of both options but in so doing expressed some concern over the defence based on s. 29 of The Planning Act. This was the only defence pursued in the Ontario Court of Appeal and also in this Court.

The appellants’ argument, as I understand it, is that the appellants in the agreement of March 10, 1965 granted two options to the respondent on abutting lands. It was open to the respondent under the agreement to exercise one and not the other or to exercise both but at different times. Accordingly, the agreement violated s. 29 of The Planning Act because, whichever course the respondent chose to follow, the appellants would “retain the fee” in the lands subject to the unexer-

[Page 233]

cised option. They would have agreed to convey land, i.e. the land subject to the option which was exercised, while retaining the fee in the land subject to the unexercised option. The agreement would have been perfectly all right, the appellants say, if the respondent had been obliged to exercise both options at the same time. Alternatively, it would, of course, have been all right in the existing form if it had been made subject to the express condition that s. 29 be complied with. However, they point out that the agreement clearly contemplated that the respondent might exercise only one of the options and the only circumstances in which the two could be exercised at the same time would be if the appellants notified the respondent of an intention to sell the property prior to the exercise of the first option. No such notice was given and the options were in fact exercised approximately two years apart.

The key issue of law raised by these submissions is: does the grantor of an option “retain the fee” in the optioned lands pending the exercise of the option? If he does, then the appellants retained the fee in the abutting lands after having agreed to sell the leased lands. They would then be precluded by s. 29 from conveying the leased lands to the respondent pursuant to the agreement. This was, in fact, the position taken by the appellants in refusing the respondent’s tender on the first option and subsequently on the second option. They were, they say, relieved of any obligations under the agreement they had entered into because it could not be performed in accordance with its terms without a violation of s. 29 of The Planning Act.

It is well settled law that an option vests in the optionee an equitable interest in the optioned lands as soon as the option is granted. This is so because an option, like an agreement of purchase and sale, is specifically enforceable. It is, in effect, an agreement to convey the lands at the option of the optionee. The optionor continues to hold the legal title but he is obliged in equity to convey the optioned lands to the optionee if called upon to do so in accordance with the terms of the option agreement. As long as the option is outstanding the optionor cannot dispose of the land or any

[Page 234]

interest in it to anyone else. Can it be said then that he “retains the fee” in it?

Mr. Justice Carruthers held that an optionor does not retain the fee in the optioned lands. He adopted the approach taken by Kelly J.A. in Re Redmond and Rothschild, [1971] 1 O.R. 436, to the interpretation of the word “fee”. Kelly J.A. found that the word did not have its technical common law meaning, i.e. an estate in land unrestricted as to time and capable of descending to the heir. Rather, in the context of s. 26 (now s. 29) of The Planning Act it was to be equated with the kind of interest in land which carries with it disposing power. What the legislature was seeking to prevent was the transfer by an owner of part of his lands while he retained disposing power over abutting lands. Accordingly, the result of a transaction must not be that the disposing power in the abutting lands remains in the grantor. Carruthers J. found that this is not so where he has given an option on the abutting lands.

The Court of Appeal agreed [(1981), 31 O.R. (2d) 577]. Mr. Justice Lacourcière, speaking for a unanimous Court, rejected the submission of appellants’ counsel that the option agreement was a nullity because the delivery of a deed to the leased lands upon the exercise of the option on them would have resulted in a clear violation of s. 29. He said [at p. 587]:

We do not agree, since by giving the option the vendors had parted with dominion over the fee; the vendors, having signed an enforceable option to sell all their remaining lands, did not retain the fee in abutting lands.

Counsel for the appellants, Mr. Thomson, argued before this Court that until an option is exercised the optionor retains dominion over the fee. All that passes to the optionee is an equitable interest in the land. An option is merely an offer, albeit an irrevocable one. The option may, in fact,

[Page 235]

never be exercised. Why then treat the optionor as having parted with the fee when he gives the option? Why not only when the option is exercised?

Mr. Thomson argued, in the alternative, that having regard to the purpose of s. 29 of The Planning Act an optionor should be deemed to retain the fee because otherwise the potential for abuse is there. The judgment of the Court of Appeal, he argued, is an open invitation to landowners to get around s. 29 by the simple device of dividing the title by a grant of options.

Mr. Thomson relied heavily on the dictum of Grange J. in Yield Investments Ltd. v. Newton, (1976), 11 O.R. (2d) 554. In that case the vendors agreed to sell one parcel of land under a long-term agreement of purchase and sale and to give an option to purchase an abutting parcel on the same closing date. Grange J. held that the agreement did not violate s. 26 because the vendors had agreed to part with both parcels if called upon to do so. He said at p. 561:

It is true that the purchaser might in theory not exercise the option for No. 85. I say “in theory” because there was no practical possibility in light of the purchase prices for the two properties. But it is not the interest of the purchaser with which the Act is concerned but that of the vendors and the vendors were subject to the option from the moment of the execution of the contract. On the authority of Reference Re Certain Titles to Land in Ontario, supra, at p. 631, a contingent interest such as an option is to be treated as any other equitable interest. If the option were not exercised and the purchaser sought to complete the transaction with respect to No. 79 only, there would, of course, be a clear violation of the Act at the time of closing. But in my view, there is no violation in entering into the agreement because by it the vendors undertake to part with both properties if called upon to do so. [Emphasis added.]

Mr. Thomson submits that Grange J.’s hypothetical is exactly what happened in the instant case. The respondent exercised the option on the leased lands at a time when it was not open to it to exercise the option on the abutting lands. Accord-

[Page 236]

ingly, on the reasoning of Grange J., the Act was violated when the option on the leased lands was exercised and the respondent was perfectly correct in refusing to close.

Mr. Justice Grange’s judgment was affirmed on appeal ((1978), 18 O.R. (2d) 1). No express reference was made to the trial judge’s dictum but Lacourcière J.A. seems to have accepted the proposition that the vendor retained the fee in the parcel subject to the option. He said at p. 2:

We are all of the view that the learned trial Judge was correct in concluding that in the agreement the vendors undertook to part with the two parcels if called upon to do so. Correctly looking at “the substance rather than the form of the transaction” (Re Forfar and Township of East Gwillimbury et al., [1971] 3 O.R. 337 at p. 344, 20 D.L.R. (3d) 377 at p. 384; affirmed [1972] S.C.R. v, 28 D.L.R. (3d) 512n), he held that it was unimpeachable, as the purchasers acquired the real disposable interest, although strictly speaking the fee remained with the vendor. [Emphasis added.]

The learned Justice of Appeal then went on to discuss the concept of “possible illegality” which obtains where an agreement which can be performed legally may also be performed illegally. He adopted the principle enunciated in an earlier decision of the Ontario Court of Appeal, Reference Re Certain Titles to Land in Ontario, [1973] 2 O.R. 613, to the effect that an agreement subject to possible illegality in its performance will only be invalidated if “a wicked intention to break the law” is established. If, of course, the agreement cannot be performed legally, i.e. without a violation of The Planning Act, it will be wholly void.

It seems to me, with respect, that Mr. Justice Lacourcière erred in concluding that the fee in the optioned parcel remained in the vendor unless it was his intention to put a different interpretation on the word “fee” from that put upon it by Kelly J.A. in Re Redmond and Rothschild, supra. He made no reference to the case although it was referred to with approval (although not reflected

[Page 237]

in his dictum) by Grange J. in the court below. If the purchaser in Yield Investments, supra, had sought to complete the transaction with respect to the one parcel only, i.e. No. 79, it seems to me that there would have been no violation of the Act on Kelly J.A.’s interpretation of the word “fee”.

Kelly J.A.’s interpretation of the word “fee” was expressly adopted by Schroeder J.A. in Re Forfar and Township of East Gwillimbury, [1971] 3 O.R. 337. In that case the earlier decision in Re Carter and Congram, [1970] 1 O.R. 800, was overruled. The vendor in Re Carter and Congram had given his secretary a deed to uses to abutting lands but retained a general power of appointment over them. It was held by Fraser J. that this did not offend The Planning Act because the vendor had not retained the fee in the abutting lands. He gave the word “fee” its technical, common law meaning. Schroeder J.A. preferred the approach in Re Redmond and Rothschild. He said at p. 344:

I take it to be the view of the members of Court who decided Re Redmond et al. and Rothschild that the term “fee” as used in s. 26(1)(b) meant such an estate or interest as was reasonably necessary to accomplish the purpose which the legislators had in view and was not used in its narrow, technical, legal sense. As laid down in Walsingham’s Case (1573), 2 Plowden 547, 75 E.R. 805, an estate in fee simple is the greatest estate and most extensive interest which a person can possess in land and property, being an absolute estate in perpetuity. Whether the grant made by H. Bruce Forfar to his solicitor’s secretary in which he reserved to himself a general and unlimited power of appointment, in the absence of that reservation, would have conferred upon her the legal title to the property subject to a resulting trust in favour of Forfar is of no particular significance, because it is abundantly plain in all the circumstances that Forfar had at all material times, dominion over the fee which he might exercise at his option. There is a wide distinction between a title in fee and a power to dispose of property, as under the latter the fee is not in the donee of the power but he has a dominion over it which he is free to exercise as he sees fit. It is against

[Page 238]

the retention of such power of control over alienation of the property abutting the land conveyed or otherwise dealt with that the prohibitory provisions of s. 26 are aimed. Adopting the construction placed upon the word “fee” in Re Redmond and Rothschild, supra, I come inevitably to the conclusion that H. Bruce Forfar has subdivided his holding in contravention of the township’s subdivision control By-law 510 and thereby infringed the provisions of s. 26(1) of the Planning Act. [Emphasis added.]

An appeal from Mr. Justice Schroeder’s judgment to this Court was dismissed ([1972] S.C.R. v, 28 D.L.R. (3d) 512n).

There can, in my view, be no doubt about the fact that the grantor of an option does not retain control over the alienation of the optioned lands. He has bound himself to dispose of them to the optionee and to no other during the subsistence of the option. Moreover, he has bound himself by an agreement the performance of which may be specifically enforced against him. He has no further say in the matter. The optionee may, of course, decide not to exercise the option, whereupon disposing power will revert to the optionor once more, but until this happens, if it happens, the optionor has effectively deprived himself of any control over the alienation of the property. I would respectfully adopt the interpretation put upon the word “fee” by Mr. Justice Kelly. It follows that the agreement of March 10, 1965 did not violate s. 29 of The Planning Act nor was there a violation upon the exercise of the option on the leased lands.

I have given careful consideration to the argument that a decision to this effect invites landowners to circumvent s. 29 by the device of dividing the title by granting options. I am not convinced, however, that this concern is justified. For such a scheme to work the landowner would have to have some assurance from the outset that the option which he purported to grant would not be exercised. As Mr. Justice Lacourcière observed in his judgment below [at p. 588]:

[Page 239]

…if the parties had prepared an agreement containing option clauses which the purchaser had no intention of exercising, the transaction would be “spurious from the time of its conception” to use the language of the Reference case at p. 642… The Court would clearly not lend its aid to the enforcement of such transactions.

I do not find any evidence that the transactions in this case were artificial ones. I would dismiss the appeal with costs.

Appeal dismissed with costs.

Solicitors for the appellants: Campbell, Godfrey & Lewtas, Toronto.

Solicitors for the respondent: Broderick, McLeod, Clifford, Marimelli & Amadia, Niagara Falls.