Politzer v. Metropolitan Homes Ltd., [1976] 1 SCR 363

Supreme Court of Canada

Politzer v. Metropolitan Homes Ltd., [1976] 1 S.C.R. 363

Date: 1975-02-13

Edward James Politzer (Defendant) Appellant;

and

Metropolitan Homes Ltd. (Plaintiff) Respondent.

1974: June 14, 18; 1975: February 13.

Present: Laskin C.J. and Martland, Pigeon, Dickson and de Grandpré JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR MANITOBA

Real property—Whether document an option or an agreement of purchase and sale—No mutuality of obligation—Application of rule against perpetuities—Whether purchaser entitled to specific performance of vendor’s covenant notwithstanding interest in land created by agreement may vest beyond perpetuity period.

The respondent (M), wishing to obtain some 200 acres of land in the City of St. Vital for the purpose of a subdivision, retained a real estate firm to acquire options to purchase from the owners of land within the area. On March 2, 1966, the appellant (P), one of the owners, signed an agreement, cl. 3 of which read: “Provided that neither the acceptance of this offer to purchase nor the payment of any instalments herein provided for shall bind the PURCHASER to pay any other instalment but he shall always be at liberty to cancel and rescind the contract by forfeiting the payments already made in respect thereof and upon such cancellation he shall not be in any way liable or responsible for any further payments or for damages for failure to carry out the contract.”

The agreement also provided that 40 per cent of the purchase price (inclusive of the option payment) was to be paid within 30 days of the purchaser executing an approved development agreement with the City of St. Vital, It was further agreed that the purchaser would execute a mortgage back to the vendor for the remaining balance of the purchase price,

A development agreement with the municipality was not entered into, and on July 5, 1972, P’s solicitor wrote M stating the option was at an end and requesting that a caveat filed by M be vacated. This was followed by a letter dated July 11 advising that the property had been sold. On July 13, notwithstanding the absence of a development agreement, M forwarded P the payment called for within 30 days of the execution of such

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agreement. The payment was rejected. P then moved in the Court of Queen’s Bench to have the caveat vacated and M responded with an action against him for specific performance or damages in lieu. The trial judge dismissed the action. The Court of Appeal reversed. An appeal was then brought to this Court.

Held: The appeal should be allowed.

Per Laskin C.J. and Martland J.: There having been a proper exercise by the respondent of the option to purchase, the parties became vendor and purchaser respectively under an agreement of sale and purchase of land. However, there is no binding contract supported by consideration in an agreement under which the purchaser may choose to perform or not, without liability if he decides not. Certainly there is no mutuality of obligation; and without necessarily saying that this is in all cases necessary to support an action for specific performance, such relief could not be successfully sought by the purchaser in the present case.

Per Pigeon, Dickson and de Grandpré JJ.: The sole purpose and effect of cl. 3, when read with the rest of the agreement, was to ensure that M should have the right to buy P’s land but should, under no circumstances, be bound to do so. There was neither mutuality of obligation nor mutuality of remedy. M was bound to nothing and assumed no obligation of any kind or nature. P was bound; M was free. It followed that the document was an option and not an agreement of purchase and sale.

An option to purchase land for a named consideration gives rise to an equitable interest in land. The interest is not, however, so vested as to be immune from the rule against perpetuities if the option can be exercised beyond the perpetuity period; in this case, since no life was specified, 21 years. M obtained a contingent equitable interest, the contingency being the election to exercise its right to purchase P’s lands by making the payment and executing the mortgage referred to in the agreement within 30 days of M (a) executing a development agreement with the City of St. Vital and (b) obtaining the necessary governmental approvals. Nothing in the agreement assured that the election would be made within the perpetuity period.

As to the corollary point, i.e. whether M was entitled to specific performance of the personal covenant of P notwithstanding that the interest in land created by the agreement might vest beyond the perpetuity period, once

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an option clause creating a land interest is found to be void as infringing the rule against perpetuities, there is really nothing left in the agreement in the nature of a personal contract that can be specifically enforced. The option agreement here was an agreement creating an interest in land and was void as infringing the rule against perpetuities; it was not merely a personal contract and, therefore, M was not entitled to an order for specific performance.

[Frobisher Ltd. v. Canadian Pipelines & Petroleums Ltd. et al., [1960] S.C.R. 126; Canadian Long Island Petroleums Ltd. and Sadim Oil & Gas Co. Ltd. v. Irving Industries (Irving Wire Products Division) Ltd. et al., [1975] 2 S.C.R. 715; Harris v. Minister of National Revenue, [1966] S.C.R. 489, followed; South Eastern Railway Co. v. Associated Portland Cement Manufacturers (1900) Ltd., [1910] 1 Ch. 12; Hutton v. Watling, [1948] Ch. 26; Re Kennedy & Beaucage Mines Ltd., [1959] O.R. 625, not followed; Prudential Trust Co. Ltd. v. Forseth, [1960] S.C.R. 210, referred to.]

APPEAL from a judgment of the Court of Appeal for Manitoba[1], reversing a judgment of Solomon J. Appeal allowed.

I.I. Cutler, for the defendant, appellant.

Y.M. Henteleff and M.W. Calof for the plaintiff, respondent.

The judgment of Laskin C.J. and Martland J. was delivered by

THE CHIEF JUSTICE—I agree with my brother Dickson that this appeal should be allowed, but I arrive at this result on grounds different, at least as to one of them, from those upon which he proceeded.

The relevant provisions of the agreement, effectively one between the respondent as an undisclosed principal and the appellant, are set out in the reasons of my brother Dickson and I need not repeat them. It is my opinion that, there having been a proper exercise by the respondent of the option to purchase, the parties became vendor and purchaser respectively under an agreement of sale and purchase of land. Paragraph 3 of the agree-

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ment, which is central to my grounds for disposition of this appeal, has no application to its option provisions. If the option was not exercised in accordance with, its terms, involving payment of $100 and then $900 (both of which were made), there would be no basis upon which to consider any other provisions of the agreement.

Since art. 3 purports to excuse the purchaser from any binding obligation in respect of the agreement of sale, notwithstanding its subscription to the agreement, and also purports to excuse the purchaser from paying any instalment or any further instalment, and reserves to it a unilateral right to rescind the agreement, forfeiting any instalments that may have been paid, and this without liability to pay further instalments or to pay any damages for breach of contract, I regard the agreement of sale and purchase as illusory. I see no binding contract supported by consideration in an agreement under which the purchaser may choose to perform or not, without liability if he decides not. Certainly there is no mutuality of obligation; and without necessarily saying that this is in all cases necessary to support an action for specific performance it is plain to me that such relief cannot be successfully sought by the purchaser in the present case.

I am not unmindful of the fact that although the agreement was executed on March 2, 1966, and the respondent took steps to obtain a development agreement (in which he was unsuccessful) the appellant stood by for some years and only manifested his impatience in July 1972, when he notified the respondent that the agreement was cancelled. It was after the appellant commenced proceedings for a declaration of rights in respect of the caveat registered against the lands, the subject of the agreement, that the respondent instituted suit for specific performance on August 11, 1972. I do not think that these facts improve the respondent’s right to this equitable remedy.

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As already indicated, I would dispose of this appeal as proposed by my brother Dickson.

The judgment of Pigeon, Dickson and de Grandpré JJ. was delivered by

DICKSON J.—The Court in this appeal must determine whether a certain agreement made between Edward James Politzer and Oldfield, Kirby & Gardner Limited is an agreement for the purchase and sale of land, or merely an option of land, and if an option, whether the rule against perpetuities applies to defeat a claim for specific performance brought against Politzer by Metropolitan Homes Ltd., assignee of Oldfield, Kirby & Gardner Limited. The trial judge, Solomon J., dismissed the action. The Court of Appeal for Manitoba reversed.

The essential parts of the agreement read:

AGREEMENT made in duplicate, the 2nd day of March A.D. 1966.

BETWEEN:

EDWARD JAMES POLITZER, of the Province of Manitoba,

(hereinafter called “the VENDOR”),

OF THE FIRST PART,

—and—

OLDFIELD, KIRBY & GARDNER LIMITED, a Company duly incorporated under the laws of the Province of Manitoba, or its nominee,

(hereinafter called “the PURCHASER”),

OF THE SECOND PART.

WITNESSETH that in consideration of the sum of ONE HUNDRED DOLLARS ($100.00) now paid by the PURCHASER to the VENDOR (the receipt where of is hereby acknowledged) the VENDOR hereby gives to the PURCHASER an option, irrevocable within the time limited herein for acceptance to purchase free from encumbrances all the following property, issued by certificate of title #970517 and comprising approx. 24 acres.

This Option shall be open for acceptance up to but not after Ninety (90) days from the date hereof and may be accepted by letter delivered to the VENDOR or mailed

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postage prepaid and registered, addressed to the VENDOR at 545 Victoria Ave., West Transcona, and if accepted in such manner shall form a binding agreement of purchase and sale for the following price and upon the following terms and conditions:

1. The purchase price of the said lands shall be “R.J.” $60,000.00 per acre in accordance with the precise “E.J.P.” acreage of the said land as determined by a Manitoba Land Surveyor, and shall be paid as follows:

(a) By crediting the sum of $100.00 hereinbefore referred to;

(b) A further $900.00 of the purchase price to be paid on or before the date of acceptance of the option by the PURCHASER;

(c) 40% of the purchase price (inclusive of the option payment) to be paid within 30 days of the execution of the Development Agreement referred to in Clause 9 hereof;

(d) The remaining balance of the purchase price to be secured by a first mortgage on the security of the aforesaid property from the PURCHASER to the VENDOR payable over a period of Five (5) years from the date of the execution of the said Development Agreement, by annual equal instalments of principal and interest, interest to be computed at the rate of 6% per annum from such date. The first payment will be due one year after the payment referred to in Clause 1 (c) hereof. The PURCHASER shall have the privilege of prepaying the whole or any portion of the said balance at any time without notice or bonus.

2. Any monies paid by the PURCHASER to the VENDOR as consideration for the giving of this option shall be allowed as part payment of the purchase price abovementioned.

3. Provided that neither the acceptance of this offer to purchase nor the payment of any instalments herein provided for shall bind the PURCHASER to pay any other instalment but he shall always be at liberty to cancel and rescind the contract by forfeiting the payments already made in respect thereof and upon such cancellation he shall not be in any way liable or responsible for any further payments or for damages for failure to carry out the contract.

…

9. Within Thirty (30) days of the PURCHASER executing an agreement for residential and/or commercial subdivision and development with the City of St. Vital for the area of which the VENDOR’S lands form a part and obtaining the necessary government approvals on a plan of residential and/or commercial subdivision, the PURCHASER agrees to pay the portion of 40% of the purchase price referred to in

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Clause 1(c) hereof. At such time and in exchange therefor the VENDOR will transfer the property to the PURCHASER, free and clear of all encumbrances whatsoever, and the PURCHASER will execute the mortgage back to the VENDOR for the remaining balance upon the terms and conditions hereinbefore set out in Clause 1(d).

Metropolitan Homes, wishing to obtain some 200 acres of land in the City of St. Vital for the purpose of a subdivision, retained Oldfield, Kirby & Gardner, real estate agents, to acquire options to purchase from the owners of land within the area. Politzer, one of the owners, signed an agreement in the form indicated and received $100. He received a further $900 within the 90-day period referred to in para. 1(b) and a letter purporting to exercise the option therein mentioned. Prior to signing, he was concerned that the agreement did not limit the time within which the purchaser would execute the development agreement mentioned in para. 9, but his concern was allayed by the salesman of Oldfield, Kirby & Gardner who assured him, the trial judge found, that the development agreement would be completed within two years.

For various reasons the execution of a development agreement was long delayed. In 1968 the Metropolitan Corporation of Winnipeg issued a Master Development Plan under which certain lands, including those of Politzer, were “frozen” pending development of a block of land lying to the north of his property. The two-year period mentioned by the salesman, and four more years, expired, during which time Politzer paid the real estate taxes as well as interest and $3,000 principal annually on a mortgage to which the property was subject. There were intermittent, unsuccessful, attempts by Politzer to have the agreement altered. Finally, on July 5, 1972, his solicitor wrote Metropolitan Homes stating the option was at an end and requesting that the caveat filed by Metropolitan Homes in the Winnipeg Land Titles Office be vacated. This was followed by a letter dated July 11 advising that the property had been sold. On July 13, notwithstanding the absence of a development agreement, Metropolitan Homes forwarded Politzer $23,000 to complete the payment referred to in para. 1(c) of the agreement. The

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payment was rejected. Politzer then moved in the Court of Queen’s Bench to have the caveat vacated and Metropolitan Homes responded with an action against him for specific performance or damages in lieu.

When the matter came before the Court of Appeal for Manitoba, Freedman C.J.M., delivering the judgment of the Court, was of the opinion that the document dated March 2, 1966, from which the dispute arose, was in its origin an option but that the option had been duly accepted and exercised within the 90-day period and the document thereupon became, by its very terms, “a binding agreement of purchase and sale” and to hold otherwise, the learned Chief Justice said, “would be to blind one’s self to the plain and unambiguous language of the document.” It was held that the rule against perpetuities had no application. I agree that if the document were a valid agreement for the purchase and sale of land it would operate to vest an equitable interest in the land in Metropolitan Homes and the rule against perpetuities would have no application, but with all respect for the opinion of a very eminent jurist, I do not think the document is an agreement of purchase and sale. The label which the parties give to an instrument will not necessarily determine its character. An instrument may be an option although stated therein to be an agreement for sale and the reverse is also true. The substance of the document, collected from its entirety, rather than the form, must determine its character. The difference between a contract of purchase and sale and an option is, of course, that under a contract of purchase and sale one party is bound to sell and the other party is bound to buy, whereas an option merely gives a right to purchase without an obligation to do so. With respect, it appears to me that para. 3 of the agreement was not given any or sufficient weight by the Court of Appeal; it is not mentioned in the judgment of the Court. The paragraph in my opinion is vital and its effect is fatal to the argument of counsel for the respondent that the agreement is a binding agreement for the purchase and sale of land. The sole purpose and effect of this paragraph, when read with the rest of

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the agreement, is to ensure that Metropolitan Homes shall have the right to buy Politzer’s land but shall, under no circumstances, be bound to do so. How can one have a binding agreement of purchase and sale if no one is bound to buy? Where is the mutuality of obligation? What remedy would Politzer have if Metropolitan Homes acted under para. 3 and decided not to complete the purchase? Where is the mutuality of remedy? A careful reading of the entire document will disclose that Metropolitan Homes is bound to nothing and assumes no obligation of any kind or nature. Politzer was bound; Metropolitan Homes was free. It necessarily follows in my opinion that the document is an option and not an agreement of purchase and sale.

The next question is whether the option infringes the rule against perpetuities. A corollary question is whether Metropolitan Homes is entitled to specific performance of the personal covenant of Politzer notwithstanding that the interest in land created by the agreement may vest beyond the perpetuity period. It can, I think, be taken as settled law in Canada since the judgment of Judson J., speaking for the majority of the Court, in Frobisher Ltd. v. Canadian Pipelines & Petroleums Ltd. et al.[2], that an option to purchase land for a named consideration gives rise to an equitable interest in land. The interest is not, however, so vested as to be immune from the rule against perpetuities if the option can be exercised beyond the perpetuity period; in this case, since no life is specified, 21 years. In the recent judgment of this Court in Canadian Long Island Petroleums Ltd. and Sadim Oil & Gas Co. Ltd. v. Irving Industries (Irving Wire Products Division) Ltd. et al.[3], Martland J. found the rationale to be accurately stated in the following passage from Morris and Leach, The Rule Against Perpetuities, 2nd ed., p. 219:

The reasoning by which this result was reached was as follows. An option to purchase land is specifically enforceable. This gives the optionholder an equitable interest in the land; this interest is contingent upon his election to exercise the option. Contingent interests in land are void unless they must vest (if at all) within the

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perpetuity period. Therefore, an option to purchase which may be exercised beyond the perpetuity period is void to the extent that it creates an interest in land.

Metropolitan Homes obtained a contingent equitable interest, the contingency being the election to exercise its right to purchase Politzer’s lands by making the payment and executing the mortgage referred to in para. 1(c) and (d) within 30 days of Metropolitan Homes (a) executing an agreement for residential and/or commercial subdivision and development with the City of St. Vital for the area of which Politzer’s lands form a part and (b) obtaining the necessary governmental approvals on a plan of residential and/or commercial subdivision. Until the election to which I have referred was made, Politzer could not tell whether he would ever be obliged to convey the land. Nothing in the agreement assured that the election would be made within the perpetuity period. Metropolitan Homes indeed strenuously resisted every attempt by Politzer to have the agreement amended to state an expiry date. The effect of the agreement, as Solomon J. properly observed, was to oblige Politzer to hold the land for Metropolitan Homes in perpetuity or until Metropolitan Homes and the City of St. Vital were ready to sign a development agreement. Although it was very likely that the development agreement would be executed at some time within two to 15 years from the signing of the option agreement, the rule against perpetuities is concerned with the certainty of vesting, not with the likelihood of vesting. It is elementary that in Canada there is no wait and see rule: the interest must be good in its creation.

On the corollary point, the Manitoba Court of Appeal held that the rule against perpetuities has no application in an action for specific performance brought against the covenantor himself. It was argued before us that even though the agreement is an option agreement which creates an interest in land and that interest is ostensibly void for remoteness of vesting, the Court will allow an action for specific performance based on the personal covenant of the covenantor, in this case the

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vendor. Authority for this proposition is said to be found in the cases of: South Eastern Railway Co. v. Associated Portland Cement Manufacturers (1900) Ltd.[4]; Button v. Watling[5]; Re Kennedy & Beaucage Mines Ltd.[6]; and dicta from two decisions of this Court: the Frobisher case, supra, and Prudential Trust Co. Ltd. v. Forseth[7]. The proposition is stated in 29 Hals., 3rd ed., at p. 297, citing the Cement Company’s case as authority for the emphasized passage:

A contract relating to a right of or equitable interest in property in futuro may be intended to create a limitation of land only, in which case, if the limitation is to take effect beyond the perpetuity period, the contract is wholly void and unenforceable; or the contract may, upon its true construction, be a personal contract only, in which case the rule does not apply to it; or it may, upon its true construction, be, as regards the original covenantor, both a personal contract and a contract attempting to create a remote limitation. In the last-mentioned case the limitation will be bad for perpetuity, but the personal contract will be enforceable, if the case otherwise admits, against the promisor by specific performance or by damages, or against his personal representatives in damages, or possibly by specific performance.

The reasoning behind this proposition is stated by Morris and Leach at p. 215:

The ground on which this result was reached was that the jurisdiction to grant specific performance is founded not on the equitable interest in the land which the contract confers on the purchaser, but on the ground that damages will not afford an adequate remedy: “in other words, specific performance is merely an equitable mode of enforcing a personal obligation with which the Rule Against Perpetuities has nothing to do.” (quoting Jenkins, J., in Button v. Watling, (1948) Ch. 26, 36)

I should have thought the decision of this Court in Harris v. Minister of National Revenue[8] to be decisive against any such proposition. The Harris

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case concerned a lease-option agreement by which the appellant had a lease on a service station for 200 years at the end of which time he had an option to purchase. The Court held that the clause giving the appellant an option to purchase the property at the end of 200 years offended the rule against perpetuities and was void. The argument was submitted by counsel for the appellant in that case, as in the instant case, that even if the clause giving the option in so far as it created a limitation of land was bad it also evidenced a personal contract unaffected by the rule against perpetuities and was specifically enforceable against the covenantor. In dismissing this argument, Cartwright J., as he then was, assented to the view that an agreement merely personal, not creating an interest in land, is not subject to the rule against perpetuities. He concluded, however, that the dictum of Cozens-Hardy M.R. in the Cement Company’s case that a personal covenant could be enforced against an original covenantor, even though the interest in land created by the agreement was void, was based on a misunderstanding of what had been said by Jessel M.R. in London and South Western Railway Co. v. Gomm.[9]. Cartwright J. considered that Hutton v. Watling and Re Kennedy & Beaucage Mines Ltd. had been wrongly decided and ought not to be followed; and that dicta in Frobisher and Forseth—citing the passage from Halsbury, supra, with approval—did not bind the Court in accepting the passage or approving the decision in the Cement Company’s case. The central difficulty, it would seem, is that a single contract cannot readily be regarded as “merely personal” and at the same time as creating an equitable interest in land. Once an option clause creating a land interest is found to be void as infringing the rule against perpetuities, there is really nothing left in the agreement in the nature of a personal contract that can be specifically enforced. As Cartwright J. observed, the phrase “an agreement merely personal” in the sense in which it is used by Farwell L.J. in the Cement Company’s case means simply an agreement which does not create an interest in land. In short, the option agreement before us is an agreement creating an interest in land and is void as infringing the

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rule against perpetuities; it is not merely a personal contract and, therefore, Metropolitan Homes is not entitled to an order for specific performance.

For the foregoing reasons I would allow the appeal, set aside the judgment of the Court of Appeal for Manitoba and restore the judgment of Solomon J. with costs throughout.

Appeal allowed with costs.

Solicitor for the defendant, appellant: Irwin I. Cutler, Winnipeg.

Solicitors for the plaintiff, respondent: Buchwald, Asper, Henteleff Zitzerman, Goodwin, Greene & Shead, Winnipeg.