Kreick v. Wansbrough, [1973] SCR 588

Supreme Court of Canada

Kreick v. Wansbrough, [1973] S.C.R. 588

Date: 1973-02-28

Ted Kreick (Plaintiff) Appellant;

and

John Leonard Wansbrough (Defendant) Respondent.

1973: January 29; 1973: February 28.

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

ON APPEAL FROM THE COURT OF APPEAL FOR SASKATCHEWAN

Contracts—Agreement for sale of land for sum exceeding vendor’s indebtedness to purchaser—Option to repurchase for amount of indebtedness—Purchaser to pay balance of purchase price if option not exercised—Whether transaction one of sale or mortgage—Whether purchaser entitled to specific performance.

On September 10, 1965, the appellant and the respondent executed an agreement which superseded earlier agreements and provided for the sale of specified land. The appellant wanted to be secured for certain loans that he had made to the respondent by taking title to the respondent’s lands and the respondent agreed to transfer his lands to the appellant to secure him. The transaction into which they entered, through a common solicitor, embraced this purpose by the provision for a sale of the lands for a sum exceeding the outstanding indebtedness, with an option to repurchase for the amount of the indebtedness and with an obligation of the purchaser to pay the balance of the purchase price within a ten‑month period following the expiry date of the option. In the event that the option to repurchase was not exercised, the vendor could remain in his house, situated on part of the subject lands, and occupy it rent free for as long as he wished.

The respondent having failed to exercise the option, the appellant brought an action for specific performance of the agreement. The action was dismissed at trial and an appeal was dismissed by the Court of Appeal, whereupon the appellant appealed to this Court. The main issue was whether the agreement of September 10, 1965, took effect, according to its terms, as a contract of sale of land with an option to repurchase, or whether, as an admitted security arrangement, it necessarily must be regarded as a mortgage transaction with the consequence that the vendor’s failure to exercise the option before its expiry date did not bar him from asserting a right to

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redeem. The Court below sustained the respondent’s position that the transaction must be viewed as a mortgage.

Held: The appeal should be allowed.

The evidence relied upon by the trial judge as credible supported rather than negated the integrity of the written agreement of September 10, 1965. At best, it fell short of providing the proof required to found a legal conclusion that a solicitor-drawn agreement of sale with option to repurchase should be regarded as a mortgage only. There was no basis for recasting the transaction to make it a security one alone to the exclusion of the overriding element of sale. Herron v. Mayland, [1928] S.C.R. 225, followed; Wilson v. Ward, [1930] S.C.R. 212, distinguished.

APPEAL from a judgment of the Court of Appeal for Saskatchewan[1], dismissing an appeal from a judgment of Disbery J. Appeal allowed.

E.C. Leslie, Q.C., and H.T. Hepting, for the plaintiff, appellant.

C.F. Tallis, Q.C., for the defendant, respondent.

The judgment of the Court was delivered by

LASKIN J.—The main issue in this appeal is whether an agreement of September 10, 1965, between the respondent Wansbrough as vendor and the appellant Kreick as purchaser takes effect, according to its terms, as a contract of sale of land with an option to repurchase, or whether, as an admitted security arrangement, it necessarily must be regarded as a mortgage transaction with the consequence that the vendor’s failure to exercise the option before its expiry date does not bar him from asserting a right to redeem. The Saskatchewan Courts, Disbery J. at trial and the Court of Appeal speaking through Woods J.A., sustained the defendant-respondent’s position that the transaction must be viewed as a mortgage.

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I do not agree with this characterization. The evidence relied upon by the trial judge as credible supports rather than negates the integrity of the written agreement of September 10, 1965. At best, it falls short of providing the proof that Wansbrough must bring to found a legal conclusion that a solicitor-drawn agreement of sale with option to repurchase should be regarded as a mortgage only.

The parties were and have apparently remained on friendly terms. Each owned extensive farm lands in neighbouring districts. Beginning in September 1964, Kreick made loans to Wansbrough who needed cash to protect a speculative investment. As of September 10, 1965, the loans with accumulated interest amounted to almost $90,000. The first two loans of $8,000 and $5,000 were unsecured, and were followed on June 22, 1965, by a further loan of $19,362.95, the bulk of which was used to purchase a section of land. On July 16, 1965, the parties executed an agreement, prepared by a solicitor who acted for both of them, whereby Wansbrough sold the section of land to Kreick for $33,000 with an option to Wansbrough to repurchase for that sum with interest at 6 per cent before December 31, 1965. Title was issued in Kreick’s name on July 19, 1965, subject to a caveat of July 16, 1965, registered by the solicitor to protect Wansbrough’s interest. On the latter day Kreick made a further loan of $4,000 to the respondent. On August 16, 1965, another agreement of sale, with option to repurchase on or before March 31, 1966, prepared by the common solicitor of the parties, provided for the sale of other lands of the respondent to the appellant for $50,000 with interest at 6 per cent. Kreick on August 17, 1965, issued a cheque for $47,000 to Wansbrough’s credit, and on September 2, 1965, paid a further $4,000 for the respondent’s account to the solicitor.

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The parties attended at their solicitor’s office on September 10, 1965, to review the state of accounts between them. As of that date, according to the trial judge’s calculations which are not disputed, Wansbrough was indebted to Kreick in the sum of $88,639.70, inclusive of interest. Kreick gave the following written instructions to the solicitor at that meeting:

Give Ted Kreick credit for 104,000. This includes taxes on 10 quarters and interest paid up to April 1.

If land is recovered at that date this is the total sum Len owes me.

If no recovery I owe him $56,000 to Jan 31st 1967. This sum to be paid in full by Jan 31‑1967.

I am to pay for the N W 29 if Len procures it.

The price to be the Govt asking price.

If land is recovered before April 1 Len will be entitled to a reduction of 6% per annum on above figure.

Stipulation re, dwelling to remain as in present agreement land involved is Sec 31-¾ on 30½ on 35.

The agreement executed on September 10, 1965, superseded the earlier agreements and provided for the sale of specified land, including the section already standing in Kreick’s name, for $160,000 of which receipt of $104,000 was acknowledged by Wansbrough. This sum was made up of the advances to date, other advances made on that date for taxes and a sum of $10,000 to be paid by Kreick to one Hillis from whom Wansbrough had borrowed it, and interest calculated to April 1, 1966. In fact, the stated sum of $104,000 was a “convenience figure”, overstating by almost $1,500 what was owing by way of loans and accumulated interest to September 10, 1965. Kreick agreed to pay the balance of $56,000 on the overall purchase price on or before January 31, 1967. As before, the agreement gave the respondent an option to repurchase his lands on or before April 1, 1966, for $104,000. The concluding clause of the agreement stated that if the option to repur-

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chase was not exercised the vendor should have the right to occupy the house in which he was living for so long as he should wish without any rent or charge.

The evidence establishes, among other things, that Kreick wanted to be secured for his loans by taking title to the respondent’s lands and that Wansbrough agreed to transfer his lands to Kreick to secure him. The transaction into which they entered, through their common solicitor, embraced this purpose by the provision for a sale of the lands for a sum exceeding the outstanding indebtedness, with an option to repurchase for the amount of the indebtedness and with an obligation of the purchaser Kreick to pay the balance of the purchase price within a ten-month period following the expiry date of the option. In short, the sale was to be fully carried out by payment of the balance of an agreed purchase price if the option to repurchase was not exercised, and in that event the vendor Wansbrough could remain in his house, situated on part of the subject lands, and occupy it rent free for as long as he wished.

The parties understood the reach of the transaction into which they entered and there is no suggestion that advantage was taken by Kreick of Wansbrough, either in the price fixed at the time for the lands that were to be transferred or in any of the other terms of the agreement and option. Is there then any basis for recasting the transaction to make it a security one alone to the exclusion of the overriding element of sale?

Wansbrough urged this position in his defence and counterclaim to an action by Kreick for specific performance of the agreement, brought upon failure of Wansbrough to exercise the option to repurchase on or before April 1, 1966. A tender was in fact made on behalf of Wansbrough under date of March 29, 1966, but it was short of the required amount and consequently rejected. The money had been put up by two others who wished to become Wansbrough’s creditors in place of Kreick. Although Wansbrough signed the notice of exercise of option,

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he immediately informed Kreick of the prospective tender and urged him to reject it because he preferred to have Kreick as his creditor. On March 30, 1966, Wansbrough gave Kreick a signed memorandum reading as follows:

March 30th 66

Re: Present agreement Vendor and Purchaser

Its my intention not to proceed further in the recovery of the titles involved on the condition herein set ahead to April 12 Referring to the expiration of present agreement terminating April 1 st.

J.L. Wansbrough.

No further tender was made by Wansbrough.

The trial judge was of the opinion that the transaction of September 10, 1965, was a security one, that the parties had from the beginning been in a creditor-debtor relationship, and that, having regard to the evidence, their transaction should be regarded as a mortgage and not what on its face it purported to be. On this view, he held, and the Court of Appeal concurred, that Wansbrough had an equitable right to redeem which could not be fettered by the option provisions. The question of fetter or clog does not arise unless the transaction is first characterized as a mortgage, and the option to repurchase clause, which the trial judge seemed to regard as the alleged fetter or clog, cannot be the basis in this case upon which the transaction is to be regarded as a mortgage only. The obligation of the purchaser to pay a fixed balance of the purchase price beyond the date of permitted exercise of the vendor’s option and the provision for continued occupancy by the vendor of his house rent free reflect the primary character of the transaction as reduced to writing; and they are, moreover, consistent with the purchaser’s written instructions to the solicitor at the time the document was drawn up and with the vendor’s understanding as manifested by his memorandum of March 30, 1966. I add as a relevant factor that the price fixed for the acquisition of the vendor’s lands by the purchaser was not shown nor even alleged to be inade-

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quate at the time the agreement of September 10, 1965, was excuted.

Different considerations would apply if the evidence in this case was related to a conveyance absolute in form or to an agreement of sale with an option to repurchase for the amount of the vendor’s debt without more. The present case is stronger on its facts than Herron v. Mayland[2], where this Court held that an agreement with option to repurchase (which was in fact exercised within the prescribed period) must stand according to its terms and could not be translated into a mortgage transaction.

Wilson v. Ward[3] bears a resemblance to the present case in that it involved an agreement of sale with option to repurchase whereby the designated purchaser-creditor was to pay the vendor-debtor a considerable sum (beyond the agreed loan) for the debtor’s land if the option to repurchase was not exercised as prescribed. This Court concluded that the transaction was a mortgage and not a sale agreement with option to repurchase as some of its terms stated. The reasons for this conclusion are clear enough. The document itself recited that the alleged vendor was desirous of obtaining a loan of $1,800 on his land which the alleged purchaser was willing to advance on the conditions following. These provided for a sale of the land for $24,320 payable (less the amount of the loan) at the rate of $5,000 per year but with an option to repurchase for $1,840 within 90 days. The contemporaneity of the loan and the grant of security and the fact that the agreement for sale was a term of the loan which was the primary purpose of the transaction were enough, when supported by the admissible oral evidence, to show that a security arrangement was intended. Indeed, the

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alleged purchaser knew that this was the alleged vendor’s understanding and the document was put in its particular form to satisfy the alleged purchaser’s banker. The difference between Wilson v. Ward and the present case is a difference in kind and not merely of degree.

I would accordingly allow the appeal, set aside the judgments below and direct that the agreement of September 10, 1965, should take effect according to its terms, and that the appellant is entitled to a decree of specific performance. He should have his costs throughout. In view of the conclusion to which I have come, it is unnecessary to deal with The Land Contracts (Actions) Act, R.S.S. 1965, c.104. Nor, for the same reason, need I pass upon a motion made at the hearing by counsel for the appellant to add certain caveats to the record of proceedings.

Appeal allowed with costs.

Solicitors for the plaintiff, appellant: MacPherson, Leslie & Tyerman, Regina.

Solicitors for the defendant, respondent: Goldenberg, Taylor, Tallis & Goldenberg, Regina.