DATE: 20060719
DOCKET: C44213
COURT OF APPEAL FOR ONTARIO
O’CONNOR A.C.J.O., DOHERTY and MACFARLAND JJ.A.
B E T W E E N :
Hillel David
STEPHEN DOHERTY
for the appellant
Plaintiff
(Respondent)
- and -
Evan L. Tingley
for the respondent
THE CORPORATION OF THE TOWNSHIP OF SOUTHGATE
Defendant
Heard: May 11, 2006
(Appellant)
On appeal from the order of Justice Wilton-Siegel of the Superior Court of Justice dated August 30, 2005.
O’CONNOR A.C.J.O.:
[1] The appellant, the Corporation of the Township of Southgate (“Southgate”), seeks to back out of a real estate transaction because of its own failure to provide notice to the public of the proposed sale as required by s. 268(3)(c) of the Municipal Act, 2001, S.O. 2001, c. 25 (the “Municipal Act”). Southgate appeals a decision of Wilton-Siegel J. holding that its failure to give such notice prior to entering into an agreement of purchase and sale with the respondent, Stephen Doherty (“Doherty”), did not render the agreement void or unenforceable. I agree with the decision below, although on the basis of somewhat different reasons.
[2] On April 20, 1995, the Corporation of the Village of Dundalk (“Dundalk”), a predecessor municipality to Southgate, passed By-law No. 12-95 establishing a procedure for the disposal of real property owned by it. The relevant sections of the by-law provide as follows:
THAT prior to the disposal of property the Council shall by resolution declare the property to be surplus.
THAT prior to the disposal of real property and where there is no exemption under the regulations, the Council shall obtain at least one appraisal of the fair market value of the real property.
THAT the form of appraisal shall be an “Opinion of Value” from a Realtor.
THAT notice to the public of the proposed sale shall be given at least 10 days, including holidays, prior to the disposal of real property by posting a notice on the subject property or at a nearby location chosen by the Village Clerk or her delegate.
[3] On August 23, 2002, Southgate obtained an opinion of value from a realtor for three properties that it intended to sell, including the property which is at issue in this appeal, municipally known as 99 Proton Street, Southgate (formerly Dundalk), Ontario (“the property”). The realtor estimated the value of the property, which was formerly the fire hall of Dundalk, to be $165,000.
[4] In September 2002, Southgate entered into agreements to sell the two properties not involved in this appeal. It gave notice to the public of the proposed sales in March 2003 and the sales were completed in April 2003.
[5] On October 4, 2002, Southgate listed the property for sale for $200,000. On November 13, 2002, Southgate passed a resolution declaring the property to be surplus.
[6] On September 9, 2003, Doherty, a real estate developer, made an offer to purchase the property. Negotiations followed and eventually the parties agreed to a price of $130,000. On September 24, 2003, Southgate’s council passed a resolution approving the sale and the parties finalized an agreement of purchase and sale.
[7] The agreement was conditional on Doherty satisfying himself that the development charges for the property were satisfactory. On learning that the charges would be approximately $20,000, Doherty indicated that he would terminate the agreement if the charges were not reduced. Southgate was not prepared to reduce the charges, however, it did agree to reduce the sale price to $120,000. On November 26, 2003, Southgate’s council passed a resolution authorizing the amendment to the agreement to reflect the lower price and the agreement was amended accordingly.
[8] The agreement required Southgate to carry out certain zoning changes. It provided:
The Seller will provide at their cost any and all zoning changes and amendments to allow 12 single family apartments in the building and have this completed prior to closing.
[9] The lawyers for the parties exchanged several letters concerning requisitions, draft documentation and matters relating to the closing of the sale. Southgate’s lawyer did not raise any issue about Southgate’s capacity to enter into the agreement or the validity of any of the provisions in the agreement.
[10] The agreement provided for a closing date of January 16, 2004, which the parties subsequently agreed to extend to February 27, 2004. On January 13, 2004, Southgate’s lawyer indicated that the amendment to the zoning by-law to permit twelve single family apartments would be finalized on or before the extended closing date of February 27, 2004.
[11] On February 27, 2004, Southgate’s lawyer advised Doherty’s lawyer, for the first time, that Southgate had done nothing with respect to the re-zoning of the property. The parties agreed to extend the closing date to March 5, 2004. By that date, Southgate still had not re-zoned the property as required by the agreement. Southgate waived tender and the sale of the property did not close.
[12] Throughout the period leading up to March 5, 2004, neither of the parties raised the issue of Southgate giving notice to the public of the proposed sale and the fact Southgate had not given such notice.
[13] On July 12, 2004, Doherty sued Southgate claiming, inter alia, specific performance and damages for breach of contract.
[14] Southgate raised a number of defences to Doherty’s claim, including a plea that the zoning provision in the agreement was unenforceable because it fettered the legislative discretion of Southgate. In addition, Southgate took the position, for the first time, that the agreement of purchase and sale was void and unenforceable because Southgate had not given notice to the public of the proposed sale prior to entering into the agreement as required by s. 268(3)(c) of the Municipal Act.
[15] Southgate moved for summary judgment seeking dismissal of Doherty’s action. In addressing the issues raised by Southgate’s motion, the motion judge made two declarations. He declared that the agreement of purchase and sale was not void or unenforceable because of Southgate’s failure to give notice to the public of the proposed sale prior to entering into the agreement to sell the property to Doherty. He also made a declaration that the zoning provision in the agreement was unenforceable for the reasons raised by Southgate.
[16] In the result, the motion judge allowed Doherty to continue his action, but only with respect to his damages claims and he limited those claims to damages sustained by Doherty as a consequence of altering his position by entering into the agreement of purchase and sale together with any punitive, exemplary or aggravated damages.
[17] Southgate’s appeal to this court is concerned only with the motion judge’s first declaration, relating to its failure to give notice to the public of the proposed sale as required by s. 268(3)(c) of the Municipal Act.
[18] Section 268 of the Municipal Act sets out the procedure to be followed when a municipality intends to sell land that it owns. The relevant subsections of s. 268 are as follows:
268(1) Every municipality and local board with authority to sell land shall pass a by-law establishing procedures, including the giving of notice to the public, governing the sale of land.
268(3) Before selling any land, every municipality and local board shall,
(a) by by-law or resolution declare the land to be surplus;
(b) obtain at least one appraisal of the fair market value of the land; and
(c) give notice to the public of the proposed sale.
268(4) The manner in which the municipality or local board carries out the sale of its land, if consistent with this section and with the by-law under subsection (1), is not open to review by any court if the municipality or local board may lawfully sell the property, the purchaser may lawfully buy it and the municipality or local board acted in good faith.
[19] Southgate had complied with s. 268(1). By-law No. 12-95 of the former Village of Dundalk was enacted pursuant to a predecessor section to s. 268(1) of the Municipal Act and established procedures governing the sale of land. The wording of the by-law is similar but not identical to the requirements in s. 268(3) of the Municipal Act. Southgate’s arguments before the motion judge and in this court were based only on an alleged contravention of s. 268(3) of the Municipal Act and not on the requirements set out in the by-law. The difference in language between the two would not affect the outcome of this appeal and thus it is not necessary to consider the applicability of the by-law to what occurred.
[20] Turning then to s. 268(3) of the Municipal Act, the parties agree that Southgate complied with the requirements in paras. (a) and (b). It passed a resolution declaring the property to be surplus and it obtained an appraisal of the property. The only issue, therefore, relates to Southgate’s failure to give notice to the public of the proposed sale as required by para. (c).
[21] My analysis of this issue can be broken down into two questions:
(1) Was Southgate required to give notice to the public of the proposed sale under s. 268(3)(c) before entering into the agreement of purchase and sale with Doherty?
(2) If so, did Southgate’s failure to give that notice render the agreement of purchase and sale void and unenforceable?
[22] I conclude that the answer to the first question is in the affirmative and to the second in the negative.
[23] The first question requires the interpretation of the requirement in s. 268(3)(c) that a municipality give notice to the public of the proposed sale prior to “selling any land”. Does “selling any land” refer to entering into an agreement of purchase and sale, as is argued by Southgate, or does it refer to closing a sale by transferring title, as is argued by Doherty?
[24] The modern rule of statutory interpretation requires a court to conduct a textual, contextual and purposive examination of the statutory language in issue: Rizzo & Rizzo Shoes Ltd. (Re), 1998 837 (SCC), [1998] 1 S.C.R. 27 at para. 21; Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601 at para. 10.
[25] The verb “sell” could refer to either one of the competing interpretations. In support of his argument that “sell” refers to a completion of a sale, Doherty refers to the 6th edition of Black’s Law Dictionary, which defines “sell” to mean “dispose of by sale” or “transfer title or possession of property to another in exchange for valuable consideration”. Black’s defines “disposal” to mean, inter alia, “to pass over into the control of someone else; to alienate, bestow, or part with”.[^1]
[26] On the other hand, as Southgate argues, the verb “sell” is commonly used to describe the creation of a legal obligation to sell. By way of example, when a land owner enters into an agreement to sell land, real estate signs and advertisements will frequently announce that the land has been sold, even before closing. Once a vendor of land has bound itself by executing its acceptance of an offer to purchase, it has sold the land; it cannot sell the land again.
[27] Because the phrase “Before selling any land” could reasonably refer to either one of the competing interpretations, the context in which the phrase is used and the purposes of s. 268(3) become very important in the interpretation exercise.
[28] It is significant that the phrase “Before selling any land” is contained in the preamble of s. 268(3), meaning that it applies to all three of the listed requirements. Thus, it is useful to look at all three requirements to see if the intention is that they be completed before or after a municipality enters into an agreement of purchase and sale.
[29] It makes sense that the requirement in para. (a) – that a municipality pass a resolution declaring the land to be sold surplus – be satisfied before a municipality enters into a binding agreement to sell the land. Clearly, s. 268(3)(a) is intended to ensure that municipalities sell only surplus lands, that is lands that are no longer required for municipal purposes. While it would be possible to interpret the requirement in para. (a) to be a condition subsequent to a binding agreement of purchase and sale, a requirement that a municipality make the determination that land is surplus before, not after, it commits itself to sell the land provides for a more orderly sale process.
[30] It makes even more sense that a municipality fulfil the second requirement in s. 268(3) – that it obtain an appraisal of the fair market value of the land to be sold – before it binds itself to sell the land. The purpose of this requirement is obviously to help a municipality determine what would be an appropriate sale price. It is logical that determination be made before the municipality offers land for sale and particularly before it enters into an agreement to sell the land for a specific price. It would make little sense to obtain an appraisal after a municipality has already committed itself to selling at a sale price.
[31] I also conclude that it makes more sense that the third requirement found in s. 268(3) – giving notice to the public of a proposed sale – be satisfied before the municipality enters into an agreement to sell the land.
[32] Doherty argues that the purpose of this requirement is to provide the public with details of an already agreed upon sale to permit interested parties to take legal action to challenge the sale prior to completion. Subsection 268(4) contemplates a review by a court of the sale of land which, assuming a municipality has complied with s. 268(3), may be otherwise unlawful or based on a lack of good faith. According to this argument, the notice to the public required by s. 268(3)(c) could provide the information necessary to bring this type of challenge. As part of this argument, Doherty submits that the requirement of public notice is not to provide an opportunity for public participation in the internal review and approval process of the municipal council relating to the sale. If the purpose of the notice had been to encourage public involvement, he argues, s. 268(3) would have included a provision requiring the holding of a formal hearing at which interested parties could make representations.
[33] I do not accept this argument. I think the preferable view is that that the purpose of the notice is to inform the public of a proposed sale before a municipality binds itself to sell land. In this way, members of the public can, if they choose, make representations to their elected representatives that the land should not be sold because it is not surplus, or that the price being sought by the municipality is not sufficient. Publication of notice of a proposed sale prior to a municipality entering into an agreement of purchase and sale provides an opportunity for members of the public who object to the sale to use political suasion to register their objection, as opposed to the more costly and difficult remedy of a court action that would be required if a municipality has already legally committed itself to sell the land. Admittedly, the statute does not provide for a specific hearing process to receive such objections. That, however, in my view, is not a reason to dismiss what is otherwise a reasonable purpose for the notice requirement. The democratic process allows for political involvement by the public in both formal and informal ways. Moreover, the requirement that a municipality give notice to the public prior to committing itself to a sale of land promotes, at least in a general sense, openness and transparency of municipal government, which can only be seen as a positive objective.
[34] I caution, however, that the notice required by s. 268(3) need only indicate that the municipality intends to sell the land and the price at which it is offering it for sale – the same information that would be available to prospective purchasers. The municipality need not include in the notice details of negotiations relating to the sale nor information about offers received. If a municipality was required to include such information in a public notice, a prospective purchaser may be justifiably concerned about the integrity of the sale process and the potential for a municipality to shop its offer in order to obtain a higher price. With this concern in mind, municipalities frequently consider offers to buy land in meetings that are not open to the public as Southgate did in this case. Even without the details of negotiations or offers, the public notice of a proposed sale still serves the useful purpose of providing members of the public the opportunity to present their views about the sale of the land and its value in the political forum and to hold their municipal representative accountable through the political process.
[35] In summary, I am satisfied that the proper interpretation of s. 268(3) is that a municipality is required to fulfil the three requirements before entering into a binding agreement of purchase and sale. Southgate failed to comply with the requirement to give public notice of its intent to sell the property before it entered into an agreement of purchase and sale with Doherty.
[36] That then brings me to the second question: Did Southgate’s failure to give that notice render the agreement of purchase and sale void and unenforceable?
[37] In my view, the answer to that question is in the negative. Not every statutory breach results in a contract being void or unenforceable. The decision of this court in Beer v. Townsgate I Ltd. (1997), 1997 976 (ON CA), 36 O.R. (3d) 136, is instructive.
[38] In Beer, a developer of residential condominiums entered into a number of agreements of purchase and sale when it was not registered under the Ontario New Home Warranty Program in contravention of s. 6 of the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31. The developer had applied for registration and was subsequently granted registration. The purchasers were at all times protected under the Act. This court rejected an argument that the agreements of purchase and sale were void and unenforceable because of the breach of the statute at the time they were executed. At page 144, Brooke J.A., for the court, said:
I think it is significant that while the Act provides for a financial penalty for a breach of s. 6 it does not expressly provide that the contract so made is unenforceable. If a statute does not expressly deprive a party of his or her rights under the contract, the question is whether, having regard to the purpose of the Act, and the circumstances under which the contract was made, and to be performed, it would be contrary to public policy to enforce it because of illegality: see the judgment of Devlin L.J. in St. John Shipping Corp. v. Joseph Rank Ltd., [1956] 3 All E.R. 683 at p. 690, [1957] 1 Q.B. 267 (Q.B.).
[39] On the same page, Brooke J.A. continued:
As Waddams notes in The Law of Contracts, 3rd ed. (1993), at p. 381:
If every statutory illegality, however trivial, in the course of performance of a contract, invalidated the agreement, the result would be an unjust and haphazard allocation of loss without regard to any rational principles.
I think public policy favours that contracts should not be rendered unenforceable merely because of technical deficiencies.
[40] There are three reasons why I consider that it would not be contrary to public policy to conclude that the agreement of purchase and sale in this case was not rendered void or unenforceable as a result of the non-compliance with s. 268(3)(c) of the Municipal Act.
[41] First, as was the case in Beer, there is nothing in the statute under consideration, here the Municipal Act, expressly providing that a contract made in contravention of s. 268(3) is unenforceable.
[42] Second, there is nothing in the record to suggest that giving notice to the public of the proposed sale of the property to Doherty would have resulted in any different outcome. No one, including Southgate, has suggested that the property was not surplus to the needs of the municipality. On the contrary, Southgate has passed a resolution declaring it to be surplus. Nor is there any suggestion that the sale price in the agreement of purchase and sale was in any way improvident. Significantly, by the time Doherty agreed to buy the property, it had been on the market for close to a year. The sale price was 72 percent of the value estimated by Southgate’s realtor and Southgate does not now take the position that it could have obtained any higher price. On two occasions, Southgate’s council approved the sale and no ratepayers have challenged the sale. Thus, it appears that even if Southgate had given notice to the public of the proposed sale, it would have ended up selling the property to Doherty on exactly the same terms as are in the agreement of purchase and sale.
[43] Third, Southgate’s position in this litigation with respect to the public notice is a disingenuous attempt to take advantage of its own failure. Significantly, Southgate’s decision not to complete the sale on March 5, 2004 was based on its unwillingness to proceed with the zoning amendment called for in the agreement of purchase and sale and not on the fact that it had not given the public notice required by s. 268(3)(c). Indeed, had Southgate taken that position prior to closing, it is fair to conclude that Doherty would have agreed to an extension of the closing date, if necessary, to permit such notice to be given. While s. 268(3)(c) requires notice to the public before the municipality enters into an agreement to sell land, giving notice after the agreement was executed would still have provided an opportunity for the public to register any objections. As I have said, I do not think that in this case it would have made any difference. Be that as it may, Southgate did not raise the notice issue as a reason for not closing and first raised it in its statement of defence in an attempt to extricate itself from an action for breach of contract.
[44] While it may be said that Doherty should have been aware of Southgate’s obligation to give notice and its failure to do so, there is no evidence to suggest that he did not act in good faith throughout. Doherty, through his lawyer, took steps necessary to prepare for a closing of the sale and Southgate’s actions would have led him to believe that Southgate had fulfilled all of the statutory requirements necessary to complete the transaction.
[45] In summary, I am satisfied that it would not be against public policy to hold that the agreement of purchase and sale in this case was not rendered void and unenforceable by the breach of the statute by Southgate. Accordingly, I am satisfied that the motion judge did not err in making a declaration to that effect.
[46] I would, therefore, dismiss the appeal and direct that Southgate pay Doherty’s costs of this appeal in the amount of $5,000, inclusive of disbursements and GST.
RELEASED: “DOC” “JUL 19 2006”
“Dennis O’Connor A.C.J.O.”
“I agree Doherty J.A.”
“I agree J. MacFarland J.A.”
[^1]: I note that the 7th and 8th editions of Black’s only provide that “sell” means “transfer (property) by sale”.