DATE: 20051116
DOCKET:C42420 C42629 C42630
COURT OF APPEAL FOR ONTARIO
ROSENBERG, SIMMONS and GILLESE JJ.A.
B E T W E E N:
THREE SEASONS HOMES LIMITED
Applicant (Respondent)
- and -
Catherine Patterson
and Troy Lehman
for the appellant Chris Eftimovski Graeme Mew for the appellant Robert Faris
ROBERT FARIS, CHRIS
EFTIMOVSKI, WALLY MAGEE and
John O'Sullivan
HORST ROSNER
and Zirka Jakibchuk
for the respondent
Respondents (Appellants)
C42629
B E T W E E N:
CHRIS EFTIMOVSKI
Applicant (Appellant)
- and -
ROBERT FARIS
Respondent
(Respondent in Appeal)
C42630
B E T W E E N:
THREE SEASONS HOMES LIMITED
Applicant
(Respondent in Appeal)
- and -
ROBERT FARIS, CHRIS EFTIMOVSKI, WALLY MAGEE and HORST ROSNER
Respondents (Appellant)
Heard: May 31, 2005
On appeal from the judgment of Justice Donald R. Cameron of the Superior Court of Justice dated August 17, 2004.
SIMMONS J.A.:
[1] Robert Faris owns a 100-acre farm near Bradford, Ontario. On October 23, 2001, Mr. Faris charged his farm in favour of Three Seasons Homes Limited. The Charge signed by Mr. Faris had a balance due date of October 23, 2002 and, in addition, included a provision granting Three Seasons a right of first refusal “[d]uring the term of the Charge, on an ongoing basis” to purchase the farm on the terms contained in any bona fide written offer received by Mr. Faris.
[2] After the balance due date in the Charge had passed, Mr. Faris and his agent notified Three Seasons that Mr. Faris was considering accepting an offer to purchase the farm for $2 million. Three Seasons waived any right to purchase the farm on the terms of the $2 million offer. Subsequently, Mr. Faris accepted an offer from Chris Eftimovski to purchase the farm for $1.7 million.
[3] When Three Seasons learned of the $1.7 million offer, it advised Mr. Faris that it would exercise its right of first refusal. In the face of this advice, Mr. Faris refused to complete the sale to Mr. Eftimovski. Subsequently, each of Mr. Eftimovski, Mr. Faris and Three Seasons brought an application for a determination of their rights.
[4] Cameron J. heard the consolidated proceeding and made the following findings:
a) the “term” of the Charge continued until a discharge was given;
b) the right of first refusal survived the balance due date in the Charge, namely, October 23, 2002; and
c) although Mr. Faris had raised a triable issue concerning whether he agreed to the right of first refusal as a result of undue influence, he was barred by his subsequent conduct from relying on that defence.
[5] Based on the foregoing findings, the application judge ordered that Three Seasons is entitled to specific performance of the right of first refusal on the terms contained in the $1.7 million offer, and he directed a trial of the issue of damages suffered by Three Seasons resulting from breach of the right of first refusal. In addition, the application judge dismissed Mr. Eftimovski's and Mr. Faris’ applications.
[6] The main issue on appeal is whether the application judge erred in holding that the right of first refusal survived the balance due date in the Charge.
[7] For the reasons that follow, I would allow the appeal.
I. Background
[8] The Faris family had owned the farm for many years. In 1982, Mr. Faris's father declared bankruptcy and, a year later, Mr. Faris arranged financing to purchase the farm from his father's trustee for $182,000. In particular, Mr. Faris obtained a $110,000 first mortgage from David Grant and a $72,000 second mortgage from Anjay Limited.
[9] As of 2001, the farm remained subject to the Grant and Anjay mortgages. Both mortgages had been increased, and they were scheduled to come due on October 31, 2001 and November 8, 2001 respectively. As Mr. Faris did not have sufficient money to pay off these mortgages, he asked his friend Horst Rosner, a real estate agent, to find a new mortgage to replace them. Mr. Faris told Mr. Rosner that the new mortgage should be for a period of two years, and that he did not want to deal with Michael Orsi who had attempted, in 1999, to purchase the farm through companies that he (Mr. Orsi) controlled.
[10] After learning that the Grant mortgage (which was now held by Mr. Grant's widow) could not be increased or extended, Mr. Rosner arranged for an assignment of the Grant mortgage through Ms. Schwemlein, a law clerk at Reid McLean Scott (“ RMS”), the law firm that acted for Mrs. Grant. On October 12, 2001, the Grant mortgage was assigned to Three Seasons, an Orsi family company. At the time the assignment was arranged, Mr. Orsi agreed with Mrs. Grant that he would continue to provide free housing to Mr. Faris and Mr. Faris’ mother on a property adjacent to the farm that was owned by Bearsfield Development Ltd., another Orsi family company.
[11] On October 8, 2001, Mr. Rosner sent an account to RMS for $13,000 “for arranging a new first mortgage on the Faris 100 acre farm”. However, Mr. Rosner did not report to Mr. Faris concerning his progress in obtaining a new mortgage, and no one advised Mr. Faris of the assignment of the Grant mortgage to Three Seasons.
[12] On October 22, 2001, Mr. Rosner drove Mr. Faris to the RMS offices where, in a meeting attended by Mr. Faris, Mr. Rosner, Ms. Schwemlein and Mr. McLean (a lawyer at RMS), Mr. Faris was presented with the Charge in favour of Three Seasons in the principal amount of $545,900. The Charge provided for: interest at the rate of 8% per annum; yearly payments of $43,672; a first payment date of October 23, 2001; and a balance due date of October 23, 2002. Mr. Faris knew that the proceeds would be used to discharge the Grant and Anjay mortgages, but did not know the identity of the principals of Three Seasons.
[13] The front page of the Charge referred to an attached schedule containing a right of first refusal clause. That schedule provides as follows:
Right of First Refusal
During the term of the within Charge, on an ongoing basis, the Chargor will inform the Chargee in writing when it has received a written bona fide offer to purchase (the "Offer") all or any part of the property herein charged (the "Property"). The Chargee shall have the right within 72 hours after being so informed by the Chargor to notify the Chargor in writing that the Chargee wishes to purchase the Property on the terms contained in the Offer. If the Chargee does not so notify the Chargor within such period the Chargor shall be at liberty to sell the Property to the maker of the Offer without further notice to the Chargee. If the Chargee so notifies the Chargor within such period that the Chargee wishes to purchase the Property on the terms contained in the Offer, the Property will be sold to the Chargee and the Chargee shall purchase the Property on the terms contained in the Offer. In the event that the Chargee does not match the first Offer, and the proposed transaction with the purchaser fails to close, this right of first refusal shall be returned to the Chargee.
[14] In addition, the Charge incorporated Standard Charge Terms 9320, which include the following provision:
- No extension of time given by the Chargee to the Chargor or anyone claiming under him, or any other dealing by the Chargee with the owner of the land or any part thereof, shall in any way affect or prejudice the rights of the Chargee against the Chargor or any other person liable for the payment of the money secured by the Charge, and the Charge may be renewed by an agreement in writing at maturity for any term with or without an increased rate of interest notwithstanding that there may be subsequent encumbrances. It shall not be necessary to register any such agreement in order to retain priority for the Charge so altered over any instrument registered subsequent to the Charge. Provided that nothing contained in this paragraph shall confer any right of renewal upon the Chargor.
[15] Mr. Faris signed the Charge and initialled the right of first refusal clause during the meeting at the RMS offices on October 22, 2001. In addition, and as requested by Mr. Orsi, Mr. McLean completed a Certificate of Independent Legal Advice certifying that he had been retained by Mr. Faris to advise Mr. Faris concerning the Charge, and that he (Mr. McLean) had explained the terms of the Charge to Mr. Faris.
[16] Although the Charge was forwarded to RMS on October 21, 2001, the right of first refusal clause was not drafted until October 22, 2001. The clause was prepared by a lawyer retained by Mr. Orsi and was forwarded to RMS for insertion in the Charge by fax on October 22, 2001 at 4:16 p.m. A copy of the right of first refusal, as initialled by Mr. Faris, was returned to Mr. Orsi's office at 4:19 p.m. that same day.
[17] The Charge was registered on October 23, 2001. Mr. Faris did not learn that Mr. Orsi was a principal of Three Seasons, or that a brokerage fee had been paid, until he received a reporting letter from RMS in January of 2002. It was not until August 2003 that Mr. Faris learned that the brokerage fee was paid to Mr. Rosner.
[18] Mr. Faris did not make any payments on the Charge on the balance due date (i.e. October 23, 2002), and the Charge was not extended in writing. While Mr. Orsi claims in an affidavit that he agreed orally, on behalf of Three Seasons, to extend the Charge “on all the same terms and conditions as before so that [Mr. Faris] would be able to find a buyer”, Mr. Faris denies that there was any extension. Although Mr. Faris’ mother moved from the adjacent property in the fall of 2002, Mr. Faris continued to live there rent-free as of the date on which this proceeding was heard by the application judge.
[19] On February 24, 2003, Mr. Faris's real estate agent, Mr. Magee, sent a facsimile to Three Seasons advising that Mr. Faris had received an offer to purchase the farm and “putting [Three Seasons] on 72 hours notice as per the first right of Refusal in the Charge”. Mr. Faris signed the facsimile under the words “[t]his letter is approved by Robert Faris.” On cross-examination, Mr. Faris admitted that his intention in sending the facsimile was to give Three Seasons notice as contemplated in the right of first refusal in the Charge.
[20] Included in the February 24, 2003 facsimile was an offer to purchase the farm for $2 million purporting to be signed by Mr. Eftimovski. Mr. Eftimovski denies having signed that offer, and the application judge noted that there was other evidence that may support this denial.
[21] On February 26, 2003, Three Seasons waived its right to purchase the property on the terms of the $2 million offer.
[22] On February 28, 2003, Mr. Eftimovski entered into an agreement of purchase and sale with Mr. Faris to purchase the farm for $1.7 million with a closing date of June 2, 2003. On May 29, 2003, after receiving a request for a mortgage statement, Three Seasons requested a copy of the agreement of purchase and sale and learned that, rather than $2 million, the purchase price under the agreement was $1.7 million. Accordingly, Three Seasons refused to discharge its Charge, and Mr. Faris refused to complete the transaction with Mr. Eftimovski.
II. The Application Judge's Reasons Concerning the Interpretation of the Right of First Refusal
[23] The application judge found that there was no need to look beyond the Charge in order to interpret the right of first refusal. In interpreting the phrase, “[d]uring the term of the charge, on an ongoing basis”, he noted that the word “term” is not defined in the Charge and that there is no reference to it in the Charge or the Standard Charge terms. Accordingly, he referred to the definition of “term” in both the Concise Oxford Dictionary (9th edition) and in the Canadian Oxford Dictionary, which provide, in part, as follows:
5(a) a limited period of some state or activity (for a term of five years); (b) a period over which operations are conducted or results contemplated (in the short term)... (e) a period of tenure... Law an interest in land for a fixed period…
[24] As for the word “Charge”, the application judge stated that it is defined in paragraph 25 of the Standard Charge Terms as having the meaning assigned to it in s.1 of the Land Registration Reform Act, R.S.O. 1990, c.L.4:
“charge” means a charge on land given for the purpose of securing the payment of a debt or the performance of an obligation, and includes a charge under the Land Titles Act and a mortgage, but does not include a rent charge…
[25] In addition, the application judge noted that the first five lines of paragraph 19 of the Standard Charge Terms “make it clear that no extension of time or any other dealing by the chargee with the owner of the Property shall prejudice the rights of the chargee against the chargor”. In that respect, he found that “the rights of the chargee include the right of first refusal.”
[26] The application judge rejected the respondents’ argument based on paragraph 19 of the Standard Charge Terms that, absent a written renewal, the term of the Charge expires. He said:
Such an interpretation would render nugatory the first five lines of paragraph 19. In interpreting a document the Court must try to give commercial sense to all the words used. In my opinion the renewal language in the middle of paragraph 19 refers to renewal by way of extending the time for payment so as to protect the owner or chargor from the consequences of a default. If the [Charge] is not extended in writing the chargee could enforce its remedies by way of an action on the covenant to pay, notice of intent to exercise power of sale, possession or foreclosure. It makes no legal or commercial sense to say the term of the [Charge], or the charge within it securing payment, expired on the unextended due date while the [Charge] or the charge within it, continued in force.
[27] The application judge found that there was “nothing in the [Charge] which restricts the term of the [Charge] to the date on which payment becomes due or any other period short of actual payment and discharge.” Accordingly, he concluded that the “term of the [Charge] continue[s] until a discharge [is] given.”
[28] In the alternative, the application judge held that, if it was necessary to apply the parol evidence rule, the conduct of the parties made it clear that the parties intended the right of first refusal to survive the maturity date in the Charge. In particular, Mr. Faris acknowledged the continuing existence of the right of first refusal by giving notice to Three Seasons on February 24, 2003. Moreover, he confirmed this intention on cross-examination. Similarly, Three Seasons had confirmed its intention by executing the waiver and, subsequently, by asserting its right to purchase.
[29] The application judge also considered the surrounding circumstances at the time the right of first refusal was executed. In so doing, he found that there was no indication that the parties intended that the right of first refusal should expire on the maturity date of the Charge:
A right of first refusal is an unusual provision to insert in a mortgage or charge but there is nothing to prevent it, particularly if the chargee may want to acquire the land securing the repayment of the debt, either before the repayment is due and payable or after default while the debt is outstanding. In a defaulted mortgage an exercise of the right can trump an effort to redeem from the proceeds of a sale. Mr. Faris' impecuniosity made repayment from any other source of funds unlikely. The arrangements made by Three Seasons for Mr. Faris and his mother to continue to live rent free on an adjoining property and to continue to pay utilities, insurance, taxes and maintenance indicates a strong reason for Three Seasons to want the right of first refusal to continue past the repayment date in the Charge and for Mr. Faris to recognize the continuation of the right. There is nothing in the surrounding circumstances to suggest that either party would have wanted the right of first refusal to expire on the due date of the payments secured by the Charge.
III. Analysis
[30] The parties differ concerning the standard of review that is applicable to the application judge’s interpretation of the right of first refusal. Relying in particular on Palumbo v. Research Capital Corp. (2004), 72 O.R. (3d) 241 (C.A.) at para. 32, the appellants contend that the standard of review ordinarily applicable to the interpretation of a contract is correctness and that the standard of correctness is applicable in this case.[^1]
[31] In response, Three Seasons relies on this court's statement in Casurina Limited Partnership v. Rio Algom Ltd. (2004), 40 B.L.R. (3d) 112 (C.A.) at para. 34, that the construction of a written instrument is a question of mixed fact and law:
The construction of a written instrument is a question of mixed fact and law: Petty v. Telus Corp. (2002), 2002 BCCA 135, 164 B.C.A.C. 152 at para. 14, referring to H. G. Beale, ed., Chitty on Contracts, 28 ed. (London: Sweet & Coupersand Maxwell, 1998) at paras. 12-043 and 12-046:
12-043 Intention of the parties. The task of ascertaining the intention of the parties must be approached objectively: the question is not what one or other of the parties meant were understood by the words used, but “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. The cardinal presumption is that the parties have intended what they have in fact said, so that their words must be construed as they stand. That is to say the meaning of the document or of a particular part of it is to be sought in the document itself. “One must consider the meaning of the words used, not what one may guess to the intention of the parties”. However, this is not to say that the meaning of the words in a written document must be ascertained by reference to the words of the document alone. In the modern law, the courts will, in principle, look at all the circumstances surrounding the making of the contract which would assist in determining how the language of the document would have been understood by a reasonable man.
12-046 Law and fact. The construction of written instruments is a question of mixed law and fact. The expression “construction” as applied to a document includes two things, first, the meaning of the words; and, secondly, their legal effect, or the effect which is to be given to them. Construction becomes a question of law as soon as the true meaning of the words in which an instrument has been expressed and the surrounding circumstances, if any, have been ascertained as facts. However, the meaning of an ordinary English word, of technical or commercial terms and latent ambiguities, and the discovery of the surrounding circumstances (when they are relevant) are questions of fact.[^2]
[32] Three Seasons submits that, in the absence of an erroneous statement of the applicable law, the appropriate standard of review is one of palpable and overriding error. In Casurina, Feldman J.A. noted, at para. 22:
An appeal court is required to show deference to the decisions of trial and application judges on questions of fact including the drawing of inferences from facts, and on questions of mixed fact and law, and may only interfere if the judge has made a “palpable and overriding error”. On questions of law, the lower court must be correct, including where findings on issues of mixed fact and law include an erroneous statement of the applicable law: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R 235.
[33] In determining the appropriate standard of review, the precedential value of the interpretation in issue may be a relevant consideration. In Housen, at para 28, the majority noted that “matters of mixed law and fact fall along a spectrum of particularity” and quoted the following excerpt from Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748, at para. 37:
…the matrices of facts at issue in some cases are so particular, indeed so unique, that decisions about whether they satisfy legal tests do not have any great precedential value. If a court were to decide that driving at a certain speed on a certain road under certain conditions was negligent, its decision would not have any great value as a precedent. In short, as the level of generality of the challenged proposition approaches utter particularity, the matter approaches pure application, and hence draws nigh to being an unqualified question of mixed law and fact. See R.P. Kerans, Standards of Review Employed by Appellate Courts (1994) at pp. 103-108. Of course, in most cases it is not easy to say precisely where the line should be drawn; though in most cases it should be sufficiently clear whether the dispute is over a general proposition that might qualify as a principle of law or over a very particular set of circumstances that is not apt to be of much interest to judges and lawyer s in the future.
[34] Following Housen, the applicable standard of review of a question of mixed fact and law may be expressed as follows[^3]:
Matters of mixed fact and law lie along a spectrum. Where, for instance, an error … can be attributed to the application of an incorrect standard, a failure to consider a required element of a legal test, or similar error in principle, such an error can be characterized as an error of law, subject to a standard of correctness …Where the legal principle is not readily extricable, then the matter is one of “mixed law and fact” and is subject to a more stringent standard. The general rule … is that, where the issue on appeal involves the trial judge’s interpretation of the evidence as a whole, it should not be overturned absent palpable and overriding error.
[A question of mixed fact and law] is subject to a standard of palpable and overriding error unless it is clear that the trial judge made some extricable error in principle with respect to the characterization of the standard or its application, in which case the error may amount to an error in law.[^4]
[35] In the end, I conclude that it is unnecessary that I resolve the issue of the proper standard of review in this case. Assuming that Three Seasons is correct that the issue here involves a question of mixed fact and law and that the applicable standard of review is palpable and overriding error, I nevertheless accept, for three reasons, the appellants' submission that the application judge made a reversible error in interpreting the right of first refusal.
[36] First, the application judge erred in saying that the word “term” is not referred to in the Standard Charge Terms. In fact, “term” appears in paragraph 19 of the Standard Charge Terms, which I repeat for ease of reference:
- No extension of time given by the Chargee to the Chargor or anyone claiming under him, or any other dealing by the Chargee with the owner of the land or any part thereof, shall in any way affect or prejudice the rights of the Chargee against the Chargor or any other person liable for the payment of the money secured by the Charge, and the Charge may be renewed by an agreement in writing at maturity for any term with or without an increased rate of interest notwithstanding that there may be subsequent encumbrances. It shall not be necessary to register any such agreement in order to retain priority for the Charge so altered over any instrument registered subsequent to the Charge. Provided that nothing contained in this paragraph shall confer any right of renewal upon the Chargor [emphasis added].
[37] Read in the context of this paragraph, in my view, the necessary meaning of the word “term” is the one contended for by the appellants: i.e. term refers to the time frame between the commencement date of the Charge and the “maturity” (or balance due date) of the Charge. In particular, in the context of paragraph 19, it is apparent that the “maturity” of the Charge is the reference point for determining the commencement date of the “term” of any renewal of the Charge. Accordingly, it follows that the maturity of the Charge must also be the ending point of the “term” of the Charge, and that the “term” of the Charge must refer to the period between the commencement date of the Charge and the maturity of the Charge.
[38] The word “maturity” does not appear in the Charge and it is not defined in the Standard Charge Terms. However, the application judge used “maturity date”, “balance due date” and “due date” interchangeably in his reasons, therefore treating those phrases as having the same meaning.[^5] The application judge’s interpretation of “maturity date” is consistent with the apparent meaning of “maturity” as it appears in other paragraphs of the Standard Charge Terms,[^6] in various authorities,[^7] and in a leading textbook on the subject of mortgages.[^8] I conclude that the word “maturity” in paragraph 19 of the Standard Charge Terms means the same as “balance due date” in the Charge.
[39] While I acknowledge that the application judge referred to paragraph 19 of the Standard Charge Terms in his reasons, he did not advert specifically to the presence of the word “term”, nor consider its meaning having regard to that paragraph. In my view, the application judge erred not only in stating, “there is no reference to [the word “term”] in the … Standard Charge Terms”, but also in concluding that “[t]here is nothing in the Charge which restricts the term of the Charge to the date on which payment becomes due”.
[40] Second, in my view, the application judge misinterpreted the appellants’ submission concerning the meaning of the word “term” when he rejected it by saying: “[i]t makes no legal or commercial sense to say the term of the [Charge], or the charge within it securing payment, expired on the unextended due date while the [Charge] or the charge within it, continued in force”.
[41] In arguing that the term of the Charge is the period between the commencement date of the Charge and the balance due date, and that the term of the Charge expires if it is not renewed on the balance due date, the appellants do not contend that the charging provisions in the Charge expire on the balance due date. Rather, they submit simply that the “term of the Charge” is a term of art used to identify a specific time frame, namely the period between the commencement date of the Charge and the balance due date. This is the time frame during which the chargor enjoys the benefits of the Charge free of any claims by the Chargee, so long as the chargor does not commit an act of default.
[42] When considered as a phrase intended to identify that particular time frame, the words “term of the Charge” not only make sense, they serve both a legal and a commercial purpose.
[43] Third, in considering the meaning of the word “term”, the application judge failed to refer to paragraph 16 of the Standard Charge Terms. The first sentence of paragraph 16 of the Standard Charge Terms provides:
The Chargor will immediately insure...and during the continuance of the Charge keep insured... the buildings on the a land to the amount of not less than their full insurable value... [emphasis added].
[44] Given the nature of the obligation being imposed on the Chargor, the obvious intent of this sentence is to require the Chargor to maintain insurance on the charged premises throughout the period that the charge is in force, both before and after default and before and after maturity. Because the phrase “during the continuance of the Charge” was used to convey that meaning in the Standard Charge Terms, it is reasonable to assume that the phrase“[d]uring the term of the within Charge” was intended to convey a different meaning. In my view, the application judge erred by failing to take paragraph 16 of the Standard Charge Terms into account when interpreting the right of first refusal.
[45] In considering the right of first refusal clause in the context of the Charge as a whole, including the Standard Charge Terms, I am satisfied that the clause is not ambiguous and that there is no need to resort to extrinsic evidence.
[46] Based on the foregoing factors, I conclude that the application judge erred in interpreting the right of first refusal clause and that he should have found that it expired on the balance due date contained in the Charge.
[47] I reject Three Seasons’ contention that it is entitled to a trial of the issue of whether the right of first refusal was extended by oral agreement. The only evidence potentially capable of supporting this contention is the following statement contained at paragraph 10 of Mr. Orsi’s July 17, 2003 affidavit concerning an oral extension of the Charge:
On October 23, 2002, when the [Charge] came due, Faris defaulted and no new mortgage had been negotiated. Faris advised me that he “needed more time” to find a buyer for the Property. In or around the fall of 2002, as the [Charge] was becoming or had recently become due, as an act of forbearance, on behalf of Three Seasons I orally agreed with Faris to extend the [Charge] on all the same terms and conditions as before so that he would be able to find a buyer.
[48] Mr. Faris disputed Mr. Orsi’s claim that the Charge was extended and neither party was cross-examined on this subject.
[49] In my view, however, it is significant that Mr. Orsi did not allege any specific discussion or agreement concerning an extension of the right of first refusal. This omission is in stark contrast to the contents of a letter from Mr. Orsi's lawyer to Mr. Faris' lawyer dated June 3, 2003:
My client was aware that your client was not able to pay the mortgage on October 23, 2002. Indeed, your client had never made any payments on the mortgage. As an act of forbearance, instead of commencing foreclosure or power of sale proceedings, my client agreed verbally with your client that the mortgage term would be extended on the same terms and conditions, including the right of first refusal [emphasis added].
[50] The June 3, 2003 lawyer’s letter is referred to in paragraph 22 of Mr. Orsi’s July 17, 2003 affidavit (and is attached as an exhibit to that affidavit) to confirm that Mr. Orsi requested that Mr. Faris comply with the right of first refusal. However, in his affidavit, Mr. Orsi did not confirm his lawyer’s statement as set out in the June 3, 2003 letter that there was a verbal agreement that “the mortgage term would be extended on the same terms and conditions, including the right of first refusal” [emphasis added]. Accordingly, the lawyer’s statement in the June 3, 2003 letter asserting a verbal agreement that referred specifically to the right of first refusal was not admissible to prove the truth of its contents: see Rule 39.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[51] As already noted, the omission in Mr. Orsi’s evidence of any reference to a specific discussion an extension of the right of first refusal is in stark contrast to the contents of the June 3, 2003 lawyer’s letter. Leaving aside the issue of whether an oral agreement for an extension would be valid, I conclude that Mr. Orsi's evidence falls short of alleging that the parties specifically addressed extending the right of first refusal.
[52] In the context of a lease, this court has held that a clause providing for renewal of the lease upon “the same terms and conditions” is not sufficiently broad to renew a right of first refusal: see, e.g., Budget Car Rentals Toronto Ltd. v. Petro-Canada Inc. (1989), 69 O.R. (2d) 289 (C.A.) at 294-295. The underlying rationale for this conclusion is the fact that a lease and a right of first refusal (or option to purchase) are distinct agreements and each of a fundamentally different character. In the absence of language making it clear that a right of first refusal (or option to purchase) survives the termination of a lease and carries forward into any renewal, courts have held that it does not: see also Law-Woman Management Corp. v. Peel (Regional Municipality) (1991), 2 O.R. (3d) 567 (Gen. Div.); Palmer v. Ampersand Investments Ltd. (1984), 47 O.R. (2d) 275 (H.C.J.).
[53] In my view, the same logic applies to a charge containing a right of first refusal in favour of the chargee. As was noted by the application judge, a right of first refusal is an unusual provision to insert in a mortgage or charge. In this instance, the right of first refusal was not in the nature of an extra remedy exercisable following default; rather, it was akin to a freestanding agreement. Accordingly, in the absence of evidence making it clear that the right of first refusal was to be extended as part of an alleged agreement extending the Charge, I see no basis for directing a trial of that issue.
V. Disposition
[54] Based on the foregoing reasons I would allow the appeal, set aside the judgment of the application judge and grant the relief requested by the appellants, namely, an order declaring that the right of first refusal contained in the Charge registered as instrument number 517607 expired on October 23, 2002 and was not binding on Mr. Faris when Mr. Eftimovski offered to purchase the farm.
[55] In addition, I would award the costs of the appeal on a partial indemnity scale, fixed in the amount of $20,000 to Mr. Eftimovski and $10,000 to Mr. Faris, both inclusive of disbursements and applicable G.S.T.
Released: November 16, 2005 “RM”
“Janet Simmons J.A.”
“I agree M. Rosenberg J.A.”
“I agree E.E. Gillese J.A.”
[^1]: See also R.P. Kerans, Standards of Review Employed by Appellate Courts, (Edmonton: Juriliber Ltd., 1994) at pp. 80-81, where the author states, “appellate courts regularly substitute their view for that of the trial court”, citing as examples: Scott v. Wawanesa Mutual Insurance Co., [1989] 1 S.C.R. 1445; Liverpool & London Globe Insurance Co. v. Canadian General Electric Co. Ltd., [1981] 1 S.C.R. 600; and Doerner v. Bliss & Laughlin Industries Inc., [1980] S.C.R. 865.
[^2]: To the same effect, see Kim Lewison, The Interpretation of Contracts, (London, Sweet & Maxwell, 2004) at 4.01, but see also 4.05 and 4.06 indicating a reluctance to interfere with an established interpretation of Standard Forms of Commercial Agreements and Standard Forms of Conveyancing Agreements.
[^3]: Housen v. Nikolaisen, supra, at paras. 36-37.
[^4]: See also Bradscot (MCL) v. Hamilton-Wentworth District School Board (1999), 42 O.R. (3d) 723 (C.A.) in which Laskin J.A. stated the following at pp. 728-729:
I do not think that there is one “right” interpretation of the words … in the instruction to tenderers. Both the interpretations given by Shaw J. in the Smith Bros. Case and the interpretations given by Somers. J. in the present case are reasonable … Moreover, the appellant does not suggest that Somers J. applied incorrect principles of contract interpretation. Faced with two interpretations, either of
which is reasonable, and no error in the application of the relevant legal principals, in my view, this court
should defer to the finding of the trial judge.
[^5]: See, for example, para. 2 of the application judge’s reasons where he described one of the issues addressed by the parties as “whether the right of first refusal continued to be valid after the maturity date of the [Charge]”; see also para. 65 of the application judge’s reasons, where he described one of the issues before him as whether the right of first refusal “survives the due date of the [Charge], namely October 23, 2002”.
[^6]: See, for example, para. 6 of the Standard Charge Terms, which provides in part:
6. In case default shall be made in payment of any sum to become due for interest at the time provided for payment in the Charge, compound interest shall be payable and the sum in arrears for interest from time to time, as well after as before maturity, and both before and after default and judgement, shall bear interest at the rate provided for in the Charge.
[^7]: See, for example, Simonton v. Graham (1881), 8 P.R. 495 (Ch. Chambers) at 496, where Blake, V.C., said that when no rate of interest was fixed to be paid after maturity of the mortgage, prima facie the rate stipulated for up to that time should be taken as a measure of the damages. In that case, the mortgage provided for interest at the rate of 10 per cent and that the principal should be repaid “in three years from the date hereof”. On a reference, the Master had held that the mortgagee was entitled to interest at the rate of 10 per cent up to the date the mortgage matured, but assessed damages following maturity at 6 per cent. Blake V.C.’s comments are quoted in Muttlebury v. Stevens (1886-87), 13 O.R. 29 (Ch. Div.) at 33.
[^8]: See Walter M. Traub, Falconbridge on Mortgages, 5th ed. looseleaf, (Toronto: Canada Law Book, 2005) at section 33:40. Section 33:40 is titled “Rate of Interest After Maturity” and includes the following statement:
[A] stipulation that interest shall be payable at a stated rate upon the principal money “until paid”, “until payment in full” or “until such principal money and interest shall be fully paid and satisfied” will be construed as providing merely for payment at the contract rate until the day fixed for payment of the principal.”