Benzie et al. v. Hania et al. [Indexed as: Benzie v. Hania]
112 O.R. (3d) 481
2012 ONCA 766
Court of Appeal for Ontario,
Goudge, Gillese and R.P. Armstrong JJ.A.
November 13, 2012
Real property -- Right of first refusal -- Applicant and her two siblings entering into agreement that gave siblings right of first refusal should applicant decide to sell property -- Three siblings agreeing that agreement would enure to benefit of their respective heirs, administrators and successors -- Applicant's husband signing undertaking to be bound by terms and conditions of agreement and applicant conveying title to herself and her husband as joint tenants -- Agreement and undertaking registered on title under Registry Act and subsequently migrated to Land Titles system -- Agreement binding on applicant's heirs -- Undertaking being valid contract -- Right of first refusal properly registered on title pursuant to s. 71(1) of Land Titles Act -- Land Titles Act, R.S.O. 1990, c. L.5, s. 71(1).
The applicant MB purchased a farm property from her parents. The respondents, her brother and sister, opposed the sale and wanted the farm to remain family property. The three siblings entered into an agreement (the "agreement") that gave the respondents a right of first refusal should MB ever decide to sell the property and that provided for equal distribution among the three siblings of the net proceeds of any future sale of the property. The agreement was expressly stated to enure to the benefit of and be finding on, among others, the siblings, their respective heirs, administrators and successors. After MB married the applicant NB, NB signed a document in which he promised the respondents that he would be bound by the terms and conditions of the agreement, and MB conveyed title to the property to herself and NB as joint tenants. The agreement, with NB's undertaking appended, was registered on title pursuant to the Registry Act, R.S.O. 1990, c. 445. In 1999, title and other registrations pertaining to the property were migrated to the Land Titles system. The agreement remained registered on title. The applicants brought an application to have the agreement deleted from the Land Titles registry and sought a declaration that it was not binding on non-parties, specifically NB and MB's children. The application was dismissed. The applicants appealed.
Held, the appeal should be dismissed.
The agreement was binding on MB's heirs. Death does not terminate a contract unless the contract is based on personal considerations, skill or confidence (a personal contract). The agreement was not a personal contract and survived MB's death. Accordingly, MB's estate would be in the same position as MB herself -- it would be bound by the agreement. If the estate conveyed the property to MB's heirs, they would be bound by the agreement.
NB's undertaking was a binding contract. The provisions of the agreement that came into effect if MB chose to sell the property were triggered when MB conveyed title to the property to herself and NB as joint tenants. The respondents provided consideration for the undertaking in the form of forbearance of enforcing their rights under the agreement. Forbearance from bringing a claim is valuable consideration, regardless of whether the claim would have been successful if tried in the courts, so long as the forbearance was done in good faith and the [page482] party forbearing reasonably believed the claim to be valid. Moreover, NB was bound by the agreement even in the absence of the undertaking, as he had actual knowledge of it before he became a joint owner of the property.
The right of first refusal was properly registered on title pursuant to s. 71(1) of the Land Titles Act. The fact that a right of first refusal is not an immediate interest in land at the time of its creation does not mean that it cannot be protected by registration under s. 71(1).
APPEAL from the order of McCombs J., [2012] O.J. No. 607, 2012 ONSC 976 (S.C.J.) dismissing an application for an order deleting the right of first refusal from the Land Titles registry and declaring that it was not binding on non-parties.
Cases referred to Heintzman v. Poole, [2008] O.J. No. 2948, 70 R.P.R. (4th) 107, 2008 CarswellOnt 4484 (S.C.J.); Kocken v. Stewart, [1999] A.J. No. 497, 1999 ABQB 331, 241 A.R. 382; McLeod v. Castlepoint Development Corp. (1997), 1997 CanLII 12080 (ON CA), 31 O.R. (3d) 737, [1997] O.J. No. 386, 97 O.A.C. 123, 25 C.P.C. (4th) 256, 8 R.P.R. (3d) 97, 68 A.C.W.S. (3d) 1034 (C.A.) [Leave to appeal to S.C.C. refused [1997] S.C.C.A. No. 191], consd
Other cases referred to Canadian Long Island Petroleums Ltd. v. Irving Wire Products, 1974 CanLII 190 (SCC), [1975] 2 S.C.R. 715, [1974] S.C.J. No. 122, 50 D.L.R. (3d) 265, 3 N.R. 430, [1974] 6 W.W.R. 385; Canadian Pacific Railway Co. v. Turta, 1954 CanLII 58 (SCC), [1954] S.C.R. 427, [1954] S.C.J. No. 31, [1954] 3 D.L.R. 1, 12 W.W.R. (N.S.) 97; Greenwood Shopping Plaza Ltd. v. Beattie, 1980 CanLII 202 (SCC), [1980] 2 S.C.R. 228, [1980] S.C.J. No. 59, 111 D.L.R. (3d) 257, 32 N.R. 163, 39 N.S.R. (2d) 119, 10 B.L.R. 234, [1980] I.L.R. Â1-1243 at 914, 3 A.C.W.S. (2d) 351; Harris v. McNeely (2000), 2000 CanLII 5649 (ON CA), 47 O.R. (3d) 161, [2000] O.J. No. 472, 130 O.A.C. 282, 31 R.P.R. (3d) 249, 95 A.C.W.S. (3d) 188 (C.A.); Lawson v. Poirier Estate, 1997 CanLII 9524 (NB CA), [1997] N.B.J. No. 56, 143 D.L.R. (4th) 660, 187 N.B.R. (2d) 161, 69 A.C.W.S. (3d) 271 (C.A.), affg 1996 CanLII 12489 (NB KB), [1996] N.B.J. No. 254, 135 D.L.R. (4th) 345, 180 N.B.R. (2d) 203, 63 A.C.W.S. (3d) 440 (T.D.); London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), [1992] 3 S.C.R. 299, [1992] S.C.J. No. 84, 97 D.L.R. (4th) 261, 143 N.R. 1, [1993] 1 W.W.R. 1, J.E. 92-1650, 18 B.C.A.C. 1, 73 B.C.L.R. (2d) 1, 43 C.C.E.L. 1, 13 C.C.L.T. (2d) 1, 36 A.C.W.S. (3d) 669; McFarland v. Hauser, 1978 CanLII 164 (SCC), [1979] 1 S.C.R. 337, [1978] S.C.J. No. 89, 88 D.L.R. (3d) 449, 23 N.R. 362, 7 Alta. L.R. (2d) 204, 12 A.R. 332, [1978] 3 A.C.W.S. 186; Ronald Elwyn Lister Ltd. v. Dunlop Canada Ltd., 1982 CanLII 19 (SCC), [1982] 1 S.C.R. 726, [1982] S.C.J. No. 38, 135 D.L.R. (3d) 1, 42 N.R. 181, 18 B.L.R. 1, 41 C.B.R. (N.S.) 272, 65 C.P.R. (2d) 1, 14 A.C.W.S. (2d) 315; SBS Sealants Inc. v. Robroy Industries Ltd. (2002), 2002 CanLII 41884 (ON CA), 59 O.R. (3d) 257, [2002] O.J. No. 1535, 2 R.P.R. (4th) 1, 113 A.C.W.S. (3d) 354 (C.A.)
Statutes referred to Land Titles Act, R.S.O. 1990, c. L.5 [as am.], ss. 71(1), (2), 119 [as am.], (3) Oak Ridges Moraine Conservation Act, 2001, S.O. 2001, c. 31 [as am.] Registry Act, R.S.O. 1980, c. 445, ss. 1(f), 21(1), 22
Authorities referred to Fridman, G.H.L., The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011)
Michael Meredith and Clarke Tedesco, for appellants. Allan S. Halpert, for respondents. [page483]
The judgment of the court was delivered by
[1] GILLESE J.A.: -- Can a right of first refusal bind non- parties? Is it registrable under the Land Titles Act, R.S.O. 1990, c. L.5? These questions lie at the heart of this appeal.
Background
[2] Reuben Kunin ("Mr. Kunin") and Sybil Kunin had three children: Michael Benzie ("Michael"), Barbara Hania ("Barbara") and Mitchell Kunin ("Mitchell"). In 1981, they bought a 66-acre farm property on the Oak Ridges Moraine in Newmarket, Ontario for $425,000 (the "Property"). For financial and tax reasons, title to the Property was taken in Barbara's name.
[3] Michael was married and lived in Israel for a number of years. She has two sons from that marriage: Marc Davidson and Adam Davidson.
[4] Barbara has three children. Mitchell has two.
[5] In 1986, while Michael was vacationing in New Mexico, U.S.A., she met Norman Benzie ("Norman"). Shortly thereafter, they got engaged. Michael planned to sell her house in Toronto and move to New Mexico to marry and live with Norman.
[6] To persuade Michael to stay in Canada, her father proposed to sell her the Property on which she and Norman could make their home. Michael and Norman spent about $250,000 on renovations and improvements to the Property before the purchase. They have lived on the Property ever since and have completed many more renovations.
[7] Barbara opposed the sale of the Property to Michael because she and Mitchell wanted it to remain a family property.
[8] To keep peace in the family, Mr. Kunin proposed that the three children enter into an agreement that would contain two key provisions. The first was a right of first refusal should Michael ever decide to sell the Property. The second would provide for equal distribution among the three children of the net proceeds of any future sale of the Property. Net proceeds meant the sale proceeds less sale expenses and less a repayment to Michael of $425,000, the amount that she paid to purchase the Property, plus the amounts that she spent on renovations and improvements to the Property, plus 6 per cent simple interest on both amounts.
[9] Title to the Property was conveyed into Michael's name on August 24, 1987.
[10] On August 25, 1987, the three children executed an agreement that contained the agreed-on terms (the "Agreement"). They expressly agreed that the Agreement would enure [page484] to the benefit of and be binding on, among others, their respective heirs, administrators and successors (the "enurement provision"). The Agreement also expressly provided that notice of it might be registered on title.
[11] Paragraphs 5, 6, 9 and 10 of the Agreement are the most germane for the purposes of this appeal. They read as follows:
If [Michael] shall desire to sell the [Property], she shall first offer in writing to sell the [Property] to [Barbara] and [Mitchell] and if the parties can come to an agreement between themselves as to the sale price and the terms thereof, then [Michael] shall sell the [Property] to [Barbara] and [Mitchell] on the said terms and at the said price in which event the provisions of paragraph 4 with respect to the division of the proceeds of sale among the parties shall apply.
If [Michael] shall have offered to sell the [Property] to [Barbara] and [Mitchell] as provided in paragraph 5 of this agreement and if within a period of thirty days after the giving of such notice, the parties have not been able to come to an agreement as to the purchase price or the terms of sale, then [Michael] shall be free to sell the [Property] to any third party provided that she again offers to sell the [Property] to [Barbara] and [Mitchell] on the same terms and conditions as she is prepared to accept from such third party. In this respect, [Michael] shall forward to [Barbara] and [Mitchell] a copy of the agreement setting forth the terms and price that she is prepared to accept and notice that she is prepared to accept such offer which documents shall constitute an offer from [Michael] to [Barbara] and [Mitchell] to sell the [Property] at that price and on the terms therein set forth. If [Barbara] or [Mitchell] fail to accept such offer by written notice to this effect within a period of five business days after receipt of the offer from [Michael], then [Michael] shall be free to sell the [Property] to such third parties. @7 . . . . .
This agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, administrators, executors, successors and assigns but the benefit thereof shall not be assignable.
The parties agree that notice of this agreement may be registered on title.
[12] Michael and Norman were married on November 27, 1987.
[13] On November 30, 1987, Norman signed a document in which he promised Mitchell and Barbara that he would be bound by the terms and conditions of the Agreement and that he would not deal with the Property except in accordance with the Agreement (the "Norman Undertaking").
[14] The Norman Undertaking reads as follows:
To: Mitchell Kunin and Barbara Hania
I hereby covenant and agree with you that the terms and conditions of the agreement between you and Michael Ann Davidson dated the 25th day of August, 1987 with respect to the lands known as [the Property] are binding on me and I will not deal with my interest in the said lands except in accordance with the said agreement. [page485]
[15] Also on November 30, 1987, in consideration of "natural love and affection", Michael conveyed title to the Property to herself and Norman as joint tenants.
[16] Because of the Norman Undertaking, Barbara and Mitchell did not object to the conveyance of the Property into Michael and Norman's joint names.
[17] On December 23, 1987, the Agreement, with the Norman Undertaking appended, was registered on title pursuant to the provisions of the Registry Act, R.S.O. 1980, c. 445.
[18] In 1999, title and other registrations pertaining to the Property were migrated from the Registry system to the Land Titles system. The Agreement remained registered on title when the Property was converted to the Land Titles system of registration.
[19] In 2001, the Oak Ridges Moraine Conservation Act, 2001, S.O. 2001, c. 31 came into force and in 2002 the Oak Ridges Moraine Conservation Plan was completed. As a result, the only permitted uses of the Property are conservation, non-motorized trails and existing legal uses. Together, the statute and plan have the effect of precluding any residential or commercial development of the Property.
[20] Strife among the siblings and their children about entitlement to the Property on the death of Michael and Norman led them, in 2010, to bring an application to have the Agreement deleted from the Land Titles registry. In the application, they also sought a declaration that the Agreement is not binding on non-parties, specifically Norman, Marc Davidson, Adam Davidson and any other of Michael's heirs. They provided evidence of valuations for the Property that demonstrated that if it were sold, once their costs of purchase, renovation and improvement were repaid in accordance with the terms of the Agreement, there would be nothing left to distribute. Thus, they argued, the Agreement was pointless and an unnecessary source of friction, and it should not be permitted to remain registered on title.
[21] By judgment dated February 9, 2012, the application was dismissed (the "judgment").
[22] The application judge held that the enurement language, in para. 9 of the Agreement, is evidence of the clear intention of the parties that it was to "survive the death of the parties". As well, he found that the Agreement created an interest in the Property sufficient to bind anyone who might inherit it. Thus, he concluded, although Michael's children were not parties to the Agreement, those who inherit the Property do so subject to its terms. [page486]
[23] Further, the application judge held that Norman was bound by the Agreement because when he signed the Norman Undertaking, Barbara and Mitchell provided consideration in the form of forbearance from enforcing their rights under the Agreement. The application judge opined that the provisions of the Agreement that come into effect if Michael chooses to sell the Property would have been triggered on disposition of half of her interest in the Property to Norman. Forbearance from attempting to enforce the Agreement was valid consideration for the Norman Undertaking.
[24] Finally, the application judge refused to strike the Agreement from the Land Titles registry. He reasoned as follows. The Agreement was lawfully registered on title in 1987 pursuant to s. 22 of the Registry Act (the relevant statutory authority at the time). In 1999, when the Property was moved to the Land Titles system of registration, s. 71(1) of the Land Titles Act permitted the registration of "notices, cautions, inhibitions or other restrictions as are authorized by this Act or by the Director of Titles". As the Agreement was registered under the new regime under the authority of the director of titles, it was properly registered on title.
[25] Michael and Norman (the "appellants") appeal. Barbara and Mitchell are the respondents in the appeal (the "respondents").
The Issues
[26] The appellants submit that the application judge erred in each of his determinations. They ask this court to find that the application judge erred in concluding that the (1) Agreement is binding on Michael's heirs; (2) Norman Undertaking is a binding contract; and (3) Agreement is registrable under the Land Titles Act.
Is the Agreement Binding on Michael's Heirs?
[27] The appellants submit that the Agreement is not binding on non-parties, including Michael's heirs: Marc Davidson, Andrew Davidson and Norman. They say that the Agreement could bind such persons only if it falls within an exception to the doctrine of privity of contract or if the Agreement runs with the land such that a successor in title takes subject to its terms. They argue that the Agreement neither falls within an exception to the doctrine of privity of contract nor runs with the land and, therefore, it is not binding on non-parties. [page487]
[28] The doctrine of privity of contract stands for the proposition that a contract cannot, as a general rule, confer rights or impose obligations arising under it on any person except the parties to it. This doctrine has two very distinct components or aspects. On the one hand, it precludes parties to a contract from imposing liabilities or obligations on third parties. On the other hand, it prevents third parties from obtaining rights or benefits under a contract. See London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), [1992] 3 S.C.R. 299, [1992] S.C.J. No. 84, at para. 200.
[29] There are established exceptions to the second aspect of the doctrine. In certain situations, the courts will permit strangers to enforce the contract and take the benefit of its provisions. The established exceptions are agency, trust, assignment or assumption, exceptions established by statute and restrictive covenants. See Greenwood Shopping Plaza Ltd. v. Beattie, 1980 CanLII 202 (SCC), [1980] 2 S.C.R. 228, [1980] S.C.J. No. 59, at para. 11.
[30] The appellants correctly assert that none of these exceptions apply to the Agreement.
[31] However, it is not the second aspect of the privity doctrine that is in play in this appeal. That is, the question for the court is not whether a non-party can take the benefit of the Agreement. Rather, the question is whether the obligations under the Agreement will bind Michael's heirs and successors in title.
[32] At first blush, it might appear that the first aspect of the privity doctrine applies and Michael's heirs, as third parties, are not bound because the parties to the Agreement could not impose liabilities or obligations on third parties. Not so.
[33] Such an application of the privity doctrine would be incorrect because it ignores the effect of death on contractual rights and obligations. Death does not terminate a contract unless the contract is based on personal considerations, skill or confidence (a personal contract).
[34] As Professor G.H.L. Fridman explains in The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011), at p. 661, apart from personal contracts, contracts continue after death:
At common law, the death of either party did not interfere with the continuation of the contract or of an action for breach of contract, unless the contract was based on personal considerations, skill or confidence. Any rights of action that accrued to a party or existed against him could be brought by or against his estate. Hence, on death, contractual rights and liabilities passed, and still pass to the executors or administrators of the deceased, that is, his personal representatives, on intestacy or under the will. In consequence, save in respect of "personal" contracts, one may speak of the involuntary and general assignment of all contractual rights and liabilities which results from death as a matter of law, regardless of any wishes or acts of the deceased contracting party. [page488]
[35] The Agreement relates to the sale of the Property. Michael's presence is not essential to its performance. As the Agreement is not dependent on some special skill, knowledge or other personal quality of the parties to it, it is not a personal contract and it survives Michael's death.
[36] What does this mean in respect of devolution of the Property? Because the Agreement survives death, Michael's estate will be in the same position as Michael herself -- it will be bound by the Agreement. Therefore, it will be bound to deal with the Property in accordance with the terms of the Agreement.
[37] But, the question becomes, if Michael's estate conveys the Property to her heirs, will they be bound by the Agreement? [See Note 1 below] In my view, they would be. As I have explained, the estate would be bound to deal with the Property in accordance with the Agreement. Therefore, the estate would pass title to the Property to the heirs subject to the Agreement. Heirs do not fall into the category of a bona fide purchaser for value without notice. Not only do they have actual notice of the Agreement in this case, as heirs they are volunteers in the sense that they give no consideration for title to the Property. As such, the heirs could not stand in a better position than the estate. Therefore, like the estate, the heirs would take title to the Property subject to the Agreement.
[38] There is surprisingly little jurisprudence on the question of what happens to a right of first refusal on the death of the grantor of the right of first refusal. The two cases of which I am aware both support the reasoning advanced above. Those cases are Lawson v. Poirier Estate, 1997 CanLII 9524 (NB CA), [1997] N.B.J. No. 56, 143 D.L.R. (4th) 660 (C.A.) and Heintzman v. Poole, [2008] O.J. No. 2948, 2008 CarswellOnt 4484, 70 R.P.R. (4th) 107 (S.C.J.).
[39] The facts of Poirier Estate are these. Messrs. Lawson, Poirier and Kay were equal shareholders in Cable Services Ltd., a company that provided cable television service to metropolitan Moncton, New Brunswick. Messrs. Lawson and Poirier agreed to sell their shares to Mr. Kay. When they discovered that their shares were worth at least twice the amount that they had agreed to accept from Mr. Kay, they took steps to rescind their agreements with Mr. Kay.
[40] One of the steps that they took was to enter into an agreement in which, among other things, they agreed that they would not sell their Cable Services shares without the consent of [page489] the other and that each would have a right of first refusal over the shares of the other (the "Contract").
[41] Mr. Poirier died unexpectedly. His widow, Rose Marie Poirier, was both executrix of his estate and sole beneficiary. She sold his shares to Mr. Kay. Mr. Lawson then sued Mrs. Poirier, both as executrix of her deceased husband's estate and personally.
[42] At first instance, the trial judge found that the Contract survived Mr. Poirier's death and was binding on his estate. He further found that Mrs. Poirier breached the Contract when, among other things, she sold her deceased husband's shares to Mr. Kay without Mr. Lawson's consent. He gave judgment against Mrs. Poirier in both capacities, namely, as executrix and personally [1996 CanLII 12489 (NB KB), [1996] N.B.J. No. 254, 135 D.L.R. (4th) 345 (T.D.)].
[43] Mrs. Poirier appealed. The New Brunswick Court of Appeal dismissed her appeal.
[44] The court began by affirming that the Contract bound Mr. Poirier's estate. Despite Mr. Poirier's extensive business involvement with Cable Service Ltd., the Contract was not personal because Mr. Poirier's presence was not essential for its performance. Accordingly, the Contract survived Mr. Poirier's death and was binding on his estate.
[45] The court considered whether Mrs. Poirier was personally liable or only in her capacity as executrix of her deceased's husband's estate. It concluded that the trial judge made no error when he found her to be liable in both capacities.
[46] Thus, it can be seen, Poirier is consistent with my conclusion that both Michael's estate and her heirs will be bound by the Agreement. In Poirier, the New Brunswick Court of Appeal found that the estate was bound because the contract survived death. Accordingly, when Mr. Poirier died, his shares were transmitted to his estate subject to the terms of the Contract. Mrs. Poirier, as executrix, was bound to complete performance of the Contract at Mr. Lawson's demand. While the court did not explain why it found Mrs. Poirier to be bound as beneficiary, I would suggest that the reasoning to support its result is that offered above: Mrs. Poirier, as heir, could stand in no better position than the estate. The estate could not transmit to Mrs. Poirier, as heir, a better interest in the shares than it had and it held the shares subject to the Contract. To hold that Mrs. Poirier, as heir, could take the shares unfettered by the Contract would undermine the principle that, apart from personal contracts, contracts -- and their attendant benefits and burdens -- survive death. [page490]
[47] A similar result obtained in Heintzman, the relevant facts of which are as follows. Two people owned neighbouring islands in Georgian Bay. They agreed to provide rights of first refusal to one another. The contract permitted the parties to transfer or sell their island to their own children without triggering the other's right of first refusal provided that the children would then be bound by the right of first refusal.
[48] One of the parties transferred his property to two of his children by means of a trust arrangement. The children subsequently transferred the property to a third party. The application judge was required to decide who was entitled to the property: the holder of the right of first refusal or the third party purchaser.
[49] The application judge found in favour of the holder of the right of first refusal. She found that the transfer to the trust was a transfer to the children and that the children were bound by the right of first refusal on receipt of the property. Accordingly, the right of first refusal was triggered when the children entered into an agreement for the purchase and sale of the property. When the agreement for purchase and sale was signed, the right of first refusal was converted into an option to purchase the property on the same terms. As such, it was an enforceable right with priority over any claim that the purchasers had under the agreement for purchase and sale.
[50] In short, in Heintzman the grantor's children were held to take the land subject to the right of first refusal. They could not sell the land free from the obligations imposed by it. This result and reasoning is consistent with my conclusion that if Michael's estate transmits the Property to her heirs, they will take subject to the Agreement.
[51] Accordingly, if Michael's children take the Property in their capacity as Michael's heirs and successors in title, they will take subject to the Agreement and they will be bound to deal with the Property in accordance with its terms.
[52] Similarly, the Agreement will be binding on Norman should he take as Michael's heir and successor in title. In any event, as I explain below, Norman is bound by the Agreement by reason of the Norman Undertaking.
[53] I end with two observations. First, the conclusion I have reached is entirely consistent with the parties' express intention, as evidenced by the enurement provision, that both the benefit and the burden of the Agreement will devolve to the parties' heirs. Second, this result accords with fairness considerations. It would be manifestly unfair to permit Michael's heirs to acquire title to the Property through Michael, free from the obligations [page491] under the Agreement, when the Property would not have been conveyed to Michael originally had she not agreed to the terms of the Agreement.
Is the Norman Undertaking a Binding Contract?
[54] The appellants submit that the application judge erred in concluding that Barbara and Mitchell gave consideration for the Norman Undertaking by way of forbearance. Their argument runs as follows. Barbara and Mitchell's rights under the Agreement are triggered only by a sale or intended sale of the Property. Michael's transfer of a joint interest in the Property to Norman was not a sale because no consideration flowed from Norman to Michael in respect of the transfer. As there was no sale and no sale proceeds to share, Barbara and Mitchell had no contractual right to intervene in the addition of Norman to title to the Property. As they had no rights on which to forbear, there was no consideration. In the absence of consideration, the Norman Undertaking is not a legally binding contract.
[55] I do not accept this submission. I agree fully with the reasoning of the application judge on this issue.
[56] As the application judge noted, forbearance from enforcing an agreement or from litigating on it can be good consideration. He relied on Kocken v. Stewart, [1999] A.J. No. 497, 1999 ABQB 331, as authority for this proposition.
[57] At paras. 10-11 of Kocken, Master Breitkreuz concludes that forbearance from bringing a claim is valuable consideration, regardless of whether the claim would have been successful if tried in the courts, so long as the forbearance was done in good faith and the party forbearing reasonably believed the claim to be valid. Master Breitkreuz relied on Ronald Elwyn Lister Ltd. v. Dunlop Canada Ltd., 1982 CanLII 19 (SCC), [1982] 1 S.C.R. 726, [1982] S.C.J. No. 38, at pp. 742-43 S.C.R., for this well- settled legal proposition.
[58] The Agreement gives Barbara and Mitchell a right of first refusal over the Property. Michael's transfer of title into joint names with Norman amounts to a disposition. The disposition was made for "natural love and affection" and may not constitute a sale within the meaning of the Agreement. However, this does not mean that Barbara and Mitchell had no rights at the time that Norman signed the Norman Undertaking. They could have taken legal action to attempt to enforce the right of first refusal in the Agreement. It might be that a court would find that such a disposition falls outside the scope of the right of first refusal but that does not mean that Barbara and Mitchell did not have the right to take legal steps to attempt to enforce the Agreement. Forbearance from bringing even a doubtful claim [page492] will constitute good consideration provided that the party with the claim believes the claim to be a valid one or, if it is understood to be doubtful, believes the claim has a fair chance of success.
[59] It was open to the application judge to find, as he implicitly did, that because of the Norman Undertaking, Barbara and Mitchell forbore from taking action to enforce the right of first refusal. In so doing, Barbara and Mitchell gave consideration for the Norman Undertaking.
[60] The respondents also argue that even in the absence of the Norman Undertaking, Norman is bound by the Agreement because he had actual knowledge of it before he became a joint owner of the Property with Michael.
[61] I agree. Norman acquired title (jointly with Michael) from Michael. He was fully aware of the Agreement at the time, as is evidenced by the Norman Undertaking. He gave no consideration for acquiring joint title to the Property. He cannot stand in a better position than Michael. Accordingly, he too is bound by the Agreement.
[62] I would add that the appellants are correct in their assertion that the application judge erred when he stated that Michael conveyed a 50 per cent interest in the Property to Norman. When Norman was made a joint tenant of the Property with Michael, he received an undivided interest in the whole of the Property, not a 50 per cent interest. However, this misdescription of Norman's interest does not derogate from the application judge's primary point, which was that Barbara and Mitchell forbore from acting on their contractual rights at the time that Michael conveyed title into her and Norman's joint names.
[63] Accordingly, I would dismiss this ground of appeal.
Is the Agreement Registrable Under the Land Titles Act?
[64] The appellants submit that the Agreement is not properly registered on title because a right of first refusal does not create an interest that is capable of running with the land. They rely on s. 119(3) of the Land Titles Act, which stipulates that in order to be registered, a covenant must be one that is "running with or capable of being legally annexed to the land".
[65] This submission misses the mark, in my view. Section 119 deals with covenants and interests in property that are capable of running with the land. What is in issue in this case is not a covenant but, rather, a right of first refusal.
[66] The legal status and effect of a right of first refusal is well established: see Canadian Long Island Petroleums Ltd. v. Irving Wire Products, 1974 CanLII 190 (SCC), [1975] 2 S.C.R. 715, [1974] S.C.J. No. 122; [page493] McFarland v. Hauser, 1978 CanLII 164 (SCC), [1979] 1 S.C.R. 337, [1978] S.C.J. No. 89; McLeod v. Castlepoint Development Corp. (1997), 1997 CanLII 12080 (ON CA), 31 O.R. (3d) 737, [1997] O.J. No. 386 (C.A.), leave to appeal to the S.C.C. refused, 34 O.R. (3d) xv, [1997] S.C.C.A. No. 191; Harris v. McNeely (2000), 2000 CanLII 5649 (ON CA), 47 O.R. (3d) 161, [2000] O.J. No. 472 (C.A.); and SBS Sealants Inc. v. Robroy Industries Ltd. (2002), 2002 CanLII 41884 (ON CA), 59 O.R. (3d) 257, [2002] O.J. No. 1535 (C.A.). For convenience, when setting out the governing legal principles, I will refer to the grantor of the right of first refusal as the landowner and the grantee as the holder.
[67] A right of first refusal is a personal right. As such, it does not create an immediate interest in land. Nonetheless, when an offer of purchase is made which the landowner is prepared to accept, the holder's right of first refusal is converted into an option, to purchase, which is an equitable interest in the land. (I will refer to the point of conversion as crystallization.) Where the land is transferred in breach of the right of first refusal and the transferee takes with notice, the transferee is liable to be joined and bound by an order of specific performance requiring the owner to transfer the land to the holder.
[68] The operation of these principles found expression in McLeod. At p. 31 of McLeod, Moldaver J.A. (as he then was) explained that the right of first refusal crystallized into an option and, therefore, an equitable interest in the land, the moment before the landowner entered into the agreement of purchase and sale. The purchaser's interest arose subsequent to the holder's equitable interest with the result that the holder's interest took precedence. Thus, as this court held in McLeod, where the land is transferred in breach of a right of first refusal and the transferee takes with notice, the holder's right to the land takes precedence over that of the transferee.
[69] With that legal framework in mind, I turn to the issue at hand. Is the Agreement containing the right of first refusal registrable under the Land Titles Act?
[70] The application judge held that it had been properly registered on title to the Property pursuant to s. 71(1) of the Land Titles Act. I agree. The fact that a right of first refusal is not an immediate interest in land at the time of its creation does not mean that it cannot be protected by registration under s. 71(1).
[71] When the Agreement was made in 1987, the Registry Act applied to the Property. Section 21(1) of the Registry Act provided that any instrument within the meaning of clause 1(f) of that Act might be registered. Section 21(1) read as follows: [page494]
21(1) Except as otherwise provided in and subject to this Act and the regulations, any instrument within the meaning of clause 1(f) and any other instrument specifically permitted to be registered under Part 1 of this Act may be registered.
[72] Clause 1(f) of the Registry Act defined "instrument" to include a contract in writing. The Agreement is a contract in writing. Thus, it was properly registered pursuant to the Registry Act.
[73] The Property was moved into the Land Titles system of land registration in 1999, at which time the director of titles permitted the Agreement to remain registered on title. Was the director within the scope of s. 71(1) of the Land Titles Act in so acting? In my view, he or she was.
[74] Section 71(1) of the Land Titles Act reads as follows:
71(1) Any person entitled to or interested in any unregistered estates, rights, interests or equities in registered land may protect the same from being impaired by any act of the registered owner by entering on the register such notices, cautions, inhibitions or other restrictions as are authorized by this Act or by the Director of Titles.
[75] Recall that at the point of crystallization, the holder's personal right is converted into an equitable interest in the land. That is, the holder becomes entitled to an unregistered equity in registered land.
[76] Now note the breadth of language used in s. 71(1) when describing that which can be registered pursuant to it. Section 71(1) does not limit registration to those entitled to an unregistered equity in land. It provides that any person "entitled to" or "interested in", among other things, any unregistered equity in registered land can be protected by registration under s. 71(1).
[77] As the legislature used the words "interested in" as well as "entitled to", the words "interested in" must have some meaning other than entitlement. On their plain and ordinary meaning, a person who is "interested in" a right, interest or equity has something less than one who is "entitled to" that right, interest or equity.
[78] What did the holder have before crystallization? The holder had an interest in the unregistered equity that arose at the point of crystallization. To be sure, the holder is not entitled to the equity, as that entitlement arises on crystallization. But the holder has an interest in it, in the sense that the holder has something more than a mere spes or hope. The holder, prior to crystallization, has the recognized legal interest that will swell into an equitable right on crystallization. In the language of s. 71(1), the holder is a person ". . . interested in [an] unregistered . . . [equity] in registered land". Accordingly, rights [page495] of first refusal over land can be protected by registration under s. 71(1).
[79] This interpretation is supported by a consideration of the clear purpose of s. 71(1), which is to protect those with interests in unregistered (estates, interests or) equities in registered lands from impairment by the registered owner. Without registration, the holder's interest is vulnerable because it is liable to defeat by a sale by the registered owner to a bona fide purchaser for value without notice. With registration, that vulnerability disappears because s. 71(2) of the Land Titles Act serves to fix with notice anyone acquiring title from the registered owner.
[80] Section 71(2) provides that:
71(2) Where a notice, caution, inhibition or restriction is registered, every registered owner of the land and every person deriving title through the registered owner, excepting owners of encumbrances registered prior to the registration of such notice, caution, inhibition or restriction, shall be deemed to be affected with notice of any unregistered estate, right, interest or equity referred to therein.
[81] This interpretation is also supported by a consideration of how s. 71(1) operates. Registration pursuant to s. 71(1) is by one of two means. First, registration is permitted for restrictions authorized by the Act itself. Second, s. 71(1) gives the director of titles the power to authorize registration of restrictions on the register. This power enables the director to protect, through registration, more varied interests in the land. As I have explained, the director can register a restriction to protect an interest in an (unregistered) right, interest or equity in (registered) land. By investing the director with this power, the legislature has provided a means of fulfilling s. 71(1)'s purpose, namely, to protect such interests from impairment by the registered owner.
[82] From a broader perspective, this interpretation is also consonant with a properly functioning land titles system, which is intended to provide "certainty of title" by ensuring that notice of all interests that may impact on ownership of property are registered on title: see Canadian Pacific Railway Co. v. Turta, 1954 CanLII 58 (SCC), [1954] S.C.R. 427, [1954] S.C.J. No. 31, at p. 443 S.C.R.
[83] Before concluding on this issue, I simply note that Schedule "B" to Bulletin No. 96001, published by the Minister of Consumer and Commercial Relations on July 10, 1996, contains a non-exhaustive list of various types of notices that have been approved by the director of titles for registration under s. 71. This list includes a notice of a right of first refusal.
[84] The parties expressly consented to registration of the Agreement on title to the Property. It has been so registered for almost 25 years. It was properly registered at the outset; it [page496] remains properly registered today. Accordingly, s. 71(2) operates and the interests of the holders of the right of first refusal are protected.
Disposition
[85] Accordingly, I would dismiss the appeal with costs to the respondents fixed at $14,000, inclusive of disbursements and applicable taxes.
Appeal dismissed.
@7 Notes
Note 1: What would transpire if the estate wishes to sell the Property is explained below in the context of the third issue.