Supreme Court of Canada

Engineered Homes Ltd. v. Mason et al., [1983] 1 S.C.R. 641

Date: 1983-05-17

Engineered Homes Ltd. Appellant;

and

John Mason, in his capacity as Trustee of the Estate of Juniper Lands Limited a Bankrupt, and the said John Mason, and Donald J. Henfrey, David M. Korbin and E. Michael McMahon Respondents.

File No.: 16843.

1982: November 30; 1983: May 17.

Present: Ritchie, Dickson, Mclntyre, Chouinard and Lamer JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA

Contract—Estoppel—Elements of estoppel—Written agreement providing for appellant’s purchase of lots—Purchase, effected earlier than scheduled to help respondents to continue work with subdivision—Down payment kept by respondent trustee and not forwarded to owner—Whether or not appellant estopped from claiming respondent trustee not entitled to keep funds.

The appellant, a building contractor, entered into an agreement with the respondent Mason and various other contractors to complete the construction of a housing scheme. A term of the agreement provided for the purchase by the various contractors of various lots in the development upon the completion of a phase of the construction. The agreement also made the respondent a trustee for the contractors and IAC—the mortgagee—and provided for the completion of the scheme under the management of the respondent. When respondent’s firm announced it could no longer maintain certain operations under the agreement, the appellant decided, in order to assist in the operation of the development plan, to purchase the lands sooner than required by the agreement. It forwarded the down payment to Mason in his capacity as trustee. The money was not forwarded to IAC but paid into Mason’s accounting firm and credited against the firm’s fees and disbursements relating to the development. Appellant requested of Mason that the lands be conveyed. No conveyance was provided but IAC offered a year later to convey by which time the value had fallen dramatically. The mortgagee foreclosed on the mortgages under which financing had been arranged and the property was sold. Appellant started proceedings against Mason and his associates in the practice of accountancy, claiming the return of the down payment unlawfully converted, and alternatively, for

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breach of contract. It obtained judgment at trial which was reversed on appeal.

Held: The appeal should be allowed.

The defence of estoppel must fail. Respondent was unable to show that appellant, by words or conduct, made an unambiguous promise to Mason that, if he would continue with the supervision of the development scheme, appellant would pay $52,500 as the down payment on the purchase of fourteen lots and free Mason from paying the money over to IAC as required by the master contract. The only direct evidence of such an understanding on appellant’s part was Mason’s own assertion which was not supported by other evidence. Mason did not meet his obligation as trustee, to appellant and to IAC, to apply the monies to their designated purpose.

Conwest Exploration Company Limited v. Letain, 1963 35 (SCC), [1964] S.C.R. 20; John Burrows Ltd. v. Subsurface Surveys Ltd., 1968 81 (SCC), [1968] S.C.R. 607; Combe v. Combe, [1951] 1 All E.R. 767, referred to.

APPEAL from a judgment of the British Columbia Court of Appeal (1981), 1981 548 (BC CA), 31 B.C.L.R. 88, allowing an appeal from a judgment of Gould J. Appeal allowed.

J. Edgar Sexton, Q.C., and Brian S. Morgan, for the appellant.

John Laxton and Eric Rice, for the respondent.

The judgment of the Court was delivered by

MCINTYRE J.—This is an appeal from a judgment of the British Columbia Court of Appeal (Hutcheon and Lambert JJ.A., Seaton J.A. dissenting) which allowed an appeal from a judgment at trial in which the respondents (defendants) had been ordered to pay the appellant (plaintiff) the sum of $52,500 with pre-judgment interest, as monies of the appellant unlawfully converted.

In my view, the case turns on the facts and findings thereon in the Trial Court and the Court of Appeal, and they must therefore be recited in

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some detail. Prior to 1976 a company known as Juniper Lands Limited (“Juniper Lands”) had commenced a major land development scheme in the vicinity of Kamloops, British Columbia. The appellant, Engineered Homes Ltd., was one of three building contractors engaged in the construction of houses on lots in the development. The whole scheme was to be carried out in three phases. The project was to be financed by Capital Funds (IAC) Ltd., hereinafter referred to as “IAC”, which had as security mortgages of the real property involved. In 1975 Juniper Lands went into bankruptcy. As a result, IAC foreclosed under its mortgages and thereby took not only the interest of Juniper Lands but also any interest therein of the three building contractors including the appellant. The three builders commenced proceedings against Juniper Lands and IAC.

In April of 1976 an agreement was reached between Engineered Homes, the other two building contractors, IAC, and the respondent Mason who was the trustee-in-bankruptcy of Juniper Lands. This agreement, called the “master agreement”, resolved the litigation and permitted the development to go ahead under the supervision of Mason as trustee in a trust capacity separate from that of trustee-in-bankruptcy. A loan to the trustee from the Royal Bank of Canada in the sum of $1,500,000 provided the necessary financing. The master agreement was a long and complicated document. The idea was that the original scheme would be carried out and that, by the construction and sale of a houses on the various lots, the debts which had accumulated could be retired, the interests of the builders protected, and there would be something left over for the bankrupt estate. By its terms, each of the three contractors agreed to purchase fourteen lots from the subdivided lands subject to substantial completion of the first two phases of the project for the price of $15,000 per lot. The purchase price was to be paid as to twenty-five per cent or $3,750 in cash to the trustee in trust under the agreement for IAC, and as to the remainder by the granting of a mortgage to the trustee of $11,250. On receipt by IAC of the payment of $3,750, IAC was to convey the land to

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the purchaser subject to a mortgage back to the trustee to secure the unpaid balance.

In June of 1977, at a meeting with representatives of the three builders, Mason made it known that considerable sums of money for fees and disbursements were owed to his firm, an accounting partnership with the other individual respondents, and that his firm could no longer continue to maintain the sales office and a full-time employee in the subdivision for the general promotion. A representative of the appellant asked Mason if it would be of any assistance if the appellant purchased fourteen lots earlier than it was bound to do under the master agreement. Mason responded that it would be helpful. As a result, shortly after on June 29, 1977 the appellant forwarded a cheque to Mason payable to him in his capacity as trustee for $52,500, being twenty-five per cent of the purchase price of fourteen lots. The payment was accompanied by a letter which is in these terms:

RE: JUNIPER LANDS—ENGINEERED HOMES LTD.

We are enclosing our trust cheque in the amount of $52,500.00 being the 25% payment from Engineered Homes Ltd. with respect to the purchase of their 14 lots in Phase 1A. These funds are forwarded pursuant to the general agreement between Engineered Homes et al and yourself as fee.

We look forward to receipt of the documentation in due course.

The word “fee” appearing at the end of the first paragraph was, it was agreed by all parties, a typographical error for the word “trustee”. Mason did not deposit the cheque in the Juniper Lands’ bankruptcy trust account which he maintained or in an account covering the land project. The cheque was endorsed by Mason and paid into the general account of his accounting firm and credited against fees and disbursements of the firm covering services in connection with the land development project. The money was never forwarded to IAC as provided in the master agreement.

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In August of 1977, some two months later, the appellant wrote to Mason in these terms:

Re: Juniper Lands

Having paid our 25% of the purchased price of our 14 lots in Phase 1A of the Juniper Lands, would you please arrange to convey title to ourselves according to the terms of the master agreement Paragraph 11, Clause e page 17.

Clause e of paragraph 11, referred to in the letter, provides:

(e) Subject to the foregoing, title to each lot in Phase One A shall be conveyed to the Builders or their assigns subject to a mortgage to the Trustee in replacement of each such right to purchase to secure the balance of ELEVEN THOUSAND TWO HUNDRED FIFTY DOLLARS ($11,250.00) due and payable two (2) years from the date the funds are paid in paragraph (d) above and interest shall accrue and be payable quarterly at the rate of twelve per cent (12%) per annum for the first year, eighteen per cent (18%) per annum for the first six (6) months after the first year, and twenty-four (24%) per cent during the six (6) months after the first eighteen (18) months have elapsed from the aforesaid date. Upon any Builder paying the balance due under any mortgage at any time without notice or bonus, such Builder shall be entitled to a discount of six and one‑quarter (6.25%) per cent of the principal amount of ELEVEN THOUSAND TWO HUNDRED FIFTY ($11,250.00) DOLLARS at the time each such mortgage is repaid but such discount shall be available only upon such mortgages as are repaid prior to the expiry of the first year.

This request in the letter of August, 1977 was passed on to IAC but IAC made no offer to convey the lots until August of 1978. By then the market value of the individual lots had dropped to $8,000, less than seventy-five per cent of the original purchase price of $15,000. The appellant at that time declined to accept a conveyance. In January of 1979 the Royal Bank and IAC foreclosed on the mortgages, the property was sold by court order, and title can no longer be given to the appellant.

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The appellant commenced proceedings against Mason, as Trustee of the bankrupt estate of Juniper Lands, and against Mason and his associates in the practice of accountancy, the individual respondents, claiming the return of $52,500 as money unlawfully converted and, alternately, for damages for breach of contract. At trial before Gould J. judgment was given for the appellant on the claim for conversion and the personal respondents were held jointly and severally liable for the sum of $52,500 and costs. In the Court of Appeal the majority gave effect to the defence of estoppel raised by the respondents. It was held that the appellant had advanced the $52,500 in order to procure the continuation of the services of Mason, that Mason had continued to render services incurring further disbursements and fees amounting to some $29,000, and that the appellant was accordingly estopped from enforcing its strict legal rights under the agreement. The appeal was accordingly allowed. Seaton J.A., dissenting, would have dismissed the appeal. He did not disagree with the propositions of law stated by the majority, but he was of the view that the evidence in the case did not warrant an estoppel, that the trial judge had made findings based on evidence which should not be disturbed, and that on such findings no estoppel could be erected.

In this Court the appellant argued that the Court of Appeal was in error in finding that an estoppel could be raised on the evidence at trial, arguing that it failed to meet the evidentiary requirements for proof of estoppel. The requirements of a successful defence based on promissory estoppel are conveniently set out in Halsbury’s Laws of England (4th ed.), vol. 16, para. 1514, in these words:

1514. Promissory estoppel. When one party has, by his words or conduct, made to the other a clear and unequivocal promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it, the one who gave the promise or assurance cannot afterwards be allowed to

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revert to their previous legal relations as if no such promise or assurance had been made by him, but he must accept their legal relations subject to the qualification which he himself has so introduced. This doctrine, which is derived from a principle of equity enunciated in 1877, has been the subject of considerable recent development and is still expanding. It differs from estoppel in pais in that the representation relied upon need not be one of present fact.

Cases dealing with the question in this Court include Conwest Exploration Company Limited v. Letain, 1963 35 (SCC), [1964] S.C.R. 20, and John Burrows Ltd. v. Subsurface Surveys Ltd., 1968 81 (SCC), [1968] S.C.R. 607, in which Ritchie J., at p. 615, speaking for the Court, cited the judgment of Lord Denning in Combe v. Combe, [1951] 1 All E.R. 767:

In the case of Combe v. Combe, Lord Denning recognized the fact that some people had treated his decision in the High Trees case as having extended the principle stated by Lord Cairns and he was careful to restate the matter in the following terms:

The principle, as I understand it, is that where one party has, by his words or conduct, made to the other a promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it, the one who gave the promise or assurance cannot afterwards be allowed to revert to the previous legal relations as if no such promise or assurance had been made by him, but he must accept their legal relations subject to the qualification which he himself has so introduced, even though it is not supported in point of law by any consideration, but only by his word.

It seems clear to me that this type of equitable defence cannot be invoked unless there is some evidence that one of the parties entered into a course of negotiation which had the effect of leading the other to suppose that the strict rights under the contract would not be enforced, and I think that this implies that there must be evidence from which it can be inferred that the first party intended that the legal relations created by the contract would be altered as a result of the negotiations.

To succeed in this case, then, the respondents must show that the appellant, by words or conduct, made an unambiguous promise to Mason that, if

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he would continue with the supervision of the scheme of development, the appellant would pay in $52,500 as the down-payment on the purchase of fourteen lots and free Mason from the duty imposed upon him under the master agreement to pay over the money to IAC. The trial judge did not, on the evidence, find any such promise and allowed the plaintiff’s claim. In this he was supported by the dissenting judge in the Court of Appeal. The majority of the Court of Appeal were of the view that such a promise could be found on the evidence and reversed the judgment in the trial court.

It is therefore necessary to consider the evidence of a promise on which the courts below disagreed. At the meeting in June of 1977 Mason was representing IAC and himself as trustee. One named McGee was representing the appellant and the other building contractors were also represented. The only evidence dealing with any representation or promise was given by Mason. In his evidence in chief the following appears:

Q. Now, you had some discussions with Mr. McGee in the course of the meeting, could you tell his lordship about those, please?

A. Because of the arrangements that had been made with Hewlitt Homes to purchase considerable lots in phase 1 from the builders, the other builders, it was very apparent that their requirements to take down the lots in 1A was imminent. Our position was that our firm was financing both the information centre and the staff—

THE COURT: Who was?

THE WITNESS: Sorry, my lord?

THE COURT: Who was financing the information centre and staff?

THE WITNESS: Henfrey, Mason & Company, my lord, my partnership.

MR. MACDONALD:

Q. Are you telling me that the bills to pay those salaries and expenses were being taken out of your firm’s general account, is that what you mean by that?

A. Yes.

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Q. All right. So that promoted a discussion with Mr. McGee, did it?

A. The discussion was with everyone at the—during that meeting.

Q. I see.

A. And it was discussed that unfortunately we could no longer continue to maintain the sales office and a full time employee in the subdivision for the general promotion.

Q. You say it was discussed. Did you say that or who said that?

A. I said that.

Q. All right. Was there any response to that statement?

A. Yes, Mr. McGee asked if it would be of assistance if Engineered Homes committed ahead of time to take down their 14 lots in phase 1A.

Q. And did you respond to that?

A. Yes, I stated that those funds, due to an arrangement that I understood with I.A.C., would be available then to continue to maintain the information centre, to administer the subdivision, and that we would be prepared on that basis to continue.

Q. Was there any further discussion at that meeting on that subject that you can recall?

A. There were a lot of matters, at that time New West Homes—

Q. No, Mr. Mason, I’m concerned—

THE COURT: I’m just not clear yet. McGee asked if it would help if Engineered Homes committed itself in advance of the date that it had to, to take down the 14 lots to which it was entitled. What was your answer to that? At the meeting.

THE WITNESS: That it would, my lord.

In his evidence McGee was asked why the appellant was willing to purchase the fourteen lots in advance of the required time, and in cross-examination, certain questions and answers from his examination for discovery were put to him:

Q. That’s really an introductory to the next part. Question 34.

“Q. But you concede that you weren’t obliged to do it?

A. No.

Q. On June 29th?

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A. We weren’t at the deadline yet.”

Do you remember being asked those questions and giving those answers?

A. Yes, I do.

Q. What do you mean by that, as I understand it, the terms of the master agreement which, that we have marked Exhibit 1 here, under its terms you weren’t yet obligated to buy those lots on June 29th, is that right?

A. That’s correct.

Q. Okay. Question 36.

“Q. Right, and so my question is then why did you do it in advance?

A. Well, I thought it would help the area generally.

Q. Sure and you knew that the Trustee was in pretty desperate straits?

A. I knew he was looking for funds, yes.”

Were you asked that question and gave that answer?

A. Yes.

Q. And those are true, are they?

A. That’s correct.

THE COURT: What did you mean by “funds”? “I knew he was looking for funds.” Yes, funds for his own fees for funds for the carrying on the subdivision or trying to save it?

THE WITNESS: Carrying on the subdivision.

There was evidence from one Cervenko, the manager of IAC at the time of trial, supported by evidence of the solicitor for IAC, that IAC would not have conveyed the fourteen lots to the appellant before June of 1978 without receiving the $52,500. This evidence does not accord with the evidence of Mason that all parties, including IAC, understood that the $52,500 was to be applied to his fees. Mason said that such an agreement had been made with a Mr. Ross, the manager of IAC when these events occurred. From Mason’s cross-examination the following appears:

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Q. Now, I’d ask you to turn to page 17. Referring you to sub-paragraph (d) in the middle of page 17. Do you have that?

A. Yes.

THE COURT: Sorry, page 17?

MR. WATTS: Sub-paragraph (d), my lord, on page 17. And this is where it contemplates a payment of the second 20% or of the 20% so then you would have 25% of the purchase price of each of these lots in phase 1A, you agree with that?

A. Yes.

Q. And then it provides in the last three lines the total of the 25% of the purchase price of each lot shall be paid by the Trustee to I.A.C. as hereinafter provided. You recognize that?

A. I do.

Q. Now, I take it that it’s common ground that 25% was, in fact, not paid to I.A.C.?

A. Correct.

Q. Now, why wasn’t it?

A. As stated earlier, there was the subdivision in around April, I guess, March or April of ’77, the general economic climate in Kamloops was such that not a great deal of construction was going on and it was necessary to generate funds and generate interest in the subdivision. For that reason I.A.C. took 10 lots which were clear title lots and gave those lots to Hewlitt Homes in order to assist in the stimulation of the subdivision. And in doing that that would precipitate the taking down the lots by the three builders and precipitate, of course, the cash flow. And in order to expedite that and in order to enable that, it was my understanding with I.A.C. that I would be entitled to retain those monies.

Q. You say those monies, are you referring to the 52,500?

A. Yes.

Q. Now, with whom did you have that understanding?

THE COURT: He said with I.A.C.

MR. WATTS:

Q. Well, with whom at I.A.C. did you negotiate that arrangement?

A. It was my understanding it was with Mr. Ross.

THE COURT: Who?

THE WITNESS: Mr. Ross, my lord.

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Mr. Ross was not called to give evidence and no explanation for this was offered, other than the fact he was said to be unavailable.

The above extracts of evidence, together with evidence of all other surrounding circumstances, were of course considered by the trial judge. The evidence before him on behalf of the appellant was that the appellant put up the $52,500 in advance of the required time to assist in a general advancement of the subdivision. This move had been prompted by the statement of Mason at the June, 1977 meeting that “we could no longer continue to maintain the sales office and a full time employee in the subdivision for the general promotion” and his acknowledgment that the taking down of the lots would help. The only direct evidence of an agreement or understanding that Mason could appropriate the money for his fees is his own assertion that all parties understood that such was to be the arrangement and that he had an agreement with Mr. Ross of IAC that he could so apply the money. Mr. Ross, as has been indicated, was not called. The evidence of Cervenko, his replacement, and McAllister, solicitor for IAC, does not support the evidence of Mason. Neither does the written evidence in the form of letters written by the appellant’s solicitors support Mason. They are entirely consistent with the position asserted by the appellant.

On this state of the evidence, the trial judge declined to find that any promise giving rise to an estoppel had been shown. His assessment of the factual situation was, in my view, supported in the evidence and should not be disturbed. In this respect, I agree with Seaton J.A. in the Court of Appeal and would hold that the defence of estoppel should fail.

The respondents advanced before this Court an argument which had not been raised in the other courts. While not abandoning the position that the appellant was estopped from relying on its strict legal rights, it was argued that it was not necessary to prove an estoppel for the respondents to succeed. Mason’s appropriation of funds did not cause any injury or loss to the appellant nor did it

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infringe any legal right of the appellant. The money once paid became the property of IAC. Any question of conversion or breach of trust which could arise would be a matter between IAC and Mason with which the appellant had no concern. The appellant’s rights in the matter were limited to receiving a conveyance of the lands, subject to the mortgage back to the trustee, and did not encompass any claim against Mason.

I cannot accept that argument. Mason was the trustee under the master agreement for the appellant and for IAC. On receiving the monies, directed as they were to the purchase of the lots, he was obliged to apply them toward the designated purpose. This he failed to do and from the evidence it does not appear that he even referred the matter to IAC until after prompting by the appellant. Mason, as trustee for the appellant, had a duty to the appellant to pass on to IAC the $52,500. This he did not do. Instead, in breach of the trust he applied the monies of the appellant to the use of the respondents. I reject the new argument and for the reasons stated would allow the appeal with costs throughout.

Appeal allowed with costs.

Solicitors for the appellant: Osler, Hoskin & Harcourt, Toronto.

Solicitors for the respondents: Laxton & Company, Vancouver.