SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 171/12
DATE: 20130829

RE: 457351 Ontario Inc. and Diana Vacca, Applicants (Respondents to Counter-Application)

AND:

GolfNorth Properties Inc., Respondent (Applicant by Counter Application)

BEFORE: Lemon, J.

COUNSEL:
Suzanne E. Deliscar, for the Applicant, Diana Vacca
Milton Davis for the Applicant, 457351 Ontario Inc.
Simon Adler for the Respondent, GolfNorth Properties Inc.

HEARD: June 24, 2013

ENDORSEMENT

Issue

[1] In this proceeding, I am asked to determine the net price to be paid by Diana Vacca, or 457351 Ontario Inc., (the Vaccas) to GolfNorth Properties Inc., (GolfNorth), to purchase the relevant lands pursuant to a vendor take-back mortgage. That requires me to interpret the following term that was included in the mortgage ( I have included the names of the parties and deleted the terms “mortgagor” and “mortgagee”):

If the Site Plan approving a golf course zoning is not obtained prior to November 15, 2011, [GolfNorth] shall notify [the Vaccas] on or prior to November 15, 2011 that the necessary approvals will not be obtained. At such time [GolfNorth] shall also notify the [the Vaccas] if [GolfNorth] wishes to pay out the Mortgage in full. If [GolfNorth] elects to pay out the Mortgage, it shall provide payment to [the Vaccas] on or prior to November 15, 2011. Upon receipt of payment, [the Vaccas] shall discharge the Mortgage within 30 days. If [GolfNorth] notifies [the Vaccas] that it does not intend to pay out the Mortgage, [the Vaccas] shall have the option (the "Option") to purchase the Property from [GolfNorth] for $1,200,000.00 free of liens and encumbrances with the exception of the Mortgage. For greater clarity and in conjunction with the Option described above, [the Vaccas] shall upon exercising the Option, purchase the Property by paying to [GolfNorth] the sum of $1,200,000.00 whereupon [GolfNorth] shall be deemed to have satisfied the Mortgage in full.[Emphasis added].

[2] For the following reasons, I find that the term is unambiguous and that the Vaccas must pay the sum of $1,200.000.00 to GolfNorth.

Background

[3] Much of the background is not disputed.

[4] Prior to November 15, 2006, Diana Vacca owned certain farmland within the boundaries of the Town of Erin in the County of Wellington, Ontario.

[5] Abutting this land is a golf course owned and operated by GolfNorth. At all times, Ms. Vacca held legal title while the beneficial title was held by her father, Vittorio Vacca.

[6] On October 5, 2006, GolfNorth and the Vaccas entered into an agreement of purchase and sale for the land. The land was purchased by GolfNorth for $1,600,000.00. In particular, GolfNorth paid $800,000.00 in cash (subject to adjustments) and the Vaccas took back a mortgage for $800,000.00.

[7] The mortgage contained the following clause, being the clause in issue in these proceedings:

If the Site Plan approving a golf course zoning is not obtained prior to November 15, 2011, the Mortgagor shall notify the Mortgagee on or prior to November 15, 2011 that the necessary approvals will not be obtained. At such time the Mortgagor shall also notify the Mortgagee if the Mortgagor wishes to pay out the Mortgage in full. If the Mortgagor elects to pay out the Mortgage, it shall provide payment to the Mortgagee on or prior to November 15, 2011. Upon receipt of payment, the Mortgagee shall discharge the Mortgage within 30 days. If the Mortgagor notifies the Mortgagee that it does not intend to pay out the Mortgage, the Mortgagee shall have the option (the "Option") to purchase the Property from the Mortgagor for $1,200,000.00 free of liens and encumbrances with the exception of the Mortgage. For greater clarity and in conjunction with the Option described above, the Mortgagee shall upon exercising the Option, purchase the Property by paying to the Mortgagor the sum of $1,200,000.00 whereupon the Mortgagor shall be deemed to have satisfied the Mortgage in full.

[8] GolfNorth did not obtain the necessary zoning and on or about September 15, 2009, it advised the Vaccas that it would not be paying the mortgage on November 15, 2011.

[9] The option to purchase the property referred to in the mortgage was assigned, ultimately, to 457351 Ontario Inc. That company has exercised the option to purchase the lands from GolfNorth. However, the parties are not agreed on the amount to be paid to GolfNorth; can the Vaccas repurchase the property from GolfNorth for $400,000 as they submit ( $1,200,000 less the $800,000 mortgage) or $1,200,000 as Golf North submits?

Positions of the Parties

GolfNorth

[10] It is the position of GolfNorth that the parties understood and intended the cost of exercising the option to be $1,200,000.00 and that there was to be no deduction for the $800,000 principal of the vendor take-back mortgage.

[11] GolfNorth submits that the evidence supports this interpretation. At the outset of negotiations, Mr. Vacca and GolfNorth specifically agreed that the property was worth about $800,000 as a farm but would be worth about $1.6 million if the lands could be rezoned to permit the expansion of its present golf course.

[12] At all times, GolfNorth maintained that it had no interest in the lands unless the lands could be rezoned to permit their use as a golf course.

[13] GolfNorth indicated to Mr. Vacca that it was only prepared to pay the price of its value as agricultural land ($800,000.00) or if it was rezoned to permit a golf course ($1,600,000.00).

[14] GolfNorth submits that the anticipated costs of re-zoning and other related holding expenses were estimated to be about $400,000.00. Therefore GolfNorth always insisted that the repurchase price would be no less than $1.2 million to represent a return of the original $800,000 and reimbursement for the expected $400,000 if the rezoning was not achieved.

[15] In short, GolfNorth submits that the parties agreed that GolfNorth would buy the land at its agricultural value ($800,000) with an agreement to pay an additional amount to bring it up to its “golf course extension” value ($1,600,000) if the rezoning could be obtained within 5 years. If the rezoning was not achieved, the Vaccas could re-acquire the lands by paying GolfNorth an amount which would return to GolfNorth all amounts expended in respect of the lands, estimated to be $1.2 million.

[16] Although the original draft of the agreement of purchase and sale was prepared by GolfNorth, there were handwritten amendments by the Vacca’s lawyer. Most importantly, the lawyer for Mr. Vacca made a handwritten amendment which would have had the relevant portion of the schedule read (the handwritten words being in italics):

If the Purchaser notifies the Vendor that it does not intend to pay out the Mortgage, the Vendor shall have the option (the "Option") to purchase the Property from the Purchaser for $1,200,000.00 free of liens and encumbrances with the exception of the Mortgage. For greater certainty the Vendor shall have the option to purchase the property by paying the Purchaser the sum of $400,000.00 whereupon the Purchaser shall be deemed to have satisfied the Mortgage in full. (Emphasis added)

[17] However, when GolfNorth’s representative, Mr. Kavanagh, saw this, he insisted that the “$400,000" be changed to “$1,200,000" by writing “1,2" over the “4". Both Mr. Kavanagh (for GolfNorth) and Mr. Vacca (for Diana Vacca) initialled the change. This caused the clause to read (handwritten portion in italics):

If the Purchaser notifies the Vendor that it does not intend to pay out the Mortgage, the Vendor shall have the option (the "Option") to purchase the Property from the Purchaser for $1,200,000.00 free of liens and encumbrances with the exception of the Mortgage. For greater certainty the Vendor shall have the option to purchase the property by paying the Purchaser the sum of $1,200,000.00 whereupon the Purchaser shall be deemed to have satisfied the Mortgage in full. (Emphasis added)

[18] The form of the schedule attached to the mortgage as registered uses the “$1,200,000" figure and not the “$400,000" figure.

[19] GolfNorth submits that it was unable to obtain the necessary rezoning despite reasonable efforts and therefore elected not to pay the mortgage. It provides evidence (albeit weak) of expenses of almost $345,000. Since the Vaccas have exercised their option to re-purchase the land, they must pay the sum of $1,200,000.00 as set out in the mortgage.

The Vaccas

[20] In response, the Vaccas submit that in breach of its good faith duty to perform its contractual obligations, GolfNorth failed to obtain the necessary planning reports. Then, in accordance with the option, it gave notice that the necessary approvals would not be obtained.

[21] The Vaccas assert that GolfNorth’s interpretation of the clause is incorrect. They submit that GolfNorth’s position makes no commercial sense. It would in effect reward the respondent for its failure to use its best efforts to obtain the rezoning that it agreed to obtain.

[22] Under the terms of the option, the Vaccas had a choice. They could either do nothing, in which case GolfNorth was entitled to a discharge of the mortgage; or alternatively, they could agree to repurchase the property for $1,200,000. Rather than lose the property, they had sold for $1.6 million, they elected to exercise the option on the basis that they were obliged to pay $400,000 being the difference between the $1,200,000 purchase price and the amount owing on the mortgage.

[23] Mr. Vacca wanted the lawyers to clearly set out that the $1,200,000 re-purchase price would be adjusted to account for the $800,000 mortgage. As a result of this, the Vaccas’ lawyer wrote the “$400,000”notation on the side of the page with respect to the $1,200,000 re-purchase option.

[24] When Mr. Vacca brought the document to Mr. Kavanagh, he disagreed with the wording as added by the Vacca’s lawyer. Because the wording of the clause was clear that “the vendor shall have the option to purchase the Property from the Purchaser for $1,200,000 free of all liens and encumbrances with the exception of the mortgage…”, Mr. Kavanagh thought that the added text should reflect a payment of $1,200,000 as the words “with the exception of the mortgage” made clear that the $800,000 VTB would still have to be accounted for.

[25] After explaining his position to Mr. Vacca, Mr. Kavanagh wrote over the “4” in the added text with a “1.2” to change the $400,000 to $1,200,000. Mr. Vacca took Mr. Kavanagh at his word and agreed to the interpretation but it was always his understanding that the option meant that if GolfNorth was not able to secure the zoning change within 5 years, the Vaccas could re-purchase the property for $1,200,000 which would include a cash payment of $400,000 and an $800,000 credit for the mortgage.

[26] It is submitted that it does not make sense that Mr. Vacca would have agreed on a moment’s notice to Mr. Kavanagh’s change with such little consideration if he thought it meant he had to pay an additional $800,000 for the property.

[27] GolfNorth failed to obtain the rezoning; however, that occurred because it failed to obtain reports required by the Town of Erin in order to get the rezoning approved. In total, only $32,000 was spent on GolfNorth’s feeble effort to obtain the rezoning. GolfNorth utterly failed to act anywhere near “diligently” in attempting to obtain the necessary zoning amendment. In other words, GolfNorth seeks to profit from the transaction.

[28] The Vaccas submit that their interpretation of the document makes commercial sense. GolfNorth had the use of the Property for 5 years, it had a 5 year interest free loan for $800,000, the chance to expand its neighbouring golf course and the option to either satisfy the VTB or sell the Property back to Vacca. It is commercially reasonable that given the above benefits, the repurchase price would be $400,000 less than the purchase price.

[29] The interpretation espoused by GolfNorth, on the other hand, would create a commercial absurdity if implemented. Under such interpretation, GolfNorth would have been able to hold and enjoy the property for five years. It would not have been required to do anything towards rezoning beyond the bare minimum of filing an initial application. It would not have had to make any payments or incur any interest on its $800,000 mortgage. Then, after five years, it could elect to either sell the property back to the Vaccas at a profit of $400,000 failing which; it would keep the Property without any further payments, free and clear of the mortgage. The only options for the Vaccas would be to accept $800,000 as the sale price or buy the property back at an effective price of $2,000,000 ($1.2 million plus the discharge of the $800,000 mortgage). This is not the deal the parties intended and would be a commercial absurdity.

Analysis

Interpreting the Contract

[30] In 3869130 Canada Inc. v. I.C.B. Distribution Inc., 2008 ONCA 396, 66 C.C.E.L. (3d) 89 at paras. 31- 32, Blair J.A. said:

Broadly stated . . . a commercial contract is to be interpreted,

(a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective; (b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the "cardinal presumption" that they have intended what they have said; (c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract), (d) in a fashion that accords with sound commercial principles and good business sense, and that avoids a commercial absurdity.

In addition, where the language of a written contract is unambiguous, extrinsic evidence is not admissible to alter, vary, interpret, or contradict the words used in the contract. Regardless of any ambiguity, however, as noted above, the courts may always have regard to the context and to the objective evidence of the surrounding circumstances underlying the negotiations. As Doherty J.A. noted in Dumbrell at paras. 52-56:

[52] No doubt, the dictionary and grammatical meaning of the words (sometimes called the "plain meaning") used by the parties will be important and often decisive in determining the meaning of the document. However, the former cannot be equated with the latter. The meaning of a document is derived not just from the words used, but from the context or the circumstances in which the words were used.

[53] The text of the written agreement must be read as a whole and in the context of the circumstances as they existed when the agreement was created. The circumstances include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement.

[54] A consideration of the context in which the written agreement was made is an integral part of the interpretative process and is not something that is resorted to only where the words viewed in isolation suggest some ambiguity. To find ambiguity, one must come to certain conclusions as to the meaning of the words used. A conclusion as to the meaning of words used in a written contract can only be properly reached if the contract is considered in the context in which it was made.

[55] There is some controversy as to how expansively context should be examined for the purposes of contractual interpretation. Insofar as written agreements are concerned, the context, or as it is sometimes called the "factual matrix", clearly extends to the genesis of the agreement, its purpose, and the commercial context in which the agreement was made.

[56] I would adopt the description of the interpretative process provided by Lord Justice Steyn, "The Intracticable Problem of the Interpretation of Legal Texts",:

In sharp contrast with civil legal systems the common law adopts a largely objective theory to the interpretation of contracts. The purpose of the interpretation of a contract is not to discover how the parties understood the language of the text, which they adopted. The aim is to determine the meaning of the contract against its objective contextual scene. By and large the objective approach to the question of construction serves the needs of commerce.

[Emphasis in original. Citations omitted.]

[31] In Toronto Dominion Bank v. Leigh Instruments Ltd (Trustee of) (1998), 1998 14806 (ON SC), 40 B.L.R. (2d) 1 (Ont. Gen. Div.) at para. 403, aff’d (1999), 1999 3778 (ON CA), 45 O.R. (3d) 417 (C.A.), Winkler J said:

The aim of the court, in construing a written agreement, is to determine the intentions of the parties to the agreement, and in this regard, the cardinal presumption is that the parties have intended what they have said. Their words must be construed as they stand.

[32] I accept those principles of law.

[33] In my view, there is no ambiguity in the term in dispute. For ease of reference, I repeat it here:

If [GolfNorth] notifies [the Vaccas] that it does not intend to pay out the Mortgage, [the Vaccas] shall have the option (the "Option") to purchase the Property from [GolfNorth] for $1,200,000.00 free of liens and encumbrances with the exception of the Mortgage. For greater clarity and in conjunction with the Option described above, [the Vaccas] shall upon exercising the Option, purchase the Property by paying to [GolfNorth] the sum of $1,200,000.00 whereupon [GolfNorth] shall be deemed to have satisfied the Mortgage in full.

[34] Without the phrase commencing “for greater certainty”, there may have been some ambiguity as to whether the mortgage payable by GolfNorth would still be required to be paid on the transfer. It could be read that the mortgage was still outstanding. It could also be read that it would be up to the Vaccas to remove their own mortgage from their own title which they could, of course, do without difficulty. That ambiguity was removed with the second sentence. That sentence makes it clear that in order to obtain the property, the purchaser must pay the sum of $1,200,000 and the mortgage is satisfied. It gives that clarity to the first sentence – the Vaccas must discharge their mortgage. I must construe the document as it stands.

[35] In submissions, the parties agreed that if I found that there was no ambiguity in the term, I need not deal with the other issues in their arguments; those would only come into play if I found an ambiguity. However, presuming that this matter will go further, I will venture briefly into those topics.

Ambiguity

[36] Where there is ambiguity, the surrounding circumstances and factual matrix of the agreement can be and should be examined.

[37] If I were to find the clause ambiguous, the contextual analysis is not helpful to me. Both parties’ review of the context and their interpretation based upon it makes equal sense or lack of sense. Neither side wished a trial of an issue; they asked that I make my determination on the affidavits and transcripts of the cross examinations. They submitted that I did not need to make any findings of credibility. If I were to consider the context, the evidence of Mr. Vacca would be significant. In his cross-examination, he said:

Q. Okay. I want to make it very clear, at the time you first showed this to Mr. Kavanagh, all of the handwritten words were on this page, and the number that now looks like 1.2 million was actually 400,000?

A. About 400,000, yes.

Q. Okay.

A. See, my lawyer he saw - - my lawyer, he put 400,000.

Q. Okay. He wrote that 400,000?

A. 400,000.

Q. I don’t need or I may not have your conversation with your lawyer, okay, but he wrote those words out?

A. Right.

Q. That’s what I need to know.

A. Yeah.

Q. Then when you came to meet with Mr. Kavanagh, he said, “We have to change that to 1.2 million instead of 400,000?

A. Yes.

Q. And then he made that change?

A. He made that change, yeah.

Q. Then you and he both initialled that change?

A. Yeah. And while he initial and then I says, “My daughter, she’s not here.” “Yes. Well, you know, if you want the deal, you initial for her.”

Q. Okay. So he was saying basically that it had to be the 12 or the 1.2 million or he’s not going to do the deal?

A. That’s the way, you know, was done.

Q. Yes. Okay.

A. Yeah.

Q. If I understood your earliest answer - -

A. Mm-hmm.

Q. - - you were saying to me that you said, “My daughter is not here to sign”?

A. Right.

Q. And Mr. Kavanagh said something to you like, “Well, if you want the deal, you have to sign,” is that - - something like that?

A. More or less, yes.

Q. Okay. And therefore you signed?

A. And then I initial.

Q. Yes, initialled. Thank you.

A. Yes.

[38] There is no ambiguity in this evidence. Mr. Vacca knew what he was signing and does not express any uncertainty in what occurred. There was no evidence from the Vacca’s lawyer. There were no arguments based on mistake, fraudulent misrepresentations or non est factum. Like the document in issue, Mr. Vacca should be held to what he said.

Contra Proferentem

[39] Where the rules of construction cannot resolve an ambiguity, the document should be construed contra proferentem, against the party that drafted the agreement.

[40] On the evidence, I find that the document was prepared such that both parties had a meaningful opportunity to participate in the drafting of the document as a joint effort. GolfNorth prepared the agreement and presented it to the Vaccas for signature. The document was not clear so the Vaccas’ counsel added some handwritten comments in an attempt to clarify the ambiguity. Mr. Kavanagh, on behalf of GolfNorth, then wrote further changes accepted by Mr. Vacca. The document then went back to the Vaccas’ lawyer to make a clean copy as registered. Both parties drafted this agreement. On that basis, I would not be prepared to apply contra proferentem as a tool to interpret the contract.

Duty of Good Faith

[41] In Dynamic Transport v. OK Detailing, 1978 215 (SCC), [1978] 2 S.C.R. 1072 at 1083-1084, a case where the defendant was contractually obliged to use best efforts to obtain planning approval, the Supreme Court affirmed that parties to such a contract are obliged to act in good faith in the performance of that contract:

The court will also imply that each party is under an obligation to do all that is necessary on his part to secure performance of the contract.

The common intention to transfer a parcel of land in the knowledge that a subdivision is required in order to effect such transfer must be taken to include agreement that the vendor will make a proper application for subdivision and use his best efforts to obtain such subdivision. This is the only way in which business efficacy can be given to their agreement.

[42] Again, given my determination above, I need not resolve this issue. However, on the basis of affidavits and cross-examinations, I am not able to determine whether GolfNorth failed to exercise its best efforts to obtain the necessary approvals. It is unclear on this record whether, in the face of the Greenbelt legislation, such efforts would have been useless. This would require a finding of credibility of the parties and expert evidence. Although reports and documents were filed, that is not enough to determine this issue. Similarly, I cannot find what GolfNorth spent on the project.

Result

[43] Accordingly, the application by 457351 Ontario Inc. and Diana Vacca is dismissed. The cross application by GolfNorth is granted by declaring that the applicants are only entitled to exercise the option upon payment of $1,200,000.00 subject to normal real estate adjustments without any deduction related to or premised upon any mortgage from GolfNorth to Diana Vacca.

[44] If the parties cannot agree upon costs, written submissions may be made. GolfNorth shall make its submissions within 30 days and the applicants shall respond within 15 days thereafter. All submissions shall be no more than three pages not including any Offers to Settle or Bills of Costs.

Justice G.D. Lemon

Date: August 29, 2013