2005 BCSC 69 Morningstar Homes Ltd. v. 545918 B.C. Ltd. et al

Before: The Honourable Mr. Justice Ehrcke

Reasons for Judgment

Counsel for the Plaintiff	T. D. Braithwaite
Counsel for the Defendant 545918 B.C. Ltd.	D. R. Bennett C. J. Petersen
Date and Place of Trial/Hearing:	January 12, 2005
	Vancouver, B.C.

[1] This is an application under Rule 18A of the Rules of Court by the defendant 545918 B.C. Ltd. to dismiss the plaintiff’s claim for damages for an alleged breach of contract by the defendants in relation to certain lands owned by the defendants at 152nd Street and 68A Avenue in Surrey (the “Lands”).

Facts

[2] The plaintiff is a company specializing in single family residential development. It buys land for development, obtains the necessary approvals, and builds and markets homes.

[3] On January 9, 2002, the plaintiff entered into a contract of purchase and sale whereby it agreed to purchase the Lands from Foxgrove Projects Inc., Sukhchain Singh Gill, All Weather Development Ltd., and Sonum Enterprises Ltd. (collectively referred to as the “Original Vendor”).

[4] The contract contemplated that the Lands would be developed in three phases. The Original Vendor agreed to sell the plaintiff 12 fully-serviced lots in Phase 1 and 20 full-serviced lots in Phase 2.

[5] Under clause 2 of the contract the Original Vendor agreed to complete the registration of subdivision plans for Phase 1 and Phase 2 by certain dates and to ensure that the Phase 1 lots and Phase 2 lots were serviced. Clause 2.1.1 of the contract provided:

2.1.1 The Vendor shall complete the registration of the Subdivision Plan for the Phase 1 Lots on or before January 15, 2002, and the Subdivision Plan for the Phase 2 Lots on or before May 30, 2002, and shall complete the servicing of the Lots in accordance with the provisions hereof ...

[6] The contract contained specific provisions for the payment of deposits by certain dates for the purchase of the Phase 1 and Phase 2 lots and for the payment of the balance of the purchase price for each lot as they were taken. Clause 1.5.1 set out the timing for the plaintiff to complete the purchase of the Phase 1 and Phase 2 lots:

1.5 Takedown of Lots

1.5.1 The Purchaser shall complete the purchase of lots as follows:

(a) 4 Phase 1 Lots (the “Show Home Lots”) designated by the Purchaser on the date (the “Initial Takedown Date”) 15 days after receipt by the Purchaser of the Phase 1 Notice, upon which the Purchaser intends to construct show homes;

(b) 3 Phase 1 Lots each calendar month commencing on the date 3 months after the Initial Takedown Date and 3 Phase 1 Lots per month thereafter until all of the Phase 1 Lots are purchased; and

(i) the date 30 days after receipt by the Purchaser of the Phase 2 Notice; and

(ii) the date one calendar month after completion of the purchase of the last of the Phase 1 Lots.

The dates for completion of lot purchases are referred to as “Lot Completion Dates”.

[7] The particular lots that would be purchased by the plaintiff were shown in a plan of the proposed development which was included as Schedule B to the contract. It showed all the proposed lots in Phases 1, 2, and 3 and indicated the lots which would be purchased by the plaintiff by circled numbers.

[8] The Phase 3 lots were not dealt with the same way in the contract as the Phase 1 and Phase 2 lots. While there was a firm agreement of purchase and sale with respect to the Phase 1 and Phase 2 lots, the lots in Phase 3 were dealt with by way of an option to purchase in clause 8, which provided as follows:

8.0 OPTION TO PURCHASE

8.1 Notice

The Vendor shall deliver notice (the “Phase 3 Notice”) in writing to the Purchaser within 30 days after deposit of the Subdivision Plan for the Phase 3 Lots for registration in the Land Title Office confirming registration particulars thereof.

8.2 Option to Purchase

The Purchaser shall have sole and exclusive right for the period of 30 days from receipt of the Phase 3 Notice to elect by notice in writing to the Vendor to purchase 32 of the Phase 3 lots for an average price of $132,000 plus G.S.T. per Lot, and the parties shall thereupon enter into a binding agreement for the sale and purchase of such lots incorporating to the extent applicable the terms and conditions of the Contract. If the Purchaser does not elect to purchase Phase 3 Lots within such time limit, the Vendor shall be at liberty to offer the Phase 3 Lots for sale to third parties.

[9] The Phase 1 lots were subdivided on January 25, 2002 and were sold to the plaintiff pursuant to the contract. The plaintiff built show homes on four of the Phase 1 lots for the purpose of marketing the homes that would be constructed on the remaining Lands.

[10] On May 22, 2002 the Original Vendor assigned its interest in the contract to the defendants.

[11] The Phase 2 lots were subdivided on February 5, 2003 and the plaintiff purchased the first three of those lots pursuant to the contract. Subsequently, the plaintiff informed the defendants that it had received offers to purchase all of its Phase 2 lots and an agreement was reached between the plaintiff and the defendants whereby the plaintiff sold its interest in the remaining Phase 2 lots to the defendants for $400,000 and the defendants agreed to re-purchase the three Phase 2 lots the plaintiff had already purchased. Around the same time the plaintiff advertised and sold the four show homes it had built.

[12] No issue is raised regarding the Phase 1 and Phase 2 lots. The action concerns only the Phase 3 land.

[13] During the period from around February 2000 to October 2002, the defendants made some efforts to subdivide the Phase 3 land but those efforts were unsuccessful and that land was never subdivided. As a result, the plaintiff has not been able to exercise its option to purchase the Phase 3 lots, and it commenced the action against the defendants for damages in lieu of specific performance.

[14] On May 14, 2003 the plaintiff registered a certificate of pending litigation against the Phase 3 land. In April 2004 the mortgagee of 545918 B.C. Ltd.’s Phase 3 land caused that land to be sold in foreclosure proceedings, and as a result the plaintiff’s certificate of pending litigation was discharged. The foreclosure sale yielded more funds than were necessary to satisfy the mortgagee’s interest, and the surplus in the amount of $1,327,760.74 was paid into court in Action No. H040080.

Issues

[15] In its action, the plaintiff alleges that clause 8 of the contract constituted an enforceable option to purchase the Phase 3 lots which was frustrated by the actions of the defendants. In particular, the plaintiff alleges that the defendants did not make reasonable efforts to complete the subdivision of the Phase 3 lots with the result that the plaintiff was never able to exercise its option to purchase.

[16] The defendant 545918 B.C. Ltd. applies for an order that the case against it be dismissed on the basis that the contract created no obligation on it to subdivide the Phase 3 land and such a term should not be implied into the contract. In the alternative, it argues that even if the subdivision had taken place, the option contained in clause 8 of the contract is void for uncertainty and therefore unenforceable as it does not contain precise terms relating to the manner in which the Phase 3 lots would be sold.

Is There An Implied Duty In The Contract For The Defendants To Make Reasonable Efforts To Subdivide The Phase 3 Lands?

[17] Clause 8.1 of the contract requires the defendants to deliver notice to the plaintiff within 30 days of deposit of the subdivision plan for Phase 3 for registration in the Land Title Office. The option to purchase in clause 8.2 is triggered by that event. Clause 8.2 provides that the plaintiff has the sole and exclusive right for a period of 30 days after receipt of the notice referred to in clause 8.1, to purchase 32 of the Phase 3 lots for an average price of $132,000 per lot.

[18] Thus, the plaintiff’s right to purchase pursuant to the option is only triggered once the defendants deposit the subdivision plan in the Land Title Office. That step is a condition precedent to the exercise of the option by the plaintiff. The defendant 545918 B.C. Ltd. argues that as the condition precedent was never fulfilled, and now never can be fulfilled since the lands have been sold in foreclosure proceedings, the plaintiff’s rights under the option never came into existence. The defendant 545918 B.C. Ltd. submits that there is nothing in the contract requiring it to take steps leading to the fulfillment of that condition precedent, that is, there is nothing in the contract requiring it to take reasonable steps to register a subdivision plan for the Phase 3 lots. It argues that the contract’s silence on this point is not a mere oversight, since clause 2.1.1 of the contract, in contrast, did create a specific obligation on the vendor to complete registration of the subdivision plan for the lots in Phase 1 and Phase 2.

[19] The plaintiff, on the other hand, argues that the court should imply a term in the contract that the defendants had an obligation to make reasonable efforts to register a subdivision plan for Phase 3. In particular, the plaintiff submits that the court should imply a term to the effect that “The Vendor shall use its best efforts to obtain all necessary approvals and to deposit the subdivision plan for the Phase 3 Lots for registration in the Land Title Office within a reasonable period of time having regard to all the surrounding circumstances.”

[20] In seeking to have such a term implied in the contract, the plaintiff relies on Dynamic Transport Ltd. v. O.K. Detailing Ltd., [1978] 2 S.C.R. 1072. In that case, the Supreme Court of Canada found an implied obligation on the vendor in a purchase and sale contract to take all reasonable steps to complete the sale, including taking steps to subdivide if that was a condition for carrying out the sale. The court held at p. 1084:

In a purchase and sale situation, the "person who proposes to carry out a subdivision of land" is the intending vendor. It is he who must divide his parcel of land, which has hitherto been one unit, for the purpose of sale. If a purchaser carried out the actual work in connection with the application, he could only do so in the vendor's name and as his agent. The vendor is under a duty to act in good faith and to take all reasonable steps to complete the sale. I cannot accept the proposition that failure to fix responsibility for obtaining planning approval renders a contract unenforceable. 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. In the circumstances of this case, the only reasonable inference to be drawn is that an implied obligation rested on the vendor to apply for subdivision.

[21] The defendant 545918 B.C. Ltd., on the other hand, argues that the Dynamic Transport case is distinguishable because it dealt with a contract of purchase and sale, not with an option to purchase as in the present case. It relies on a decision of the Alberta Court of Appeal, Newsome v. Sullivan (1987), 38 D.L.R. (4th) 1 (Alta. C.A.) where the court held at p. 9:

The case at bar is distinguishable from Dynamic Transport, supra, for in that case the requirement of obtaining subdivision approval was a condition precedent to the performance of the obligations to buy and sell. Notwithstanding the judgment of this court in Dynamic Transport it has always been a rule that a court should be cautious in implying terms into a written contract in order to give it business efficacy. In G. Ford Homes Ltd. v. Draft Masonry (York) Co. Ltd. (1983), 1 D.L.R. (4th) 262 at pp. 264-5, 43 O.R. (2d) 401 at p. 403, Cory J.A. of the Ontario Court of Appeal said:

When may a term be implied in a contract? A court faced with that question must first take cognizance of some important and time-honoured cautions. For example, the courts will be cautious in their approach to implying terms to contracts. Certainly a court will not rewrite a contract for the parties. As well, no term will be implied that is inconsistent with the contract. Implied terms are as a rule based upon the presumed intention of the parties and should be founded upon reason. The circumstances and background of the contract, together with its precise terms, should all be carefully regarded before a term is implied. As a result, it is clear that every case must be determined on its own particular facts.

See also Fridman, The Law of Contract, 2nd ed. (1986), at pp. 449-54; Chitty on Contracts, 25th ed. (1983), at pp. 451-4.

In my view, the course of the transactions herein and the documents supporting them are not sufficient to support the imposition of an obligation on the Newsomes to obtain subdivision approval.

[22] In my view the defendant’s position must prevail. In Dynamic Transport the parties had an unconditional contract of purchase and sale with a specific closing date. That contract would have no business efficacy if the vendor did not apply for subdivision approval, as subdivision was a legal requirement before the land could be transferred. The court implied a term requiring the vendor to apply for the approval because such a term was necessary to give effect to the contract.

[23] The same cannot be said of the option to purchase in the present case. In the present case, a perfectly effective meaning can be given to clause 8 of the contract without implying any terms. The effect of s. 8 is that if the vendor subdivided the Phase 3 lots, then the plaintiff would, for a period of 30 days, have the exclusive right to purchase 32 of the lots at an ascertained price. There is no need to imply any term in the contract to give this conditional option business efficacy.

Conclusion

[24] Accordingly, I find that on a proper construction of the contract, and in particular clause 8, the defendant 545918 B.C. Ltd. was not under an obligation to register a subdivision plan for the Phase 3 lots and accordingly, the conditions for exercising the option never materialized. As the defendant 545918 B.C. Ltd. was not under an obligation to take the steps necessary for the option to materialize, the plaintiff’s action against the defendant 545918 B.C. Ltd. for breach of contract must be dismissed.

[25] As this finding is sufficient to conclude this application in favour of 545918 B.C. Ltd., I make no comment on its alternative argument that clause 8 of the contract is void for uncertainty.

[26] The defendant 545918 B.C. Ltd. is entitled to its costs on scale 3.

“W.F. Ehrcke, J.”
The Honourable Mr. Justice W.F. Ehrcke

Citation:	*Morningstar Homes Ltd. v. 545918 B.C. Ltd. et al,*
	2005 BCSC 69