Zeer v Caleron Properties Ltd, 2017 ABQB 11

Court of Queen’s Bench of Alberta Citation: Zeer v Caleron Properties Ltd, 2017 ABQB 11 Date: 20170110 Docket: 1401 08221 Registry: Calgary Between: Robert Zeer and Jill Wanklyn Plaintiffs - and - Caleron Properties Ltd. and 1199032 Alberta Ltd. Defendants - and - 1199032 Alberta Ltd. Third Party _______________________________________________________ Memorandum of Decision of A. R. Robertson , Q.C., Master in Chambers _______________________________________________________ Overview

[ 1 ] Robert Zeer and Jill Wanklyn sue Caleron Properties Ltd. and1199032 Alberta Ltd. in connection with a Land Purchase Agreement. Both sides ask for

summary judgment. Both plaintiffs and Caleron argue that

summary judgment is appropriate. 1199032 Alberta Ltd. (“1199”) is not contesting the application. [ 2 ] The agreement was originally entered into between the plaintiffs as vendors and Caleron as purchaser, but effective immediately after signing Caleron assigned its interest in the contract to 1199. Caleron says it assigned both the benefit of the agreement and its obligations under it pursuant to a provision in the agreement. The plaintiffs argue that Caleron could not do that without their consent, and they did not give it.

That is the basis of this dispute. [ 3 ] The plaintiffs claim $100,000 from Caleron because of a purchase price adjustment that was embedded in the agreement, but Caleron argues that their claim is only against 1199. That corporation has also been sued, and Caleron has made a third party claim over for indemnity. [ 4 ] This is very largely a “documents case”, and it revolves very substantially about the meaning of the original Land Purchase Agreement dated February 15, 2006. I agree with counsel for both sides that there is no need for trial.

There is very little value, if any, that would be gained from a trial. [ 5 ] I have considered the provision addressing assignment contained in the Land Purchase Agreement and the surrounding circumstances, which shed some light on the parties’ intention at the time. I have concluded that Caleron is no longer part of the agreement, and the claim against Caleron must be dismissed. The Purchase Agreement, Transfers, and VTB Mortgage The Purchase Agreement [ 6 ] Mr. Zeer and Ms.

Wanklyn agreed to sell certain undeveloped lands to Caleron for $4,400,000, but the agreement provided for an upward adjustment depending on how many lots could be developed on the lands. At the time of the sale, planning approvals had not yet been obtained. The agreement provided that if approval could be obtained for development of more than 50 lots, then the price would be adjusted upwards by $50,000 for each lot. The plaintiffs were paid for 52 lots.

Planning approval was eventually allowed for 54 lots, for an additional amount payable of $100,000. [ 7 ] It was not known until 2014, about six years after a second transfer that closed the sale, that 54 lots would be available for development, and that the purchase price was therefore increased. This last $100,000 has not been paid. That is what the claim is for. But who owes it?

Caleron, 1199, or both? [ 8 ] Within the Land Purchase Agreement the word “Purchaser” was defined: “Purchaser” means Caleron Properties Ltd. or its Assignee. [ 9 ] The agreement specifically allowed the Purchaser to assign it to another party.

Section 11.05 provided for this: The Purchaser shall be entitled to assign its interest herein without the prior written consent or any consent of Vendor, and such assignment shall be binding upon the Vendor. [ 10 ] The word “interest” was not defined in the agreement. The plaintiffs argue that it means the beneficial rights under the agreement, not the obligations as well. [ 11 ]

Section 11.06 was headed “Binding Effect” and said this: This Agreement and all covenants and conditions herein contained shall enure to the benefit of and be binding upon the parties hereto and their respective successors, permitted transferees and permitted assigns and is to be read with all changes of gender or number is required by the context. [ 12 ] The agreement had attached to it a form of mortgage because there was intended to be a vendor take back (“VTB”) mortgage of $2,600,000. The form of mortgage defined “mortgagor” as meaning Caleron Properties Ltd. For some reason it was actually signed on behalf of Mr. Zeer, Ms. Wanklyn, and Caleron even though it was only a

schedule to the agreement. The Transfers of Land [ 13 ] Although the original purchase agreement was dated in February 2006, the transaction did not close until quite a bit later. There were two parcels of land involved. One was a single lot (Lot 1) and the second parcel was five lots (Lots 2 to 6). The parcels were transferred separately. [ 14 ] The first transfer of land was dated September 29, 2006 and it transferred lots 2 to 6 for the stated consideration of $4,400,000. The Transferee was 1199, but it appears to have been added after execution with a typewriter.

The transfer was initially prepared to transfer both parcels at once, but it was modified by the purchaser’s solicitor on instruction from the vendor’s solicitor to delete Lot 1 and to change the purchase price. It was registered November 22, 2006. These changes are apparent from the registered transfer. [ 15 ] The second closing was pursuant to a transfer of land dated October 15, 2007 and it related to Lot 1. The consideration was stated to be $720,000 and it was registered January 4, 2008. That was after the VTB mortgage was discharged. Knowledge by the Plaintiffs of 1199 as Assignee [ 16 ] Initially Mr.

Zeer and Ms. Wanklyn said in this claim that they were unaware of the involvement of 1199, but at my

suggestion when the matter first came before me some historical documents were obtained from the Land Titles office and elsewhere. They make it clear that they were very likely aware of the involvement of 1199. [ 17 ] In both transfers, the transferee was not Caleron but 1199. Both transfers were apparently prepared with the transferee blank and the name of 1199 as transferee was added later, before registration. [ 18 ] As mentioned, the draft form of VTB mortgage that was attached as a

schedule to the Land Purchase Agreement was actually signed by the parties. The mortgage was entered into, but with modifications. In draft form, it specifically defined “Mortgagor” as Caleron Properties Ltd. However, as finalized, it was between 1199 as mortgagor and Ms. Wanklyn and Mr. Zeer as mortgagee collectively, but the place for Ms. Wanklyn and Mr. Zeer to sign was deleted; accordingly, they did not sign the final version of the mortgage. [ 19 ] One of the modifications to the form of mortgage was an addition to

section 2.2, under the heading “Repayment of Principal”. This was a clause reflecting the upward adjustment of the purchase price of $50,000 for each lot allowed in excess of 50 lots. [ 20 ] The mortgage was paid by 1199 to Ms. Wanklyn and Mr. Zeer. At least three of the payments were made by cheques to them drawn by 1199. Copies of those cheques have been presented. [ 21 ] The mortgage was discharged by Mr. Zeer and Ms. Wanklyn by a discharge of mortgage dated October 15, 2007. That was obviously before the second transfer was registered.

The discharge refers to the mortgage by the registration number at the Land Titles Office.

It does not mention 1199 as mortgagor. [ 22 ] The owner and president of Caleron responded by affidavit to some interrogatories (in lieu of cross-examination on an affidavit) and explained that “1199 was the Joint Venture between Caleron and UBG Group.” I take it from this evidence that 1199 was a corporation set up to be the registered owner of the land and other assets that were placed into a joint venture established by Caleron and this other party. [ 23 ] Either the plaintiffs were aware at the time they signed the first transfer that the transferee was 1199, or they signed the transfer without knowing who the transferee was (as mentioned, it appears to have been prepared with the transferee blank and filled in later, with a typewriter).

However, the VTB mortgage that they took was clearly given by 1199. The first transfer of land was signed by the plaintiffs in Kelowna and the affidavit of execution was dated September 29, 2006. The mortgage discharge that they signed shows an affidavit of execution by them dated October 15, 2007 – although, as mentioned, that discharge did not show the name of the mortgagor.

That was the same date they signed the second transfer of land and, most importantly, by then they had received cheques drawn by 1199 in payment of the mortgage debt made out to them. [ 24 ] The only realistic inference to be drawn from the documents is that although they may not have been aware at the time they signed the purchase agreement who the assignee would be, at the time of the first closing they were likely aware, and by the time of the second transfer they appear clearly to have been aware, of who the assignee of the contract was. [ 25 ] However, the argument about Caleron’s liability does not necessarily stand on whether the plaintiffs actually knew who the assignee would be or who it eventually was.

The question is whether the agreement allowed an assignment of both benefit and burden. This assertion initially made by the plaintiffs was made in support of their submission that the surrounding circumstances do not support the

interpretation advanced by Caleron. In light of these documents produced after my inquiry, they no longer argue that they did not know about 1199. Very likely, they did not remember these facts from nine and 10 years ago. [ 26 ] As I discuss below, their interaction with 1199 is part of the surrounding circumstances that I have taken into account. Analysis [ 27 ] The question is who is liable for the debt. The plaintiffs say that Caleron is liable, and 1199 is also liable. The agreement says that it is “binding” on everyone, including the original parties and the assignee.

But what does that mean? [ 28 ] Caleron says that the right to assign was expressly placed in the agreement to allow Caleron to assign not only the benefit of the contract, but the burden, being the obligation to pay the purchase price. It specifically says that the assignment may be done “without the prior written consent or any consent of Vendor”. The facts demonstrate that at least some of the purchase price, other than the $100,000, was clearly paid by 1199. That was the party that signed the mortgage.

The mortgage specifically contemplated the increase in purchase price that is the subject of the current claim. [ 29 ] Caleron submits that the effect of the assignment provision in the original contract, together with the mortgage, the transfers of land, the subsequent payments, and the discharge of mortgage all make it clear that although Caleron was the contracting party Mr. Zeer and Ms. Wanklyn accepted from the beginning that Caleron could turn over its position in the contract to a third party, and that they would have to look to that third-party for payment. That started with the mortgage obligation.

Caleron did not sign the mortgage. The payments under the mortgage covered the payment of much of the purchase price over time, by 1199. [ 30 ] For the most part, there was little risk, if any, in having a shell company as the purchaser. About half of the purchase price was going to be paid in cash when the transaction closed, and in the event of development approvals allowing additional lots, the mortgage specifically addressed that. (It is not clear why the mortgage was discharged when it was, before the entitlement to the additional $100,000 referenced in it was obtained.

Caleron does not argue that that represented satisfaction of the plaintiffs’ claim.) [ 31 ] In response, the plaintiffs argue that the fact that 1199 was going to be liable, and that it signed the mortgage and made the payments, does not change the fact that the covenants in the purchase agreement were between the plaintiffs and Caleron. The assignee was a stranger to them. Caleron promised to pay the money. An agreement to allow an assignment does not necessarily allow the substitution of the assignee in place of the contracting party.

An assignment of the benefit of the contract is not the same as an assignment of the burden.

[32] The common law says that without a clear agreement to the contrary a party cannot assign its obligations under contract,merely its benefits. However, there is case law (referenced below) to the effect that if an agreement is drafted appropriately it mayreflect the prior approval of the non-assigning party to the assignment of both the benefit and the burden. Is that the case here? [33] The analysis starts with the written words of the Purchase Agreement.

The Court is to determine the intent of the parties byfollowing “a practical, common-sense approach not dominated by technical rules of construction”: Rohit Land Inc v CambrianStrathcona Properties Corp, 2015 ABQB 375 , 2015 CarswellAlta 1069, para. 62, quoting Creston Moly Corp v Sattva CapitalCorp, 2014 SCC 53 , [2014] 2 S.C.R. 633 at para. 47. “A cardinal rule for interpreting any contract is to look at all its words,construe them as a whole, and try hard to make them all fit and work together”: Ledcor Construction Ltd v Northbridge IndemnityInsurance Co, 2015 ABCA 121 , 2015 CarswellAlta 511, at para. 26. [34] Although the surrounding circumstances are to be considered, “they must never be allowed to overwhelm the words of thatagreement”: Rohit at para. 62, citing Creston Moly at para. 57. [35] I have already quoted some important provisions of the purchase agreement but there are other relevant provisions. [36] Firstly, the VTB mortgage was to be on the terms contained in the form attached as

schedule to the agreement. I havediscussed how it was modified not only to change the name of the mortgagor and to delete the signature lines for the plaintiffs (thesewere unnecessary) but also to specifically address the potential increase in sale price. [37] The reference to the “Purchaser” was not consistent throughout the agreement. As mentioned, the definition of “Purchaser”included an assignee, but throughout the agreement some references were specifically to Caleron. For example, in

section 5.01 thepassage begins, “the Purchaser hereby acknowledges that it is an experienced developer familiar with the area and it is purchasing thelands based solely upon its own independent inspection….” In the context that is clearly a reference to Caleron, and it would potentiallynot apply to an assignee, who might take the rights to the agreement without any such prior experience.

Section 9.02 talks aboutdeliveries sent to the Purchaser on closing. However, the deliveries were to be to “Caleron’s solicitors”, not the “Purchaser’s solicitors”. [38]

Section 10.02 contains “Purchaser’s Representations and Warranties”, but they are specifically provided by Caleron. Caleronrepresented and warranted that it was not a non-Canadian, and made other representations relevant to various statutes. [39]

Section 11.03 is headed “Time”, and it refers to “the Purchaser Caleron” and contemplates the possible failure “by Caleron topay portions of the purchase Price”. It goes on to provide that “all monies paid by the Purchaser Caleron, including the credit for theoption payments and improvements” might be forfeited if defaults in payment were not remedied and the Purchase Agreement becamevoid. [40] Caleron argues that it makes better business sense to have understood the agreement as allowing a complete assignment ofboth benefit and burden.

The obligation to pay would then rest clearly with the party that ended up with the land - being 1199. As itturned out, years passed before this entitlement and obligation became clear, and it simply makes more sense for the vendor to belooking to the actual purchaser who took the transfers of land for the obligation to pay the adjusted purchase price. [41] Caleron also argues that there was no need to include the assignment provision unless it was to have this effect.

Thepurchaser could, without such a clause, clearly have assigned its interest in buying the land without the consent of the vendor. (I note aswell that Caleron could also have closed the purchase in its name, and signed the mortgage in its name, and later transferred the lands to1199, without any assignment of the agreement at all.) Of course, had it done so, it would have remained liable for its burden under thecontract.

Caleron argues that the purpose of including this clause was to provide otherwise. [42] This approach was accepted by the British Columbia Court of Appeal in Weyerhaeuser Co v Hayes Forest Services Ltd, 2008BCCA 69, 2008 CarswellBC 275, dealing with a timber supply contract. [43] The Court recognized the starting point in the common law at para. 35: It is fundamental to contract law that a contracting party can unilaterally assign benefits that flow to it from the contract to a third partybut not that party’s obligations under the contract.

The assignment notwithstanding, the assignee is required to perform its obligationsunder the contract absent a provision to the contrary in the contract (and absent a novation that creates a new contract). [44] The particular clause in that case was worded significantly different than the clause here. It was a promise by Weyerhaeusernot to assign the agreement except to a person “who agrees to be bound by the terms hereof”.

That is, there was not a “blank cheque” inthe agreement that allowed an assignment to any party; the party that took the assignment had to agree to be bound by the obligations –and in Weyerhauser the issue came to a head when Weyerhauser sought the other contracting party’s consent to the assignment. Itwould not consent, and the Court said that the assignment clause was effective to substitute the assignee for Weyerhauser. Weyerhasuerwas thus no longer bound. [45] Here, 1199 agreed to be bound. It signed the mortgage, which included the purchase price adjustment.

It paid the purchaseprice, other than the $100,000 adjustment in question. [46] The BCCA distinguished the concept of substitution of a contracting party from novation. Novation was discussed in aleading case, National Trust Co v Mead, (SCC), [1990] 2 S.C.R. 410. The B.C. Court noted that the Supreme Courthad said in Mead that “the effect of a novation is not to assign or transfer a right or liability, but rather to extinguish the original contractand replace it by another”: para. 24, Weyerhauser.

At para. 28, Low J.A. said, speaking for the Court, said, “It is my view that the termsof the contract itself can accomplish substitution of a contracting party without creating a new contract.”

[47] Although the agreement before the Court in Weyerhauser did not expressly state that after an assignment Weyerhauser wouldbe released of further obligations, the Court relied on the fact that

section 17.2 (the clause in question) was in the contract, and because itprotected the interest of the other party (Hayes), it led to the result that Weyerhauser was released: The parties must have had a purpose when they included clause 17.2 in the contract. Unless, as is contended by Weyerhauser, it was theintention of the parties that Weyerhauser could assign the contract in full to a third-party, there was no apparent reason for clause 17.2.

The clause did three things: (1) it permitted Weyerhauser to dispose of TFL 44 [Tree Farm Licence 44], in whole or in part, to a thirdparty; (2) if Weyerhauser did sell the TFL (or a relevant portion thereof), it required the company to also assign the TSE [Timber SupplyExecution Agreement] to the purchaser in such a way as to bind the purchaser to the TSE; and (3) it prevented Weyerhauser fromassigning the TSE unless the assignee also purchased the TFL (or a relevant portion thereof). [48] The New Brunswick Court of Queen’s Bench also accepted that an agreement could provide for an assignment of both thebenefit and the burden, in Pavecare Industries

(1989) Ltd v Blue Chip Investments Inc, (NB KB), 1999CarswellNB 216, 213 N.B.R. (2d) 102.

That decision does not set out the wording of the applicable clause, but at paragraph 69 the Courtsaid that it “provided for the assignment of the agreement together with all rights and obligations pursuant to it.” In this context, theCourt said, “The law is clear that with the consent of the other party, a party may assign the obligation that rests upon him by virtue of acontract, thus effectively transferring the contractual liability to the assignee.” [49] The Court quoted at para. 69 from the ninth edition of Cheshire and Fifoot’s Law of Contract to the effect that a debtorcannot relieve himself of his liability as creditor by assigning the burden of his obligation; that could only be brought about by theconsent of all three parties, and it involves the release of the original debtor.

But with consent, that result could be achieved. [50] That takes us back to the contract. Did it demonstrate this consent of the plaintiffs to the substitution of another party? Dothe surrounding circumstances clarify any ambiguity? [51] I have concluded that the original Purchase Agreement was ambiguous as to the meaning of the assignment clause. Theoccasional references in the Purchase Agreement, mentioned above, to “the Purchaser Caleron”, or to “Caleron”, or to “the Purchaser”where it could only have meant Caleron despite the alternative definition, are not helpful to resolving this issue.

They tend to createsome ambiguity. [52] That resulting ambiguity could take the resolution of the dispute to the default position at common law, which is that anassignor cannot discharge his obligations merely by assigning the agreement to another. [53] However, where there is ambiguity in the words chosen, I am entitled to look at the surrounding circumstances to see if theyresolve the ambiguity.

How did the parties treat their rights and obligations at the time? [54] The plaintiffs argue that since the Purchase Agreement allowed an assignment without giving them an opportunity to considerthe assignee’s credit-worthiness, this suggests that they must not have agreed to the substitution of a possible straw man for thepurchaser Caleron. [55] However, the nature of the agreement was that the obligation to pay the increased purchase price was to arise well afterclosing – in fact, it was eight or nine years afterwards when the approvals triggered the adjustment.

It would make business sense tolook primarily, if not exclusively, to the party that was then developing the lands for the payment. [56] At the time the sale occurred, the mortgage was given, the payments were made, and the plaintiffs treated 1199 as if it werethe only party liable. It was 1199 that signed the VTB mortgage, and the form of the mortgage was specifically modified from thetemplate attached as a

schedule to the Land Purchase Agreement to refer to the upward adjustment to the purchase price. [57] The amendment in the mortgage to reflect the obligation to adjust the purchase price upwards – a document only signed by1199, not signed by Caleron – tends to make it clear that the plaintiffs were in fact looking to the assignee 1199 and not Caleron for thepayment. [58] These factors allow the Court to reflect back on the assignment provision in the Purchase Agreement with a clearer view.

With these factors in mind, I agree with the BCAA in Weyerhauser that there would be no meaningful reason to insert the assignmentclause in the Land Purchase Agreement if it were not in contemplation of the substitution of the assignee for Caleron. Caleron couldhave assigned it anyway without it, or closed the transaction and transferred the land later. [59] Accordingly,

summary judgment is granted in favour of Caleron dismissing the claim as against it by the plaintiffs, and ofcourse the

summary judgment application brought by the plaintiffs as against Caleron is dismissed. [60] Counsel for Caleron asked that I expressly reserve their right to speak to Caleron’s third party claim as against 1199. In lightof my decision, this may now be moot, but if there is a need to do so I retain jurisdiction in this regard. [61] I commend both counsel for their diligence in presenting their arguments and their civility and professionalism demonstratedbefore the Court.

[ 62 ] Counsel may contact the Chambers Clerk to arrange to speak to the Court regarding costs if they are unable to agree. Heard on the 26 th day of October and the 15 th day of December, 2016. Dated at the City of Calgary, Alberta this 10 th day of January, 2017 . A. R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: Adrianna Worman Schuettelaw for the Applicants/respondents (Plaintiffs) Gillian S. Holowisky Scott Venturo LLP for the Respondent/applicant (Defendant) Caleron Properties Ltd. No one for 1199032 Alberta Ltd.