Canadian Petrofina Ltd. v. Berger

J.:-On July 15, 1954, Berger leased to Petrofina the lands in question for a term of 10 years to be computed from July 15, 1954. Clause 9 of the lease provided: In 1958, Petrofina sublet the premises to one Ouimet. Approximately 6 months after taking possession, Ouimet extended his business to include body work, spray painting and temporary storage of vehicles, in addition to the sale of gasoline and oil.

By letters dated May 14, 1959, and June 26, 1959, Berger notified Petrofina that he regarded this use of the premises as a breach of the covenant and demanded remedy of the specified breach before July 6, 1959. Following the receipt of these letters, Petrofina says that the matters complained of were remedied and other improvements to the building, such as painting, and levelling and paving of the station lot, were completed.

On July 8, 1959, Petrofina gave notice of its intention to purchase the leased premises pursuant to the option contained in clause 4 of the lease. On the same day, Berger sent a letter to Petrofina terminating the lease. This letter recites a failure to rectify the breach of covenant set out in the two previous letters.

Berger did not reply to Petrofina's letter exercising the option but on July 23, served notice of an application for possession under s. 75 of The Landlord and Tenant Act, R.S.O. 1950, c. 199. The county judge made an order directing the issue of a writ of possession. The Court of Appeal dismissed an appeal from this order. This Court granted leave to appeal on June 26, 1961.

The appellant submits that the Courts below were in error (a) in failing to hold that the appellant had validly exercised its option to purchase the leased premises before the respondent's application for possession was commenced and that the learned trial judge was without jurisdiction to hear the application; (b) in holding that the appellant was in breach of clause 9 of the lease in question.

Clause 4 reads:

The first 5 years of the lease expired at midnight on July 14, 1959. Petrofina's letter exercising the option was sent on July 8, 1959. It was received the following day.

The first sentence in the option gives an irrevocable right during the first 5 years to purchase in fee for $13,000. It says at any time during the first five years. Then follows the clause which has given rise to so much difficulty:

And that immediately upon the Lessee giving to the Lessor thirty (30) days' prior notice in writing of its intention so to purchase, the Lessor shall deliver to the Lessee such deeds and documents as he may have in his possession or under his control and relating to the leased premises. What is the meaning of giving 30 days' prior notice in writing of its intention so to purchase? The Courts below have construed this as meaning 30 days before the expiration of the first 5 years. The clause does not say that in express terms. Counsel for Berger also contends that the purchase must be completed within the first 5 years and on 30 days' prior notice. On the other hand, counsel for Petrofina says that the provision for 30 days' prior notice in writing has reference to the respondent's obligation to deliver deeds and documents in his possession and that it was inserted for the respondent's benefit to give him time to prepare and deliver the said documents. The submission is that it was merely a matter of conveyancing and that Petrofina was not obliged to give notice of intention 30 days prior to the expiry of the first 5 years because this would be inconsistent with its irrevocable right to purchase at any time during the 5 years.

Parts 1 and 2 of the option clause must be read together and given some meaning. They must also be read along with the third part of the option clause, which reads:

There is no difficulty about this last-mentioned clause. The parties do not wait for the expiry of thirty days to have a binding agreement of sale and purchase. If the notice was valid, according to this clause, on July 9, 1959, Petrofina became the owner in equity. The contract could have been enforced on either side in an action for specific performance. There are, therefore, 3 parts of the option clause. The first provides for a right exercisable at any time within the first 5 years. That means up to July 14, 1959. The second provides for the notice. I do not think that this limits the right of Petrofina to giving its notice 30 days prior to July 14, 1959. I think that Petrofina's submission is correct on this point and I am strengthened in this conclusion by the third part of the clause, which provides for a binding agreement coming into force on July 9, 1959, not thirty days after the giving of notice.

I would allow the appeal on this ground. The option was validly exercised. At the time when the application was made before the county judge, the landlord and tenant relationship had ended and there was nothing for the county judge to decide. In assuming the subsistence of landlord and tenant relation, he was acting without jurisdiction. This makes an opinion unnecessary on the second branch of the appeal.

The appeal should be allowed. The judgments of the Court of Appeal for Ontario and of His Honour Judge P. J. MacDonald set aside and the application of the respondent for possession of the lands in question dismissed. The appellant is entitled to its costs throughout.

Appeal allowed with costs throughout.

S.C.R.