1183882 Alberta Ltd. v. Valin Industrial Mill Installations Ltd., 2011 ABQB 440

• Judge: Topolniski, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: July 07, 2011
• Citations: 2011 ABQB 440;(2011), 521 A.R. 281 (QB)

1183882 Alta. v. Valin Ind. Mill Installations (2011), 521 A.R. 281 (QB)

MLB headnote and full text

Temp. Cite: [2011] A.R. TBEd. JL.079

In The Matter Of the Bankruptcy and Insolvency Act;

And In The Matter Of 1183882 Alberta Ltd., operating as Sok's Contracting.

1183882 Alberta Ltd., operating as Sok's Contracting (plaintiff) v. Valin Industrial Mill Installations Ltd. (defendant)

(BK24 115444; 1103 07673; 2011 ABQB 440)

Indexed As: 1183882 Alberta Ltd. v. Valin Industrial Mill Installations Ltd.

Alberta Court of Queen's Bench

Judicial District of Edmonton

Topolniski, J.

July 7, 2011.

Summary:

The plaintiff tenant applied for a declaration that it validly exercised an option to purchase granted in a commercial lease. Alternatively, the plaintiff sought relief from forfeiture. The defendant landlord applied for a declaration that the exercise of the option to purchase was invalid on the grounds that a precondition to exercising the option was that the plaintiff not be in default. The defendant alleged default based on (1) late (but remedied) rent payments at various times; (2) the failure to either prepay the last month's rent due under an extension of the lease or the failure to pay rent during one of the months of the extended lease period; or (3) the insolvency clause of the lease triggering default when the plaintiff applied for relief under a statute concerning bankrupt or insolvent debtors.

The Alberta Court of Queen's Bench held that the failure to prepay the last month's rent or the rent for one month during the extended lease period, and the application of the insolvency clause, both constituted acts of default that disentitled the plaintiff from exercising the option to purchase. Relief from forfeiture was not available, as the no default condition was a precondition to exercising the option. In any event, the court would not have exercised its discretion to grant relief from forfeiture.

Contracts - Topic 3564

Performance or breach - Performance of conditions precedent - Doctrine of spent breach - A precondition to a tenant exercising an option to purchase under a commercial lease was that it not be in "default" - During the initial and extended lease periods, the tenant had been late several times in paying rent - However, those breaches had been remedied prior to the tenant purporting to exercise the option - The landlord argued that these late payments, although remedied, constituted a "default" precluding the tenant from exercising the option - The Alberta Court of Queen's Bench rejected the argument that breaches remedied before the option was purportedly exercised constituted "default" - The court stated that "the doctrine of 'spent breach' precludes a landlord from relying on historic remedied breaches as a means of avoiding a tenant's exercise of an option in a lease" - See paragraphs 24 to 27.

Equity - Topic 1061

Equitable relief - Relief from forfeiture - General - [See Landlord and Tenant - Topic 2364 ].

Landlord and Tenant - Topic 2364

The lease - Options to purchase - Conditions precedent - A commercial lease provided a tenant an option to purchase conditional on not being in default - The lease defined "default" as including the nonpayment or rent arrears within 15 days of the landlord giving notice of the default, and included an "insolvency clause" that deemed a default where the tenant applied for relief under any bankruptcy or insolvency legislation - The lease and extended leases required that rent for the last month of any term be prepaid in the first month of the term - A tenant, after making a proposal to creditors under the Bankruptcy and Insolvency Act, purported to exercise its option to purchase - The landlord argued that exercising the option was precluded by default - The tenant purportedly paid the last month's rent, which the landlord applied to the unpaid first month's rent - The Alberta Court of Queen's Bench held that however the payment was attributed, either the first or last month's rent remained unpaid more than 15 days after the landlord gave notice of default by a letter demanding payment - That constituted "default" - Additionally, the insolvency clause deemed the tenant in "default" when it made its proposal to creditors - Since not being in default was a precondition or conditional precedent to exercising the option to purchase, relief from forfeiture was not available - Alternatively, the court would have declined to exercise its discretion to grant relief from forfeiture.

Landlord and Tenant - Topic 6786

Termination, forfeiture and reentry - Relief against forfeiture - When available - [See Landlord and Tenant - Topic 2364 ].

Cases Noticed:

Fingold v. Hunter, [1944] 3 D.L.R. 43 (Ont. C.A.), refd to. [para. 21].

Scurry-Rainbow Oil Ltd. v. Kasha (1996), 184 A.R. 177; 122 W.A.C. 177 (C.A.), refd to. [para. 22].

Sail Labrador Ltd. v. Navimar Corp. et al., [1999] 1 S.C.R. 265; 235 N.R. 201, refd to. [para. 26].

Bass Holdings Ltd. v. Morton Music Ltd., [1987] 2 All E.R. 1001, refd to. [para. 26].

1290079 Ontario Inc. v. Beltsos, [2010] O.T.C. Uned. 4967; 97 R.P.R.(4th) 238; 2010 ONSC 4967, affd. (2011), 280 O.A.C. 312; 2011 ONCA 334, refd to. [para. 26].

MacKay, Re (1872-73), 8 L.R. Ch. App. 643, refd to. [para. 34].

Jay, Re (1880), 14 Ch. D. 19, refd to. [para. 34].

British Eagle v. Air France, [1975] 1 W.L.R. 758, refd to. [para. 34].

Westerman (Bankrupt), Re (1998), 234 A.R. 371; 1998 ABQB 946, revsd. (1999), 275 A.R. 114; 1999 ABQB 708, refd to. [para. 34].

Dubois v. Coopérants (Les) Société Mutuelle d'assurance-vie (Liquidation), [1996] 1 S.C.R. 900; 196 N.R. 81, refd to. [para. 39].

Canadian Imperial Bank of Commerce et al. v. Bramalea Inc. et al. (1995), 33 O.R.(3d) 692 (Gen. Div.), refd to. [para. 42].

Borland's Trustee v. Steel Brothers & Co., [1901] Ch. 279; 70 L.J. Ch. 51, refd to. [para. 42].

Alberta Health Services v. Networc Health Inc., [2010] A.R. Uned. 437; 28 Alta. L.R.(5th) 118; 2010 ABQB 373, refd to. [para. 48].

Finch v. Underwood (1875), 2 Ch. D. 310, refd to. [para. 52].

Finn v. Finn and Cowdy (Carole) Investments Ltd. (1983), 42 A.R. 255 (Q.B.), refd to. [para. 52].

Pierce v. Empey, [1939] S.C.R. 247, refd to. [para. 52].

1383421 Ontario Inc. v. Old Miss Place Inc. (2003), 177 O.A.C. 40; 67 O.R.(3d) 161 (C.A.), refd to. [para. 52].

Ross v. Eaton (T.) Co. (1992), 58 O.A.C. 366; 11 O.R.(3d) 115 (C.A.), refd to. [para. 52].

120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., [1993] O.J. No. 2801 (C.A.), refd to. [para. 52].

Union Eagle Ltd. v. Golden Achievement Ltd., [1997] 2 All E.R. 215, refd to. [para. 55].

Clark Auto Body Ltd. v. Integra Custom Collision Ltd. (2007), 234 B.C.A.C. 309; 387 W.A.C. 309; 277 D.L.R.(4th) 20; 2007 BCCA 24, refd to. [para. 56].

Chroniaris Enterprises Ltd. v. MKRS Pub Inc. (2005), 402 A.R. 70; 2005 ABQB 867, affd. (2008), 432 A.R. 286; 424 W.A.C. 286; 2008 ABCA 172, refd to. [para. 58].

Alwell Mechanical v. Royal Bank of Canada (1985), 41 Alta. L.R.(2d) 8 (C.A.), refd to. [para. 59].

Authors and Works Noticed:

Chitty on Contracts (24th Ed. 1977), para. 713 [para. 22].

Fridman, G.H.L., The Law of Contracts in Canada (5th Ed. 2006), pp. 454 to 462 [para. 22].

Counsel:

Michael McCabe, Q.C., for the plaintiff;

David Shynkar, Q.C., for the defendant.

This matter was heard on May 17-18, 2011, before Topolniski, J., of the Alberta Court of Queen's Bench, Judicial District of Edmonton, who delivered the following judgment on July 7, 2011.