



COURT OF APPEAL FOR ONTARIO

CITATION:
Benzie v. Hania, 2012
    ONCA 766

DATE: 20121113

DOCKET: C55155

Goudge, Gillese and Armstrong JJ.A.

BETWEEN

Michael Benzie and Norman Benzie

Applicants (Appellants)

and

Barbara Hania and Mitchell Kunin

Respondents (Respondents)

Michael Meredith and Clarke Tedesco, for the appellants

Allan S. Halpert, for the respondents

Heard: August 21, 2012

On appeal from the judgment of Justice J. David McCombs
    of the Superior Court of Justice, dated February 9, 2012, reported at 2012 ONSC
    976.

Gillese J.A.:

[1]

Can a right of first refusal bind non-parties?  Is it registrable under
    the
Land Titles Act
, R.S.O. 1990, c. L.5 (the
Land Titles Act
)? 
    These questions lie at the heart of this appeal.

BACKGROUND

[2]

Reuben Kunin (Mr. Kunin) and Sybil Kunin had three children:  Michael
    Benzie (Michael), Barbara Hania (Barbara) and Mitchell Kunin (Mitchell).  In
    1981, they bought a 66-acre farm property on the Oak Ridges Moraine in
    Newmarket, Ontario, for $425,000 (the Property).  For financial and tax
    reasons, title to the Property was taken in Barbaras name.

[3]

Michael was married and lived in Israel for a number of years.  She has
    two sons from that marriage: Marc Davidson and Adam Davidson.

[4]

Barbara has three children.  Mitchell has two.

[5]

In 1986, while Michael was vacationing in New Mexico, U.S.A., she met
    Norman Benzie (Norman).  Shortly thereafter they got engaged.  Michael planned
    to sell her house in Toronto and move to New Mexico to marry and live with Norman.

[6]

To persuade Michael to stay in Canada, her father proposed to sell her the
    Property on which she and Norman could make their home.  Michael and Norman spent
    about $250,000 on renovations and improvements to the Property before the
    purchase.  They have lived on the Property ever since and have completed many
    more renovations.

[7]

Barbara opposed the sale of the Property to Michael because she and
    Mitchell wanted it to remain a family property.

[8]

To keep peace in the family, Mr. Kunin proposed that the three children
    enter into an agreement that would contain two key provisions.  The first was a
    right of first refusal should Michael ever decide to sell the Property.  The
    second would provide for equal distribution among the three children of the net
    proceeds of any future sale of the Property.  Net proceeds meant the sale
    proceeds less sale expenses and less a repayment to Michael of $425,000, the
    amount that she paid to purchase the Property, plus the amounts that she spent
    on renovations and improvements to the Property, plus 6% simple interest on
    both amounts.

[9]

Title to the Property was conveyed into Michaels name on August 24,
    1987.

[10]

On
    August 25, 1987, the three children executed an agreement that contained the
    agreed on terms (the Agreement).  They expressly agreed that the Agreement
    would enure to the benefit of and be binding on, among others, their respective
    heirs, administrators, and successors (the enurement provision).  The Agreement
    also expressly provided that notice of it might be registered on title.

[11]

Paragraphs
    5, 6, 9 and 10 of the Agreement are the most germane for the purposes of this
    appeal.  They read as follows:

5.       If [Michael] shall desire to sell the [Property], she
    shall first offer in writing to sell the [Property] to [Barbara] and [Mitchell]
    and if the parties can come to an agreement between themselves as to the sale
    price and the terms thereof, then [Michael] shall sell the [Property] to [Barbara]
    and [Mitchell] on the said terms and at the said price in which event the
    provisions of paragraph 4 with respect to the division of the proceeds of sale
    among the parties shall apply.

6.       If [Michael] shall have offered to sell the [Property]
    to [Barbara] and [Mitchell] as provided in paragraph 5 of this agreement and if
    within a period of thirty days after the giving of such notice, the parties
    have not been able to come to an agreement as to the purchase price or the
    terms of sale, then [Michael] shall be free to sell the [Property] to any third
    party provided that she again offers to sell the [Property] to [Barbara] and [Mitchell]
    on the same terms and conditions as she is prepared to accept from such third
    party. In this respect, [Michael] shall forward to [Barbara] and [Mitchell] a
    copy of the agreement setting forth the terms and price that she is prepared to
    accept and notice that she is prepared to accept such offer which documents
    shall constitute an offer from [Michael] to [Barbara] and [Mitchell] to sell the
    [Property] at that price and on the terms therein set forth. If [Barbara] or [Mitchell]
    fail to accept such offer by written notice to this effect within a period of
    five business days after receipt of the offer from [Michael], then [Michael]
    shall be free to sell the [Property] to such third parties.



9.       This agreement shall enure to the benefit of and be
    binding upon the parties hereto and their respective heirs, administrators,
    executors, successors and assigns but the benefit thereof shall not be
    assignable.

10.     The parties agree that notice of this agreement may be
    registered on title.

[12]

Michael
    and Norman were married on November 27, 1987.

[13]

On
    November 30, 1987, Norman signed a document in which he promised Mitchell and
    Barbara that he would be bound by the terms and conditions of the Agreement and
    that he would not deal with the Property except in accordance with the
    Agreement (the Norman Undertaking).

[14]

The
    Norman Undertaking reads as follows:

To:  Mitchell Kunin and Barbara Hania

I hereby covenant and agree with you that the terms and
    conditions of the agreement between you and Michael Ann Davidson dated the 25th
    day of August, 1987 with respect to the lands known as [the Property] are
    binding on me and I will not deal with my interest in the said lands except in
    accordance with the said agreement.

[15]

Also
    on November 30, 1987, in consideration of natural love and affection, Michael
    conveyed title to the Property to herself and Norman as joint tenants.

[16]

Because
    of the Norman Undertaking, Barbara and Mitchell did not object to the conveyance
    of the Property into Michael and Normans joint names.

[17]

On
    December 23, 1987, the Agreement, with the Norman Undertaking appended, was registered
    on title pursuant to the provisions of the
Registry Act
, R.S.O. 1980,
    c. 445 (the
1980 Registry Act
).

[18]

In
    1999, title and other registrations pertaining to the Property were migrated
    from the Registry system to the Land Titles system.  The Agreement remained
    registered on title when the Property was converted to the Land Titles system
    of registration.

[19]

In
    2001, the
Oak Ridges Moraine Conservation Act

came into force
    and in 2002 the Oak Ridges Moraine Conservation Plan was completed.  As a
    result, the only permitted uses of the Property are conservation, non-motorised
    trails, and existing legal uses.  Together, the statute and plan have the
    effect of precluding any residential or commercial development of the
    Property.

[20]

Strife
    among the siblings and their children about entitlement to the Property on the
    death of Michael and Norman led them, in 2010, to bring an application to have
    the Agreement deleted from the Land Titles registry.  In the application, they
    also sought a declaration that the Agreement is not binding on non-parties,
    specifically Norman, Marc Davidson, Adam Davidson and any other of Michaels
    heirs.  They provided evidence of valuations for the Property that demonstrated
    that if it were sold, once their costs of purchase, renovation and improvement
    were repaid in accordance with the terms of the Agreement, there would be
    nothing left to distribute.  Thus, they argued, the Agreement was pointless and
    an unnecessary source of friction, and it should not be permitted to remain
    registered on title.

[21]

By
    judgment dated February 9, 2012, the application was dismissed (the Judgment).

[22]

The
    application judge held that the enurement language in para. 9 of the Agreement
    is evidence of the clear intention of the parties that it was to survive the
    death of the parties.  As well, he found that the Agreement created an
    interest in the Property sufficient to bind anyone who might inherit it.  Thus,
    he concluded, although Michaels children were not parties to the Agreement,
    those who inherit the Property do so subject to its terms.

[23]

Further,
    the application judge held that Norman was bound by the Agreement because when he
    signed the Norman Undertaking, Barbara and Mitchell provided consideration in
    the form of forbearance from enforcing their rights under the Agreement.  The
    application judge opined that the provisions of the Agreement that come into
    effect if Michael chooses to sell the Property would have been triggered on
    disposition of half of her interest in the Property to Norman.  Forbearance
    from attempting to enforce the Agreement was valid consideration for the Norman
    Undertaking.

[24]

Finally,
    the application judge refused to strike the Agreement from the Land Titles
    registry.  He reasoned as follows.  The Agreement was lawfully registered on
    title in 1987 pursuant to s. 22 of the
1980 Registry Act
(the relevant
    statutory authority at the time).  In 1999, when the Property was moved to the
    Land Titles system of registration, s. 71(1) of the
Land Titles Act

permitted the registration of notices, cautions, inhibitions or other
    restrictions as are authorized by this Act or by the Director of Titles.  As
    the Agreement was registered under the new regime under the authority of the
    Director of Titles, it was properly registered on title.

[25]

Michael
    and Norman (the appellants) appeal.  Barbara and Mitchell are the respondents
    in the appeal (the respondents).

THE ISSUES

[26]

The
    appellants submit that the application judge erred in each of his
    determinations.  They ask this court to find that the application judge erred
    in concluding that the:

1.

Agreement is binding
    on Michaels heirs;

2.

Norman Undertaking
    is a binding contract; and

3.

Agreement is registrable
    under the
Land Titles Act
.

IS THE AGREEMENT BINDING ON MICHAELS HEIRS?

[27]

The
    appellants submit that the Agreement is not binding on non-parties, including
    Michaels heirs: Marc Davidson, Andrew Davidson and Norman.  They say that the
    Agreement could bind such persons only if it falls within an exception to the
    doctrine of privity of contract or if the Agreement runs with the land such
    that a successor in title takes subject to its terms.  They argue that the
    Agreement neither falls within an exception to the doctrine of privity of
    contract nor runs with the land and, therefore, it is not binding on
    non-parties.

[28]

The
    doctrine of privity of contract stands for the proposition that a contract
    cannot, as a general rule, confer rights or impose obligations arising under it
    on any person except the parties to it.  This doctrine has two very distinct
    components or aspects.  On the one hand, it precludes parties to a contract
    from imposing liabilities or obligations on third parties.  On the other hand,
    it prevents third parties from obtaining rights or benefits under a contract. 
    See
London Drugs Ltd. v. Kuehne & Nagel International Ltd.
, [1992]
    3 S.C.R. 299, at para. 200.

[29]

There
    are established exceptions to the second aspect of the doctrine.  In certain
    situations, the courts will permit strangers to enforce the contract and take
    the benefit of its provisions.  The established exceptions are agency, trust,
    assignment or assumption, exceptions established by statute, and restrictive
    covenants.  See
Greenwood Shopping Plaza Ltd. v. Beattie et al.
,
    [1980] 2 S.C.R. 228, at para. 11.

[30]

The
    appellants correctly assert that none of these exceptions apply to the
    Agreement.

[31]

However,
    it is not the second aspect of the privity doctrine that is in play in this
    appeal.  That is, the question for the court is not whether a non-party can
    take the benefit of the Agreement.  Rather, the question is whether the
    obligations under the Agreement will bind Michaels heirs and successors in
    title.

[32]

At
    first blush, it might appear that the first aspect of the privity doctrine
    applies and Michaels heirs, as third parties, are not bound because the
    parties to the Agreement could not impose liabilities or obligations on third
    parties.  Not so.

[33]

Such
    an application of the privity doctrine would be incorrect because it ignores
    the effect of death on contractual rights and obligations.  Death does not
    terminate a contract unless the contract is based on personal considerations,
    skill or confidence (a personal contract).

[34]

As
    Professor G.H.L. Fridman explains in
The Law of Contract in Canada
,

6th ed., (Toronto: Carswell, 2011), at p. 661, apart from personal
    contracts, contracts continue after death.

At common law, the death of either party did not interfere with
    the continuation of the contract or of an action for breach of contract, unless
    the contract was based on personal considerations, skill or confidence.  Any
    rights of action that accrued to a party or existed against him could be
    brought by or against his estate.  Hence, on death, contractual rights and
    liabilities passed, and still pass to the executors or administrators of the deceased,
    that is, his personal representatives, on intestacy or under the will.  In
    consequence, save in respect of personal contracts, one may speak of the
    involuntary and general assignment of all contractual rights and liabilities
    which results from death as a matter of law, regardless of any wishes or acts
    of the deceased contracting party.

[35]

The
    Agreement relates to the sale of the Property.  Michaels presence is not
    essential to its performance.  As the Agreement is not dependent on some special
    skill, knowledge or other personal quality of the parties to it, it is not a
    personal contract and it survives Michaels death.

[36]

What
    does this mean in respect of devolution of the Property?  Because the Agreement
    survives death, Michaels estate will be in the same position as Michael
    herself  it will be bound by the Agreement.  Therefore, it will be bound to
    deal with the Property in accordance with the terms of the Agreement.

[37]

But,
    the question becomes, if Michaels estate conveys the Property to her heirs, will
    they be bound by the Agreement?
[1]
In my view, they would be.  As I have explained, the estate would be bound to
    deal with the Property in accordance with the Agreement.  Therefore, the estate
    would pass title to the Property to the heirs subject to the Agreement.  Heirs do
    not fall into the category of a bona fide purchaser for value without notice. 
    Not only do they have actual notice of the Agreement in this case, as heirs they
    are volunteers in the sense that they give no consideration for title to the Property. 
    As such, the heirs could not stand in a better position than the estate. 
    Therefore, like the estate, the heirs would take title to the Property subject
    to the Agreement.

[38]

There
    is surprisingly little jurisprudence on the question of what happens to a right
    of first refusal on the death of the grantor of the right of first refusal. 
    The two cases of which I am aware both support the reasoning advanced above. 
    Those cases are
Lawson v. Poirier Estate

(1997), 143 D.L.R.
    (4th) 660 (N.B. C.A.) and
Heintzman v. Poole
, 2008 CarswellOnt 4484
    (S.C.J.), 70 R.P.R. (4th) 107.

[39]

The
    facts of
Poirier Estate
are these.  Mssrs. Lawson, Poirier and Kay were
    equal shareholders in Cable Services Ltd., a company that provided cable
    television service to metropolitan Moncton, New Brunswick.  Mssrs. Lawson and
    Poirier agreed to sell their shares to Mr. Kay.  When they discovered that
    their shares were worth at least twice the amount that they had agreed to
    accept from Mr. Kay, they took steps to rescind their agreements with Mr. Kay.

[40]

One
    of the steps that they took was to enter into an agreement in which, among
    other things, they agreed that they would not sell their Cable Services shares
    without the consent of the other and that each would have a right of first
    refusal over the shares of the other (the Contract).

[41]

Mr.
    Poirier died unexpectedly.  His widow, Rose Marie Poirier, was both executrix
    of his estate and sole beneficiary.  She sold his shares to Mr. Kay.  Mr.
    Lawson then sued Mrs. Poirier, both as executrix of her deceased husbands
    estate and personally.

[42]

At
    first instance, the trial judge found that the Contract survived Mr. Poiriers
    death and was binding on his estate.  He further found that Mrs. Poirier breached
    the Contract when, among other things, she sold her deceased husbands shares
    to Mr. Kay without Mr. Lawsons consent.  He gave judgment against Mrs. Poirier
    in both capacities, namely, as executrix and personally.

[43]

Mrs.
    Poirier appealed.  The New Brunswick Court of Appeal dismissed her appeal.

[44]

The
    Court began by affirming that the Contract bound Mr. Poiriers estate.  Despite
    Mr. Poiriers extensive business involvement with Cable Service Ltd., the
    Contract was not personal because Mr. Poiriers presence was not essential for its
    performance.  Accordingly, the Contract survived Mr. Poiriers death and was
    binding on his estate.

[45]

The
    Court considered whether Mrs. Poirier was personally liable or only in her
    capacity as executrix of her deceaseds husbands estate.  It concluded that
    the trial judge made no error when he found her to be liable in both capacities.

[46]

Thus,
    it can be seen,
Poirier
is consistent with my conclusion that both
    Michaels estate and her heirs will be bound by the Agreement.  In
Poirier
,
    the New Brunswick Court of Appeal found that the estate was bound because the
    contract survived death.  Accordingly, when Mr. Poirier died, his shares were
    transmitted to his estate subject to the terms of the Contract.  Mrs. Poirier,
    as executrix, was bound to complete performance of the Contract at Mr. Lawsons
    demand.  While the court did not explain why it found Mrs. Poirier to be bound
    as beneficiary, I would suggest that the reasoning to support its result is
    that offered above:  Mrs. Poirier, as heir, could stand in no better position than
    the estate.  The estate could not transmit to Mrs. Poirier, as heir, a better
    interest in the shares than it had and it held the shares subject to the
    Contract.  To hold that Mrs. Poirier, as heir, could take the shares unfettered
    by the Contract would undermine the principle that, apart from personal
    contracts, contracts  and their attendant benefits and burdens  survive
    death.

[47]

A
    similar result obtained in
Heintzman
, the relevant facts of which are as
    follows.  Two people owned neighbouring islands in Georgian Bay.  They agreed
    to provide rights of first refusal to one another.  The contract permitted the
    parties to transfer or sell their island to their own children without
    triggering the others right of first refusal provided that the children would then
    be bound by the right of first refusal.

[48]

One
    of the parties transferred his property to two of his children by means of a
    trust arrangement.  The children subsequently transferred the property to a
    third party.  The application judge was required to decide who was entitled to
    the property: the holder of the right of first refusal or the third party
    purchaser.

[49]

The
    application judge found in favour of the holder of the right of first refusal. 
    She found that the transfer to the trust was a transfer to the children and that
    the children were bound by the right of first refusal on receipt of the
    property.  Accordingly, the right of first refusal was triggered when the
    children entered into an agreement for the purchase and sale of the property.  When
    the agreement for purchase and sale was signed, the right of first refusal was converted
    into an option to purchase the property on the same terms.  As such, it was an
    enforceable right with priority over any claim that the purchasers had under
    the agreement for purchase and sale.

[50]

In
    short, in
Heintzman
the grantors children were held to take the land
    subject to the right of first refusal.  They could not sell the land free from
    the obligations imposed by it.  This result and reasoning is consistent with my
    conclusion that if Michaels estate transmits the Property to her heirs, they
    will take subject to the Agreement.

[51]

Accordingly,
    if Michaels children take the Property in their capacity as Michaels heirs
    and successors in title, they will take subject to the Agreement and they will
    be bound to deal with the Property in accordance with its terms.

[52]

Similarly,
    the Agreement will be binding on Norman should he take as Michaels heir and
    successor in title.  In any event, as I explain below, Norman is bound by the
    Agreement by reason of the Norman Undertaking.

[53]

I
    end with two observations.  First, the conclusion I have reached is entirely
    consistent with the parties express intention, as evidenced by the enurement
    provision, that both the benefit and the burden of the Agreement will devolve
    to the parties heirs.  Second, this result accords with fairness
    considerations.  It would be manifestly unfair to permit Michaels heirs to
    acquire title to the Property through Michael, free from the obligations under
    the Agreement, when the Property would not have been conveyed to Michael
    originally had she not agreed to the terms of the Agreement.

IS THE NORMAN UNDERTAKING A BINDING CONTRACT?

[54]

The
    appellants submit that the application judge erred in concluding that Barbara
    and Mitchell gave consideration for the Norman Undertaking by way of
    forbearance.  Their argument runs as follows.  Barbara and Mitchells rights
    under the Agreement are triggered only by a sale or intended sale of the
    Property.  Michaels transfer of a joint interest in the Property to Norman was
    not a sale because no consideration flowed from Norman to Michael in respect of
    the transfer.  As there was no sale and no sale proceeds to share, Barbara and
    Mitchell had no contractual right to intervene in the addition of Norman to
    title to the Property.  As they had no rights on which to forbear, there was no
    consideration.  In the absence of consideration, the Norman Undertaking is not
    a legally binding contract.

[55]

I
    do not accept this submission.  I agree fully with the reasoning of the
    application judge on this issue.

[56]

As
    the application judge noted, forbearance from enforcing an agreement or from litigating
    on it can be good consideration.  He relied on
Kochen v. Stewart
, 1999
    ABQB 331, as authority for this proposition.

[57]

At
    paras. 10-11 of
Kochen
, Master Breitkreuz concludes that forbearance
    from bringing a claim is valuable consideration, regardless of whether the
    claim would have been successful if tried in the courts, so long as the forbearance
    was done in good faith and the party forbearing reasonably believed the claim to
    be valid.  Master Breitkreuz relied on
Lister v. Dunlop Canada Ltd.
,
    [1982] 1 S.C.R. 726, at pp. 742-3, for this well-settled legal proposition.

[58]

The
    Agreement gives Barbara and Mitchell a right of first refusal over the Property. 
    Michaels transfer of title into joint names with Norman amounts to a
    disposition.  The disposition was made for natural love and affection and may
    not constitute a sale within the meaning of the Agreement.  However, this does
    not mean that Barbara and Mitchell had no rights at the time that Norman signed
    the Norman Undertaking.  They could have taken legal action to attempt to
    enforce the right of first refusal in the Agreement.  It might be that a court
    would find that such a disposition falls outside the scope of the right of
    first refusal but that does not mean that Barbara and Mitchell did not have the
    right to take legal steps to attempt to enforce the Agreement.  Forbearance
    from bringing even a doubtful claim will constitute good consideration provided
    that the party with the claim believes the claim to be a valid one or, if it is
    understood to be doubtful, believes the claim has a fair chance of success.

[59]

It
    was open to the application judge to find, as he implicitly did, that because
    of the Norman Undertaking, Barbara and Mitchell forbore from taking action to
    enforce the right of first refusal.  In so doing, Barbara and Mitchell gave
    consideration for the Norman Undertaking.

[60]

The
    respondents also argue that even in the absence of the Norman Undertaking,
    Norman is bound by the Agreement because he had actual knowledge of it before
    he became a joint owner of the Property with Michael.

[61]

I
    agree.  Norman acquired title (jointly with Michael) from Michael.  He was
    fully aware of the Agreement at the time, as is evidenced by the Norman
    Undertaking. He gave no consideration for acquiring joint title to the
    Property.  He cannot stand in a better position than Michael.  Accordingly, he
    too is bound by the Agreement.

[62]

I
    would add that the appellants are correct in their assertion that the
    application judge erred when he stated that Michael conveyed a 50% interest in
    the Property to Norman.  When Norman was made a joint tenant of the Property
    with Michael, he received an undivided interest in the whole of the Property,
    not a 50% interest.  However, this misdescription of Normans interest does not
    derogate from the application judges primary point, which was that Barbara and
    Mitchell forbore from acting on their contractual rights at the time that Michael
    conveyed title into her and Normans joint names.

[63]

Accordingly,
    I would dismiss this ground of appeal.

IS THE AGREEMENT REGISTRABLE UNDER THE LAND TITLES ACT?

[64]

The
    appellants submit that the Agreement is not properly registered on title because
    a right of first refusal does not create an interest that is capable of running
    with the land.  They rely on s. 119(3) of the
Land Titles Act
, which
    stipulates that in order to be registered, a covenant must be one that is
    running with or capable of being legally annexed to the land.

[65]

This
    submission misses the mark, in my view.  Section 119 deals with covenants and interests
    in property that are capable of running with the land.  What is in issue in
    this case is not a covenant but, rather, a right of first refusal.

[66]

The
    legal status and effect of a right of first refusal is well established:  see
Canadian
    Long Island Petroleums Ltd. v. Irving Wire Products
, [1975] 2 S.C.R. 715;
McFarland
    v. Hauser

(1978), [1979] 1 S.C.R. 337;
McLeod v. Castlepoint
    Corp.
(1997), 31 O.R. (3d) 737 (C.A.), leave to appeal to the Supreme
    Court of Canada dismd, 34 O.R. (ed) xv;
Harris v. McNeely
(2000), 47
    O.R. (3d) (C.A.); and
SBS Sealants Inc. v. Robroy Industries Ltd.
(2002), 59 O.R. (3d) 257 (C.A.).  For convenience, when setting out the
    governing legal principles, I will refer to the grantor of the right of first
    refusal as the landowner and the grantee as the holder.

[67]

A
    right of first refusal is a personal right.  As such, it does not create an
    immediate interest in land.  Nonetheless, when an offer of purchase is made
    which the landowner is prepared to accept, the holders right of first refusal
    is converted into an option to purchase, which is an equitable interest in the
    land.  (I will refer to the point of conversion as crystallization.)  Where the
    land is transferred in breach of the right of first refusal and the transferee
    takes with notice, the transferee is liable to be joined and bound by an order
    of specific performance requiring the owner to transfer the land to the
    holder.

[68]

The
    operation of these principles found expression in
McLeod
.  At p. 31 of
McLeod
, Moldaver J.A. (as he then was) explained that the right of
    first refusal crystallized into an option and, therefore, an equitable interest
    in the land, the moment before the landowner entered into the agreement of
    purchase and sale.  The purchasers interest arose subsequent to the holders
    equitable interest with the result that the holders interest took precedence. 
    Thus, as this court held in
McLeod
, where the land is transferred in
    breach of a right of first refusal and the transferee takes with notice, the
    holders right to the land takes precedence over that of the transferee.

[69]

With
    that legal framework in mind, I turn to the issue at hand.  Is the Agreement
    containing the right of first refusal registrable under the
Land Titles Act
?

[70]

The
    application judge held that it had been properly registered on title to the
    Property pursuant to s. 71(1) of the
Land Titles Act
.  I agree.  The
    fact that a right of first refusal is not an immediate interest in land at the
    time of its creation does
not
mean that it cannot be protected by
    registration under s. 71(1).

[71]

When
    the Agreement was made in 1987, the
1980 Registry Act

applied
    to the Property.  Section 21(1) of the
1980 Registry Act
provided that
    any instrument within the meaning of clause 1(f) of that Act might be
    registered.  Section 21(1) read as follows:

Except as otherwise provided in and subject to this
    Act and the regulations, any instrument within the meaning of clause 1(f) and
    any other instrument specifically permitted to be registered under Part 1 of
    this Act may be registered.

[72]

Clause
    1(f) of the
1980 Registry Act

defined instrument to include a
    contract in writing.  The Agreement is a contract in writing.  Thus, it was
    properly registered pursuant to the
1980 Registry Act
.

[73]

The
    Property was moved into the Land Titles system of land registration in 1999, at
    which time the Director of Titles permitted the Agreement to remain registered
    on title.  Was the Director within the scope of s. 71(1) of the
Land Titles
    Act

in so acting?  In my view, he or she was.

[74]

Section
    71(1) of the
Land Titles Act

reads as follows:

Any person entitled to or interested in any
    unregistered estates, rights, interests or equities in registered land may
    protect the same from being impaired by any act of the registered owner by
    entering on the register such notices, cautions, inhibitions or other restrictions
    as are authorized by this Act or by the Director of Titles.

[75]

Recall
    that at the point of crystallization, the holders personal right is converted
    into an equitable interest in the land.  That is, the holder becomes entitled
    to an unregistered equity in registered land.

[76]

Now
    note the breadth of language used in s. 71(1) when describing that which can be
    registered pursuant to it.  Section 71(1) does not limit registration to those
    entitled to an unregistered equity in land.  It provides that any person entitled
    to or interested in, among other things, any unregistered equity in
    registered land can be protected by registration under s. 71(1).

[77]

As
    the legislature used the words interested in as well as entitled to, the
    words interested in must have some meaning other than entitlement.  On their
    plain and ordinary meaning, a person who is interested in a right, interest
    or equity has something less than one who is entitled to that right, interest
    or equity.

[78]

What
    did the holder have before crystallization?  The holder had an interest in the
    unregistered equity that arose at the point of crystallization.  To be sure,
    the holder is not entitled to the equity, as that entitlement arises on
    crystallization.  But the holder has an interest in it, in the sense that the
    holder has something more than a mere
spes
or hope.  The holder, prior
    to crystallization, has the recognised legal interest that will swell into an
    equitable right on crystallization.  In the language of s. 71(1), the holder is
    a person  interested in [an] unregistered  [equity] in registered land. 
    Accordingly, rights of first refusal over land can be protected by registration
    under s. 71(1).

[79]

This
    interpretation is supported by a consideration of the clear purpose of s. 71(1),
    which is to protect those with interests in unregistered (estates, interests or)
    equities in registered lands from impairment by the registered owner.  Without
    registration, the holders interest is vulnerable because it is liable to defeat
    by a sale by the registered owner to a
bona fide
purchaser for value
    without notice.  With registration, that vulnerability disappears because s.
    71(2) of the
Land Titles Act
serves to fix with notice anyone
    acquiring title from the registered owner.

[80]

Section
    71(2) provides that:

Where a notice, caution, inhibition or restriction is
    registered, every registered owner of the land and every person deriving title
    through the registered owner, excepting owners of encumbrances registered prior
    to the registration of such notice, caution, inhibition or restriction, shall
    be deemed to be affected with notice of any unregistered estate, right,
    interest or equity referred to therein.

[81]

This
    interpretation is also supported by a consideration of how s. 71(1) operates.  Registration
    pursuant to s. 71(1) is by one of two means.  First, registration is permitted
    for restrictions authorized by the Act itself.  Second, s. 71(1) gives the Director
    of Titles the power to authorize registration of restrictions on the register. 
    This power enables the Director to protect, through registration, more varied interests
    in the land.  As I have explained, the Director can register a restriction to
    protect an interest in an (unregistered) right, interest or equity in
    (registered) land.  By investing the Director with this power, the legislature
    has provided a means of fulfilling s. 71(1)s purpose, namely, to protect such
    interests from impairment by the registered owner.

[82]

From
    a broader perspective, this interpretation is also consonant with a properly
    functioning land titles system, which is intended to provide certainty of
    title by ensuring that notice of all interests that may impact on ownership of
    property are registered on title: see
Canadian Pacific Railway Co. v. Turta
,
    [1954] S.C.R. 427, at 443.

[83]

Before
    concluding on this issue, I simply note that Schedule B to Bulletin No. 96001,
    published by the Minister of Consumer and Commercial Relations on July 10,
    1996, contains a non-exhaustive list of various types of notices that have been
    approved by the Director of Titles for registration under s. 71.  This list
    includes a notice of a right of first refusal.

[84]

The
    parties expressly consented to registration of the Agreement on title to the
    Property.  It has been so registered for almost twenty-five years.  It was
    properly registered at the outset; it remains properly registered today.  Accordingly,
    s. 71(2) operates and the interests of the holders of the right of first
    refusal are protected.

DISPOSITION

[85]

Accordingly,
    I would dismiss the appeal with costs to the respondents fixed at $14,000,
    inclusive of disbursements and applicable taxes.

Released: November 13, 2012 (E.E.G.)

E.E.
    Gillese J.A.

I agree S.T. Goudge J.A.

I agree Robert P. Armstrong
    J.A.





[1]
What would transpire if the estate wishes to sell the Property is explained
    below in the context of the third issue.


