



COURT OF APPEAL FOR
    ONTARIO

CITATION: Richcraft Homes Ltd. v. Urbandale Corporation, 2016
    ONCA 622

DATE: 20160811

DOCKET: C60910

Laskin, Lauwers and Roberts JJ.A.

BETWEEN

Richcraft Homes Ltd
.

Applicant (Respondent)

and

Urbandale Corporation
,
    Urbandale Construction Limited and

Riverside South Development Corp.

Respondents (
Appellant
)

Benjamin Zarnett and Peter Kolla, for the appellant

K. Scott McLean and D. Elliott, for the respondent

Heard: May 30, 2016

On appeal from the judgment of Justice T.D. Ray of the Superior
    Court of Justice, dated July 24, 2015, with reasons reported at 2015 ONSC 4725.

Lauwers J.A.:

[1]

Urbandale Corporation, the appellant, and Richcraft Homes Ltd., the respondent,
    entered into a limited partnership agreement (LPA), with Riverside South
    Development Corp. as the general partner, on October 23, 2001. On May 9, 2005,
    the principals of Urbandale and Richcraft signed a document related to the LPA
    (the 2005 document).

[2]

Urbandale is a property developer, and is related to homebuilder Urbandale
    Construction Limited, which is mentioned in the LPA. Richcraft is both a
    homebuilder and a property developer. The partnerships purpose is to develop
    some 3,000 acres of development land in the Riverside south area of Ottawa.

[3]

This case is about the extent of Urbandales control of the partnership.
    Urbandale owns two-thirds of the partnership and Richcraft owns one-third. Issues
    arose between the limited partners about the interpretation of the LPA and the
    legal effect of the 2005 document, and this application was brought on a
    cooperative basis.

[4]

After a hearing that included some live evidence, the application judge
    made two declarations in the judgment now under appeal. First, he declared the
    2005 document is enforceable and affects the way in which the homebuilders
    Urbandale Construction and Richcraft get access to the building lots that become
    available through the partnerships land development activities.

[5]

Second, the application judge declared that actions to be taken by the
    partnership under Article 8.2 of the LPA, which sets out the consequences of a
    partner failing to advance funds to the partnership, must be approved by the
    unanimous consent of both Richcraft and Urbandale, as contended by Richcraft,
    not merely by an Ordinary Resolution, as contended by Urbandale.

[6]

The two declarations frame the two issues on this appeal: first, whether
    the 2005 document is enforceable; and second, whether partnership decisions
    under Article 8.2 of the LPA require unanimous consent.

[7]

I would affirm the application judges judgment that the 2005 document
    is enforceable. However, I would allow the appeal on the second issue; Article
    8.2 of the LPA does not require unanimous consent.

Issue 1: The Validity of the 2005 Document

[8]

This issue is the heart of this appeal, since its outcome will affect
    the future dealings of the partners, the operation of the partnership, and the
    progress of their land development project.

[9]

The 2005 document was signed on May 9, 2005 by the principal of
    Urbandale, Mr. Herbert Nadolny, and the principal of Richcraft, Mr. Krishnan Singhal.
    Mr. Nadolny died a few months after the document was signed. The evidence is
    that his partner Mr. Lyon Sachs learned of the 2005 document within days of it
    being signed, but raised no concerns about its meaning or application for many
    years.

[10]

The 2005 document is very brief:

The above parties agree as follows:

- The above parties have entered into joint agreements, October
    23, 2001 for Riverside South and September 6, 2000 the Kanata Lakes lands.

- Richcraft and Urbandale will have first right to purchase
    available lots in the above projects and will be divided equally at the same
    price.

- In the event that lots in the above two projects are sold to
    other builders and in return Urbandale and/or Richcraft have the right to
    purchase lots in other projects belonging to the other builders then any lot(s)
    acquired by either Urbandale or Richcraft will be shared equally between them
    if agreeable to both parties.

[11]

It is common ground that Urbandale in the 2005 document refers to
    Urbandale Construction Limited, an entity that is not a party to the LPA, but is
    identified in the LPA as the related company to which the partnership shall
    sell residential building lots.

[12]

Until this dispute arose, only about 500 lots had been released by the
    partnership for homebuilding. They were shared equally between Richcraft and
    Urbandale Construction.

[13]

The practical issue is whether the LPA, together with the 2005 document,
    permits Richcraft to take up to half of the building lots released by the
    partnership as the land development process unfolds. Richcraft asserts that it
    has that legal right under the LPA and the 2005 document. Urbandale denies the
    LPA gave Richcraft that right and takes the position that, to the extent the
    2005 document gave such a right to Richcraft, it is unenforceable, for three
    reasons: Richcraft gave no consideration for the 2005 document; the document
    does not meet the legal requirements for an enforceable option; and the terms
    of the 2005 document are fatally uncertain.

(1)

Is the 2005 document unenforceable because Richcraft did not give
    consideration?

[14]

The appellant argues Richcraft gave no consideration for the 2005
    Agreement. It is accordingly not a true bargain, and therefore not enforceable:
    see John D. McCamus,
The Law of Contracts
, 2d ed. (Toronto: Irwin Law,
    2012), at p. 215; G.H.L. Fridman,
The Law of Contract in Canada
, 6th ed.
    (Toronto, Carswell, 2011), at p. 81-82. The appellant also relies on the
    proposition of Ontario law that a subsequent agreement that purports to alter
    the terms of an existing agreement also requires consideration to be
    enforceable: see
Gilbert Steel Ltd. v. University Construction Ltd
.
    (1976), 12 O.R. (2d) 19 (C.A.), at p. 24.

[15]

I begin by setting the context for this issue, next I set out the
    application judges holding, then consider the parties arguments, and finally address
    the legal analysis.

(a)

Context

[16]

The dispute is over the future allocation of lots. The application judge
    identified the provoking incident for this application, at para. 20:

In 2013, Mr. Weinstein, Mr. Nadolny's son-in-law asked Mr.
    Singhal for lots to be sold to his company HN Homes. Mr. Singhal said he told
    Mr. Weinstein to look to Urbandale's share not his. It seems that was the
    triggering point for this application. Urbandale has since taken the position
    that it can make the decisions itself under the agreement without the need for
    Richcraft's agreement.

[17]

Mr. Sachs is the President of Urbandale. He was in the office when the
    2005 agreement was negotiated and signed, and saw it a short time later. The
    application judge recorded his evidence, at para. 25:

Lyon Sachs is President of Urbandale. He has no role in the
    Respondent, Urbandale Construction which is controlled by his son. He said that
    Urbandale had been patient with Richcraft up until now because Richcraft has
    not disturbed the development of the project or the functioning of RSLP. However,
    now that they are about to get into serious development, they need to settle
    the 'lots' and 'control' issues. He did note that in his view the overall
    success of the RSLP is best served when the owners work collaboratively and
    cooperate together. He said he interprets the LPA to permit the sale of lots to
    others because it uses the language "inter alia". He also thought
    that the "needs" of Richcraft for lots as per the LPA should be given
    a flexible definition; not necessarily 50-50. He admitted that to date there
    had been a 50-50 distribution but was of the view that market conditions would
    soon require sales to others. He thought that at the time of the 2005
    agreement, Mr. Nadolny was in failing health and was unable to clearly express
    his intentions.

[18]

Mr. Sachs was relying on his interpretation of Article 3.4 of the LPA:

3.4 Sale of Lots.
The Partnership shall sell
    residential building lots to,
inter alia
,
    Urbandale Construction Limited (Urbandale Construction). The partnership will
    at all times allow Richcraft to purchase from it such residential house lots to
    meet Richcrafts needs at the same price, and upon the same terms and
    conditions, as the partnership sells such residential building lots to
    Urbandale Construction. All other homebuilders in Riverside South will purchase
    such residential house lots at prevailing market rates and upon builders
    terms.

[19]

The appellants Notice of Appeal highlights a problem with the drafting
    of Article 3.4. It states that the application judge erred in failing to order
    that:

i.        the definition of Richcrafts needs in Article 3.4
    of the LPA is to be based on
objective evidence of
    Richcrafts need
for building lots at the time of each allocation of
    building lots by the Riverside South Limited Partnership (the Partnership),
    and

ii.       if there is a dispute between the Limited Partners in
    the Partnership as to Richcrafts needs at the time of any particular
    allocation of building lots,
the number of lots to meet
    Richcrafts needs at that allocation is to be determined by the Limited
    Partners by way of the passage of an Ordinary Resolution.
[Emphasis
    added.]

[20]

Richcrafts position is that it was entitled, under Article 3.4, to take
    as many lots as it wanted at the time of an allocation, and its assertion of
    its needs is determinative. The appellants response is that the determination
    of Richcrafts needs must be objective. This is inconsistent with the
    appellants other assertion that the number of lots to be allocated to
    Richcraft is to be determined by Ordinary Resolution of the partnership, which
    the appellant controls.

[21]

On this controversy, the wording of Article 3.4 of the LPA is not entirely
    clear. The appellants interpretation, as set out in the Notice of Appeal,
    would leave the determination of Richcrafts entitlement of lots entirely up to
    an Ordinary Resolution of the partnership, which the appellant controls.
    Subject to arguments about good faith, the appellant could shut out Richcraft
    from an allocation of lots using its superior power in the partnership. This
    prospect is precisely what, accordingly to the evidence, drove Mr. Singhal to
    seek clarity through the 2005 agreement, as the application judge found, at
    paras. 31 and 32. Given the 2013 triggering controversy over the request for an
    allocation by HN Homes, Mr. Singhal was prescient.

(b)

The application judges holding

[22]

The application judge, after setting out the evidence, concluded, at
    paras. 36-37:

The agreement of May, 2005 explicitly provides the parties will
    divide the lots equally. There is no evidence that Mr. Nadolny was not
    competent to sign the agreement. In addition the distribution of lots to date
    has been consistent with that agreement.

I find the conduct of the parties to date to be consistent with
    the language of the various agreements.

[23]

The judgment contains the application judges explanation of the result:

3.       In answer to the question Pursuant to Article 3.4 of
    the LPA can the partnership take a decision to sell residential building lots
    to entities other than Urbandale Construction Limited (Urbandale
    Construction) and/or Richcraft and if so, under what conditions or
    circumstances? the answer is: Yes, but Richcraft is entitled to 50% of
    residential lots made available. It may decline to exercise its option to
    purchase these lots however. In other words, if residential lots are to be sold
    to HN Homes, then in accordance with the May 9, 2005 Agreement, those lots
    would come from Urbandales share and from Richcrafts share to the extent that
    it declined to exercise its option, unless the parties agree otherwise. Sales
    to third parties, including HN Homes would be at the prevailing market value.

[24]

Paragraph 3 of the judgment effectively amends Article 3.4 of the LPA,
    to provide:

3.4 Sale of Lots. The Partnership shall sell residential
    building lots to,
inter alia
,
    Urbandale Construction Limited (Urbandale Construction). The partnership will
    at all times allow Richcraft to purchase from it
up to
    50% of such residential lots
at the same price, and upon the same terms
    and conditions, as the Partnership sells such residential building lots to
    Urbandale Construction. All other homebuilders in Riverside South will purchase
    such residential house lots at prevailing market rates and upon builders
    terms.

[25]

The appellant attacks this result.

(c)

Discussion

[26]

The appellant submits Richcraft gave no consideration for the 2005 document,
    so it is not a true bargain, and is therefore unenforceable. The only
    enforceable contract between the parties is the original LPA. The appellant
    relies on three decisions of this court to argue the law of Ontario precludes
    enforcement of the 2005 agreement:
Gilbert Steel
;
Gregorio v.
    Intrans-Corp
(1994), 18 O.R. (3d) 527 (C.A.); and
Holland v.
    Hostopia.com Inc.
, 2015 ONCA 762, 392 D.L.R. (4th) 650.

[27]

The facts of
Gilbert Steel
bear repeating
.
The
    plaintiff contracted with the defendant to supply fabricated steel at a fixed
    price per ton for the construction of apartment buildings. Steel for the first
    two of three projects was delivered and paid for at the prices set by the
    contract. Before construction on the third project started, the plaintiff was
    notified by the steel mill that the price of unfabricated steel was about to
    increase, and warned that the price would increase again in the near future.
    The plaintiff approached the defendant about this price increase, the parties
    entered a new written agreement for the supply of fabricated steel at a higher
    price, and construction on the third project commenced.

[28]

The steel mill then notified the plaintiff of another price increase.
    The plaintiff again approached the defendant about the price increase, and the defendant
    agreed orally to pay higher prices. Following this discussion, the plaintiff
    submitted a written contract containing these higher prices to the defendant,
    but the agreement was never executed. The defendant accepted delivery of the
    fabricated steel and was invoiced at the higher prices, but paid in rounded
    amounts that left an amount owing equal to the difference between the prices
    agreed to orally and the prices set out in the previous written agreement.

[29]

The plaintiff sued to recover the difference. The trial judge found that
    the defendants promise to pay higher prices was unenforceable due to a lack of
    consideration, given that the plaintiff was already obligated to deliver steel
    at the prices agreed to in the previous written agreement. This court, relying
    on the rule set out by Ellenborough L.J. in
Stilk v. Myrick
(1809),
    170 E.R. 1168 (K.B), that a promise to perform a pre-existing duty is not
    consideration for a contractual variation, upheld that finding on appeal.

[30]

The results were similar in both
Gregorio
and
Holland
.
    In
Gregorio
, this court held that a warranty agreement signed by a
    purchaser failed for lack of consideration, since the purchase agreement had
    been executed on a previous occasion and the warranty agreement was unsupported
    by fresh consideration. In
Holland
, this court held that an employment
    agreement limiting an employees entitlement to notice on termination to the
    statutory minimums was unenforceable; it was entered into almost nine months
    after the employee originally signed an offer letter that was silent on the
    issue of reasonable notice, and there was no fresh consideration. The court
    noted, at para. 52: [i]t is well-settled that a promise to perform an existing
    contract is not consideration.

[31]

When
Gilbert Steel
was issued, it attracted much commentary
    from academics critical of this courts application of the doctrine of
    consideration to the facts of the case: see e.g. J. Swan, Consideration and
    the Reasons for Enforcing Contracts (1976) 15 U.W. Ontario L. Rev. 83; B.J.
    Reiter, Courts, Consideration, and Common Sense (1977) 27 U.T.L.J. 439; S.M.
    Waddams, Variations of Contracts and the Requirement of Consideration: Gilbert
    Steel Ltd. v. University Construction Ltd. (1977) 2 Can. Bus. L.J. 232. The
    basic point was made by Professor Reiter, at p. 452, who questioned this
    courts rejection of the arguments advanced in favour of enforcing the
    agreement to pay higher prices: The effect  was to refuse enforcement to a
    business promise apparently made for valid commercial reasons, a surprising and
    seemingly undesirable result. Professor Swan observed, at p. 91, that,

[T]he doctrine of consideration is a most unsatisfactory tool
    for deciding what promises are going to be enforced by the courts. There may
    have been a good reason for refusing to enforce the contract in
Gilbert
    Steel v. University Construction
, but the finding of the trial judge that
    there was no duress would tend to show the contrary and, far more importantly,
    the justification given for the decision by both courts is quite irrelevant to
    any valid reason for refusing enforcement.

[32]

Professor McCamus, in
The Law of Contracts
, at p. 250, comments
    that the doctrine established in
Stilk v. Myrick
produces reasonable
    outcomes in cases where the promise to provide additional consideration is
    extracted by a promisee who is exploiting the promisors vulnerability but,
    referring specifically to
Gilbert Steel
, also notes that [t]he
    doctrine is also applicable  to what appear to be voluntary arrangements
    entered into by commercial parties with relatively equal bargaining power. He
    then argues that [i]t is thus over-inclusive in the sense that it captures and
    renders unenforceable many agreements that do not result from an unfair
    exploitation of vulnerability.

[33]

The respondent submits that the common law world has moved on since
Gilbert
    Steel
. For example, in
Williams v. Roffey Bros. & Nicholls
    (Contractors) Ltd
., [1990] 1 All E.R. 512 (C.A.), Russell L.J. stated:

A gratuitous promise, pure and simple, remains unenforceable unless
    given under seal. But where, as in this case, a party undertakes to make a
    payment because by so doing it will gain an advantage arising out of the
    continuing relationship with the promisee the new bargain will not fail for
    want of consideration.

See also
MWB Business Exchange Centres Ltd v Rock
    Advertising Ltd
, [2016] EWCA Civ 553.

[34]

The respondent also points out that the New Zealand Court of Appeal built
    upon the reasoning in
Williams v. Roffey Bros
. in
Antons Trawling Co.
    Ltd. v. Smith
, [2003] 2 N.Z.L.R. 23 (C.A.). In that case the court held,
    at para. 93:

We are satisfied that
Stilk v Myrick
can no longer be
    taken to control such cases as
Roffi Bros
[
sic
],  and the
    present case where there is no element of duress or other policy factor
    suggesting that an agreement, duly performed, should not attract the legal
    consequences that each party must reasonably be taken to have expected. On the
    contrary, a result that deprived Mr. Smith of the benefit of what Antons
    promised he should receive would be inconsistent with the essential principle
    underlying the law of contract, that the law will seek to give effect to freely
    accepted reciprocal undertakings.
The importance of
    consideration is as a valuable signal that the parties intend to be bound by
    their agreement, rather than an end in itself. Where the parties who have
    already made such intention clear by entering legal relations have acted upon
    an agreement to a variation, in the absence of policy reasons to the contrary
    they should be bound by their agreement.
[Emphasis added.]

[35]

And recently, in
Teat v. Willcocks
, [2013] NZCA 162, [2014] 3
    N.Z.L.R. 129, at para. 54, that same court, upholding the reasoning in
Antons
    Trawling
, observed:

[W]e are attracted to the alternative view expressed by this
    Court in
Antons Trawling Co Ltd v Smith
that no consideration at all
    may be required provided the variation is agreed voluntarily and without
    illegitimate pressure.
This seems to us to reflect the
    reality of what happened in the present case  a variation was proposed and
    willingly accepted, and the parties proceeded on that basis. In the context of
    an existing agreement supported by consideration, that seems to us to be
    sufficient to constitute a binding variation.
[Emphasis added, citation
    omitted.]

[36]

The respondent relies most heavily on
Greater Fredericton Airport
    Authority v. NAV Canada
, 2008 NBCA 28, 229 N.B.R. (2d) 238, where the
    court held, at para. 31, that a post-contractual modification, unsupported by
    consideration, may be enforceable so long as it is established that the
    variation was not procured under economic duress. The court observed, at para.
    28, that existing contracts are often varied and modified in response to
    contingencies not covered by the original agreement and in the interests of
    commercial efficacy such agreements should be enforceable with the
    modifications and variations. At para. 30, the court declared that [t]he
    doctrine of consideration and the concept of bargain and exchange should not be
    frozen in time so as to reflect only the commercial realities of another era.

[37]

The appellant submitted that the court should accept that
Gilbert
    Steel
, whatever the doctrinal fate of its premises might be in other
    jurisdictions, was settled Ontario law and applies squarely to preclude
    enforcement of the 2005 document.

(d)

Analysis

[38]

I first consider and dismiss a procedural argument made by the respondent,
    and then address the substantive argument about consideration.

Consideration was a live issue before the application judge

[39]

The respondent objects that the issue of consideration was not addressed
    by the application judge in his reasons because it was not a live issue before
    him.

[40]

However, the appellant notes the general issue of the 2005 documents
    enforceability was raised in the Notice of Application. Further, in Urbandales
    factum before the application judge the issue was raised, albeit somewhat
    obliquely:

93.     One needs to understand or characterize what the May 9,
    2005 document is. According to Mr. Singhal it was to be a reconfirmation of
    Richcrafts entitlement to building lots from the KNL and RSDC projects. It
    accordingly was not intended to create new rights but to confirm rights that
    have purportedly already existed. There was no consideration passing between
    the parties as no new rights or benefits were created or intended to be
    created. As such, one ought not to view this as a stand-alone agreement.

[41]

The respondent points out that it did not address the issue of
    consideration in affidavits or examination-in-chief and that the appellant asked
    no questions in cross-examination about the issue. This explains the statement
    in Richcrafts factum before this court: there is no evidence of fresh
    consideration supporting the 2005 agreement.

[42]

I would reject the respondents argument that this is a new issue on
    appeal. While it may not have been pursued vigorously, it was raised below and
    there is sufficient information on the record for this court to dispose of it.

There was consideration for the 2005 document

[43]

While the developing case law outside Ontario suggests that the time might
    be ripe for this court to re-consider the role that consideration plays in the
    enforceability of contractual variations, in my view,
Gilbert Steel
was a fundamentally different case on the facts and its holding has no
    application to this case.

[44]

The 2005 document lacks the formality of the LPA. As the application
    judge found, it was intended by Mr. Nadolny and Mr. Singhal to clarify the
    terms of the LPA. The potential for a dispute between the parties was plain
    enough on the language of Article 3.4 LPA to cause Mr. Singhal anxiety. On the
    facts, Richcraft was in no position to exert any kind of pressure on its senior
    partner, and Urbandale was not in a vulnerable position. The 2005 agreement was
    not, in my view, entirely one-sided in Richcrafts favour.

[45]

The observations of Angela Swan & Jakub Adamski, in
Canadian
    Contract Law
, 3d ed. (Markham: LexisNexis Canada, 2012), at para. 2.31,
    have merit here:

What is common to each type [of commercial exchange] is that
    the parties are exchanging commercial equivalents and that the reliance of each
    on the other permits needs to be satisfied and plans made. Because these
    relations are commercial exchanges, each party can obtain a benefit from the
    others performance and each may incur a detriment from its own performance.

[46]

Certainty in a long-term, ongoing business relationship is of value to the
    contracting parties because it avoids disputes and allows the parties to plan both
    their own affairs and also the orderly and reasonable unfolding of their business
    relationship. In
Gilbert Steel
,

the respective obligations of
    each of the contracting parties were already clear: Gilbert Steel was supplying
    fabricated steel; University Construction was purchasing it at an agreed-upon
    price. Therefore, it was also clear to see that when University Construction
    promised to pay a higher price than it had previously agreed, it received
    nothing in return over and above the steel to which it was already entitled
    under the contract.

[47]

The appellants assertion that the 2005 document represented a
    compromise of its entitlement to a greater than equal share of the lots, or in
    other words, a promise for which it received no consideration, assumes that it
    was in fact originally entitled to a greater than equal share. However, in my
    view, under the original terms of the LPA it was far from clear how many lots Urbandale
    Construction and Richcraft were each entitled to under Article 3.4. That
    article entitled Richcraft to such residential house lots to meet Richcrafts
    needs, with no limitation. The 2005 document clarified the issue of quantum:
    Richcraft was entitled to share equally in the available lots with Urbandale
    Construction. Clarifying an unclear term in a long-term contract, in order to create
    certainty and to avoid future costly disputes, enures to the parties mutual
    benefit, and is something of value that flows from and to each contracting party.
    It thus serves as a functional form of consideration.

(2)

The 2005 document is not an option agreement

[48]

The appellant submits that the 2005 agreement is no more than an option agreement
    and does not meet the legal requirements to be enforceable. This argument builds
    on the language of para. 3 of the judgment, excerpted more fully above, which
    states in part: Richcraft  may decline to
exercise its
    option
to purchase those lots, and that lots sold to third parties
    would come from Urbandales share and from Richcrafts share to the extent
    that it declined to
exercise its option
 (emphasis
    added).

[49]

The appellant argues that an option agreement is required by law to have
    certain elements, none of which are found in the 2005 document: see
Mitsui
    & Co. (Canada) Ltd. v. Royal Bank
, [1995] 2 S.C.R. 187, at paras. 26-27.

[50]

I would reject this submission. The application judge did not formally characterize
    the 2005 document as an option agreement, but only used the term to point out
    that Richcraft could decide to take up to half of the lots available on any
    particular allocation of lots by the partnership. Richcraft could take no lots
    or as many as half; that is the choice the application judge referred to as an
    option in a non-technical sense. In my view, the law relating to option
    agreements does not apply on these facts.

(3)

The terms of the 2005 document are not fatally uncertain

[51]

The appellant argues the 2005 agreement does not specify certain
    essential terms, including: how long Richcraft has to decide whether it will
    take up lots before the partnership can sell them to a third party builder; the
    terms on which Richcraft would purchase lots it decided to take; and, particularly,
    how such terms would relate to those available from a third party builder.

[52]

I would reject this argument. The trial judge did not see the 2005
    agreement as a stand-alone agreement, but as clarifying the LPA, in particular
    Article 3.4, as discussed above.

[53]

The issue of the timing of a response by Richcraft as to how many lots
    it would need out of any given allocation was not addressed in the original
    version of Article 3.4 of the LPA. In this regard it should be noted that among
    the items to be discussed at regular meetings of the partnership under Article
    7.2 of the LPA are the following:

a.       the entering into of any agreements for the sale of
    residential building lots on the Partnership Lands;

...

f.        all other issues relating to the development and sale
    of residential building lots on the Partnership Lands.

[54]

Under the LPA, as clarified by the 2005 agreement, the partnership would
    make an allocation of lots available at a particular time by Ordinary Resolution.
    Section 7.2 authorizes the partnership, by way of Ordinary Resolution, to make
    an allocation of lots and offer it to Urbandale Construction and to Richcraft.
    There is no reason why such a resolution could not establish a reasonable time
    frame within which both Urbandale Construction and Richcraft must identify the
    number of lots each wishes to take up. Once that is done, and the period
    expires without the lots being taken up by either Urbandale Construction or Richcraft,
    then the allocation could be offered on the open market. The terms upon which
    Urbandale Construction and Richcraft can acquire lots are to be the same.
    Whether these terms are advantageous, as compared to prevailing market rates
    and upon builders terms on which Article 3.4 obliges the partnership to offer
    lots to other homebuilders in Riverside South, is for the partnership to
    decide.

[55]

There is, in my view, no difficulty in applying the LPA as clarified by
    the 2005 document. There is, in other words, no lack of certainty in the 2005
    document.

Issue 2: Does Article 8.2 of the LPA require unanimous
    consent?

[56]

Article 8.2 comes into active force only if one of the partners has
    failed to advance funds to the partnership. No such instance has arisen in the
    many years of the partnerships operation. The issue is whether the application
    judge was correct in deciding that the partnership could not take action
    against a defaulting partner under Article 8.2 without unanimous consent.

[57]

I begin with a brief overview of the governing principles of law, next
    summarize the application judges reasons, and then apply the principles.

(1)

The Governing Principles

[58]

This court summarized the principles applicable to the interpretation of
    commercial contracts in
Ventas, Inc. v. Sunrise Senior Living Real Estate
    Investment Trust
(2007), 85 O.R. (3d) 254 (C.A.), at para. 24:

Broadly stated ... a commercial contract is to be interpreted,

(a) as a whole, in a manner that gives
    meaning to all of its terms and avoids an interpretation that would render one
    or more of its terms ineffective;

(b) by determining the intention of the
    parties in accordance with the language they have used in the written document
    and based upon the "cardinal presumption" that they have intended
    what they have said;

(c) with regard to objective evidence
    of the factual matrix underlying the negotiation of the contract, but without
    reference to the subjective intention of the parties; and (to the extent there
    is any ambiguity in the contract),

(d) in a fashion that accords with
    sound commercial principles and good business sense, and that avoids a
    commercial absurdity. [Citations omitted.]

See also
SimEx Inc. v. IMAX Corp.
(2005), 11
    B.L.R. (4th) 214 (Ont. C.A.), at paras. 19-23;
Dumbrell v. The Regional
    Group of Companies Inc.
, 2007 ONCA 59, 85 O.R. (3d) 616, at paras. 51-56;
    and
3869130 Canada Inc. v. I.C.B. Distribution Inc.
, 2008 ONCA 396, 45
    B.L.R. (4th) 1, at para. 31;
and
Sattva
    Capital Corp. v. Creston Moly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633, at
    para. 64.

[59]

This court has recognized that it is an extricable error of law to read
    a provision of a contract in isolation rather than construe the contract as a
    whole: see
1298417 Ontario Ltd. v. Lakeshore (Town)
, 2014 ONCA 802, 122
    O.R. (3d) 401, at paras. 7-8, leave to appeal refused, 2015 CarswellOnt 10068,
    2015 CarswellOnt 10069; see also
Sattva
, at para. 64.

(2)

The Application Judges Reasons

[60]

The relevant provisions of the LPA set the context for the application
    judges analysis.

(a)

The relevant contractual provisions

[61]

As noted earlier, the LPA defines Ordinary Resolution to mean a
    resolution passed by more than 50% of the votes cast at a duly constituted
    meaning of Limited Partners or a written resolution signed in one or more
    counterparts by Limited Partners holding more than 50% of the outstanding Units
    entitled to vote at a meeting. Since Article 2.2 gives Urbandale 66.66% of
    partnership interest and Richcraft 33.33%, the parties intended Urbandale to
    have control of the partnership in relation to matters that could be addressed
    by Ordinary Resolution.

[62]

Section 8.2 provides:

8.2 Failure to Advance Funds.

If at anytime the Partners agree, by way of Ordinary Resolution
,
    that they shall advance funds to the Partnership and thereafter any Limited Partner
    (the Defaulting Limited Partner) fails to advance its portion of such funds
    (the Defaulted Advance), then the other Limited Partner (the Non-Defaulting
    Limited Partner) shall be entitled to advance to the Partnership the Defaulted
    Advance on behalf of the Default Limiting Partner and thereafter [is entitled
    to certain remedies]. [Emphasis added.]

(b)

The application judges interpretation of Article 8.2

[63]

The application judge explained his interpretation of Article 8.2 at
    para. 46:

What is the meaning and application of Article 8 of the LPA?

Answer: The provision speaks for itself. Neither party has
    taken the position that there are or have been irreconcilable differences
    between the parties. In the event either party takes the position that the
    facts or factual matrix exists such as to come within Article 8, the provision
    sets out a procedure to follow. If necessary at that time, then judicial
    intervention may be sought on the facts as they may exist at that time; and
    after the parties have complied with the provision in Article 8 so there is a
    Record for the court to consider. I do note however, that article 8.2
    contemplates that the parties
agree by ordinary resolution
(emphasis
    added [by application judge]). That is a departure from an ordinary resolution
    that does not require the agreement of the parties, and is similar to Article
    9.1.

[64]

Article 9.1 of the LPA provides:

9.1 Amendments.
This Agreement may be amended
    only in writing and only with the written consent of both of the Limited
    Partners given by Ordinary Resolution.

(1)

The Principles Applied

[65]

The application judges logic for interpreting Article 8.2 to require
    unanimous consent depends on his finding that the language in Article 8.2 was
    unique, in his words, a departure, when it used the words: If at anytime,
    the Partners agree, by way of Ordinary Resolution.

[66]

With respect, this is not an accurate description of the LPAs use of
    language. The same phrasing is used in Article 7.1 dealing with a general
    meeting of the partners, which provides: At such meetings all matters will be
    discussed and
agreed to by the Partners by way of
    Ordinary Resolution
(emphasis added). In addition, Article 7.2 provides
    for regular meetings and states: At such meetings the following matters will be
    discussed and
agreed to by the Partners by way of
    Ordinary Resolution
 (emphasis added). There is nothing unique about the
    language of Article 8.2 that compels a different approach to the concept of
    Ordinary Resolution so as to require unanimity in taking steps against a
    defaulting partner.

[67]

Moreover, the LPA contemplates disagreement. Article 7.4 provides: All
    Ordinary Resolutions shall be binding on all Partners and whether or not such
    Partner voted against such resolution. But, if the phrase, agree, by way of
    Ordinary Resolution, in Article 8.2 requires there to be unanimous consent as
    the application judge found, then resolutions at general meetings of the
    partners, and at their regular meetings would also require unanimous consent.
    In short, Article 7.4 would have no meaning or purpose.

[68]

Finally, I note Article 9.1, which the application judge pointed to as being
    similar to Article 8.2, applies in an entirely different context and performs a
    very different function. It is concerned with amendments to the LPA. Without
    the requirement in Article 9.1 for the written consent of both of the Limited
    Partners, Urbandale could unilaterally amend the LPA to its advantage by
    Ordinary Resolution, which is what the Article seeks to prohibit.

(2)

Conclusion on the Interpretation of Article 8.2

[69]

While the application judge instructed himself properly, at para. 30, on
    the obligation to interpret individual provisions in light of the entire contract,
    he failed to do so. It is an error in principle to adopt an interpretation that
    renders meaningless a provision of an agreement, in this case Article 7.4.
    Further, if the application judges interpretation was correct, then Richcraft
    could resist a partnership capital call under Article 8.2 with impunity. Such
    an outcome would not be commercially reasonable. The application judges
    interpretation of Article 8.2 of the LPA is contrary to both commercial
    principles and good business sense.

Disposition

[70]

I would affirm the application judges judgment that the 2005 document
    is enforceable. However, I would allow the appeal on the second issue. In light
    of the errors made by the application judge in interpreting Article 8.2 of the
    LPA, I would delete the last two sentences of para. 8 of his judgment, so that
    para. 8 would instead read:

8. In answer to the question What is the meaning and
    application of Article 8 of the LPA the answer is: The provision speaks for
    itself.

The parties agreed that the successful party would be
    entitled to costs in the amount of $30,000 inclusive of disbursements and
    applicable taxes. The respondent was successful on the main issue, but not on
    the secondary issue. I would leave it to the parties to resolve costs. If they
    are unable to do so, then cost submissions limited to five pages should be
    filed within 10 days of the date of release of these reasons, followed by reply
    submissions within an additional 10 days.

Released: August 11, 2016 PL

P.
    Lauwers J.A.

I
    agree John Laskin J.A.

I
    agree L.B. Roberts J.A.


