J. Q.B. A.D. 1997 No. 16 J.C.W. IN THE QUEEN'S BENCH JUDICIAL CENTRE OF WYNYARD BETWEEN: JOSEPH NYCHOLAT and RONALD HALPAPE PLAINTIFFS (DEFENDANTS BY COUNTERCLAIM) and ROYAL BANK OF CANADA DEFENDANT (PLAINTIFF BY COUNTERCLAIM) R. Peet for the plaintiffs N. Fisher for the defendant JUDGMENT LAING J. April 9, 1998 [1] The plaintiffs seek a declaration that they havecomplied with the requirements of section 27(2) of TheSaskatchewan Farm Security Act, S.S. 1988-89, c.S-17.1 (the"Act"), and an order requiring the defendant to sell to themthe lands which are the subject of their exercise of theirright of first refusal under the Act. [2] The defendant resists the requested relief on the basis the plaintiffs did not validly exercise their right of first refusal. Specifically that they did not within the required time frame meet the requirements set out in s. 27(2)(b) of the Act which states: (2) farmer described in subsection (1): (b) where he notifies the mortgagee of his intention to exercise his right and on the expiry of the 15-day period mentioned in clause (a), shall provide within 15 days either: (i) the purchase price; or (ii) an unconditional and unequivocal letter of commitment from recognized financial institution to the mortgagee to finance within reasonable period of time the farmer's purchase of the farm land that is the subject of the offer and for the price stated in the [3] The defendant's objections are two fold: (1) That the legislation (s. 27(2)(b)(ii) requires an unconditional letter of commitment from recognized financial institution to it as the mortgagee, and as no such letter was forthcoming from Farm Credit Corporation to it, the legislation was not complied with. (2) That the loan approval issued by Farm Credit Corporation is not an unconditional and unequivocal commitment to finance the purchase of the farm land. [4] The defendant also counterclaims against theplaintiffs for rent it claims owing from the plaintiffs asover holding tenants. Background Facts [5] The plaintiffs in 1988 surrendered to the defendant considerable amount of farm land in circumstances which qualified them for the statutory right of refusal subsequently enacted in s. 27 of The Farm Land Security Act. On March 24, 1997, the defendant accepted written offer from third party to purchase 14 quarter sections of the plaintiffs' previously surrendered land for price of $629,280.00. This same date the defendant prepared letter which was served on the plaintiffs by April 4, 1998, in which it advised the plaintiffs of the offer and enclosed form to be completed by them in the event they wished to exercise their right of first refusal. The letter dated March 24, 1997 stated in part as follows: If you intend to purchase the property, you must notify the Bank in writing within 15 days of receipt of this letter. To effect this notification, please complete the top portion of the attached sheet and return. If you do not intend to purchase the property, please complete the bottom portion of the attached sheet and return. self addressed envelope is enclosed. The form attached which was completed by the plaintiffs stated as follows: This is notification that intend to purchase the above property outlined in your letter dated March 24, 1997 in the amount of $629,280.00. understand that the Saskatchewan Farm Security Act, provides 15 days from the receipt of your letter to confirm my intention to meet this offer and further 15 days are then granted to: 1. Provide the purchase price in full 2. Provide an unconditional and unequivocal letter of commitment from recognized financial institution to finance within reasonable period of time the purchase price stated above. [6] In letter dated April 17, 1997, the defendant wrote to the solicitor acting for the plaintiffs, and in this letter set out what it considered to be reasonable time for completion of the exercise of right of first refusal. This letter stated in part as follows: As per your request we wish to advise that your clients have until 4:00 PM Monday May 5th to provide our office with either: 1) Payment of the full purchase price amounting to $629,280.00. 2) Provide an unconditional and unequivocal letter of committment [sic] from an recognized financial institution to finance the purchase and committment [sic] to provide our office with the full purchase price by May 30th, 1997. [7] In letter dated April 30, 1997 the solicitor acting for the plaintiffs advised the Royal Bank that financing had been obtained from the Farm Credit Corporation in the amount of $478,720.00. The letter went on to state: The balance of the purchase price in the sum of $150,560.00 is to be delivered to Our Firm on or before 4:00 p.m. Monday May 5, 1997 and we shall be providing to you confirmation of receipt of these funds prior to that time. We write to you now for the purpose of providing to you the enclosed confirmation of Loan Approval and to obtain your confirmation of receipt of the same and your confirmation that the Royal Bank of Canada accepts this documentation as sufficient and satisfactory letter of commitment in respect to financing. [8] In letter dated May 1, 1997 the defendant replied to the foregoing letter and stated in part: we advise that the following would be the appropriate documentation: 1) An Unconditional [sic] and unequivocal Letter of Commitment from Farm Credit Corporation, addressed to our office, to finance the purchase, with the proceeds to be provided by May 30, 1997; with the letter to be provided to our office by 4:00 p.m. May 5, 1997. 2) letter from your office, advising that the balance of the purchase price is held in trust by your office without conditions; this letter to also be provided by 4:00 p.m. May 5, [9] On May 5, 1997 the solicitor acting for the plaintiffs wrote to the defendant and stated in part as follows: Firstly, in respect to financing of the purchase price, FCC has advised Our Firm, as you are likely aware, that FCC does not provide letters as you have requested of unconditional and unequivocal nature. The loan approval, copy of which was earlier provided to you, represents the commitment to the extent that FCC is prepared in this and any other situation to confirm. We suspect that you and/or the Royal Bank of Canada had many dealings in similar situations in which FCC's loan approval letter has been accepted as an unconditional and unequivocal letter of committment [sic] and we rely upon your exercising similar discretion in the current circumstances. In respect to the balance to close, we have received and receipted to Joe Nycholat the sum of $150,560.00 representing the entire balance to close this transaction. We understand from your correspondence of May 1, 1997, that you do not require delivery of these monies until May 30th, 1997 and we look forward to receiving your confirmation of this fact at your first opportunity. [10] In letter dated May 27, 1997 the solicitor acting for the plaintiffs wrote to the defendants solicitors and stated in part as follows: With this Order now granted, (Farm Land Security Board exclusion of home quarter order) we are in position to proceed to register the Mortgage immediately upon our receiving from your office registerable Transfer of the Titles to the lands being purchased by our clients. We await receipt of the necessary Transfer documents at your very first opportunity. [11] The loan approval issued by Farm Credit Corporation is dated April 25th, 1997 and is addressed to the plaintiffs. The form states in part: Farm Credit Corporation (FCC) is pleased to approve loan for you with the following repayment terms: By copy of this Loan Approval we are instructing the following solicitor to proceed with the legal work required to complete the security documentation in connection with this loan: (it identified the plaintiffs solicitor). CONDITIONS OF LOAN: (the only relevant ones to these proceedings) 10. An order under Section 44(12) of The Saskatchewan Farm Security Act excluding this mortgage from the operation of Section 44 of the said Act is required. The NW 10-37-14W2 is homestead. It is assessed at $6,430.00. Our valuation of this parcel is $51,400.00 bareland and $131,000.00 with improvements. 11. Subject to completion of Environmental Assessment (FCC Form 4916) on the security and acceptability thereof by FCC. [12] The environmental assessment certification requested in condition number eleven was completed on May 5, 1997. The Farm land Security Board order excluding the homestead quarter from the operation of s. 44 is dated May 20, 1997. Both of these documents were provided to the Royal Bank's solicitors by May 27, 1997. [13] The defendant declined to accept the FCC loan approval as an unconditional and unequivocal letter of commitment. This law suit is the result. [14] The defendant, Royal Bank of Canada, puts itself forward as mere stakeholder under the legislation, which in sense it is. Its point is that it is required to insist on strict compliance with the requirements of the Act from the plaintiffs, in fairness to the purchaser who has agreed to purchase the land subject to the right of first refusal. This position is accepted, but it does not detract from this Court's obligation to determine if in fact and in law the plaintiffs validly exercised their right of first refusal. Non-compliance with the legislation (1) That the legislation (s. 27(2)(b)(ii) requires an unconditional letter of commitment from recognized financial institution to it as the mortgagee, and as no such letter was forthcoming from Farm Credit Corporation to it, the legislation was not complied with. [15] The short answer to this argument is that thedefendant waived its right to insist on strict compliance withthe legislation by offering a different requirement for theexercise of the right of first refusal in its offer enclosedwith the cover letter dated March 24, 1997. In the offer form, it did not require that it be forwarded letter of commitment directly from recognized financial institution. It simply required that the plaintiffs "provide" such letter. As noted above, the form of offer stated "provide an unconditional and unequivocal letter of commitment from recognized financial institution to finance etc. [16] The plaintiffs accepted the terms offered by the defendant and acted on them. The letter from the defendant's solicitors dated May 1, 1997, was the first time request was made for letter addressed to it from the financial institution, and was an attempt to unilaterally change the initial requirement imposed on the plaintiffs. In the interval, the plaintiffs had committed themselves to the Farm Credit Corporation, who as it turns out was not prepared to provide such letter, and they also had incurred liabilities with Farm Credit Corporation for loan processing fees and solicitor costs. Prior to the May 1, 1997 letter the plaintiffs had complied with the original contractual obligation to "provide" letter of commitment from recognized financial institution. The Farm Credit Corporation loan approval had been faxed to them on April 30, 1997. The Loan Approval was not Unequivocal and Unconditional (2) That the loan approval issued by Farm Credit Corporation is not an unconditional and unequivocal commitment to finance the purchase of the farm land. [17] To paraphrase Barclay J. in Bart et al. v. Phoenix Farms Ltd. (1996), 1996 CanLII 6678 (SK QB), 149 Sask. R. 48 (Q.B.), the right of first refusal sections contained in the Act are there for the benefit of those farmers who through circumstance were required to surrender their farm land to financial institution because of an inability at the time to pay the ongoing mortgage commitments. The Act provides that such farmers are thereafter entitled to lease the land back from the financial institution, and the Act then goes on to provide right of first refusal to such farmer in the event the financial institution decides to sell the land. The rights of first refusal provisions contained in the Act are part of an overall objective to restore the farmer to his or her prior position as owner of the land in the event such person has the financial means to repurchase the land. [18] The first point to observe about the wording of s.27(2)(b)(ii) of the Act, and the wording used by the defendantin its offer of first refusal is that both refer to a letterof commitment to finance; - not a letter of credit bindingthe financial institution to advance money in any event. Thislatter document would be beyond the means of most farmers whohad recently experienced difficult financial circumstances,for the simple reason that banks do not issue letters ofcredit unless they are already secured or satisfied that theperson on whose behalf the letter is to be issued is good forthe money on an unsecured basis. [19] The second point worth observing is that in Saskatchewan farm land context, the commitment to finance referred to in the Act means mortgage financing for the vast majority of persons who would be seeking to exercise right of first refusal. To interpret the letter of commitmentreferred to in the Act in a manner that would exclude mortgagefinancing, would eliminate the ability of most farmers toexercise the right of first refusal. [20] It is against the foregoing background that the phrase "unconditional and unequivocal letter of commitment" is to be interpreted. [21] Mortgage financing is always subject to terms which for the most part are routine and well understood. The terms of mortgage financing will always require certain things be performed before money will be advanced. Usual terms can include that the mortgage shall be first charge, surveyors certificate, homestead waivers, etc. Neither the legislation, nor the defendant's offer to the plaintiffs required unconditional terms of financing. Rather what both required is an unconditional commitment to finance. [22] There is difference between the terms of commitment, and the terms of the financing which may result from such commitment. What the Act requires is that the commitment not be subject to terms. In other words there are no conditions precedent attached to the commitment that would make the commitment conditional on some particular event or requirement. [23] The loan approval issued by Farm Credit Corporation was an unconditional and unequivocal commitment to lend the plaintiffs mortgage financing in the total amount of $480,000.00, $478,720.00 of which was to be disbursed to the Royal Bank of Canada for purchase of the subject land. The loan approval form states: Farm Credit Corporation (FCC) is pleased to approve loan for you with the following repayment terms: By copy of this Loan Approval we are instructing the following solicitor to proceed with the legal work required to complete the security documentation in connection with this loan: PURPOSES OF LOAN 2. Royal Bank of Canada.. To purchase land...$478,720.00. There was nothing conditional or equivocal about the foregoing commitment. [24] The Farm Credit Corporation loans officer who approved the plaintiffs' loan testified at the trial. He indicated that he had been involved in somewhere between 10 and 20 financings by Farm Credit Corporation on behalf of persons exercising right of first refusal under the Act. He stated Farm Credit Corporation's policy was to never issue letter with respect to loan approval as was requested by the defendant in this case, as its issued loan approval form specified the nature of the commitment it was making. He stated that on the 10-20 previous applications he had been involved with, the funds had always been drawn down which indicated to him that Farm Credit's loan approval form had been accepted as compliance by the mortgagee in each case. This evidence is mentioned simply to indicate the interpretation of the legislation offered in the foregoing has been accepted by any number of mortgagees in the province. [25] It is appreciated the foregoing interpretation is at odds with the obiter dicta of Dielschneider J. in Olsen v. Farm Credit Corp., [1991] S.J. No. 210 (Q.L.), Sask. Q.B. No. 618/90, J.C. Prince Albert. However, Dielschneider J.'s remarks were made with respect to motion to dismiss statement of claim as being false, frivolous and vexatious, and he did not have the benefit of full argument on the point. As result, do not consider his remarks binding on me. Adequacy of the Notice Received by the Plaintiffs [26] The plaintiffs took issue with the notice they received from the defendant in its letter of March 24, 1997, and submit this notice does not contain the terms of the offer the defendant received from the third party, but simply advises of the price, in contravention of s. 27(1) of the Act. As have decided the plaintiffs are entitled to relief in this matter, will not address the arguments advanced with respect to this issue. Relief [27] The plaintiffs are entitled to the following relief: (1) A declaration they have complied with therequirements of s. 27 of The Farm Land SecurityAct in exercising their right of first refusalwith respect to the subject land. (2) An order that the defendant forthwith transferto the plaintiffs the subject land for theprice of $629,280.00, which price is payable tothe defendant by the plaintiffs on the usualtrust conditions. (3) The defendants counterclaim is dismissed. (4) Costs of the action. [28] Judgment accordingly.
The plaintiffs sought a declaration that they had complied with the requirements of s27 of the Saskatchewan Farm Security Act and an order requiring the defendant to sell them the lands which were subject to their right of first refusal under the Act. The defendant objected on the basis the plaintiff did not meet the time frame requirements set out in s27(2)(b) as an unconditional and unequivocal letter of committment to finance the purchase had not been issued by the Farm Credit Corporation. The defendant counterclaimed for rent owing by the plaintiffs as overholding tenants. HELD: A declaration issued that the plaintiffs had complied with s27 of the Farm Security Act in exercising their right of first refusal and the defendant was to forthwith transfer the land to the plaintiffs for $629,280 on the usual trust conditions. The defendants' counterclaim was dismissed. 1)The defendant waived its right to insist on strict compliance with the legislation. Prior to the May letter the plaintiffs had complied with the original obligation to provide a letter of committment from a recognized financial institution. The request for a letter addressed to it from a financial institution was first made in May 1997 and was an attempt to unilaterally change the initial requirement imposed on the plaintiffs. 2)Both the wording of s27(2)(b)(ii) and the wording used by the defendant in its offer of first refusal refer to a letter of committment to finance. A letter of credit binding the financial institution to advance the money in any event would be beyond the means of most farmers who had recently experienced difficult financial circumstances. To interpret the letter of committment referred to in the Act in a manner that would exclude mortgage financing would eliminate the ability of most farmers to exercise the right of first refusal. There were no conditions precedent attached to the committment. 3)As the plaintiffs were entitled to relief the arguments concerning adequacy of notice from the defendant was not addressed. 4)The plaintiffs were awarded costs.