A-362-76
Value Development Corp. (Plaintiff) (Appellant)
v.
The Queen (Defendant) (Respondent)
Court of Appeal, Pratte and Le Dain JJ. and Hyde
D.J.—Montreal, September 20 and 23, 1977.
Crown — Contracts — Lease — Sliding-scale clause re rent
escalation and municipal real estate taxes — Mistake in lease
as to base year in which increase to be calculated — Whether
or not respondent responsible for increases based on clause
intended, or clause in written and signed lease.
Appellant's long-term lease with respondent included a slid-
ing-scale clause that provided for respondent's paying all taxes
in excess of twenty per cent over the base year's taxes. The
"Instructions to Bidders" indicated 1969 to be the base year,
but a mistake in the lease described 1968 as the base year. The
Trial Judge, in a suit by appellant for amounts it claimed owing
by virtue of this sliding-scale clause, concluded 1969 was the
base year agreed upon. Appellant now argues that the Trial
Judge erred in law in assuming that the terms of the lease were
to be determined not by the written document signed by the
parties, but by the offer made by appellant when it submitted
its bid. It is also submitted that the Trial Judge improperly
assessed the evidence.
Held, the appeal is dismissed. The fact that the Trial Judge
may have been overly brief does not necessarily mean that he
improperly assessed the evidence and wrongly decided the case.
The Trial Judge did not mean that the terms of the contract
concluded by the parties had been definitely determined by
appellant's offer, but rather that in so far as appellant's bid was
consistent with "Instructions to Bidders", it disclosed the terms
to which the parties were prepared to agree. In the absence of
any clear information on whether the parties changed their
agreement after appellant's offer and the signature of the lease,
it is difficult to believe that a clause that appeared in its
entirety to be reasonable was changed in such a way as to make
it absurd. A reasonable clause would protect the owner from
unforeseen tax increases, but would become absurd if it were to
force the tenant to pay all tax increases.
APPEAL.
COUNSEL.
Jack Greenstein, Q.C., for appellant.
Jacques Ouellet for respondent.
SOLICITORS:
Geoffrion, Prud'homme, Chevrier, Cardinal,
Marchessault, Mercier & Greenstein, Mont-
real, for appellant.
Deputy Attorney General of Canada for
respondent.
The following is the English version of the
reasons for judgment delivered orally by
PRATTE J.: Appellant is the owner of a building
in Outremont, which it leased to respondent for a
twenty-year term beginning on December 1, 1968.
The lease signed by the parties provides, among
other things, that the owner shall pay the real
estate taxes, but that whenever these taxes exceed
the 1968 taxes by more than twenty per cent the
tenant shall pay the owner an amount equal to this
excess.
In 1975 appellant brought an action against
respondent, claiming that respondent owed it more
than $68,000 as a result of increases in real estate
taxes since the beginning of the lease.' Respondent
argued that owing to an error the lease signed by
the parties does not reflect the contract they con
cluded, according to which the additional amounts
to which appellant is entitled as a result of
increased real estate taxes were to be calculated
with reference to 1969 taxes and not 1968 taxes.
Respondent concluded her defence by acknowledg
ing that she owed appellant $14,237.87 (which was
paid prior to the hearing of the case) and by
requesting that the error be corrected by the judg
ment to be pronounced. The Trial Judge dismissed
appellant's action, except for costs, and granted
respondent's request for rectification of the mis
take. It is against this judgment that an appeal has
been brought.
The material facts of this case are established by
documentary evidence that may easily be summa
rized.
Late in 1967 or early in 1968, the Department
of Public Works called for bids for the leasing to
respondent of a building to be used as a post office
in Outremont. The conditions with which these
bids were to comply were specified in a document
' The size of the claim is not surprising in view of the fact
that the building in question was not built until the end of
1968, so that the real estate taxes for that year were based only
on the value of the vacant land.
entitled "Instructions to Bidders", which was given
to all those who, like appellant, wished to bid. This
document stated that the rent agreed upon would
not be changed for the term of the lease, with the
single exception that the owner would be entitled
to compensation from the tenant for years in
which real estate taxes were more than twenty per
cent higher than the taxes for "the first full calen
dar year of the lease". On February 21, 1968
appellant submitted to respondent a bid that
referred explicitly to the terms contained in the
"Instructions to Bidders". On April 25, 1968
appellant sent a written modification of its bid to
the Department of Public Works: it reduced the
rent but required that in return a clause be insert
ed in the lease to guarantee against an increase of
more than twenty per cent in the annual cost of
operating the building. On May 31, the Depart
ment of Publie Works informed appellant in writ
ing that its bid had been accepted. This letter
began by informing appellant that signature of the
proposed lease had been approved by Treasury
Board and went on to summarize the provisions of
the lease, concluding with the following paragraph:
In the event that Municipal Real Estate Taxes rise to the extent
that in any tax year the said taxes exceed 120% of the tax
imposed for the base year (1968), the Crown, as Lessee, will
pay your Corporation, in addition to rent, that portion of the
excess taxes which bears the same ratio to the total excess taxes
as the area occupied by the Crown under this lease bears to the
total area of the building. This clause also applies to operating
costs.
Shortly thereafter—the evidence does not provide
us with the exact date—the president of appellant
company signed the draft lease, which contained
one sliding-scale clause for real estate taxes and
another for operating costs. Both these clauses
referred to the same base year, 1968.
In April 1969, the draft lease that had been
signed by the president of appellant company was
examined by a Mr. Wolfe, an officer of the
Department of Public Works. Wolfe was the
immediate supervisor of a Mr. Charlebois, who
had been responsible for all negotiations regarding
the lease. Upon examining the draft, Wolfe noted
several errors, and in particular the reference to
1968 rather than 1969 in the two sliding-scale
clauses. He then wrote to Charlebois, pointing out
these errors and asking him to correct them and
return the file to him. Charlebois received this
letter and made marginal notations on it which are
difficult to understand, but which suggest that in
his opinion the error pointed out in the two sliding-
scale clauses should not be corrected. 2 Charlebois
returned the draft contract to Wolfe after making
only some of the corrections requested. In his
corrected version the clause concerning increased
operating costs referred to 1969 as a base year, but
the clause concerning increased real estate taxes
still referred to 1968. When the file was returned
to him, Wolfe neglected to make sure that Char-
lebois had carried out his instructions properly,
and sent the draft lease as it stood to his superiors
for signature. That is how the contract signed by
the parties came to contain the following clause on
which appellant based its claim:
1. In the event that Real Estate Taxes rise to the extent that in
any tax year the said taxes exceed 120% of the tax imposed
for the base year, the Lessee will pay the Lessor, in addition
to rent, that portion of the excess taxes which bears the same
ratio to the total excess taxes as the area occupied by the
Crown under this lease bears to the total area of the building.
2. For the purpose of sub-section (1):
(a) "Base Year" means the tax year commencing January
1st, 1968 and ending December 31st 1968.
(b) "Excess Taxes" means taxes in excess of 120% of taxes
levied for the base year.
(c) "Real Estate Taxes" shall not include local improvement
charges.
The Trial Judge allowed the conclusions of
respondent's defence because he believed that the
reference to 1968 in the above clause was the
result of an error, and that the parties had in fact
agreed that the base year referred to in this clause
would be 1969, which was "the first full calendar
year of the lease".
Appellant disputed this decision on the grounds
that it is based on an error of law and an incorrect
assessment of the evidence.
2 The reason that the meaning of these notations could not be
established at the trial is that Mr. Charlebois died in 1970.
The error of law imputed to the Trial Judge is
his assumption that the terms of the lease were
determined not by the written document signed by
the parties but by the offer made by appellant
when it submitted its bid. In my opinion, this
argument is not valid. If the Trial Judge's remarks
on this subject are taken in context, it seems clear
to me that he did not mean that the terms of the
contract concluded by the parties had been defini
tively determined by appellant's offer. What he did
mean, in my opinion, was that in so far as appel
lant's bid was consistent with the "Instructions to
Bidders", it disclosed the terms to which the par
ties were prepared to agree at that time and, also,
the terms of the contract that in the normal course
of events would be concluded between the parties
if appellant's bid were accepted.
Appellant also alleged that the Trial Judge
improperly assessed the evidence, and claimed that
this evidence does not justify the conclusion that
the parties agreed to refer to 1969 in the sliding-
scale clause for real estate taxes. The reasons
alleged for the Trial Judge's error on this point
were as follows:
(a) failure to consider the contents of the letter
of May 31, 1968 informing appellant that signa
ture of the lease had been approved by Treasury
Board;
(b) failure to draw the proper conclusions from
Charlebois' notations on the letter from Wolfe
requesting that he correct the draft lease;
(c) finally, failure to take into consideration the
uncontradicted testimony of the president of
appellant company, who stated that he had
never agreed to have the clause in question refer
to 1969.
It would certainly have been preferable for the
reasons for the decision a quo to have contained a
more detailed analysis of the evidence and more
explicit findings on the facts. The fact that the
Trial Judge may have been overly laconic, how
ever, does not necessarily mean that his decision
was wrong.
When appellant submitted its bid it made
respondent an offer that referred expressly to the
"Instructions to Bidders". Appellant was therefore
offering to sign a lease containing a sliding-scale
clause for real estate taxes referring to "the first
full calendar year of the lease" as the base year.
This "first full calendar year of the lease" could
not be 1968, since the bid itself was made after the
beginning of that year and referred to the leasing
of a building on which construction had not yet
begun. There is no evidence that appellant's bid
had been changed with regard to this point when,
in May 1968, appellant was informed of respond
ent's acceptance. The agreement between the par
ties was therefore complete at that time. It is true
that the letter of May 31 referred to 1968 rather
than 1969 as the base year, but in my view, taking
into consideration the wording of the "Instructions
to Bidders", it is clear that the reference to 1968
rather than 1969 in this letter was the result of a
simple error in calculation, which did not prevent
the existence between the parties at that moment
of an agreement to sign a lease containing a
sliding-scale clause for real estate taxes in which
the base year referred to would be "the first full
calendar year of the lease".
It is theoretically possible that the parties
changed their agreement at some time between the
acceptance of appellant's offer and the signature
of the lease. In the absence of any clear informa
tion on this point, however, it is difficult to believe
that a clause that appeared to be entirely reason
able was changed in such a way as to make it
absurd. For while a sliding-scale clause is perfectly
reasonable when it protects the owner against
unforeseen increases in real estate taxes that the
lease obliges him to pay, it becomes absurd if it is
changed in such a way as to force the tenant to
pay all the taxes on the rented building. I am
therefore of opinion that the Trial Judge was right
to conclude that the evidence did not justify the
belief that such a change occurred in the parties'
intent.
One can certainly agree with the Trial Judge
that it is surprising that this numerical error was
not corrected before the lease was signed, but
despite this and despite the mystery surrounding
Charlebois' notations in the margin of the letter
from Wolfe, I am, like him, unable to believe that
during this time the parties changed the intent
disclosed by their original agreement.
Following the example of the Trial Judge, I
have not yet mentioned the testimony of the presi
dent of appellant company. The reason is that, in
my opinion, the Trial Judge remained silent on this
point not because he disregarded this testimony
but because he did not believe it; and having read
the deposition I must say that this reaction does
not appear to me to be without foundation.
For these reasons I would dismiss the appeal
with costs.
* * *
LE Dann J. concurred.
* * *
HYDE D.J. concurred.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.