Your New Car Calgary Inc. v., 2011 ABQB 372

Court of Queen ’ s Bench of Alberta Citation: Your New Car Calgary Inc. v. 1134615 Alberta Inc., 2011 ABQB 372 Date: 20110609 Docket: 1101 07156 Registry: Calgary Between: Your New Car Calgary Inc. and Ryan David Wittenberg Applicants - and - 1134615 Alberta Inc. and Allied Shortridge Civil Enforcement Agency Inc. Respondents _______________________________________________________ Reasons for Decision of the Honourable Madam Justice B.E.

Romaine _______________________________________________________ Introduction [ 1 ] Your New Car Calgary Inc. (“YNC”) applied on an emergency basis on May 26, 2011 to lift the seizure of virtually all of its stock of used cars from its sales lot. The seizure was effected on May 19, 2011 by Allied Shortridge Civil Enforcement Agency, acting on the instructions of 1134615 Alberta Inc. (“113”). 113 applied for an adjournment to allow it to prepare and file a responding affidavit and to cross-examine on the affidavit sworn by Ryan Wittenberg in support of YNC’s application.

YNC submitted, reasonably, that the delay necessary to allow these steps would mean the end of YNC’s ability to survive as a business. I directed the matter to a viva voce hearing beginning mid-afternoon the same day. After hearing evidence from witnesses on behalf of YNC and 113, I lifted the seizure, and directed that the seized vehicles be returned to YNC’s lot by noon on May 28, 2011, giving short oral reasons with these written reasons to follow.

Facts [ 2 ] YNC buys and sells used cars in Calgary, Alberta. Ryan Wittenberg is a director and officer of YNC. 113 provides financing to businesses. William Rolleman is the president of 113 and Tim Jordan is the secretary. [ 3 ] In November, 2009, YNC borrowed what was to be a total of $150,000 from 113 evidenced by a loan agreement dated November 18, 2009. The loan was a revolving loan, pursuant to which YNC would draw down amounts from time to time to purchase used vehicles from dealers for resale, providing 113 with liens on the purchased vehicles.

YNC was to make payments back to 113 when vehicles were sold, together with a service charge, and the liens would be released. Advances under the loan agreement were to be paid within 90 days or within 48 hours of the sale of the vehicle, whichever was earlier, but YNC could request a 30-day extension, for which further service charges became payable. Mr.

Wittenberg testified that such extensions were routinely given. [ 4 ] The loan agreement included a general security agreement, a promissory note and a personal guarantee. [ 5 ] Although the loan was to be for an amount up to $150,000, by the spring of 2010, the amount owing had grown to roughly $248,000 due to various charges for interest, service charges and penalties. Mr. Wittenberg and Mr. Rolleman would meet from time to time to exchange cheques, lien information and documentation. Mr.

Wittenberg testified that this system became cumbersome because of difficulties in the two men getting together, and the parties decided to change the terms of the loan agreement in the late summer of 2010 as a result. Mr. Jordan and Mr. Rolleman had a different story: they testified that, after a last major exchange of cheques on June 14, 2010, 113 had not received any further payments from Mr. Wittenberg for a number of months. [ 6 ] Mr. Rolleman testified that he and his partner, Mr. Jordan, became concerned about the status of the loan. He believed that, given that no payments were being made, Mr.

Wittenberg was selling vehicles without accounting for such sales to 113 and paying down the loan, and he was concerned that 113 was exposed under the loan agreement in that Mr. Wittenberg could move YNC’s assets into a new company, leaving 113 with little recourse or security for the outstanding amount. [ 7 ] Mr. Rolleman testified that he warned Mr. Jordan, who was the primary contact person with Mr. Wittenberg in the spring of 2010, that Mr. Jordan should not act aggressively with Mr. Wittenberg, for fear that he would take steps to sell his vehicles into a new company. He said that his advice to Mr.

Jordan was not to say anything “inflammatory” to Mr. Wittenberg, and that he was concerned that if Mr. Jordan said that 113 wanted its money back, 113 would be at risk. [ 8 ] Mr. Jordan testified that he contacted Mr. Wittenberg as early as May of 2010 indicating that the former practice of Mr. Wittenberg and Mr. Rolleman exchanging cheques could not continue, that they needed to restructure the loan and needed “some kind of collateral”. Mr. Jordan said that Mr. Wittenberg agreed.

There were some discussions relating to a restructuring during the summer months, but nothing was reduced to writing. [ 9 ] On August 4, 2010, Mr. Jordan emailed Mr. Wittenberg, commenting that he hadn’t heard from him lately, and stating that “we need to review and discuss this outstanding list. Total is over 90 days is $188,644 .. when can we talk or meet.” The email ends with a friendly enquiry about Mr. Wittenberg’s summer. [ 10 ] Mr. Wittenberg responded suggesting a call the following week. On September 15, 2010, Mr.

Jordan emailed that “from the looks of this attached report all inventory is now past 90 days ... thought I would send this report in advance so we are prepared to address.” [ 11 ] On October 24, 2010, Mr. Jordan sent a spreadsheet of vehicles transacted and vehicles outstanding and commented:

I’ve used a end date to finalize the this payment plan as Nov 1st, 2010 and we can then go forward with the new proposed arrangement after this date. In

summary the numbers are: · Outstanding Vehicle Payments amount – $282,192.75 · 90 day Service Charge amount – $20,000.00 · Additional beyond 90 day Service Charge amount – $21,782.22 · Total Outstanding amount – $323,974.97 Outstanding amount due to 11334615 Alberta Inc. ($323,974.97 - $300,000.00) = $23,974.97 Ryan....for us to continue I need the $23,974.97 for next Friday.......please review in advance so we can finalize Friday.....Thx [16] Mr. Wittenberg responded on the same day asking why Mr. Jordan had used November 1, 2010 as the “cut off” date, and not October 1, 2010.

Using October would increase the recapitalized balance of the loan. Mr. Jordan responded on the same day with the suggestion that the new recapitalized amount owing would be $322,086.08 with the requirement of a $5,000 monthly interest payment in November. On November 7, 2010, Mr. Jordan emailed the following message to Mr. Wittenberg: Ryan.......I thought I was to hear from you last Friday per your due diligence on my figures along with other creative ways that we can cover our risk, and you can get the funding you need to continue growing your business...... Where are we?

I would like to get resolved this week....at the least will need to get $$$ over the $300K loan (at least $22,086.08). [17] Mr. Wittenberg promised to get back to him. Mr. Wittenberg and Mr. Jordan met on November 19, 2010, and Mr. Jordan followed up with an email to Mr. Rolleman, copied to Mr.

Wittenberg, dated November 22, 1010 as follows: Subject: RE: YNC new Financial proposal Deal terms discussed during meeting of November 19th, 2010 (Ryan Wittenberg & Tim Jordan): Ryan (YNC) has agreed to the financial terms of 20% annual interest on the loan of $317,000.00 ($63,400 annually), with interest to be paid monthly ($5,283.33). Contract term is for 1 year starting November 1st, 2010. Monthly interest payment to be issued and received by 1134615 Alberta Inc. by the 10th day of each month. Interest in arrears for the following month.

Money due to 1134615 Alberta Inc. from YNC for the month of November, 2010 is $5,283.33. This amount is due by end of business day no later then December 10th. This payment will cover the interest outstanding for the month of November. Ryan (YNC) has agreed to insert wording into the contract that “no consignment vehicle will be on the lot or this loan money applied

against unless approved by 1134615 Alberta Inc.”. 1134615 Alberta Inc. has the right to conduct inventory checks as they feel, and with reason. Ryan (YNC) will conduct a thorough business review with 1134615 Alberta Inc. before January 30th, 2011. 1134615 Alberta Inc. will consult with Hoffman Dorchik LLP per the requirement for some form of loan backing (preferable 2nd mortgages on other property). Hoffman Dorchik will review the contract and consult to 1134615 Alberta Inc, on the requirement of loan backing, before the end of business day Nov 24th, 2010. [18] On December 2, 2010, Mr. Jordan emailed Mr.

Wittenberg, who had been away, indicating he would himself also be away until December 7, 2010 and commenting: We need a payment for the month on November of $5,283.33 (interest) no later than next Friday Dec 10th. We also will need to go down the path of backing, around second mortgages on some properties (possible your home in Calgary and your property in Penticton).

The reason for both 2nd mortgages is due to the assumption that you still have large enough outstanding on your mortgages that 1 property (should something ever happen....which we are assuming never) will not cover the loan based on house prices today? So, we need to get this paperwork together, and an associate of Hoffman Dorchik will be contacting you next week to start the process. Thanks...if you have any questions I may be available per phone or call Willy...... [19] Mr.

Jordan responded on December 7, 2010, indicating “all good except the no consignment thing ... we will have to talk further about the 2nd morts stuff though”. On December 8, 2010, Mr. Jordan replied: Ryan......we can talk about the 2nd mortgage, as I know this will be an issue but I don’t see anyway around it......will try to be as accommodating as possible ...within business requirements. Can I get you to cut a Cheque that Willy or myself will pick up Friday ($5,283.33). We should plan a lunch next week to finalize issues....how does next Thursday the 16th look for you and Willy? [20] Mr.

Wittenberg provided the $5,283.33 interest cheque from YNC on December 10, 2010 as requested, and followed up with interest cheques every month up to and including April, 2011 which were cashed by 113. Mr. Wittenberg noted that sometimes these cheques were not picked up from his office for a number of days. As an example, Mr. Jordan emailed Mr.

Wittenberg on April 12, 2011, advising that he wanted to drop by that day for the “monthly cheque”, and inquiring about a good price on a car for his niece. [21] The parties agree that there were many discussions between December 8, 2010 and May of 2011 about 113’s request for second mortgages on Mr. Wittenberg’s personal properties. Mr. Wittenberg owned a home in Calgary and jointly owned a home in Penticton with his then spouse, from whom he was separated. The parties knew that Mr. Wittenberg was in the course of divorce proceedings. [22] In February, 2011, Mr. Jordan turned over negotiations to Mr. Rolleman.

Mr. Jordan testified that he advised his “partner”, Mr. Rolleman, that he had “a certain amount of time to fix this”. Mr. Jordan said that Mr. Rolleman was not given carte blanche to make a deal but was told to negotiate and then come back to Mr. Jordan and 113’s legal counsel with an acceptable arrangement.

[23] Mr. Rolleman testified that he called Mr. Wittenberg on February 18, 2011, told him he was taking over from Mr. Jordon and that he hoped they would reach an agreement over 113’s need for additional security. Mr. Rolleman said that he was careful to be nice, because he was concerned about 113’s exposure to risk under the existing arrangement. [24] Mr. Wittenberg said he would check with his then-counsel over the request for second mortgages. He subsequently advised Mr. Rolleman that he could not provide such mortgages, as he was going through a divorce and matrimonial property litigation.

The parties continued their discussions and on May 3, 2011, Mr. Wittenberg advised that he had retained new counsel. He emailed the following proposal to Mr. Rolleman: 1. amended gsa over ync to your companies; 2. amend the promissory note to reflect current amount; 3. personal guarantee amended to current amount; 4. add to the gsa a specific grant of the security in the shares of ync or future companies that I participate in with the sale of automobiles.

I have brought up the housing topic many times to both sides and both had the same issues with it. it makes no sense because while I can issue a charge over my half of the summerland house it may not have any equity at this time in this market plus the fact she is co owner at this time. the home here could be subject to the same scrutiny . we feel that the relationship is very strong and these amendments would suffice as you have way more then enough remedy avail to you and we have proven good track record together. anyways if you have any thoughts you know where to get me. lets sit and talk about this and there are more things I can add for both of us as needed. have a safe trip.ryan [25] Mr.

Rolleman testified that he was frustrated with this. He testified that he called Mr. Wittenberg and told him that this proposal wouldn’t work, that Mr. Wittenberg was just forcing 113 to take legal action. He conceded, however, that nothing of this kind was put in writing, and he reiterated that “we were so concerned, if we started to get into documents, we would lose all our assets.” [26] Mr.

Rolleman conceded that he had never referred to taking legal action at any other point in the negotiations, and testified that what he said about taking action during the telephone call of May 3, 2010 was a “mistake”, that he wanted “to keep our front”, as he didn’t want Mr. Wittenberg to do what 113 feared he might do. Mr. Wittenberg denies that Mr. Rolleman told him that by his proposal he was forcing 113 to take legal action. [27] Mr. Rolleman and Mr. Wittenberg met during the evening of May 17, 2011. Mr. Wittenberg testified that Mr. Rolleman agreed with his May 3 proposal, with the addition that Mr.

Wittenberg would give 113 the addresses of his real property. Mr. Wittenberg said that Mr. Rolleman agreed that 113 would not caveat the property at that time, but the issue would be revisited when the divorce was complete. In the meantime, 113 wanted to know where the properties were. Mr. Wittenberg said that Mr. Rolleman told him that he had talked to Mr. Jordan about this, and that everything was okay. [28] Mr. Wittenberg also testified that Mr. Rolleman suggested that YNC provide post-dated cheques for the monthly interest payments, and he agreed to do so. Mr.

Rolleman had expected to pick up the May interest cheque at the meeting, but Mr. Wittenberg did not have it ready. Mr. Wittenberg said that he would have the cheques available the following morning, May 18, 2011, but Mr. Rolleman said that the evening of May 19, 2011 worked better for him. Mr. Wittenberg said he had the cheques, including the May interest cheque, prepared and available the next morning at any rate. [29] Mr. Rolleman agreed that he accepted the May 3 proposal at the meeting of May 18, 2011, as he understood that this was Mr. Wittenberg’s last stance on the issue, and that Mr.

Wittenberg was to provide him with the addresses of his real property. He largely

corroborated everything Mr. Wittenberg described about the meeting. [30] Mr. Wittenberg told Mr. Rolleman during the meeting that he was leaving town and going to British Columbia for family reasons on May 18, 2007. [31] Mr. Rolleman reported back to Mr. Jordan and 113's counsel on the evening of May 17, 20011. Mr. Jordan testified that the arrangement agreed to by Mr. Rolleman was completely unacceptable to him. Mr. Rolleman conceded that he knew after that meeting that 113 would “probably” seize the vehicles from YNC’s lot. [32] Mr. Rolleman telephoned Mr.

Wittenberg on the morning of May 18, 2011 and told him that they had a problem, that Mr. Jordan did not agree with what he and Mr. Rolleman had agreed upon. Mr. Wittenberg testified that Mr. Rolleman said that he had been “over-ruled”, that he had “overstepped his bounds”. Mr. Rolleman said that Mr. Jordan was insisting that they go back to the “old way”, and that YNC would have to provide liens on every vehicle in favour of 113. Mr. Wittenberg responded that this was fine, but that he would be away until May 26, 2011, and the details and documentation with respect to the liens would have to wait until then. Mr.

Wittenberg and Mr. Rolleman agreed to meet at 4:00 p.m. on May 26, 2011 to work out the lien details. Mr. Wittenberg reminded Mr. Rolleman that the cheques could be picked up at his office. [33] Mr. Rolleman agreed with the gist of the conversation as described by Mr. Wittenberg. He agreed that he “absolutely” did not give Mr. Wittenberg any notice of the intended seizure, and conceded that he knew Mr. Wittenberg was going out of town, that it was “convenient” that he would be away during the seizure. Mr.

Rolleman made arrangements on May 18, 2011 with the bailiffs to effect a seizure of the vehicles on May 19, 2011. The general security agreement provided with the original loan, until then unregistered, was registered under the PPSA on May 18, 2011. [34] The seizure was conducted on May 19, 2011. Five tow trucks seized virtually all of the vehicles on the lot, estimated to be about 58 in number. The seizure took eight or nine hours. The vehicles were taken to an auction house and a “Notice of Intention to Sell” left with the YNC sales staff. [35] Mr.

Wittenberg, who was in Revelstoke by this time, heard of the seizure from his sales staff. He tried to contact either of Mr. Jordan or Mr. Rolleman. He testified that when he reached Mr. Rolleman, Mr. Rolleman was apologetic, blaming the decision to seize on Mr. Jordan. Mr. Wittenberg testified that, desperate at what the seizure would do to his business, he told Mr. Rolleman that he would provide the requested security on his personal property if 113 returned the vehicles. Mr. Rolleman told him that this was not enough. The morning after the seizure, Mr. Rolleman advised Mr.

Wittenberg that 113 would return the vehicles if Mr. Wittenberg paid 113 $150,000, provided security over his real property and agreed to pay the balance owing within a year. Mr. Rolleman agreed that he made this offer, but said that he indicated that there was some leeway for negotiation. Analysis [36] YNC does not dispute that it entered into a loan agreement with 113 or that 113 was entitled to enforce the loan agreement in the event of default.

YNC submits, however, that the arrangement between the parties had changed from the strict terms of the loan agreement, certainly by November 1, 2011 as evidenced by the email from Mr.

Jordan describing the terms of a loan recapitalization. [37] While 113 submits that there was no new agreement, but merely negotiations that had not become final, I am satisfied that there was an interim arrangement pursuant to which 113 did not insist on the continuance of the procedure set out in the November, 2009 loan agreement, but agreed to a new procedure pursuant to which YNC would make interest payments on a recapitalized loan amount while the parties negotiated some form of additional security for the amounts owing.

It is clear that the form of this additional security was not resolved between the parties, but also clear that parties operated on the basis of the proposed new structure. [38] Specifically, YNC paid monthly interest payments on the recapitalized principle for five months, and was prepared to pay the May interest amount and provide post-dated cheques for the balance of the term. YNC through Mr. Wittenburg and 113 through Mr. Rolleman had reached an agreement whereby 113 accepted NYC’s May 3 proposal and agreed to defer on the issue of mortgages on Mr.

Wittenburg’s real property until after his divorce was finalized. While Mr. Rolleman attempted to resile from this agreement the next morning, and Mr. Wittenburg accepted this reversal, the alternative proposed was a return to the previous arrangement of liening specific vehicles and exchanging cheques. Mr. Rolleman was quite clear that he led Mr. Wittenburg to believe that this return to the old system

could be put into effect when he returned from his trip out of town. Mr. Rolleman candidly admitted that he was trying to keep up a“front”, to avoid giving Mr. Wittenburg any reason to be concerned that 113 would take legal action. [39] 113 submits that Mr. Jordan and/or Mr. Rolleman gave reasonable notice to YNC that it was in default of the loan agreement,and that it was not required to give reasonable notice that it intended to act on the default.

However, the issue is whether 113 gave YNCreasonable notice of its intention to enforce its security under the original loan agreement, and, if not, whether 113 was entitled to effect aseizure in reliance on the loan agreement without such notice. [40]

Section 7.2 of the loan agreement provides that, upon the occurrence of an event of default, 113 may, in addition to otherremedies, declare the indebtedness to be immediately due and payable, “... whereupon the same shall forthwith become so payablewithout ... demand ... or further notice of any kind, all of which are hereby waived by the Borrower.”

Section 7.3 provides that 113 maywaive in writing any default which may have occurred pursuant to

Article 7, but that this waiver does not affect subsequent defaults. [41] From the evidence before me on the viva voce hearing, I am unable to find that 113 gave YNC a demand for payment of theindebtedness or reasonable notice of its intention to enforce its security. The only documentary evidence of what might constitute thekind of demand envisaged under

section 7.2 of the loan agreement is the reference in the August 4, 2010 email to “Total is over 90days”. As pointed out by YNC, the mere fact that an advance may be outstanding over 90 days is not necessarily a default under this loanagreement, which envisages extensions on request. The next relevant written evidence is the October 24, 2010 email which proposed therecapitalization plan. These emails do not constitute a demand for immediate repayment or a declaration that the indebtedness wasimmediately due and payable. [42] While Mr.

Wittenberg clearly must have been aware that 113 was concerned with the status of the loan, by October, 2010,the focus had changed to negotiations on a recapitalization plan. [43] Mr. Jordan testified that he told Mr. Wittenberg that 113 was going to have to take legal action, or “some kind of action” inAugust, 2010, allegedly by email, although he could not produce such an email. He also indicated that he had sent a forceful textmessage about the end of November, 2010, but again could not immediately produce this.

Given the emergent nature of the application,and the lack of time to prepare, I do not find that such messages do not exist, but I note Mr. Rolleman’s evidence that he cautioned Mr.Jordan not to be too aggressive in his approach with Mr. Wittenberg, and Mr. Jordan’s admission on cross-examination that he neverused the words “in breach” or “in default” with Mr. Wittenberg in any written communication with him. [44] Mr. Rolleman testified that he told Mr. Wittenberg on May 4, 2011 that his refusal to grant the requested mortgages wouldforce 113 to take action. This must be considered in the context of Mr.

Rolleman’s testimony that he did not want to be aggressive withMr. Wittenberg or to give him reason to think 113 was going to take action. This mild comment, if made, did not constitute notice ofintention to enforce security in the context of the continuing negotiations and the agreement later reached between Mr. Wittenberg andMr. Rolleman. [45] The decisions of the Supreme Court in Lister (R.E.) Ltd v. Dunlop Canada Ltd. (SCC), [1982] 1S.C.R. 726and Royal Bank of Canada v. W.

Got & Associates Electric Ltd. (SCC), [1999] 3 S.C.R. 408 apply in this case. [46] In the Royal Bank case, the Court noted at para. 18 that, in accordance with the Dunlop decision, a bank was required to givea debtor reasonable notice of its intention to enforce its security and reasonable time to pay following this notice of intention, noting“(t)he debtor must be given some notice on which he might reasonably expect to be able to act”.

The Court listed criteria to be consideredin determining what length of time might amount to reasonable notice, and commented that, in certain circumstances, very little or almostno notice may be reasonable. The circumstances that would allow no notice to be reasonable do not exist in this case. While Mr.Rolleman testified to a concern that Mr. Wittenberg may defeat the loan agreement by transferring vehicles to a new entity, alleging thatMr. Wittenberg had done this in the past, there was no evidence that this could not be prevented by a relatively short notice period uponmaking a demand. I also note that Mr.

Wittenberg’s May 3 proposed suggested a method of alleviating this concern. Mr. Rollemantestified that he had been aware of this risk before entering into the loan agreement with YNC in November, 2009, and despite this, thegeneral security agreement provided at that time was not registered under the PPSA until May 18, 2011. [47] In Royal Bank , the bank had given the debtors strong messages of its concern and ultimatums. Nevertheless, the Court

found the bank at fault when it cut off contact with the debtors and intentionally avoided telling them that it would be calling in its debenture and appointing a receiver. In Dunlop , the debenture was silent with respect to any requirement of notice on default. The Court noted at page 13 of the decision that: The rule has long been that enunciated in Massey v. Sladen (1868), L.R. 4 Ex. 13 at p. 19 : the debtor must be given “some notice on which he might reasonably expect to be able to act”. The application of this simple proposition will depend upon all the facts and circumstances in each case.

Failure to give such reasonable notice places the debtor under economic, but nonetheless real duress, often as real as physical duress to the person, and no doubt explains the eagerness of the courts to construe debt-evidencing or creating documents as including in all cases the requirement of reasonable notice for payment. [48] 113 relies upon a case decided by Master Funduk prior to the Royal Bank decision which involved a conditional sales contract, Unrau v. Ford Credit Canada Ltd , [1995] A.J. No. 341 . In that case, a vehicle was seized without notice.

Master Funduk held that Dunlop was not relevant to the case before him, noting that “the case merely holds that when a debt is due on demand that the creditor must make a ‘reasonable demand’ to pay the debt before exercising its security”, and that there was nothing in the contract before him or the PPSA that required the lender to first give notice. This case is distinguishable on its facts. [49] In the circumstances of this case, 113 failed to give a clear demand for payment or reasonable notice of an intention to enforce its security under the loan agreement. Instead, it lulled Mr.

Wittenberg into the belief that YNC had a workable forbearance and recapitalization agreement with 113. The seizure was wrongful, and I directed that the vehicles be returned. I also directed that 113 could not attempt another seizure before June 10, 2011. [50] Given that Allied Shortridge did not have counsel available on the application, my findings are without prejudice to the issue of whether the bailiffs acted outside their instructions from 113.

Despite the viva voce evidence, this was an interlocutory application, and the parties did not have the opportunity to test the evidence through the normal litigation process, or to prepare for giving evidence in advance. The process should not be taken to preclude normal pre-trial preparation and a full hearing of the evidence at a trial. Heard on the 2nd day of June, 2011. Dated at the City of Calgary, Alberta this 9 th day of June, 2011. B.E. Romaine J.C.Q.B.A. Appearances: A. Robert Anderson Q.C. and Doug Schweitzer Osler, Hoskin & Harcourt LLP for the Applicants

Christopher P. Rappel Hoffman Dorchik LLP for the Respondent