Farrago Investments Ltd v, 2014 ABQB 755

Corrected judgment: A corrigendum was issued on May 17, 2016; the corrections have been made to the text and the corrigendum is appended to this judgment. Corrected decision: A corrigendum was issued on February 26, 2015; the corrections have been made to the text and the corrigendum is appended to this Reasons for Judgment. Court of Queen ’ s Bench of Alberta Citation: Farrago Investments Ltd v 101070373 Saskatchewan Ltd, 2014 ABQB 755 Date: 20141212 Docket: 1001 13484 Registry: Calgary Between: Farrago Investments Ltd.

Plaintiff - and - 101070373 Saskatchewan Ltd., Patricia Strand and Donald Douglas Strand Defendants _______________________________________________________ ______________________________________________________ Reasons for Judgment of the Honourable Madam Justice C.

Dario _______________________________________________________ Overview [ 1 ] This claim deals with whether there was a breach of an oral contract relating to the purchase by the Plaintiff, Farrago Investments Ltd. (“ Farrago ”), of shares held by the Defendant, 101070373 Saskatchewan Ltd. (“ 101 Co. ”), after the terms of the verbal agreement did not come to pass. If a breach of the oral contract is found, I must determine what the monetary remedy to the Plaintiff

should be. [ 2 ] This action was tried immediately following the trial of an action brought by Donald Douglas Strand and 101 Co. against Richard Gordon Strand, Farrago and Home Investment Management Inc., which is addressed in my decision in Strand v Strand , 2014 ABQB 754 , released concurrently with this decision. Facts [ 3 ] Farrago is owned by Richard Strand and his wife, Janice Stewart-Strand, who are not parties to this action. The Defendants, Patricia Strand and Donald Douglas Strand, are the sole shareholders of 101 Co.

Richard Strand and Douglas Strand are brothers who also, at the material time, were co-investors, directors and employees of a related company, Home Investment Management Inc. (“ Home ”). Home carries on business as a discretionary Portfolio Manager and an Exempt Market Dealer registered with the Alberta Securities Commission (the “ ASC ”).

The Plaintiff, as shareholder in Home, required some funds to contribute to Home to maintain the working capital requirements established by the ASC. [ 4 ] Farrago purchased 10,000 shares in C&C Energy Canada Ltd. (“ C&C ”) in June 2006 for $17,500, at a price of $1.75 per share. Richard Strand believed that C&C would have a liquidity event in 2009. [ 5 ] On January 16, 2009, the Defendant, 101 Co., offered to purchase 10,000 shares in C&C from the Plaintiff for $35,000 in order to facilitate cash contributions by the Plaintiff’s owners to Home, so that Home could maintain its working capital requirements.

The parties entered into a verbal agreement regarding the purchase of the shares. [ 6 ] Richard Strand testified that there was a verbal agreement with the Defendants that Farrago would get the benefit of the increase in share value upon C&C closing an anticipated initial public offering (“ IPO ”) in June or July of 2009. Specifically, 101 Co. would keep its purchase price of $35,000, and pay any additional consideration received from the shares to the Plaintiff. The parties did not discuss what would happen regarding the share value if that IPO did not occur at that time.

The parties did not discuss any of the tax considerations of such potential sale, or set a minimum purchase price. [ 7 ] The Plaintiff believed that C&C closed the IPO on its shares at $8.50 per share, and as a result, seeks the amount of $50,000, representing the difference between the market price of the C&C shares and the purchase price of $35,000 paid by 101 Co. to Farrago. [ 8 ] In response, the Defendants plead that 101 Co. agreed to purchase the C&C shares for $35,000, but would need that money back by August 2009.

The Defendants state that there was no agreement to pay any additional consideration received in the event 101 Co. subsequently sold the C&C shares. The Defendants’ August 2009 repurchase requirement was not contingent on the IPO occurring. [ 9 ] 101 Co. purchased from Farrago 10,000 shares in C&C in January 2009, which is reflected in trading account statements provided at trial. [ 10 ] The IPO did not occur in 2009. The Plaintiff testified that the Defendant requested the Plaintiff repurchase the shares in September, however, the Plaintiff did not have the money to repurchase the shares at that time.

C&C went public in the summer of 2010. [ 11 ] Prior to the IPO, C&C’s shares were consolidated on a one-for-two basis, and then were split on a 1.01974861-for-one basis, leaving 101 Co. with 5,099 shares. As a result of the IPO and 101 Co.’s subsequent sale of the shares, 101 Co. received $39,242.41, which was reflected in its trading account statement for June 1 to June 30, 2010. Thus, the Defendant realized a modest $4,242.41 profit on the sale of the C&C shares. [ 12 ] The Plaintiff is claiming that it is entitled to the profit of the sale of the shares by 101 Co.

Issues [ 13 ] Did the terms of the oral contract between Farrago and 101 Co. create an entitlement on the part of the Plaintiff to the profit realized by 101 Co. when the shares were sold? Decision [ 14 ] The Plaintiff seeks damages for breach of an oral contract it entered into with 101 Co. regarding the repurchase of shares that 101 Co. subsequently sold for a modest profit. I find that the verbal terms of agreement between the Plaintiff and 101 Co. include that the shares would be repurchased by the Plaintiff within a specified period of time - by August 2009.

The Plaintiff did not repurchase the shares as agreed, and was at that point in breach of the agreement. It cannot now claim an entitlement under the very terms of the agreement that it did not honor. [ 15 ] The Plaintiff additionally suggests that a term of the oral agreement is that the Plaintiff would benefit from the appreciation of C&C’s IPO to occur in June/July 2009.

That event did not happen at that time (or even that year), and thus that term of the contract, if it even existed, was not satisfied. [ 16 ] There is no term in the verbal agreement requiring the Defendant to hold the shares indefinitely until the Plaintiff is in a position to repurchase them, or until an IPO event ultimately occurs. The Defendant could just as easily have lost in the value of the shares in the intervening period, and it is doubtful that the Plaintiff would at that point have believed itself bound to pay the shortfall. [ 17 ] The Plaintiff’s claim is dismissed.

[ 18 ] If the parties cannot agree, they may re-attend within 60 days to speak to costs. Heard on the 22 day of January, 2014. Dated at the City of Calgary, Alberta this 11 day of December, 2014. C. Dario J.C.Q.B.A. Appearances: Brent L. Robinson for Plaintiff Farrago Investments Ltd. Gary B. Laviolette and Marc Matras for Defendants Donald Douglas Strand and 101070373 Saskatchewan Ltd. _______________________________________________________ Corrigendum of the Reasons for Judgment of The Honourable Madam Justice C.

Dario _______________________________________________________ To amend the name of the Justice on both Page 1 and Page 3 of the Reasons for Judgment issued on December 12, 2014 to read C. Dario. To amend the name of the Justice on both Page 1 and Page 3 of the Corrigendum issued February 26, 2015 to read C. Dario.

_______________________________________________________ Corrigendum of the Reasons for Judgment of The Honourable Madam Justice C. Dario _______________________________________________________ Page 1: Typographical error in citation and style of cause as to the numbered company. Page 4: Reversed counsel to Plaintiff and Defendants