Ja-Ker Financial Corporation v Norris, 2015 ABQB 756

Court of Queen ’ s Bench of Alberta Citation: Ja-Ker Financial Corporation v Norris, 2015 ABQB 756 Date: 20151127 Docket: 1403 05348 Registry: Edmonton Between: Ja-Ker Financial Corporation Plaintiff - and - Mark Norris and Veronica Norris and Total Modular Structures Ltd. Defendants _______________________________________________________ Reasons for Judgment of R. P. Wacowich , Master in Chambers _______________________________________________________ Introduction: [ 1 ] This matter involves two applications. The defendants apply for

summary dismissal of this action based on a limitations defence. The plaintiff seeks

summary judgment submitting that there is no merit to the defence. [ 2 ] The statement of claim was issued on April 9, 2014 against defendants Mark Norris (Mark) and Veronica Norris (Veronica). It indicates the plaintiff entered into a Factoring Agreement with Total Modular Solutions Ltd. (Solutions) whereby the plaintiff provided

short term financing to Solutions purchasing certain accounts receivable of Solutions. On August 8, 2011 the plaintiff advanced $202,899.00 to Solutions to acquire the rights to amounts owing to Solutions for fabrication of a modular house for a customer, Clarence McDonald (McDonald).

A further sum of $282,046.19 was advanced to Solutions by the Plaintiff on October 8, 2011 to acquire the rights owing to Solutions for the fabrication of a modular house for the customer Pacer Corp. (Pacer) [ 3 ] The statement of claim goes on to allege that Solutions received payments relating to those receivables but failed to remit payments to the plaintiff in breach of the Factoring Agreement. Further, Mark Norris was the controlling mind of Solutions which caused the plaintiff to suffer the loss.

Further the defendant Veronica Norris guaranteed the due payment and discharge of all present and future liabilities of Solutions to the plaintiff. [ 4 ] In October 2012 Solutions was placed into receivership. Structures purchased all of Solutions assets through a receivership. [ 5 ] On July 15, 2014 the plaintiff amended its claim to add as a defendant Total Modular Structures Ltd. (Structures). It alleges that the operating assets of Solutions were acquired by Structures.

Prior to being placed into receivership Solutions and Mark were to retain receivable payments from McDonald and Pacer in trust for the plaintiff but breached that trust. Further, Veronica and Structures have been unjustly enriched by benefiting from payments received in trust and wrongfully diverted. Background [ 6 ] Solutions obtained funding as alleged in the statement of claim pursuant to two promissory notes. The only documents in support of the plaintiff’s claim are the two promissory notes.

One is in the amount of $213,568.00 and was headed: Amount: $213,568.00 Due: September 30, 20111 Re: Invoice # 0174; for Clarence McDonald Custom Home. [ 7 ] It is dated August 5, 2011. [ 8 ] The second promissory note is dated September 30, 2011 and was headed: PROMISSORY NOTE Amount: $290,769.26 Due: October 31, 2011 Re: Invoice #210; for Pacer Corporation Group of Companies. [ 9 ] Both promissory notes are executed by Solutions, Mark Norris and Kevin Steinke.

Both are standard promissory notes. [ 10 ] Solutions was contractually constrained from paying anything but regular day to day non-capital operating expenses necessary to complete the construction of modular homes pursuant to a Forbearance and Preservation of Rights Agreement with Mike Duff, a very substantial creditor of Solutions. The Forbearance and Preservation of Rights Agreements indicated Solutions and Norris were borrowers of $2.5 million on a revolving basis. [ 11 ] The transcript of the questioning of Mr. Simpson, the officer of the Plaintiff indicates: Q MR. HOCKIN: Mr.

Simpson, did the plaintiff obtain from Solutions any kind of security instrument that purported to charge any of the assets of Solutions, including the McDonald receivable, as security for the repayment of the amount that the plaintiff advanced in accordance with paragraph 9 of your Affidavit? A Other than the promissory note, no. Mark said that he could not give us anything else because his main financial backer, Duff, controlled everything and the only way that he could do business would be for us to buy specific receivables. Q All right. Now if you can turn to page 11 of 33 of this document.

You will see that this is a registration in favour of a secured party named Mike Duff? A Yes. Q And that it contains a description of what the collateral is that is subject to this charge, all present and after-acquired personal property of the debtor; and then proceeds, all present and after-acquired intangibles, chattel paper and instruments and any proceeds therefrom, and it goes on and on and on? A Yes, same answer. Q Okay. And you will see that that security was registered November 17 th of 2009? A All right. You have to understand the relationship between Mr. Norris and I.

We have known each other for a long time. And we had always had, any time we did anything most of it was on a trust and a handshake basis. That is, when we started doing some of the stuff with Solutions and Structures, that was the approach that Mark had made to me. And Mark, every time we did something Mark would assure me, Ron, I will always make good. You will always get your money.

And so that is why if things seem it was kind of loose, kind of loose, it was because we had known each other for so long that there was quite a element of trust partway through, all right? [ 12 ] The promissory notes are simply that and give no indication that the plaintiff purchased or was assigned any invoices in

connection with the loan or were in any way an assignment of accounts receivable or a factoring agreement. [ 13 ] The defendant Structures is a corporate defendant who the Plaintiff alleges holds funds for its benefit. The Amended Statement of Claim alleges: 7. In October, 2012 TMS [Solutions] was placed into receivership. The operating assets of TMS were acquired and certain of the liabilities of TMS were assumed, either directly or indirectly, by Structures. No obligation to the Plaintiff was expressly assumed by Structures. 8.

Prior to being placed into receivership, TMS received payments relating to both the McDonald Receivable and the Pacer Receivable but failed to remit such payments to the Plaintiff or retain such payments in trust for the Plaintiff, in breach of the Factoring Agreement and accordingly in breach of trust. 9.

The Defendant Mark Norris as the controlling mind of TMS caused TMS to be in breach of trust to the Plaintiff by causing TMS to divert payments received respecting the McDonald Receivable and the Pacer Receivable to its own purposes when he knew or ought to have known that such payments were received in trust for the Plaintiff and that such diversion was in breach of the Factoring Agreement and accordingly in breach of trust. [ 14 ] There is no evidence of a postponement or subordination by any of Solutions secured creditors in favour of the plaintiff with respect to the two promissory notes. When Mr.

Simpson was questioned on his affidavit he admitted there was no written security instrument granted by McDonald or Pacer, nor written assignments of either the McDonald or Pacer receivables. [ 15 ] Importantly, on March 26, 2012, the plaintiff issued a formal demand for payment of both promissory notes and specified that payment would be expected no later than March 30, 2012.

The statement of claim in this matter was filed on April 9, 2014, more than two years past the due date of the first promissory note (September 30, 2011), the due date of the second promissory note (October 31, 2011) and the due date contained in the formal demand for payment of the amounts owing on both promissory notes (March 30, 2012). [ 16 ] Mr. Simpson admitted that prior to the March 26, 2012 formal demand by the plaintiff it was informed that the Pacer receivable was not owing by Pacer to Solutions and the modular home, the subject matter of the Pacer receivable, had been sold elsewhere.

Limitation Defence [ 17 ] In my view on March 30, 2012, when the formal demand was payable, the plaintiff was fully aware that an injury had occurred, attributable to the defendants and that the injury warranted bringing a proceeding. The plaintiff argues that Norris concealed the financial condition of Solutions and the status of the receivables being collected. As indicated earlier, the plaintiff was aware that Solutions and Norris had no further rights with regard to those receivables.

The plaintiff submits that it did not discover the evidence confirming the collection of the receivables until after the receivership of Solutions on October 3, 2012. The important point is that the plaintiff knew in March 2012 that the loan it made to Solutions pursuant to the promissory notes was in jeopardy. [ 18 ] The plaintiff’s position is that the limitation period did not start to run until Solutions was placed into Receivership on October 3, 2012 when operating assets and liabilities of Solutions were acquired by Structures.

The plaintiff never received notice of the Receivership proceedings and the plaintiff’s claim was not included in the Receivership or the subsequent acquisition by Structures of the business previously carried on by Solutions.

Further, the plaintiff subsequently determined that the receivables were collected in whole or in part prior to Solutions being put into Receivership. [ 19 ] After the Receivership of Solutions, Simpson deposes that the plaintiff obtained correspondence between Solutions and the Canadian Western Bank which indicated that Norris advised CWB that Solutions was awaiting the final payments of $213,000.00 regarding the McDonald receivable and that they were still waiting for money from both McDonald and Pacer for the accounts receivable.

This was false but was not relied on by the plaintiff. [ 20 ] The March 26, 2012 formal demand the plaintiff provided to Solutions for both the McDonald and Pacer amounts owing on the promissory notes indicates: Ja-Ker now demands payment for the financing we provided for this project. Please make arrangements to have both these outstanding amounts paid in full no later than March 30, 2012. [ 21 ] The questioning of Mr. Simpson on his affidavit reads as follows: Q Mr.

Simpson, sometime between October 31, 2011 and March the 26 th of 2012, I understand that the plaintiff had learned that the Pacer Corporation was not going to pay the invoice because Pacer Corp. did not take delivery of the boxes that were the subject of the invoice. And to assist you in recalling that, I’m going to show you another one of your documents, Number 3-001. And I will direct your attention to the language that appears below the halfway point of that document. You will see there is a Re (

b) Pacer Corporation, your Invoice Number 210? A M-hm. Q The next bullet point under that narrative says, “Since Pacer Corp. did not take delivery of these camp boxes I have learned through my oil field contacts you have been able to re-sell them to another client.” Was that a true statement when you made it in this document? A Yes, I learned that – I have been informed that they had resold them to someone else. And actually, Mark himself even told me

that. Q Okay. And this document, sir, has your name at the bottom, Ron Simpson, president, below the names Ja-Ker FinancialCorporation? A Yes. Q Now you understood then, sir, from the information that you obtained concerning this Pacer invoice that the invoice was nolonger going to be paid by Pacer; is that correct? A My – when I learned of this and I approached Mark, Mark said Ron, it is our obligation to pay you because we have resold theboxes. And I said fine, where is my money?

And that is when things were beginning to deteriorate with Solutions. [22] It is clear that the plaintiff was aware that its transactions with Solutions and Norris were in serious trouble before March 26,2011 and that is why he issued the demand for payment on March 26, 2012. [23] Section 3(1) of Limitations Act¸ RSA 2000, c. L-12, reads as follows: Subject to subsections (1.1) and (1.2) and

section 11, if a claimant does not seek a remedial order within (

a) two years after the date on which the claimant first knew, or in the circumstances ought to have known, (

i) that the injury for which the claimant seeks a remedial order had occurred, (ii) that the injury was attributable to conduct of the defendant, and (iii) that the injury, assuming liability on the part of the Defendant, warrants bringing a proceeding, or (

b) ten years after the claim arose, whichever period expires first, the defendant, on pleading this Act as a defence, is entitled to immunity from liability in respect of theclaim. [24] The most generous

interpretation of when the limitations period would begin to run would be March 30, 2012 when thedefendants did not make any payment as demanded. Clearly the plaintiff’s interest was at jeopardy and the facts known to the plaintiffwarranted bringing a proceeding. As the statement of claim was filed on April 9, 2014 the action was commenced after the limitationperiod. The defendants have immunity from this action. Factoring Agreement - Trust [25] Issue two. Assuming the Limitations Act does not give the defendants immunity is the plaintiff entitled to

summaryjudgment. [26] It is my view, the plaintiff has not established that the defendant’s defence is without merit. [27] All the documentary evidence available is that the plaintiff advanced funds on an unsecured basis knowing that Solution’sability to pledge receivables was constrained by the existence of prior encumbrances registered at Personal Property Registry. [28] As indicated in the brief of the defendants: Courts should be loathe to impose trust concepts onto commercial relationships.

The consequences attendant on a finding of a fiduciary relationship and its breach have resulted in judicial reluctance to do so exceptwhere the application of this "blunt tool of equity" is really necessary. It is rare that it is required in the context of an arm's lengthcommercial transaction. Lac Minerals Ltd. v. International Corona Resources Ltd., (SCC), [1989] 2 SCR 574 at page 595, [29] In this case the plaintiff provides self-serving evidence as to what he now believes the agreement to be which, coincidentally,allows him to bring this action without any limitation impediment.

The plaintiff’s position is, there was an oral factoring agreemententitling the plaintiff to the McDonald and Pacer receivables. The Plaintiff submits these receivables went to the defendant Structures inOctober 2012, Structure became liable to the plaintiff for them at that time and the limitation period runs from then. [30] However, this is not a situation where there is oral evidence to contradict or vary the promissory note; it is to create an entirelynew agreement.

The plaintiff choose promissory notes; it did not chose a factoring agreement and it did not hire a lawyer to properlydocument what it now says was its intention. [31] Our Court of Appeal has cautioned against the use of parol evidence in connection with written agreements. Counsel for theplaintiff submits that the promissory notes were not contracts so the parol evidence does not apply. They are clearly enforceableagreements entered into by the plaintiff and Solutions.

They are contracts. [32] Our Court of Appeal, like the Supreme Court in Lac Minerals, cautions against the use of parol evidence to vary the terms of

a written contract or to attempt to establish a collateral parol contract inconsistent with the expressed terms of a written contract: Nor can the court find a collateral parol contract inconsistent with the express written contract: Catre Ind. Alta v. R. (1989) 1989 ABCA243 , 99 A.R. 321; Hawrish v. Bank of Montreal [1969] S.C.R. 15. Collateral contracts are viewed suspiciously and must beproved strictly, along with clear intent to contract: Hawrish. Gainers Inc. v.

Pocklington Financial Corporation, 2000 ABCA 151 at para 19, ("Gainers"), [33] The "judicial reluctance" to recognize an undocumented trust relationship between arms-length commercial parties isparticularly warranted in this case where the alleged existence of such relationship is based entirely upon parol evidence. [34] The rule against the admission of parol evidence has been formulated as follows: If there be a contract which has been reduced to writing, verbal evidence is not allowed to be given ... so as to add to or subtract from, orin any manner to vary or qualify the written contract. ... parol testimony cannot be received to contradict, vary, add to or subtract from the terms of a written contract, or the terms in which theparties have deliberately agreed to record any part of their contract.

Chitty on Contracts (Thomson Reuters (Legal) Limited, Thirteenth Edition, 2008) - pages 864 to 865, [35] Here, the Plaintiff seeks to introduce evidence that is completely contrary to the written terms of the two Promissory Notes.Specifically, the Plaintiff seeks to introduce parol evidence of a completely different transaction, namely its purported "purchase" of tworeceivables, combined with an alleged appointment of Solutions as the Plaintiffs agent to collect the receivables and remit them to thePlaintiff. [36] The Plaintiff goes further and attempts to impose a trust obligation upon the individual Defendant Mark Norris to account forthe proceeds of the two receivables allegedly collected by Solutions and to be liable for the alleged failure of Solutions to have remittedthose proceeds to the Plaintiff. [37] A written contract cannot be modified or changed by parol evidence in the absence of a mistake or fraud in the preparation ofthe written agreement.

In this case the Plaintiff, an experienced businessman in the loans business, prepared the promissory notes. Therewas no fraud or mistake in preparation of the documents. [38] It is too easy for a party to a written contract to attempt to change its terms through self-serving evidence; hence the parolevidence rule. [39] The Plaintiff chose promissory notes. If not for the limitation issue the plaintiff would have had a good cause of action onthose notes against the maker of the notes.

The plaintiff had ample time to sue on the notes within the limitation period. [40] With the Hryniak decision there are more and more applications for

summary judgment. Many of these could be avoided ifthe parties had properly documented their agreements. In some of the cases the matters before the court involve experiencedbusinessmen. This is the case here, where Mr. Simpson indicates the plaintiff has been involved in making loans similar to the ones inquestion for fifteen years. It is clear that his position could have been documented and his interest better protected. [41] Mr. Simpson indicated in his evidence that Norris did not want him to contact McDonald or Pacer as it could affect therelationship of Norris with them. So he did not do so initially.

However, prior to his demand he did in fact contact them and made noattempt to document his “Factoring” agreement. [42] Essentially, instead of properly documenting what the plaintiff now says the agreement between the parties was, it inhindsight sets out in detail what it believed the agreement to be. [43] The defendants did not introduce their own parol evidence. They rely upon the written contracts, namely the PromissoryNotes.

As stated by our Court of Appeal in Gainers: If hindsight, implication, unspoken thoughts, and unwritten statements could have so pivotal a role as they appear to have had here, thenwritten contracts would become a mere trap for the credulous. Almost all commercial certainty would evaporate, and commerciallitigation become a swearing contest. A suit on a commercial contract, no matter how carefully drafted, would become a long historicalinvestigation of an insoluble mystery. Often who said what to whom by telephone 15 years ago is impossible to unravel.

A formalwritten contract should not rise or fall with such mysteries. Gainers, supra, at para. 24. [44] The defendants’ liability on the notes crystalized when they were not paid on their due date and this action is well out of timeand is dismissed with costs. Conclusion

[ 45 ] The defendants’ application to dismiss this claim is granted. They have immunity under

section 3 of the Limitations Act . Additionally, the plaintiff’s application for

summary judgment has not satisfied me that there is no merit to the defendants’ defence and its application for

summary judgment is dismissed. Heard on the 23 rd day of November, 2015. Dated at the City of Edmonton, Alberta this 27 th day of November, 2015. R. P. Wacowich M.C.C.Q.B.A. Appearances: Neil Fenna for the Plaintiff Jeremy Hockin, Q.C. Parlee McLaws LLP for the Defendants