Macoda Ventures Inc v Condo-Condo Holdings Ltd, 2016 ABQB 432

Court of Queen’s Bench of Alberta Citation: Macoda Ventures Inc v Condo-Condo Holdings Ltd, 2016 ABQB 432 Date:20160808 Docket: 1401 10327 Registry: Calgary Between: Macoda Ventures Inc. Plaintiff - and - Condo-Condo Holdings Inc., Lester Hartland, and Robert McCormick Defendants _______________________________________________________ Memorandum of Decision of A. R. Robertson , Q.C., Master in Chambers _______________________________________________________ Overview [ 1 ] The principal of the plaintiff Macoda Ventures Inc. is David Gelinas.

Through his corporation, he planned to become involved in a joint venture with Condo-Condo Holdings Inc. to acquire some real estate. Condo-Condo already had an agreement to purchase in hand. The vendor was to be Manchester Business Centre Ltd. [ 2 ] Macoda provided $100,000, being half the deposit, but the deal did not close, and the deposit was forfeited. Macoda sues its joint venture Condo-Condo as well as its guarantors Mr. Hartland and Mr. McCormick for its $100,000 to be refunded, with interest and costs.

The defendants blame Macoda for the failure to close and argue that the funds are not repayable. [ 3 ] Macoda seeks

summary judgment because the claim is a documents case, the facts are clear, and a trial would bring no new information that would affect the outcome. [ 4 ] The general rule is that one cannot benefit by one’s own wrong. If Macoda caused the loss of the $100,000, resulting in damages to Condo-Condo perhaps it should have no right to recover it - either at all, or pending the trial of the counterclaim. Perhaps a judgment for the plaintiff should be stayed, although the defendants did not ask for that in response to the application.

[ 5 ] I have concluded that

summary judgment must be granted and that there is no basis for a stay of enforcement pending the trial of the counterclaim. The Facts [ 6 ] Macoda and Condo-Condo reached an agreement to partially fund the $200,000 deposit on this real estate purchase. The $200,000 deposit would be financed as to one half by Macoda, and the other half by another party. Although Macoda was to provide $100,000 for this purpose, it was going to invest a total of $600,000 when the purchase deal closed.

Of this, $300,000 (including the initial $100,000) was to be structured as a loan to Condo-Condo, and the repayment of the $300,000 was to be guaranteed by Lester Hartland and Robert McCormick. [ 7 ] When the development moved forward, Macoda and Condo-Condo were to be joint venturers.

The land would be owned 25 per cent by Condo-Condo, 25 per cent by Macoda, and 50 per cent by the third party, who would provide the balance of the deposit as well as significant other funding. [ 8 ] The $100,000 loan advance was made by Macoda on July 19, 2012 to Tingle Merrit LLP, (a law firm representing Condo- Condo on the transaction) in trust pending further instruction. [ 9 ] Documents were then prepared setting out the agreement amongst Macoda, Condo-Condo, and the guarantors Mr. Hartland and Mr. McCormick.

Issues revolve around what the documents meant, whether there was a collateral oral agreement, why the deal did not close, and who had taken on the risk of failure. [ 10 ] In order to chronicle the original advance, Macoda provided the form of a promissory note and a personal guarantee. Although the promissory note was signed not only by Condo-Condo but also by Mr. McCormick and Mr. Hartland, Mr. McCormick and Mr. Hartland also then signed a personal guarantee.

The promissory note and the personal guarantee were dated July 23, and the certificate of notary public required by the Guarantees Acknowledgement Act was dated the next day, July 24, 2012. [ 11 ] A joint venture agreement was prepared by the defendants.

It was dated July 24, the same day as the certificate of notary public. [ 12 ] The promissory note, guarantee and joint venture agreement were all prepared and signed within a very short time period - only two days. [ 13 ] The $100,000 that had been sent July 19 was apparently released from trust on Macoda’s “further instruction”. [ 14 ] The offer to purchase had been accepted by Manchester on July 17, 2012. It had a closing date of November 1, 2012. The agreement was amended on July 30, 2012 – a few days after the Macoda/Condo-Condo joint venture was dated.

The amended closing date was December 1, 2012. [ 15 ] Condo-Condo and the guarantors defend on the basis that the reason the purchase did not close is that Macoda failed to advance the remaining $500,000 that it had committed. Condo-Condo counterclaims for damages from this alleged default. But Macoda says it was never called upon to make the advance beyond $100,000.

It says the deal did not close because Condo-Condo lost interest in the deal after doing some planning and due diligence, and that the written agreements are clear that if the transaction did not close for any reason, the $100,000 that Macoda advanced was immediately repayable. [ 16 ] In general terms, there is no dispute over the basic enforceability of the promissory note, the guarantee, or joint venture in general. The dispute is over their terms - in particular whether there was an oral agreement that limited when they might be relied upon. [ 17 ] The promissory note was for $300,000.

It provided that monthly interest-only payments at the rate of 8% per annum is payable until the principal amount plus all accrued interest is repaid. The interest rate is stated to double to 16% in the event of a default before or after the due date. The “due date” was stated to be four years from the closing of the real estate purchase from Manchester, which was originally contemplated to be November 1, 2012. [ 18 ] The promissory note specifically stated: The Three Hundred Thousand ($300,000) will not be advanced to the Undersigned [Condo-Condo, Mr. Hartland and Mr.

McCormick] by the Holder [Macoda] until the structure of the acquisition of the Manchester Business Centre has been agreed upon and the charge hereby agreed to has been documented in a [sic] enforceable form satisfactory to the Holder’s lawyer acting reasonably; and later on it provided: The first $100,000.00 will be sent in trust to Tingle Merrit on July 23, the other $200,000.00 will be issued on Nov 1, 2012 or the closing date.

If for any reason during the due diligence period. [sic] Condo Condo fail to close on the Manchester property by Nov 1 2012 than [sic] any money owed to Macoda will be owed immediately. [ 19 ] There was no “entire agreement” clause in the promissory note. [ 20 ] However, in the joint personal guarantee, there are two paragraphs of the “entire agreement” type: 6.

This Guarantee will be operative and binding upon the Guarantor and possession of this instrument by the Holder or its assigns will be conclusive evidence against the Guarantor that this Guarantee was not delivered in escrow or pursuant to any agreement that it should not be effective until any conditions precedent or subsequent had been complied with. 7. This Guarantee covers all agreements between the parties hereto concerning this Guarantee, and none of the parties shall be bound by any representation or promise made by any person relative thereto which is not expressly embodied in this Guarantee.

[ 21 ] The joint venture agreement that Condo-Condo produced the next day provides specifically as follows: The initial deposit ($100,000.00) will be guaranteed in full by CCH [Condo-Condo] in the event that the sale agreement for whatever reason does not close. The $100,000.00 will be paid back in full to MVI [Macoda]. [ 22 ] On its face then, the documentation seems to provide quite clearly that the $100,000 was a loan by Macoda to the defendants.

These documents indicate that the $100,000 was repayable regardless of the reason for the failure to close, and that the guarantee was not subject to “any conditions precedent or subsequent”. [ 23 ] There is no dispute that the $100,000 was used, together with $100,000 from another source, to pay the deposit to protect the purchase agreement, and that none of the deposit money was contributed by Condo-Condo, Mr. McCormick, or Mr. Hartland. [ 24 ] During the “due diligence” period Mr. Gelinas of Macoda had a discussion with Mr. McCormick.

There was some kind of oral discussion to the effect that Macoda would prefer not to advance the full $600,000, and then on October 17, 2012 Mr. Gelinas wrote an email to Mr. McCormick: Hello Bob You said you would talk with Maury to see if he would put up more capital on his side so I would only have to put in an additional $300,000.00. How soon could you get an answer? It would sure be nice to recoup some of the 400 thousand dollars lost on our Carbon Credit deal. [ 25 ] The reference to “Maury” was to the person providing financing for the other $100,000 and the balance of the funds required for closing.

The “Carbon Credit deal” was a reference to another investment that had not gone well. [ 26 ] Several hours later, Mr. McCormick responded without expressing any concern about Mr. Gelinas’ suggestion that Macoda would prefer not to advance the full amount committed: Hi Dave, We have a package going out tomorrow… We will keep you abreast of his thoughts. The reserve and replacement study is completed… I will send you a copy for review. The electrical upgrade quote is forthcoming but doesn’t look good. Net margins are becoming thin well below our threshold. ...

Bob and Les [ 27 ] That is where the request for money stops, according to the written communications. [ 28 ] Subsequent to the exchange quoted above, information became known about the cost of an electrical upgrade (almost $600,000) and other expenses that were well beyond the original estimate. The person referenced as “Maury” is said to have expected an 18% return on the investment. Macoda argues that that is the “threshold” referenced in the email about “net margins are becoming thin”. Macoda argues that the reason the transaction did not close is because Mr. McCormick and Mr.

Hartland concluded that there was no benefit in closing. They knew that their exposure was limited to the deposit – which had been contributed by Macoda and the third party. [ 29 ] The defendants argue that the reason the transaction did not close is that Macoda refused or failed to advance the rest of the funds promised. However, there is no evidence that the money was ever requested, and in cross-examination Mr. Gelinas was clear that he always intended to put up the remaining funds. At page 24 of the transcript of his cross-examination, he said, “I fully intended to put up the other $500,000 before closing.

I was waiting for some documents from my partners.” [ 30 ] The defendants also argue that there was an oral agreement from the outset that if the transaction did not close the $100,000 did not have to be repaid to Macoda. However, the promissory note and the joint venture agreement do not say that. This is an assertion of a collateral agreement contradicting the express written terms of the agreement.

Perhaps, if the $100,000 had not been spent, such an oral agreement could be asserted to show that there was an escrow arrangement over both the funds advanced and the promissory note and guarantee pending some further arrangement, but it cannot be asserted in these circumstances. Firstly, paragraph 6 of the guarantee expressly says otherwise. Secondly, the $100,000 was actually paid to the vendor, and placed beyond their control.

There was no way to unwind the commitment. [ 31 ] Finally, both the promissory note and the joint venture agreement specifically contemplated that the transaction might not close, and if it did not, the $100,000 was to be repaid to Macoda. The defendants argue that this makes no sense, but their argument is difficult to follow. The transaction seems clearly to have contemplated that the $100,000 deposit risk was a risk being undertaken by the defendants, not by Macoda.

This was partly expressed in the defendants’ own words in the joint venture - that they prepared. [ 32 ] Would that change at trial if we had more evidence of this oral agreement beyond the evidence of Mr. McCormick? Each party is to put their best foot forward, and for the defendants’ arguments to prevail Mr. McCormick’s evidence requires the Court to conclude that what the parties signed is not what they agreed upon. The onus in such a dispute lies with the party who asserts that he is not bound by the document he signed. [ 33 ] Mr.

McCormick deposes terms of the documentation that simply do not exist: Amendments to [the statement of defence] reflect the fact that it was a term of the [joint venture agreement], the Promissory Note and the Personal Guarantee that the Promissory Note and Personal Guarantee would only become valid upon the financing having been fully advanced in the amount of $600,000.00. If the plaintiff failed to advance all the financing, as agreed to in the [joint venture agreement], Promissory Note and Personal Guarantee, and the Promissory Note and Personal Guarantee would become void and the plaintiff would

not be able to rely on the promissory note and personal guarantee whatsoever. ... ... [T]he defendants and I executed the Promissory Note and Personal Guarantee on the belief that the Plaintiff could not rely upon them unless it conveyed all the financing.

Had the Defendants and I known that the Plaintiff could have relied upon the Promissory Note and Personal Guarantee after failing to advance the funding in the amount of $600,000.00, we would not have executed the Promissory Note and Personal Guarantee. [ 34 ] The first part of the evidence quoted is self-serving: it asserts an argument with no basis for concluding that any such agreement was made. The second part quoted specifically asserts that the defendants believed that there was a condition precedent to the guarantee, when the document expressly says that there was not.

Other passages in his affidavit, not quoted, deal with interest and legal arguments as to their obligations. [ 35 ] In fairness to Mr. McCormick, this part of his affidavit was sworn in support of an application to amend the statement of defence, and he was addressing the proposed amendments. Nonetheless, it purports to set out the defendants’ position.

He states a wishful-thinking conclusion as to what the documents say, but a review of the underlying documentation shows that there is simply no foundation whatsoever for his assertion. [ 36 ] Another passage in his affidavit, expressly directed towards the defence of the

summary judgment application, makes the assertion more directly that the failure to close was Macoda’s fault. He said: The Plaintiff did not convey the financing as was mandated by the [joint venture agreement]. There were no amendments to the [joint venture agreement] and no alterations. The Plaintiff explained to the defendants and me that it did not have the available financing. [ 37 ] The difficulty with this part of the defendants’ case is that there is no evidence that the funds were ever called for.

The email exchange quoted above about a request for a reduction in Macoda’s financial commitment contained the defendants’ pledge to keep Macoda “abreast of [“Maury’s”] thoughts”, but after that exchange there is no specific evidence that the funds were called for. The defendants’ evidence seems, in total, to demonstrate that they just assumed that Macoda was not good for the balance and they made some attempts, not especially serious because there is nothing in writing, at finding other financial support for the project. [ 38 ] Things appear to have been left with Macoda that Mr.

McCormick would look for other financing, and when he did not find any, the defendants called off the deal. At page 222 of the transcript of his cross-examination, Mr. McCormick said, “I told Dave [Gelinas] I was working on other equity sources and I’d let him know if I could pull a rabbit out of the hat and preserve this closing.” This is as close as the evidence appears to come to letting Macoda know that the deposit would be lost if Macoda did not lend and contribute the remaining $500,000. [ 39 ] Counsel for Macoda refers to what he says was an express admission by Mr. McCormick.

At page 122 of the transcript of his cross-examination Mr. McCormick was asked “Did you ask him for the money?” His answer was, “No. We called the deal off when we couldn’t bring our 600,000 to the table.” The context does not make it clear who was the “him” referenced in the question – it appears to me to be “Maury”, not Mr. Gelinas (Macoda). Analysis [ 40 ] The facts appear to be these: 1. There was some request by Macoda for another arrangement. 2. The defendants assert that Mr. Gelinas said he was not able to fund the balance despite the email exchange that does not support this understanding. 3.

They offer no details of what it was that was communicated from each side to the other after the email exchange, when, and how. 4. No other agreement for funding was reached so the original agreement remained in place. 5. There were some clear problems with the investment that created challenges for the purchasers, although the defendants claim that they would still have proceeded but for the missing capital. 6. Attempts at finding other financing were not successful, and the defendants called the deal off, knowing that they had not advanced the $100,000 from the joint venture’s side of the purchase.

Macoda had. [ 41 ] Returning to the documents that they signed, as I mentioned early on, they are clear that the risk of not closing, and the forfeiture of the deposit, was the defendants’. That was the arrangement from the outset. It was stated clearly not only in the guarantee that they signed but in the joint venture agreement that they crafted. If they had intended something different the words would have said that. [ 42 ] The balance of the funds from Macoda was only due on closing.

There was no closing because the defendants called off the deal. [ 43 ] In the end, their defence (actually a counterclaim for damages and set-off) rests on the assertion that Macoda failed to fund the balance under the original agreements.

I accept that there may have been a legitimate counterclaim against Macoda that it caused the default, if the defendants had called for the money in anticipation of closing and then called off closing only when Macoda said it could not fund – that is, if an attempt at closing would have been futile, they would not have had to go through that exercise to make the balance of the Macoda funds due. However, there is no evidence that either Mr. McCormick or Mr. Hartland ever communicated to Mr.

Gelinas of Macoda, that, “If you do not fund the remaining commitment of $500,000 we will lose the purchase.” Their evidence about keeping him advised of the progress of the funding and the merits of proceeding with the transaction is blurry at best. Mr. Gelinas’ evidence is clear that he could have funded and would have. [ 44 ] The superior courts have repeatedly said that on a

summary judgment application each party is to put their best foot forward. See, for example, Pyrrha Design Inc v Plum and Posey Inc , 2016 ABCA 12 at para. 14 . This is not a case where some critical evidence might come from an uncooperative third party, or where there has not been disclosure. The parties here have produced documents in the course of swearing and filing affidavits, in answering undertakings, and they have been cross-examined. They are the players in the piece. It is their communication, or lack thereof, that a trial would be about. (Mr.

Hartland did not swear an affidavit and accordingly was not cross-examined. He relies on Mr. McCormick’s evidence.) [ 45 ] What further evidence might appear at trial? The agreements are clear that Macoda was to get its $100,000 back if the deal did not close. Condo-Condo had not paid any of the deposit funds – it came from Macoda and another source. If the purchase had closed, the defendants would have taken on another $200,000 in debt to Macoda.

Although the defendants argue that it was Macoda’s fault the deal did not close, there is not sufficient evidence to allow that conclusion to be at least a realistic possible outcome at trial, even if the express wording in the documents should be ignored. If it does not exist now, the Court should not send the case to trial because it might appear then, particularly in a case where the documents provided from the outset that the risk of losing the $100,000 on failure to close resided with the defendants. [ 46 ] The test for whether

summary judgment should be granted was set out in W.P v Alberta , 2014 ABCA 404 at para. 26 , quoted in 776826 Alberta Ltd. v Ostrowercha , 2015 ABCA 49 at para. 13 , “The question is whether there is in fact any issue of “merit” that genuinely requires a trial, or conversely whether the claim or defence is so compelling that the likelihood it will succeed is very high such that it should be determined summarily”. Given the agreements here and the blurry evidence that Macoda failed to fund, the likelihood that Macoda will succeed is very high. [ 47 ] The plaintiff is granted

summary judgment on the promissory note. If there is a dispute about the precise amount owing, the parties may approach the Court for a further ruling. [ 48 ] There was no application for

summary judgment to dismiss the counterclaim for damages. The counterclaim asserts that Macoda fundamentally breached the joint venture agreement by its failure to fund the balance, that Condo-Condo accepted this repudiation, that Condo-Condo was unable to complete the purchase, and that the deposit was thereby forfeit. It claims for damages for loss of opportunity, loss of profit and loss of reputation.

It was necessary for me to consider the arguments that are behind the counterclaim because it might have affected whether judgment might be dismissed or stayed pending trial of the counterclaim, but not for the purposes of the possible dismissal of the claim for damages sought within it. [ 49 ] Paragraph 10 of the guarantee is clear that the plaintiff is entitled to costs on a solicitor and own client basis, and costs are awarded accordingly. Heard on the 4 th day of July, 2016. Dated at the City of Calgary, Alberta this 8 th day of August, 2016. A. R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: Richard I.

John Bridgeland Law for the Applicant (Plaintiff) Bradley Y. Minuk Minuk Law Office for the Respondents (Defendants/plaintiff by Counterclaim)