Blankenship v Jenks-Cochrane Properties Ltd, 2016 ABQB 461

Court of Queen’s Bench of Alberta Citation: Blankenship v Jenks-Cochrane Properties Ltd, 2016 ABQB 461 Date: 20160822 Docket: 1303 04619 Registry: Edmonton Between: Gabriele Blankenship Plaintiff/Defendant by Counterclaim - and - Jenks-Cochrane Properties Ltd., Brent Taylor, Gun-Shy Investments Ltd. Defendants - and - Jenks-Cochrane Properties Ltd. Plaintiff by Counterclaim Corrected judgment: A corrigendum was issued on October 3, 2016; the corrections have been made to the text and the corrigendum is appended to this judgment.

Corrected judgment: A corrigendum was issued on August 29, 2016; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Memorandum of Decision

of the Honourable Madam Justice D.C. Read _______________________________________________________ Introduction [1] The Plaintiff, from the USA, was induced by a rogue or rogues to lend money for what she initially thought would be a shortterm loans to enable a Canadian corporation (“Jenks-Cochrane”) to purchase land in Peace River, Alberta. According to the rogue, themoney would be repaid when the corporation got other financing. The loan was not repaid and instead, on behalf of the corporation, therogue and others purported to issue preferred shares to her and to grant her a blanket mortgage.

The rogue and the others went bankruptand the corporation became controlled by the Defendant Taylor. The Plaintiff was unable to collect from the rogue in US proceedingsand sued the Defendant Taylor, his own corporation, and Jenks-Cochrane. The Defendants said the preferred shares were not properlyissued, the loans were not to the corporation but to the rogue or rogues, the mortgage was invalid and the action was out of time. Facts [2] Gabriele Blankenship, the Plaintiff, is a retired business woman who lives in Tulsa, Oklahoma in the United States ofAmerica.

For a number of years she had a business relationship with Richard Possett, a Tulsa area certified public accountant, financierand business man. As a consequence of her relationship with Mr. Possett, Ms. Blankenship had also done business with Allan andPamela Guenther, a married couple also from the Tulsa area, introduced to her by Mr. Possett. [3] Brent Taylor, one of the named Defendants, is a business man who lives in Cochrane, Alberta and with business interests inPeace River Alberta.

He is the operating mind of Gun-Shy Investments Ltd., also one of the Defendants. [4] Jenks-Cochrane Properties Ltd, the final Defendant, is an Alberta corporation incorporated on August 13, 2007. The threenamed incorporators were Mr. Possett, Mr. Taylor, and Henry Guenther, who is the father of Allan Guenther and, unlike his son, aresident of Alberta. [5] Jenks-Cochrane is the registered owner of land (“Land”) located in Peace River, Alberta and legally described as Plan 570XParcel A and Plan 4877TR, Block 5, Lot 12.

This Land was originally owned by the Province of Alberta and was used for forestryoperations by the Province. It was frequently referred to in the evidence as the forestry lands. [6] Only Ms. Blankenship and Mr. Taylor gave evidence at trial. Many of the other potential witnesses who likely could haveprovided relevant evidence did not appear and the parties did not provide some potentially relevant documents. Some relevant evidencewas, therefore, not before the Court. [7] Additionally, some of the evidence I did hear related to out of court statements made by persons not in attendance. No oneobjected to this.

Below, I have set out some of this hearsay evidence in respect to some of the background information. I admit it not forits truth but as part of the narrative so that the chain of events leading up to the events that are the subject of this lawsuit, isunderstandable and because it may explain certain actions taken by various actors: R. v. Khelawon 2006 SCC 57 , [2006] 2S.C.R. 787 at para 36. [8] Much of the background information and many of the relevant facts are uncontentious and I will set out these first. [9] Ms.

Blankenship’s business relationship with Richard Possett involved her lending money on projects identified by Mr.Possett. As described by Ms. Blankenship, it appears that these early short term loans were to mortgage or finance companies controlledby the Guenthers, perhaps among others, who were in the business of lending to homeowners in the United States, to finance or refinancehomes in foreclosure. From Ms.

Blankenship’s description, it appeared these loans were at high interest rates and made to over-extendedhomeowners and in the context of the tumultuous business climate created just before and after the mortgage backed security crisis in theU.S. [10] Ms. Blankenship’s evidence was that these loans were relatively small, between $25,000 and $50,000 each and for terms ofsix months. They earned her interest at 12% a year. These loans had always been financially successful for her and repaid in full. Hertrust in Mr. Possett increased as a result. She said that Mr.

Possett did all of the negotiations with the Guenthers and she played no

part inthat part of the transactions, although she did, at some point meet Allan and Pamela Guenther. [11] In the spring of 2007, Mr. Possett suggested a different business opportunity to Ms. Blankenship – the potential to invest inCanadian real estate in northern Alberta. At his suggestion, Ms. Blankenship travelled to Grande Prairie for about five days at the end ofMarch 2007 to look at some projects he and the Guenthers were considering. While in Grande Prairie, Ms. Blankenship met with Mr.Possett and the Guenthers.

Her interest was piqued by the fact that she had great difficulty securing a hotel room in Grande Prairie forher visit. This experience and the information gleaned from her visit and from what Mr. Possett and the Guenthers told her, convincedher that there was a housing shortage in northern Alberta. She said Mr. Possett told her that any money she invested in Alberta propertieswould not be used for development of properties but only their purchase and sale. She said she went home thinking that the investmentopportunities looked very promising. [12] She understood at the time that Mr.

Possett intended to form a corporation to do the investment in Canada and that her only

involvement would be to lend money. From her evidence, it is not clear if during her visit to Grande Prairie she ever saw or heard specifically of the Land that is the subject of this lawsuit and is located in Peace River. [ 13 ] A very short time after her return from Grande Prairie, Ms. Blankenship began making the loans that are the subject of this lawsuit through Mr. Possett and the Guenthers. [ 14 ] Ms.

Blankenship testified in respect to amounts she loaned with reference to a copy of the Jenks-Cochrane general ledger report from April 1, 2007 to December 31, 2007, found at Tab 15 of Exhibit 1, as document numbered A00192. Under the heading ‘Preferred Stock USA’, this document shows four credits, the first being in the amount of $70,000. It is described as “working capital Gabrielle Blankenship” and is dated April 4, 2007.

The three other entries are as follows: $445,000 under the heading “GSB Investments” with a date of October 29, 2007; $30,000 under the heading “money from Gabriele less interest for..” with a date of September 14, 2007, and $120,000 under the heading “GSB loan Jenks Cochrane” with a date of December 27, 2007. The total of these four items is US$665,000. [ 15 ] Ms. Blankenship explained that GSB Investments was Mr. Possett’s term for her money and that much, if not all, of this money was taken from her IRA, apparently a registered retirement account similar to a Canadian RRSP. [ 16 ] Sometime well before Ms.

Blankenship’s visit to Grande Prairie and well before the events that gave rise to these proceedings, Mr. Taylor had incorporated Gun-Shy in order to buy properties in northern Alberta. In 2004, Gun-Shy made an offer to purchase the Land from the Province. The offer to purchase was in evidence and indicated it was made on behalf of Gun-Shy or an assignee. Mr. Taylor’s evidence was that he interested someone by the name of Bruce Stewart in purchasing the Land and ultimately the purchase closed. The Land was registered in the name of Rocky Mountain Financial Services, a corporation connected with Mr. Stewart.

The purchase price was $169,000; all of the purchase price save the initial deposit of $10,000 paid by Gun-Shy was paid by Rocky Mountain Financial, according to Mr. Taylor. [ 17 ] The Land consists of about 14 acres and is situated on the banks of the Peace River; it is centrally located within the Town of Peace River. Although its previous use was industrial, connected with the forestry industry, it sits between two residential developments. Mr. Taylor said he thought it was ideally suited for residential development and pursued this to some extent between 2004 and 2007.

Nothing was actually developed however and, according to Mr. Taylor, Mr. Stewart lost interest. [ 18 ] On June 11, 2007 Alta-Trek Properties Ltd., apparently a corporation connected with Allan and Pam Guenther, made an offer to purchase the Land from Rocky Mountain Financial. The offer was for $675,000. The proposed purchasers seem to have signed the agreement but such signatures as there are, seem to have been affixed by an attorney under a power of attorney. The initials “POA” appear after the signatures. The signature of the attorney is unreadable.

Initially, the copy of the agreement, made an exhibit, had no signature for the vendor. However, ultimately a fully signed copy of this agreement was made the final exhibit in this proceeding. [ 19 ] Mr. Taylor’s evidence was that he met Mr. Possett in Peace River and it was through him that this offer was made. At the time, Mr. Possett told Mr.

Taylor he was financial adviser for the Guenthers and was exploring investment opportunities on their behalf. [ 20 ] The sale to Alta-Trek did not close and instead, a further offer to purchase the Land from Rocky Mountain Financial for $430,000 was made by Jenks-Cochrane on August 22, 2007. Mr. Taylor signed the offer on behalf of Jenks-Cochrane, indicating he was signing as a director and secretary. This offer was also apparently accepted but, no signatures for the vendor appear on the copy of the document made an exhibit. The closing date for the sale is set out as October 31, 2007. [ 21 ] Neither Ms.

Blankenship nor Mr. Taylor knew each other or of each other during these early events. They did not meet until November 2007, at a dinner function at Mr. Possett’s home in the Tulsa area. [ 22 ] I will now deal with the evidence respecting and make my findings of fact with respect to more contentious matters. What was Ms. Blankenship’s investment into the corporation? [ 23 ] Ms. Blankenship’s evidence with respect to her financial contributions was as follows.

She said all of the loans she made were made to the corporation that became Jenks-Cochrane and all were made to permit the acquisition by the corporation of land in Alberta. In respect to the $70,000, Ms. Blankenship’s evidence was that on April 3, 2007, she gave Mr. Possett $70,000 US at his request. Her understanding was that these funds were to be used to form the corporation, to inspect the land sites and to do all of the “due diligence”. At the time, her evidence was that she still thought the property to be invested in would be located in Grande Prairie.

In cross- examination, she agreed the $70,000 cheque was made out to Pamela Guenther. [ 24 ] In return for the $70,000, she received a promissory note personally signed by Allan and Pamela Guenther. On its face, this note indicates it is due October 3, 2007, with monthly interest only payments payable until the due date. Notwithstanding this, Ms. Blankenship’s evidence was that she loaned the money to the corporation. She explained her understanding of why the promissory note was signed by the Guenthers: it was because Mrs. Guenther was the “note taker” and the company was not yet in existence. [ 25 ] Ms.

Blankenship testified that in September 2007, a further amount of US $30,000 of her funds was invested into the company without her express authorization. The money was funds she had loaned to the Guenthers in respect to a completely different transaction in the U.S. and had come due at that time. However, instead of repaying Ms. Blankenship, the Guenthers gave the funds to Jenks- Cochrane for its use, according to Ms. Blankenship. This was done without discussion with her or without seeking her permission and she only found out about it after the fact.

Her information was that these funds were used by the company for geotechnical work necessary on the Land. She thought it had something to do with slope stabilization. [ 26 ] Ms. Blankenship testified that she made a further investment totalling $445,000 by wire transfer to purchase the Land on October 29, 2007. She wired these funds in two parts – the first portion was $357,000 wired to Mrs. Guenther, who then forwarded them to the lawyer. These funds were from Ms. Blankenship’s IRA but were first transferred to Ms. Blankenship’s bank account to enable the wire transfer.

The remaining funds were sent separately to Roy Carter, who Ms. Blankenship described as the lawyer who acted on the

Land transfer. The Jenks-Cochrane general ledger corroborates the amount of $445,000 being received by the corporation from GSB Investments. [ 27 ] Other documents made exhibits, however, show different amounts. A separate document called ‘Peace River Property’, also part of Exhibit 1, Tab 15, breaks down the sources of funds as $400,142.51 received from GSB Investments and further amounts from three other sources: HoSoUSA LLC, Alta-Trek Properties Ltd., and Jenks-Cochrane Properties Ltd. to bring the total to $455,999.39.

A statement of adjustments from a law firm indicates that the cash to close balance was $432,019.77. The name of the firm is not indicated on the Statement of Adjustments, but it clearly relates to the Land and references Rocky Mountain Financial as the vendor and Jenks- Cochrane as the purchaser. Mr. Carter is the lawyer named on the Agreement to Purchase the Land as lawyer for the purchaser. [ 28 ] Ms. Blankenship’s evidence was that she invested a final amount of $120,000, on December 27, 2007. Again, this occurred without any prior consultation with her and at Mr. Possett’s request made to the Guenthers. Ms.

Blankenship’s evidence was that another unrelated loan she had made to the Guenthers had come due and was to be repaid to her on December 26, 2007. However, instead of repaying her, Mr. and Mrs. Guenther invested the funds into Jenks-Cochrane on her behalf because Jenks-Cochrane was short of money and needed the funds to pay bills. [ 29 ] Ms. Blankenship said she did not find out about this until January 2008 and was very upset when she learned this because these were also retirement funds. Her understanding was that these funds were invested in an atmosphere of some desperation. Mr.

Taylor was pressing for repayment of various amounts he had expended on behalf of Jenks-Cochrane and for funds he was owed as salary. [ 30 ] As part of Exhibit 1, there is evidence that $120,000 was paid by Ms. Blankenship to an entity called Real Estate Closing Company on June 28, 2007. Ms. Blankenship’s evidence was that she advanced these funds on behalf of Pam Guenther and that this cheque was related to the transaction that had come due in December 2007. [ 31 ] Mr. Taylor said nothing about these transfers in his evidence. He testified that he did not know of Ms.

Blankenship’s existence until he met her in November 2007, nor that she was an investor. He thought the funds invested into Jenks-Cochrane and used to purchase the Land were from the Guenthers. Early in the trial, he said he did not contest the amounts Ms. Blankenship loaned; he contested that the loans were made to Jenks-Cochrane. It is his position that much of the money was loaned personally to the Guenthers and they transferred it onto the books of Jenks-Cochrane in order to rid themselves of personal liability. [ 32 ] Mr. Taylor’s evidence was that Mr.

Possett told him he need not worry about any financing for the new venture involving the Land and that he would take care of that part, perhaps involving some private investors, but these would be down the road. Mr. Taylor said that all of his dealings at this point were with Mr. Possett and not with the Guenthers. It was from Mr. Possett that he understood the money to close the Land transaction and for other initial expenses came from the Guenthers by way of shareholders’ loan to the corporation. [ 33 ] Mr. Taylor said that Mr.

Possett told him that he would represent the Guenthers and their interests at no cost to the corporation. [ 34 ] Mr. Taylor’s evidence was that although he now realizes the money in the corporation, with the exception of some small amounts, was Ms. Blankenship’s, he said, at the time, he knew nothing of any financial involvement by Ms. Blankenship. Later in his evidence, however, he seemed to dispute the amounts Ms. Blankenship testified she had put into the corporation. With reference to the General Ledger document (A00192) which sets out the amounts, Mr.

Taylor said it did not seem accurate to him and that he only found out “the details” of what she said she had put into the corporation in April 2008, when Ms. Blankenship tried to register security on the property. [ 35 ] I accept Ms. Blankenship’s evidence that she loaned $665,000 in U.S. funds. I also accept her evidence that the loans were made to Jenks-Cochrane. I find as a fact that Ms. Blankenship loaned a total of $665,000 US and that all of the loans were made to the corporation. Mr.

Taylor can provide no contradictory evidence and others who could have confirmed or contradicted her evidence were not called as witnesses. [ 36 ] Despite her background in business, Ms. Blankenship seemed to have been quite naïve. Some of her evidence showed only a vague understanding of events and, in some, it seemed evident that she simply accepted what others told her without verifying independently. However, her evidence in respect to who she loaned the money to was clear and could not be shaken on cross- examination.

Her understanding was that the various amounts were loaned to the corporation and such documentary evidence as there is, largely corroborates her evidence. In particular, the records of the corporation, itself, acknowledge the debts to Ms. Blankenship. [ 37 ] Further, this documentary evidence was provided to the Defendants well before trial as part of a Notice to Admit Facts pursuant to Rule 6.37 and was not responded to by the Defendants within the required time period after service. An application to withdraw the admissions made at trial was ultimately abandoned.

Effectively, therefore, the Defendants have admitted the facts set out in these records. [ 38 ] Although the earliest of these loans was made before the corporation came into existence, the fact that this loan shows on the company’s general ledger and in various other documents, is evidence of ratification by the corporation of the debt and its intention to be bound by it. Additionally, by using the money, the corporation has taken advantage of the contract. Thus, by virtue of s.15(3) of the Business Corporations Act , RSA 2000, c. B-9 (“ABCA”), the corporation is bound. What was Mr.

Taylor’s investment into the corporation? [ 39 ] Mr. Taylor’s evidence was that he first met Mr. Possett when he was in Grande Prairie dealing with the offer to purchase from Alta-Trek. He said that shortly thereafter, Mr. Possett came to see him in Fox Creek when he was working on another project. Having learned from Mr. Taylor about his experience in land development, Mr. Taylor said Mr. Possett told him he would like him to be a partner in the new venture and develop the Land

[ 40 ] Mr. Taylor’s evidence was that he reached agreement with Mr. Possett on the following terms. The previous transaction involving Alta-Trek would be abandoned and the Land would be purchased instead by a numbered shelf company. Fifty percent of the company was to be owned by Allan Guenther and the other 50% was to be owned by Mr. Taylor. Mr. Taylor’s equity was to be contributed by a reduction in the purchase price of the Land from $675,000 in the Alta Trek offer to $430,000. He would also contribute what he termed “sweat equity”. His evidence was that Mr.

Possett made this agreement with him because he needed someone in the local area able to do design and management. [ 41 ] In cross-examination, Mr. Taylor agreed that, on his evidence, since Mr. Stewart’s company had contracted with Gun-Shy, any interest in the Alta-Trek transaction that he had did not belong to him personally but to Gun-Shy. [ 42 ] Mr. Stewart was not called to give evidence to confirm this version of events. There is also almost no documentation in evidence that confirms Mr. Taylor’s version of events in respect to what Gun-Shy’s original agreement was with Mr.

Stewart’s company, Rocky Mountain Financial, or what exactly occurred to cause the Alta-Trek agreement to be cancelled to make way for the new agreement with Jenks-Cochrane. On the other hand, there is also no evidence to the contrary. [ 43 ] Nothing really turns on the history of the previous involvement of others or the aborted Alta-Trek transaction and I need not make findings of fact in respect to most of this evidence. I conclude, however, that Mr. Taylor has not proven that he personally put any substantial monetary value into Jenks-Cochrane.

As he agreed in cross-examination, his cash contribution was limited to $1000. This amount is confirmed in the company’s general ledger. He also agreed in cross-examination, any value contributed by way of reduction in the purchase price was contributed by Gun-Shy and not by him personally. What happened next and when did Mr. Taylor find out that Ms. Blankenship had invested in the corporation? [ 44 ] After Jenks-Cochrane’s incorporation, Mr. Taylor said that Mr. Possett presented him with a blizzard of corporate documentation, asking him to sign as director.

He did so, although he wondered why it was necessary to have such complicated documents. He said he began to do work for the corporation immediately after agreeing to Mr. Possett’s proposal and flew to Lethbridge to look at some modular homes. He said Mr. Possett gave him $5,000, presumably to cover his expenses for the Lethbridge trip. He was also asked to and went to Tulsa in October 2007, where he again met the Guenthers and was impressed by the office and operation there. [ 45 ] Mr. Taylor’s evidence was that he first met Ms. Blankenship in November of 2007 at a function at Mr. Possett’s home in Tulsa.

He said his understanding from Mr. Possett was that she was a potential investor. He said he had no idea at that point that she had already invested substantial funds in the company for the purpose of buying the Land. Mr. Taylor said he had a casual conversation with Ms. Blankenship and tried to make a good impression but did not otherwise have a good memory about what had occurred at this meeting. [ 46 ] Ms. Blankenship’s evidence in respect to what occurred at this meeting is different.

She said she understood that there had been a meeting of the active participants on Jenks-Cochrane earlier on that same day, but she was not a part of that. She was, however, invited to dinner at Mr. Possett’s. She said Mr. Possett had told her he wanted her to meet Mr. Taylor and wanted him to meet her. She testified that prior to this meeting, she did not know of Mr. Taylor’s involvement in the corporation. She said she was introduced to Mr. Taylor by Mr. Possett, as the person who had loaned the money to the corporation for the incorporation and the Land. She says there was no comment or questions from Mr.

Taylor about this. [ 47 ] Ms. Blankenship recalled that there was considerable talk at the dinner about the Land and how beautiful it was but that she understood as well from the discussion that there were buildings on the Land that would have to be demolished and there were asbestos issues with these buildings. She said she understood that it would cost about $200,000 to raze the buildings, given the asbestos issues. [ 48 ] Both witnesses agree that a second meeting was held in Tulsa on January 30 and 31, 2008. Again, both Ms. Blankenship and Mr. Taylor were in attendance. Also present were Mr.

Possett, and the Guenthers. Mr. Guenther’s father, Henry Guenther, who had been made a one percent shareholder, was present by telephone. [ 49 ] Ms. Blankenship understood that this meeting had been arranged because of developing discord between the parties. She said it was evident to her by this time that exorbitant amounts of money were being spent by the corporation on things that had not been authorized and that the necessary work to develop the Land was not being done. She said the other reason for the meeting was the question of repayment to her. She said she gleaned this information from Mr.

Possett and from the agenda for the meeting prepared by Mr. Possett. [ 50 ] Before the actual meeting, her evidence was that Mr. Possett organized a separate dinner between Ms. Blankenship and Mr. Taylor. She said the purpose of this meeting was that she had been asked by Mr. Possett to “calm down” Mr. Taylor. During this dinner meeting, she said she specifically told Mr. Taylor that she was the source of all of the money that had gone into Jenks-Cochrane. She said Mr. Taylor appeared surprised by this information and told her he had not known about this. She said the meeting was relatively friendly and Mr.

Taylor did not take issue with her having advanced funds. [ 51 ] It was Ms. Blankenship’s evidence that when she originally advanced the loan to cover the cost of purchase of the Land she made it very clear to Mr. Possett that these funds were coming from her IRA and that, as a consequence, they had to be repaid to the IRA within two months or she would incur penalties. She said that Mr. Possett promised repayment within the two month period and said he would get alternative financing for the corporation. [ 52 ] Ms.

Blankenship’s evidence was that her investment in the corporation and its inability to repay her loans was one of the subjects of the meeting that began the next morning when all of the interested parties were in attendance. She identified the document found at Exhibit 1, Tab 18, as the agenda and said it was prepared by Mr. Possett and sent to the parties prior to the meeting. She said it was followed “to a T”. She said Mr. Possett did most of the talking and indicated he had not been able to get any loans to repay Ms. Blankenship. [ 53 ] Ms.

Blankenship said she was offered an alternative to immediate repayment which she accepted. She was to receive shares

valued at one dollar per share and a blanket mortgage over the company’s assets. She said she accepted because “it was either that or sue them”. The only concern she recalls being raised at the meeting was from Mr. Taylor respecting the blanket mortgage and the likely necessity for subordinating it in the event the corporation got a bank loan. She said it was agreed that preferred shares and a blanket mortgage were to be issued to her.

There were no dissents at the meeting. [ 54 ] She testified that at the meeting, she saw a document called Addendum A Jenks-Cochrane Properties Ltd Preferred Stock, presented by Mr. Possett (exhibit 1, Tab 5) and understood from this that she was to receive dividends on her investment. [ 55 ] This document describes Series A 12.0% preferred shares with a par value of $1000 per share that are retractable by the company and have a maturity date of three years post issue.

They are non-voting except in certain extraordinary circumstances and bear a set dividend rate of 12% per annum with a mandatory minimum dividend payment of $3000 per month payable on the 20 th of each month. The document names Gabriele Blankenship doing business as GSB Investments as the “Lender”. It also specifies that “this preferred stock is secured by a blanket mortgage” on all present and after acquired Company assets, tangible or intangible, personal or real. [ 56 ] She identified the document found at exhibit 1, Tab 17, and titled “Jenks-Cochrane Properties Ltd.

Executive Committee Meeting Agenda” as accurate in terms of the discussion at the meeting. Notwithstanding it is called “Agenda”, this document seems to be a rather detailed set of minutes.

The document says this under the heading “Preferred Stock Issuance”: Discussed series A preferred stock, future investors will be debt-holders, not preferred stock, current preferred stockholder wants a first mortgage on the property for security, Brent is concerned with a first mortgage already in place when we go talk to major banks who will also want a first mortgage, we’ll have to deal with those issues later when we know what those terms are from the major banks (Gabriele will have to be subordinated or paid off at that time). [ 57 ] Ms.

Blankenship’s evidence was that at the time of this meeting, she had not seen most of the corporate documents, including the certificate of incorporation and the Operating Agreement. [ 58 ] Mr. Taylor’s evidence was that at this meeting, he still thought Ms. Blankenship was only a potential investor and did not understand that she had already contributed substantial funds to the corporation. His evidence was that it was not until sometime near the end of February 2008, that he found out Ms.

Blankenship had actually been issued preferred shares and that these shares were in respect to funds she had previously advanced. He said he thought that Mr. Guenther issued these shares improperly and “in order to shed his debt onto the company”. [ 59 ] He recalled that preferred shares were discussed at the meeting, but said he thought they were being discussed in respect to future private investors. He recalled the idea was that they would make available one million dollars in preferred shares and “whoever brings capital will get shares”.

He recalled, as well, some general discussion about preferred shareholders getting a blanket mortgage and recalled that “Richard pitched this”. Mr. Taylor said he was not in favour of this because he considered it duplication. Referring to the minute at Exhibit 1, Tab 17, he said this minute is incorrect and it does not indicate what was discussed. He said he did not look at this carefully because at the time he was given it, he was running to catch a plane. [ 60 ] He was referred in cross –examination to the minute of the shareholders meeting at Tab 19 of Exhibit 17.

This is dated January 31, 2008 and says this: The subject before the shareholders is the issuance of Series A 12% Preferred Stock, see Addendum A. The secretary asked for a motion to approve the issuance of no more than a million dollars par value of preferred stock. Allan seconded the motion. Both shareholders voted in favor of the motion. Brent makes a motion to delegate to the assistant secretary and the assistant treasurer to administer and execute the issuance of the shares. Allan seconded the motion. Both shareholders voted in favor of the motion. [ 61 ] Mr.

Taylor agreed he had seen this document before, but said he did not look at it closely because he was running to catch the plane. [ 62 ] At some point after the January meeting, Ms. Blankenship’s evidence was that Mr. Possett gave her four share certificates. Each was issued by Jenks-Cochrane Properties Ltd. and each indicated it was for series A preferred shares. Three were issued in the name of Gabriele S. Blankenship – one for 10 shares, a second for 244,420 shares and a third for 109,319 shares. A fourth is issued in the name of Gabriele S. Blankenship – IRA Investment Funds, and is for 357,931 shares.

It is agreed by the parties that each was signed by Pamela Guenther and by Allan Guenther and that these individuals were respectively assistant secretary and assistant treasurer of Jenks-Cochrane, at the relevant time. The share certificate for 10 shares is undated. The share certificate for 357,931 shares is dated January 15, 2008; the remaining two share certificates are dated February 1, 2008. In cross-examination, Ms. Blankenship’s evidence was that the share certificate for 10 shares should have been dated April 11, 2008. [ 63 ] Ms. Blankenship cannot recall exactly when Mr.

Possett gave her these share certificates. She was referred to a document entitled “Record of Certificates Issued and Transferred”, which appears to be a corporate record for Jenks-Cochrane. Ms. Blankenship said she received this in a box of corporate documents she got at the end of February. This document references three of the four share certificates issued to her. The share certificate for 10 shares is not mentioned. This document indicates that the three mentioned share certificates were issued 3/5/08 (March 3, 2008). Ms.

Blankenship was unable to explain this discrepancy between the dates on the share certificates themselves and the dates on this document. [ 64 ] She acknowledged, as well, in her testimony that the number of shares issued was incorrect. The total of shares issued was worth $700,011.67 at a dollar per share according to her and she thought she was entitled only to shares worth $655,000 plus a further $10,000 relating to an amount she sent directly to Mr. Taylor at his request. I will deal further with this $10,000 amount below. [ 65 ] A series of emails between Ms. Blankenship and Mrs.

Guenther in April 2008, were placed in evidence. These show Ms.

Blankenship’s attempts, at the time, to clear up this discrepancy. [ 66 ] Mr. Taylor’s evidence in respect to the issuance of shares was that he did not know that shares had actually been issued to Ms. Blankenship until the end of February, when he found out that she had already invested considerable funds into the corporation. An email from him to Ms. Blankenship dated February 23, 2008, seems to contradict this though. In part, it reads as follows: Please make sure that you have your share certificates from Richard and are protected to the extent that you are invested in case the fur flies. [ 67 ] Mr.

Taylor explained this email in examination in chief saying what he meant was that he had just been told that Ms. Blankenship had shares and was saying – “let’s figure this out. Let’s get to the bottom of it.” [ 68 ] He was not sure when he knew how much Ms. Blankenship had invested or how many shares had been issued to her. Later on in examination in chief, he said he never did determine how much of Ms. Blankenship’s money had actually gone into the corporation “but it was not for lack of trying”.

In cross-examination, however, he agreed that he had not make any attempts to obtain the corporation’s U.S bank records, or any other financial information, including an electronic file sent to him by Bernice Guenther with the other financial documents he agrees he received in April 2008, but did not open. [ 69 ] Minutes of a meeting held at the end of February 2008, after the resignation of Mr. Possett, were made an exhibit. This minute says the following: Brent stated that he didn’t understand until 2 days ago that Gabriele’s money had purchased the property.

Brent was unaware that there were any borrowings against the property. There was a clean company that he owned 50%... He understands now that Gabriele is not only a potential investor but is already involved as an investor. Brent stated that this is a debt to the Guenthers and not the company of Jenks-Cochrane. [ 70 ] Mr. Taylor’s evidence was that he did not get any financial statements respecting the company until April 2008, and it was only then that he saw that Ms. Blankenship had invested in the company as far back as 2007 and even before Jenks-Cochrane was incorporated.

He said he was furious. [ 71 ] On the evidence, I cannot find as a fact that Ms. Blankenship was introduced to Mr. Taylor at the November 2007 meeting as an investor or that Mr. Taylor knew then that all of the money invested in the corporation was from Ms. Blankenship. While I do not disbelieve Ms. Blankenship, there is nothing to corroborate her version of events and Mr. Taylor denies it. However, in respect to the January 30 and 31, 2008, meeting, I take a very different view. I find as a fact that at the meeting, it was made clear to Mr. Taylor, that Ms.

Blankenship had already invested considerable funds into the corporation and that the corporation was not able to repay her was a topic of discussion. Although Mr. Taylor was not able to recall when or if he received the agenda before the meeting, there is no reason to think he did not. He does recall seeing it “at some point”. He was at the meeting and on Ms. Blankenship’s evidence, I find the agenda and Addendum A were tabled there. Mr. Taylor knew or should have known by January 31, 2008, that Ms.

Blankenship had invested into the corporation essentially all of the money that Jenks-Cochrane had. [ 72 ] Where their evidence differs, I prefer the evidence of Ms. Blankenship to that of Mr. Taylor. There are a number of reasons for this. Mr. Taylor’s evidence was often tangential and imprecise. His use of buzz words gave the impression of precision without actually saying anything and, very frequently, his evidence was vague or hesitant and he would simply trail off and leave a sentence and his meaning unfinished.

Sometimes, he simply did not answer a question put to him at all but would simply start talking about something only vaguely related to the question. [ 73 ] More than once, he did not respond to a direct and simple question. For example, his position is that he did not know about Ms. Blankenship’s investment in the corporation or that she had been issued preferred shares and had a “big problem” with it when he found out.

However, when asked in cross examination if there was anything in any of the correspondence or other written materials from the relevant time period which showed, in any fashion, that he did not understand Ms. Blankenship’s role or took issue with the shares being issued, instead of responding directly he gave a long, tangential and unresponsive answer. [ 74 ] In general, as well, Mr. Taylor’s version of events was not corroborated by the written documentation tendered in this trial and, in fact, his evidence was often contradicted by it. For example, Mr.

Taylor’s assertion that he only found out that preferred shares had been issued to Ms. Blankenship at or near the end of February 2008 is contradicted by a January 31, 2008 shareholders meeting minute which says this: The subject before the shareholders is the issuance of Series A 12% Preferred Stock, see Addendum A. The secretary asked for a motion to approve the issuance of no more than a million dollars par value of preferred stock. Allan seconded the motion. Both shareholders voted in favor of the motion.

Brent makes a motion to delegate to the assistant secretary and the assistant treasurer to administer and execute the issuance of the shares. Allan seconded the motion. Both shareholders voted in favour of the motion. [ 75 ] The only reasonable inference I can make from this document is that Mr. Taylor also had Addendum A in front of him when this resolution was made. Ms. Blankenship gave clear evidence that she saw Addendum A at the meeting. [ 76 ] Further, Mr. Taylor’s evidence is contradicted by what is termed an “Executive Committee Meeting Agenda” which Mr. Taylor attended.

In this document, the following notation is found: Preferred Stock Issuance: discussed series A preferred stock, future investors will be debt-holders, not preferred stock, current preferred stockholder wants a first mortgage on the property for security, Brent is concerned with a first mortgage already in place when we go talk to major banks who will also want a first mortgage, we’ll have to deal with those issues later when we know what those terms are from the major banks (Gabriele will have to be subordinated or paid off at that time).

[ 77 ] Mr. Taylor’s evidence was self-serving. Sometimes it was demonstrably incorrect. He said, for example, that he obtained development approval for the Land from the municipality of Peace River and offered a document, which he said was the development approval. Even a cursory examination of this document, however, makes it clear that it was not development approval at all. He eventually admitted this in cross-examination but continued to insist that development approval had been obtained and it was simply not before the Court. [ 78 ] In contrast, my impression of Ms.

Blankenship and her evidence was that although she was naïve and overly trusting, she was not deliberately dishonest. In contrast to Mr. Taylor, I am satisfied that she was an honest witness. As well, although she was naïve, Ms. Blankenship struck me as someone with a good deal of common sense. [ 79 ] I conclude that Ms. Blankenship did not have a clear idea of what she was getting into or how it was to be financed. Her evidence made it obvious that, even now, she does not have a clear idea about what actually occurred or the reasons for it.

In her evidence, she often spoke of the others involved as the “partners” seemingly without any understanding that a partnership is a different legal entity from a corporation. Nor did she seem to understand the legal ramifications of having documents, such as a promissory note for a loan, that she says she made to the Jenks-Cochrane, signed by Ms. Guenther. Ms. Blankenship thought this was because “Pam took care of the paperwork”.

She sent a large amount of money directly to the lawyer in Peace River acting on the closing of the Land purchase, without any regard for the fact that no one had shown her anything in writing documenting these funds as a loan to the corporation. She acquiesced when funds she had advanced for one loan were forwarded to Jenks-Cochrane instead of being repaid to her. She seems to have trusted and to have relied extensively on advice and information she received from Mr. Possett or the Guenthers, without doing any independent verification.

Her evidence was that she was distracted at the time of these various transactions by the illness of her parents and the subsequent death of her father in Connecticut. [ 80 ] But what she did know about and either agree to or acquiesce in was clear from her evidence. She loaned money to Jenks- Cochrane for incorporation expenses and “due diligence”. She loaned further money to Jenks-Cochrane for purchase of the Land. She acquiesced in further amounts of her funds being forwarded to Jenks-Cochrane for its use rather than returned to her. [ 81 ] As I say, where their evidence differs, I prefer the evidence of Ms.

Blankenship to that of Mr. Taylor. Her version of events is corroborated by the documentation from this meeting. Mr. Taylor admits he received the agenda, Addendum A and the two sets of minutes. His evidence that these documents are incorrect and that he did not look closely at these documents because he was running for a plane is simply not believable. Events After the end of January 2008 [ 82 ] Share certificates were subsequently issued to Ms. Blankenship. They were signed by Allan and Pam Guenther. In cross- examination, Mr. Taylor agreed that Mr. and Mrs.

Guenther occupied the positions of assistant treasurer and assistant secretary. [ 83 ] It seems apparent from the evidence of both witnesses that the relationship between the various players deteriorated after the end of January 2008 to the extent that on about February 20, 2008, Mr. Possett tendered his resignation from all of his positions with the corporation. Details of the reasons for the deterioration of the relationship were scant but it seems that the relationship between Mr. Possett and the Guenthers had broken down. Ms. Blankenship called this resignation a ‘ploy’ by Mr.

Possett to try to resolve the issues that had arisen. She said he did not expect his resignation would be accepted, but it was. [ 84 ] A further meeting was held on February 29, 2008, in Oklahoma, a meeting precipitated by Mr. Possett’s resignation. Present at the meeting were Ms. Blankenship, Mr. Possett, the Guenthers and Mr. Taylor. Mr. Taylor says he was present by telephone. [ 85 ] Mr. Possett’s resignation was accepted at this meeting. There was much discussion about who would replace him and ultimately it was decided that Ms. Blankenship would. Mr. Taylor was not in favour of this. He wanted to replace Mr.

Possett himself, but went along with the ultimate decision. [ 86 ] Ms. Blankenship’s evidence was that meeting was so contentious that everyone was screaming. She was upset about the dissension and only reluctantly stepped in to assume the office of Chief Executive Officer. Mr. Taylor agreed that the meeting was heated. He also said that it was only days earlier, from Allan Guenther, that he had learned that Ms.

Blankenship was an actual, as opposed to a potential, shareholder in the company and that he felt blindsided by this as it was not what he understood he had bought into. [ 87 ] As I have already said, I have found that Mr. Taylor knew of Ms. Blankenship’s involvement by the end of January. [ 88 ] Ms. Blankenship assumed the position of CEO without having reviewed any of the corporate documents.

Her evidence was that she received a package of corporate documents from Pamela Guenther at or sometime shortly after the meeting that made her Chief Executive Officer and that many were a shock to her. [ 89 ] Three days after she accepted the position as CEO, Ms. Blankenship said she decided to resign and did. She said she knew nothing about developing property and had only sketchy financial information about the corporation. She said she had wanted a timeline for what had to be done to develop the property and a plan to make sure things got done.

She did not think any progress had been made to develop the Land, or that what she had thought was happening, had occurred and did not see any plan for going forward. [ 90 ] In April, Ms. Blankenship said she spoke further to Mr. Taylor. He telephoned her from Alberta. In her words, it was “very very late”. She thought he sounded desperate. He told her he needed money for expenses and had debts to pay. He wanted what he termed his monthly salary. He was very persistent on her evidence. In the end, after a conversation that she thought lasted about 20 minutes, Ms. Blankenship agreed and sent Mr.

Taylor an international wire transfer for $10,000 US. Her evidence was that she assumed she was lending this money on behalf of Jenks-Cochrane. That she sent the money is well documented at Tab 26 of Exhibit 1 and Mr. Taylor agrees that Ms. Blankenship sent it and he received it. This has never been repaid. [ 91 ] At some point, the corporation issued a further 10,000 Class A preferred shares to Ms. Blankenship, apparently in reference to

the $10,000 she had forwarded to Mr. Taylor. Ms. Blankenship’s evidence was that Mrs. Guenther was the one who actually did the paper work to issue the shares. [ 92 ] Mr. Taylor agreed in his evidence, that Ms. Blankenship did forward $10,000 US to him. He said, at one point in his evidence, that he considered this a personal debt to Ms. Blankenship that should be repaid. By the next day, however, he changed his mind and through his lawyer, took the position that this was a debt of the corporation. [ 93 ] Ms. Blankenship continued to be worried about repayment of her investments in the corporation.

In late April, with the assistance of Mr. Possett and the Guenthers, Ms. Blankenship executed and subsequently tried to file a caveat against and a blanket mortgage on the Land. The mortgage is in evidence and is signed by Allan Guenther on behalf of the corporation. It was accompanied by a guarantee signed by four corporations apparently associated with the Guenthers. Allan Guenther and Pamela Guenther signed for each of these corporations. It was also signed personally by Allan Guenther and by Pamela Guenther. The signature space for Jenks-Cochrane is blank. Ms.

Blankenship’s evidence was that this was because the corporation could not guarantee its own debt. [ 94 ] Exhibit A to the blanket mortgage was the corporate record of shares issued to Ms. Blankenship. These are defined in the body of the mortgage as the “Obligations” and later the “Secured Indebtedness” of the mortgagor (Jenks-Cochrane) to be secured. Exhibit B to the mortgage is a list of three properties defined in the body of the mortgage as the “Premises” to be secured by the mortgage. None of the named properties was owned by Jenks-Cochrane or is described by anything other than municipal addresses.

Two were the leased office spaces of Jenks-Cochrane – one in Peace River, Alberta, and the other in Jenks, Oklahoma. The third property was Mr. Taylor’s home in Cochrane, Alberta. The Land, itself, is not listed in Exhibit B. However, the certificate of title for the Land was attached separately and termed “Exhibit C”. There is no reference to Exhibit “C” in the body of the mortgage. [ 95 ] After these documents were signed, Ms. Blankenship said she made efforts to register them in Alberta.

She first asked a lawyer in Peace River, Robin Erickson, to do the necessary work and sent him the documents for registration. She understood that Mr. Erickson was the corporate lawyer as well as Mr. Taylor’s personal lawyer and that he was willing to register the documents. Her letter to Mr. Erickson is in evidence as Exhibit 7. However, after she sent the documents to him, she did not hear from him again. He did not register the documents. [ 96 ] The caveat with the blanket mortgage attached was subsequently registered on May 20, 2008, as instrument number 082 209648 by Ms.

Blankenship with the assistance of another lawyer. [ 97 ] The Guenthers declared bankruptcy in the United States in 2009. Ms. Blankenship did not pursue them. She did try to pursue Mr. Possett, suing him in the State of Oklahoma, after he failed to repay another loan she had made to or through him. She was largely unsuccessful. [ 98 ] Additionally, Ms. Blankenship hired a lawyer in Oklahoma who sent a demand letter dated August 20, 2008, to a Jeff Donald, at a law firm in Grande Prairie. It is not clear who Mr. Donald was acting for. The letter is cc’ed to Ms.

Blankenship, Allan Guenther, Pam Guenther, Henry Guenther and Brent Taylor. This letter purported to accelerate the mortgage and the “Preferred Stock”. [ 99 ] Thereafter, it appeared various efforts were made to resolve what had become an impasse. Jenks-Cochrane was in disarray. No one was in the position of CEO. Mr. Possett had no formal position with the company and appeared to be formally out of the picture, although he still hovered in the background.

The Guenthers were anxious to get out of the corporation as well. [ 100 ] Various attempts appear to have been made to try to change the ownership of the common shares belonging to Allan Guenther. In March 2009, from documents in evidence, it appears that Allan Guenther agreed to assign his interest in his shares in Jenks-Cochrane to Ms. Blankenship. However, Ms. Blankenship makes no claim to the shares as a result of these documents. [ 101 ] Ms. Blankenship wanted to be repaid her investments, but otherwise wished to rid herself of her involvement in Jenks-Cochrane. Only Mr.

Taylor appeared to have any ongoing interest. [ 102 ] His evidence was that in May of 2008, even given the turmoil, he still wanted to carry on with the development of the Land through Jenks-Cochrane. He was concerned about the caveat, however, and about the fact that, in his view, the amount of the caveat was greater than the value of the Land. He intended, he said, to take over the Guenther shares and a portion of the debt, by which he appeared to mean a portion of the debt owed to Ms. Blankenship. [ 103 ] Mr.

Taylor said that he could not move forward to develop the Land in the meantime because he was stymied by the existence of the caveat and could not obtain financing. He said he paid property taxes and continued to try to work with the Town but implied they were unreasonable in their demands. [ 104 ] At some point, the corporation was struck from Corporate Registry, for failure to file annual returns.

The exact date the corporation was struck was not in evidence, but evidence tendered in respect to its revival indicates that the 2008, 2009 and 2010 annual returns had not been filed prior to the revival. [ 105 ] In March 2010, Mr. Taylor moved to try to get control of the Guenther shares. Mr. Taylor’s evidence was that he tried to work things out with Allan Guenther, but was told by Mr. Guenther that he had to work things out, instead, with Ms. Blankenship. He said this made no sense to him since he and Mr. Guenther were the shareholders. [ 106 ] However, it is evident that Mr.

Taylor did have some discussions with Ms. Blankenship. Mr. Taylor’s evidence was that he met with Ms. Blankenship over three days in early March 2010, but the meetings were unsatisfactory for both of them. He said he had already had documents prepared before this meeting and presented them to Ms. Blankenship. At another point in his evidence, however, Mr. Taylor said he had every confidence by the end of this meeting that he and Ms. Blankenship had reached an agreement. [ 107 ] Ms. Blankenship did not testify in examination in chief respecting any such meeting.

However, from email documentation put to her in cross-examination, it appears that Mr. Taylor met with Ms. Blankenship in early March 2010, and showed her documentation that

convinced her, in her words, that back taxes were owed on the Land and that ‘the government’ would move to ‘foreclose’ on the Land unless something occurred. [ 108 ] At some point, Ms. Blankenship received a document called a Loan Acknowledgement Agreement, (Exhibit 16) which Mr. Taylor wanted her to sign. She refused to do so. It was not clear from the evidence whether this was one of the documents that Mr. Taylor provided to Ms. Blankenship at their meeting or if it was provided later. [ 109 ] Either when they met in person or sometime later, Mr. Taylor suggested to Ms.

Blankenship that he would still like to move forward to develop the Land and proposed to Ms. Blankenship that she agree to permit Allan Guenther to relinquish his shares in Jenks- Cochrane transferring them to Mr. Taylor. Mr. Taylor told Ms. Blankenship he would place a $300,000 mortgage on the Land on her behalf and begin development. In an email to the Guenthers, copied to Henry Guenther, dated March 13, 2010, Ms.

Blankenship recommends this resolution to the Guenthers saying “a slim chance of getting $300k back instead of zero is a better proposition”. [ 110 ] Meanwhile, as well, it appears that the Town of Peace River was concerned about weeds, vandalism, litter, and other problems with the Land. Various clean up orders were made and when they failed to result in cleanup of the problems, the Town moved to keep down the weeds and clean up the property themselves, adding the cost of this to the tax roll. Notwithstanding that Mr.

Taylor told the other parties when they were negotiating that he had paid municipal taxes, he said in evidence that municipal taxes were not being paid and continued to mount along with various penalties imposed for failure to pay taxes or to comply with municipal orders. There was nothing in evidence to indicate for what years property taxes remained unpaid so it is not clear if Jenks-Cochrane paid any of the property taxes owing since it assumed ownership of the Land. [ 111 ] Further, the Town twice issued a demolition order, requiring that the buildings on the Land be demolished. Mr.

Taylor twice appealed these orders. [ 112 ] In March 2010, Ms. Blankenship sent an email to Mr. Taylor enclosing an email from Allan Guenther indicating his agreement to transfer shares to Mr. Taylor “as per Gabriele’s direction”. In a later email to Mr. Taylor, dated May 27, 2010, Ms. Blankenship says “I approve the shares to be transferred to Brent to dissolve the partnership; however the title on the property MUST HAVE my name on it”[emphasis in the original document]. In a follow-up email to Mr.

Taylor, dated May 31, 2010, she says she is “eager to move ahead” however “the property needs to include my name”. [ 113 ] On May 27, 2010, by email, Allan Guenther sent a share transfer signed by him to Brent Taylor. The document appears to have been sent by Mrs. Guenther with no conditions on its use. In the context of other contemporaneous documents, however, it appears that this share transfer was sent to Mr. Taylor on the basis that Ms.

Blankenship’s position would be protected and she be satisfied with the security she received. [ 114 ] It is not clear from the evidence what, if anything, happened in the months after that. In November of 2010, Mr. Taylor wrote to Allan Guenther by email. He told Mr. Guenther that for Mr. Taylor to agree to surrender his shares, Mr. Guenther had to pay the $40,000 in back taxes owed to the town and $300,000 owed to Mr. Taylor and his company. Otherwise, he should “just sign and return the documents sent”.

It is not clear from the evidence what documents he was referring to. [ 115 ] It may be that Allan Guenther did send his share certificates to Mr. Taylor at some point, but there is no evidence of that. Mr. Henry Guenther did send documents transferring his share and apparently his share certificate. In cross-examination, Mr. Taylor agreed that the agreement was that he was to get the shares in return for a $300,000 mortgage on the Land payable to Ms. Blankenship. He agreed the share certificates and the share transfers were provided to him on this basis. [ 116 ] Mr.

Taylor forwarded various documents for signature to Ms. Blankenship in respect to the transfer of the Guenther shares, but Ms. Blankenship did not sign them. Indeed, she called them an insult to her intelligence. She said that in her view, the proposed loan agreement was very one-sided and basically gave her no confidence that she would ever be repaid by Jenks-Cochrane. [ 117 ] Ms. Blankenship said she told the Guenthers that she was not satisfied. [ 118 ] Nothing was ever paid to the Guenthers for the shares and nothing was ever paid to Ms.

Blankenship. [ 119 ] Whatever next occurred, what is clear that no agreement was reached between Mr. Taylor and Ms. Blankenship. Mr. Taylor agrees that they were at a stalemate. [ 120 ] Mr. Taylor was unsure in cross-examination if he, himself, had ever signed the documents he sent to Ms. Blankenship and unsure if he had ever returned them to the Guenthers. There is certainly no evidence he did. He agreed, as well, in cross-examination that his agreement with the Guenthers under which he gained possession of the share transfers was that he reach an agreement with Ms. Blankenship on terms satisfactory.

When asked if this had ever occurred, he protested that the terms he outlined for Ms. Blankenship were satisfactory, but she would not sign. [ 121 ] Although no agreement was reached with Ms. Blankenship on his evidence, Mr. Taylor retained the signed share transfer from Allan Guenther and the signed share transfer and share certificate from Henry Guenther. [ 122 ] In 2011, Mr. Taylor gave instructions to revive Jenks-Cochrane and it was revived on June 9, 2011. Mr.

Taylor admitted he used the share transfers received from both Allan and Henry Guenther and when the company was revived, the revival documents for Jenks-Cochrane show Mr. Taylor as 100% shareholder. [ 123 ] There is no mention of preferred shares in any of the documents drafted to revive the corporation. Mr. Taylor’s evidence was that this is because, in his mind, those shares did not exist because they had not been properly issued. Issues

[ 124 ] Five issues arise from these facts: a. What is the Plaintiff’s relationship vis-a-vis the corporation Jenks-Cochrane -- specifically is she a creditor of the corporation or is she also a shareholder? b. If a shareholder, has she suffered oppression within the meaning of s.242 of the Business Corporations Act ? c. Alternatively, is the mortgage issued by Jenks-Cochrane and registered by caveat, valid as a legal or equitable mortgage? d. In the further alternative, have the Defendants or any of them been unjustly enriched at the expense of the Plaintiff? e.

Is the Plaintiff caught by a limitation period from pursuing a cause of action? [ 125 ] Jenks-Cochrane issued a Counterclaim against Ms. Blankenship, but this was abandoned at the beginning of the trial. Therefore, there are no issues for resolution which relate to the Counterclaim. [ 126 ] During argument, I was invited to dismiss the action against the defendant Gun-Shy on the basis that there is no evidence pursuant to which that corporation could be found liable on any of the causes of action. I agree. The action is dismissed as against the Defendant Gun-Shy.

Analysis and Decision [ 127 ] As I have already mentioned, we do not have the evidence of Mr. Possett, of either Mr. or Mrs. Guenther, or even of Mr. Stewart, but only that of Ms. Blankenship and Mr. Taylor. However, based upon the evidence I do have, there seems little doubt that Jenks-Cochrane was a fairy tale. [ 128 ] With the exception of small amounts of money invested by the Guenthers and by Mr. Taylor, there can be no real doubt that all of the funds put into the company were those of Ms. Blankenship.

It was certainly her money used to buy the Land and a review of the general ledger suggests that a geotechnical report for the Land costing $30,000 was paid for as well with funds received from Ms. Blankenship. [ 129 ] The documentation shows that the rest of the money invested into the corporation was simply frittered away. A vehicle was purchased for Mr. Taylor’s use. He also rented office premises in Peace River in the name of Gun-Shy and wished to have Gun-Shy reimbursed for this. Money was spent on airfares and hotels. Many payments were made to various of the players or their corporations. For example, Mr.

Taylor was paid $10,000 per month for a number of months as was Allan Guenther. Although the operating agreement for the corporation (Exhibit 4) refers to the shareholders being able to take draws “on shares of projected Company profits for that year”, elsewhere in Exhibit I to this document, under the heading “Deferred Cash Payments”, each of the shareholders is said to be entitled to $10,000 per month. [ 130 ] Payments of these $10,000 amounts by the corporation, not from profits, but from the funds invested by Ms. Blankenship, were made for at least three months, perhaps more. Mr.

Taylor believed he was also entitled to living expenses of $900 per month and to have his other expenses paid. It appears some were paid, but the corporation’s failure to pay all of the amounts Mr. Taylor thought were owing or requiring paperwork before payment, was a continuing point of friction throughout the October 2007-March 2008 time period. Other amounts appear to have been paid by the corporation to Mr. Possett’s wife, and to corporations the Guenthers had an interest in, even though these payments seem unconnected to any value received by the corporation.

Some entries in the General Ledger are simply unexplainable. [ 131 ] It is apparent that the money invested by Ms. Blankenship was paid out of the corporation within months. Save for the Land, there appear to be no other assets belonging to the corporation. The vehicle was, in Mr. Taylor’s words, stolen. He believes the Guenthers took it back into their possession. [ 132 ] Notwithstanding this, Mr. Taylor’s evidence was that with the encouragement of Mr. Possett, he had budgeted $5,000,000 for first quarter costs for development of the Land. [ 133 ] Mr.

Taylor said he first became concerned because some of his expenses, which he expected to have paid above and beyond what he called his “salary”, had not been paid and it was only at the end of January 2008, that he began to have the “sinking feeling” that the company did not have any money. [ 134 ] He was either more naïve than Ms. Blankenship or was simply one of the rogues who made use of the company for his personal gain. a. What is the Plaintiff’s relationship vis-a-vis the corporation Jenks-Cochrane -- specifically is she a creditor of the corporation or is she also a shareholder? [ 135 ] Mr.

Taylor’s counsel argued that Ms. Blankenship was not a debtor of the corporation and that any loans she made were personal loans to the Guenthers, not to the corporation. However, as I indicated above, I do not find that to be so. The money trail is not well documented. However, what money trail there is, corroborates Ms. Blankenship’s version of events. [ 136 ] In respect to the funds used to purchase the Land, it is true that $355,000 was wired to Mrs. Guenther by Ms. Blankenship, but Ms. Blankenship’s evidence was clear. The purpose for the money she sent to Mrs. Guenther was to purchase the Land.

The timing of the various transactions corroborates Ms. Blankenship’s version of events and there is no evidence of funds being transferred from anyone else. The only plausible explanation is that Ms. Blankenship’s $355,000 was used to close the Land purchase. The remaining

amount necessary to close the Land transaction was wired by Ms. Blankenship directly to counsel acting for the corporation on the Land transaction, on her evidence. Again, there is no evidence of these funds coming from any other source. The only possible inference is that only her funds were used to close the Land transaction. [ 137 ] Two other amounts, the $30,000 amount and the $120,000 were originally loaned to the Guenthers but, Ms. Blankenship’s evidence was that rather than returning the funds to her when the loans matured, the Guenthers instead loaned the funds on her behalf to the corporation.

The corporation’s books confirm this evidence and there is no evidence to the contrary. [ 138 ] The only amount for which there is any evidence of its being a loan to the Guenthers personally is the $70,000 for which Pamela and Alan Guenther executed a promissory note. Again, however, Ms. Blankenship’s evidence is that she provided this to the yet to be incorporated corporation at the request of Mr. Possett and for the express purpose of permitting the corporation to do certain things. The money was used by the corporation. [ 139 ] As I have already found, all of these loans were made to the corporation.

Whether or not Mr. Taylor knew about them at the time, is really immaterial. As he said himself, his job was to be the “on the ground” man in respect to the development of the Land. Mr. Possett was in charge of finances and Mr. Taylor asked no questions. Is the $10,000 owed personally by Mr. Taylor [ 140 ] During his testimony, Mr. Taylor acknowledged that Ms. Blankenship had sent $10,000 to him personally and at his request and said that he considered himself personally liable for this. [ 141 ] One day later, in argument, he resiled from this position and through his lawyer, argued that Ms.

Blankenship had put the money into the corporation which had then paid Mr. Taylor and that he was simply mistaken when he agreed he was personally liable. [ 142 ] Ms. Blankenship’s evidence was that she thought the money was being put into the corporation. The corporation seems to have thought so too, judging from the fact that the share certificate issued for 10,000 shares. Sensibly, Ms. Blankenship did not argue that this was a personal debt of Mr. Taylor’s given that he had reversed his position of the previous day, in argument. Under the circumstances, I conclude that Mr.

Taylor cannot be made personally liable for this debt. It is part of the corporate debt. [ 143 ] Ms. Blankenship is a creditor of the corporation. Is she also a shareholder? [ 144 ] In respect to the shares issued by the corporation to Ms. Blankenship, Mr. Taylor has two arguments. He says, firstly, that what was issued were Class ‘A’ preferred shares when the articles of incorporation provide only for Class ‘E’ preferred shares. [ 145 ] Ms. Blankenship says this argument is answered completely by the indoor management rule now codified in s. 19.1 of the ABCA . [ 146 ] Mr.

Taylor’s response to the indoor management argument is that Ms. Blankenship was, in fact, an insider by virtue of the fact that she became, albeit briefly, the CEO of the corporation on February 29, 2008. He argued that while outsiders are under no obligation to inquire into a corporation's internal regulations and bylaws beyond the public documents, the indoor management rule offers no relief to insiders who do have such knowledge. [ 147 ] The indoor management rule holds that third parties dealing with a corporation are entitled to rely on the assumption that it has adhered to its own internal rules.

A corporation's failure to do so cannot be used against the third party unless, by virtue of circumstance, the party either knows or ought to have known about the deficiency. This common law rule emerged in Royal Bank v Turquand (1856) 119 ER 886 (Eng Exch) and has now been codified in

section 19 of the ABCA . [ 148 ] This provision reads as follows: A corporation, a guarantor of an obligation of the corporation or a person claiming through the corporation may not assert against a person dealing with the corporation or dealing with any person who has acquired rights from the corporation (

a) that the articles, bylaws or any unanimous shareholder agreement have not been complied with, (b) ... (

f) that a document issued by any director, officer or agent of the corporation with actual or usual authority to issue the document is not valid or not genuine, ... unless the person has, or by virtue of the person's position with or relationship to the corporation ought to have, knowledge of those facts at the relevant time. [ 149 ] There is no doubt that Ms. Blankenship became Chief Executive Officer, Chief Financial Officer and something called the ‘CAO’ of the corporation, very briefly, as a consequence of the February 29, 2008, special meeting of the shareholders and directors. However, Mr.

Taylor’s argument that, as a consequence of this, she became an insider fails for three reasons. [ 150 ] I find as a fact that the corporation agreed through its directors and shareholders to issue preferred shares to Ms. Blankenship on January 31, 2008. This is Ms. Blankenship’s evidence and it is corroborated by the corporate documents. The agenda/minutes indicate that Mr. Taylor actively participated in the decision. Mr. Taylor’s evidence that he did not know of this and signed the corporate documents in error is simply not believable. Mr. Taylor was at the meeting.

He received the agenda either before or at the meeting and the written documentation confirming the decisions made shortly thereafter. He was able to point to no correspondence or other documentation in which he protested that these documents were inaccurate. Ms. Blankenship’s evidence was that in her discussions with

Mr. Taylor, she never got the idea that he thought the issuance of shares was a problem. In her view, his sole concern was with issuingthe mortgage. Her evidence is corroborated in the agenda/minutes. [151]

Section 19 of the ABCA specifies that the indoor management rule cannot be relied upon if the person’s position at the“relevant time” was such that he or she ought to have had the requisite knowledge The ‘relevant time’ in this matter was January 31,2008, when the corporation agreed to issue the shares at the January 31, 2008, meeting and delegated to Mr. Guenther and Mrs.Guenther the task of actually ensuring the shares were issued. On her uncontradicted evidence, Ms.

Blankenship had no knowledge ofthe contents of the corporation’s organizing documents in January 2008 and, indeed, had never seen them. [152] On January 31, 2008, when the shares were issued to her, Ms. Blankenship was only a creditor of the corporation and was notan insider. [153] Mr. Taylor’s second argument is that, because he was a director and a shareholder, no share could be issued without his expressagreement and he did not agree to have preferred shares issued to Ms. Blankenship. In fact, however, as I have already found, he didagree to issuance of the shares.

This is made clear by the minutes of the January 31, 2008, shareholders meeting. [154] Mr. Taylor denies the accuracy of the minutes and says that he did not understand at the end of January 2008 that Ms.Blankenship had already loaned funds to the corporation or that she was seeking security for these past loans, and understood thatpreferred shares were only being discussed in respect to future investments in the corporation. Ms. Blankenship’s evidence is quitedifferent, and I have already explained my reasons for preferring her evidence to that of Mr. Taylor where they differ. [155] Further, I find that Mr.

Taylor’s evidence that he did not know about the issuance of shares, is contradicted by his own email ofFebruary 23, 2008. On its face, this email, written by Mr. Taylor to Ms. Blankenship, shows he knew of the agreement to issue hershares. He cautioned her to “make sure you have your share certificates from Richard and are protected to the extent you are invested”.This wording speaks to his having prior knowledge that Ms.

Blankenship had already been issued shares and was waiting to get theactual certificates and his use of the words “are invested” speak to his knowledge that she has already invested in the corporation. Mr.Taylor’s explanation of what he “meant” by his words is contrary to their plain meaning and unbelievable. [156] Lastly, I note that the Amended Statement of Defence does not plead that the preferred shares were not validly issued. Rule13.6(3) of the Alberta Rules of Court provides that lack of capacity or authority must be specifically pleaded so as to avoid surprise.

Itwould be unfair to allow the Defendant to argue this at trial, when it has not been plead. [157] I find that the preferred shares in the corporation were properly issued and are valid. Ms. Blankenship is a shareholder as wellas a creditor of the corporation. b. Has Ms. Blankenship suffered oppression within the meaning of s.242 of the Business Corporations Act? [158] Ms. Blankenship argues that the actions of Mr.

Taylor in reviving the corporation without reference to her interest in thepreferred shares and in using the share transfer for the Guenther shares in breach of the terms under which the share transfer and sharecertificates were provided, is oppressive conduct as this term is used in the ABCA. Mr. Taylor does not seriously argue that the failure toprovide for preference shares on revival is not oppressive conduct. Instead, he relies on his argument that they were not properly issuedand an argument that, even if they were properly issued, a limitation period has passed and this prevents Ms.

Blankenship from obtaininganything other than a declaration that oppressive conduct has occurred. [159]

Section 242 of that Act sets out the relevant law in respect to the availability of an oppression remedy and gives the Court widepowers if oppression is found. It reads as follows: 242(1) A complainant may apply to the Court for an order under this section.

(2) If, on an application under subsection (1), the Court is satisfied that in respect of a corporation or any of its affiliates (

a) any act or omission of the corporation or any of its affiliates effects a result, (

b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or (

c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, theCourt may make an order to rectify the matters complained of. … [160] “Complainant” is a defined term under s.239 of the Act and includes “a former registered holder or beneficial owner, of asecurity of a corporation”: s.239(b)(i). As a former preferred shareholder, Ms. Blankenship is a complainant. [161] In Westfair Foods Ltd. v.

Watt, (AB KB), [1990] 4 WWR 685; 73 Alta L.R. (2nd) 326, Moore, CJQB,provides a helpful review of case law which explains the meanings of “unfairly prejudicial”, “unfair disregard” and “oppression” in thescope of this provision. Although the issue before Moore, CJ was governed by the

Canada Business Corporations Act (“CBCA”), thewording of s.241(2) of the CBCA is identical to the wording of s.242(2) of the ABCA. [162] As Moore, CJ points out, the threshold test is one of fairness. The question that must be answered is this: is the impugnedconduct or action unfair in regard to the interests of the complainant?

[ 163 ] In this case, the now sole director of Jenks-Cochrane has refused to recognize the existence of preference shares, which are validly issued and has been highhanded enough to revive the corporation without mention of these shares. He has taken and used the share transfer for the Guenther shares without compensation of any sort and in defiance of the terms under which the share transfer was authorized by Ms.

Blankenship and the terms under which it was tendered. [ 164 ] It is difficult to conceive of a more obvious case where the rights of a shareholder have been unfairly disregarded. [ 165 ] Further, although the evidence is far from complete, from the evidence of Mr. Taylor and the documents which have been provided, it is evident that the company is in arrears of property taxes on its sole asset, has ignored municipal demolition and clean up orders made against the Land, and during the last eight years, has allowed the Land to simply sit and become an unsightly mess.

This is prejudicial to the shareholders. [ 166 ] Ms. Blankenship was also oppressed when she was pressured by Mr. Taylor into accepting a mortgage for less than the full amount of the debt owed to her by the corporation. He told her it was this or nothing and it was on that basis that she told the Guenthers she would agree to their transferring their shares and accepted the offer made by Mr. Taylor. Remarkably, he then reneged on the agreement and failed to provide what had been agreed to. [ 167 ] Ms. Blankenship has clearly been oppressed. Mr.

Taylor said in evidence that he did not want something for nothing but that is, ultimately, what he got. He has taken complete control of the corporation unfairly disregarding the interests of the preferred shareholder. c. Is the Plaintiff caught by a limitation period from pursuing this cause of action? [ 168 ] The Defendant argues that Ms. Blankenship sued too late and that her action should be dismissed as a consequence. [ 169 ] The Statement of Claim in this matter was filed in the Judicial District of Peace River on August 4, 2011.

It bears an action number beginning with “13” because it was later transferred to the Judicial District of Edmonton. [ 170 ] The Defendants say tha

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