Schmitz Estate v Baron, 2016 ABQB 598

Court of Queen’s Bench of Alberta Citation: Schmitz Estate v Baron, 2016 ABQB 598 Date: 20161021 Docket: 1203 09370 Registry: Edmonton Between: Lorina Lynn Schmitz, Executor of the Estate of Bruno Paul Anthony Schmitz (deceased) Plaintiff - and - Robert Baron, 1210541 Alberta Ltd, Randy Nast, Andy Fraser, 3771809 Alberta Ltd and Kay Elmer Defendants _______________________________________________________ Reasons for Judgment of S.L. Schulz , Master in Chambers _______________________________________________________ [ 1 ] This is an application for

summary judgment by the Plaintiff with respect to a share purchase agreement and two promissory notes. There is a “claim over” application for

summary judgment brought by two of the Defendants against the other two Co- Defendants. What should have been a relatively straightforward matter has been complicated by the deaths of most of the key participants. This has resulted in several evidentiary issues, including whether hearsay evidence is admissible in these circumstances. [ 2 ] Having reviewed the evidence before the Court, I grant

Summary Judgment to the Applicant/Plaintiff and

Summary Judgment under the Notice to Co-Defendants to Randy Nast and Andy Fraser against the Co-Defendants Robert Baron and 1210541 Alberta Ltd. I. Background [ 3 ] Bruno Schmitz (“Schmitz”) and his adult co-dependent partner, Kay Elmer (“Elmer”) owned all of the shares in 371809Alberta Ltd. (“371”). [ 4 ] On December 17, 2003, Schmitz and Elmer entered into a share purchase agreement (the “Share Purchase Agreement”) secured by two promissory notes ( “Promissory Notes”) to sell their shares in 371 to Randy Nast (“Nast”) and Andy Fraser (“Fraser”). Schmitz, Elmer, Nast and Fraser were the signatories to the Share Purchase Agreement.

[ 5 ] It was a term of the Share Purchase Agreement that: 5.8 This Agreement, including the Schedules hereto, constitutes the entire agreement between the parties hereto.

There are not and shall not be any verbal statements, representations, warranties, undertakings, or agreements between the parties and this Agreement may not be amended or modified in any respect except by written instrument signed by the parties hereto. [ 6 ] Also on December 17, 2003, Nast and Fraser executed two Promissory Notes securing the indebtedness arising from the Share Purchase Agreement: one for $300,000 plus interest and solicitor/client costs and the other for $25,000 plus interest and solicitor/client costs (collectively the “Promissory Notes”).

The Promissory Notes are payable jointly and severally to Schmitz and Elmer. [ 7 ] On March 31, 2007, the assets of 371 were sold to 121054 Alberta Ltd (“121”). The sale was documented by an asset purchase agreement (“Asset Purchase Agreement”) signed by Nast and Fraser on behalf of 371and Robert Baron (“Baron”) on behalf of 121. [ 8 ] It was a term of the Asset Purchase Agreement that 121 would assume the liability for the Promissory Notes. The assumption of liability was subject to the approval of Schmitz.

Of note is that Schmitz was not a signatory to the Asset Purchase Agreement. [ 9 ] On April 1, 2007, Nast, Fraser, Baron and the two numbered companies entered into an Assignment of Security Agreement (“Assignment of Security Agreement”). There is no “entire agreement” clause or prohibition against amending the Assignment of Security Agreement orally or prohibition against collateral agreements. Nast, Fraser and 371 warranted that all of the payments owing to Schmitz were up to date. The effective date of the Assignment of Security is unclear.

It is effective either December 1, 2006 (paragraph 3) or April 1, 2007(top of first page). [ 10 ] Of note is that Schmitz is listed as the “Secured Party” on the Assignment of Security but the document in evidence is not signed by Schmitz. Elmer is not referred to in the document and is not a signatory to the document. [ 11 ] Schmitz passed away on August 30, 2008. [ 12 ] Elmer passed away on January 18, 2013. [ 13 ] Fraser passed away on March 30, 2015. Nast was appointed litigation representative for Fraser in August of 2015. [ 14 ] The Executor of the Schmitz Estate is Schmitz’s daughter (the “Executor”).

She was not directly involved in this matter until after her father’s death. She was appointed the Personal Representative of the Estate by virtue of an Order of the Court granted on February 3, 2010. [ 15 ] In early October 2008, the Executor learned of the debt attributed to the Promissory Notes from the lawyer retained to look after the Schmitz Estate. [ 16 ] Partial payments had been made on the Promissory Notes and the Executor estimates the total amount owing as of October 21, 2015 to be $266,239.15. II.

History of the Court Actions [ 17 ] On August 30 th , 2010, the Original Action was commenced claiming damages for payments missed to the date of filing. Ms. Elmer was named as one of the Defendants in the Original Action. [ 18 ] On March 4, 2011, Nast and Fraser filed a Notice to Co-Defendant against Baron and 121 claiming indemnification by virtue of the Assignment of Security. [ 19 ] On January 18, 2012, Elmer was Noted in Default. [ 20 ] On April 2, 2012, a Consent Judgment was granted against 371 in the amount of $226,820.52.

The Consent Judgment provides that it is “without prejudice” to the position of and defences raised by Nast and Fraser. [ 21 ] On June 20, 2012, the within action was commenced with respect to the amounts owed subsequent to the Original Action and accelerating the remaining balance. [ 22 ] On July 3, 2012, Nast and Fraser filed a Notice to Co-Defendant against Baron and 121 claiming indemnification by virtue of the Assignment of Security. [ 23 ] On February 2, 2015, the two actions were consolidated by way of a Consent Order. [ 24 ] In March of 2015, the Plaintiff filed a

Summary Judgment Application against only Nast and Fraser. [ 25 ] On August 25, 2015, Nast was appointed the Litigation Representative for Fraser and a cross application for

Summary Judgment pursuant to the Notices to Co-Defendant was filed by Nast and Fraser against the Defendants Baron and 121. [ 26 ] Questioning has not taken place.

III. Evidentiary Issues (

i) Date of Death of Kay Elmer [ 27 ] The Plaintiff has given notice pursuant to Rule 8.17(3) that it intends to rely on the Application for Probate filed July 5, 2013 with respect to the Estate of Kay Elmer, deceased.

Leave to rely on that document is granted and it is acknowledged that Elmer passed away January 18, 2013. (ii) The Principled Approach to the Admission of Evidence as an Exception to the Hearsay Rule [ 28 ] The hearsay evidence in question before the Court in this case is documentary: a hand written note, several letters, the Share Purchase Agreement, the Promissory Notes and the Assignment of Security. At trial, these documents would normally be introduced through the creator of the document or one of the signatories. Unfortunately, Schmitz, Fraser and Elmer are now deceased.

Nast and Baron are still alive and the documents can theoretically be introduced through them. Nast swore an affidavit in this matter but, as is the prerogative of the Plaintiff, was not examined on it. The Nast Affidavit does not attach a copy of any of the documents in question. The Plaintiff wishes to introduce the documents into evidence as an exception to the hearsay rule. [ 29 ] Counsel for Nast and Fraser argues that Rules 7.3 and 13.18 require the evidence before the Court on a final application be based on personal knowledge.

They argue these rules preclude the use of hearsay evidence, whether or not there is an applicable exception to the hearsay rule. Master Hanebury traces the history of this argument in Harco Holdings 2000 Inc v M B , 2010 ABQB 442 . She concludes at paragraph 29, that the Rules of Court allow affidavit evidence that falls within an exception to the hearsay rule on a final application if the Court finds it meets the test for admissibility. I agree with this conclusion. [ 30 ] This then leads to an assessment as to whether the documents in question in this matter are admissible as an exception to the hearsay rule.

In the case of Virostek v Mossey , 2010 ABQB 42 (“ Virostek ”), Justice Miller faced a similar evidentiary problem with prior oral statements made by a person who was deceased at the time of trial. At paragraph 36, Justice Miller quoted with approval the “principled approach” set out by the Supreme Court of Canada in R v Khelawon , 2006 SCC 57 (“ Khelawon ”) and at paragraph 47 , Justice Miller quoted with approval the

summary of the law since Khelawon as set out by the British Columbia Court of Appeal at paragraph 47 in R v Post , 2007 BCCA 123 (“ Post ”): 1. A hearsay statement is an out-of-court statement adduced to prove the truth of its contents, in the absence of a contemporaneous opportunity to cross-examine the declarant. 2. Hearsay evidence is presumptively inadmissible. 3. It is inadmissible because generally it is not possible to test the reliability of a hearsay statement. 4. A hearsay statement may be admitted for its truth if it is shown to be both necessary and reliable. 5.

Its reliability must be sufficient to overcome the dangers arising from the difficulties of testing it. 6. The onus of establishing, on a balance of probability, both necessity and reliability is on the person who seeks to adduce the evidence. 7. The overarching principle is trial fairness which embraces not only the rights of the accused, but broader societal concerns including truth as the goal of the trial process. 8. There are two main ways of establishing reliability. The first is that because of the circumstances in which the statement was made, there is no real concern about the statement’s truth.

This approach is embodied in traditional exceptions to the rule against hearsay such as dying declarations, spontaneous utterances, and statements against pecuniary interest. 9. The second way of establishing reliability is because the statement’s truth and accuracy can sufficiently be tested. The optimal means of testing reliability is to have the declarant state the evidence in court, under oath, and subject to contemporaneous cross- examination.

In some cases where the optimal means are unavailable, it will still be possible to sufficiently test the truth and accuracy of the evidence because of the presence of adequate substitutes, including (

a) an oath or its equivalent; (

b) an opportunity to observe the statement being made (e.g. a video); and (

c) the opportunity to cross-examine the declarant on his or her earlier statement. 10. Trial fairness requires consideration of factors beyond necessity and reliability. Even if those two factors are met, the trial judge has a discretion to exclude hearsay evidence where its probative value is outweighed by its prejudicial effect. 11.

The trial judge must also be satisfied on a balance of probabilities that the statement was not the product of coercion of any form, whether involving threats, promises, excessively leading questions by the investigator or other person in a position of authority, or other forms of investigatory conflict. 12. There is a distinction between threshold reliability (i.e. reliability sufficient to be admissible) which is a legal question for the judge; and ultimate reliability, which is a question for the trier of fact. [ 31 ] In

summary, the principled approach provides a flexible case-by-case approach based on the principles of necessity and reliability. The focus is on whether the trier of fact is in a position to evaluate the evidence.

(iii) Application of the Principled Approach to the Facts in this Case [ 32 ] There are two groups of documents to be considered. [ 33 ] The first group of documents are attached as Exhibit “I” to the Affidavit of Lorina Schmitz sworn on March 12, 2015, being 5 letters sent on behalf of Schmitz from a solicitor, Larry P. Hryniuk, QC, to Mr. Barry King, counsel for Baron and 121. Since, Mr. King represents a party adverse in interest, it is understandable why the documents were not introduced through him. However, there has not been an explanation as to why they were not introduced through Mr. Hryniuk, QC.

Absent a reason that satisfies the requirement of necessity, I find that these documents do not meet the threshold test for admissibility and cannot be relied upon for anything other than the facts deemed by Rule 5.15 (see the discussion following). They are of no assistance in proving or disproving the claims advanced. [ 34 ] The second group of documents consists of:

a) the handwritten note from Schmitz to Nast and Fraser attached as Exhibit “H” to the Affidavit of Lorina Schmitz sworn on March 12, 2015 and identified in the Affidavit of Records of Nast, Fraser and 371 as documents 23.01 and 24.01;

b) the Share Purchase Agreement, attached as Exhibit “E” to the Affidavit of Lorina Schmitz sworn on March 12, 2015 and identified as document 5 of the Affidavit of Records of Nast, Fraser and 371, and as document 1 of the Affidavit of Records of Baron and 121;

c) the Promissory Notes, listed as documents 3 and 4 of the Affidavit of Records of Nast, Fraser and 371;

d) the Asset Purchase Agreement, listed as document 11 of the Affidavit of Records of Nast, Fraser and 371; and

e) Assignment of Security, listed as document 3 of the Affidavit of Records of Baron and 121, A. Necessity [ 35 ] The necessity principle is satisfied by the death of Schmitz and Elmer. A similar conclusion was reached by the Supreme Court of Canada in Khelawon and by Justice Miller in Virostek . There are no independent third parties who can offer evidence. As such, the principle of necessity is met. B. Reliability [ 36 ] Once necessity is established, the burden is on the Applicant to establish the reliability of the documents. Point 9 of the Post

summary permits reliability to be established when the accuracy of the statement, or in this case the documents, can be tested. In this case, an adequate substitute for the optimal means has been established: the Rules of Court and the admissions of the parties adverse in interest. (

a) Rules of Court [ 37 ] Rule 5.15 deems listed documents to be “authentic”. That is, the documents are deemed to be printed, written, signed or executed as purported, an original is an original and a copy is a true copy. Parties are presumed to admit that a record referenced in the Affidavit of Records is authentic unless an objection is made within 3 months after the date on which the records are produced.

Rule 5.15 does not apply if the pleadings deny receipt, transmission or authenticity of the document. [ 38 ] The documents in the second group are individually listed in the various Affidavits of Records filed in this action.

There is no objection in evidence before the Court and the pleadings do not deny receipt, transmission or authenticity of these documents. [ 39 ] Accordingly, the parties are deemed to have admitted that the Share Purchase Agreement was signed as it purports to be signed; the Promissory Notes were signed as they purport to be signed; and the Assignment of Security is signed (or not signed) as it purports, and so on. (

b) Admissions Against Pecuniary Interest made by Parties Adverse in Interest [ 40 ] Once the document has been authenticated by the Rules governing the Affidavit of Records, it is open to the Court to consider whether the contents contain an admission by the author that might be admissible at common law against him: Mikisew Cree First Nation v Canada , 2002 ABCA 110 at paras 22-24 . [ 41 ] Admissions against pecuniary interest made by Nast in his Affidavit sworn on August 24, 2015 (“Second Nast Affidavit”), by Nast in his Affidavit of Self-Appointed Litigation Representative sworn on August 24, 2015, and the documents filed on behalf of the Defendants can be considered to establish the reliability of the Plaintiff’s hearsay evidence without the need to introduce the documents in question through a signatory.

I have considered the following admissions against pecuniary interest made by parties adverse in interest when concluding that reliability has been established: 1. Paragraph 2(

b) of the Affidavit of Self-Appointed Litigation Representative confirms that Fraser and Nast were “...friends/business associates and were both involved in the matters leading up to the bringing of this Action...” 2. Paragraph 3 of the Second Nast affidavit confirms the sale of the “Indian Cabins” business from 371 to 171. Since the shares in 371 were originally in the names of Elmer and Schmitz, this indirectly confirms the reliability of the Share Purchase Agreement and the Promissory Notes. It directly confirms the Asset Purchase Agreement. 3. Paragraph 4 of the Second Nast Affidavit confirms that 121 and Baron agreed to assume full responsibility and liability for any

debt that may have been owing and was owing at the time to the Plaintiff. This paragraph the debt evidenced by the Promissory Notes. It also confirms the reliability of the Assignment of Security Agreement, which agreement itself confirms the existence of the debts evidenced by the Promissory Notes. 4. Paragraph 5 of the Second Nast affidavit confirms that the obligations under the Asset Purchase Agreement were at least partially complied with by 371 and Baron, again confirming the reliability of the Asset Purchase Agreement and the existence of the debts evidenced by the Promissory Notes. 5.

Paragraph 5 of the Second Nast Affidavit confirms that Baron agreed to provide his personal guarantee to Schmitz and release Nast and Fraser from their liability to Schmitz, again confirming the debt and the Promissory Notes. 6. Paragraph 7 of the Second Nast Affidavit confirms that payments were made by 371, Nast and Fraser until early 2007, again confirming the existence of the debt and the Promissory Notes and that the debt had not been paid in full by that date. 7.

The Notice to Co-Defendant Baron filed by Nast and Fraser acknowledges a written agreement dated 2007(presumably the Asset Purchase Agreement or the Assignment of Security) whereby Baron and 121 agreed to assume full responsibility for any indebtedness that may have been owing by Fraser and Nast to the Plaintiff. Again, this confirms the debt evidenced by the Promissory Notes. C. Trial Fairness and Coercion [ 42 ] Points 10 and 11 of the Post

summary require the Court to consider whether the probative value of the evidence is outweighed by its prejudicial effect, and whether the evidence was the product of coercion. [ 43 ] The probative value of the evidence clearly outweighs any prejudice that might be suffered by the Defendants, especially since much of the evidence is produced by the Defendants. [ 44 ] Clearly, the evidence was not coerced as it was created at the time of the events in order to document the agreements freely made at the time. It was not the product of threats or promises or investigatory conflict. D.

Conclusion [ 45 ] Having considered necessity, reliability, trial fairness and coercion, I conclude that the documents in the second group are admissible to prove the truth of their contents. IV. Limitation Defence [ 46 ] The Defendants take the position that the second Statement of Claim was filed outside the limitation period and should be struck.

The Plaintiffs take the position that the mere pleading of the Limitations Act without pleading the underlying facts is insufficient notice of the defence. [ 47 ] I agree with the Plaintiff that the limitation issue has been inadequately plead and is not a defence in this action. However, if I am wrong in that regard, the applicable limitation provisions are set out in

section 3 of the Limitations Act : 3(1) Subject to subsections 1.1 and 1.2 and

section 11, if a claimant does not seek a remedial order within (a) 2 years after the date on which the claimant first knew, or in the circumstances, ought to have known, (

i) that the injury for which the claimant seeks a remedial order had occurred, (ii) that the injury was attributable to conduct of the defendant, and (iii) that the injury, assuming liability on the part of the defendant, warrants bringing a proceeding, or (b) 10 years after the claim arose, whichever period expires first, the defendant, on pleading this Act as a defence, is entitled to immunity from liability in respect of the claim. ...

(2) The limitation period provided by subsection (1)(

a) or (1.1)(

a) begins... (

c) against a personal representative of a deceased person as a successor owner of a claim, at the earliest of the following times: (

i) when the deceased owner first acquired or ought to have acquired the knowledge prescribed in subsection (1)(

a) or (1.1)(a), if the deceased owner acquired the knowledge more than 2 years before the deceased owner’s death; (ii) when the representative was appointed, if the representative had the knowledge prescribed in subsection (1)(

a) or (1.1)(

a) at that time; (iii) when the representative first acquired or ought to have acquired the knowledge prescribed in subsection (1)(

a) or (1.1)(a), if

the representative acquired the knowledge after being appointed. [ 48 ] This

section sets out three time periods, the earliest of which starts the running of the limitation. [ 49 ] Nast confirms in his Affidavit that payments were made up until the date of the Asset Purchase Agreement. The effective date of the Asset Purchase Agreement is either December 1, 2006 or April 1, 2007. Taking the date most advantageous to the Defendants, the limitation date potentially begins to run December 1, 2006 and expires on December 1, 2008. Schmitz passed away on August 30, 2008. Accordingly, the limitation period had not expired on the date of Schmitz’s passing.

The Court must then look to section 3(2) to determine the date the limitation period commenced to run. [ 50 ] The Application for Probate was made in the Schmitz Estate in November of 2009, and the Executor (Personal Representative) of the Schmitz Estate was appointed February 3, 2010. The evidence shows that the Executor first learned of the injury (claim) when told about same by her then counsel in early October 2008.

The earlier of these dates, being October of 2008, would start the running of the limitation period. [ 51 ] The Statement of Claim in the Original Action was filed on August 30, 2010, clearly within two years of the date on which the Executor knew or ought to have known of the injury (claim). The two actions were later consolidated by consent into one action. [ 52 ] There is no limitations defence available to the Defendants. V.

Defence of Joint Survivorship [ 53 ] The Defendants argue that the ability to collect the debt passed by the right of joint survivorship to Elmer when Schmitz pre- deceased her. [ 54 ] The Plaintiff argues that this defence was raised for the first time in the briefs filed in opposition to this application.

The particular paragraph in the Original Statement of Defence is as follows: 4. ...that such indebtedness was not owing to the Plaintiff alone, but was a ‘joint and several’ debt owing to both the Plaintiff and Kay Elmer, and these Defendants therefore dispute the Plaintiff’s ability to sue on any such alleged indebtedness in the Plaintiff’s name alone. [ 55 ] This exact paragraph is repeated as paragraph 4 of the second Statement of Claim filed July 3, 2012. [ 56 ] The defence as worded appears to object to the lack of naming Elmer as a Plaintiff.

It does not mention the concept of joint survivorship and is insufficient to raise that defence. [ 57 ] Prior to the hearing of the

summary resolution applications, Counsel for the Defendants was given an opportunity to consider whether it wished to bring an application to amend its Statement of Defence to include a defence of joint survivorship. He chose not to do so. It is too late now to raise a new defence. Litigation decisions are made based on the pleadings. A failure to plead a defence deprives the Plaintiff of the ability to bring evidence to address that issue.

This argument fails on that ground alone ( See Paniccia Estate v Toal , 2012 ABCA 397 at paragraphs 30 to 37 ; MNP (Next Friend of) v Bablitz , 2006 ABCA 245 ) [ 58 ] However, if I am wrong and the defence is considered on the merits, it still fails. Elmer and Schmitz were adult interdependent partners. The Promissory Notes were made payable jointly and severally to Elmer and Schmitz. By the right of survivorship, Schmitz’s interest would have passed to Elmer when he pre-deceased her, unless Elmer had divested herself of her interest prior to Schmitz’ death.

There is no direct evidence on this point, and since the two individuals involved are both deceased, direct evidence from them will not be forthcoming. Instead, it is necessary to examine the indirect evidence to see if it is sufficient to satisfy the evidentiary burden on the Plaintiff. [ 59 ] There are two important pieces of evidence before the Court. [ 60 ] The first is the Assignment of Security Agreement.

Elmer, although alive at the time, was not listed as a party to that agreement, is not referred to in the Assignment of Security Agreement, and there is no evidence that she participated in the negotiation of that agreement. The rights and interests existing under the Asset Purchase Agreement and the Promissory Notes are treated by the Defendants in the Assignment of Security Agreement as the sole property of Schmitz. [ 61 ] The Defendants go to great length to suggest that Schmitz was involved in the creation of the Assignment of Security Agreement.

Given that Schmitz and Elmer were adult interdependent partners, it is unlikely that Schmitz would ignore Elmer’s interest in the security.

Paragraph 5 of the Assignment of Security specifically states that: 5. ...as a result of this [Assignment of Security Agreement] [Fraser, Nast and 371 are] no longer bound by the terms and conditions of the [Asset Purchase Agreement] and [Promissory Notes], and shall be released from performing any of the terms, covenants and conditions of the [Asset Purchase Agreement] and [Promissory Notes]. [ 62 ] In order for this paragraph to have force and effect, the Defendants are clearly treating this debt as that of Schmitz alone.

This makes it is more likely that Schmitz had somehow acquired Elmer’s interest. [ 63 ] Further, there is correspondence revealed in the Affidavits of Records (and therefore deemed authentic by the Rules of Court ) that shows that Schmitz was represented by counsel at this time. There is no evidence of what counsel advised any of the parties, but it is again unlikely that parties with legal advice would make the mistake of excluding Elmer from the Assignment of Security Agreement if

she continued to have an interest in the debt. [64] This combination of facts in and of itself might not be sufficient to get the Plaintiff over its evidentiary hurdle, but incombination with the second piece of evidence, it is. [65] The Original Statement of Claim lists Elmer as a Defendant. It contains the following clause: 11. Kay Elmer is added as a party to this action because she was a party to the Share Purchase Agreement.

No relief is claimed against,[sic] her except that she account for the September 1, 2008 payment, unless she chooses to advance a claim to some of the funds claimedin this action by the Plaintiff. [66] Elmer was alive at the time the Original Statement of Claim was filed and served, and she was subsequently Noted in Default.The same clause appears as paragraph 11 in the second Statement of Claim. Again, she did not defend in the consolidated action. ADefendant who is Noted in Default is deemed to admit the facts in the Statement of Claim.

Elmer did not dispute any of the claims madein the Statement of Claim and did not take advantage of the opportunity to advance a claim to the funds demanded in the Statement ofClaim. Accordingly, Elmer has admitted that the debt is owed to the Plaintiff as claimed. [67] The conclusion drawn as a result of this combination of evidence is that all of the rights and interests of Elmer in the debtwere transferred to Schmitz prior to his death and the debt is capable of being claimed by the Plaintiff named in this action. VI.

Is the Failure to Name Kay Elmer as a Plaintiff Fatalto the Plaintiff’s case? [68] The general rule is that all parties to a contract must be before the Court to enable the Court to fully and effectively adjudicatethe issues in question.

This ensures that there is no prejudice or injustice done to any party or interested person, and any decision of theCourt binds all interested parties, thus avoiding multiple lawsuits (See Alberta Treasury Branches v Ghermezian, 2000 ABCA 228 atpara 15 and 28). [69] When a person who is a proper plaintiff refuses or is unwilling to participate in an action, that person must be added as adefendant (See Price, F. and Trussler, M. Mortgage Actions in Alberta (Calgary: Carswell, 1985) at pages 36 and 39 and the cases citedtherein).

This procedure satisfies the policy concerns behind the general rule. [70] In the present case, Elmer was added as a Defendant from the outset. Should she have been alive throughout the proceedings,this process would have enabled her to participate in all pre-trial steps as well as trial, and be bound by any decision of the Court. [71] Adding Elmer as a Defendant was the appropriate procedure in this situation and is not a bar to the bringing of this action. VII.

What is the Effect of the Assignment of Security? [72] The Plaintiff takes the position that Nast and Fraser are liable pursuant to the terms of the Share Purchase Agreement whichstands unmodified by Schmitz. [73] Conversely, Nast and Fraser take the position that the Assignment of Security does not contain an “entire agreement” clause.They claim Schmitz orally accepted the assignment to 171 and Baron, and therefore Nast, Fraser and 371 were relieved of theirobligations.

Alternatively, they argue that the Assignment of Security constitutes a novation which relieves them of their liability.Finally, Nast and Fraser argue that if they are liable, there was a written and signed agreement that Baron and 121 would assume theliabilities of Nast, Fraser and 371 and therefore Nast and Fraser should be able to collect any judgment against them from their Co-Defendants. [74] By the terms of the Share Purchase Agreement, any amendments or modifications to the Share Purchase Agreement must bein writing and signed by the parties to that agreement, including Schmitz.

The bare assertion by Baron that Schmitz orally agreed to theassignment of the security is self-serving evidence introduced by Baron without facts and supporting evidence. It is insufficient tomodify the Share Purchase Agreement. [75] The handwritten note from Schmitz dated August 9, 2007, clearly sets out that the assignment is only acceptable if Baronprovides a personal guarantee.

The guarantee did not materialize and the written note is not sufficient to modify the Share PurchaseAgreement. (See Guarantee Co of North America v Gordon Capital Corp, (SCC), [1999] 3 SCR 423 at 436-7, para31) [76] It is not relevant that the Assignment of Security Agreement allows modification to it in a different matter.

It is not theAssignment of Security Agreement that must be modified to get the Defendants the relief they seek. [77] Nast and Fraser further argue that the Assignment of Security Agreement constitutes a novation, however this document doesnot meet the test for a successful novation as set out in National Trust Co v Mead, [1990] SCR 410 at para 32: i. The new debtor must assume the complete liability; ii. The creditor must accept the new debtor as principal debtor and not merely as agent or guarantor; iii. The creditor must accept the new contract in full satisfaction and substitution for the old contract.

[ 78 ] An Assignment of Security which does not meet this test is not a novation of the Share Purchase Agreement. Schmitz did not accept the new contract in full satisfaction and substitution for the old contract.

Accordingly, the Assignment of Security does not relieve Fraser, Nast and 371 from their obligations pursuant to the Share Purchase Agreement and the Promissory Notes [ 79 ] In conclusion, the Assignment of Security agreement is exactly the type of amendment or modification that the Share Purchase Agreement contemplates must be made in writing and signed by all of the parties to the Share Purchase Agreement. It was not signed by Schmitz and therefore does not comply with the requirements of the Share Purchase Agreement. Further, it does not meet the test for a successful novation.

Nast and Fraser are not relieved of their obligations. [ 80 ] However, the situation is different as it applies to the obligations between the Co-Defendants. Baron and 121 both agreed to relieve Fraser and Nast of their liability pursuant to the Promissory Notes and the Share Purchase Agreement. These agreements are enforceable and binding. Accordingly, Fraser and Nast are entitled to be reimbursed for any sums for which they are found liable pursuant to the Promissory Notes and the Share Purchase Agreement. VIII.

Summary Judgment (

i) Timing of

Summary Resolution Applications [ 81 ] Nast and Fraser take the position that this application is brought prematurely since Questioning might reveal evidence not yet discovered with respect to some of the issues raised. They further complain that the Plaintiff brings a

summary judgment application against only some of the Defendants, not all of them, and that the inability/difficulty to quantify the claim should defeat the application. [ 82 ] Beier v Proper Cat Construction Ltd , 2013 ABQB 351 (“ Beier ”) (Wakeling, J, as he then was) and Rule 7.3 answer these concerns. All pre-trial steps do not need to be exhausted prior to bringing a

summary resolution application. The hopes of a party that evidence might be uncovered at Questioning are not sufficient to defeat or delay a

summary resolution application. The party bringing the application can bring it against one or any number of the opposing parties, and bring it for all or part of the amount claimed. The Rules of Court specifically allow for a

summary disposition of liability with quantum to be determined at a future date if necessary. (ii) The

Summary Judgment Test [ 83 ] The starting point in a

summary resolution matter is found in Windsor v Canadian Pacific Railway Ltd, 2014 ABCA 108 at para 13 and Hryniak v Mauldin, 2014 SCC 7 at para 49 : “examine the record to see if a disposition that is fair and just to both parties can be made on the existing record”. [ 84 ] Wakeling, J, as he then was, further clarifies some of the requirements around the

summary judgement test in the Beier case, approved by the Court of Appeal in Access Mortgage Corp

(2004) Ltd v Arres Capital Inc, 2014 ABCA 280 (“ Access Mortgage Corp ”): [61] Rule 7.3 of the new Alberta Rules of Court allows a court to grant

summary judgment to a moving party if the non-moving party’s position is without merit. A party’s position is without merit if the facts and law make the moving party’s position unassailable and entitle it to the relief it seeks. A party’s position is unassailable if it is so compelling that the likelihood of success is very high. [62] This may exist in a number of scenarios. [63] First, the moving party is entitled to

summary judgment if, as a plaintiff, it presents uncontroverted facts and law which entitle it to judgment against the non-moving party. The court must be satisfied that the plaintiff has presented uncontested facts which establish all the essential elements of the action. ... [70]...a non-moving party’s argument that questioning or trial may produce evidence which assists the non-moving party is without merit.

Beier at para 61 to 70 ; approved by Access Mortgage Corp at para 45 [ 85 ] Having already concluded that the documents in the second group are admissible, the Plaintiff has proved the essential elements of liability against the Defendants Nast and Fraser, and Nast and Fraser have proved their claim over for indemnification from the Co-Defendants Baron and 121: 1. For good consideration, the shares in 371were sold to Fraser/Nast pursuant to a written agreement that could only be changed in writing signed by all of the parties. 2. Schmitz did not sign an agreement to assign his security to anyone else. 3.

Fraser/Nast were indebted to Schmitz/Elmer and signed Promissory Notes in support of that debt. 4. Payments were made by Nast/Fraser to Schmitz/Elmer on the indebtedness but not paid in full. 5. For good consideration, Nast and Fraser agreed with Baron and 371 that Baron and 371 would assume responsibility for the indebtedness owed pursuant to the Promissory Notes.

6. Elmer has been found to have given up her interest in the debt evidenced by the Promissory Notes. [ 86 ] Given the evidence before the Court, it is just and fair to find in favour of the Applicants. The position of Nast and Fraser is without merit as it relates to the Applicants. Nast and Fraser have proven their claim against Baron and 121 for indemnification and the position advanced by Baron and 121 is without merit. (iii) Calculation of Debt [ 87 ] The Plaintiff is quite candid in her evidence that she does not have any personal knowledge of the amount owing on the debt.

She cannot gain access to the bank records to show the payments made to Schmitz or Elmer. The Plaintiff cannot locate detailed and specific records as to all of the payments made by all or some of the Defendants. However, this should not be a complete impediment to the calculation of the amount owing. [ 88 ] The Nast Affidavit sworn on August 24, 2015, at paragraph 7 states: 7. Our [Nast, Fraser and 371] last payment to the Plaintiff was in early 2007. We were never in default while we owned the business, as far as I am aware. My understanding is that Mr.

Bruno[ sic ]/121 made very few if any payments after agreeing to take over the Schmitz debt in early 2007... [ 89 ] There is no evidence from 121 or Baron that they made any payments towards the indebtedness, however the Statement of Claim references a payment made in September 2008. [ 90 ] To establish an amount owing, the Plaintiff has assumed that all of the payments were made and up-to-date as of October 1, 2008. In these circumstances, the amount of the debt should be calculated in the manner most beneficial on the evidence to the debtors.

The Plaintiff has done so by using the October 1, 2008 date to commence the calculation. The Defendants have not disputed the calculation of the amount owing as made by the Plaintiff and there was no argument made at the hearing with respect to the accuracy of the calculation. If there is a dispute on the calculation that cannot be settled between Counsel, they are at liberty to return to me for confirmation as to the amount of the judgment. IX.

Summary of Decision [ 91 ] Given all of the circumstances of this case, it is just and reasonable to allow the

Summary Judgment application of the Plaintiff and the

Summary Judgment application of the Defendants Nast and Fraser against the Co-Defendants 121 and Baron. Additional vive voce evidence at trial would not assist given that almost all of the participants in this matter are deceased. [ 92 ]

Summary Judgment in the amount of $266, 239.15 is awarded jointly and severally against Nast and Fraser. [ 93 ] Nast and Fraser are granted

Summary Judgment against Baron and 121 in the amount of $266, 239.15. Costs [ 94 ] The Plaintiff is awarded costs on a solicitor and client basis against the Defendants Nash and Fraser. [ 95 ] Nash and Fraser are awarded costs against Baron and 121 on a solicitor and client basis, including reimbursement of the solicitor and client costs payable to the Plaintiff. Dated at the City of Edmonton, Alberta this 21 st day of October, 2016. Sandra L. Schulz M.C.C.Q.B.A. Appearances: Paul Greep Reynolds Mirth Richards & Farmer LLP for the Plaintiff, Lorina Lynn Schmitz, Executor of the Estate of Bruno Paul Anthony Schmitz (deceased)

Richard Low Richard A. Low & Company LLP for the Defendants, Randy Nast and Andy Fraser Barry King Strathcona Law Group for the Defendants, Robert Baron and 1210541 Alberta Ltd