A St Albert Trail Liquor Cellar Ltd v, 2017 ABQB 361

Court of Queen’s Bench of Alberta Citation: A St Albert Trail Liquor Cellar Ltd v 1105849 Alberta Ltd, 2017 ABQB 361 Date: 20170602 Docket: 1503 07471 Registry: Edmonton Between: A St. Albert Trail Liquor Cellar Ltd. Applicant (Respondent on Appeal) - and - 1105849 Alberta Ltd. Respondent (Appellant on Appeal) _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice K.P. Feehan _______________________________________________________ I.

Introduction [ 1 ] 1105849 Alberta Ltd. (“110”) appeals a decision of the Master, dated June 8, 2016, on an Originating Application of A St. Albert Trail Liquor Cellar Ltd. (“St. Albert Trail”) and Cross-Application by 110, to determine the effective rate of interest in a real estate contract dated October 17, 2007 (“Agreement for Sale”), Appendix A to that Agreement for Sale, mortgage dated January 18, 2008, and

Schedule B to that mortgage. [ 2 ] The Agreement for Sale was originally completed by 628442 Alberta Ltd. as vendor (“628”) and Ace Auto Sales Inc. as purchaser (“Ace Auto”). 628 assigned its rights to St. Albert Trail and Ace Auto assigned its rights to 110. Subsequently, St. Albert Trail and 110 entered into a mortgage with 110 as mortgagor and St. Albert Trail as mortgagee. At all times the principal of both 628 and St. Albert Trail was Kenneth John Braithwaite Professional Corporation and the principal of both Ace Auto and 110 was Ron Krebs (“Krebs”).

[3] Beginning on or about December 17, 2012, 110 began to question whether it had overpaid interest pursuant to theAgreement for Sale, and some interest payments thereafter were paid into trust. [4] The evidence before the Master consisted of one affidavit from Kenneth J. Braithwaite (“Braithwaite”) sworn May 7, filedMay 26, 2015, and one affidavit of Krebs sworn March 14, filed March 15, 2016.

On appeal, a further affidavit of Krebs was submitted,sworn March 16, filed March 17, 2017, to specifically address a concern in the evidence of 110, as identified by the Master. [5] The Master held, based on the evidence before him: ...the only thing certain or consistent about these agreements [the Agreement for Sale, Appendix A to the Agreement for Sale, themortgage and

Schedule B to the mortgage] was that the parties agreed to pay interest in accordance with the schedules; not only once buttwice; which is interest at 7% per annum calculated annually in advance and payable monthly. As a result, the Master granted the Originating Application of St. Albert Trail and dismissed the Cross-Application of 110, such that allfunds in trust were to be paid to St. Albert Trail. II. Standard of Review [6] The parties agree that the standard of review on appeal from the Master is correctness (Bahcheli v Yorkton Securities Inc,2012 ABCA 166). III.

The Agreement for Sale [7] The Agreement for Sale of October 17, 2007 set out the terms for the sale and purchase of property located at: PLAN 4577TRLOT 7AEXCEPTING THEREOUT ALL MINES AND MINERALS. [8] The purchase price for the lands was $2,300,000, with a $100,000 deposit and $500,000 to be paid by solicitors trust chequeor bank draft. The terms with respect to the mortgage are confusing.

The Agreement for Sale indicates that the mortgage was to be$1,700,000 “by the assumption of the existing [first] mortgage”, but there is also provision for “a new mortgage as arranged between thepurchaser and vendor...as set out in Appendix A”. Presumably, the $1,700,000 figure was meant to refer to the new mortgage in evidencebefore the Court as opposed to the assumption of an undisclosed existing mortgage.

As will be seen below, the terms set out in the newmortgage and Appendix A to the Agreement for Sale also do not match. [9] The interest rate set out in the Agreement for Sale was: The “New Mortgage” will have monthly payments as set out in Appendix A (not) including taxes, interest not greater than the rate of 7%per annum calculated half-yearly not in advance, for a term of 8 years amortized over not more than 8 years. Counsel for 110 advises that this produced an effective annual interest rate of 7.12%. [10] How that interest rate was determined is important.

In the original Krebs affidavit of March 14, 2016, he indicates thatBraithwaite and he “negotiated the terms of the Agreement for Sale prior to executing it on October 17, 2007” and that it was always hisintention that the interest rate would be “7% per annum” both with respect to the Agreement for Sale and the mortgage. He is moreprecise in the second affidavit of March 16, 2017, which was not before the Master.

In that affidavit he says that when he andBraithwaite negotiated the terms of the Agreement for Sale, they agreed that the interest rate would be “not greater than 7% per annumcalculated half-yearly not in advance, for a term of 8 years, amortized over not more than 8 years” and that was the wording “explicitlyincorporated into the Agreement for Sale”.

He then says that he “hastily drafted a payment schedule”, Appendix A, which he intended toreflect that rate, provided it to Braithwaite for review and it was then incorporated into the Agreement for Sale. [11] The affidavit of Braithwaite is more explicit in terms of timing. He says he negotiated the terms of the Agreement for Salewith Krebs “prior to executing it on October 17, 2007”. Prior to executing the Agreement for Sale, they discussed the payment scheduleand Krebs proposed and prepared Appendix A “which I then agreed to and it was appended to the Agreement for Sale”.

Then,Braithwaite says that Krebs and he revised the Agreement for Sale to state that Appendix A of the Agreement for Sale governed thepayment schedule.

This is evidence which may be taken into account relating to the surrounding circumstances or factual matrix leadingup to or as to the execution of the documentation (Paddon-Hughes Development Co v Chiles Estate, (AB KB),[1992] 3 WWR 519 (ABQB) at para 10; Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 , [2014] 2 SCR 633 at paras50 and 56-58). [12] Clearly, the timing was as follows: 1. the parties agreed on an interest rate; 2. once the interest rate was agreed, Krebs prepared an Appendix to presumably reflect the interest rate agreement, and theparties agreed to the Appendix; and 3. the Appendix was then appended to the Agreement for Sale, and the terms of the Agreement for Sale amended toincorporate the Appendix.

IV. Appendix A to the Agreement for Sale [ 13 ] The terms of Appendix A to the Agreement for Sale did not mirror the interest rate originally set out in the Agreement for Sale. Rather than setting out a calculation at 7% per annum, calculated half-yearly not in advance, it set out a payment

schedule which in effect upon calculation reflected an interest rate of 7% per annum, calculated annually, in advance, payable monthly, which counsel for 110 advises yielded an effective interest rate of 7.91%: Year Date of First Payment Principal Amount Number of Payments and Payment Amount Interest Accrued 1 Feb 1, 2008 $1,700,000 12 payments at $25,000 per month From Jan 31, 2009 - $119,000 2 Feb 1, 2009 $1,400,000 12 payments at $25,000 per month From Jan 31, 2010 - $98,000 3 Feb 1, 2010 $1,100,000 12 payments at $20,000 per month From Jan 31, 2011 - $77,000 4 Feb 1, 2011 $860,000 12 payments at $20,000 per month From Jan 31, 2012 - $60,200 5 Feb 1, 2012 $620,000 12 payments at $15,000 per month From Jan 31, 2013 - $43,400 6 Feb 1, 2013 $440,000 12 payments at $15,000 per month From Jan 31, 2014 - $30,800 7 Feb 1, 2014 $260,000 12 payments at $11,000 per month From Jan 31, 2015 - $18,200 8 Feb 1, 2015 $128,000 12 payments at $10,666.66 per month From Jan 31, 2016 - $8,980 V.

The Mortgage [ 14 ] On January 18, 2008, the parties entered into a mortgage, and once again the interest rate set out in the mortgage was different from both the interest rate in the Agreement for Sale and Appendix A: ...with interest thereon at the rate of SEVEN (7%) per centum per annum calculated monthly and payable monthly...computed from the respective dates of...advances...[to] “become due and be paid on the 18 th day of January, 2008 [the “date for adjustment of interest”]... ...See

Schedule “B”. [ 15 ] The effective interest rate of this calculation methodology in the body of the mortgage was, as counsel for 110 advises, 7.26%. VI.

Schedule B to the Mortgage [ 16 ]

Schedule B to the mortgage was similar but not exactly the same as Appendix A to the Agreement for Sale. Rather than having the date of first payment being February 1, 2008, it was to be February 18, 2008, with each payment thereafter being made on February 18 of succeeding years. Additionally, year 3 in Appendix A to the Agreement for Sale was to start with a principal amount of $1,100,000 and in

Schedule B to the mortgage it was to be $1,000,000. The payments for year 8 in Appendix A to the Agreement for Sale were to be $10,666.66 per month, whereas in

Schedule B to the mortgage they were to be $10,658.66 per month.

Schedule B to the mortgage reads: Year Date of First Payment Principal Amount Number of Payments and Payment Amount Interest Accrued 1 Feb 18, 2008 $1,700,000 12 payments at $25,000 per month From January 31, 2009 - $119,000 2 Feb 18, 2009 $1,400,000 12 payments at $25,000 per month From January 31, 2010 - $98,000 3 Feb 18, 2010 $1,000,000 12 payments at $20,000 per month From January 31, 2011 - $77,000 4 Feb 18, 2011 $860,000 12 payments at $20,000 per month From January 31, 2012 - $60,200 5 Feb 18, 2012 $620,000 12 payments at $15,000 per month From January 31, 2013 - $43,400 6 Feb 18, 2013 $440,000 12 payments at $15,000 per month From January 31, 2014 - $30,800 7 Feb 18, 2014 $260,000 12 payments at $11,000 per month From January 31, 2015 - $18,200 8 Feb 18, 2015 $128,000 12 payments at $10,658.66 per month From January 31, 2016 - $8,980 [ 17 ]

Schedule B to the mortgage, like Appendix A to the Agreement for Sale, had an effective interest rate upon calculation, according to counsel for 110, of 7.91%. VII.

Summary of the Interest Rate Distinctions

[18] In

summary, the interest rates set out in the Agreement for Sale, Appendix A to the Agreement for Sale, the mortgage, andSchedule B to the mortgage exhibited significant differences: Agreement forSale Appendix A to theAgreement forSale Mortgage

Schedule B to theMortgage CommencementDate January 4, 2008 February 1, 2008 January 18, 2008 February 18, 2008 Interest Provision 7% per annum,calculated half-yearly not inadvance 7% per annum,calculated annually,in advance 7% per annum,calculated monthly,payable monthly 7% per annum,calculated annually,in advance, payablemonthlyEffective InterestRate 7.12% 7.91% 7.26% 7.91% [19]

Section 3 of the Interest Act, RSC 1985, c. I-15, as amended, reads: Interest rate when none provided 3 Whenever any interest is payable by the agreement of parties or by law, and no rate is fixed by the agreement or by law, the rateof interest shall be five per cent per annum. [20] The effect of determining that the agreement between the parties was reflected by either Appendix A to the Agreement forSale or

Schedule B to the mortgage, with an effective interest rate of 7.91%, is to allow St. Albert Trail to keep all funds paid into trust.Should a determination be made that the interest rate is as set out in the Agreement for Sale with an effective interest rate of 7.12%,$63,972 would be repaid to 110. Should a determination be made that the interest rate is as set out in the body of the mortgage, with aneffective interest rate of 7.26%, an amount not in evidence, but presumably between those two amounts, would be repaid to 110.

If adetermination is made that there was no meeting of the minds with respect to fixing the interest rate, the provisions of s 3 of the InterestAct would apply, with a statutory interest rate of 5%, and $208,656 would be returned to 110. VIII. The Position of the Parties [21] St. Albert Trail submits that the decision of the Master is correct, that Appendix A to the Agreement of Sale and

Schedule Bto the mortgage, despite some differences, set out scheduled and express interest payments to be made and those express interestpayments can be reverse calculated to determine an effective interest rate of 7.91%, reflecting an agreement between the parties as to rateof interest. [22] 110 submits, firstly, that there has been no consensus ad idem or “meeting of the minds” as to the interest rate fixed byagreement between the parties, such that the Interest Act rate of 5% should be statutorily imposed (relying upon Royal Bank of Canadav.

Larry Creighton Professional Corp 1989 ABCA 53 , [1989] 3 WWR 561 (ABCA); LaChance v. Transwest FinancialServices Corp., 2008 ABQB 402; and Canbar West Projects Ltd (Can-West Projects Ltd) v Sure Shot Sandblasting & Painting Ltd,2013 ABQB 292), and in the alternative, that the appropriate rate should be that set out between the parties in the Agreement for Sale;7% per annum, calculated half-yearly not in advance. The Master determined that the former determination “would represent a windfall”to 110 which would not be “attractive equitably, as it was [Krebs on behalf of 110] who drafted the schedules”. I agree.

IX. Discussion on the Law [23] The issue is whether an error in contractual documentation “is fundamental in character, something essential, going to the rootof the contract” (Fridman, G.H.L., The Law of Contract in Canada, (6th) at 242), or whether there was a bilateral mistake; either mutual,where the parties are in error but their mistakes are different; or common, where the error in the minds of both parties is the same(Fridman, pp 249-250).

In mutual mistake, it could be said on the facts that the parties have arrived at a consensus ad idem, which is thefoundation of the contract they have validly contracted, and the Courts are given flexibility to uphold, modify or set aside such contracts.In issues of common mistake, there is no question of lack of consensus ad idem: “The parties have clearly agreed on the contract and itsterms” (Fridman, pp 250-251). [24] Whether the mistake is described as mutual or common, the Court must ask whether there was any error as to the intention ofthe contract, or whether the contracting parties obtained the consideration for which they had bargained (Fridman, p 252).

The test iswhether a reasonable person could properly interpret the agreement between the parties as having been objectively reached and agreedupon, despite some error in the particulars of the contract (Fridman, p 265). [25] A thorough review of the law of consensus ad idem and bilateral mistake was conducted by the Court of Appeal in RonGhitter Property Consultants Ltd v Beaver Lumber Company Limited, 2003 ABCA 221.

The Court said that parties will be found tohave reached a meeting of the minds: ... where it is clear to the objective reasonable bystander, in light of all the material facts, that the parties intended to contract and theessential terms of that contract can be determined with a reasonable degree of certainty.... (para 9) If there is a degree of mistake in the formation of the contract: ...the mistake must be fundamental, in the sense that it must go to an essential term of the alleged contract...[and quoting from Cheshire,

Fifoot and Furmstom, Law of Contract, 14th ed, 2001]... “that prevents the mistaken party from appreciating the fundamental characterof the offer and acceptance”. (para 11) [26] The Court of Appeal in Ghitter discussed the difference between common and mutual mistake: “Common mistake occurswhen the parties make the same mistake....Mutual mistake occurs when both parties are mistaken, but their mistakes are different” (para12). [27] The Court said at para 13: “With common mistake, the agreement is acknowledged.

What remains to be determined iswhether the mistake was so fundamental as to render the agreement void or unenforceable on some basis.” Quoting again from Cheshire,Fifoot and Furmstom, the Court said: Where common mistake is pleaded, the presence of agreement is admitted. The rules of offer and acceptance are satisfied and the partiesare of one mind....Where either mutual or unilateral mistake is pleaded, the very existence of the agreement is denied.

The argument isthat, despite appearances, there is no real correspondence of offer and acceptance and that therefore the transaction must necessarily bevoid. (para 13) X. Determination [28] While the interest provisions in the documents under consideration vary, it is clear that the parties intended that the interestrate would be fixed at 7% per annum. How that 7% per annum was to be calculated is not immediately clear.

The determination that therate was to be fixed at 7% per annum removes from consideration application of the Interest Act, because here a rate has been fixed andagreed upon; only the method of calculation of that fixed rate is in dispute.

This is not a case where “no rate is fixed by the agreement”,the criteria contemplated in s 3 of the Interest Act (see British Pacific Properties Ltd v Minister of Highways and Public Works, (SCC), [1980] 2 SCR 283; Alberta Treasury Branches v Fletcher, (ABQB); and MacKenzie v FirstMarathon Securities Limited, 2004 ABQB 834). [29] The question at issue is what the parties contemplated in terms of the method of calculation of that fixed interest rate. [30] In that regard, chronology is important. Both Krebs and Braithwaite agree that they first negotiated the terms of theAgreement for Sale.

The terms for the Agreement for Sale set out the interest rate as 7% per annum, calculated half-yearly not inadvance. It was only thereafter that Krebs drafted Appendix A, and the parties drafted the mortgage and

Schedule B to the mortgage. [31] The efforts of the parties to reflect their agreement was clearly sloppy and careless. I find that the parties never recognizedwhether Appendix A to the Agreement for Sale modified the negotiated Agreement for Sale, whether the terms of interest as set out inthe mortgage modified either the terms of the Agreement for Sale or Appendix A to the Agreement for Sale, nor whether

Schedule B tothe mortgage actually reflected the terms of the mortgage. The differences between the Agreement for Sale and the mortgage withrespect to interest are obvious on their face, “calculated half-yearly not in advance” and “calculated monthly and payable monthly”. Themethodology of calculation of interest rate in Appendix A to the Agreement for Sale and

Schedule B to the mortgage is not obvious onthe face of these documents, and significant calculations would have had to have occurred in order to determine whether Appendix Aaccurately reflected the wording in the Agreement for Sale and whether

Schedule B to the mortgage accurately reflected the wording ofthe mortgage. Clearly, the parties never, at the time of execution of these documents, did that calculation. That, I find, constituted abilateral common mistake of the parties, which did not alter the meeting of the minds of the parties as set out in the Agreement for Sale. [32] I find that the parties did come to a bilateral understanding; that was the original agreement set out in the Agreement for Sale,that the interest rate of 7% per annum should be “calculated half-yearly not in advance”.

The objective reasonable bystander, in light ofall the material facts, would understand that the parties intended to contract and that the essential terms of that contract were as set out inthe Agreement for Sale. The remaining documentation was created without care or attention as to whether the methods of calculation inthose documents coincided with the original agreement or varied the original agreement.

I find that neither of the parties specificallyintended to change that original agreement, and in fact they did not do so by their bilateral common mistake in the drafting of AppendixA to the Agreement for Sale, the mortgage and

Schedule B to the mortgage. [33] As a result, I find that the calculation of interest is as set out in the Agreement for Sale such that from the funds in trust theamount of $63,972 should be returned to 110, and the remaining amount in trust should be returned to St. Albert Trail. [34] Because neither of the parties were wholly successful on appeal, 110 not having successfully persuaded the Court that theinterest rate should be that set out pursuant to s 3 of the Interest Act, there shall be no costs on the appeal nor before the Master, and eachparty will bear their own costs. Heard on the 28th day of April, 2017. Dated at the City of Edmonton, Alberta this 2nd day of June, 2017.

K.P. Feehan J.C.Q.B.A. Appearances: Stuart J. Weatherill Emery Jamieson LLP for the Applicant (Respondent on Appeal) Nicholas Trofimuk Reynolds Mirth Richards & Farmer LLP for the Respondent (Appellant on Appeal)