383501 Alberta Ltd., o/a Val Brig Equipment Sales Plaintiff/Applicant - v. -, 2021 ABQB 436

Court of Queen’s Bench of Alberta Citation: 383501 Alberta Ltd (Val Brig Equipment Sales) v 2090093 Alberta Ltd, 2021 ABQB 436 Date: 20210602 Docket: 1903 18622 Registry: Edmonton Between: 383501 Alberta Ltd., o/a Val Brig Equipment Sales Plaintiff/Applicant - and - 2090093 Alberta Ltd., Aliona Schaefer and Valerie Schaefer Defendants/Respondents _______________________________________________________ Reasons for Decision of W.S. Schlosser , Master of the Court of Queen’s Bench of Alberta _______________________________________________________ [ 1 ] This is a

summary judgment application for four commercial truck loans. It is vigorously and expertly defended. [ 2 ] The two individual Defendants incorporated a numbered company, 2090093 Alberta Ltd. (“209”), in Beaverlodge, Alberta, in 2018. Their plan was to start a trucking business. It was a new business, not the expansion of an existing one. [ 3 ] The public records show that when 209 was incorporated, Aliona Schaefer was the sole director and shareholder. Valerie Schaefer, Ms.

Schaefer’s husband, was responsible for the day-to-day operation of the new enterprise, but did not become a director and shareholder of 209 until April 2019. All of the sales and all of the security documents were completed before then. [ 4 ] The first truck, a Mack Tri Drive, was purchased by 209 in January 2019 for $97,545. The Schaefers and the company took possession of the truck giving, in return, a Conditional Sales Contract (at 12% per annum), a General Security Agreement, a Promissory Note, and a collateral mortgage against the family home. Title was held in Aliona Schaefer’s name.

These documents were executed at the Plaintiff’s lawyer’s office. The Defendants declined independent legal advice. The Plaintiff’s lawyer witnessed the signatures. [ 5 ] The second truck was purchased in January 2019 for $68,145. The Defendants gave a Conditional Sales Contract, a General Security Agreement, Promissory Notes, and a collateral mortgage as security. Here, too, the documents were executed at the Plaintiff’s lawyer’s office and an opportunity to get independent legal advice was declined.

[ 6 ] All of the trucks were sold ‘as is’, ‘where is’; without any representations or warranties of any kind. The evidence shows that the Defendants were given an opportunity to inspect and drive the vehicles before purchase. [ 7 ] The third truck was purchased in March 2018 for $95,550. The Defendants had found this truck for sale at Ritchie Bros. Auctioneers and an arrangement was entered into for the Plaintiff to purchase it from the auctioneer and sell it to the Defendants; again, with a Conditional Sales Contract, a Promissory Note, a General Security Agreement, and collateral mortgage.

These, too, were executed at the Plaintiff’s lawyer’s office, except for the General Security Agreement, which was executed in front of the principal of the Plaintiff. [ 8 ] The fourth truck was a Mack Tri Drive, purchased for $80,850. It, too, was located by the Defendants from a third party, purchased by the Plaintiff and re-sold to the Defendants in exchange for the same security documents. [ 9 ] Default in payment occurred on all four trucks.

They were seized and sold: the first for $39,500 plus GST to a third party; the second through Edmonton Salvage Disposable with a shortfall of $44,943.39. (A pump system or ‘wet kit’ was removed from this truck and it is being marketed for sale but has not yet been sold.) [ 10 ] The third truck was destroyed by fire and there was an insurance settlement concluded just before this application, for which credit will be given. [ 11 ] The fourth truck also suffered a fire loss but was ultimately sold to a third party for $66,900 plus GST. [ 12 ] There are substantial repair and seizure costs relating to each truck. [ 13 ] The Plaintiff seeks to enforce its security to recover the shortfall.

The main target at this application is the Defendants’ home under the collateral mortgages. [ 14 ] On this latter point, I note that there are two appraisals. The appraisal obtained by the Defendants shows equity in their home for the purposes of setting a redemption period. [ 15 ] The Defendants raise a number of defences which can be summarized as follows (from the Defendants’ brief): (

i) failure of consideration for the security and promissory notes allegedly granted under the Agreement, as later defined; (ii) VBES’ improvidently realized of the property recovered from the Respondents; (iii) the Conditional Sales Contracts were unconscionable; (iv) the Agreement violates the Interest Act; and (

v) VBES breached the organizing principle of good faith in contractual performance and, more specifically, breach of the duty of honesty in contractual performance; (

b) most of the facts of this case are contested which will require live evidence at a trial of the matter, to determine the credibility of the witnesses. Among other things, there is contradicting evidence as to whether: (

i) Lawrence Berube (the principal of VBES) and/or VBES induced the Respondents into entering into the Agreement; (ii) the Respondents signed the Conditional Sales Contracts and related security; (iii) Aliona had the corporate authority to enter into the Conditional Sales Contracts on behalf of 209; (iv) the amounts sought by VBES, including but not limited to the Enforcement Costs, were actually incurred by VBES, and are recoverable from the Respondents; and (

v) VBES made proper and commercially reasonable efforts to sell the Trucks upon seizure and mitigate the amounts owed. [ 16 ] Before considering these defences, I might add a few points by way of putting this claim into perspective. [ 17 ] It is not unusual for lenders to take many layers of security, even if a loan does not appear to be particularly risky. This was a new business with depreciating assets and no security other than the Defendants’ own property.

When it comes to collection, lenders ‘are not their brother’s keepers’. [ 18 ] Assuming, for the sake of argument, that the collateral mortgages are valid and enforceable as written, they only put the Plaintiff in a marginally better position vis-à-vis the Defendants’ home and the available remedies under

Part 7 of the Civil Enforcement Act and Division 6 of

Part 9 of the Rules of Court , after a creditor has obtained a money judgment. A money judgment can be enforced against land through the writ process. The timing is very similar to that of a mortgage in default with equity (except farm land). The procedure under

Part 7 of the Civil Enforcement Act mandates a six-month waiting period (s 72). The only real difference may be the exemptions available in a sale under the Civil Enforcement Act . A writ may also be less advantageous to the debtor, in that the creditor has greater control of setting the minimum sale value of the land. And, in practice, there is less room for the debtor’s input about value of the real property under execution than there might be in a foreclosure. What I am trying to say is the land is not immune from the collection process, even without the collateral mortgages.

The land is still exposed to the claims of the Plaintiff. And all it takes is exposure to liability on one of the security instruments described above to get the process started. In the circumstances of this case, the only real or substantial difference between a writ and a collateral mortgage, is that a mortgage gives a preferred position over unsecured creditors and preserves the ranking of the lender. Writ holders share the spoils: mortgagees do not. But even if there were no collateral mortgages, the family home remains vulnerable to the collection process.

[ 19 ] The final point is about agreement. It is not enough now to say that you did not intend to be bound. Although it seems obvious, neither the Court nor the parties can read the other side’s mind. As such, both the Court and the other party are forced to rely on outward, or objective signs of agreement; despite private understandings, or innermost doubts. This is an issue that runs through many areas of the law. Determining an intent to be bound is like trying to see the wind. You can only tell it by its signs. When the signs are present that is usually enough. The deal is done. It is binding and enforceable.

Otherwise there could be no commercial certainty. [ 20 ] That being said, it remains to review the defences raised at this application. I. Consideration [ 21 ] Ms. Schaefer argues that she did not get anything in exchange for the promises and obligations that the security documents contained. [ 22 ] As noted, the documents were signed before witnesses and there are completed Affidavits of Execution.

I am satisfied that the signatures are regular and legitimate. [ 23 ] The record shows that Aliona Schaefer was the owner of 209 at the relevant times, despite the de facto control that may have been exercised by her husband. (She is a party in her personal capacity to at least one of the trucking contracts entered by the new company and apparently drew a salary from 209). [ 24 ] Val Brig’s lawyer argues that even if no consideration flowed to Ms. Schaefer for the Note, she is an ‘Accommodation Party’ for the purposes of s 54 of the Bills of Exchange Act (RSC 1985, c B-4 ).

An Accommodation Party would then have recourse for indemnification from the other parties, but it is not necessary to consider this argument. [ 25 ] Ms. Schaefer is not simply a spouse signing for their partners loan: she is (at least) the paper owner of the company. A benefit to the company is a benefit to her. [ 26 ] Identifying Ms. Schaefer as an Accommodation Party makes a difference only if there were no consideration for the Notes and the action is by Holder in Due Course. As between the original parties, all of the equities apply, as does the requirement for consideration.

In this respect, at least, the situation is like deferred indefeasibility in Torrens land law. [ 27 ] The concept of consideration ends up being more wholistic than technical in a multi-party multi-document arrangement. The law does not require consideration flowing from a promisee to each party, in every possible capacity in order to create binding primary legal obligations. What is paramount is the idea of a bargain and an exchange. [ 28 ] Ms.

Schaefer’s ownership of 209 means that there is sufficient consideration, according to law, for the challenged security agreements; in particular the promissory notes and the collateral mortgages. [ 29 ] In the circumstances of this case, the security agreements are direct primary obligations supported by consideration. Any informal arrangements that existed between the Defendants do not provide a defence to the Plaintiff’s claim. II. Improvident Sales [ 30 ] The law was reviewed in National Leasing Group Inc v Trident Oilfields Services Ltd , 2019 ABQB 896 .

The Defendants have not satisfied their onus to show that the forced sales of the three trucks was improvident. III. Unconscionable Conditional Sales Contracts [ 31 ] Not only are the conditional sales contracts not inherently unconscionable, as that term is generally understood and applied, they are not uncommon and do not exhibit illegal rates or terms. The fact that they were short-term with a balloon payment at the end might even be advantageous to a business starting out.

Unconscionability only provides a defence if there is such a marked disparity between what is given and what is received that it suggests grossly unequal bargaining power. Even then there is a gulf between what proves to be a bad deal (with hindsight) and one that is unenforceable. IV. Interest Act [ 32 ] The mortgage documents provide for interest at 12% but they stipulate a higher rate (18%) on default, which is illegal. The Plaintiff concedes that the collateral mortgages violate the Interest Act and they have adjusted their claim to bring it into compliance; calculating interest at 12%. V.

Good Faith [ 33 ] This defence is not made out. There is no evidentiary support for any ulterior, or improper motives. There is nothing to suggest that the Plaintiff had it out for the Defendants. The condition of the trucks on seizure and the string of debts related to at least one of them, had nothing to do with the Plaintiff. Two of the four were chosen by the Defendants themselves. There is no suggestion of any latent or hidden defects that the Plaintiff knew about but that the Defendant did not. The operative principle is buyer beware. Beyond

that, there was only a default and very comprehensive security. VI. Secondary Issues and the Evidentiary Record i. Signatures [ 34 ] Affidavits of Execution support the signed documents. The only competing evidence is second-hand from Ms. Schaefer, who apparently denies her signatures, but only by way of an inquiry by her husband in an answer to an undertaking given by him. Ms. Schaefer has not (and apparently will not) swear an affidavit to this effect.

Without having to draw an adverse inference, this hearsay is not sufficient to displace the Affidavits of Execution and other evidence relating to the regularity of the signatures. It does not raise a triable issue. ii. Inducement [ 35 ] There is no sufficient evidence to show that the principal of the Plaintiff induced the Defendants to enter the agreements to the point of coercion, or undue influence. All of the evidence suggests that the Defendants entered these agreements freely and voluntarily. They were (at least initially) enthusiastic about this new business venture.

As noted, two of the four trucks were selected by the Defendants from third party vendors and the Plaintiff was persuaded to purchase these vehicles and resell them to the Defendants on the terms mentioned above. iii. Corporate Authority [ 36 ] The Plaintiff was fully justified in relying on Ms. Schaefer’s ostensible authority and ownership of 209. Anything that might have been going on behind the scenes, which were unknown to the Plaintiff, is either answered by the indoor management rule ( Alberta Business Corporations Act , RSA 2000, c B-9 ss 17(3), 19), or the documents on the public record. iv.

Enforcement Costs and Improvident Sales [ 37 ] As noted above, the Defendants have not made out improvident sales. The Defendants complain that the Plaintiff settled amounts owing for repairs on at least one of the trucks without being compelled to do so by either a Possessory Lien or a Garageman’s Lien. The evidence shows that the work was done, though at the instance of the Defendants, by mechanics who were entitled to payment for their services. These repairs had to be completed before the trucks could be released, or would be in a saleable state. VII.

Disposition [ 38 ] Judgment is awarded against the Defendants in the amount claimed, to be adjusted once the insurance proceeds are credited, together with costs on a solicitor and own client basis. The value of the wet-kit can be credited against the judgment when sold. [ 39 ] The collateral mortgage is declared to be a valid charge. I am willing to accept the Defendants’ appraisal evidence and set the redemption period at six months, following which if is not redeemed, it shall be listed at the Defendants’ appraised fair market value. Heard on the 27 th day of April, 2021.

Dated at the City of Edmonton, Alberta this 2 nd day of June, 2021 . W.S. Schlosser M.C.Q.B.A. Appearances: Ryan Quinlan Duncan Craig LLP for the Plaintiff/Applicant

Patrick Harnett and Marie Dussault Miller Thomson LLP for the Defendants/Respondents