2011 QCCQ 298, 2011 QCCQ 298

2639-7315 Québec inc. (Belmonte Léger & Associé

s) c. Luxor Developpement Inc. 2011 QCCQ 298 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL TOWN OF MONTREAL Civil Division No: 500-22-170866-100 DATE: January 19, 2011 ______________________________________________________________________ BY THE HONOURABLE SUZANNE HANDMAN, J.C.Q. ______________________________________________________________________ 2639-7315 QUEBEC INC. doing business under the name BELMONTE LÉGER & ASSOCIÉS Plaintiff v. LUXOR DEVELOPPEMENT INC.

Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] 2639-7315 Quebec inc., doing business as Belmonte Léger & Associés, is suing Luxor Développement inc. for its commission of $9,030, claiming it obtained a loan for Defendant, as agreed to by the parties. Defendant denies the claim, alleging amongst other reasons that the terms of the contract were not fulfilled.

QUESTIONS IN LITIGATION: [ 2 ] The Court must decide whether the Mandate signed by the parties was completed in accordance with its terms and conditions or whether Defendant was entitled to refuse the offer of financing that was presented to it. THE EVIDENCE: [ 3 ] Plaintiff operates a consulting firm, acting as a broker by assisting companies to obtain financing for their projects.

Defendant, which operates a construction management company, required immediate financing for its cash flow problems as well as permanent financing for its accounts receivable. [ 4 ] Defendant met Plaintiff and explained its business needs. Plaintiff then sent Defendant a contract for its services, by e-mail, entitled “Mandate”.

Defendant signed the mandate and returned it, in the same manner, on February 11, 2010. [ 5 ] The mandate foresees that Plaintiff will obtain financing for two activities; the first was to obtain a $400,000 loan at an interest rate of 1.5% per month, secured by a second ranking hypothec for this sum on Defendant's property. The loan would support Defendant's operating requirements and assist with its immediate needs. [ 6 ] The second aspect was to obtain a factoring facility to help support the company's working capital.

This activity involves the purchase of accounts receivable at a discount. [ 7 ] The mandate stipulates that the scope of the project “covers two separate and mutually exclusive activities” . Plaintiff's commission amounts to 2% of the capital amount of the financing granted by the Lender, plus applicable taxes. [ 8 ] Plaintiff had suggested that Defendant to begin with the first activity, after which more traditional financing could be obtained for the factoring activity. [ 9 ] Plaintiff found a private lender, namely Liquid Capital WGP (“Liquid”) willing to offer Defendant financing. On February

17, 2010, Liquid advised Defendant it was prepared to offer a $400,000 loan, on Defendant's property, at 18% per year calculated and compounded monthly (effective annual rate of 19.56% per year). [ 10 ] Negotiations took place. Liquid revised its offer on February 22, 2010; it was prepared to offer the loan at 17% per year (an effective annual rate of 18.39%). [ 11 ] Defendant provided the requisite financial documents. It advised Plaintiff that the execution of the loan agreement was forthcoming. However, ultimately the offer was not accepted. [ 12 ] Plaintiff contends it respected the terms of its mandate.

It claims that although Defendant had accepted the terms of the Mandate, which foresaw that Plaintiff would obtain, for Defendant, a $400,000 loan at 1.5% per month, Defendant refused the offer of a loan, which contained the same terms. [ 13 ] Defendant found the offer unacceptable. It claimed the 36% per year interest rate, applicable in the event of default, was abusive. Defendant was not comfortable with Liquid, as the lender, alleging that Liquid had ties to Plaintiff.

Defendant also believed it could refuse the offer if it was unacceptable. [ 14 ] In addition, Defendant claimed the offer was not firm but only a term letter. It wanted to review more suitable offers from other finance companies and stated that Plaintiff was obligated to present other offers, if the terms presented by the initial lender were not acceptable. [ 15 ] Defendant testified that it asked Plaintiff to find other lenders. Plaintiff denies this fact, adding that it had no further discussions with Defendant after February 23, 2010. [ 16 ] Plaintiff invoiced Defendant. Defendant refused to pay.

It was dissatisfied with Plaintiff's services and considered Plaintiff had not fulfilled its mandate. Defendant later obtained financing elsewhere. ANALYSIS: [ 17 ] Plaintiff submits that the mandate was completed according to its terms, which are clear and easily understood, particularly by a client who had access to counsel and to an accountant and claims Defendant owes its commission. [ 18 ] The Mandate signed by Defendant names Plaintiff as Defendant's exclusive agent with the exclusive right to negotiate and obtain an offer to finance Defendant's project.

The pertinent clauses are as follows: “PROJECT DESCRIPTION: (the “Project” ) The scope of the project covered by this mandate covers two separate and mutually exclusive activities whereby the success of one activity is independent of the other. First Activity Obtain a demand loan to help support the company's operating requirements. The loan will be secured by a second ranking immoveable hypothec of $400,000 on the property located at…Hampstead. The loan will be for a 90 day term with the understanding that if activity 2 is not successful then the term will be extended so the total term is 1 year.

Second activity Obtain a factoring facility to help support the company's working capital. 1. TERMS AND CONDITIONS First Activity Second Activity A. Principal: $400,000 $500,000 B. Interest: 1.5% per month 2%-3% per month - TBD C. Term: as described above Demand OR Any other such terms and conditions as may be acceptable to the Borrower. 2. DURATION This mandate is exclusive and irrevocable for a term commencing as at the date of execution hereof until the termination of the Term. The term shall be for a period of 120 days (the “Term”).

Not withstanding the foregoing, the Term shall commence upon receipt by Belmonte of all requested documents which are required for this mandate. 3. BORROWER'S OBLIGATIONS

(…)

c) The Borrower further undertakes to pay to Belmonte and/or its nominee a commission equal to 2% of the capital amount of the financing granted by the Lender, plus applicable taxes (the “ Commission ”). (…)

f) The Borrower hereby agrees and undertakes to pay to Belmonte and/or its nominee the Consulting Fees upon completion of the Project.

g) In the event that Belmonte and/or its nominee executes its obligations hereunder, obtains the Offer and the Borrower declines same or neglects to accept the Offer for any reason whatsoever, then Belmonte shall be entitled to claim from the Borrower the Commission, the Consulting Fee as well as any additional fees, costs, expenses and/or damages whatsoever incurred by Belmonte as a result of the Borrower's failure to accept or sign the Offer.

h) In the event that during the Term, the Borrower directly or indirectly accepts financing from a third party (other than the Lender) for the purposes of financing the Project, then the Borrower shall pay the Commission and the Consulting Fee to Belmonte on demand.

i) The Borrower acknowledges and agrees that in the event that the Project is financed within a period of three hundred and sixty five (365) days following the expiry of this Mandate by any Lender initially approached by Belmonte in the execution of this Mandate, the Borrower shall pay the Commission and the Consulting Fee to Belmonte upon demand. (…)”. [ 19 ] Defendant denies the commission is payable. Defendant points to Plaintiff's lack of transparency and its failure to provide several offers. Defendant claims the project had not been completed, the terms of the loan offer were unacceptable and based on

article 1 of the Mandate, it had discretion to decline the terms and conditions offered. Defendant also maintains it did not receive a firm offer. [ 20 ] The majority of the arguments are not founded. For example, Defendant's contention as to a lack of transparency are answered by

article 7 of the Mandate, which states: “The Borrower acknowledges and accepts that Belmonte may have, directly or indirectly, an interest in the Lender.” [ 21 ] There is also no basis for Defendant's claim that Plaintiff was obliged to present several offers. The Mandate does not refer to such an obligation. [ 22 ] Defendant claims it had discretion to accept or refuse any offer, based on the wording of

article 1, which states that the principal of the first activity is $400,000 at a 1.5% per month interest rate, with a term described previously, adding: “ OR any other such terms and conditions as may be acceptable to the Borrower.” [ 23 ] The Court does not agree.

To give effect to Defendant's argument would mean that the condition concerning Plaintiff's requirement to obtain a loan for $400,000 at an interest rate of 1.5% per month would have no meaning whatsoever. [ 24 ] Clearly, Defendant had requested a loan of $400,000 and had agreed that if Plaintiff obtained such a loan at a 1.5% per month interest rate, a commission would be payable to Plaintiff. [ 25 ] The question remains as to whether the offer made to Defendant met the conditions of the Mandate. [ 26 ] Liquid, in its February 23, 2010 letter to Defendant, concludes as follows: “Approval: This is not an offer of credit and thus is not binding, and remains subject to satisfactory due diligence and final credit approval.

Expiry date: This term sheet is valid until March 1, 2010.” (the underlining is ours) [ 27 ] Liquid did not make a firm offer but presented a term sheet. It had full discretion, after its investigation, to refuse its approval of a loan on any grounds it chooses. [ 28 ] Furthermore, Liquid indicates that it is prepared to offer a $400,000 loan at an effective annual rate of 18.39% but if any payments are in arrears, “the interest rate will be 36% per year, calculated and compounded monthly.” [ 29 ] This term was not contained in the Mandate. Moreover, the rate of 36% per year is excessive.

Such a conclusion corresponds to several judgments in which the Courts have found very high interest rates to be abusive and have reduced the rate [1] . [ 30 ] For Plaintiff to obtain its commission, it must obtain a demand loan as set out in the Mandate and the loan must respect the terms and conditions contained in the Mandate. [ 31 ] The financing offered by Liquid contains an interest rate Defendant had not agreed to. More importantly, no firm offer was made.

The “offer”, which is in fact a term sheet, is merely a financing proposal by the lender, conditional upon due diligence and credit approval, subject to Liquid's discretion and is not a loan offer.

[ 32 ] The conditions foreseen in the Mandate signed by the parties have not been met; accordingly, the Court cannot grant Plaintiff's action. FOR THESE REASONS, THE COURT: DISMISSES Plaintiff's action, THE WHOLE , with costs. __________________________________ SUZANNE HANDMAN, J.C.Q. Me Vassilios Giannis BOUCHER HARPER S.E.N.C. Attorney for Plaintiff Me Charles Moryoussef Étude Charles Moryoussef Attorney for Defendant Date of hearing: October 29, 2010