2014 NBCA 2, 2014 NBCA 2

COURT OF APPEAL OF COUR D'APPEL DU NEW BRUNSWICK NOUVEAU-BRUNSWICK 153-12-CA YVON LEBLANC, as represented by his Litigation Guardian, DONALD WEST APPELLANT YVON LEBLANC, représenté par son tuteur d’instance, DONALD WEST APPELANT - and - - et - FUNDY DRYWALL LTD. a corporate entity RESPONDENT FUNDY DR YWALL LTD., une entité personnalisée INTIMÉE - and - MARIO ALLAIN RESPONDENT LeBlanc v. Fundy Drywall Ltd. and Allain, 2014 NBCA 2 CORAM: The Honourable Justice Robertson The Honourable Justice Quigg The Honourable Justice Green - et - MARIO ALLAIN INTIMÉ LeBlanc c.

Fundy Drywall Ltd. et Allain, 2014 NBCA 2 CORAM : l’honorable juge Robertson l’honorable juge Quigg l’honorable juge Green Appeal from a decision of the Court of Queen’s Bench: October 25, 2012 Appel d’une décision de la Cour du Banc de la Reine: le 25 octobre 2012 History of Case: Historique de la cause : Decision under appeal: Unreported Décision frappée d’appel : inédite Preliminary or incidental proceedings: N/A Procédures préliminaires ou accessoires : s.o.

Appeal heard: October 15, 2013 Appel entendu : le 15 octobre 2013 Judgment rendered: January 9, 2014 Jugement rendu : le 9 janvier 2014 Reasons for judgment: The Honourable Justice Quigg Concurred in by: The Honourable Justice Robertson The Honourable Justice Green Counsel at hearing: For the appellant: Lee McKeigan-Dempsey For the respondents: Monica L. Barley Motifs de jugement : l’honorable juge Quigg Souscrivent aux motifs : l’honorable juge Robertson l’honorable juge Green Avocats à l'audience : Pour l’appelant : Lee McKeigan-Dempsey Pour les intimés : Monica L.

Barley THE COURT Appeal dismissed with costs in the amount of $3000. LA COUR L’appel est rejeté avec dépens de 3 000 $. The judgment of the Court was delivered by QUIGG, J.A. I. Introduction [ 1 ] The trial judge approached the primary issue in terms of whether the “document” in question qualified as a “promissory note” within the meaning of the Bills of Exchange Act , R.S.C. 1985, c. B-4. He concluded it did and, therefore, the appellant was indebted to the respondent on the basis of that document.

In the reasons that follow, I conclude it was unnecessary, in the circumstances of this case, to decide whether the document so qualified. I also conclude the trial judge’s finding of liability should not be disturbed. There was a valid and enforceable contract in writing as evidenced by that document. II. Background

[ 2 ] In order to set out the background against which this appeal must be decided, I will borrow liberally from the written submissions of the parties, indicating any factual discrepancies where appropriate. It should also be noted that the parties are in substantial agreement with respect to the facts. In 2001 and into 2002, the appellant, Yvon LeBlanc, acted as the principal and agent of 514466 N.B. Ltd., 509841 N.B. Ltd., and Leby Properties Ltd. (collectively the “Leby Companies”). The Leby Companies were developing a parcel of land in Shediac for the construction of a Town Hall. 514466 N.B.

Ltd. (the Debtor) was the owner of the land upon which the Town Hall was being built. [ 3 ] The respondent, Fundy Drywall Ltd. (Fundy) was one of numerous suppliers of labour and materials for the Town Hall project. The project encountered financing issues, construction ceased, and mechanics liens were filed against the property. The potential insolvency of the Debtor threatened to jeopardize the ability of all suppliers to collect payment for work they had performed and invoiced. [ 4 ] With the assistance of an independent accountant, David W.

Stevenson, the Debtor made a proposal to the suppliers which provided that suppliers with nominal claims would be paid in full, while the remaining 22 creditors would postpone and convert payment of a portion of their accounts. In total, the claims of these 22 creditors exceeded the amount of one million dollars. The agreement, to be signed by each of the creditors, is referred to as the “compromise agreement”. In his submission, the appellant sets out the terms of the compromise agreement as follows: The Creditors’ Compromise Agreement, which was presented to Creditors on June 9, 2002, provided as follows: (

a) all of the Creditors would be treated equally; (

b) the agreement was conditional upon the unanimous acceptance of the Creditors and had to be accepted within five working days after presentation; (

c) each of the Creditors would receive forty-five percent (45%) of the amount then due to them in cash, and the remaining fifty-five percent (55%) would be satisfied by the issuance of redeemable and convertible preferred shares in the capital stock of the Debtor; (

d) the preferred shares were redeemable by the Debtor at their issuance price for a period of two years (the “Redemption Period”), after which time they could be converted by the holder to common shares in extinction of the redemption price; (

e) once executed, the Creditors’ Compromise Agreements were to be deposited and held in trust by the Escrow Agent until all were received, at which time the Escrow Agent would disburse cash and issue share certificates for the preferred shares in accordance with the terms of agreement. [Appellant’s Submission, para. 6] [ 5 ] The respondent takes issue with paragraph 6(

a) and states the compromise agreement did not provide specifically that all creditors would be treated equally. [ 6 ] By June 14, 2002, all of the creditors, except Fundy, had agreed to the terms of the agreement. On June 14, 2002, Mario Allain, the president of Fundy, informed Yvon LeBlanc that it would not execute the agreement unless Yvon LeBlanc signed another document. In order to salvage the project and avoid substantial losses, Yvon LeBlanc signed a document entitled “Promissory Note” (the “document”). In turn, Mr. Allain executed the compromise agreement on behalf of Fundy.

As a result of all of the compromise agreements having been executed, Mr. Stevenson, as Escrow Agent, disbursed the funds and issued the preferred shares to the Creditors. In the end, Fundy received $144,011.00 in cash and was issued 1774 redeemable and convertible shares of a par value of $100.00 each, having a redemption price of $177,400.00. This reflected the balance of its outstanding account of $175,900.00 plus $1,500.00 in costs. The respondent does not agree that the amount paid to Fundy and the shares issued to Fundy can be described as “full payment of its claim against the Debtor”.

The preferred shares were issued but never redeemed nor converted to common shares. III. The Trial

[ 7 ] Fundy pleads that, in consideration of its having executed the agreement, Yvon LeBlanc had, in his personal capacity, guaranteed repayment of the amount owed by the Debtor to Fundy and that this guarantee was pursuant to a promissory note. According to the respondent, Mr. Allain was always clear that his intention in having the document created (which he refers to as the promissory note) was that Fundy would be paid the outstanding amount of $175,900.00. Mr. LeBlanc denies all liability pursuant to the document and sought an order for rescission or a declaration of its invalidity. Mr.

LeBlanc denied he had guaranteed payment of the Debtor’s indebtedness to Fundy or any of the creditors. Mario Allain admitted he was uncertain whether the document was a promissory note, a personal guarantee or another type of document, but the intention of the parties in executing the document was clear and was understood by both himself and Mr. LeBlanc. [ 8 ] Unfortunately, Mr. LeBlanc suffered a debilitating stroke approximately five years ago. As such, in October 2010, Mr. Donald West was appointed as Mr. LeBlanc’s Litigation Guardian. Although Mr.

LeBlanc was unable to testify at the trial, his evidence from the Examination for Discovery was admitted as evidence in the trial. IV. Trial Decision [ 9 ] After a five day trial, the judge determined the document was a promissory note, in full compliance with the Bills of Exchange Act , and pursuant to which Mr. LeBlanc was personally liable to Fundy in the amount of $175,900.00 V. Issues on Appeal [ 10 ] Mr. LeBlanc submits the trial judge erred in law:

a) In his

interpretation of the Bills of Exchange Act and, in particular, in concluding that the document was a valid promissory note in compliance with the Act;

b) In his analysis and application of the law of contract, particularly in failing to recognize the document was not an enforceable contract due to the lack of consensus ad idem and valuable consideration. [ 11 ] Mr. LeBlanc says the trial judge erred in fact and law:

a) In assessing the credibility of the witnesses and the evidence admitted at trial, misapprehending or ignoring significant parts of evidence, and failing to seize the substance of the issues. VI. Standard of Review [ 12 ] In Housen v. Nikolaisen , 2002 SCC 33 , [2002] 2 S.C.R. 235 , the Supreme Court delineated the applicable standard of review at the appellate level and reaffirmed that courts of appeal are not to retry cases. The standard of review on questions of law is correctness.

The standard of review for findings of fact is that they are not to be overturned unless the trial judge has made a palpable and overriding error. Questions of mixed fact and law involve the application of the same standard. ( See also Baniuk v. Filliter, 2011 NBCA 110 , 381 N.B.R. (2d) 352 ; D.L.M. v. J.A.M. , 2008 NBCA 2 , 326 N.B.R. (2d) 111 .) VII. Analysis

A. Promissory Notes [ 13 ] Mr. LeBlanc submits the judge erred in concluding the document at issue was a valid promissory note in compliance with the Bills of Exchange Act . In particular, the judge determined the document was a note for a sum certain and it was unconditional. Mr. LeBlanc submits that the document in question was conditional. The definition of Promissory Notes is found at s. 176.(1) of the Act : 176.

(1) A promissory note is an unconditional promise in writing made by one person to another person, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person or to bearer. 176.

(1) Le billet est une promesse écrite signée par laquelle le souscripteur s’engage sans condition à payer, sur demande ou à une échéance déterminée ou susceptible de l’être, une somme d’argent précise à une personne désignée ou à son ordre, ou encore au porteur. [ 14 ] The document provided: Promissory Note $175,900.00 For value received, I, Yvon LeBlanc, the undersigned (Promissor) and registered owner of Leby Properties Ltd., 514466 NB Ltd. and 509841 NB Ltd. promises [sic] to pay Fundy Drywall Ltd. (Payee) on demand after August 2, 2004, the sum of one hundred and seventy- five thousand and nine hundred dollars , until paid in full and per the condition stated below.

Condition: It is agreed that the redemption of any or all of the preferred shares issued to Fundy Drywall Ltd. by 514466 NB Ltd. will in turn reduce the amount of this Promissory Note by an equivalent amount. At the time of any redemption the Promissor agrees to issue a new Promissory Note equal to the new outstanding amount. [Appellant’s Submission, para. 28] [ 15 ] Fundy asserts the document is indeed a promissory note, as it is an unconditional promise in writing made by one party to another, signed by Mr. LeBlanc, promising to pay a sum certain of $175,900.00 on demand. What Mr.

LeBlanc describes as the “condition” was included to ensure there would be no duplication in repayment to Fundy. The “condition” specifies the sum payable would be reduced should there be partial repayment. Fundy asserts this is not a true condition but, rather, an implied term in all promissory notes. If there is a partial repayment by the promisor or a third party of the total amount owed, the amount payable under the note will be reduced by an equivalent amount. In the decision, the judge states: Mr.

LeBlanc submitted at the conclusion of the plaintiff’s evidence at trial an amendment to its pleadings that the promissory note was not signed and delivered by Mr. LeBlanc as a bill of exchange, nor was it an unconditional promise for payment of a sum certain. In support, he submitted

Part IV of the Bill of Exchange Act . This Court disagrees. […] Mr. LeBlanc emphasized on the note not being unconditional and not of a sum certain in money. For the sum, it is clearly stated one hundred and seventy-five thousand and nine hundred dollars until paid in full is the due amount. To this day, no sum has been received by Fundy. The sum payable at bar can only be acknowledged as certain from the face of the promissory note. It can be said that the word “condition” is stated twice on the document.

The use of the word “condition” in the document cannot be interpreted to mean “subject to some other event or happening”, “a prerequisite”, “a stipulation” that would modify, revoke or suspend the promissory note. The sole purpose of the use of the word “condition” was to sit (sic) the agreed term that if there was redemption of the preferred share to Fundy Drywall by 514466 NB Ltd. it would, in turn, be to the benefit of the promissor, Mr. LeBlanc and reduce the amount of this promissory note by an equivalent amount.

The promissory note executed on June 14 th , 2002, by Mr. LeBlanc is an unconditional promise in writing made by Mr. LeBlanc to Fundy executed for him to pay on demand after August 2 nd , 2004, the sum of $175,900.00 in full compliance with the Bill of Exchange Act . [paras. 65 and 67-69] [ 16 ] In my view, it makes no difference whether the document in question is a promissory note within the meaning of the Bills of Exchange Act . Specifically, it makes no difference to the outcome of this case whether the note is conditional for two reasons: (1) the note was not negotiated to a third party; and

(2) Fundy has sued on the basis of a contract that involves a guarantee of payment should a third party default. The commercial value of a promissory note that falls within the meaning of the Bills of Exchange Act lies in the fact that the note can be negotiated or sold to a third party who may become a “holder in due course”. As such, the holder takes free of any defences that the maker of the note may have against the other party to the note, the payee.

However, if the note, for example, is found to be “conditional”, such that it does not qualify as a promissory note pursuant to the Act , the subsequent holder will take subject to any defences that the maker of the note may have on the underlying contract.

This understanding of the law is stated in Crawford and Falconbridge Banking and Bills of Exchange , vol. 2, 8 th ed. (Toronto: Canada Law Book, 1986), at p. 1237: […] But where the action is between the immediate parties [to the promissory note], the qualification of the instrument as negotiable is usually immaterial, and a note given, for example, for the purchase of business assets, is enforceable for what is properly due in accordance with the whole agreement of the parties, even though the sum may not be readily ascertainable. [ 17 ] For greater certainty, it is worth repeating the comments of Dean Falconbridge in The Law of Negotiable Instruments in Canada (Toronto: Ryerson Press, 1955) at pages 115-116,

section 123: The general rule is that as between immediate parties, (as for example, if an action is brought by the original payee against the maker of a note), the defendant may set up any defence which he might have set up if the action had been brought on an ordinary contract, (as, for example, an action by a seller of goods for breach of the buyer’s promise to accept and pay for the goods). The defendant may, as against an immediate party, set up, (

a) That the defendant has a right of set-off against the plaintiff; (

b) That the plaintiff has been guilty of fraud, misrepresentation, undue influence, duress or illegality; (

c) That there was no valuable consideration for the note, or that the consideration has failed; (

d) That the defendant did not have legal capacity to make the note; (

e) That the defendant’s signature was forged or written without the defendant’s authority; (

f) That the note was never delivered by the defendant, or was delivered upon a condition which has not been performed. Although any of these defences may be good as against an immediate party, it does not follow that it is good as against a remote party who is also a holder in due course.

To what extent these defences may be good against remote parties and holders in due course is a question which will require to be discussed in detail. [ 18 ] In the present case, the underlying action is between the original parties to the note and, therefore, the question of whether the note falls within the meaning of the legislation is irrelevant. Fundy is suing the maker of the note, Mr. LeBlanc, on the basis of their contractual arrangement. [ 19 ] Certainly one point is clear: the development project was in jeopardy and Fundy was not going to execute the compromise agreement without Mr.

LeBlanc’s personal guarantee that Fundy would be paid the $175,900.00. Therefore, the term used to describe the document is of no moment. In my view, all parties understood what the desired effect of the document was and what was at stake if the document had not been executed.

B. Consensus ad Idem [ 20 ] Mr. LeBlanc submits there was no consensus ad idem . He claims: (1) there was never an intention by the parties to create a promissory note; (2) there was no mutuality; or (3) there was a mistake. He says a reasonable person, cognizant of all the material facts, would not interpret the document to mean what Mr. Allain, on behalf of Fundy, understood it to be. That is, a personal guarantee. Mr. LeBlanc purports, absent a meeting of the minds, the document is not a legally enforceable contract.

Fundy suggests it would be improper to permit business people to withdraw from contracts lightly. The onus is on Mr. LeBlanc to prove there was no agreement, that he made a mistake or he did not understand what he was signing. Unfortunately for Mr. LeBlanc, the facts of this case do not reflect any of these propositions. The judge determined: Mr. LeBlanc executed this promissory note knowing perfectly well what he was getting into. The promissory note reflects the true intent of the parties at the time it was executed. Its wording cannot lead to any other conclusion but to represent the true intention of Mr.

LeBlanc and Mr. Allain, who represented Fundy. The context plays an influential role in shaping that meaning and the Court considered and took into account all relevant and admissible indicators in arriving at this conclusion, including Mr. LeBlanc’s evidence transcribed from the discovery. In any instance where Mr. Allain’s evidence diverges from Mr. LeBlanc or Mr. Donaldson’s, I prefer Mr. Allain’s evidence. [paras. 61-62] [ 21 ] In my view, the onus was upon Mr. LeBlanc to prove there was no agreement, he made a mistake or he did not understand what he was executing. The facts point to another explanation.

Without Fundy’s participation in the compromise agreement, the project would fail, as does this ground of appeal. C. Consideration [ 22 ] Mr. LeBlanc asserts that he received no consideration in exchange for executing the document. Fundy asserts the consideration received by Mr. LeBlanc was the execution of the compromise agreement and thus the opportunity for the project to continue. The judge was clear in his determination that “the context plays an influential role”. I agree. The evidence before the judge could lead to no conclusion other than Mr.

LeBlanc knew what he was executing and the consideration he received for so doing was the continuation of the project at that juncture. This ground is also without merit. D. Credibility of the Witnesses/Misapprehended or Ignored Evidence [ 23 ] Mr. LeBlanc submits the judge’s assessment of the evidence given by the various witnesses was guided by an early conclusion that the document was a promissory note. Mr. LeBlanc says the judge “appears to have filtered all that came in after the trial on his early determination that the document was a promissory note”.

Fundy asserts, although the judge did determine that the document was a promissory note, the determination was made in careful consideration of the fact that lay-people, not lawyers, came up with the agreed-upon plan and, although they may not have utilized an accurate term, their intentions were clear. In the decision, the judge states: While it is accepted that Mr. Allain, on behalf of Fundy, wanted some sort of guarantee or assurance of payment, it wanted Mr. LeBlanc’s engagement in whatever form or manner that would have Fundy execute the agreement. Mr.

Allain is not a sophisticated person and everyone at that meeting understood what he wanted. Mr. Allain graduated in 1985 from high school at Clément-Cormier in Dieppe [ sic ] , New Brunswick, and followed his girlfriend in the States where he learned his trade and became a journeyman drywaller in 1991. It was in 1993 that he started his own business incorporating Allain Drywall Ltd., a dormant company since 2000-2001. He partnered with Gregory Rossiter and incorporated Fundy Drywall Ltd., as earlier mentioned, and now operates this company as the sole shareholder. Mr.

Allain had no confidence whatsoever in the agreement, and as time proved him right, Fundy would not get paid. If Mr. LeBlanc, whom he had known for some years to be a good businessman, did not come good to be personally liable to what Fundy was owed, he would not execute the agreement. All those present at that June 14 th , 2002, meeting agreed on this point. [paras. 43-45]

[ 24 ] The Supreme Court has given courts of appeal clear direction with respect to their ability to interfere with credibility findings made by trial judges. In H.L. v. Canada (Attorney General), 2005 SCC 25 , [2005] 1 S.C.R. 401 , the Court addresses the issue of appellate court deference to trial judges in assessing credibility: I find it helpful, in concluding on this point, to reproduce Professor Zuckerman's

summary of the governing principles in England: As a general principle, an appeal court must not interfere with findings of fact made by the lower court for the simple reason that the judge who saw and heard the witnesses is better placed to assess their reliability and draw inferences from their testimony.

An appeal court will interfere only if it concludes that no reasonable court could have reached such conclusions, or if the lower court failed to take crucial factors into consideration. … It follows that, if the appeal court cannot conclude that the lower court's inference from the primary facts was wrong, in the sense that it fell outside the range of inferences that a reasonable court could make, the appeal court should allow the lower court's decision to stand.

The nature of the appellate evaluation of the lower court's decision will vary in accordance with the type of judgment that the lower court was called upon to make. But whatever the nature of the issues and however wide or narrow is the room for disagreement, the test remains the same: was the lower court's decision wrong. … A decision will be wrong if it was founded on an incorrect

interpretation of statute, or if it wrongly applied [page 423] a legal principle, or if it was based on a plainly erroneous factual conclusion. … Put another way, as long as the lower court's conclusions represent a reasonable inference from the facts, the appeal court must not interfere with its decision. (A. A. S. Zuckerman, Civil Procedure (2003), at pp. 765-68) [para. 57] ( See also Baniuk v. Filliter ; R. v. Weldon, 2011 NBCA 54 , [2011] N.B.J. No. 199 (QL) ; Mills v.

Mills, 2010 NBCA 20 , 356 N.B.R. (2d) 351 ). [ 25 ] In this case, the trial judge had the benefit of hearing the evidence and observing the witnesses. He made findings of credibility after weighing and analyzing the available evidence. In my view, the trial judge did not make any palpable and overriding errors in his assessment of witnesses’ credibility which would allow appellate intervention. VIII. Conclusion [ 26 ] For the above reasons, I would dismiss the appeal with costs in the amount of $3000. _________________________________ KATHLEEN A. QUIGG, J.A. WE CONCUR:

_______________________________ J.T. ROBERTSON, J.A. _______________________________ BRADLEY V. GREEN, J.A.