Court Of Appeal Summaries (August 24 – 28, 2015)

There was only one civil law decision released this week by the Ontario Court of Appeal. It involved privity of contract, agency and joint liability under a settlement agreement.

CIVIL CASE DECISIONS

1196303 Inc. v Glen Grove Suites Inc., 2015 ONCA 580

[Weiler, Laskin and Epstein JJ.A.]

Counsel:

M. Simaan, for the appellants

F. Tayar, for the respondent

Keywords: Contracts, Privity of Contract, Not Absolute, Agency, Courts of Justice Act, ss. 139(1), Joint Liability, Election, Judgment Against One Defendant Not Precluding Liability of Other Jointly Liable Defendant

Facts:

This appeal concerned whether the respondent, 1196303 Ontario Ltd. ("119"), was entitled to money from the sale of real property, which has been paid into court. The basis put forward for the entitlement was a settlement agreement (the "Settlement"), entered into by 119 and 1297475 Ontario Inc. ("129"), which purported to place guarantee and security obligations on the owner of 2387 Yonge Street in Toronto, the appellant Glen Grove Suites Inc. ("Glen Grove").

Edwin Hyde was a lawyer and real estate developer. Glen Grove and Spendthrift owned leases on the Yonge Street Property (the "Property"). In 1993 and 1994, Edwin transferred his beneficial interest in the Property and 100% of the Glen Grove shares to his wife, Sylvia Hyde.

In 1997, Edwin was petitioned into bankruptcy by 119 (the "Receiver") by investors who had loaned his companies several million dollars, secured by mortgages over various properties. In 2002, 129 made an offer to purchase the Receiver's proof of claim against Edwin, as well as related debts. This formed the basis of the Settlement on which Edwin negotiated the terms. Edwin died an undischarged bankrupt before the Settlement was approved in 2004.

At the time the Settlement was negotiated, Sylvia owned 100% of the shares in both Glen Grove and Spendthrift. She was the sole director and officer of these companies. She also owned 100% of the shares of 129, a shell corporation, and was a director and officer of this company, along with Edwin as officer. Notwithstanding her roles as sole shareholder and director, Sylvia had limited involvement in the affairs of her companies prior to Edwin's death.

Post-approval, 129 took no steps to fulfil its obligations under the Settlement. Consequently, in 2005, the Receiver commenced an action seeking judgment in accordance with the Settlement, and default judgment was granted against 129. In 2008, without obtaining prior court approval and without notice to the Receiver, Glen Grove registered a new mortgage against the Property, guaranteed by Sylvia and Spendthrift. In 2010, a certificate of pending litigation was granted against the Property. Sylvia died in 2011.

At a summary judgment motion in 2012, the Receiver discovered that Glen Grove had sold its interest in the Property. Some of the proceeds were paid into court to the credit of the action. After payment of the mortgage and the money paid into court, Sylvia's estate received net proceeds that it might not have received had the Receiver not given up its ability to attack the transfer to Sylvia of the Glen Grove shares and the interest in the Property.

The trial judge found that Glen Grove and Spendthrift were bound by the Settlement, and that the Receiver was...