Ontario Court Of Appeal Summaries (November 6 – November 10, 2017)

Civil Decisions

116 Ontario Limited v. 833960 Ontario Limited (M-Plan Consulting), 2017 ONCA 854

[Laskin, Lauwers and Brown JJ.A.]

Counsel:

G. Slaght and P. Healy, for the appellant S. Zeitz, for the respondent

Keywords: Contracts, Debtor-Creditor, Corporations, Shareholder Loans, Guarantees, General Security Agreements, Ontario Business Corporations Act, R.S.O., 1990, c. B16, ss. 184(1)

Facts:

The appellant company ("M-Plan") wanted to acquire an ownership interest in the company Danbury Financial. One of the shareholders of Danbury Financial was Danbury Sales. In order to acquire an ownership interest in Danbury Financial, M-Plan loaned Danbury Sales $500,000, which Danbury Sales then used to make a shareholder's loan of $750,000 to Danbury Financial. The motion judge found that the $500,000 advanced by M-Plan would be a loan to Danbury Sales until shares in Danbury Financial were delivered to M-Plan and registered on the books of the company. M-Plan never received registered shares in Danbury Financial.

In June 2010, as Danbury Financial was in the midst of financial difficulties, Danbury Sales entered into a Trust Agreement with M-Plan which provided M-Plan with a beneficial interest in a portion of Danbury Sales' shares in Danbury Financial. After this agreement was signed and Danbury Financial had failed, M-Plan began to demand repayment of its loan. In 2013, in exchange for M-Plan's agreement to forbear from suing for recovery of its loan, the respondent (116) agreed to guarantee Danbury Sales' debt to M-Plan and to enter into a General Security Agreement with M-Plan. 116 did not honour its Guarantee. Instead it started an action against M-Plan and brought a motion for summary judgment for a declaration that the Guarantee and the General Security Agreement were unenforceable because the 2010 Trust Agreement had discharged Danbury Sales' debt to M-Plan. In turn, M-Plan started an action to enforce its Guarantee and brought a cross-motion for summary judgment.

The motion judge found that the 2010 Trust Agreement discharged the loan by providing M-Plan with a beneficial interest in shares of Danbury Financial.

Issues:

(1) Did the motion judge err in holding that the 2010 Trust Agreement discharged M-Plan's $500,000 loan to Danbury Sales?

(2) Did the motion judge err in determining, in the alternative, that the Guarantee and General Security Agreement of 116 were enforceable regardless of the respondent's argument that they are not enforceable because the shareholders of 116 did not consent to those agreements being made?

(3) Did the motion judge commit a palpable and overriding error in finding that Danbury Financial mistakenly paid M-Plan $130,000 to reduce Danbury Sales' indebtedness to M-Plan?

Holding:

Appeal allowed.

Reasoning:

(1) Yes. The motion judge's conclusion that the 2010 Trust Agreement discharged M-Plan's loan was unreasonable.

It was unreasonable for three main reasons. First, the motion judge's conclusion contradicted his finding of fact. The motion judge found that M-Plan's $500,000 loan to Danbury Sales could only be discharged by issuing to M-Plan registered shares in Danbury Financial. Contrary to this, the motion judge concluded that M-Plan's beneficial interest in 22 shares of Danbury Financial, which was acknowledged in the 2010 Trust Agreement, discharged M-Plans' loan. The motion judge's finding of fact on the consideration for the loan and his conclusion on the effect of the 2010 Trust Agreement cannot stand together. M-Plan did not get what it paid for when it received a beneficial interest in the shares of Danbury Financial. It was entitled to a legal interest – registered shares, without which it was denied the most fundamental right of share ownership – the right to vote the shares.

Second, in concluding that the 2010 Trust Agreement had the effect of discharging M-Plan's loan to Danbury Sales, the motion judge did not take account of the agreement as a whole or the context in which it was made. In concluding that the agreement was a "genuine conveyance of an ownership interest" in the shares, the motion judge only focussed on two terms of the agreement: the term providing that Danbury Sales held 22 of its shares in Danbury Financial as a bare trustee for M-Plan; and the term providing that on a direction from M-Plan, Danbury Sales would be required to transfer the shares. However, it is evident from the 2010 Trust Agreement and the context that the agreement did not convey ownership of the shares to M-Plan. Its purpose, at most, was to give M-Plan some security for its loan.

Finally, the motion judge's conclusion disregards the conduct and understanding of the parties themselves after they signed the 2010 Trust Agreement. The principal of M-Plan and the principal of Danbury Sales both conducted themselves on the basis that M-Plan's loan was still outstanding. After Danbury Financial had failed, the principal of M-Plan began pressing the principal of Danbury Sales for repayment of the loan, and the principal of Danbury Sales tried to find a way to forestall a lawsuit. This is why he offered a guarantee and other security for the loan in the respondent company. In June 2012, the parties began negotiating a series of agreements, and eventually signed three security documents and a promissory note the following year. All four documents recited that M-Plan's $500,000 loan was still outstanding.

(2) No. Subsection 184(1) of the Ontario Business Corporations Act stipulates that a director of a corporation can give a Guarantee and a General Security Agreement on behalf of a corporation without shareholder authorization unless the articles, bylaws, or a unanimous shareholder agreement of the corporation provide otherwise. 116 did not have a shareholder agreement, and nothing in its articles or by-laws prevented a director from giving security without shareholder approval. To the contrary, the corporation's general By-Law No. 2 allowed the directors to commit the corporation to guaranteeing the repayment of debts.

Section 19 of the Business Corporations Act entitled M-Plan to assume that the principal of 116, who was also the principal of Danbury Sales, was authorized to give the Guarantee and General Security Agreement on behalf of 116 unless M-Plan or its principal knew otherwise. The motion judge found that he did not. This finding was reasonably available to the motion judge and it is not tainted by any palpable or overriding error.

(3) Yes. The timing and the size of the payments correspond to payments that a related company, Danbury Industrial, made to reduce its debt to M-Plan on a different transaction. Also, the three payments were made well before the Guarantee and General Security Agreement were given. If the parties intended that the payments were made to reduce Danbury Sales' debt to M-Plan, then these documents would have stated that only $370,000 was owing on M-Plan's loan to Danbury Sales.

Bois v. MD Physician Services Inc., 2017 ONCA 857

[Simmons, Rouleau and Brown JJ.A.]

Counsel:

M Rowe, for the appellant

A L Barber, for the respondents

Keywords: Employment Law, Contracts, Bonuses, Employment Standards Act, 2000, S.O. 2000, c. 41, ss 11(5) and 13(1), Kielb v. National Money Mart Company, 2017 ONCA 356

Facts:

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