CITATION: Michta v. Stewart, 2016 ONSC 5989
COURT FILE NO. 101/15
DATE: 20160922
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
Mark Gerry Michta
Plaintiff (Respondent)
– and –
John D. Stewart
Defendant (Appellant)
Meredith Bacal, for the appellant
Adam Nathanson, for the respondent
Heard: June 8, 2016
On appeal from the judgment of Deputy Judge Walters, of the Small Claims Court, dated September 15, 2015.
Bale J.:
Introduction
[1] The plaintiff and his wife advanced $35,000 to the defendant for investment in an internet start-up company. When his requests for information relating to the status of the investment, and of the company, were ignored by the defendant, the plaintiff requested that their money be returned. When his request for a return of the money was ignored, the plaintiff commenced this action, and obtained judgment for $25,000, being the maximum amount recoverable in Small Claims Court. The defendant now appeals from the trial judgment, and asks that the plaintiff’s claim be dismissed, or that a new trial be ordered.
[2] For the reasons that follow, the appeal will be dismissed.
Background
[3] Mark Michta is a contractor who specializes in the installation of tile and marble. He met the defendant during the course of his installation of tiles at the defendant’s home. During this time, Michta learned that the defendant had been successful with internet start-up companies.
[4] Sometime later, Mr. Michta and the defendant discussed the possibility of an investment by Michta in an internet start-up company by the name of “VouchFor! Inc.” In an e-mail to Michta, the defendant described the investment as having an upside potential of “a nice comfortable 8x times multiple of your early investment”, which potential was “real and attainable very quickly.”
[5] In December 2010, Mr. and Mrs. Michta advanced $25,000 to the defendant for investment in VouchFor! Inc. The parties then signed an agreement containing the following terms:
- that the written agreement was a “promissory note”;
- that the investment was part of an “invitation only for Family and Friends round of fundraising”;
- that the purchased shares would be held in trust by the defendant, until one of the following events occurred, at which time the proceeds of sale would be paid to the Michtas:
- the company was “sold, acquired or merged with another entity”;
- the company “is deemed trading on a public exchange; or
- the company is “turned over to another private or public entity either partially or entirely through a stock swap or acquisition”; and
- that the Michtas would “send John D. Stewart a written instruction on the date or event wherein Carol would like the shares to be sold.
[6] Subsequent advances of $5,000 each were made by the Michtas in May 2011, and February 2012. In each case, written agreements substantially the same as the December 2010 agreement were signed by the parties.
[7] In June 2014, Mr. Michta wrote to the defendant complaining that he had received no information with respect to the status of his investment, or of the company, and requested that his money be returned. Receiving no response, he attempted to reach the defendant by telephone, and wrote a series of e-mail messages asking when his money would be returned – all of which went unanswered.
[8] In February 2015, Mr. Michta commenced an action against the defendant in Small Claims Court. In his plaintiff’s claim, he pleaded:
- that at the time of the first investment, the defendant told his wife and him that they could get their money back at any time by providing him with written notice;
- that at the time of the second investment, the defendant told them that the promissory notes allowed them to make a demand for repayment at any time; and
- that he had made a written request for repayment, but the defendant failed to return their money.
[9] At trial, both Mr. and Mrs. Michta testified that they had been told by the defendant that they could get their money back at any time. The defendant did not deny the oral agreement in his examination-in-chief, but did so when, not wanting to leave well enough alone, the Michtas’ representative cross-examined him on the point.
[10] The trial judge accepted the evidence of Mr. and Mrs. Michta, and found that the defendant had told Mr. Michta “that if at any time he wanted to get his money out, then all he had to do was to ask.” He also found that Mr. and Mrs. Michta signed the promissory notes on that basis that “the worst case scenario would be that they could get their money back if they felt it necessary.” He commented that the defendant had “presented as a friend when he brought the proposal to them” and “told them of all of the money they could make, and assured them they could get their money back if they later wanted to by simply asking for it.”
Grounds of appeal
[11] The defendant argues the following grounds of appeal:
- that the shares were held in trust for Carol Michta, not Mark Michta, that Mark Michta was not a proper party plaintiff, and that the trial judge therefore erred in granting judgment to Mark Michta; and
- that in finding that Stewart told the Michtas that their money would be returned to them at any time upon request, the trial judge erred in relying upon parol evidence, in the face of the written agreements, which were clear and unambiguous.
Analysis
Whether Mark Michta was a proper party plaintiff
[12] For the following reasons, this ground of appeal fails.
[13] First, the written agreements were ambiguous as to the parties:
- all three of the agreements were expressed to be “Between:” John Stewart, of the one part, and Mark Michta and Carol Michta, of the other part;
- the agreements were in a modified letter format:
- the salutation contained in the first one was “Dear Carol and Mark”;
- the salutation contained in the second and third was “Dear Carol”;
- the first and third agreements were signed by all three parties, but the second by John Stewart and Mark Michta only; and
- under the first agreement, the proceeds of any sale of the shares were to be paid to Carol Michta and Mark Michta, but under the second and third agreements, the proceeds were to be paid to Carol Michta only.
[14] Second, the evidence was clear that the investment was a joint investment made by Mark Michta and Carol Michta. Even in the defendant’s own evidence, he refers to the shares as being held in trust for both Michtas, to having received $35,000 from Mark Michta, and to Mark Michta being entitled to payment, but only upon the occurrence of one of the events referred to in the written agreements.
[15] Third, this defence was not pleaded, nor was it argued at trial. Rather, in the defence it was pleaded that the proceeds of sale of the shares would be paid to the plaintiff (i.e. Mark Michta), but only upon the occurrence of one of the events referred to in the written agreements. In final argument, defendant’s counsel argued that Mr. Michta understood the investment that he was making, and that the written agreements constituted a promise to pay him on the occurrence of certain events. In addition, defendants’ counsel spoke of the entitlement of “the plaintiffs”, referring to both Mr. and Mrs. Michta.
[16] Had the defendant raised this defence before or at trial, the claim would no doubt have been amended to include Carol Michta. In the result, and in the absence of any prejudice to the defendant, the title of proceeding will be amended to include Carol Michta, an order to which her consent was filed on the hearing of this appeal.
Whether the trial judge erred in relying upon evidence of an oral agreement between the parties
[17] Counsel for the defendant acknowledges that in finding that there was an agreement that the Michtas’ money would be returned to them on request, the trial judge did not make a “palpable and overriding error” in his assessment of the evidence. However, she argues that it was an error for the judge to consider the evidence, in the face of an unambiguous written agreement between the parties. In doing so, she relies upon the parol evidence rule.
[18] The nature of the parol evidence rule, and of one of its exceptions, were described by the Court of Appeal in Guttierrez v. Tropic International Limited et al. (2002), 63 O.R. (3d) 63, at para. 19. In that case, the court held that under the parol evidence rule, when the language of a written contract is clear and unambiguous, extrinsic evidence is not admissible to vary, qualify, add to, or subtract from, the words of the written contract. However, the court went on to say that the rule is not absolute, and admits of numerous exceptions: one of those exceptions being cases where there is evidence of a distinct collateral agreement, which does not contradict, and is not inconsistent with, the written contract.
[19] In the present case, the cause of action pleaded in the plaintiff’s claim was not a breach of the written agreement, but rather a breach of an oral agreement to return the plaintiff’s money on demand. No exception was taken to the pleading, and no objection was made when Mr. and Mrs. Michta gave evidence of the oral agreement. The first objection to the evidence was made during final argument when counsel for the defendant argued that parol evidence is only admissible if the terms of the contract at issue are vague or ambiguous, and that the terms of the promissory notes were not.
[20] However, the trial judge found as facts that the parties were not equally knowledgable and that the defendant “held all the cards”, and held that evidence as to why the parties signed the written agreements was relevant and admissible. I agree.
[21] The parol evidence rule is not a rule of evidence. It is a rule of contractual interpretation. The purpose of contractual interpretation is to determine what the parties agreed to. The case pleaded by the Michtas was that they had entered into the written agreements on the strength of an oral undertaking to return their money on demand, and their evidence established to the satisfaction of the trial judge that such an undertaking had been given. To then say that the undertaking was unenforceable would be to effect an unjust result.
[22] The oral agreement between the parties did not contradict, and was not inconsistent with, the written agreements, and it will therefore be enforced, under the collateral contract exception to the parol evidence rule.
Disposition
[23] For the reasons given, the appeal is dismissed.
[24] Carol Michta will be added as a party plaintiff.
[25] The plaintiffs will have their costs of the appeal, fixed in the sum of $3,750.
“Bale J.”
Released: September 22, 2016
CITATION: Michta v. Stewart, 2016 ONSC 5989
COURT FILE NO. 101/15
DATE: 20160922
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Mark Gerry Michta
Plaintiff (Respondent)
– and –
John D. Stewart
Defendant (Appellant)
REASONS FOR JUDGMENT
Bale J.
Released: September 22, 2016