Gutierrez v. Tropic International Limited et al. [Indexed as: Gutierrez v. Tropic International Ltd.]
63 O.R. (3d) 63
[2002] O.J. No. 3079
Docket No. C37063
Court of Appeal for Ontario,
Carthy, Cronk and Gillese JJ.A.
August 13, 2002*
- Note: This judgment was recently brought to the attention of the editors.
Civil Procedure -- Summary Judgment -- Genuine Issue for Trial -- Parol evidence rule - Action to enforce contract for payment on redemption of shares and to enforce guarantee -- Defendants alleging collateral agreement -- Collateral agreement precluded by terms of redemption agreement and guarantee -- No genuine issue for trial -- Motions judge not exceeding jurisdiction in granting summary judgment.
Contract -- Parol evidence rule -- Entire agreement clause - Action to enforce contract for payment on redemption of shares and to enforce guarantee -- Defendants alleging collateral agreement -- Collateral agreement precluded by terms of redemption agreement and guarantee -- No genuine issue for trial -- Motions judge not exceeding jurisdiction in granting summary judgment.
The plaintiff, Luis Arturo Gutierrez ("Luis"), owned 700 preference shares in the defendant Tropic International Limited ("Tropic"). Under Tropic's articles of amendment, the shares were redeemable at Luis' election for a "Redemption Price" of $7 million. In 1998, Luis exercised his election, and Tropic and the defendant Xela Enterprises Ltd. ("Xela") paid part of the Redemption Price. Then, the parties signed a written agreement for payment of the remainder, the "Redemption Agreement". This agreement provided a schedule for repayment and an acceleration of payment clause. It contained an "Entire Agreement" clause and a "Time of the Essence" clause. By a written Guarantee dated December 1, 1998, Xela guaranteed Tropic's liability to pay under the Redemption Agreement. Section 1.2 of the Guarantee stated that Xela's liability was absolute and unconditional regardless of, amongst other things, any contest by Tropic or any other Person as to the amount of the guaranteed obligations under the Redemption Agreement or any other circumstances which might otherwise constitute a defence in respect of the Redemption agreement or the Guarantee. Tropic and Xela did not honour the payment schedule, and Luis sued them for payment. [page64]
In defence of Luis' claim, Tropic and Xela submitted that at the time of the signing of the Redemption Agreement and Guarantee, in an oral Collateral Agreement, Luis agreed that the Redemption Price would only be fully paid from the proceeds of a completed sale of Xela's shares in a corporation known as Avicola Villalobos S.A. ("Avicola") and before the completion of the sale, Luis would only seek to rely on the Redemption Agreement and the Guarantee if Juan Arturo Gutierrez ("Arturo") was dead or disabled. Since the Avicola share sale had not been completed and since Arturo was in good health, they alleged that Luis was not entitled to receive payment of the Redemption Price. They further alleged that Luis had improperly interfered with the Avicola share sale.
Luis moved for summary judgment. Justice E. Macdonald granted judgment and ordered Tropic and Xela to pay the sums of $3,489,020 and US $1,061,774.36 inclusive of pre-judgment interest. Tropic and Xela appealed.
Held, the appeal should be dismissed.
The alleged Collateral Agreement contradicted the payment schedule, the acceleration clause, the entire agreement, and the time of the essence provision contained in the Redemption Agreement. It was also inconsistent with section 1.2 of the Guarantee. Under the parol evidence rule, when the language of a written agreement is clear and unambiguous, extrinsic evidence is not admissible to vary, qualify, add to, or subtract from the words of the general contract. However, the rule admits numerous exceptions and some recent authorities suggest a more relaxed approach to the admission of parol evidence.
In the immediate case, Macdonald J. adopted an expansive approach to the parol evidence rule and this approach clearly favoured Tropic and Xela. Based on the evidence, there was no genuine issue for trial, and Macdonald J. was correct in granting a summary judgment. In this regard, first, there was no pleaded claim for misrepresentation. Second, on the facts of this case, the alleged Collateral Agreement could not survive the entire agreement clause, which specifically provided that the Redemption Agreement and the Guarantee superseded any and all prior negotiations, understandings and agreements, both written and oral. The evidence of Tropic and Xela was that the Collateral Agreement came prior to the signing of the Redemption Agreement, and it was not alleged that a fresh bargain was made after the date of the Redemption Agreement. Similarly, given the unchallenged validity of the entire agreement clause, the Collateral Agreement could not operate to postpone or suspend the clear terms of the Guarantee under which Xela agreed that any defence available to it or Tropic would not displace Xela's absolute and unconditional liability. The terms of the Guarantee supported the conclusion that the Collateral Agreement did not give rise to a genuine issue for trial. Third, the argument that the Collateral Agreement formed part of the entire agreement between the parties could not be reconciled with the payment schedule set out in the Redemption Agreement. Finally, the essential term of the Collateral Agreement about the sale of the Avicola shares would make the acceleration provision in the Redemption Agreement nonsensical. Therefore, even if the appellants' evidence concerning the Collateral Agreement were admissible and accepted at trial, that evidence would not support a defence to the unambiguous terms of the subsequently executed Redemption Agreement and Guarantee.
The appellants' argument that there was a triable issue because Luis' conduct in interfering with the sale of the Avicola shares was a breach of a contractual duty of good faith and that it supported the defence of set-off, failed. This argument depended on the terms of the Collateral Agreement and, for the [page65] reasons already expressed the Collateral Agreement, if proven, could not survive the Redemption Agreement and the unconditional language of the Guarantee. Further, the argument concerning equitable set-off was flawed in two respects. First, equitable set-off was precluded by the express provisions of the Guarantee. Second, the appellants did not satisfy the requirements for equitable set-off. There was no clear connection between the appellant's assertion of a claim for damages consequent upon Luis' alleged conduct concerning the Avicola share sale and the appellants' breach of the Redemption Agreement and Guarantee.
Finally, the motions judge did not exceed her role on the summary judgment motion. Her reasons clearly reveal that she understood that she was precluded from assessing credibility, weighing conflicting evidence or making findings on controverted facts. She did not transgress the proper boundaries of that role.
APPEAL from a summary judgment of E. Macdonald J., [2001] O.J. No. 3506 (S.C.J.) in favour of the plaintiff in an action to enforce a contract and a guarantee.
Cases referred to Aguonie v. Galion Solid Waste Material Inc. (1998), 1998 954 (ON CA), 38 O.R. (3d) 161, 156 D.L.R. (4th) 222, 17 C.P.C. (4th) 219 (C.A.), revg (1997) 1997 12145 (ON SC), 33 O.R. (3d) 615 (Gen. Div.); Bank of Montreal v. Bauer, 1980 12 (SCC), [1980] 2 S.C.R. 102, 110 D.L.R. (3d) 424, 32 N.R. 191, 10 B.L.R. 209, 33 C.B.R. (N.S.) 291, affg (1978), 1978 48 (ON CA), 19 O.R. (2d) 425, 85 D.L.R. (3d) 752, 3 B.L.R. 324, 28 C.B.R. (N.S.) 207 (C.A.), revg (1977), 1977 1373 (ON SC), 15 O.R. (2d) 746, 76 D.L.R. (3d) 636, 1 B.L.R. 165, 25 C.B.R. (N.S.) 193 (S.C.) (sub nom. Bauer v. Bank of Montreal); Canada Trustco Mortgage Co. v. Sugarman (1999), 1999 9288 (ON CA), 179 D.L.R. (4th) 548, 12 C.B.R. (4th) 1 (Ont. C.A.); Dawson v. Rexcraft Storage & Warehouse Inc.; Pacific & Western Trust Co. v. Carroll (1998), 1998 4831 (ON CA), 164 D.L.R. (4th) 257, 20 R.P.R. (3d) 207, 111 O.A.C. 201, 26 C.P.C. (4th) 1 (Ont. C.A.), revg (1995), 9 C.C.L.T. 149 (Ont. Gen. Div.); Gallen v. Allstate Grain Co. (1984), 1984 752 (BC CA), 53 B.C.L.R. 38, 9 D.L.R. (4th) 496, 25 B.L.R. 314 (C.A.), affg (1982), 1982 607 (BC SC), 42 B.C.L.R. 270 (S.C.); Grossman Holdings Ltd. v. York Condominium Corp. No. 75, 1999 1272 (ON CA), [1999] O.J. No. 3289 (Quicklaw), 124 O.A.C. 318 (C.A.); Hawrish v. Bank of Montreal, 1969 2 (SCC), [1969] S.C.R. 515, 2 D.L.R. (3d) 600, 66 W.W.R. 673, affg (1967), 1967 444 (SK CA), 63 D.L.R. (2d) 369, 61 W.W.R. 16 (Sask. C.A.); Irving Ungerman Ltd. v. Galanis (1991), 1991 7275 (ON CA), 4 O.R. (3d) 545, 83 D.L.R. (4th) 734, 1 C.P.C. (3d) 248, 20 R.P.R. (2d) 49n (C.A.), revg (1989), 13 R.P.R. (2d) 102 (Ont. H.C.J.); Kilpatrick v. Peterborough Civic Hospital (1999), 1999 3725 (ON CA), 44 O.R. (3d) 321, 174 D.L.R. (4th) 435, 42 C.C.E.L. (2d) 50, 99 C.L.L.C. 210-040, 33 C.P.C. (4th) 321 (C.A.), revg (1998), 1998 14661 (ON SC), 38 O.R. (3d) 298, 36 C.C.E.L. (2d) 265, 98 C.L.L.C. 210-021 (Gen. Div.); Power Consolidated (China) Pulp Inc. v. British Columbia Resources Investment Corp., [1989] B.C.J. No. 114 (Quicklaw) (S.C.); St. Lawrence Cement Inc. v. Wakeham & Sons Ltd. (1995), 1995 2482 (ON CA), 26 O.R. (3d) 321, 23 B.L.R. (2d) 1 (C.A.), revg (1992), 1992 7595 (ON SC), 8 O.R. (3d) 340 (Gen. Div.); Transamerica Occidental Life Insurance Co. v. Toronto-Dominion Bank (1999), 1999 3716 (ON CA), 44 O.R. (3d) 97, 173 D.L.R. (4th) 468, 28 E.T.R. (2d) 113, 118 O.A.C. 149, (C.A.), revg in part (1998), 22 E.T.R. (2d) 106 (Ont. Gen. Div.); V.K. Mason Construction Ltd. v. Canadian General Insurance Group Ltd. (1998), 1998 14615 (ON CA), 42 O.R. (3d) 618, 42 C.L.R. (2d) 241 (C.A.), quashing (1998), 40 C.L.R. (2d) 237 (Ont. Gen. Div.)
John B. Laskin and Arlen K. Sternberg, for appellants. Katherine L. Kay and Danielle K. Royal, for respondents. [page66]
The judgment of the court was delivered by
[1] CRONK J.A.: -- Tropic International Limited and Xela Enterprises Ltd. appeal from the summary judgment of Justice E. Macdonald dated August 31, 2001 by which they were ordered to pay the sums of CDN$3,489,020 and US$1,061,774.36, inclusive of the pre-judgment interest, to Luis Arturo Gutierrez for redemption of his preference shares in Tropic. The appellants submit that the motions judge erred (i) in concluding that their defences to Luis' action for payment of the redemption price for his shares give rise to no genuine issue for trial; and (ii) in exceeding her role on a summary judgment motion by assessing credibility, weighing conflicting evidence and making findings of fact or drawing inferences from facts in controversy. For the reasons that follow, I would dismiss the appeal.
I. FACTS
[2] Tropic and Xela are holding companies through which the Gutierrez family operate or have interests in various businesses in the food industry. Xela's interests include shareholdings in a poultry business in Guatemala operated by Avicola Villalobos, S.A. For several years, Luis was an officer and director of Xela. He also held 6,999 common shares in that company, gifted to him by his father, Juan Arturo Gutierrez. In 1994, Luis had a falling out with other family members and decided to sever his active involvement in the family enterprises. Accordingly, he exchanged his common shares in Xela for 700 preference shares in Tropic and resigned his position with Xela and related companies.
[3] Under Tropic's articles of amendment, Luis' Tropic shares are redeemable by Tropic, at Luis' election, for an aggregate price of CDN$7 million (the "Redemption Price"). As part of the 1994 share exchange, Luis postponed in writing his right to require redemption of the shares for three years. In 1998, when the postponement period expired, he notified Tropic in writing of his election to have his Tropic shares redeemed. After Tropic and Xela paid part of the Redemption Price, in the sum of CDN$2 million less withholding taxes, the parties entered into negotiations regarding payment of the remainder.
(1) The Contractual Documents
[4] By written agreement dated December 1, 1998 (the "Redemption Agreement"), Tropic agreed with Luis to pay the remainder of the Redemption Price, plus interest, in accordance with the following schedule: [page67]
(a) on December 1, 1998, payment of the sum of CDN$1.85 million by delivery to Luis of a promissory note from Tropic in the amount of US$1 million (the "Note") with the balance, net of withholdings for income tax, paid in cash;
(b) on May 31, 1999, payment in cash of the sum of CDN$750,000;
(c) on November 30, 1999, payment in cash of the sum of CDN$1 million; and
(d) on January 10, 2000, payment in cash of the sum of CDN$1.4 million.
[5] The Redemption Agreement also contains the following terms:
- Accelerated Obligation to Pay. (1) Immediately upon closing of any sale by Xela of all or any part of its interest in Avicola . . . or any related companies in Guatemala, Tropic shall pay all amounts owing to Luis hereunder. Xela acknowledges and agrees to such repayment and covenants that it will pay to Tropic all amounts required for Tropic to make such payments to Luis. . . . In addition, upon the receipt by Tropic, Xela or any other affiliate of Xela of proceeds from any other Disposition, Tropic and Xela agree that they will use the net after-tax proceeds of any such Disposition to accelerate, acting in good faith, the payment of the remaining portion of the Redemption Price that is still due and payable at the time of receipt of those proceeds. For purposes hereof"Disposition" means the sale, exchange, lease or other disposition of any property or assets.
(2) If Tropic fails to complete any one of the payments scheduled in Section 1(1) within 7 Business Days of the date such amount becomes due and payable, the remaining portion of the Redemption Price and all other amounts owing to Luis hereunder shall immediately become due and payable.
Entire Agreement. This Agreement, the Note, the Guarantee [defined below] and the share pledge agreement of even date herewith made by Tropic in favour of Luis constitutes the entire and only agreement between the parties hereto with respect to the subject matter hereof, superseding any and all prior negotiations, understandings and agreements, written or oral.
Time of the Essence. Time shall be of the essence of this Agreement and of every provision hereof.
[6] Xela guaranteed Tropic's liability to Luis under the Redemption Agreement by written guarantee dated December 1, 1998 (the "Guarantee"). Under s. 1.1 of the Guarantee, Xela:
[I]rrevocably and unconditionally [guaranteed] the due and punctual payment to Luis, whether at stated maturity, by acceleration or otherwise, of all present and future debts, liabilities and obligations, direct or indirect, [page68] absolute or contingent, of [Tropic] to Luis arising pursuant to, or in respect of [the Redemption Agreement and the Note] . . . .
(Emphasis added)
[7] By s. 1.2 of the Guarantee, Xela's liability thereunder is expressed to be "absolute and unconditional" regardless of:
(b) Any contest by [Tropic] or any other Person (as hereinafter defined) as to the amount of [the guaranteed obligations under the Redemption Agreement and the Note], the validity or enforceability of any terms of the [Redemption Agreement and the Note] or the priority of any security granted to Luis in respect of the [Redemption Agreement and the Note];
(c) Any defence, counter-claim or right of set-off available to [Tropic];
(i) Any other circumstances which might otherwise constitute a defence available to, or a discharge of, [Xela or Tropic] or any other Person in respect of the [Redemption Agreement and the Note] or this guarantee.
[8] Tropic and Xela did not honour the payment schedule set out in the Redemption Agreement. Although they paid Luis CDN$500,000 on April 19, 2000, they failed to make any of the payments due in 1999 and 2000. Consequently, Luis commenced this action against them for payment of the remainder of the Redemption Price, among other matters.
(2) The Alleged Collateral Agreement and the Avicola Litigation
[9] Tropic and Xela do not dispute Luis' entitlement to the remainder of the Redemption Price, or the validity of the Redemption Agreement and the Guarantee. Rather, they argue that prior to execution of those documents, Luis and Arturo entered into an oral agreement or understanding regarding the timing for, and the source of the funds to be used to finance, the payment of the remainder of the Redemption Price. They maintain that Luis orally agreed that (i) the Redemption Price would only be fully paid upon completion, and from the proceeds, of a sale of Xela's shares in Avicola; and (ii) prior to completion of that sale, Luis would only seek to rely on the Redemption Agreement and the Guarantee if Arturo died or became disabled (the "Collateral Agreement"). They further contend that the Collateral Agreement was orally reconfirmed by Luis with Arturo at the time of and following execution of the Redemption Agreement and the Guarantee. Luis denies the alleged Collateral Agreement.
[10] The Avicola share sale has not been completed. It is now the subject of separate litigation in Guatemala and Florida. Arturo is alive and in good health. Therefore, based on the Collateral [page69] Agreement, Tropic and Xela allege that Luis is not entitled to now receive payment of the remainder of the Redemption Price. In addition, they assert that Luis has improperly sought to hinder or delay the resolution of the Avicola share sale litigation, thereby preventing the appellants from raising the funds necessary to pay the remainder of the Redemption Price. They argue on that basis that Luis is precluded, in any event, from now seeking payment of the unpaid balance of the Redemption Price.
II. ANALYSIS
[11] The principles governing motions for summary judgment are well-established. Summary judgment may only be granted where there is no genuine issue for trial, the proof of which lies upon the moving party. The role of a motions judge on such a motion is centred on the threshold question of whether a genuine issue exists requiring a trial. The determination of credibility issues, the weighing of conflicting evidence, the making of factual findings and the drawing of factual inferences, other than where only one inference is reasonably available, are matters reserved for the trier of fact. (Aguonie v. Galion Solid Waste Material Inc. (1998), 1998 954 (ON CA), 38 O.R. (3d) 161, 156 D.L.R. (4th) 222 (C.A.); Dawson v. Rexcraft Storage & Warehouse Inc.; Pacific & Western Trust Co. v. Carroll (1998), 1998 4831 (ON CA), 111 O.A.C. 201, 164 D.L.R. (4th) 257 (C.A.); V.K. Mason Construction Ltd. v. Canadian General Insurance Group Ltd. (1998), 1998 14615 (ON CA), 42 O.R. (3d) 618, 42 C.L.R. (2d) 241 (C.A.); Transamerica Occidental Life Insurance Co. v. Toronto-Dominion Bank (1999), 1999 3716 (ON CA), 118 O.A.C. 149, 173 D.L.R. (4th) 468 (C.A.); and Kilpatrick v. Peterborough Civic Hospital (1999), 1999 3725 (ON CA), 44 O.R. (3d) 321, 174 D.L.R. (4th) 435 (C.A.)). In order for a motion for summary judgment to be defeated based on one or more credibility issues, the credibility issues must be genuine. Where the evidence demonstrates that there is no genuine issue of fact which requires a trial for its resolution, and that a trial is unnecessary, the foundation for summary judgment is established. (Grossman Holdings Ltd. v. York Condominium Corp. No. 75 (1999), 1999 1272 (ON CA), 124 O.A.C. 318, [1999] O.J. No. 3289 (Quicklaw) (C.A.); and Irving Ungerman Ltd. v. Galanis (1991), 1991 7275 (ON CA), 4 O.R. (3d) 545, 83 D.L.R. (4th) 734 (C.A.)).
(1) Whether a Genuine Issue Exists Requiring a Trial
[12] Tropic and Xela submit that the following genuine issues arise in this case, requiring factual findings at a trial: [page70]
(a) the existence and nature of the alleged Collateral Agreement and its effect on Luis' entitlement to now seek payment of the remainder of the Redemption Price; and
(b) whether Luis' alleged conduct concerning the Avicola share sale litigation precludes him from now seeking payment of the remainder of the Redemption Price.
[13] After reviewing the case law concerning motions for summary judgment, the motions judge concluded (at para. 8):
Against the backdrop of these legal considerations, I have concluded that the moving party's motion succeeds. In doing so, I find that genuine issues of fact and law do not exist. Although raised, they are not footed on genuine issues of credibility but more importantly, they cannot survive the clear and unambiguous wording of the Redemption Agreement and the other legal documents which track the material events that underlie this claim . . . [I]t is very significant that Xela irrevocably and unconditionally guaranteed the payment of all present and future debts and obligations owing to Luis pursuant to the Note and the Redemption Agreement.
For the reasons that follow, I agree with the motions judge.
(a) The alleged Collateral Agreement and its effect on Luis' entitlement to now seek payment of the remainder of the Redemption Price
[14] The Collateral Agreement is not reflected in the Redemption Agreement, the Note, the Guarantee or any other written document.
[15] The appellants do not allege that the Redemption Agreement and the Guarantee are ambiguous or unclear so that evidence concerning the Collateral Agreement is necessary to interpret those documents. Rather, they argue that evidence concerning the Collateral Agreement is admissible, and gives rise to a genuine issue for trial, because the Redemption Agreement and the Guarantee do not reflect the whole of the agreement between the parties. They maintain that the intent of the parties in entering into the Collateral Agreement was to delay the operation of the Redemption Agreement and the Guarantee until the happening of the future events contemplated under the Collateral Agreement.
[16] In support of the Collateral Agreement, the appellants filed affidavits from Arturo and Ricardo Castillo, another Gutierrez family member and a director of Tropic. Arturo deposed to the existence and nature of the Collateral Agreement. He swore that it was made prior to his execution of the Redemption Agreement and the Guarantee on behalf of Xela and that it was orally [page71] reconfirmed by Luis on several occasions thereafter. On behalf of Tropic, Ricardo Castillo deposed that he executed the Redemption Agreement in reliance on the Collateral Agreement. He did not dispute Arturo's evidence that the Collateral Agreement was made prior to execution of the Redemption Agreement and the Guarantee, nor did he allege that a different assurance or promise was made by Luis after execution of those documents. No other evidence was proffered by the appellants in proof of the Collateral Agreement.
[17] The appellants do not dispute that the Collateral Agreement is inconsistent with the terms of the Redemption Agreement and the Guarantee. In my view, the Collateral Agreement as alleged by the appellants contradicts (i) the payment schedule set out in the Redemption Agreement, which contemplates the first payment to Luis on account of the remainder of the Redemption Price at the time of entering into the Redemption Agreement, the second payment within six months thereafter and full payment by mid-January 2000; (ii) the acceleration clause of the Redemption Agreement, which provides for acceleration of the full amount owing to Luis upon completion of the Avicola share sale; (iii) the integration or "entire agreement" clause of the Redemption Agreement, which provides that the Redemption Agreement, the Note and the Guarantee constitute the "entire and only agreement between the parties . . ."; and (iv) section 14 of the Redemption Agreement, which provides that: "Time shall be of the essence of this Agreement and of every provision hereof".
[18] The Collateral Agreement is also inconsistent with the express terms of the Guarantee, which provide that Xela's liability thereunder is irrevocable, unconditional and absolute, regardless of "any defence, counter-claim or right of set-off available to Tropic" or "any other circumstances which might otherwise constitute a defence available to, or a discharge of [Xela or Tropic] . . .".
[19] 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. (See Chitty on Contracts, 28th ed., vol. 1, General Principles (London: Sweet & Maxwell, 1999) at p. 624 and St. Lawrence Cement Inc. v. Wakeham & Sons Ltd. (1995), 1995 2482 (ON CA), 26 O.R. (3d) 321, 23 B.L.R. (2d) 1 (C.A.).) However, the rule is not absolute. It admits of numerous exceptions, including where it is alleged that evidence of a distinct collateral agreement exists, which does not contradict, and is not inconsistent with, the written contract (see [page72] Hawrish v. Bank of Montreal, 1969 2 (SCC), [1969] S.C.R. 515, 2 D.L.R. (3d) 600 and Bank of Montreal v. Bauer, 1980 12 (SCC), [1980] 2 S.C.R. 102, 110 D.L.R. (3d) 424).
[20] Some recent authorities suggest a more relaxed approach to the admission of parol evidence. In Power Consolidated (China) Pulp Inc. v. British Columbia Resources Investment Corp., [1989] B.C.J. No. 114 (Quicklaw) (S.C.), McLachlin C.J.S.C. (as she then was) stated:
The starting point in any discussion of when a collateral contract is excluded by the words of the main contract must be the rule -- sometimes called the parol evidence rule -- that evidence of a collateral contract is not admissible unless consistent with the main contract: Hawrish v. Bank of Montreal . . . The application of this rule, however, is narrow. Recent authorities suggest that it applies only where it is clear that the contract sued upon is wholly in writing. If a party can establish that there was a pre-contractual stipulation which was not intended to be excluded, then it may be relied on even though it is arguably inconsistent with certain terms of the written contract: Toronto-Dominion Bank v. Griffiths et al. (1987), 1987 2434 (BC CA), 18 B.C.L.R. (2d) 117 at 126, [1988] 1 W.W.R. 735 . . . .
(Emphasis added)
(See also Gallen v. Allstate Grain Co. (1984), 1984 752 (BC CA), 9 D.L.R. (4th) 496, 25 B.L.R. 314 (B.C.C.A.)).
[21] Notwithstanding the clear inconsistencies between the Collateral Agreement and the written contractual documents executed by the parties, the motions judge considered the affidavit evidence tendered by Tropic and Xela concerning the Collateral Agreement for the purpose of assessing whether the evidentiary record in this case gives rise to a genuine issue for trial. By doing so, she adopted an expansive approach to the parol evidence rule and the evidentiary record, which clearly favoured Tropic and Xela.
[22] Luis does not assert on this appeal that the motions judge erred in considering the extrinsic evidence of the Collateral Agreement. He submits that even if the appellants' evidence concerning the Collateral Agreement is considered, no genuine issue arises as an impediment to summary judgment. I agree, for several reasons.
[23] First, although on this appeal the appellants refer to the Collateral Agreement, variously, as an "agreement" or "understanding" with, or "assurances", a "representation" or "misrepresentation" by Luis, no allegation of a representation or misrepresentation by Luis is made in the appellants' Statement of Defence and Counterclaim, nor do they claim mutual mistake or rectification of the Redemption Agreement or the Guarantee. While representation and misrepresentation are alleged in the appellants' factum, and were asserted in oral argument before this court, such claims are not supported by the appellants' pleading. [page73]
[24] Second, on the facts here, the Collateral Agreement cannot survive the integration clause contained in s. 12 of the Redemption Agreement, which specifically provides that that agreement, the Note and the Guarantee "[supersede] any and all prior negotiations, understandings and agreements, written or oral". Both Tropic and Xela are signatories to the Redemption Agreement. Their own evidence indicates that the Collateral Agreement was made prior to the date of execution of the Redemption Agreement and the Guarantee. Thus, even if the evidence concerning the Collateral Agreement is accepted at trial, it is no answer to the express language of the integration clause subsequently agreed upon in the Redemption Agreement. Moreover, its reconfirmation after execution of the Redemption Agreement and the Guarantee, if proven, does not alter the fact that after entering into the Collateral Agreement the parties agreed to an overriding contractual integration clause. It is not alleged that a fresh bargain was made with Luis after the date of the Redemption Agreement. As McLachlin C.J.S.C. concluded in Power Consolidated:
[T]he question is whether the intention of the parties in the case at bar was that the written contract . . . would constitute the whole of the contract. That intention, as in all matters relating to contractual construction, must be determined objectively. Here the parties expressly agreed that the contract documents constituted the whole of their agreement. While in most cases such an agreement is only a presumption based on the parol evidence rule, in this case it has been made an express term of the contract. A presumption can be rebutted; an express term of the contract, barring mistake or fraud, cannot.
[25] Similarly, given the unchallenged validity of the integration clause, the Collateral Agreement cannot operate to postpone or suspend the clear terms of the Guarantee under which Xela agreed that any defence available to it or Tropic would not displace Xela's absolute and unconditional liability thereunder. The Guarantee itself states that it is a continuing guarantee for all present and future obligations of Tropic to Luis under the Redemption Agreement and the Note, binding as a continuing obligation of Xela until Luis releases Xela, or Tropic's obligations to Luis have been paid in full. The Guarantee makes no mention of the Avicola share sale or of Arturo's death or health. It is not expressed to be conditional on any future event. To the contrary, Xela's obligations under the Guarantee are described as irrevocable, unconditional and absolute. Application of the Collateral Agreement to the Guarantee would result in alteration of the fundamental terms of the Guarantee. Thus, the terms of the Guarantee also support the conclusion that the Collateral Agreement gives rise to no genuine issue for trial. [page74]
[26] Third, the appellants' argument that the Collateral Agreement formed part of the entire agreement between the parties cannot be reconciled with the payment schedule set out in the Redemption Agreement. I agree with Luis' submission that the payment schedule is nonsensical if the parties intended Tropic's payment obligations to be conditional on Arturo's death or disability, or completion of the Avicola share sale. If accepted, the appellants' argument would also render meaningless s. 14 of the Redemption Agreement, which provides that "Time shall be of the essence of this Agreement and of every provision hereof".
[27] Finally, an essential term of the Collateral Agreement asserted by the appellants is that Luis agreed that he would not be paid the remainder of the Redemption Price until the Avicola share sale was complete, unless Arturo earlier died or became disabled. While neither Arturo's death nor his disability is mentioned in the Redemption Agreement, the payment acceleration provision contained in s. 2 of the Redemption Agreement specifically addresses the Avicola share sale. It provides, in part, that immediately upon the closing of any sale by Xela of all or any part of its interest in Avicola, Tropic will pay all amounts owing to Luis under the Redemption Agreement. That part of the acceleration provision would be nonsensical if Luis had agreed, in any event, that he was to receive no part of the remainder of the Redemption Price, so long as Arturo was alive and not disabled, pending completion of the Avicola share sale. The motions judge observed concerning the acceleration clause:
This is significant. It means that the parties addressed their minds to the pending Avicola sale. The content of the Redemption Agreement is clear. The sale would accelerate the payment schedule . . . .
I agree.
[28] The motions judge observed, correctly in my view, that the mere assertion that parol evidence is needed, is not itself sufficient to resist a motion for summary judgment. (See Grossman Holdings.) The party seeking to defeat summary judgment must show a reasonable basis for admitting parol evidence and, if admitted, that that evidence would raise a genuine issue for trial. I conclude that even if the appellants' evidence concerning the Collateral Agreement is admissible, and accepted at trial, that evidence would not support a defence to the clear and unambiguous terms of the subsequently executed Redemption Agreement and Guarantee. [page75]
(b) Luis' alleged conduct concerning the Avicola share sale litigation
[29] Tropic and Xela make two arguments concerning Luis' alleged conduct in connection with the Avicola share sale. First, they argue that Luis has taken steps to hinder the resolution of the Avicola litigation, thereby preventing them from obtaining the funds necessary to pay the remainder of the Redemption Price. They submit that such conduct is in breach of a contractual duty of good faith owed by Luis and fiduciary duties owed by him to Xela, with the result that he is disentitled from now seeking payment of the remainder of the Redemption Price. As there is a factual dispute concerning Luis' role in the Avicola litigation, the appellants submit that a genuine issue for trial arises, requiring factual findings based on credibility assessments. Second, Tropic and Xela contend that they have suffered damage as a result of such conduct by Luis concerning the Avicola litigation. Consequently, they submit that a genuine issue arises as to whether Luis' conduct supports the defence of equitable set-off. In my view, neither of those arguments succeeds.
[30] Tropic's and Xela's first argument flows from their assertion that Luis agreed, as part of the Collateral Agreement, that payment of the remainder of the Redemption Price would only be made from the proceeds of the Avicola share sale. I have concluded, for the reasons earlier set out, that the Collateral Agreement, if proven, cannot survive the Redemption Agreement and the unconditional language of the continuing Guarantee.
[31] It is useful to emphasize that Tropic's obligations under the Redemption Agreement are not conditional upon completion of the Avicola share sale. Delay in completion of that sale does not operate to defer commencement of the payment schedule set out in s. 1, nor is that schedule tied in any way to the Avicola share sale. Under s. 2 of the Redemption Agreement, completion of that sale is a triggering event for acceleration, rather than commencement, of the payment schedule.
[32] Moreover, Tropic and Xela partially performed the Redemption Agreement by delivering the Note and the Guarantee, making some quarterly interest payments on the Note and paying to Luis the sum of CDN$500,000 in April 2000. At least some of those actions were taken after February 1999, when the Avicola share sale litigation was in progress. Such partial performance of the Redemption Agreement undermines the appellants' argument that they are relieved at this time of their obligations under the Redemption Agreement. [page76]
[33] Tropic and Xela assert that the motions judge failed to address their evidence concerning Luis' alleged conduct in relation to the Avicola litigation and their claim that, by that conduct, Luis breached a contractual duty of good faith. I do not agree that the motions judge failed to do so. The motions judge clearly recognized that Luis' alleged conduct in connection with the Avicola litigation was being raised by the appellants as a defence to the motion for summary judgment. The appellants' allegations concerning Luis' conduct were detailed in affidavit evidence filed on the motion, which the motions judge considered and concerning which she concluded (at para. 27):
I would add that I see the content of the responding affidavits as being in that category of self serving affidavit which does not create a triable issue in the absence of detailed facts and supporting evidence.
(Citations omitted)
[34] In her reasons, the motions judge also expressly referenced the defence of equitable set-off raised by the appellants. After referring to those portions of the appellants' pleading which detail that defence, including the appellants' allegation that Luis breached a duty of contractual good faith and his fiduciary obligations, she stated (at para. 32):
I do not agree that this defence survives Rule 20. I refer to the yet unreported decision in Walsa Limited v. Robert Megna et al. (released August 30, 2001) wherein a similar assertion was made. Rather than repeat the analysis contained therein, I will say simply that I rely on it in concluding that this is not a legally viable defence. See also Marketing Products Inc. v. 1254719 Ontario Ltd., 2000 17001 (ON CA), 142 O.A.C. 61.
[35] In my view, the appellants' argument concerning equitable set-off is flawed in two fatal respects. First, the Guarantee expressly provides that no defence or right of set-off available to Tropic or Xela operates to diminish or displace Xela's absolute and unconditional obligations under the Guarantee. I have concluded that operation of the Guarantee is not delayed or postponed by the Collateral Agreement, even if the latter agreement is established. Accordingly, the appellants are contractually precluded by the Guarantee from raising the defence of equitable set-off in response to Luis' claim.
[36] Second, I am not persuaded that the appellants have met the requirements for equitable set-off. While that remedy is available in a proper case for an unliquidated claim, in order for it to be successfully advanced the cross-claims must be closely connected. Further, as stated by this court in Canada Trustco Mortgage Co. v. Sugarman (1999), 1999 9288 (ON CA), 179 D.L.R. (4th) 548, 12 C.B.R. (4th) 1 (Ont. C.A.), at p. 555 D.L.R., per Charron J.A.: "Not [page77] only must the connection be sufficiently close to warrant an exercise of the equitable jurisdiction of the court, the remedy must not result in any form of inequity." Here, in my view, there is no clear connection between the appellants' assertion of a claim for damages consequent upon Luis' alleged conduct concerning the Avicola share sale litigation and the appellants' breach of their obligations under the Redemption Agreement and the Guarantee. Moreover, on the record before this court, the progress of the Avicola share litigation in foreign jurisdictions is uncertain. Accordingly, the set-off remedy claimed by the appellants, if accepted, could have the inequitable result of delaying indefinitely resolution of Luis' claim for payment of the remainder of the Redemption Price. The intervention of equity is not to be encouraged in such circumstances.
[37] I conclude, therefore, that Luis' conduct in relation to the pending Avicola share sale litigation, if proven, does not support a defence to Luis' claim for payment of the remainder of the Redemption Price. Accordingly, it does not give rise to a genuine issue for trial.
(2) Whether the Motions Judge Exceeded Her Role on the Summary Judgment Motion
[38] The appellants do not dispute that the motions judge properly instructed herself on her role on a motion for summary judgment and on the legal principles governing determination of such motions. They submit that she erred in her application of those principles by (i) assessing the credibility of Arturo and Ricardo Castillo; (ii) weighing their evidence against that of Luis and certain surrounding circumstances in finding, as a fact, that Luis and Arturo did not enter into the Collateral Agreement; and (iii) considering factors to be taken into account by a trial judge when assessing credibility and weighing evidence. I do not accept that submission.
[39] The reasons of the motions judge clearly reveal her understanding that she was precluded on a summary judgment motion from assessing credibility, weighing conflicting evidence or making findings on controverted facts. In my view, she correctly instructed herself on her role on the motion and did not transgress the proper boundaries of that role.
[40] The motions judge was required to assess the threshold issue of whether a genuine issue exists in this case as to material facts, requiring a trial. That assessment includes a determination of whether the evidence raises genuine issues of credibility. To conduct that assessment, it was incumbent on the motions [page78 ]judge to consider the pleadings of the parties and all of the evidence properly admissible before her which constitutes the record in this case. (Dawson, at p. 269 D.L.R.).
[41] In assessing the evidence, the motions judge was entitled to consider the language of the contractual documents entered into by the parties, the history of their dealings at the time of entry into those written contractual documents and the implications of the alleged Collateral Agreement. In conducting that assessment, in my view, she did not make findings of credibility nor improperly weigh conflicting evidence. Based on a review of the motions judge's reasons as a whole, I am not persuaded that her review of the evidentiary record involved anything more than a determination of the narrow question of whether there was a genuine issue for trial.
III. DISPOSITION
[42] Accordingly, for the reasons set out above, I would dismiss the appeal. Luis is entitled to his costs of the appeal.
[43] The Redemption Agreement provides that Tropic will pay for and indemnify Luis for all reasonable solicitor and client legal costs and other related expenses incurred by him in connection with any enforcement proceedings concerning the Redemption Agreement, the Guarantee or the Note. The Guarantee contains a similar agreement by Xela concerning enforcement by Luis of his rights under the Guarantee. Before this court, the appellants agreed that Luis, if successful on appeal, is entitled to his costs on a substantial indemnity basis in accordance with a Bill of Costs filed on his behalf. Accordingly, Luis' costs of the appeal are fixed on a substantial indemnity basis, in the sum of $37,568.08, inclusive of disbursements and Goods and Services Tax.
Appeal dismissed with costs.