COURT FILE NO.: CV-08-00368098
DATE: 2013/03/08
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
LEAJON GRAPHICS LTD., KEN RASPIN, NICK MINICHILLO and LARRY JEFFREY
Plaintiffs
– and –
ALLAN HAYTER, JAKE BULK, HURON TRACT HOLDINGS INC., and SUSAN LEHNEN, RENEE LEHNEN, and CHRISTA LEHNEN in their capacities as Estate Trustees of the ESTATE OF RICHARD LEHNEN also known as DICK LEHNEN, deceased
Defendants
Maurice J. Neirinck and Michael G. McQuade, for the Plaintiffs
M. Paul Downs and Paula Downs, for Allan Hayter
Peter Sengbusch, for Jake Bulk
No one appearing for Susan Lehnen, Renee Lehnen and Christa Lehnen Estate Trustees of the estate of Richard Lehnen, deceased
HEARD: March 26, 27, 28 and November, 30, 2012[^1]
GRACE J.
A. Introduction
[1] Huron Tract Holdings Inc. (“Huron Tract”) borrowed significant sums from former National Hockey League player Larry Jeffrey and two Toronto businessmen – Ken Raspin and Nick Minichillo (the latter through Leajon Graphics Ltd.), that remain unpaid.
[2] The principal amounts owing by Huron Tract are not in issue. Huron Tract owes Leajon Graphics Ltd./Minichillo (collectively “Leajon”) $475,000, Mr. Raspin $362,000 and Mr. Jeffrey $206,000.
[3] There is no prospect the plaintiffs will recover anything more from Huron Tract. It was placed into receivership in 2009.
[4] The issue is whether the individual defendants are liable to pay anything to them pursuant to the home drawn, inelegant document entitled “Agreement to Purchase” they executed on January 26, 2006 (the “Agreement”).
[5] The parties agree it is a critical document and that the result in this action depends on the court’s interpretation of its terms.
[6] Determining the meaning of a contract requires more than an analysis of the words it contains. In Kentucky Fried Chicken Canada v. Scott’s Food Services Inc. (1998), 1998 4427 (ON CA), 114 O.A.C. 357 (C.A.) at paras. 25 – 27, Goudge J.A. wrote:
[25] While the task of interpretation must begin with the words of the document and their ordinary meaning, the general context that gave birth to the document or its “factual matrix” will also provide the court with useful assistance…
[26] The scope of the surrounding circumstances…generally will encompass those factors which assist the court “…to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract.” Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 10 (SCC), [1980] 1 S.C.R. 888 at 901.
[27] Where…the document to be construed is a negotiated commercial document, the court should avoid an interpretation that would result in a commercial absurdity. Rather, the document should be construed in accordance with sound commercial principles and good business sense. Care must be taken, however, to do this objectively rather than from the perspective of one contracting party or the other…
[7] The phrase “factual matrix” includes “the genesis of the agreement, its purpose, and the commercial context in which the agreement was made”: Dumbrell v. The Regional Group of Companies Inc. (2007), 2007 ONCA 59, 85 O.R. (3d) 616 (C.A.) at para. 55.[^2]
[8] I turn to the evidence.
B. Background
[9] The parties negotiated and filed (as trial exhibit 1) a partial agreed statement of fact. It details most of the early history.
[10] Huron Tract was incorporated under another name in 2000 by Messrs. Hayter and Bulk for the purpose of purchasing and developing commercial properties. Mr. Hayter’s friend, Richard Lehnen, joined them as an officer, director and shareholder of the company soon after Huron Tract acquired its first property: the site of the former Dearborn Steel operation in Goderich, Ontario.
[11] After retiring from professional hockey, Mr. Jeffrey took up farming near that Town. He was introduced to Mr. Lehnen who encouraged Mr. Jeffrey to invest in Huron Tract.
[12] According to Mr. Jeffrey, Huron Tract’s plan was to convert the Dearborn Steel property to a use that is close to his heart – an arena.[^3] Mr. Jeffrey accepted Mr. Lehnen’s invitation and made investments in 2001 and 2002.[^4]
[13] Mr. Minichillo met Mr. Lehnen a year later. By then, Huron Tract’s original plan had run into obstacles. Mr. Minichillo was told that Huron Tract planned to develop a multi-use project in Goderich. Mr. Minichillo was also asked to invest and promised a position on the board of directors if he did so.
[14] Mr. Raspin joined the parade after being introduced to the original group by Mr. Minichillo.
[15] By the end of the summer of 2004, Leajon had advanced a total of $480,000 and Mr. Raspin over $372,000. Some of the advances made by them were evidenced by promissory notes. Others were not.[^5]
[16] Messrs. Raspin, Minichillo and Jeffrey testified at trial. Mr. Lehnen could not. He is deceased. Mr. Hayter and Mr. Bulk did not.
[17] Despite having joined the original trio on the board of directors and attending regular meetings, the plaintiffs did not always feel fully or accurately informed.[^6]
[18] Huron Tract owned parcels of land but didn’t develop a thing. The company seems to have either owned or to have invested in other businesses.
[19] For example, Huron Tract acquired an insolvent plastics manufacturer. However, it had no experience in the industry and was unable to turn the business around. In 2004, Huron Tract sold the venture to Jokey Plastics North America Inc. (“Jokey”) for $1 million but on generous payment terms as evidenced by a Participating Term Debenture dated October 19, 2004 (the “Jokey Debenture”).
[20] It is impossible to comment accurately on Huron Tract’s financial performance because statements were not prepared despite repeated requests by Mr. Minichillo. However, the evidence suggests the company was a financial disappointment.
[21] Huron Tract wheezed into 2005. Mr. Minichillo was the first to act on his growing disillusionment. He asked for the return of Leajon’s investment.
[22] Huron Tract agreed. A June 11, 2005 letter signed by Mr. Lehnen as Chair of Huron Tract said, in part:
I have been asked by the Board assembled Friday for a special meeting to write you and convey their response to your request for early redemtion (sic) of promissory notes and common shares all issued by Huron Tract...
First:
The Board want me to extend their sincere thank you for the time, effort, and investment that you put at the disposal of Huron Tract...
Second:
The Board have asked me to convey that they are prepared to make arrangements for the redemption back into the Treasury: of the notes or portions thereof, the due interest accrued thereon, together with the common shares issued to you or related parties, at cost of issue. Their direction is to do this in 90 days or less...
[23] Mr. Lehnen seems to have had a questionable grasp of the technical aspects of the proposal but the intention is clear: Leajon’s financial stake in Huron Tract would be repaid within 90 days and all strings between the two parties would be severed.
[24] They weren’t. The 90 day period quietly passed.
[25] Mr. Minichillo tried to bring matters to a head at a November 10, 2005 board meeting. He voiced his displeasure and sought a solution.
[26] Huron Tract’s corporate solicitor, Max Prince, was present. The draft minutes he circulated evidence dysfunction and significant concern with Mr. Lehnen’s leadership and management and Huron Tract’s financial health.
[27] Some of Mr. Minichillo’s concerns resonated with others. After a lengthy meeting, the board unanimously resolved that the hierarchy would change: Mr. Raspin would replace Mr. Lehnen as Huron Tract’s senior officer. However, Mr. Minichillo’s request for a concrete plan for fulfilment of the promises made to him in June was deferred to a meeting scheduled for the following month.
[28] Mr. Raspin’s tenure was short-lived.[^7] Mr. Raspin testified that in early December, 2005 he received a call. He was told the original investors wished to buy out his interest in Huron Tract and that of Leajon.
[29] A December 13, 2005 document entitled “A Special Resolution” read in part:
The Directors of Huron Tract...have deemed it in their interest to deal with a request from Nick Minichillo and Mr. Ken Raspin for redemption of their interests in Huron Tract...both by way of investment notes secured by an Income Debenture of the company and Common Shares issued by Huron Tract Holdings Inc.
Now therefore the Directors by this Resolution do hereby instruct the Officers of the Corporation to do all things required to give effect to the transfer of the Jokey Income (sic) Debenture...to a corporation designated by Mr. Minichillo and Mr. Raspin for a full and final release of the company from any and all debts owing to either of Mr. Raspin or Mr. Minichillo.
-And-
For services rendered and redemption of any and all common shares issued by Huron Tract...to Mr. Raspin and or Mr. Minichillo...a payment will be made from the Treasury in the amount of $50,000 to each...
To provide for the postponement of a meeting of the Board...to...December 21, 2005, at which time the matters referred to herein will be concluded...
[30] All of the individuals I have mentioned so far signed the document except Mr. Minichillo. He was unwilling to accept the Jokey Debenture for two reasons: first, it was expressly stated to be non-assignable by Huron Tract[^8] and second, Jokey wasn’t obligated to make any payments before 2019 unless it earned “positive taxable income” in any fiscal year.[^9]
[31] Another solution was needed. Discussions between Mr. Lehnen and Mr. Raspin occurred. Soon Mr. Raspin was speaking for Messrs. Minichillo and Jeffrey.
[32] Negotiations culminated in an agreement to meet at the offices of Huron Tract’s solicitors on January 26, 2006.
[33] While Mr. Prince later reported on aspects of the transactions completed that day, minutes were not taken. I accept the version of events provided at trial by Messrs. Jeffrey and Raspin.
[34] All of Huron Tract’s investors except Mr. Minichillo attended. The meeting had three purposes: first, to document and complete the transfer of common shares issued to three shareholders (Messrs. Minichillo, Jeffrey and Raspin) for an aggregate purchase price of $125,000; second, to obtain the resignations of the departing shareholders as officers and directors of Huron Tract and third, to document the basis on which their loans to Huron Tract would be repaid.
[35] Mr. Prince opened the meeting, made some introductory comments and left. Documents were circulated to those in attendance. For the first time, Messrs. Jeffrey and Raspin saw the home drawn contracts they were asked to sign. They included a document entitled Share Purchase Agreement and the Agreement.
[36] They retired to a signing room. After speaking with Mr. Minichillo about the proposed terms, they agreed to sign the contracts in the form presented. Those agreements were executed along with additional corporate documents necessary to transfer the shares and record the resignations of the former shareholders. An articling student was dispatched to obtain Mr. Minichillo’s signature at an out-of-town location.
[37] While I do not know who paid the purchase price for the shares, Mr. Minichillo, Mr. Raspin and Mr. Jeffrey acknowledged it was paid on closing and that they received their portion.
[38] That takes me to the Agreement. As noted, it was not drafted by a lawyer. I say that for two reasons: first, in a March 30, 2006 reporting letter, Mr. Prince advised that his office “did not prepare the Agreement to Purchase nor did we provide any legal advice on the transaction” and second, it is rudimentary.
[39] Six parties were named in and executed the Agreement. The first three - Messrs. Minichillo (not Leajon), Raspin and Jeffrey - are described as “Note Holders”.
[40] Based on the chronology told to date, that seems curious since, as noted earlier, promissory notes signed by Huron Tract either existed for only a portion of the monies advanced ($300,000 of Leajon’s $480,000 and $100,000 of Mr. Raspin’s $372,000) or not at all (in the case of Mr. Jeffrey).
[41] However, exhibit 2 contains a batch of identically worded promissory notes each dated January 6, 2005 and signed by Mr. Lehnen and Mr. Bulk on behalf of Huron Tract. I will return to them later in these reasons.
[42] The other signatories are Messrs. Hayter, Bulk and Lehnen who are referred to as “Guarantors”. Inexplicably given its terms, Huron Tract, the borrower of the money, was not a party.
[43] The Agreement to Purchase recorded the sale of shares and resignations I have described. To the extent relevant, it continued;
Now therefore the parties hereto agree as follows:
1/ The notes held by the Note Holders or corporations for which they act as trustees...will be left as a continuing investment in Huron Tract...and be secured by an Income Debenture which Debenture is postponed to any and all charges created by Huron Tract...in the normal course of business.
4/ During the tenure of this agreement the Guarantors will make payments of interest on the notes at a rate of 5% per annum in adjusted quarterly installments (sic) should Huron Tract...fail to make payments of income equal to or greater than the due interest (sic) set out herein.
5/ Partial payments of principal on the notes may be made at any time without notice or bonus by the Guarantors or Huron Tract...
6/ The principal amounts outstanding on the notes issued are as follows:
Larry Jeffrey - $211,000.00
Ken Raspin - $367,000.00
Nick Minichillo - $480,000.00
8/ This agreement forms a specific guaranty by the Guarantors to purchase the entirety of outstanding notes issued by Huron Tract...and held by the note holders on or before January 25, 2008.
[44] Almost two years passed. While sporadic, Huron Tract made some payments on account of interest. Nothing was paid on account of principal.
[45] The plaintiffs retained Cassels Brock LLP.
[46] On January 14, 2008, Sheldon Plener of that firm wrote to Huron Tract and each of the “Guarantors”. He referenced the Agreement and added:
...The closing is contemplated to occur on January 25, 2008. I am writing in advance...to coordinate closing matters. In that regard, please let me know the name and contact information of your legal counsel. We would also expect that all arrears of interest also be brought up-to-date at the closing.
[47] A response was requested by January 18, 2008. Messrs. Bulk and Lehnen wrote directly to the “Note Holders” that day. The first two paragraphs provide the flavour for what follows:
This letter will recognize that as a result of certain negotiations Huron Tract...shares issued to the above note holders were transferred to Mr. Jake Bulk, and Mr. Richard E. Lehnen as trustees to hold pending settlement of the note obligation to Mr. Minichillo, Mr. Raspin, and Mr. Jeffrey.
In an effort to settle this obligation and plan for the orderly growth of Huron Tract...the remaining Board entered into an investment program with Green Breeze Energy Systems Inc. the net result of which created a capital pool inclusive of Composotech Structures equal to $1,800,000.00. These funds deployed on a timely basis allowed for our repatriation of the subject notes. That plan was never finished and Green Breeze has defaulted on the investment...
[48] While befuddling language was used, the message was clear: Huron Tract was unable to pay. Assets Huron Tract was allegedly trying to sell were listed. The letter closed with a rather vague sentence. It read:
We want to work with you...to resolve and redeem the obligation to you as quickly as possible.
[49] The letter was thin on detail. It attached no supporting documentation. No time frame was specified.
[50] In a follow up letter dated January 24, 2008, Mr. Plener advised that an extension of time would not be provided. He added:
Accordingly, my clients are expecting that their notes be purchased on January 25, 2008 and that all outstanding interest be brought up-to-date. My client (sic) remains ready, willing and able to complete this transaction on the scheduled date and we would appreciate hearing from you, or preferably your lawyer, so that we can settle documents and agree upon an appropriate time and place to accomplish this.
[51] Huron Tract responded to Mr. Plener that same day. It promised to issue cheques to extinguish interest arrears “on or about” January 26, 2008. It added:
A payback on an orderly sale of the properties does not meet the time frame of your clients. We have commenced discussions to release sufficient security to satisfy the obligation...
In the interim for a possible alternative solution, would your clients consider a prearranged schedule of payments?
[52] Mr. Plener promised to obtain instructions in his January 29, 2008 letter but indicated:
...in the meantime my client (sic) considers Messrs. Lehnen, Bulk and Hayter to be in breach of their obligations to repurchase the notes as per our earlier correspondence.
[53] Little fazed, Huron Tract summarized efforts it alleged were being made to find a solution “for repatriating the notes issued to your clients” and asked for “a thirty day postponement while the issues we are working on clarify”.
[54] If there was a response I have not seen it. However, Messrs. Minichillo, Raspin and Jeffrey acknowledged receiving a “good faith” principal payment of $5,000 each in February, 2008. Only Mr. Raspin received payment of all of the interest due in the first two years. Leajon and Mr. Jeffrey did not.[^10]
[55] No other payments were made to the plaintiffs. I do not know what became of any of the assets the initial letter from Messrs. Lehnen and Bulk listed.
C. The Position of the Parties
[56] Mr. Raspin, Mr. Jeffrey and Leajon claim that Messrs. Hayter, Bulk and the estate of Mr. Lehnen owe them the principal balance Huron Tract did not pay[^11] together with interest at the rate set forth in the Agreement (5 percent per year) or alternatively, pursuant to the Courts of Justice Act.[^12] They maintain that is what was intended when the parties entered into the Agreement. In their statement of claim, the plaintiffs maintain:
The effect of the Agreement was that the Guarantors agreed to unconditionally guarantee repayment of the principal and interest owing under the Loans…[^13]
[57] Counsel for Messrs. Bulk and Hayter disagree. They submit that the Agreement contemplated completion of a transaction: the sale by the plaintiffs of promissory notes issued by Huron Tract to the individual defendants. They maintain that the plaintiffs were obligated to present and assign the promissory notes on closing, failed to do so and therefore relieved Messrs. Bulk and Hayter of their obligation to buy.
[58] Counsel for Mr. Bulk argues that result also flows from the fact the plaintiffs failed to comply with various provisions of the Bills of Exchange Act, R.S.C. 1985, c. B-4 which are applicable to promissory notes.
D. Analysis and Decision
[59] The intention of the parties to the Agreement to Purchase is, in my view, this: Messrs. Lehnen, Hayter and Bulk guaranteed that Huron Tract would pay to the plaintiffs the principal amount owing plus interest for two years at the annual rate of 5%.
[60] The conclusion with respect to interest is drawn from the wording of paragraph 4 of the Purchase Agreement. As mentioned earlier, that paragraph provided:
During the tenure of this agreement, the Guarantors will make payments of interest on the notes at a rate of 5% per annum in adjusted quarterly installments (sic) should Huron Tract...fail to make payments of income equal to or greater than the due interest (sic) set out herein.
[61] Stopping there, the Agreement is clear. Interest was to accrue on the plaintiffs’ outstanding loans at an annual rate of 5%. For two years Huron Tract was to make quarterly payments of interest. If it didn’t, the individual defendants would. Mr. Raspin received the interest that was due to him. However, Huron Tract underpaid interest due to Leajon and Mr. Jeffrey for that period. They are still owed $12,000 and $10,550 respectively.
[62] The individual defendants had an immediate obligation to answer for that default. It must be remembered that the plaintiffs ceased to have any involvement in the affairs of Huron Tract on January 26, 2006 as the individual defendants requested. The guarantee of payment offered by Messrs. Lehnen, Hayter and Bulk induced the plaintiffs to enter into that bargain.
[63] What about principal? I acknowledge the superficial attractiveness of the defendants’ position given the fact the document is entitled “Agreement to Purchase” and reflected the agreement of Messrs. Lehnen, Hayter and Bulk to:
…guaranty…to purchase the entirety of outstanding notes issued by Huron Tract…and held by the note holders on or before January 25, 2008.
[64] However, a review of the entire Agreement, the genesis of the contract, its purpose and the commercial context in which it was made, lead to the conclusion that the individual defendants agreed, in substance, to answer for the default of another, Huron Tract. Let me explain.
[65] First, although Huron Tract is not a party, the Agreement gave the company time to pay and room to manoeuvre. That is why the Agreement noted that the “notes held by the Note Holders…will be left as a continuing investment in Huron Tract…”
[66] For an instant, it appeared from the Agreement that the plaintiffs had comfort that payment would eventually be made: the Purchase Agreement stated that their debts would “be secured by an Income Debenture”.
[67] In fact, the plaintiffs could take no solace from that wording. Under the Agreement, they promised to “take no action” under the Income Debenture. In fact, they agreed that the “rights granted to enforce are hereby assigned to the Guarantors.”[^14] As an aside, I do not know whether the security existed at all.[^15]
[68] Paragraph 5 of the Agreement provided that:
Partial payments of principal on the notes may be made at any time without notice or bonus by the Guarantors or Huron Tract…provided only that these payments are pro rated (sic) as to the balance of notes held by each of the note holders.
[69] If, as the defendants maintain, the purpose of the Purchase Agreement was to allow them to buy promissory notes on January 25, 2008, why were partial payments permitted? Why were such payments on account of “principal” and not a purchase price? Why were Messrs. Hayter, Bulk and Lehnen described as “Guarantors” if, in fact, they were “purchasers”?
[70] My comments so far ignore the fact that the Agreement did not contain any listing of the promissory notes said to be “held” by Leajon, Mr. Raspin or Mr. Jeffrey.
[71] As noted previously, some of the advances made by Mr. Raspin ($100,000) and Leajon ($300,000) were evidenced by promissory notes dated between March 19 and September 11, 2003 (the “2003 notes”). They were issued by Huron Tract contemporaneously or nearly contemporaneously with the advance of funds.[^16] Promissory notes were not created in this time frame in favour of Mr. Jeffrey.
[72] Each 2003 note contained Huron Tract’s promise to pay $50,000 on the tenth anniversary. In the interim, interest was to accrue at the annual rate of 5% and be paid quarterly. The Agreement contained the same interest rate.
[73] However, by their terms, the 2003 notes could only be assigned by the holder with Huron Tract’s consent. The Agreement does not mention that fact.
[74] Furthermore, the 2003 notes referred to items that were “lodged with The Bank of Nova Scotia Trust as Trustee for the benefit of the Noteholders of record” including a debenture and trust indenture. I have not seen either document and do not know whether the statements to which I have referred are fact or fiction.[^17]
[75] The unwillingness of that institution to continue to hold documents was alleged to have caused Huron Tract to issue new promissory notes dated January 6, 2005 (the “2005 notes”). However, once again, the story seems incomplete. They evidence only a portion of the advances made by Mr. Jeffrey ($150,000 of more than $200,000) and Leajon ($350,000 of $480,000). Strangely, those in favour of Mr. Raspin, in trust exceeded that loaned to Huron Tract ($400,000 when only about $372,000 had been advanced).
[76] In them, Huron Tract did “hereby guaranty and agree to deliver to” the named person[^18] the principal sum of $50,000 on April 1, 2010.
[77] The 2005 notes didn’t require the payment of interest. Instead, an incomprehensible paragraph appeared. It read:
On or between March 31st and April 30th of each and every year an amount equal to 20% of the consolidated pre tax (sic) profits of the Corporation divided by the total number of notes issued under an “Income Debenture” held in trust by the Treasurer of the Corporation for the benefit of all note holders of record from time to time.
[78] The partial sentence was not completed.
[79] That wording was not brought to the attention of the plaintiffs. They testified that they did not even know of the existence of the 2005 promissory notes until provided by Mr. Bulk’s lawyer years after the commencement of this action. Their evidence was unchallenged.
[80] In short, the story of the “notes” is unclear at best.
[81] However, while initially inadequately documented, the principal amount owing by Huron Tract to the plaintiffs was not in doubt. The Agreement confirmed that on January 25, 2006, Mr. Jeffrey was owed $211,000; Mr. Raspin $367,000 and Leajon $480,000 on account of principal.
[82] It is clear to me that the purpose of the Agreement was to outline the basis on which Huron Tract would retire the indebtedness it owed to the plaintiffs by January 25, 2008 and to address the consequences if it did not.
[83] The conclusions I have reached are based on the evidence I have mentioned at some length.
[84] To summarize, Mr. Minichillo was initially the only one who wanted to sever his ties with Huron Tract. Messrs. Raspin and Jeffrey were content to remain. Those individuals participated fully in the decision to replace Mr. Lehnen at Huron Tract’s helm. In fact, Mr. Raspin was to assume that position.
[85] Implementation of the board’s unanimous decision soon unravelled. Messrs. Lehnen, Hayter and Bulk presented a united front. They wanted to return to the days when they had sole control of Huron Tract. By the close of business on January 26, 2006, they had attained that goal. They acquired the plaintiffs’ shares and accepted their resignation as officers and directors.
[86] The plaintiffs were owed money but had lost the benefit of any security they held. They would receive interest only payments for two years. There was no obligation to make any principal payment during that period.
[87] As noted, some payments of interest due under the Agreement were made: presumably by Huron Tract.
[88] As the January 25, 2008 deadline for the “purchase of the entirety of the outstanding notes issued by Huron Tract” approached, were the “Guarantors” preparing to buy? No.
[89] The plaintiffs’ lawyer initiated contact. As mentioned, Mr. Plener said that the purpose of his January 14, 2008 letter was “to coordinate closing matters” and he asked for the name and contact information of the lawyer acting on the other side.
[90] The letter sent by Messrs. Bulk and Lehnen to the plaintiffs directly didn’t address closing matters or even provide the name of a lawyer. It explained why Huron Tract couldn’t pay, what it was doing to raise money and stated their intention “to work with you...to resolve and redeem the obligation to you as quickly as possible.”
[91] Not once did the defendants mention a transaction of purchase and sale. The plaintiffs’ lawyer did. As mentioned, in his January 24, 2008 letter Mr. Plener said in part:
My client (sic) remains ready, willing and able to complete this transaction on the scheduled date and we would appreciate hearing from you, or preferably your lawyer, so that we can settle documents and agree upon an appropriate time and place to accomplish this.
[92] The letter was addressed to each of the individual defendants and Huron Tract.
[93] The only response came from Huron Tract. It didn’t mention a “transaction”, a lawyer, documents or time and place. It simply said that “[w]e have commenced discussions to release sufficient security to satisfy the obligation...” and asked whether the plaintiffs would agree to a repayment schedule. The sole focus was on Huron Tract’s ability to pay.
[94] Subsequent to the “closing” date, Huron Tract paid some of the outstanding interest. Each of the plaintiffs also received a $5,000 principal payment from Huron Tract.
[95] In an undated letter bearing the names of Mr. Lehnen and Mr. Bulk, Huron Tract advised Mr. Plener that “I have had an opportunity to discuss a few alternative solutions for repatriating the notes issued to your clients.” The company asked for a “thirty day postponement”, promised it would “notify Mr. Raspin on a daily or weekly basis of any change in status” and declared “[o]ur interest is in solving the repatriation.”
[96] The notion that the parties had negotiated a transaction that required the plaintiffs to have in their possession promissory notes ready for transfer in exchange for a purchase price is nothing short of fanciful. It is an argument founded on desperation, nothing more. It is without merit.
[97] The simple fact is that a rift developed in Huron Tract because of concerns about its management and financial condition. The plaintiffs were asked to leave Huron Tract in the hands of the individual defendants. In return, the plaintiffs received their promise to repay the principal that was outstanding two years later if Huron Tract failed to do so.
[98] In isolation the language of the Agreement would be bewildering. However, when read in its factual context, the intention of the parties and the meaning of the words of the Agreement are readily discernible.
[99] In The Law of Guarantee,[^19] Kevin McGuinness summarized the formal requirements of a contract of guarantee. He wrote:
In determining whether a particular undertaking amounts to a guarantee, a court will look to the substance of a transaction, rather than to the form of the agreement or to the terms in which it is described by the parties. The determining consideration in deciding upon the true nature of an agreement is the substantive intention exhibited by the parties when fashioning their agreement. No special wording is required to create a guarantee. An agreement may be held to constitute a guarantee, even though that word was not employed by the parties. In an appropriate case, the court will disregard the whole form of an agreement in order to give effect to the substantive intention between the parties. Thus, although the terms employed by the parties in drafting the agreement may be evidence as to their intent, the terminology used is not conclusive. [Citations omitted]
[100] Using context as an interpretive aid is particularly important in a case such as this one where the drafting was undertaken by a non-lawyer who used unclear (to be charitable) or obfuscatory (to be more accurate) language.
[101] In Mitsui Construction Co. Ltd. v. Attorney General of Hong Kong, Lord Bridge addressed the court’s task when faced with a poorly written contract. I agree with this passage:
[It] affords no reason to depart from the fundamental rule of construction of contractual documents that the intention of the parties must be ascertained from the language they have used interpreted in the light of the relevant factual situation in which the contract was made. But the poorer the quality of the drafting, the less willing any court should be to be driven by semantic niceties to attribute to the parties an improbable and unbusinesslike intention…[^20]
[102] What if I am wrong and the plaintiffs were obligated to assign promissory notes made by Huron Tract in their favour to the individual defendants? In my view, the result would be the same.
[103] As noted, Mr. Plener wrote to the defendants before January 25, 2008 in an effort to determine what was required to complete whatever transaction the Agreement contemplated. That portion of his letter was ignored.
[104] There is no mystery underlying the defendants’ failure to communicate their expectations on “closing”. They didn’t have any. It was immediately clear that Huron Tract was without funds. Messrs. Lehnen and Bulk communicated on behalf of Huron Tract but were wordless in their personal capacity. Mr. Hayter didn’t surface at all. The individual defendants didn’t mention the existence of the Agreement, let alone what they expected to receive in return for the payment it required.
[105] Those facts alone demonstrate the weakness of the submission that the plaintiffs were bound to tender on January 25, 2008.[^21] Add to the mix the fact that the plaintiffs didn’t have copies of the 2005 notes and that the 2003 notes either didn’t evidence their advances at all (in the case of Mr. Jeffrey) or only to a limited extent (in the case of Mr. Raspin and Leajon) and the submission borders on the absurd.[^22]
[106] As MacKinnon J.A. wrote in Stewart v. Ambrosino:
The law does not require a nugatory and meaningless ritual to be carried out.[^23]
[107] On January 26, 2006, the plaintiffs were asked to sign a host of documents in return for the share purchase price. They did so that day. I have no hesitation in concluding the plaintiffs would have assigned their debt and – to the extent they held them – promissory notes evidencing same, the moment Messrs. Lehnen, Bulk and Hayter made the payments the Agreement required. They were not asked to because those defendants had no intention of fulfilling their promise.
[108] Messrs. Lehnen, Bulk and Hayter did not acknowledge the existence of any potential personal obligation, let alone evidence any intention of completing a transaction involving the purchase of promissory notes. If the Agreement, in substance, contemplated such a transaction, any obligation on the part of the plaintiffs to tender evaporated given the fact the defendants were “demonstrably unable” and unwilling to complete it.[^24]
E. Conclusion
[109] For the reasons given, I conclude that the individual defendants guaranteed payment of amounts owing to the plaintiffs by Huron Tract.[^25] Interest only payments were to be made for two years. The individual defendants are liable to the extent those payments were not made.
[110] The principal amount was to be repaid on or before January 25, 2008. It wasn’t. With the exception of a $5,000 instalment paid by Huron Tract to each of the plaintiffs in early February, 2008, the entire balance is outstanding.
[111] The plaintiffs shall have judgment against Jake Bulk, Allan Hayter and the Estate of Richard Lehnen for the following principal amounts:
a. In the case of Leajon Graphics Ltd., $475,000;
b. In the case of Ken Raspin, $362,000;
c. In the case of Larry Jeffrey, $206,000.
[112] Leajon Graphics Ltd. and Larry Jeffrey are also entitled to judgment for interest accrued to January 26, 2008, in the respective amounts of $12,000 and $10,550.
[113] All of the plaintiffs are entitled to pre-judgment interest on the amounts set forth in paragraph 111 of these reasons from January 27, 2008 onward at the rate of 3.3 % per year pursuant to s. 128 (1) of the Courts of Justice Act, R.S.O. 1990, c. C.43. Postjudgment interest shall accrue in accordance with s. 129 (1) of that statute.
[114] The plaintiffs are presumptively entitled to their costs. Failing agreement on the issue, written cost submissions not exceeding five pages (exclusive of any offer(s) to settle) may be provided according to the following schedule:
a. Those of the plaintiffs shall be served and filed on or before April 9, 2013;
b. Those of the defendants shall be served and filed on or before April 23, 2013;
c. A short reply not exceeding two pages may be served and filed by the plaintiffs on or before April 30, 2013.
[115] Counsel are asked to provide their cost submissions to me through Judges’ Administration in London, Ontario.
“Justice A. D. Grace”
Justice A. D. Grace
Released: March 8, 2013
COURT FILE NO.: CV-08-00368098
DATE: 2013/03/08
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
LEAJON GRAPHICS LTD., KEN RASPIN, NICK MINICHILLO and LARRY JEFFREY
Plaintiffs
– and –
ALLAN HAYTER, JAKE BULK, HURON TRACT HOLDINGS INC., and SUSAN LEHNEN, RENEE LEHNEN, and CHRISTA LEHNEN in their capacities as Estate Trustees of the ESTATE OF RICHARD LEHNEN also known as DICK LEHNEN, deceased
Defendants
REASONS FOR JUDGMENT
Grace J.
Released: March 8, 2013
[^1]: One of the lawyers became ill and the trial could not be completed on March 28, 2012 as scheduled. While unavoidable, that led to the longer than desired time frame that followed. The parties were given permission to file written submissions. They were received on June 25, July 6, 10, 16 and 18, 2012. A request to make oral submissions was granted and resulted in the final attendance on November 30, 2012.
[^2]: The principle was recently applied in Onex Corporation v. American Home Assurance Company, 2013 ONCA 117.
[^3]: According to Mr. Jeffrey, the project was also to include a swimming pool.
[^4]: According to exhibit 1, $218,038 was the amount of the original investment.
[^5]: The parties filed a two volume joint document brief as exhibit 2. It contained six promissory notes from that period in favour of Leajon, one in favour of Mr. Raspin and one in favour of his company 2006312 Ontario Inc. In each of them Huron Tract promised to pay $50,000 with interest only payments required quarterly in arrears until the note matured on its tenth anniversary.
[^6]: A review of the minutes of a November 10, 2005 meeting of the board of directors evidences Mr. Minichillo’s frustration. He said that current financial statements and tax returns had not been produced despite requests over a period of two and a half years. He went so far as to suggest that there had been some “creative accounting”.
[^7]: A change notice was prepared by Mr. Prince and filed with the Ministry of Consumer and Business Services on November 15, 2005. In addition, Mr. Prince advised Huron Tract’s lender, Heartland Community Credit Union Limited, of the change by letter on that same day.
[^8]: Mr. Minichillo is correct. Paragraph 18 contained that prohibition.
[^9]: If it did earn such income, Huron Tract was to receive 10% of it.
[^10]: According to exhibit 3, Leajon received $36,000 of the $48,000 that was due and Mr. Jeffrey received $10,550 of the $21,110 that was due.
[^11]: As noted earlier the amounts are respectively $362,000 (Raspin), $206,000 (Jeffrey) and $475,000 (Leajon).
[^12]: R.S.O 1990, c. C.43, s. 128.
[^13]: The excerpt is taken from paragraph 16 of the Amended Amended Statement of Claim.
[^14]: That was set forth in paragraph 3 of the Agreement.
[^15]: The Joint Document Brief included a partial copy of a Participating Term Debenture signed by Huron Tract in favour of note holders who were to be described in schedule “A”. No such schedule was attached. None of the witnesses referred to it.
[^16]: Each of the promissory notes was identically worded and signed by Mr. Bulk as secretary. Interest was to accrue at an annual rate of five per cent and be paid quarterly. Huron Tract promised to pay the named person $50,000 on the tenth anniversary date which ranged from March 19 to September 11, 2013.
[^17]: Paragraph 27 of the parties’ partial Agreed Statement of Fact stated: The promissory notes were to be secured by the Bank of Nova Scotia. In late 2004, the Bank of Nova Scotia determined that it could not continue to hold the notes. I was shown an August 9, 2004 “Direction” addressed to The Bank of Nova Scotia Trust Company and signed by, among others, Messrs. Raspin and Minichillo. Interestingly, I did not see a single document generated by the institution.
[^18]: The 2005 notes named either Mr. Jeffrey, Mr. Raspin, in trust or Mr. Minichillo, in trust as payee.
[^19]: 2d ed. (Toronto: Carswell 1996) at §3.18.
[^20]: (1986), 33 Build. L.R. 1 (P.C.). See, too, Excelsior Properties Ltd. v. Cosentino Developments Inc. 2011 ABQB 666 (Alta. Q.B.); Terasen Gas Inc. v. Anglo Swiss Resources Inc., 2010 CarswellBC 3369 (S.C.); Roma Construction Ltd. v. Excel Venture Management Inc., 2007 ABQB 396 (Alta. Q.B.).
[^21]: Pompeani v. Bonik Inc. (1997), 1997 3653 (ON CA), 35 O.R. (3d) 417 (C.A.).
[^22]: See, for example, Gyulay v. Kenderry Corp. (1998), 72 O.T.C. 362 (S.C.J.); Puri v. Sharynton Homes Ltd. (1984), 48 R.P.R. (2d) 8 (Ont. Gen. Div.); Can-Euro Investments Ltd. v. Industrial Alliance Insurance & Financial Services Inc., 2009 NSSC 20.
[^23]: (1977) 1977 1046 (ON CA), 16 O.R. (2d) 221 (C.A.).
[^24]: The quoted phrase is drawn from Gyulay, supra note 22 at para. 36.
[^25]: As noted in the body of my decision, this was pleaded in paragraph 16 of the Amended Amended Statement of Claim.