CONCERT INTERNATIONAL INC. ONSC 2157

COURT FILE NO.: 14-61177

DATE: March 30, 2016

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2242358 ONTARIO INC., Plaintiff

AND:

DENIS MICHEL BENOIT and CONCERT INTERNATIONAL INC., Defendants

BEFORE: MASTER NATHALIE CHAMPAGNE

COUNSEL: Evgeny Kozlov, for the Plaintiff

Johnathan P.M.Collings, for the Defendants

HEARD: January 12, 2016.

ENDORSEMENT

[1] The plaintiff in this matter is 2242358 Ontario Inc., a corporation incorporated under the laws of Ontario which purports to be owed money by the defendants.

[2] The defendant Denis Michel Benoit (Benoit) is the sole officer, director and shareholder of the defendant Concert International Inc. (CCI) which is a company engaged in event organization.

[3] Both the plaintiff and the defendants bring motions for summary judgment. The plaintiff’s Motion Record contained its Notice of Motion, the Affidavit of Jason Daley, a copy of a Loan Agreement dated March 1, 2011, a copy of a Promissory Note dated March 1, 2011, a copy of a Statement of Claim dated June 18, 2014 and a copy of a Statement of Claim dated December 12, 2013.

[4] The plaintiff submits that the defendants signed a Loan Agreement and a Promissory Note on March 1, 2011 which acknowledged indebtedness by the defendants to the plaintiff in the sum of $1,027,654.31. The plaintiff argues that the defendants did not pay the plaintiff, so it should be granted summary judgment.

[5] The defendants deny that they owe the plaintiff any sum of money as they claim that the plaintiff was not a party to the original agreement signed and that no funds were advanced to them by the plaintiff. Further, the defendants’ position is that despite the fact that Benoit signed the Loan Agreement and Promissory Note on March 1, 2011 representing that he had authority to bind CCI, CCI was not incorporated at the time that the Agreement and Note were signed; therefore, it has no corporate liability in the circumstances.

The Facts

[6] The plaintiff’s affidavit does not explain how the indebtedness on which it claims summary judgment arose. The Affidavit of Jason Daley did not set out the history of the matter prior to March 1, 2011, which history, in my view, is relevant to the motion before me.

[7] Based on my review of the material and the submissions of both counsel, I conclude that the defendant Benoit as President of Concert International, raised funds in 2010 for the Capital Hoedown, a major country music festival. I further find as a fact that Benoit secured investment funds from four individuals who were the directors of the corporate plaintiff, 2242358 Ontario Inc. The investors signed an Investment Term Sheet where the Offerer was Concert International which at the time was not an incorporated company, and the Issuer was 2242358 Ontario Inc. The Investment Term Sheet was signed on May 3, 2010 by Benoit as President of Concert International and by the four investors under the name “Investors Syndicate” 2242358 Ontario Inc.

[8] Based on Benoit’s affidavit in the defendants’ Responding Motion Record, I find that the four investors advanced their own money to Concert International. It is unclear if the funds were advanced on the plaintiff’s behalf as there is some question as to the nature of the relationship between the plaintiff and the four investors which was not explained in the material before me.

[9] I find that on March 1, 2011 Benoit, CCI, Jay Patry Enterprises Inc., Jason Daley, Lorne Daley, Andy Carlson and 2242358 Ontario Inc. executed a Loan Agreement where all parties acknowledged that “Benoit defaulted on the terms of the Investment Agreement and the Original Note and is currently indebted in the amount of $1,027,654.31”. That Loan Agreement, in its recitals, referred to an Investment Agreement and Promissory Note dated May 17, 2010 but no copies of that Investment Agreement and Promissory Note were produced by either the plaintiff or the defendants. It is unclear to me if this reference was meant to be to the Investment Term Sheet signed on May 3, 2010 and I am unable to make a finding of fact in that respect.

[10] In any event, it is an undisputed fact that each of the above-noted investors signed the Loan Agreement dated March 1, 2011 and Benoit signed on behalf of CCI and Andy Carlson signed on his own behalf and on behalf of 2242358 Ontario Inc.

[11] I also find as fact that Benoit signed a Promissory Note the same day, promising to pay 2242358 Ontario Inc. the sum of $1,027,654.31.

[12] It is undisputed that CCI was incorporated on April 26, 2011 and that the defendant Benoit is its sole officer, director and shareholder.

[13] Benoit’s evidence is that he was not advanced $1,027,654.31 and he states that he did not recall signing the documents. In his cross-examination he admitted that he signed the documents but stated that he did not receive the sum of $1,027,654.31. His position is that the Agreement and Note were executed on an advance of further funds that he did not receive.

[14] It is undisputed that the defendants and Concert International did not pay any sums pursuant to any of the notes and agreements.

[15] I find that the plaintiff’s first Statement of Claim was issued on December 12, 2013 and that the defendants failed to file a Statement of Defence at that time. According to the plaintiff, the first action was discontinued at the beginning of January 2014 at the request of the defendants so that they could secure funding for a sporting event. The plaintiff further alleges that the action was discontinued because the defendants agreed to make a “substantial payment”. The defendants do not deny that they requested that the claim be discontinued but they deny that they agreed to make any payment. I find that the defendants requested that the first claim be discontinued so that they could secure financing for an upcoming sporting event and I make no finding as to whether they agreed to make any payment on the claim by the plaintiff.

[16] No payments were made by the defendants in 2014 and a second Statement of Claim was issued on June 18, 2014. In the defendants’ Statement of Defence, they deny the debt.

[17] The Investment Term Sheet signed May 3, 2010, the Loan Agreement signed March 1, 2011 and the Promissory Note signed March 1, 2011 provide for a fairly complicated repayment scheme. I was not provided with any explanation or evidence as to what, if any, amounts should have been repaid under the various schemes.

[18] An additional difficulty arose from the fact that one of the investors, Andy Carlson, resigned from 2242358 Ontario Inc. and revoked any right for the plaintiff to seek repayment on his behalf, for any funds he advanced to the defendants.

[19] It appears on the face of what is before me that some amount may be owing by either CCI, Benoit or both, to at least the original investors in the matter and quite possibility to the plaintiff, but that is not entirely clear and what amount, if any, is impossible to ascertain.

Law

Summary Judgment

[20] RULE 20.04(2)(a) of the Rules of Civil Procedure sets out that:

20.04 (1) Revoked: O. Reg. 438/08, s. 13 (1).

(2) The court shall grant summary judgment if,

(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence;

[21] The case of Hryniak v. Mauldin, 2012 SCC 7, [2014] 1 S.C.R. 87 is the leading case on summary judgment and provides, at para. 49, that:

There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

[22] Further the Court in Hryniak states, at para. 57, that:

On a summary judgment motion, the evidence need not be equivalent to that at trial, but must be such that the judge is confident that she can fairly resolve the dispute.

Liability of a Corporation for a Contract Prior to Corporate Existence

[23] Section 21 of the Business Corporations Act, R.S.O. 1990, c. B.16 governs the liability of a corporation for a contract entered into prior to corporate existence:

Contract prior to corporate existence

21. (1) Except as provided in this section, a person who enters into an oral or written contract in the name of or on behalf of a corporation before it comes into existence is personally bound by the contract and is entitled to the benefits thereof. R.S.O. 1990, c. B.16, s. 21 (1).

Adoption of contract by corporation

(2) A corporation may, within a reasonable time after it comes into existence, by any action or conduct signifying its intention to be bound thereby, adopt an oral or written contract made before it came into existence in its name or on its behalf, and upon such adoption,

(a) the corporation is bound by the contract and is entitled to the benefits thereof as if the corporation had been in existence at the date of the contract and had been a party thereto; and

(b) a person who purported to act in the name of or on behalf of the corporation ceases, except as provided in subsection (3), to be bound by or entitled to the benefits of the contract. R.S.O. 1990, c. B.16, s. 21 (2).

Assignment, etc., of contract before adoption

(2.1) Until a corporation adopts an oral or written contract made before it came into existence, the person who entered into the contract in the name of or on behalf of the corporation may assign, amend or terminate the contract subject to the terms of the contract. 2011, c. 1, Sched. 2, s. 1 (5).

Non-adoption of contract

(3) Except as provided in subsection (4), whether or not an oral or written contract made before the coming into existence of a corporation is adopted by the corporation, a party to the contract may apply to a court for an order fixing obligations under the contract as joint or joint and several or apportioning liability between the corporation and the person who purported to act in the name of or on behalf of the corporation, and, upon such application, the court may make any order it thinks fit. R.S.O. 1990, c. B.16, s. 21 (3).

[24] The Court of Appeal of Ontario in Sherwood Design Service Inc. v. 872935 Ontario Ltd. (1998), 1998 3116 (ON CA), 39 O.R. (3d) 576 (C.A.), offers some guidance in the interpretation of s. 21. Justice Abella states the following at paragraph 11:

In these circumstances, it is difficult to see how the January 11, 1990 letter escapes a common-sense interpretation of s. 21(2) of the Business Corporations Act. The provision allows a corporation, “by any action or conduct signifying its intention to be bound thereby”, to adopt a contract made before the corporation came into existence. There is nothing in the language of the section to suggest a requirement of formal documentation before any such intention can be extracted. Nor is there any suggestion emerging from the language that only on closing can one be certain that the prior contract has been adopted, or that there is any necessity that the ultimate shareholders and directors be in place. The solicitors were the directors and had authority from their clients to convey an intention to be bound.

[25] At paragraph 12 Justice Abella goes on to say:

Section 21(2) does not set out the “manner of adoption”, and there is no principled basis for imposing a stringent requirement of formality. Parties should be able to take at face value letters such as the one sent -- and received -- in good faith by the purchasers’ lawyer on January 11, 1990.

Analysis of the Evidence and Law

[26] The evidence presented to me and summarized above contains significant gaps and is not such that I feel confident that I can fairly resolve the dispute between the parties. The documents signed by the parties contain a complicated repayment scheme that is conditional on certain events occurring, none of which were addressed in the evidence. The Loan Agreement dated March 1, 2011 referred to an Investment Agreement and Promissory Note dated May 17, 2010, but that Agreement and Note were not included in the evidence before me. I am of the view that the court would require further evidence regarding the Investment Term Sheet, the Loan Agreement and the Promissory Note to determine what, if anything is payable pursuant to terms and conditions outlined in those agreements. In addition, the evidence raises questions of to whether the plaintiff corporation was a party to the various notes and agreements signed. In my view, that is a genuine issue for trial.

[27] There is also an issue as to whether CCI is liable under the notes and agreements which were signed on its behalf by Benoit who is its sole officer, director and shareholder. Benoit signed the Loan Agreement and the Promissory dated March 1, 2011 in his own name and signed a second time as having authority to bind CCI, a corporation that was not formally incorporated until April 26, 2011. From the recitals to the Loan Agreement, it is clear that Benoit is CCI’s sole officer, director and shareholder. I conclude that Benoit represented that he had authority to bind the corporation, and demonstrated an intention to have CCI bound by any agreement signed on its behalf. The issue is that this was done prior to CCI’s incorporation. An examination of CCI’s post-incorporation conduct to determine if CCI adopted the Loan Agreement and Promissory Note is inconclusive. The only evidence before me in this regard is that Benoit and CCI requested that the first claim be discontinued in order for CCI to secure financing for an upcoming sporting event. In the absence of further evidence, I cannot conclude that this conduct alone demonstrates an intention to be bound by the notes and agreements signed. The parties have different versions of what occurred and there are credibility issues that would need to be assessed at a trial.

[28] In summary, it is not clear on the evidence what sums, if any, are owed by either defendant or both, to the plaintiff. In the circumstances, I am not prepared to order summary judgment in favor of either party in this matter.

Directions

[29] The issues to be tried are as follows:

a. What funds were advanced and by whom?

b. Are monies payable to the plaintiff pursuant to the repayment schemes in the original Investment Term Sheet and Promissory Note and the Loan Agreement and Promissory Note signed on March 1, 2011, and if so, what amount?

c. Were the notes and agreements conditional on the advancement of funds?

d. Is CCI liable under the Loan Agreement and Promissory Note dated March 1, 2011?

[30] Pursuant to Rule 20.05 of the Rules of Civil Procedure, subject to further agreement or direction, the trial will proceed as a summary trial using the affidavit evidence filed on the motion as part of the evidence in chief of each party. The parties will have a further 3 hours each to lead oral evidence in support of their respective positions. Each party may cross examine the witnesses tendered by the other party for a total of 3 hours if necessary. Reply evidence may be called if justified. The trial will be limited to three days.

[31] There will be a case conference on a date to be fixed by the registrar within the next 90 days. The conference is to give further direction and to fix the date for trial.

Costs of the motion

[32] Neither the plaintiff nor the defendants were successful on this motion. There shall therefore be no costs payable by either party for this motion.

Master Champagne