Court File and Parties

Court File No.: 831/13 Date: 2017-02-16

Superior Court of Justice - Ontario

B E T W E E N:

ARCHITECTURAL MILLWORK & DOOR INSTALLATIONS INC. Plaintiff

• and - PROVINCIAL STORE FIXTURES LTD. Defendant

Counsel: W. Sarasin, for the Plaintiff C. Holland, for the Defendant

Heard: February 8 and 9, 2017

Grace J.

Reasons for Judgment

[1] Govan Brown Construction Managers (“Govan Brown”) was retained as the general contractor on the OLG Casino Project in Brantford, Ontario. Govan Brown retained Provincial Store Fixtures Ltd. (“Provincial”) to perform certain services. In turn, Provincial subcontracted some of the work to Architectural Millwork & Door Installations Inc. (“AMDI”).

[2] AMDI fulfilled its obligations and issued invoices from time to time. Some were paid by Provincial. Others were not.

[3] This action was commenced. Pleadings were exchanged. AMDI sought summary judgment in the amount of $126,994.55. Reasons were released on August 5, 2015. AMDI’s motion was granted in part. Provincial was ordered to pay $61,696.31, interest and later costs.

[4] Summary judgment was not granted for the balance of $65,298.24. That was the amount set forth in a credit memo AMDI had issued to Provincial on January 31, 2012 (the “Credit Memo”).

[5] The parties were directed to proceed to trial on a single question. Is the Credit Memo issued by AMDI to Provincial still operative? My reason for directing the parties to proceed to this trial was outlined in para. 38 of my reasons on the motion for summary judgment:

I am unable to determine whether the Credit Memo is still operative based on the affidavits filed and the cross-examinations conducted so far. While AMDI has not yet received the partial payment it agreed to accept, Provincial may have relied on the Credit Memo in its dealings with Govan Brown.

[6] On May 7, 2016, Provincial paid all of the amounts that were due on account of the OLG Casino Project save for the amount of the Credit Memo. If the Credit Memo was effective on that date, AMDI is owed nothing more. If not, PSW must pay AMDI the sum of $65,298.24.

[7] Directions were given pursuant to rule 20.05(2). Affidavits of AMDI’s president Noel Corrigan and Provincial’s project manager Regina Dee constituted their examination-in-chief. They were cross-examined at trial. No other witnesses were called.

[8] Provincial came prepared to address the need for consideration for the Credit Memo and if required, its existence. It need not have done so. As noted, the parties were directed to address one issue at trial: whether the Credit Memo is still operative.

[9] In any event, a reduction in an account balance need not be supported by fresh consideration. Section 16 of the Mercantile Law Amendment Act, R.S.O. 1990, c. M.10 provides:

Part performance of an obligation either before or after a breach thereof when expressly accepted by the creditor or rendered in pursuance of an agreement for that purpose, though without any new consideration, shall be held to extinguish the obligation.

[10] Even if required, AMDI concedes value flowed in both directions. The parties enjoyed a longstanding and satisfactory business relationship at the time the Credit Memo was issued. AMDI’s decision to accept part payment on the OLG Casino Project was intended to strengthen that bond, thereby maintaining existing and generating future contracts.

[11] Resolution of this dispute requires an answer to a question s. 16 of the Mercantile Law Amendment Act does not answer. As explained in Canadian Contract Law at p. 61:

The section does not…deal…with the problem of the debtor who has only partly performed the agreement when the creditor retracts its concession. [1]

[12] Provincial recognizes AMDI purported to revoke the Credit Memo. The defendant submits it did not receive notice of that decision until service of Mr. Corrigan’s affidavit in support of the motion for summary judgment sworn September 13, 2013.

[13] That step actually occurred a few months earlier. AMDI’s statement of claim was issued on May 3, 2013. It sought payment of all amounts that had been invoiced which remained unpaid without reference to the Credit Memo. Provincial maintained that AMDI’s claim was exaggerated. It relied on the Credit Memo in support of that position. Provincial has been steadfast that AMDI was bound to accept part payment.

[14] Provincial’s argument became more focused during the trial based on one factual and one legal concession. I will deal with those in turn.

[15] Factually, Ms. Dee had alleged the Credit Memo was issued, in part, because “the amounts being claimed by AMDI…were exaggerated.” On its face the Credit Memo refers to a “Revision to hours on site for installation”. However, the suggestion that AMDI and Provincial had compromised a dispute over the hours or amount AMDI had invoiced was short lasting.

[16] During cross-examination, Ms. Dee readily acknowledged issues were discussed and resolved as they arose. She commended AMDI for its efforts throughout. A credit was not sought or given to resolve any dispute. Ms. Dee requested a downward adjustment for another reason.

[17] Provincial had entered into a stipulated price contract. Its requests for payment of amounts in excess of the specified sum were not well received by Govan Brown. Some of Provincial’s billings were in dispute. The project was unprofitable. Dee asked AMDI to share the loss. That is why Ms. Dee told Colleen Reeves of AMDI that a $65,000 credit note “would…be greatly appreciated” in a September 14, 2011 e-mail.

[18] The Credit Memo was issued at a time when AMDI was prepared to absorb part of the burden of a project its valued customer found financially difficult.

[19] Legally, counsel for Provincial submitted the Credit Memo could not be revoked because there was no evidence the agreement to accept part payment was conditional or time limited.

[20] However, that position softened at trial. Provincial agreed that a creditor could withdraw its agreement to accept part payment in satisfaction of a larger debt so long as it did so before the debtor relied on the concession.

[21] I return to Canadian Contract Law at p. 61 for an explanation:

The problem of…the revocation by the creditor of its offer to take less than full payment in satisfaction of the debt before the debt is fully paid, is difficult. The problem is not simply one of consideration…but the need and basis for the protection of the debtor’s reasonable reliance on the creditor’s promise. A principled position would be to deny the creditor the right to revoke its offer to take less so long as the debtor is making the payments required in the agreement or, is otherwise in compliance with it, but to permit the creditor to revoke its offer if the debtor does not meet its undertakings. Such a position balances the need to hold the parties to the promises that they make and on which another relies, with the recognition that a person who has not performed as he or she should may not be entitled to claim the courts’ protection. [Citations omitted] [2]

[22] In this case I am of the view that AMDI was entitled to revoke the Credit Memo for two reasons: first, Provincial caused AMDI to issue the Credit Memo by making a promise it did not fulfill and second, Provincial had not relied on the credit when AMDI purported to reverse it. I will deal first with the circumstances surrounding and then following the issuance of the Credit Memo.

[23] By June 24, 2011, AMDI had invoiced Provincial for all of the work performed with the exception of statutory holdbacks under the Construction Lien Act. On September 20, 2011, Provincial made a substantial payment on account. However, a significant balance was still outstanding. On December 19, 2011, Ms. Reeves of AMDI wrote to Ms. Dee. Ms. Reeves said:

We need to clean up this project and get payment…There is $108,000 owing…When can this project be cleaned up? We spoke sometime [ sic ] ago about getting some resolution, but no payment has been received. It is unfair to many of our employees as there [ sic ] premium time has still not been paid to them. If required I can call the OLG directly…

[24] Provincial’s Project Accountant, Marco Schipani, responded at Ms. Dee’s request. He wrote:

To reconfirm our conversation a few weeks back, Provincial has released payment to AMDI for all premium time invoiced on the Brantford Casino Project. Future payments regarding this account are now headed by Henry Joubran as Provincial Store Fixtures has sought legal counsel to resolve all outstanding balances. The balance owed to AMDI will be remitted upon receipt of payment from the OLG and the outstanding credit note from AMDI, in the amount of $65,000 before applicable taxes. [Emphasis added]

[25] As noted, the Credit Memo was issued on January 31, 2012. Provincial received the aggregate sum of $75,792.95 from Govan Brown on February 21 and 22, 2012. However, nothing was remitted to AMDI until May 7, 2016.

[26] Counsel for the defendant maintained that Provincial was not obligated to remit any portion of the monies received in February, 2012 to AMDI. He submitted that was clear from the fact the Credit Memo was unconditional. No time limit was attached. “Closing out Brantford Casino/Payment” was the subject line in Mr. Schipani’s e-mail.

[27] I disagree. As noted, AMDI was pressing for payment of amounts which were overdue. Mr. Schipani told AMDI that its claim would be satisfied subject to two conditions: issuance of a credit note in the agreed upon amount and receipt of payment by Provincial from OLG.

[28] The first condition was satisfied on January 31, 2012. The second had been fulfilled by the close of business on February 22, 2012. By then Provincial had received $75,792.95 from its payor on the project, Govan Brown.

[29] Notwithstanding issuance of the Credit Memo and receipt of more than enough to fully satisfy the $61,020.11 balance then owing to AMDI, Provincial paid nothing.

[30] In my view, in retaining the monies it received from Govan Brown, Provincial breached the promise a senior employee made to AMDI.

[31] Mr. Schipani did not suggest remittance would occur at the time of Govan Brown’s “final” payment to Provincial or resolution of all of the issues that existed between those two companies. It is telling that at trial, Ms. Dee said she shared Mr. Corrigan’s expectation that AMDI would be paid soon after issuing the Credit Memo.

[32] The subject line in Mr. Schipani’s December 19, 2011 e-mail does not help Provincial either. It was drawn verbatim from the message Ms. Reeves had initiated on behalf of AMDI. AMDI was anxious to close out its involvement in the Brantford Casino Project whether Provincial was able to resolve all outstanding issues with Govan Brown or not.

[33] The fact Provincial initially said nothing about the payments it received from Govan Brown in February, 2012 is also instructive. On March 29, 2012, Ms. Reeves sent an e-mail to Mr. Schipani asking him to “make the necessary arrangements” to pay the balance due on a number of accounts including the Brantford Casino Project. She noted that AMDI had “issued the credit as requested several months ago.” Ms. Reeves was directed to Provincial’s Vice President Finance, Henry Joubran.

[34] On May 29, 2012 Mr. Joubran forwarded a copy of an e-mail string to Ms. Reeves. A week before Mr. Joubran had advised others involved in the project that Provincial would initiate legal proceedings unless full payment was received by June 15, 2012. In fact, Provincial commenced an action against Govan Brown and others on June 27, 2012.

[35] AMDI did not learn of the February, 2012 payments Provincial had received until Provincial’s solicitors answered an undertaking given during the course of the summary judgment motion. By correspondence dated February 17, 2015 Provincial’s solicitors advised:

[Provincial] received payments from Govan Brown on January 25, 2012, February 24, 2012 and April 1, 2014. None of these amounts relate specifically to AMDI Invoices.

After the payment by Govan Brown on February 24, 2012, Govan Brown refused to pay the balance owing to [Provincial] of $93,835.31. Of this amount, $61,020.11 was payable to AMDI.

[36] In fact, the listed dates were inaccurate. The accounting provided at trial demonstrates that Govan Brown made payments on January 19, February 21 and 22, 2012 and March 21, 2014. Interestingly, none of those remittances corresponded with an invoice Provincial had delivered to Govan Brown.

[37] After examining the surrounding circumstances it is clear that Provincial procured and AMDI issued the Credit Memo based on Provincial’s promise to remit payment once monies were received from Govan Brown. That occurred on February 21 and 22, 2012. Provincial did not keep its side of the bargain. AMDI was entitled to rely on Provincial’s breach even though its discovery post-dated AMDI’s claim to the entire unpaid amount it had invoiced. [3]

[38] I turn to the issue of reliance. As mentioned, during oral argument counsel for Provincial conceded that AMDI had the right to revoke the Credit Memo unless Provincial had relied upon it.

[39] Provincial issued a series of invoices and credit memos to Govan Brown during the period from October 22, 2009 through August 31, 2011. Nothing was issued thereafter. Provincial received but did not pass on the $65,298.24 reduction set forth in the Credit Memo AMDI issued on January 31, 2012.

[40] Provincial raised the possibility that the credit had been given to Govan Brown on June 30, 2011. The evidence does not support that position.

[41] Provincial provided four credits to Govan Brown at that time in the amounts of $26,697.26, $73,539.55, $20,665.58 and $21,489.30. No combination of those numbers adds up to the adjustment AMDI provided. Further, it was not until September 14, 2011 that Ms. Dee communicated with AMDI about receiving a $65,000 credit. At that time she said a concession in that amount would be “greatly appreciated”. Undoubtedly different words would have been chosen if such a credit had been offered to and passed on by Provincial beforehand.

[42] Provincial’s action against Govan Brown is also important. The statement of claim was issued on June 27, 2012. Provincial sought payment of the principal sum of $100,000. According to Provincial’s records, $93,835.31 was then owing.

[43] Payment by Govan Brown of $17,000 on March 21, 2014 settled the claim. After receipt of the settlement amount Provincial was still owed $76,835.31. Para. 43 of Ms. Dee’s September 13, 2016 affidavit explained what happened next. She deposed:

[Provincial] issued a write-off on the Govan Brown account in the amount of $76,835.31. [Provincial] issued this write off with the understanding that AMDI’s credit memo of $65,298.24 was in effect. Even after taking into account the Credit Memo, [Provincial] forwent $11,537.07 of its own receivables to reach a settlement with Govan Brown.

[44] It is clear from the e-mail that the amount of the Credit Memo was included in the balance of the receivable Provincial was carrying on its books until the end of its dealings with Govan Brown in March, 2014.

[45] Nonetheless, Provincial argues that it relied on the Credit Memo. It points to the affidavit Ms. Dee provided for the purposes of trial. She deposed that Provincial had “disclosed the existence and value of the Credit Memo” and that the “Credit Memo was instrumental in assisting [Provincial] reach a final settlement agreement with Govan Brown”.

[46] I reject that position for these reasons.

[47] Ms. Dee did not provide any dates of the negotiations to which she referred in her affidavit or during the trial. In fact, during cross-examination it became clear that Ms. Dee was not involved in the institution, prosecution or resolution of the action Provincial commenced against Govan Brown. That fell to other employees of Provincial. None of them were called as witnesses. Ms. Dee’s vague evidence obscured. It did not enlighten.

[48] It should be remembered that Provincial claimed the entire balance owing in the action it commenced against Govan Brown. The portion represented by the Credit Memo was not written off until sometime after March 21, 2014. I have no doubt the settlement was achieved shortly before funds were received by Provincial. If not, I am certain Ms. Dee would have said so.

[49] What was the status of the Credit Memo as of or shortly before March 21, 2014?

[50] The statement of claim in this action had been issued months earlier. AMDI sought payment of every dollar it had invoiced that remained unpaid.

[51] Provincial’s statement of defence was delivered in August, 2013. It objected to the fact AMDI had not recognized the Credit Memo.

[52] AMDI’s motion seeking summary judgment for the full amount alleged to be owing was progressing. Mr. Corrigan had sworn a September 13, 2013 affidavit in support of the relief AMDI sought. It explained why AMDI had reversed the credit. Ms. Dee acknowledged that Provincial then learned that AMDI was taking the position “that the Credit Memo was no longer operative.”

[53] Provincial disagreed. It maintained the Credit Memo continued to be in force.

[54] However, both sides knew that the issue would require determination by the court, absent a negotiated solution. The parties have continued to follow the path of litigation.

[55] A conclusion follows easily from the history I have just recited. Provincial’s settlement with Govan Brown was a product of Provincial’s assessment of the strength of its legal position vis-à-vis AMDI, not reliance on AMDI’s long revoked Credit Memo.

[56] To be clear, when Provincial agreed to accept $17,000 in full satisfaction of its claim against Govan Brown on or about March 21, 2014, Provincial knew that AMDI had already purported to cancel the Credit Memo. Provincial made a decision to resolve its action against Govan Brown without AMDI’s knowledge or consent. It chose to compromise its claim prior to the outcome of AMDI’s motion for summary judgment and this trial.

[57] It was entitled to take that step. However, Provincial bears responsibility, not AMDI. Provincial cannot establish reliance by pointing to a decision made unilaterally on the very matter in issue in an ongoing and contested action.

[58] For the reasons given I have concluded the Credit Memo is inoperative. Given the relief sought by AMDI in its statement of claim, I am of the view that document ceased to have any effect on the day the originating process was served on Provincial.

[59] In light of that determination, Provincial shall pay AMDI the sum of $65,298.24 plus pre-judgment interest commencing thirty-one days after the statement of claim was served. [4]

[60] If costs cannot be resolved, written submissions not exceeding ten pages each may be submitted by AMDI and Provincial by the close of business on March 10 and 24, 2017 respectively.

“Justice A. D. Grace”

Grace J.

Released: February 16, 2017

Footnotes

[1] John Swan, Canadian Contract Law, 1st ed. (Markham: LexisNexis Canada Inc., 2006).

[2] Ibid.

[3] During oral argument counsel for Provincial briefly maintained that payment was not made when monies were received from Govan Brown because issues had arisen on other projects. However, counsel volunteered he was mistaken. A wider dispute did not arise until 2013.

[4] Mr. Corrigan acknowledged invoices were to be paid within thirty (30) days after issuance. Provincial should have been given thirty (30) days after service of the statement of claim to pay the sum of $65,000.