Court File and Parties

COURT FILE NO.: 15-53644 DATE: 2017-07-12 ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

Applejack Developments Inc. Plaintiff/Applicant

- and -

2294894 Ontario Inc. and Mady (Richmond Hill) Development Corporation Defendants/Respondents

COUNSEL: Barry L. Yellin, for the Plaintiff/Applicant Scott A. Rosen, for the Defendant/Respondent 2294894 Ontario Inc.

HEARD: in Hamilton June 27, 2017

REASONS FOR JUDGMENT

The Honourable Mr. Justice T. Lofchik

[1] The plaintiff, Applejack Developments Inc. (“Applejack”), claims against the defendant 2294894 Ontario Inc. (“229”) for summary judgment in the amount of $500,000.00 on the terms of a promissory note and amending agreements. Applejack states that there is no genuine issue for trial with respect to the promissory note and amending agreements. The position of 229 is that the plaintiff never advanced any money to it, that it does not owe any money to the plaintiff as the plaintiff provided money to a different corporation which is not a party to this litigation, namely 2305992 Ontario Inc. (“230”).

[2] The defendant Mady (Richmond Hill) Development Corporation (“Mady”), is no longer in business and has no assets.

[3] 229 is an Ontario corporation carrying on business in Richmond Hill and is in the business of facilitating construction projects. 229 partnered with 230 as joint venture partners on a retirement home project at 9740-9760 Yonge Street, Richmond Hill. Mr. Alan Hirschfield appears in documents as 229’s president and in one document 230’s secretary, and in another as 230’s president.

[4] 229 and Mady executed a document dated February 8, 2013 described as a promissory note wherein they agreed jointly and severally to repay the principal amount of $250,000.00. The promissory note stated interest at a rate of 12 percent per annum was to accrue until March 31, 2013 or the date Applejack exercises a purchase option in the Yonge project. After March 31, 2013, the interest rate was to be 8 percent per annum.

[5] On January 9, 2013, 230 executed a direction and acknowledgment authorizing 229 and Mady to execute the 2013 promissory note in their capacities as nominees. Further, 230 authorized 229 and Mady to observe and perform all the covenants set out in the 2013 promissory note. Hirschfield signed the promissory note on behalf of 229 in his capacity as president and also signed the direction and acknowledgment in his capacity as 230’s secretary.

[6] Applejack provided a certified cheque in the amount of $250,000.00 payable to 230 on January 9, 2013.

[7] On February 13, 2013, the promissory note was amended by way of a Promissory Note Amending Agreement to extend the due date to April 15, 2013. The amendment provided that except as specifically set out therein, the terms and conditions of the promissory note are confirmed and continue to be in full force and effect and apply to the amending agreement.

[8] Applejack provided payment of an additional $250,000.00 by way of cheque payable to 230 on May 17, 2013.

[9] On June 7, 2013, the original promissory note and first amending agreement were further amended to, among other things, reflect the change to the principal amount to $500,000.00, to extend the due date from April 15, 2013 to June 17, 2013, and to state that the promissory note could be converted by Applejack to equity in the project at any time before the due date provided an additional $400,000.00 payment is made before the due date. Despite this second amendment, the remaining terms and conditions of the 2013 promissory note remain in full force and effect.

[10] On June 13, 2013, Applejack made a third payment of $400,000.00 to 230 pursuant to the terms of the second amending agreement.

[11] There is no evidence before me that Applejack was given an equity position in the project after payment of the $400,000.00.

[12] Applejack commenced the within action on June 9, 2015 as against 229 and Mady for, among other things, breach of contract, in respect of the terms of the 2013 promissory note and the first and second amending agreements.

Issues

[13] There are two issues to be dealt with on this motion for summary judgment:

a. The defendants have raised the argument that 229 never received any consideration of any kind from the plaintiff in respect of issuing the promissory notes as it did not receive any money from Applejack.

b. The claim is statute barred under the provisions of the Limitations Act, S.O. 2002, c. 24, s. 4.5 as not having been brought within two years of the time the claim arose.

[14] I have proceeded to deal with this motion for summary judgment in accordance with the guidelines laid down by the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7. I find that I have a full appreciation of the evidence and issues required for a dispositive ruling without the need for a trial.

[15] So far as the issue of consideration is concerned, the plaintiff argues that it is well established that:

Evidence of a signature on a promissory note is prima facie evidence of validity and there is no requirement in the Bills of Exchange Act requiring that the note be witnessed. There is a presumption that every party whose signature appears on a promissory note received valuable consideration. Any consideration sufficient to support a simple contract may constitute valuable consideration for a promissory note. The presumption of consideration is rebuttable, the onus resting on the party alleging no consideration to establish this fact on the evidence.

Mora v. Mora, 2011 ONSC 2965, [2011] O.J. No. 2188 at para. 30 Dyck v. Boshold, [2009] O.J. No. 499 at para. 53

[16] With respect to the rebuttable presumption of consideration, the defendant relies on the fact that the monies paid by Applejack leading to the issuance of the promissory note were not paid to 229 but rather to 230.

[17] The first promissory note of March 31, 2013 on its face sets out the recitation “for value received”;

The first amending agreement of February 13, 2013 makes reference to the original promissory note and has the following recitation:

NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual promises hereinbefore set forth and other good and valuable consideration, and the sum of Two Dollars ($2.00) now paid by each party to the other, the receipt and sufficiency of which is hereby acknowledged by each party, the parties hereto agree as follows:

1. The parties hereby agree to delete the Due Date and insert in its stead “April 15, 2013”.
2. Except as specifically provided herein, the terms and conditions of the Promissory Note are confirmed and continue in full force and effect, and apply to this Amending Agreement mutatis mutandis .

Since this amending agreement was entered into after the first sum of $250,000.00 was paid to 230, a partner of 229 in a joint venture partnership, it is reasonable to infer that 229 considered the payment of the money to 230, its partner, as consideration for the granting of the promissory note;

The second sum of $250,000.00 was paid by Applejack to 230 on May 17, 2013. On June 7, 2013, subsequent to the payment to 230, the parties entered into the second amending agreement inter alia extending the due date of the promissory note from April 15, 2013 to June 17, 2013. This amending agreement makes reference to the original promissory note of January 8, 2013 and contains the following recitation:

NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual promises hereinbefore set forth and other good and valuable consideration, and the sum of Two Dollars ($2.00) now paid by each party to the other, the receipt and sufficiency of which is hereby acknowledged by each party, the parties hereto agree as follows:

1. The parties hereby agree to delete the Principal amount and insert in its stead “Five Hundred Thousand Dollars ($500,000.00)”.
2. The parties hereby agree to delete the Due Date and insert in its stead “June 17, 2013”.

As these recitations and amendments were made after the second amount of $250,000.00 was paid to 230, it is again logical to conclude that 229 considered payment to 230 as consideration for granting the promissory note and to making the amendments to it.

[18] I find that the “no consideration” argument fails not only because the defendant failed to rebut the presumption in the agreement but also because the document specifically refers to consideration being given.

[19] So far as the limitation issue is concerned, the second amendment agreement of June 7, 2013 contains the following:

3. The parties hereby agree to delete the second last paragraph of the Promissory Note and insert in its stead; “This Promissory Note can be converted by the Creditor, to equity in the Project at any time on or before the Due Date at the option of the Creditor (“the Purchase Option”), provided the Creditor makes an additional contribution of Four Hundred Thousand Dollars ($400,000.00) to the Project (the “Additional Contribution”) on or before the Due Date and the Creditor becomes a party to the Co-Tenancy Agreement and other agreements that may be in place for the Project (collectively the “Corporate Agreements”) on or before July 17, 2013. Under the Purchase Option, the Creditor’s total debt of Nine Hundred Thousand Dollars ($900,000.00) will be converted to an equity position of four point eight six nine percent (4.869%) of the Joint Venture for the Project, being 2305992 Ontario Inc. The Additional Contribution, if made by the Creditor, shall also accrue interest at eight percent (8%) per annum until repayment of the loan or completion of the Project. If the Creditor fails to exercise its Purchase Option or is unable or unwilling to make the Additional Contribution or become a party to the Corporate Agreements, then the Due Date for this Promissory Note shall automatically be extended by three (3) months from the then current Due Date and the amount of the Promissory Note shall remain at Five Hundred Thousand Dollars ($500,000.00) plus accrued interest.”

[20] On June 13, 2013, the plaintiff delivered to 230 a certified cheque in the amount of $400,000.00. The defendant argues that this then raises the triable issue of whether this amounts to exercise of the purchase option, thereby avoiding the due date being extended by a further three months. I find this argument to be without merit in that the sentence provides disjunctively that if the creditor fails to exercise the purchase option, or is unable or unwilling to make the additional contribution, or become a party to the corporate agreements, then the due date is extended. As not making the additional contribution is one factor which would extend the three month due date, the reference to failure to exercise its purchase option precludes the argument that delivering the cheque for $400,000.00 amounts to exercising the purchase option, as a failure to exercise seems to be in reference to a different action to exercise the option. There is no evidence that Applejack received an equity position in the project of 4.869 percent or became a party to the Corporate Agreements, so it cannot be said that the purchase option has been exercised. The defendant’s argument that the automatic extension of the due date by three months did not occur as intended fails. I find that there is no triable issue with respect to the due date becoming September 17, 2013, and as the within action commenced on July 9, 2015, the limitation argument fails.

[21] I find that the plaintiff is entitled to judgment against the defendant 2294894 Ontario Inc. in the amount of $500,000.00 together with interest as calculated in accordance with the terms of the promissory note as amended from time to time.

[22] The plaintiff shall have its costs of the motion fixed at the partial indemnity rate at $3,709.65 all inclusive.

LOFCHIK J. Released: July 12, 2017