Court File and Parties
Barrie Court File No.: CV-18-1584 Date: 2019-05-02 Ontario Superior Court of Justice
Between: Brian Thompson, Applicant – and – Mary Eileen Casey, Ronald Albert Ornsby, Jennifer Matthews and 1007937 Ontario Inc., Respondents
Counsel: Christopher Salazar, for the Applicant Jay Ralston, for the Respondent, Mary Eileen Casey
Heard: April 10, 2019
Reasons for Decision
Introduction
1Mr. Thompson makes this application for a declaration that he has priority over a debt owing on a promissory note granted by Jennifer Matthews in favour of 1007937 Ontario Inc. executed on September 20, 2016. He bases his entitlement on an assignment dated September 20, 2010 in which 1007 irrevocably assigned to him “all right, title and interest” in the note. He also requests a declaration that Ms. Matthews is in breach of the note, damages for the amount determined to be owing on the note, damages of $108,000 against Ronald Ornsby and 1007, and interest less any funds he received on account of the note.
2Ms. Casey defends the application stating, among other things that there was no enforceable legal agreement that entitles Mr. Thompson to receive an interest in the note because there was no consideration flowing from him to 1007 when it assigned the note to him.
3Mr. Ornsby and Ms. Matthews have not responded to this application.
Chronology
4This is a factually complex matter. An understanding of the chronology is important.
5In 2000, Ms. Casey and Mr. Ornsby began a personal relationship.
6In 2003, the respondent, 1007937 Ontario Inc. operating as Fendley’s Flowers in Barrie, the principal of which was Mr. Ornsby, needed to borrow $250,250 from the TD Bank. Before lending the amount, TD required a guarantor. Ms. Casey agreed to guarantee the loan by way of a collateral mortgage registered against her residence. TD registered a general security agreement regarding the loan.
7On May 9, 2008, Ms. Casey agreed to guarantee 1007’s indebtedness up to $275,000.
8On May 12, 2008, TD registered a further financing statement regarding this amount.
9In 2009, Ms. Casey and Mr. Ornsby’s relationship ended.
10On August 7, 2010, Mr. Thomson began lending money to Mr. Ornsby personally. Up to September 20, 2010, Mr. Thompson had lent Mr. Ornsby $25,000.
11Respondents, 1007 and Jennifer Matthews, began discussions regarding her purchasing the assets of Fendley’s Flowers.
12On September 9, 2010, Mr. A. Ain, solicitor for Ms. Matthews, conducted a PPSA search and determined that TD had registered a security interest. He wrote to 1007’s lawyer at the time, Mr. J. Norman, and stated that he required a full discharge of the security interest or a comfort letter.
13On September 16, 2010, Mr. Norman sent a letter to TD advising of the agreement of purchase and sale with a closing date of September 20, 2010, and requested that the bank provide a comfort letter that it would consent to the sale. Mr. Norman also advised that Mr. Ornsby, as owner of 1007, had been operating a butcher shop at different premises. In order to fund the required assets, 1007 had borrowed money from Brian Thompson and would be providing to him as security an assignment of a promissory note (the “note”) which was expected from Ms. Matthews as part of her purchase of the Fendley Flowers assets.
14TD did not provide the comfort letter.
15On September 20, 2010, several things happened on this date:
(a) Mr. Ornsby, as principal of 1007, signed an undertaking to obtain the comfort letter and a direction to Mr. Norman to hold back $10,000 on the sale to satisfy any of 1007’s indebtedness. (b) Despite TD’s secured interest, Mr. Ornsby swore a Bulk Sales Act affidavit stating that 1007, operating as Fendley’s Flowers, had no unsecured or secured trade creditors. 1007 sold the assets of the Fendley’s Flowers business including the lease, among other things, to Jennifer Matthews for $165,000. Ms. Matthews paid $35,000 up front and executed a promissory note for $130,000 in favour of 1007. (c) TD did not consent to the sale. This violated the terms of TD’s security agreement. Ms. Casey did not know about the sale until after it occurred. (d) 1007 assigned to Mr. Thompson the promissory note from Ms. Matthews as security for the amount that Mr. Thompson had lent Mr. Ornsby personally. The assignment states that Mr. Thompson had lent money to 1007; however, Mr. Thompson’s evidence is that he never lent money to 1007, only to Mr. Ornsby.
16On September 21, 2010, Mr. Ain swore an affidavit pursuant to the Bulk Sales Act attaching 1007’s affidavit in which Mr. Ornsby stated that 1007 had no creditors. Mr. Ain also swore in that affidavit that “Adequate provision has been made for the payment in full of all unsecured and secured trade creditors of which the Purchaser has notice, forthwith following closing.”
17Almost immediately after closing, Mr. Ornsby advised Ms. Casey that he had sold Fendley’s Flowers.
18On October 7, 2010, TD signed a Notice of Intention to Enforce Security pursuant to the Bankruptcy and Insolvency Act and served it on Ms. Casey.
19On October 10, 2010, TD demanded that Ms. Casey, as guarantor, pay the indebtedness on 1007’s loan in the amount of $250,760.05. In order to avoid mortgage enforcement on her residence, Ms. Casey purchased the debt from TD. It assigned its general security agreement to her.
20On December 6, 2010, Ms. Matthews began making interest payments on the note to 1007.
21On March 3, 2011, Ms. Casey commenced an action (action #1) against 1007 claiming indemnity and payment of $250,760.05.
22On September 5, 2011, Ms. Casey served a Notice of Assignment on Ms. Matthews of TD’s general security agreement.
23On October 28, 2011, Mr. Thompson registered a financing statement.
24On November 18, 2011, 1007 executed a direction, 14 months after the assignment was executed, requiring Ms. Matthews to make payments on the promissory note to Mr. Thompson. Ms. Matthews started making interest only payments to Mr. Thompson.
25On February 8, 2012, Ms. Casey served on Ms. Matthews a Notice of Intention to Enforce Security pursuant to s. 244(1) of the Bankruptcy and Insolvency Act.
26On February 24, 2012, Mr. M. Adams (counsel for 1007 at that time) sent a letter to Mr. L. Smith (counsel for Ms. Casey at that time) setting out a settlement proposal for action #1. It stated that 1007’s only asset was the promissory note and that 1007 was prepared to assign the principal on the note to Ms. Casey, among other things. The letter included a payment statement showing that Ms. Matthews had paid interest on the note to 1007 up to January 13, 2012 (16 months after the note had been assigned to Thompson and two months after 1007 had directed Matthews to make payments to Mr. Thompson).
27On April 30, 2012, counsel agreed that Ms. Casey had received or knew about the assignment to Mr. Thompson of the note on this date [1].
28On June 21, 2012, Ms. Casey commenced an action (action #2) against Mr. Ornsby and Ms. Matthews for payment of $257,185.72 for failure to honour TD’s 2003 security agreement which was assigned to her. She alleges that Mr. Ornsby’s conduct as an officer and director of 1007 was oppressive and unfairly disregarded her interests and those of TD. No claim for priority over the note is made in this action. The note is not mentioned.
29On August 15, 2014, Mr. Thompson alleges that by this time he had lent Mr. Ornsby personally $104,000.
30On June, 2017, Ms. Matthews stopped making interest only payments on the promissory note to Mr. Thompson.
31On October 4, 2018, Mr. Thompson states that because Ms. Matthews stopped making interest payments to him, he commenced this application against Ms. Casey, Mr. Ornsby, Ms. Matthews and 1007 for a declaration that he has priority over the debt owing on the promissory note, among other things.
Legal Issues
32Is Mr. Thompson entitled to a declaration as to his rights regarding the promissory note? If so, does he have priority over the note?
Applicant’s Position
33Ms. Casey, by her own evidence, knew about the asset sale shortly after it occurred. She never took any steps to set aside the sale pursuant to the Bulk Sales Act, which was in force at the time. She had six months in which to do this.
34Mr. Thompson states that while the assignment states that he lent money to 1007, amounts advanced were “at all times understood by all parties to be loans to Ornsby personally”. Therefore, the language in the note that states Mr. Thompson lent money to 1007 is of no consequence.
35Mr. Ornsby does not deny that he is personally liable for the loan amount. The intent of the assignment is clear. Ms. Casey knew about the assignment in 2012. She took no steps against Thompson. Even though she issued a claim after she knew about the assignment, it does not request relief regarding the note.
36The limitation period for Ms. Casey to make a claim against Mr. Thompson started to run in 2012 when she knew about the assignment. She is out of time for making any claim to invalidate the assignment.
Analysis
37Ms. Casey has not commenced proceedings regarding her rights with respect to the note. The issue of whether she is out of time to do so is not before me. She is entitled to raise defences in responding to the application.
38Regardless of any position taken by Ms. Casey, because Mr. Thompson’s interest in the note is based on the assignment, this court cannot make a determination regarding his rights unless it is satisfied that the assignment is valid. As noted above, the assignment was signed on September 20, 2010 when Mr. Ornsby knew of TD’s secured interest. From December 6, 2010 to November 2011, Ms. Matthews made payments on the note to 1007.
39Mr. Thompson may well have known of TD’s secured interest when the note was assigned to him. According to Ms. Casey, he was 1007’s accountant at various times including 2003 when 1007 borrowed the money from TD.
40Because Ms. Casey served on 1007 (and Ms. Matthews) a Notice of Assignment dated September 14, 2011 stating that TD had assigned to her its security interest, Mr. Ornsby knew that Ms. Casey had acquired the bank’s rights as a creditor prior to November 18, 2011. On November 18, 2011, 1007, Mr. Ornsby, on behalf of 1007, executed a direction that Ms. Matthews make the payments on the note to Mr. Thompson.
41I am not satisfied that Mr. Ornsby could legally assign to another person an asset of 1007 as security for his personal debt. Mr. Thompson’s statement that all parties understood that he had lent money to Mr. Ornsby, not 1007, despite the terms in the assignment, does not assist him. Ms. Casey states that the assignment was one of the closing documents on the asset sale. Mr. G. Norman, a lawyer, prepared them. The fact that the assignment was not corrected nor amended raises questions. The assignment appears to have put 1007’s sole asset beyond the reach of its major creditor. It may have been fraudulent or a mistake. (I am not making a finding in that regard because that question is not before me.) I am not satisfied that the assignment is valid. Therefore, I cannot make a determination of Mr. Thompson’s interest in the note.
Conclusion
42The application is dismissed without prejudice to Mr. Thompson’s bringing further proceedings to prove the validity of the assignment because he did not address that issue in this application. If he does bring further proceedings, given the complexity of this matter. I will remain seized.
Costs
43Ms. Casey has successfully defended this application. Her counsel stated that costs of $30,000 plus disbursements of less than $1,000 should be awarded on a partial indemnity basis. In comparison, Mr. Thompson’s counsel stated that if the applicant was successful, costs of $19,612.50 all-inclusive would be appropriate. Both counsel agree that given the complexity of the matter, considerable work was required in addition to preparing the materials and arguing the application. Ms. Casey’s counsel stated that given the novelty of the matter, the court could be more generous to the unsuccessful party.
44Considering the principles set out in Boucher v. Public Accountants, 71 O.R. (3d) 291, in my view, a fair, reasonable and proportionate costs award for this motion is $19,700, all inclusive, which the applicant, Brian Thompson, shall pay to the respondent, Mary Eileen Casey, within 30 days.
Madam Justice M.E. Vallee Released: May 2, 2019
Footnote:
1She learned of it during Mr. Ornsby’s examination for discovery in action #1.