2003BCSC1877

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:	*Dougan v. Uzzell,*
	2003 BCSC 1877

Date: 20031212
Docket: S014498

Registry: Vancouver

Between:

Mary Dougan

Plaintiff

And

George Uzzell

Defendant

And

Viggo Bendtsen

Defendant by counterclaim

Before: The Honourable Madam Justice Allan

Reasons for Judgment

Counsel for the plaintiff:	Howard A. Mickelson Shelan R. Miller
Counsel for defendant:	George F. Gregory
Date and place of summary trial:	December 1 and 2, 2003
	Vancouver, B.C.

The applications

[1] The plaintiff, Mary Dougan, brings a summary trial application pursuant to Rule 18A of the Rules of Court for judgment in the amount of $536,727.62 on a Guarantee and Indemnity Agreement dated December 11, 1997 (the ìGuaranteeî). At the commencement of the hearing, Mr. Gregory, counsel for the defendant, George Uzzell, brought a preliminary application, seeking leave to cross-examine Mr. Gudmundseth, the plaintiffís lawyer, and Mr. Hubley, her accountant, on their affidavits. Judgment was reserved on that application and the summary trial proceeded. Leave was given to the defendant to file an amended statement of defence that had inadvertently been filed without leave.

[2] Mr. Gregory submits that the plaintiffís application for judgment should be dismissed or adjourned pending the cross-examination of Mr. Gudmundseth and Mr. Hubley, or that judgment should issue for the defendant.

Background

[3] Mrs. Dougan is a 71-year-old widow who lost over $1 million, representing her retirement savings, in real estate projects developed by a rogue, Viggo Bendtsen. Mr. Uzzell, who is approximately 56 years of age, has owned and operated a logging company, Coast Mountain Industries Ltd. (ìCoast Mountainî), in Campbell River since 1985. He also owns a numbered company, 420821 B.C. Ltd. (ì420821î). Mr. Uzzell was also defrauded by Mr. Bendtsen.

[4] In 1990, when Mrs. Douganís husband died, she received life insurance proceeds from a policy purchased from Mr. Bendtsen. Between April 1993 and April 1995, she invested approximately $1.2 million in his company, Real Capital Corporation (ìReal Capitalî). The business of Real Capital was to invest funds from investors into real estate development projects on Vancouver Island. Mrs. Dougan did not know which projects her money was invested in but Mr. Bendtsen assured her that her money was safe in first mortgages.

[5] Prior to May 1997, 420821 invested about $650,000 with Mr. Bendtsen and Real Capital. Mr. Uzzell also admitted on his examination for discovery that he did not know where his money was invested and that, without Mr. Uzzellís knowledge or consent, Mr. Bendtsen had taken money Mr. Uzzell had invested in a project in Parksville and put it into a project Mr. Bendtsen was developing in Victoria known as the ìCanoe Club Propertyî.

[6] On February 14, 1997, Real Capital registered in its own name the First Mortgage for $950,000 over the Canoe Club Property. On April 27, 1997, Mr. Bendtsen informed Mr. Hubley that he was insolvent. He was unable to service his obligations to his investors including Mrs. Dougan and Mr. Uzzell. A handful of development projects remained in which Real Capital held mortgages.

[7] On Mr. Hubleyís recommendation, Mrs. Dougan retained legal counsel. At a meeting on May 5, 1997, Mr. Bendtsen admitted that he could not provide an accounting as to which investment Mrs. Douganís funds had been directed. He was never able to provide that information.

[8] At that meeting, Mr. Bendtsen also told Mrs. Dougan and her advisors that someone elseís money went into the Canoe Club Property, but would not reveal whose. Subsequently, Mr. Bendtsen informed Mr. Hubley that Mrs. Dougan's nephew Larry Dougan, his wife Francis Dougan, and Mr. Uzzell had provided the money for investment in the Canoe Club Property. Mr. Hubley did not believe Mr. Bendtsen because Mr. Bendtsen was unable to say with certainty where anyone's money was invested. He believed that Mr. Bendtsen was "cozying up" to Mr. Uzzell because Mr. Uzzell still had money to invest, which money Mr. Bendtsen badly needed to complete the Canoe Club Property project.

[9] Mrs. Dougan believed that her money was part of any mortgages that related to funds received by Real Capital, including the Canoe Club Property mortgage.

[10] A dispute arose as to whether or not the First Mortgage was comprised of a co-mingling of the investorsí funds including Mrs. Douganís past investments. Mr. Mickelson, the plaintiffís lawyer, submits that it was clear at that time that all of Mr. Bendtsenís victims had run out of money except for Mr. Uzzell, who was still prepared to invest further in the Canoe Club Property, if only as a means to recover his initial investments.

[11] On May 21, 1997, Mr. Bendtsen requested that Mrs. Dougan acknowledge that a further $300,000, which Larry Dougan and Mr. Uzzell were advancing, take priority over any claim she might have over the First Mortgage. She declined.

[12] On May 23, 1997, Real Capital agreed to assign a two-thirds interest in the First Mortgage to 420821, conditional upon that company investing a further $300,000 secured by way of a third mortgage. Real Capital took the position that 420821 had funded two-thirds of the First Mortgage and owned that portion of the mortgage. However, in the absence of any evidence establishing that fact, Mrs. Dougan and her advisors did not accept Real Capitalís position.

[13] On June 24, 1997, Mrs. Dougan commenced an action against Real Capital and 420821 (ìthe 1997 Actionî), asserting that the assignment, which in essence gave Mr. Uzzell, one of Real Capitalís creditors, a priority interest in the First Mortgage, was a fraudulent conveyance or preference. Her solicitors filed a Certificate of Lis Pendens over the Canoe Club Property, claiming an interest in the First Mortgage (ìCPL1î). On June 30, 1997, she filed an amended statement of claim, asserting that Real Capitalís Fourth and Fifth Mortgages were held in trust for her and the other investors. She filed a second CPL (ìCPL2î) claiming an interest in the Fourth and Fifth Mortgages. Both CPL1 and CPL2 incorrectly described the interest as a ìleaseî rather than a mortgage of lease.

[14] On July 23, 1997, the plaintiffís solicitors realized the error in the CPLs and filed ìCPL3î, claiming an interest over the First, Fourth and Fifth Mortgages, and correcting the misdescriptions. Mr. Uzzell had not requested that the misdescribed CPLs be cancelled and there is no evidence that he suffered any hardship as a result of the irregularity.

[15] On July 25, 1997, counsel for Real Capital proposed a comprehensive settlement of all of Mrs. Douganís claims, including settlement of the 1997 Action. Settlement negotiations proceeded between Mrs. Dougan, Mr. Uzzell and Real Capital over several months. Each party was represented by counsel.

[16] On September 26, 1997, Mr. Wickham, Mr. Uzzellís counsel, proposed to Mr. Gudmundseth that Mr. Bendtsen be given a release from civil liability in exchange for his resignation as a director of Real Capital and his blank transfer of his shares in Real Capital. Mr. Wickham noted that if Mrs. Dougan was not prepared to grant Mr. Bendtsen his civil release "then we cannot get control of Real [Capital] to grant the necessary priority to any new financing or to even sign discharges."

[17] On October 31, 1997, Real Capital's counsel proposed that Mr. Uzzell would guarantee payment of the amount due to Mrs. Dougan under the settlement proposal.

[18] The negotiations culminated in a settlement agreement dated December 5, 1997 (the ìSettlement Agreementî). Real Capital, Mr. Bendtsen, Mrs. Dougan, 420821, Coast Mountain, Mr. Uzzell, Mr. Uzzellís new company 2002 Holdings Ltd. (ì2002î), and other investors were parties to the agreement. It contained the following terms:

a. Real Capital transferred and assigned to 2002 its interest in the First Mortgage, the Fourth Mortgage, and the Fifth Mortgage;

b. The parties acknowledged that Mrs. Dougan had advanced $1,120,461 to Real Capital;

c. 2002 agreed to pay Mrs. Dougan a total amount of $665,000 ("Compromised Debt") in satisfaction of her claim against Real Capital, without interest, as follows:

i. $25,000 within 60 days of the acceptance date (December 16, 1997) of the Agreement;

ii. the principal sum of $240,000 by monthly installments of $4,000 per month for 60 months;

iii. the sum of $400,000 on the last day of the 60^th month; and,

iv. in the event that 2002 defaulted in payment of any of the installments, the whole of the principal balance then remaining owing would, on five days written notice become immediately due and payable;

d. Mr. Uzzell agreed to personally guarantee and indemnify Mrs. Dougan for 3/4 of the amount of her Compromised Debt;

e. Upon full payment of the amount owed to Marvia Development Corporation (ìMarviaî) (another investor), and provided that 2002 was current in its payments to Mrs. Dougan and Ms. Clarke (another investor), Mrs. Dougan agreed to release Mr. Bendtsen, Real Capital, and Corben Management Corp. (Mr. Bendtsen's management company) of all claims up to the date of acceptance of the Settlement Agreement;

f. Each party was required to release, remise, and forever discharge each of the other parties of and from any and all manner of actions, causes of actions, suits, contracts, claims, debts, demands and damages, which included Mrs. Dougan's claim in the 1997 Action;

g. Each party was required to execute and deliver the necessary documents to carry out the intent of the Settlement Agreement; and,

h. The date of acceptance of the Settlement Agreement was defined as such time that all parties had executed and delivered the Settlement Agreement to the lawyers for Real Capital.

[19] In accordance with his obligations under the Settlement Agreement, Mr. Uzzell signed the Guarantee, promising to guarantee and indemnify Mrs. Dougan for 3/4 of her Compromised Debt.

[20] In January 1998, counsel for Real Capital acknowledged receipt of all executed copies of the Settlement Agreement and confirmed that December 16, 1997 was the acceptance date for the purpose of the Settlement Agreement.

[21] Mrs. Dougan fulfilled her obligations under the Settlement Agreement by cancelling the registration of the CPLs and by providing signed consent dismissal orders to be held by counsel for Real Capital pending the outcome of the Marvia arrangement.

[22] Although 2002 was obliged to make the monthly payments to Mrs. Dougan, in fact Mr. Uzzell stated on his examination for discovery that he made those payments through his companies.

[23] Mr. Uzzell made payments of $57,000 under the Settlement Agreement until August 1, 1998. On June 14, 1999 Mrs. Dougan issued written notice of default and demand to 2002 and Mr. Uzzell. No further payments were made. The present action was commenced on August 10, 2001.

The defence

[24] Mr. Uzzell asserts in his statement of defence that when he executed the Settlement Agreement and Guarantee, he relied on the following fraudulent or negligent misrepresentations made by Mr. Bendtsen:

… $950,000 of his familyís money was invested in the Canoe Club Property (hence, Mr. Uzzell had to enter into the Settlement Agreement and the Guarantee to save that investment);

… Mr. Bendtsen had disclosed the true financial situation of the Canoe Club Property to Mr. Uzzell;

… Mr. Bendtsen had an honest and reasonably well-informed belief that the Canoe Club Property project could be completed for $1.2 million and upon completion Mrs. Dougan would be paid so that Mr. Uzzell would not have to pay her;

… Mr. Bendtsen had an honest and reasonably well-informed belief that the Canoe Club Property project would be profitable in the immediate future; and

… The mortgages to be transferred from Real Capital to 2002 under the Settlement Agreement were valuable assets and would be available to pay Mrs. Dougan.

[25] Mr. Uzzell further asserts that Mrs. Dougan knew, or should have known, personally or through her advisors that:

… Although the claims of Mr. Uzzell to the assets of Real Capital were as good or better than her claims, Mr. Uzzell had no protection or recognition of the debts owed to him and his companies;

… Mrs. Dougan had moved into the position of favoured creditor, being promised a much higher percentage of the recovery of her losses from the other people to whom Mr. Bendtsen owed money;

… All other creditors of Mr. Bendtsen and his companies postponed their claims to Mrs. Dougan and Ms. Clarke;

… Despite receiving no benefit from the Agreement, Mr. Uzzell had to guarantee the debts of Real Capital to Mrs. Dougan; and

… The Guarantee purported to be in consideration of the entering into the Settlement Agreement, yet the Guarantee expressly purported to be valid, even if the Settlement Agreement were not. Indeed, the Guarantee provided that Mr. Uzzell had to indemnify Mrs. Dougan for any losses she sustained because of the Settlement Agreement being void.

[26] At the heart of the defence is the assertion that (1) Bendtsen induced Mr. Uzzell to enter into the Settlement Agreement and Guarantee by lying to him and (2) Mrs. Dougan knew that Mr. Bendtsen, who was Mr. Uzzellís fiduciary, was defrauding him. As a result, Mr. Gregory submits that Mr. Uzzell has four defences to Mrs. Douganís claims on her Guarantee:

… The fact that Mr. Uzzell was induced to enter the Settlement Agreement by the fraud of Mr. Bendtsen is sufficient to provide a defence to the claim; the fact that Mrs. Dougan was aware of Mr. Bendtsenís fraud provides an alternative defence;

… The Settlement Agreement was unconscionable and brought about by economic duress;

… Mr. Bendtsen induced Mr. Uzzell to enter the Settlement Agreement by undue influence and ìgiven the state of law as it has now developed, the plaintiff was put on notice of that undue influenceî; and

… There was no consideration for the Guarantee.

If Mr. Uzzell was induced to enter into the Settlement Agreement by Mr. Bendtsenís fraud, does that fact provide a defence to Mr. Uzzell?

[27] Mr. Gregory submits that Mr. Uzzell is released from the Guarantee because he was defrauded and Mrs. Dougan knew it or was put on such notice of the fraud that she must have known it. Mr. Gregory concedes that Mrs. Dougan is less sophisticated than Mr. Uzzell and that either her knowledge came from her sophisticated advisors or their knowledge should be imputed to her.

[28] Mr. Gregoryís analysis of the Guarantee distinguishes between (1) the usual contract of guarantee between the borrower and the guarantor accompanying a loan agreement between the creditor and the borrower and (2) the tripartite agreement in this case. Here, he says the Settlement Agreement, to which the creditor (Mrs. Dougan), the debtor (Mr. Bendtsen) and the guarantor (Mr. Uzzell) are parties, replaces the loan agreement. Mr. Gregory cites G. Andrews and R. Millett, Law of Guarantees, 3rd ed. (London : Sweet & Maxwell, 2000) at 5.13 for the proposition that Mr. Uzzell may avoid the guarantee when he was induced to enter into it by the fraud of Mr. Bendtsen, even if Mrs. Dougan was unaware of that fraud:

If the contract which the surety seeks to set aside is a tripartite contract between himself [Mr. Uzzell], the creditor [Mrs. Dougan] and the principal [Mr. Bendtsen], he probably has fairly strong grounds for setting it aside if he has been induced to enter into that contract by fraud or some other misrepresentation on the part of the principal, even if the creditor knows nothing about the fraud or misrepresentation. Since the person who made the misrepresentation, the principal, is a contracting party, the surety would have a prima facie right to have it set aside as against him, and therefore it probably could not survive as regards any other contracting party. To hold otherwise would be to produce the most unsatisfactory position that the contract was enforceable for some purposes and not for others. Consequently, a surety may well improve his prospects of protection against fraud or misrepresentation by the principal if he insists, where possible, on a tripartite agreement. However, there appears to be no direct authority on this point.

[29] Mr. Gregory also submits that it is trite law that a lender (Mrs. Dougan) cannot rely on a guarantee that is procured by the debtor (Mr. Bendtsen) if she remains silent about any ìunusual featureî of the arrangement that the guarantor (Mr. Uzzell) might not naturally expect. He cites Barclayís Bank Plc. v. Coleman, [2001] UKHL 44, [2001] H.L.J. No. 44 (Q.L.) (H.L. (Eng.)) in support. That case concerned eight appeals arising from transactions in which a wife charged her interest in her home in favour of a bank as security for the indebtedness of her husband or her husbandís company.

[30] The overwhelming fallacy with that analysis is that it is contrary to the facts of this case. Mrs. Dougan is not, in any sense, a ìlenderî. After realizing that Mr. Bendtsen had defrauded him, Mr. Uzzell explicitly distrusted Mr. Bendtsen. Mr. Uzzell agreed on his examination for discovery that he distrusted Bendtsen by mid-1997 and had ìa pretty low opinion of himî by May or June, 1997. He also conceded that he probably knew more about the Canoe Club Property than Mrs. Dougan did. There were no ìunusual featuresî of the arrangements that Mr. Uzzell might not expect. Both he and Mrs. Dougan knew that they had been defrauded by Mr. Bendtsen well before they entered into the Settlement Agreement and Guarantee. Mr. Uzzell was not induced to enter the Settlement Agreement by the fraud of Mr. Bendtsen. He lost his money as a result of Mr. Bendtsenís fraud and, by the time he entered into the settlement negotiations with Mr. Bendtsen, Mrs. Dougan and the other creditors, he was well aware of Mr. Bendtsenís fraud. He could hardly expect to be able to rely upon Mr. Bendtsenís subsequent misrepresentations. In September 1997, Mr. Wickham, Mr. Uzzellís counsel advised Mr. Gudmundseth that the commercial crime unit, which was making inquiries of Mr. Bendtsen, had contacted Mr. Uzzell. At that time, Mr. Wickham stressed that if Mrs. Dougan would not give Mr. Bendtsen a release, Mr. Uzzell could not get control of Real Capital and obtain new financing. Mr. Wickham asked, ìHow does your client expect to recover money from Viggo when all of the other investors believe he is broke or has removed his money to another jurisdiction out of reach of creditors?î

[31] If Mr. Uzzell entered into any agreements based on Mr. Bendtsenís representations, in light of all the information he had about Mr. Bendtsen, he did so at his own peril.

[32] Both Mr. Uzzell and Mrs. Dougan were ìinducedî to enter the Settlement Agreement and Guarantee by the hope that they would recoup some (or, in Mr. Uzzellís case, all) of their lost investments. It is significant that they were both represented by legal counsel throughout the negotiations and that it was Mr. Uzzell who sought Mrs. Douganís agreement to drastically compromise her claim against Mr. Bendtsen. In my view, it is unnecessary to engage in a further analysis on this point.

Was the Settlement Agreement unconscionable and entered into by Mr. Uzzell under economic duress?

[33] In Morrison v. Coast Finance Ltd. (1965), 55 D.L.R. (2d) 710, 54 W.W.R. 257 (B.C.C.A.), Mr. Justice Davey described an unconscionable bargain at 713:

Ö a plea that a bargain is unconscionable invokes relief against an unfair advantage gained by an unconscientious use of power by a stronger party against a weaker. On such a claim, the material ingredients are proof of inequality in the position of the parties arising out of the ignorance, need or distress of the weaker, which left him in the power of the stronger, and proof of substantial unfairness of the bargain obtained by the stronger. On proof of those circumstances, it creates a presumption of fraud which the stronger party must repel by proving that the bargain was fair, just and reasonable.

[34] Mr. Uzzell asserts that the Settlement Agreement and the Guarantee were unconscionable and executed when he was under economic duress. Mr. Gregory submits that economic duress occurs when one party has the other ìover a barrelî as a result of some improper pressure: Gotaverken Energy Systems Ltd. v. Cariboo Pulp and Paper Co. (1993), 9 C.L.R. (2d) 71, [1993] B.C.J. No. 149 (Q.L.) (S.C.), affíd [1994] B.C.J. No. 1545 (Q.L.) (C.A.). He says that the plaintiff knew that CPL1 and CPL2 were improper and that those CPLs gave Mrs. Dougan ìa strangleholdî on Mr. Uzzell. Further, he asserts that she had no basis for asserting that Mr. Uzzell was a party to a fraudulent conveyance or preference.

[35] Those arguments cannot succeed. First, there is no evidence that Mr. Uzzell was prejudiced by the errors in the CPLs. Second, the plaintiffís solicitors corrected the error on July 23 shortly after they discovered it. Two days later, on July 25, Mr. Bendtsenís lawyers made the first settlement proposal to Mrs. Dougan, alleging that Mr. Uzzell had accepted that proposal. Third, it would be ludicrous to describe Mr. Uzzell as the weaker party and Mrs. Dougan as the stronger party. Fourth, if Mr. Uzzell was under economic duress, it arose from the actions of Mr. Bendtsen, not Mrs. Dougan. Finally, it was Mr. Uzzellís economic hardship that compelled him to enter into those arrangements in the hope that he could recoup his substantial losses by taking over the Canoe Club Property. The fact that his efforts proved to be unsuccessful cannot render the Agreements unconscionable after the fact. As the Court stated in Lindsay v. Lindsay (1989), 59 Man. R. (2d) 186, [1989] M.J. No. 279 (Q.L.) (Q.B.), at 192:

The fact that an agreement is unwise or one-sided is not tantamount to unconscionability. No court should relieve a person from responsibility for a contract entered into willingly and knowingly, even where the contract is an act of folly.

[36] The bargain made by the parties was not unfair at the time it was made. Mrs. Dougan compromised her claim for approximately 50 cents on the dollar and Mr. Uzzell elected to take a gamble on recouping all of his investment.

[37] Lord Scarman described duress in Pao On et al. v. Lau et al., [1980] A.C. 614 (P.C.), at 635:

Duress, whatever form it takes, is a coercion of the will so as to vitiate consent Ö [I]n a contractual situation commercial pressure is not enough. There must be present some factor ìwhich could in law be regarded as a coercion on his will so as to vitiate his consent.î Ö. In determining whether there was a coercion of will such that there was no true consent, it is material to inquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it. All these matters are Ö relevant in determining whether he acted voluntarily or not.

[38] In this case, Mr. Uzzell did not protest; he had other alternatives available to him; he was independently advised by legal counsel; and he paid the sum of $57,000 to Mrs. Dougan over eight months before attempting to avoid his obligations. In sum, the Guarantee was not unconscionable, nor did Mr. Uzzellís economic hardship amount to duress that would void the contract.

If Mr. Uzzell was induced to enter into the Settlement Agreement by the undue influence of Mr. Bendtsen, does that fact provide a defence to Mr. Uzzell?

[39] Mr. Gregory submits that the Guarantee is unenforceable because Mr. Uzzell entered into it while under the undue influence of Mr. Bendtsen, and because Mrs. Dougan was put on notice as to that undue influence. He asserts that the inaccurate information given to Mr. Uzzell by Mr. Bendtsen, his trustee, amounts to undue influence. He suggests that Mrs. Dougan cannot hold Mr. Uzzell to his Guarantee until she had determined that Mr. Uzzell was disabused of all of the facts that she knew.

[40] The recitals in the Settlement Agreement reflect the state of knowledge of the parties:

A. Real [Capital] is indebted to the Creditors for various sums of money provided to and received by Real [Capital] Ö

B. Disputes have arisen as between Real [Capital] and the Creditors as to the manner which such monies have been invested by Real [Capital] and as to the legal relationship between the Creditors and Real [Capital] with respect to such sums of money.

C. Disputes have also arisen amongst the Creditors as to possible ownership of various mortgages registered in the name of Real [Capital].

E. All of the parties hereto wish to enter into this Agreement as a comprehensive settlement, compromise and composition of their claims and rights as against Real [Capital] and the assets of Real [Capital] and as to their respective rights and obligations as amongst themselves.

[41] The parties acknowledged having received independent legal advice before entering into the Settlement Agreement. That Agreement contained an entire agreement clause:

The Agreement contains the entire Agreement between the parties hereto and with respect to the transactions contemplated herein and no modification, alteration or amendment of this Agreement shall be valid or effective unless executed in writing by all parties hereto, save as specifically provided herein.

[42] The recitals to the Guarantee provided that it was a condition of Mrs. Dougan entering into the Settlement Agreement that Mr. Uzzell guarantee payment to her of 75% of her Compromised Debt and that Mr. Uzzell agreed to that guarantee. The Guarantee was stated to be absolute, regardless of ìany lack of validity or enforceability of any of the [Settlement] Agreement or any other agreement relating to any of the [guarantorís obligations]. The Guarantee contained an entire agreement clause:

Entire Agreement: This Guarantee and the [Settlement] Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, whether written or oral. There are no representations, warranties, conditions, other agreements or acknowledgements, whether direct or collateral, express or implied, that form part of this Guarantee. The execution of this Guarantee has not been induced by, nor does Uzzell rely upon or regard as material, any representations, warranties, conditions, other agreements or acknowledgements not expressly made in this Guarantee.

[emphasis added]

[43] In my view, the presence of independent legal advice and the clauses of the Guarantee and Settlement Agreement are sufficient to negate any claim of undue influence.

Was there consideration?

[44] Mr. Gregory asserts that there was no consideration for the Guarantee and as a result it is void.

[45] To summarize the material part of the Settlement Agreement, Mrs. Dougan agreed to remove the CPLs against the mortgages held by Real Capital on the Canoe Club Property, and to a dismissal of the 1997 Action. Those steps enabled Mr. Uzzell to secure new financing to complete the project. Mr. Uzzell has testified in his examination for discovery that he hoped to recover the money he had invested. Mrs. Dougan also agreed to provide a release of all claims against Mr. Bendtsen having an acknowledged value of approximately $1.2 million. In return, Mrs. Dougan was to receive $665,000 payable over time (without interest), 75% of which would be personally guaranteed by Mr. Uzzell through the Guarantee. The settlement represented a compromise by Mrs. Dougan as against Mr. Bendtsen of about 50 cents on the dollar.

[46] Mrs. Douganís forbearance to sue is, in itself, valuable consideration. She removed her legal challenge to the transfer of the 2/3 interest in the First Mortgage to Mr. Uzzell. I do not accept the defendantís suggestion that Mrs. Dougan knew that her action was doomed to fail from the start. If Mr. Uzzell had improperly accepted ownership of 2/3 of the interest in the First Mortgage, he was a party to a fraudulent transaction, regardless of the fact that he was a mere dupe of Mr. Bendtsen. Further, there is no evidence that Mr. Uzzell was prejudiced by the erroneous filing of CPL1 and CPL2.

[47] In addition, Mr. Uzzellís investments were not sufficiently secured. He desperately hoped that if the Canoe Club Property project succeeded, he would recoup his money. The release of Mrs. Douganís claims against Mr. Bendtsen enabled Mr. Uzzell to take over the management and control of that project. Without the release, Mr. Bendtsen was not prepared to resign as a director and relinquish his interest in the mortgages. It could be argued that Mrs. Dorgan acted to her detriment by compromising her claim for a ìguaranteedî repayment of approximately one-half of her investment. It was Mr. Uzzell, hoping to recoup his investment by taking over management and control of the Canoe Club Property project, who prevailed upon Mrs. Dougan to compromise her claim from $1,120,461 to $665,000 (only 3/4 of which latter amount was guaranteed by Mr. Uzzell). In September 1997, Mr. Uzzellís lawyer had entreated her to release Mr. Bendtsen:

If your client is not prepared to grant Viggo [Mr. Bendtsen] his civil release, then we cannot get control of Real [Capital] to grant the necessary priority to any new financing or even sign discharges. The company remains in Viggo's control unless you bring on an application to have a Receiver appointed. This is time consuming and expensive. How does your client expect to recover money from Viggo when all of the other investors believe he is broke or has removed his money to another jurisdiction, out of reach of creditors?

This entreaty illustrates the value to Mr. Uzzell of Mrs. Douganís forbearance.

[48] I conclude that Mr. Uzzell received consideration for his Guarantee and, moreover, the settlement was in the nature of a commercial, not a familial, transaction.

The defendantís application to cross-examine Mr. Gudmundseth and Mr. Hubley on their affidavits

[49] Mr. Gregory sought to cross-examine Mrs. Douganís lawyer and accountant on their affidavits on the basis that Mrs. Douganís state of mind at the time the Settlement Agreement and Guarantee were executed includes the imputed state of mind of her advisors. In view of the conclusions that I have reached with respect to the defendantís submissions, there is no basis for the cross-examination sought.

Calculation of damages

[50] The total amount owing to Mrs. Dougan under the Settlement Agreement was $665,000. Mr. Uzzell made payments totalling $57,000, leaving a balance of $608,000. Mr. Mickelson calculates the amount owing under the Guarantee as $456,000 on the following basis: 75% of $608,000 being the balance due.

[51] Mr. Gregory submits that the amount owing should be calculated by first determining Mr. Uzzellís liability: $498,750, being 75% of $665,000 and then subtracting the payments of $57,000 made: leaving a balance of $441,750.

[52] I agree that Mr. Gregoryís calculation is the correct one and Mr. Mickelson did not seriously dispute it.

Interest

[53] The plaintiff claims court order interest on the outstanding balance from the date of default. The defendant resists interest on the basis that the Settlement Agreement provides that Mrs. Douganís Compromised Debt was to be paid by 2002 over five years without interest. Mr. Mickelson submits that the no-interest provision applies only if the amount of the debt is paid within the five year period. The Settlement Agreement provides that if 2002 defaults in any of its payments, at the option of Mrs. Dougan, the whole of the principal balance remaining shall, on five days written notice, become immediately due and payable.

[54] I agree with the plaintiffís interpretation. Mr. Uzzell defaulted. On June 19, 1999, five days after Mrs. Dougan gave written notice, on June 14, 1999, the principal balance was due and payable. Court order interest accrues on that amount.

Conclusion:

[55] The plaintiff is entitled to judgment against the defendant in the amount of $441,750 plus Court Order Interest from June 19, 1999.

Costs

[56] Costs would normally follow the event at scale 3. If counsel wish to make additional submissions, they have liberty to file brief written submissions, not to exceed five pages in length, with a two page reply, to address the issue of costs. I will assume that counsel can reach agreement with respect to dates for filing and exchanging their submissions.

ìM.J. Allan, J.î
The Honourable Madam Justice M.J. Allan