IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
Barnett v. Rademaker, et al, |
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2004 BCSC 1060 |
Date: 20040816
Docket: S002692
Registry:
Vancouver
Between:
Jeffrey Barnett
Plaintiff
And
Conrad
Rademaker and
Conrad International Finance Corp.
Defendants
Before: The Honourable Mr. Justice Melnick
Reasons for Judgment
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Counsel for plaintiff |
S.K. Gudmundseth, Q.C.
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Counsel for defendants |
H.C. Wood |
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Date and Place of Trial: |
April 27 ñ 30 and May 3, 2004 |
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Vancouver, B.C. |
INDEX
I. BACKGROUNDÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ..3
II. DISCUSSIONÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ.15
1. AgencyÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ..15
A. Agency: some general principlesÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ15
B. Personal obligationsÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ.18
2. Assignment of the cause of actionÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ.23
3. Parties to the contractÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ.28
A. Personal covenantsÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ.29
(i) The Swanís factorsÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ.36
(ii) Fridmanís factorsÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ.37
(iii) Bowstead factorsÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ..38
B. Agent for a corporate entityÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ.38
4. Summary on Mr. Rademakerís liabilityÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ.47
5. Extension or new agreement?ÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ.48
A. NovationÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ.49
B. Implied rescissionÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ..53
C. Accord and satisfactionÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ57
III. CONCLUSIONÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖÖ..62
[1] Jeffrey Barnett (ìMr. Barnettî), as assignee of a cause of action, claims for breach of contract by the defendant Conrad Rademaker (ìMr. Rademakerî) and/or the defendant Conrad International Finance Corp. (ìConrad Internationalî). The main allegations are that the defendants breached their obligations to pay a sum of money and to provide certain shares to a London law firm.
[2] At issue is the validity of the assignment of the right of action; which defendant, if either, is the proper party to the agreement; what obligations the proper party to the agreement undertook; and whether certain correspondence between a member of the law firm and another individual after the original contract was entered into amounted to a novation, an implied rescission, or an accord and satisfaction such that any obligations either defendant may have owed under the original agreement were extinguished.
[3] All transactions were conducted in U.S. dollars. Therefore, unless I specify otherwise, all amounts I refer to are in U.S. dollars.
I. BACKGROUND
[4] Mr. Barnett is a Vancouver businessman. In 1997, he was approached by a friend and some-time business associate, Mr. Shraga Dachner (ìMr. Dachnerî), who asked whether Mr. Barnett might be interested in becoming involved in a stock promotion Mr. Dachner and another associate, J. Bob Carter (ìMr. Carterî), were planning. Mr. Dachner, Mr. Carter and others (the ìCarter Groupî) had apparently acquired the rights to certain lighting technology. The Carter Group planned to purchase a controlling interest in a company that was publicly traded on the NASD-OTC exchange in the United States; sell the lighting technology to the company, a practice called ìvending inî; promote the sale of the stock; and, presumably, use the proceeds to develop or exploit the technology and, in the process, make some money for themselves.
[5] Mr. Barnett, no stranger to stock plays, told Mr. Dachner that he was not interested personally. However, he was aware that his friend and associate Mr. Stuart Creggy (ìMr. Creggyî), a lawyer with the London, England firm of Talbot Creggy, invested client funds from time to time. Mr. Barnett advised Mr. Dachner that he would make inquiries of someone who might provide the necessary financing to purchase the control block of shares in the publicly traded company.
[6] Mr. Barnett understood that Mr. Rademaker was going to be involved in the transaction in some capacity. Mr. Barnett had dealt with Mr. Rademaker on a previous occasion and he had found that dealing quite satisfactory. In his view, Mr. Rademaker was an honest and trustworthy individual. Mr. Barnett understood that Mr. Rademaker was part of the Carter Group and I accept that he conveyed that belief to Mr. Creggy.
[7] After having brought the investment opportunity to Mr. Creggyís attention, Mr. Barnett dropped out of the picture. At that point, Mr. Rademaker dealt with Mr. Creggy directly.
[8] Mr. Creggy did have funds from ìoffshore clientsî to invest. He says these clients had given him full discretion to invest their money as he saw fit. Mr. Creggy exercised that discretion by advancing $150,000 of those funds to acquire the control block of the companyís shares. Though the defendants dispute this assertion, Mr. Creggy claims that he never told Mr. Rademaker that the funds were in fact client funds.
[9] Mr. Rademaker prepared a letter dated August 22, 1997, which forms the basis of the claim against the defendants. I reproduce that letter in full:
CONRAD
International Finance Corp.
Suite 610, 1111
Melville Street, Vancouver, B.C., Canada V6E 3V6
Fax: (604)662-4929
Tel: (604)662-7600
August 22, 1997
Talbot Creggy & Co.
#38 Queen Anne
London,
WIM9LB
England
Dear Sir,
This is to confirm that you are sending $150,000 USD in order for our client, acting for a group of investors, to secure a trading company on the NASD OTC Bulletin Board for the purpose of vending in a project.
Upon receipt of such funds from you the vend-in will be done immediately and a Press Release issued. I am instructed to deliver to Mr. Shraga Dachner on your behalf 100,000 Free Trading shares after securing the trading company and I undertake to do so, provided that you will only sell such shares [in] keeping with maintaining an orderly market.
During the first 7 trading days from the date of the Press Release my client undertakes to sell sufficient shares from an account under my control, for us to wire you $185,000 USD net of any deductions as follows:
To Talbot Creggy & Co., in trust
Acc.
#73760844
Sort code #20-34-45
Attn: Mr. Stuart Creggy
Plc 98 Grace
Street
London, EC3V0B8
England
Until such funds have been generated we will hold in reserve for the specific purpose of securing your position, 150,000 shares of the Company, which shares we will be free to deliver to other parties once the $185,000 USD has been wired.
Should you need to discuss anything with me please feel free to call me.
Yours very truly,
ìsignatureî
CONRAD RADEMAKER
[10] Talbot Creggy held up its end of the bargain and forwarded the $150,000 to Conrad International on August 27, 1997. But, needless to say, things did not go as anticipated on Mr. Rademakerís end. First of all, Mr. Carter did not have control of the lighting technology. He was apparently required to pay Mr. Richard Tuck (ìMr. Tuckî) $50,000 and transfer to him a number of shares in the publicly traded company in exchange for the rights to the technology. I accept that even Mr. Rademaker was surprised when Mr. Carter requested that Mr. Rademaker use $50,000 of the money from Talbot Creggy to pay Mr. Tuck. Mr. Rademaker said that he thought that his only obligation with respect to the money at that point was to Mr. Craig Shaber (ìMr. Shaberî). Mr Shaber, a lawyer, was the vendor of the control block of shares in the publicly traded company, then identified as Woodie I Inc. (ìWoodie Iî).
[11] Mr. Rademaker had dealt with Mr. Shaber before. Thus, Mr. Rademaker was able to make an arrangement with Mr. Shaber whereby Mr. Shaber would provide him with the Woodie I shares in exchange for $100,000. Mr. Rademaker was to pay him the balance later out of the proceeds of shares sold after the vend-in.
[12] However, although an announcement was made regarding both the change of control in Woodie I and its intent to acquire the lighting technology, the vend-in never took place. That is likely because the stock promotion did not go well. Mr. Rademaker had intimated to Mr. Barnett that there were commitments in place from other outside investors to purchase stock. If those commitments were ever actually in place, they were apparently not fulfilled. Mr. Carter did sell some shares, although in what amounts and to whom remains unknown.
[13] Meanwhile, Mr. Rademaker provided Mr. Dachner with a share certificate for 95,000 shares, which Mr. Dachner was to pass on to Talbot Creggy. However, I accept the evidence of Ms. Ann Huston (ìMs. Hustonî), whom I qualified to give expert evidence with respect to the transfer of securities, that the share certificate did not represent free trading shares, as the agreement required, for several reasons. First, the certificate was registered in the name of a Carrie Cooper (ìMs. Cooperî). Second, Ms. Cooper had not endorsed the back of the share certificate but only a separate certificate. Third, Ms. Cooperís signature had been guaranteed by a corporate officer of the issuer of the shares which, in Ms. Hustonís experience, was not an adequate signature guarantee. Fourth, the document purporting to assign the shares had not been completed sufficiently to demonstrate that it applied to the share certificate in question.
[14] In due course, Mr. Creggy returned the share certificate with instructions that a new certificate be provided for 100,000 shares in free trading form. That never occurred.
[15] On December 12, 1997, Mr. Carter wrote to Mr. Creggy in his capacity as president of Optigo International Ltd. (ìOptigoî). That letter provided as follows:
OPTIGO INTERNATIONAL LTD
The science of light management
December 12, 1997
Mr. Stuart Creggy
C/O Talbot Creggy
Via Facsimile:
011-44-171-483-0859
Dear Mr. Creggy,
We understand that Mr. Conrad Redemaker has not yet been able to repay you as agreed the amount of $185,000.00 US
In consideration of the extension of time we agree to provide an interest payment in the amount of $40,000.00 US making the total outstanding $225,000.00 US. Payments will be made as funds are available with the final payment no later [than] February 15, 1998.
It has come to our attention that the share certificate delivered to you is for 95,000 shares and that it should be for 100,000 shares, and that the transfer agent is not accepting the certificate with [its] present endorsement. We will within the next seven days take the necessary steps to insure that you receive a new certificate.
We thank you for your cooperation and patience.
Sincerely,
ìsignatureî
Optigo International Ltd.
John A. Carter,
President
[16] Talbot Creggy responded as follows on December 16:
Dear Mr Carter,
I refer to your fax of 12th December 1997.
May I make the position quite clear that I shall require payment to be made in full no later than February 15th 1998 in the sum of US$ 225,000 and that the payment will be made on behalf of both parties. We require a new share certificate to be delivered and in addition reserve all rights if payment is not made on the due date.
Yours truly
ìsignatureî
TALBOT CREGGY
[17] Mr. Carter again wrote to Mr. Creggy on February 16, 1998:
OPTIGO INTERNATIONAL LTD
The science of light management
February 16th, 1998
Mr. Stuart Creggy
C/O Talbot Creggy
Via Facsimile:
011-44-171-483-0859
Dear Mr. Creggy,
We understand that Mr. Conrad Redemaker has not yet been able to repay you as agreed the amount of $225,000.00 US.
In consideration of the extension of time we agree to provide the following:
1. A payment of $40,000.00 US on or before February 19, 1998
2. Replacing the shares you now have (100,000) in Woodie I with 200,000 shares in Optigo International Inc.
3. Pay to you the balance of 185,000.00 on or before March 19, 1998.
We thank you for your cooperation and patience.
Sincerely,
ìsignatureî
Optigo International Inc.
John A. Carter,
President
Mr. Creggy apparently accepted this arrangement, since there is a notation on the bottom right-hand corner of the letter saying ìAgreed and accepted this 24 day of February 1998.î There is a signature directly below that sentence on a line provided for that purpose.
[18] On February 27, 1998, Mr. Creggy wrote to Mr. Dachner to confirm that Mr. Dachner was in receipt of the share certificate for 95,000 Woodie I shares and the accompanying documents. He also sought confirmation that Mr. Dachner would undertake to exchange that share certificate for 200,000 free trading, non-restricted shares of Optigo and a cheque for $40,000, in accordance with the February 16 letter.
[19] Shortly thereafter, Mr. Rademaker became involved again. He wrote to Mr. Creggy on March 4, 1998:
Dear Mr. Creggy,
RE: WOODIE I INC / OPTIGO INTERNATIONAL
I am in receipt of 95,000 shares of this company, previously delivered out, with instructions to deal with [these], and the shares held back as security, against payment to you of $40,000 USD.
In order to deal with these funds please fax your wiring instructions to me.
In securing the $40,000 payment to you, I will have finished my obligation to you under the previous arrangement.
The balance of your arrangement will now be between you and Optigo, through Mr. John Carter directly, as per attached letter dated February 16, 1998 from Optigo International addressed to you of which I have a copy for my records.
Yours truly,
ìsignatureî
CONRAD RADEMAKER
[My emphasis]
[20] Two days later, Mr. Creggy responded with information as to where Mr. Rademaker could send the $40,000. However, he added the following: ìwould you please note that I do not accept that your obligations have been released under the previous agreement.î
[21] Notwithstanding all of the above, neither Mr. Creggy nor Talbot Creggy have received any money or shares besides the certificate for 95,000 shares that Mr. Creggy returned as unacceptable. Within a year after the advance of the funds by Talbot Creggy, neither defendant had the shares in an account in Canada. The balance of the shares that were under Mr. Rademakerís control have been transferred to a client firm in Ireland, Ardrail Services Ltd. (ìArdrailî) but, he says, he still has a power of attorney to access them.
[22] Further, the name of the company has been changed and the stock split or otherwise diluted to such an extent that, according to Mr. Rademaker, 137 ‡ shares of the present entity represent what would have been 100,000 shares at the time Woodie I was first acquired. While in the fall of 1997 the shares were apparently selling at between 50 cents and $1.00 a share, to the extent that they were selling at all, Mr. Rademaker says that the shares are now essentially valueless.
[23] By the time this litigation was commenced, Mr. Creggy had retired from the practice of law and wound up his business affairs. He was also suffering from very serious health problems. Consequently, he purported to assign this right of action to Mr. Barnett in the following letter:
Talbot Creggy
Solicitors
Commissioner
for Oaths
38 Queen Anne Street
London, England
W1M 9LB
April 26, 2000
Mr. Jeffery Barnett
1067 West 46th
Avenue
Vancouver, B.C.
V6M 2J9
Re: Conrad Rademaker
For valuable consideration, we assign to you all rights of action we have in connection with the transfer of $150,000 (U.S.) to the account of Conrad International Finance Corp. on or about August 22, 1997 and the agreement to repay the funds.
TALBOT CREGGY
Per:
__îsignatureî_
Partner
__îsignatureî_
Stewart Creggy
[24] The defendants take issue with the validity of this assignment, pleading that neither Mr. Creggy nor Talbot Creggy ever had any standing or capacity to bring any action or claim against them.
II. DISCUSSION
[25] Because so many of the issues in this case deal with the law of agency, I propose to set out some general principles of agency before applying them to the particular facts of this case.
1. Agency
A. Agency: some general principles
[26] S.M. Waddams in The Law of Contracts, 4th ed. (Toronto: Canada Law Book, 1999) begins his discussion of the intersection of contract and agency law by noting at paragraph 257 that:
Where an agent in fact is expressly or impliedly authorized to contract with a third person on behalf of his principal, and the third person knows it and deals with the agent on that basis, there is no difficulty in concluding that a contract is formed between the principal and the third party. It is as though the principal were dealing directly with the third party, an agent forming a mere means of communication between two principal parties.
[27] Waddams goes on at paragraph 267 to assert that ì[a]lthough the ordinary rule is that the agent is not personally liable, the agent may be liable if there is agreement to assume personal liabilityî, such as where the agent personally guarantees the principalís performance.
[28] He also mentions undisclosed principals at paragraph 268, saying that ì[w]here the agent does not disclose that the agent is acting as agent at all, the third party may elect to sue the agent or the principalî (see Scarf v. Jardine (1882), 7 App. Cas. 345 (H.L.) and Clarkson Booker Ltd. v. Andiel, [1964] 2 Q.B. 775 (C.A.)); ì[i]t would be plainly unjust if the agent could avoid personal liability after leading the third party to contract with the agent apparently as principalî (Waddams at para. 268).
[29] Waddams cites Shuper v. Noble (1982), 38 O.R. (2d) 64 (Co. Ct.) for the proposition that the agent will be personally liable unless he or she makes clear that he or she is only acting in a representative capacity.
[30] G.H.L. Fridman, Law of Agency, 7th ed. (Toronto: Butterworths, 1996) is another useful text. Beginning at 253, he notes that, in undisclosed principal situations, ì[a]s far as [the third party] is concerned, the agent is really a principal, dealing on his own behalf, and in his own name, with the third party. There is no duty on a third party to inquire whether there is an undisclosed principal.î I do note that there are some cases that indicate that in certain circumstances a party may have an obligation to make inquiries about the existence of a corporate principal, but only where that party should have been put on notice of that possibility (see Punjab Foods Centre Ltd. v. Bailie, [1999] B.C.J. No. 2331 (S.C.) (QL)). None of those circumstances apply here.
[31] An attitude informing the jurisprudence in this area is the general view that the expectations of the third party dominate. For example, where the principal expressly limits the agentís authority but that fact is unknown to the third party and the agent contracts with the third party in a manner that exceeds the limits of his or her authority, the principal may have a right of action against the agent but will be bound to the third party notwithstanding the limitations he or she communicated to the agent (see Waddams at para. 258). This attitude is consistent with the cases placing a ìheavy onusî on the agent to disclose his or her status as agent to the third party if he or she expects to avoid personal liability, such as McLellan v. Geldert (1982), 38 N.B.R. (2d) 310 (Q.B.) and Isny International Inc. v. Fryeís Woodyard Ltd. (1990), 112 N.B.R. (2d) 76 (Q.B.). If the third party is not notified of the agentís status as an agent, the third party can only expect that he or she is contracting with that individual.
B. Personal obligations
[32] Fridman notes at 231 that:
[I]t is always possible for the agent to contract personally, so as to make himself liable on the contract. Whether he has done so is a matter of the agent's intention. To determine such intention involves the construction of the contract.î
[33] He goes on to outline that an agentís personal liability depends first on the nature of the contract. Where the contract is in writing, the agentís liability
does not depend upon whether the principal is named, or known to the third partyÖ. What may be relevant is the knowledge of the third party as to the agentís intention. If there is no evidence that the third party thought that the agent was contracting personally, then the agent will not be so liable. (Fridman at 231-32)
[34] It is also clear that ìas long as the agent has revealed that he intends to be personally liable on the contract, it will not matter that the principal is also liableî (Fridman at 232).
[35] Mr. Justice Park in Spittle v. Lavender (1821), 2 Brod. & Bing. 452, described at 455 the rule making agents personally liable where they express such an intention: ì[I]t is not merely because he calls himself agent that he can become liable, he must so frame the undertaking as to make his additional engagement clear beyond dispute.î
[36] Mr. Justice Brandon set forth the method to determine such an intention in The Swan, [1968] 1 Lloydís Rep. 5 at 12:
The intention is to be gathered from (1) the nature of the contract, (2) its terms, and (3) the surrounding circumstancesÖ. The intention for which the court looks is not the subjective intention of [the agent] or [the third party]. Their subjective intentions may differ. The intention for which the court looks is an objective intention of both parties, based on what two reasonable businessmen making a contract of that nature, in those terms and in those surrounding circumstances, must be taken to have intended.
[37] Fridman goes on to highlight three important factors in deciding whether or not an agent has made a personal commitment. The first is the form of the signature, whether it is descriptive or representative: ìIf the agent's signature is qualified by some words which show the representative character of the person signing, then the agent will not be personally liableî (at 239). There is nothing to prevent an agentís signature as being on behalf of both his or her principal and his or herself: see Ontario Marble Co. Ltd. v. Creative Memorials Ltd. (1963), 39 D.L.R. (2d) 149 (Sask. Q.B.), affíd (1964), 45 D.L.R. (2d) 244 (Sask. C.A.).
[38] If the agent signs without any qualifications at all, it is presumed that he or she made the contract in his or her own name and he or she will be personally liable (see Parker v. Winlow (1857), 7 El. & Bl. 942). However, both the presumption that the agent is liable because he or she did not qualify his or her signature and the presumption that the agent is not liable because he or she did qualify his or her signature are rebuttable (see Ariadne Steamship Co. v. James McKelvie & Co., [1922] 1 K.B. 518).
[39] The signature may not be determinative, however. In that case, the contract and the surrounding circumstances may help the interpretation, which make up Fridmanís second factor. He cautions, however, that:
[P]arol evidence may not be introduced, if its effect is to contradict the written contract: it may only be introduced to amplify the contract, by showing the real intention of the parties, [e.g.] that the agentís signature was understood by the parties as being the signature of the principal (emphasis in original; at 240-41).
The other suggested use for parol evidence in this context where the contract is in writing is ìto show that the agent should not be made personally liable, since it was agreed orally that he should not, despite the fact that he contracted personallyî (at 241). Fridman equates this option with an equitable defence based on fraud but notes that it has not been widely accepted. In any event, it would not apply on the facts before me.
[40] The third factor is custom, which Fridman discusses at 242. The parties may introduce evidence to show that the agent should be held personally liable even though the agent has not contracted personally, which is a major distinction from the above two scenarios. Any custom must not be inconsistent with the written contract and must be proved to exist. Mr. Barnett did not put forward any proof of a custom that could render Mr. Rademaker personally liable; therefore, this factor is irrelevant to this case.
[41] Bowstead & Reynolds on Agency, 17th ed. (London: Sweet & Maxwell, 2001) is a further helpful reference. It asserts at 9-002 that ìit is possible for an agent to be a contracting party instead of or in addition to his principalî. This may be by way of the same contract or a separate but related one (Bowstead at 9-005). The test for whether an agent should be liable on a contract is objective and ìthe form of words [used in a written contract] may constitute an agent a contracting party though it is on the facts doubtful whether he intended to become suchî (see Fisher v. Marsh (1865), 6 B. & S. 411, cited in Bowstead at 9-005). This accords with the statement in the Canadian Encyclopedic Digest, 3d. ed., vol. 1 (N.p.: Carswell, 2004) ìAgencyî, at para. 396, which reads: ì[w]here the terms of the contract clearly indicate personal liability, the agent is bound by the contract, regardless of intentionî.
[42] Bowstead cautions at 9-037 that cases on an agentís personal liability ìshould only be treated as single instances exemplifying the application of a rather imprecise principle; much turns on the particular context of each contract.î However, it sets out some rules established in the jurisprudence as starting points in the same paragraph:
(a) If the contract is signed by the agent in his own name without qualification, he is deemed to have contracted personally unless a contrary intention plainly appears from other portions of the document.
(b) The mere fact that the agent is described as an agent, director, secretary, manager, broker, etc., whether by words connected with or forming part of the signature, or in the body of the contract, and whether the principal is named or not, raises no presumption that the agent did not intend to contract personally; but here again an intention to contract as agent only may be gathered from the whole document and surrounding circumstances.
(c) But if the agent adds words to his signature, indicating that he signs [as] agent, or for or on behalf or on account of a principal, he is deemed not to have contracted personally, unless it is plain from other portions of the documents that, notwithstanding such qualified signature, he intended to bind himself.
[43] Finally, Bowstead indicates at 9-037 that ìcare should be taken to ascertain exactly what liability an agent undertakes, if he does appear to contract personallyî because, though it is often assumed that the agent in such circumstances is the only party to the contract, that need not be so.
2. Assignment of the cause of action
[44] Whether Talbot Creggy could assign its right of action to Mr. Barnett depends on Talbot Creggy having a right of action to assign. The two ways it could have such a right on these facts are if Mr. Creggy was acting on behalf of an undisclosed principal, i.e., a client, or if he made personal covenants in the agreement. In brief summary, if an agent acts on behalf of an undisclosed principal then he or she is personally liable and is entitled to sue on a contract. If an agent is acting for a disclosed principal and is not a party to the contract, then, with few exceptions, he or she will not be liable or be able to sue on the contract. However, an agent may contract personally as well as on behalf of his or her principal; in that case, both the agent and the principal are liable and can sue on the contract.
[45] Bowstead notes at 9-008 that:
The question of the agentís right to sue certainly arises less frequently than that of his liability, and it seems that the incorporation of the agent into the contract has more normally the purpose of securing his liability.
[46] Bowstead also explains at 9-012 that the relevant time for determining whether the principal is disclosed is at the time of contracting. The only restriction on the agentís ability to sue on the contract where the principal is undisclosed is that the principalís right is superior to that of the agent; therefore, if the principal chooses to sue then the agent should step aside (see also Fridman at 271). Of course in this case, there is no dispute between any party and Mr. Creggyís client(s).
[47] The legal principles applicable on this issue are fairly well-established; therefore, the dispute is primarily one of fact.
[48] I accept that when Mr. Creggy spoke with Mr. Rademaker, he did not say that the loan money had come from a client or clients. He entered into the transaction on behalf of his law firm as if the firm was loaning the money. Mr. Creggy did mention clients in his April 27, 1998 letter; however, that mention is well beyond the last possible date that the contract was made.
[49] Mr. Barnett was aware that the money would be coming from Talbot Creggy clients. However, although he said in cross-examination that he may have told Mr. Rademaker that clients of Mr. Creggyís were providing funds for the transaction, there is no evidence as to when he might have said that if, indeed, he said it at all.
[50] The most telling evidence is that of Mr. Rademaker himself. Mr. Rademaker does not suggest that Mr. Barnett told him that the money was coming from Talbot Creggy clients. Rather, he says he made an assumption that Talbot Creggy was acting for Mr. Barnett. Assumptions or impressions do not constitute disclosure. Mr. Rademaker also indicated in cross-examination that he could not exclude the possibility that Mr. Creggy used some of his own money in the deal, and that whether it was Mr. Creggyís own money or a clientís money was not material to him but rather of interest only. He further noted that any obligations he undertook were to Mr. Creggy or Talbot Creggy.
[51] Unfortunately, the evidence on this issue from all parties is vague. If the defendants wish to defeat a cause of action on technical grounds such as this, they must be able to demonstrate that Mr. Creggy, or Mr. Barnett on his behalf, disclosed that Talbot Creggy was acting on behalf of unnamed principal(s). They have not done so. I particularly do not accept the defendantsí argument that in modern commercial practice, any person dealing with a lawyer in a business transaction would naturally assume that the lawyer was in fact acting for clients and not on his own account. The defendants cite no authority for that proposition and I find that it is a dangerous assumption to make on these facts.
[52] Mr. Barnett cites Lawson v. Kenney (1957), 9 D.L.R. (2d) 714 (Ont. H.C.), at para. 163 of his closing argument in support of the position that he was properly assigned the cause of action. In that case, Mr. Dunsmeith and Mr. McKigney took a group on a ride in a sleigh towed by a truck, which ride the group booked through Mart Kenneyís Ranch. When the sleigh rounded a turn, the plaintiff was thrown off the sleigh and injured. Mart Kenneyís Ranch argued that in booking the sleigh rides it was acting solely as agent for Mr. Dunsmeith. However, Mr. Justice Danis held at 718, following Hills v. Swift Canadian Co., [1923] 3 D.L.R. 997 (Alta. C.A.), that:
[I]f an agent, acting as agent, does not clearly intimate to the other party that he is so acting, and leaves it open to himself to act as principal or agent, he is personally liable, even though the other party has good reason, from his well-known relationship to the undeclared principal, to believe that he may be acting merely as agent, and in spite of clear evidence that he did so believe.
[53] Counsel for the defendants tried to distinguish Lawson on the basis that there was no allegation in that case that the plaintiff believed that Mart Kenneyís Ranch was Mr. Dunsmeithís agent. Counsel also asserted that Hills does not stand for as broad a proposition as Mr. Justice Danis intimated. While I agree that the comment cited above is obiter, it is not inconsistent with the jurisprudence on agency and I do not think it can be discredited on that basis. As for the remark about Hills, I think that the case does stand for the broad proposition that Mr. Justice Danis repeated.
[54] I agree with counsel for Mr. Barnett that the corollary to this proposition ñ that in such a case the agent can also sue on the contract ñ is true because a party who is personally liable on a contract must be able to enforce it as well. If the agent alone is liable, then no agency principle will prevent him or her from suing. If an agent is liable in addition to his or her principal, he or she can also sue (see Bowstead at 9-008).
[55] I conclude that Talbot Creggy acted as agent for undisclosed principal(s) and, consequently, it had the capacity to assign this action to Mr. Barnett. The assignment is valid.
[56] Though I noted that Talbot Creggy could have a cause of action based on having made its own covenants in the agreement in addition to or instead of those of its principals, neither party based their argument on that reasoning. Because I have found that Talbot Creggy was acting on behalf of undisclosed principals, I prefer to leave the discussion of personal covenants to the question of Mr. Rademakerís personal liability, where it is much more relevant.
3. Parties to the contract
[57] Mr. Barnett claims that Mr. Rademaker is a party to the contract in his individual capacity. Mr. Rademaker responds by saying that any obligations undertaken in the August 22, 1997 letter were undertaken by Conrad International and not by him. It is his further his position that, in any event, he was at all times in his negotiations and correspondence with Mr. Creggy the agent of both the Carter Group and of Conrad International; therefore, he cannot be held personally responsible.
[58] There are two separate agency issues to address in determining whether Mr. Rademaker is personally liable: first, whether Mr. Rademaker was the agent of a corporate entity such that he can take advantage of the limited liability corporate entities enjoy; and second, whether Mr. Rademaker made personal covenants in the agreement or whether he undertook the obligations on behalf of disclosed principals, being the Carter Group. I will deal with these issues in the reverse order because if Mr. Rademaker made no personal covenants then the second issue does not arise.
A. Personal covenants
[59] I note at the outset that the defendants admit that they are responsible for some of the promises in the August 22, 1997 agreement but say they fulfilled those promises. At trial, Mr. Rademaker testified that Conrad International was originally obliged to pay Talbot Creggy but that that obligation was to last only a month. Presumably that month was to begin with the acquisition of the control block of Woodie I, but perhaps it was to begin after Talbot Creggy advanced the $150,000. In any event, if I accept that argument, either calculation puts the defendants off the hook by January 1998, which is the time Mr. Rademaker pinpointed as the time from which he thought Mr. Carter was responsible for paying Talbot Creggy. As far as Mr. Rademaker was concerned, the deal was between Mr. Carter and Mr. Creggy.
[60] The defence position ñ that they are responsible only for their own promises ñ is consistent with the fact that an agent may become a contracting party in addition to his or her principal and thus only take on part of the obligations under the contract.
[61] I also note that, because Mr. Rademaker did the negotiating, he is the focus of my discussion of personal covenants. Whether those covenants, if any, are his or Conrad Internationalís is discussed below.
[62] I have already set out the general principles applicable to assessing whether an agent has contracted personally. In addition to that more general discussion, Mr. Barnett cited Wolfe Stevedores (1968) Ltd. v. Joseph Slaterís Sons Ltd. (1970), 1 N.S.R. (2d) 816 (S.C.), affíd (1970), 2 N.S.R. (2d) 269 (C.A.), in support of the proposition that Mr. Rademaker is personally liable. That case dealt with a contract for stevedoring services. The defendant shipping agent company orally assured the plaintiff company that the defendant would receive certain freight and pay the plaintiffís account. However, the defendant company was in fact the agent for the owners of the different vessels involved in the transaction. The vessel owners did not forward the appropriate funds to the defendant company so that company did not pay the plaintiff. The plaintiff sued.
[63] Mr. Justice Hart acknowledged that shipping agents are generally known in commercial shipping circles to be agents. However, he also recognized that an agent may become personally liable under a contract ìif he so desires, in order to ensure that the necessary services would be provided for his principalî (at 819). He concluded at 824-25 that:
When Mr. Evans, on behalf of the defendant company, assured Mr. Tate that the defendant would be receiving the freight and would pay his account, I am satisfied that both parties intended exactly this. Although the defendant was acting as agent for the owner of the various vessels concerned, the defendant extended its personal liability to the plaintiff to the extent that it received the freight to induce it to perform the services requested.
[64] The contract in Wolfe was an oral one but Mr. Justice Hart nevertheless found that parties had intended the defendant to be personally liable: ì[T]he true nature of the agreement between the parties was that the defendant would be personally liable to the extent of the freight recoveredî (at 826).
[65] While Wolfe applies many of the general propositions set out in the agency law texts I discussed above, it is not particularly useful as a precedent in this case. The contract in Wolfe was an oral one, leaving the determination of whether the agent had made personal undertakings entirely up to an interpretation of the surrounding circumstances. Where an oral contract is in issue, whether an agent is personally liable is a question of fact and does not involve interpreting a written contract (Bowstead at 9-043ff). It also dealt with an industry custom, which factor was not alleged here.
[66] On the facts of this case, Mr. Barnett talked exclusively with Mr. Rademaker until Mr. Carter and Mr. Creggy communicated directly in December 1997. They began discussing the project in about July of 1997, according to Mr. Rademakerís recollection. While Mr. Barnett was aware that there were other investors involved, he was under the impression that Mr. Rademaker was involved as well. Mr. Rademaker denied any personal involvement.
[67] I find that Mr. Rademaker conveyed the impression that he was in fact part of the Carter Group, which Mr. Barnett believed. However, that does not end the matter because it is not the partiesí subjective intentions that are relevant but their objectively ascertainable ones. I start by looking at the terms of the agreement itself.
[68] The August 22, 1997 letter from Mr. Rademaker to Talbot Creggy uses ìour clientî, ìmy clientî, ìusî, and ìIî to designate who will be responsible for different aspects of the transaction. This difference in terminology is confusing but implies that Mr. Rademaker is acting as part of a group. It further implies that Mr. Rademaker accepted personal responsibility for at least some of the obligations as part of a wider group of investors.
[69] Furthermore, the fact that Mr. Rademaker mentions his ìclientsî does not necessarily absolve him from responsibility. The case law indicates that an agent can take on personal responsibility to guarantee a principalís performance. In that case, the agent is liable for non-performance in the same way that the principal would be.
[70] In any event, the only obligation that is attributed solely to a client in the August 22, 1997 letter is to ìsell sufficient shares from an account under my controlî in the third paragraph. Paragraph 1 says that ìyou are sending $150,000 in order for our client, acting for a group of investors, to secure a trading companyî, which seems to make the securing of the company the ìclientísî responsibility. However, paragraph 2 goes on to say that ìI am instructed to deliver to Mr. Shraga Dachner on your behalf 100,000 Free Trading shares after securing the trading companyî, which implies that it is Mr. Rademaker who must secure shares of the company. The confusion in those passages makes it reasonable for Talbot Creggy to have believed that Mr. Rademaker was accepting personal responsibility to secure the shares of the company.
[71] As far as selling the shares is concerned, it is unclear how a client would be able to sell shares in an account under Mr. Rademakerís control without his assistance. I find that it was implied that Mr. Rademaker would carry out the sale since, as the one in control of the account, he would presumably be the only one able to do so. However, since Mr. Rademaker was responsible for wiring to Talbot Creggy the $185,000 that was to come from the sale, who was supposed to authorize the sale is really irrelevant. What was most important was that the money get to Talbot Creggy; had Talbot Creggy been paid there would have been no discussion about where it came from.
[72] There are two promises whose covenanters are completely unclear because of the use of the passive voice at the beginning of paragraph 2. It says ìthe vend-in will be done immediately and a Press Release issuedî. Given that Mr. Rademaker was involved in negotiations and signed the letter without qualification, I find it is appropriate to attribute responsibility for those promises to him. Who instructed Mr. Rademaker to deliver the 100,000 shares is also unclear, though it is not necessary to determine since Mr. Rademaker clearly undertook to do so later in that sentence.
[73] A crucial covenant in the letter is the one to send $185,000 to Talbot Creggy. The letter says ìmy client undertakes to sell sufficient sharesÖfor us to wire you $185,000 USDî. A reasonable person would assume that the ìusî in that sentence referred to Mr. Rademaker and some other person or persons, whoever they may be. But it clearly involves Mr. Rademaker as promisor. At most, this is a promise by Mr. Rademaker as principal to perform one of the key obligations; at least, this is an example of an agent personally guaranteeing his principalís performance.
[74] In support of my assessment that Mr. Rademaker is responsible for the majority of the promises in the August 22 letter, I also note that the last sentence of the letter advises the plaintiff to call Mr. Rademaker if he needed to ìdiscuss anythingî. That holds out Mr. Rademaker as being in charge of the transaction. There is nothing in the evidence to suggest that Mr. Rademaker made clear that he was not assuming any personal responsibility, and it is arguable that, even if there were, such assertions would be contrary to the contract itself, which would make them impermissible parol evidence.
[75] I then turn to the factors set out in The Swan, Fridman and Bowstead in further support of my conclusion that Mr. Rademaker is personally liable.
[76] The nature of the contract: This was an investment contract, which often involves several investors on both sides of a transaction and, for efficiency purposes, is often negotiated through designated spokespersons. The spokespersons could be merely agents but they could also be personally involved. Mr. Rademaker did not make clear that he was not personally involved; therefore, it is reasonable to assume that he was acting on behalf of a group of investors that included himself.
[77] The terms of the contract: I have fully discussed the confusion in the language of the terms of the contract above. They militate in favour of Mr. Rademaker being personally liable.
[78] The surrounding circumstances: Mr. Barnett had done business with Mr. Rademaker before and had been pleased with the outcome. Mr. Barnett relied on his experience that Mr. Rademaker was trustworthy and that influenced both his decision to notify Mr. Creggy of the opportunity and Talbot Creggyís decision to proceed with the transaction. Mr. Barnett assured Mr. Creggy that Mr. Rademaker was upright. Mr. Rademaker was at all times, until December 1997, the one in charge of negotiating and managing the deal.
[79] The signature: As I discuss below, the fact that Mr. Rademaker signed the letter without qualification to his signature supports a finding of personal liability. There are cases where an agent purports to sign on a principalís behalf but the form of the signature is still considered too vague to relieve the agent from liability. Here, Mr. Rademaker made no attempt to qualify his signature, which implies he was taking responsibility for the transaction (see Parker).
[80] The surrounding circumstances: I have already discussed the surrounding circumstances above. I do note that Fridman emphasizes that parol evidence about the circumstances may only amplify the contract and may not contradict it. Given the terms of the contract making reference to Mr. Rademaker personally, any parol evidence should be supportive of his personal liability.
[81] Finally, my determination is also consistent with Bowsteadís views of when an agent becomes personally liable. In particular, the form of the words used in the contract indicate such an intention, which takes precedence even where the facts may be doubtful about whether the agent intended to be personally bound. I do not think the objective facts in this case are doubtful about Mr. Rademakerís intentions, but, even assuming that they are, the words of the contract make him liable in any event.
[82] The only thing Bowstead adds to the analysis is the caution that the agent only be responsible for the obligations he or she actually undertook and not necessarily the whole contract. That being the premise of the defendantsí arguments, I have taken heed to that warning. However, I find that Mr. Rademaker took responsibility for the vast majority, if not all, of the promises in the August 22 agreement.
B. Agent for a corporate entity
[83] The issue of whether Mr. Rademaker was acting at all times as an agent for Conrad International arises because of my conclusion that Mr. Rademaker did make personal covenants in the August 22, 1997 letter. If he had not, he would not need to rely on the corporate veil to escape responsibility.
[84] Mr. Barnett claims that the August 22, 1997 letter represents a personal agreement on Mr. Rademakerís part. That is, Mr. Rademaker covenanted to ensure the performance of those things to be done in exchange for the $150,000 payment to Conrad International. Mr. Creggy added at trial that he would never have dealt with a company because he preferred to conduct investment business with individuals whose word he could accept.
[85] Mr. Rademaker, on the other hand, maintained that he does not do business in his own name. He said, more particularly, that on this occasion, any obligations he accepted he did so on behalf of Conrad International. He also said that he does not use the name of the company to qualify his signature when he signs a letter on corporate letterhead.
[86] Fridman describes in a nutshell at 353 the reason why agency and company law so often come together:
The personification of a company makes it capable of acquiring rights and of being subject to duties, whether contractual, proprietary, or otherwise and, since the artificial entity which is the company can act only by and through human beings, the company must be treated as a principal, or as a master, and those through whom it acts as agents or servants.
[87] Where a party to a contract alleges that it made the contract with an individual and that individual asserts that he or she was acting on behalf of a corporation, the circumstances are analogous to where an agent acts for an undisclosed principal (see Excelco Foods Inc. v. Snider (1991), 95 Sask. R. 314 (Q.B.) at para. 6).
[88] Fridman cites Storey v. Atlan Industries Ltd. (1981), 36 N.B.R. (2d) 317 (Q.B.), affíd (1983), 45 N.B.R. (2d) 181 (C.A.), in his discussion of undisclosed corporate principals. In that case, the foundation of the plaintiffsí home was damaged due to faulty construction of a swimming pool. Mr. Justice Creaghan found that the plaintiffs had every reason to believe up to the time they signed the contract that they were dealing with the individual defendant, Mr. Price, and not either of his two corporations. Mr. Price did not mention either of those corporations and the price quote and the contract itself were signed by Mr. Price without qualification.
[89] In support of his arguments about Mr. Rademakerís liability over that of Conrad International, Mr. Barnett cites Truster v. Tri-Lux Fine Homes Ltd. (1998), 110 O.A.C. 101. In that case, Mr. Kaufman and Mr. Matta were directors and officers of the defendant Tri-Lux Fine Homes, a high-end home construction company. The plaintiff signed a contract that dealt with the purchase and sale of a parcel of land and the building of the home. The agreement was signed by Mr. Kaufman and Mr. Matta on behalf of the vendor of the property, who was Tri-Lux Fine Homesí principal. The agreement was amended some time later and signed ìTri-Lux Fine Homes, per Kaufman and Mattaî. On the supposed closing date, Mr. Kaufman advised the plaintiff that the home would not be complete on time and an undertaking was offered to complete the home in a proper manner within 10 days signed by ìTri-Lux Fine Homes Limited per Kaufman and Mattaî. The trial judge found that this was the first time the plaintiff was alerted to the fact that she was dealing with a corporate entity.
[90] The trial judge found that Mr. Kaufman and Mr. Matta were personally liable because they purported to act for a non-existent entity, which the Court of Appeal said was an error. However, the trial judge had properly recognized that:
[P]ersons wishing to benefit from the protection of the corporate veil should not hold themselves out to the public without qualification. They should identify the name of the company with which they are associated in a reasonable manner or risk being found personally liable if the circumstances warrant it[.] (at para. 21)
[91] Mr. Justice Finlayson, for the Court of Appeal, continued at para. 21:
This principle properly flows from the fact that incorporation provides corporate officers and shareholders the legal protection thought to be necessary for modern business relations; however, if one expects to benefit from this protection, then others must, at a minimum, be informed in a reasonable manner that they are dealing with a corporation and not an individual. In the last analysis, persons who set up after the fact that they contracted solely on behalf of another bear the onus of establishing that the party with whom they were dealing was aware of the capacity in which they acted.
[92] He then said at para. 22:
I would agree with the trial judge's assessment that [Kaufman and Matta] did not take reasonable steps to ensure they were not holding themselves out as individuals rather than as agents of a corporation. For this reason alone, the trial judge would have been justified in finding them personally liable.
[93] The subsequent issue of whether the undertaking which did refer to the corporate entity was intended to remove Mr. Kaufman and Mr. Mattaís personal liability is not relevant to our facts.
[94] Mr. Barnett also cites Ontario Marble, which I cited earlier. In that case, the plaintiff sold Creative Memorials some tombstones and other goods for which Creative Memorials did not pay in full. In a letter, Mr. Gurstein from Creative Memorials indicated that he had arranged with his ìassociateî Mr. Rosen for the latter to guarantee the balance of the amount owing. Mr. Rosen was the president, manager and controlling shareholder of a company called North West Electric. He attached a letter to Mr. Gursteinís letter, which said that: ìThis will serve as our undertaking that the balance of the money (approx. $2,000.00) due on the order (July 15, 1959) as placed by Creative Memorials Ltd. of Regina, Sask., will be paid by us should said firm fail to do so promptly as per terms.î The letter was signed:
NORTH WEST ELECTRIC Company Ltd.
"signature"
M. B. Rosen
[95] The plaintiff alleged that Mr. Rosen and North West Electric had both guaranteed Creative Memorialsí performance. Mr. Rosen had admitted on discovery that North West had intended to give a guarantee, resolving that issue. As to Mr. Rosenís personal liability, Mr. Justice Disberry framed the question as ìwhether or not, when he signed this letter, the defendant Rosen intended not only to give the guarantee of North West but also his own personal guarantee.î After saying that intent should be discerned from the words of the agreement and the surrounding circumstances, Mr. Justice Disberry said this about Mr. Rosenís personal liability at 154:
The evidence before me established that Rosen was interested personally in the possible profits of Creative to the extent of 25%; that he was the person who approached the plaintiff in Toronto to sell goods to Creative; and he was the one who arranged to have North West guarantee Creative's loan at the Royal Bank in order to obtain the $3,000 which was paid to the plaintiff.
[96] After noting that the term ìpersonal guaranteeî was batted around in the correspondence, he continued at 155:
The opening paragraph refers to "our undertaking" and states that in the event of default by Creative the balance will be paid "by us". The use of the words "our" and "us" in my opinion refer to two persons and not to one. The final paragraph gives credit references "on this firm", namely North West, but the limitation of credit references to North West does not in my opinion point to the exclusion of Rosen as co-guarantor with North West. Indeed at the trial Rosen said: "Ever since I started everything I have is North West Electric. Personally I do not have anything. If a report was drawn on me personally it would be a nil report." Under these circumstances it is quite understandable why credit references would be restricted to North West.
Ö
Furthermore there is nothing in the letter of July 27th or in the signature thereto to indicate that Rosen signed the guarantee solely for or on behalf of North West: Dutton v. Marsh (1871), L.R. 6 Q.B. 361; Loczka v. Ruthenian Farmers Co-operative Co., 68 D.L.R. 535, 32 Man. R. 137, [1922] 2 W.W.R. 782[.]
[97] Therefore, the fact that Mr. Rosen used the terms ìweî and ìusî were sufficient to impose liability on him personally as well as on his company. The court was of the view that the surrounding circumstances also belied his intent to provide a personal guarantee. The lack of a qualification to his signature was a further reason to deny Mr. Rosen the option of claiming that he acted at all times as an agent for North West.
[98] It is also worth noting again, as I mentioned in my discussion of Truster, that where a party is originally unaware that he or she is contracting with a corporation but finds that fact out at a later date, the corporationís agent is not thereby automatically relieved of liability. In Selby's Electrical Limited v. Bruce (1984), 46 Nfld. & P.E.I.R. 240 (Nfld. D.C.), the court held that until the other party unequivocally elects to treat the corporation as the contracting party, the individual remains liable.
[99] Mr. Justice Hunter cited Selbyís Electrical and several other useful cases in Excelco Foods at paras. 6-12. One case directly on point is Trail Tire Service Ltd. v. Scobie, [1976] 5 W.W.R. 409 (Alta. D.C.). Mr. Justice Legg in that case held at 416 that the onus was on the personal defendants ìto leave no doubt that in everything the defendants did they were acting as agents and officers of ëScobey Construction Ltd.íî if they intended to seek to avoid personal liability by retreating behind the corporate veil. The Nova Scotia Court of Appeal came to a similar conclusion in Lohnes v. Corkhum (1981), 121 D.L.R. (3d) 761 (N.S.C.A.), as did Mr. Justice Bauman in Punjab Foods.
[100] The essence of all of these cases is that unless an agent clearly identifies him or herself as the representative of a corporation from the outset of the commercial relationship, the agent will be personally liable for whatever promises he or she makes. Even where there are clues as to the existence of a corporate entity behind the scenes, such as names on letterhead or on cheques, that is not sufficient to remove the plaintiffís ability to pursue the individual who now claims to be merely a corporate representative.
[101] There is nothing in the evidence to indicate that Mr. Rademaker made clear that he was acting solely as an agent of Conrad International and not in his personal capacity, which was his responsibility if he wanted to take advantage of the limited liability a corporate body offers. The fact that the August 22, 1997 letter was on ìConrad International Finance Corp.î letterhead was insufficient to give Talbot Creggy notice of Mr. Rademakerís status as corporate agent. Furthermore, he signed the letter as ìConrad Rademakerî without qualification of any kind, which is fatal to his claim.
[102] As well, as I noted above, Mr. Creggy was adamant at trial that had he known that he was contracting with Conrad International and not Mr. Rademaker personally, he would not have consented to the transaction. This is further evidence militating in favour of Mr. Rademakerís personal liability.
4. Summary on Mr. Rademakerís liability
[103] I have determined that Mr. Rademaker promised to do the following in the August 22, 1997 letter:
… secure a trading company;
… deliver 100,000 free trading shares to Mr. Dachner for Talbot Creggyís benefit;
… ensure that the vend-in was effected immediately after receipt of the money;
… issue a press release. The agreement states that the vend-in will occur immediately but does not provide that the press release should be released immediately;
… hold sufficient shares in an account under Mr. Rademakerís control to realize $185,000;
… wire $185,000 to Talbot Creggy during the first seven days of trading following the press release; and
… hold 150,000 shares as security for the $185,000 until Talbot Creggy received that amount.
[104] Mr. Rademaker cannot rely on the fact that he was an agent for Conrad International to avoid personal liability. He is personally responsible for the covenants in the August 22 letter.
[105] I now turn to the defence arguments about the correspondence between Mr. Creggy and Mr. Carter creating a new agreement such that the defendantsí are no longer liable to Talbot Creggy for breach of contract.
[106] At the outset, I note that the defendants did not plead novation, accord and satisfaction or rescission specifically. Paragraph 3(g) of the amended statement of defence states that the February 1998 agreement ìtook the place of and superseded the original agreementÖand by necessary implication it brought to an end any corollary obligations CIFC might previously have assumedî but it does not outline how. That renders the defendantsí ability to rely on the arguments below problematic.
[107] I also note that counsel for Mr. Barnett addressed novation briefly in their written opening argument, but not the other two doctrines, and addressed none of the three in their written closing submissions.
[108] Where a novation argument succeeds, the modified agreement replaces the existing one and any rights and liabilities under the existing agreement are extinguished (see Commercial Bank of Tasmania v. Jones, [1893] A.C. 313 (P.C.)).
[109] The B.C. Supreme Court set out the test for novation as follows in Polson v. Wulffsohn (1890), 2 B.C.R. 39 (S.C.) at 43:
[F]irst, the new debtor must assume the complete liability; second, the creditor must accept the new debtor as a principal debtor, and not merely as an agent or guarantor; third, the creditor must accept the new contract in full satisfaction and substitution for the old contract[.]
[110] Some authorities add a fourth factor ñ that the new contract must be made with consent of the old debtor ñ but Mr. Justice Esson remarks in Re Prospect Mortgage Investment Corp. and Van-5 Developments Ltd. (1985), 23 D.L.R. (4th) 349 (C.A.) at 364 that:
I have found no case in which novation has been denied because of the absence of consent of the old debtor. Some of the authorities which have considered the question have expressed the view that the requirement is not one for express consent.
[111] Mr. Justice Lambert said this about the burden of proof in novation cases in Bank of British Columbia v. Firm Holdings Ltd. (1984), 57 B.C.L.R. 1 (C.A.) at 3:
[T]he onus with respect to all four of the points needed to establish a novation is on the person wishing to set up the novation. He must show that all the parties to the novation had full knowledge of the relevant facts and concluded, each on his own part, the portion of the novation that rested upon him.
[112] The Supreme Court of Canada referred to the Polson test with approval in National Trust Co. v. Mead, [1990] 2 S.C.R. 410. However, Madam Justice Wilson for the majority mentioned this caution at 427:
Because assent is the crux of novation it is obvious that novation may not be forced upon an unwilling creditor and, in the absence of express agreement, the court should be loath to find novation unless the circumstances are really compelling. Thus, while the court may look at the surrounding circumstances, including the conduct of the parties, in order to determine whether a novation has occurred, the burden of establishing novation is not easily met.
[113] The facts in this case are not sufficiently clear to support the defendantsí novation argument. They ask the court to imply from the circumstances that Mr. Creggy intended to absolve Mr. Rademaker of his obligations to Talbot Creggy under the contract primarily because he did not explicitly reserve the right to enforce the previous agreement at the time he discussed an extension in February 1998, and also because they allege other people were made parties to the agreement at that time. Those circumstances do not fulfill any stage of the three-part test set out in Polson.
[114] Although he agreed to give the defendants more time to repay the investment in consideration for an additional $40,000 payment, Mr. Creggy clearly reserved Talbot Creggyís right to enforce the agreement in his December 16, 1997 letter, which defeats the second and third parts of the Polson test.
[115] Furthermore, there is nothing in Mr. Carterís December 1997 letter to suggest that he is stepping into Mr. Rademakerís shoes, which does not meet the first part of the Polson test. In Toronto Star Ltd. v. Aiken, [1955] O.W.N. 613 (C.A.), the Ontario Court of Appeal held that, for novation to lie, there must have been a distinct and unambiguous request that the new debtor take the place of the old; that is not present here from either party.
[116] In February 1998, Mr. Carter again asked for an extension of time and offered to exchange the Woodie I shares for shares in Optigo. Mr. Creggy accepted this offer on February 24, 1998 at the latest. It is true that Mr. Creggy did not expressly reserve the right to enforce the obligations in the August 22, 1997 agreement, as he had done in December. However, he merely signed Mr. Carterís letter and sent it back; he did not write a new letter where he would have been able to include his own comments. Furthermore, he made clear in a March 6, 1998 letter responding to Mr. Rademakerís March 4, 1998 letter that ìI do not accept that your obligations have been releasedî. This accords with his testimony at trial that he did not intend to release Mr. Rademaker from liability.
[117] There is no evidence that Talbot Creggy expressly agreed to have new debtors replace the old, nor in fact that the new debtors so intended either. The statement in Mr. Carterís February 16 letter that ìWe understand that Mr. Conrad Rademaker has not yet been able to repay you as agreed the amount of $225,000î seems to affirm Mr. Rademakerís liability; it does not evidence an intention on Mr. Carterís part to take on Mr. Rademakerís obligations such that Mr. Rademaker would no longer be liable. Keeping Madam Justice Wilsonís caution in National Trust Co. in mind, it is unlikely that the circumstances are so compelling as to justify treating the February negotiations as novation.
[118] The second way the defendants argue subsequent discussions replaced the August 1997 agreement is by asserting that the parties impliedly rescinded the August agreement when they changed its terms.
[119] Chitty on Contracts, 27th ed. (London: Sweet & Maxwell, 1994) vol. 1 introduces rescission by agreement at para. 22-022 as follows:
Where a contract is executory on both sides, that is to say, where neither party has performed the whole of his obligations under it, it may be rescinded by mutual agreement, express or implied.
[120] Chitty describes implied rescission at para. 22-025 as occurring where ìthe parties have effected such an alteration of [a contractís] terms as to substitute a new contract in its place.î It goes on:
The question whether a rescission has been effected is frequently one of considerable difficulty, for it is necessary to distinguish a rescission of the contract from a variation which merely qualifies the existing rights and obligations. If a rescission is effected the contract is extinguished; if only a variation, it continues to exist in an altered form. The decision on this point will depend on the intention of the parties to be gathered from an examination of the terms of the subsequent agreement and from all the surrounding circumstances. Rescission will be presumed when the parties enter into a new agreement which is entirely inconsistent with the old, or, if not entirely inconsistent with it, inconsistent with it to an extent that goes to the very root of it.
[121] Paragraph 22-026 discusses Morris v. Baron & Co., [1918] A.C. 1, which set out the principles applicable to a rescission by new agreement claim. Lord Dunedin said as follows about the difference between variation and rescission at 25-26:
In the first case [variation] there are no such executory clauses in the second arrangement as would enable you to sue upon that alone if the first did not exist; in the second [rescission] you could sue on the second arrangement alone, and the first contract is got rid of either by express words to that effect or because, the second dealing with the same subject-matter as the first but in a different way, it is impossible that the two should be both performed.
[122] The defendants rely on Sign-O-Lite Plastics v. Metropolitan Life Insurance Co. (1990), 73 D.L.R. (4th) 541 (B.C.C.A.), for the proposition that the fact that the new agreement may incidentally involve a change (including a reduction) in the number of parties does not alter the analysis of whether a new agreement superseded an older one.
[123] In Sign-O-Lite, the Court of Appeal held that a 1985 rental agreement relating to a sign at a Calgary mall had impliedly rescinded a 1978 rental agreement. The 1978 agreement was between Sign-O-Lite and Calbax Properties Ltd. Calbax Properties was one of several companies controlled by a Mr. Baxter. In 1982, the defendant Metropolitan acquired a 60% interest in the mall where the sign was located from R.C. Baxter Ltd., which retained the other 40%. On April 1, 1983, Metropolitan acquired the other 40% of the mall and entered into a written agreement to assume, among other things, Calbax Propertiesí interest in the rental agreement. When Sign-O-Lite renegotiated the rental agreement in 1985, it believed it was dealing with a different corporate form of the same owner it had dealt with in 1978; that was not in fact the case.
[124] The Court of Appeal found that implied rescission had occurred based on these factors: there was an express intention in the 1985 agreement to have that agreement take the place of the 1978 agreement; there was a term in the 1985 agreement that Sign-O-Lite was to upgrade the sign; the 1985 agreement provided for renewal after seven years, whereas the 1978 agreement provided for renewal after six years; and the second agreement could stand on its own. It did not address the change in parties specifically in its discussion of implied rescission.
[125] Therefore, although the texts on this topic suggest that implied rescission is only possible where the same parties agree to replace the old agreement with a new one, our Court of Appeal in Sign-O-Lite seems to say that there can be implied rescission even where that is not the case. While the court did not make a definitive comment about that possibility, it did mention the anomaly in its recitation of the facts and came to the conclusion that implied rescission was applicable.
[126] That is only one of the defendantsí hurdles, however, in arguing that implied rescission occurred here. Because Talbot Creggy had performed all its obligations under the agreement by August 1997, it is unlikely that the doctrine of implied rescission applies. In Halsburyís Laws of England, 4th ed., vol. 9(1) (London: Butterworths, 1998) ìContractsî, it states at para. 1016 that:
In order to operate as a discharge of the contract an agreement to rescind must itself possess the characteristics of a valid contract. Thus both parties must consent to the discharge of the contract and the agreement must either be made by deed or be supported by considerationÖ.. Where the contract has been fully performed by one party the mere agreement to rescind will not generate its own consideration in this way; and (unless the agreement is made by deed) there must, in technical language, be an ìaccordî (that is the agreement) and ìsatisfactionî (that is some further consideration moving from the party who has not yet fully performed).
[127] There is not a second contract that can stand in its own in this case since the only consideration on Talbot Creggyís part is an agreement not to insist on timely payment. That consideration necessarily refers back to the first contract, making the two agreements dependent on each other.
[128] Halsburyís describes this same problem in a different way in the section on variation of contracts. It states at para. 1023 that:
Where one party has fully performed his side of the contract and the other partyís performance has fallen due, no informal variation can be effective unless it imposes some new obligation upon the latter, as with an accord and satisfaction.
Therefore, it seems that only novation and accord and satisfaction are potentially applicable here. I have already dismissed the claim in novation; I turn then to accord and satisfaction.
[129] The defendants also allege that a new agreement was formed in accord and satisfaction of the old. Accord and satisfaction was defined thus in British Russian Gazette and Trade Outlook Ltd. v. Associated Newspapers Ltd., [1933] 2 K.B. 616 at 643-44:
Accord and satisfaction is the purchase of a release from an obligation whether arising under a contract or tort by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative.
[130] For accord and satisfaction to supplant a previous agreement, the satisfaction has to actually occur. An accord on its own has no legal effect (see Rumely Co. v. Gorham (1912), 1 D.L.R. 825 at 832 (Alta. C.A.)). However, while it used to be the law that an executory promise could not amount to satisfaction, that is no longer the case. In Rumely, Chief Justice Harvey said at 827 that ìeither an agreement to do certain things may itself be the ground of settlement or the doing of those things may be the ground of settlementî, relying on Flockton v. Hall (1849), 19 L.J. Q.B. 1 at 3. It is a question of fact whether the plaintiff agreed to accept the promise of payment or only the actual payment itself as satisfaction.
[131] Chitty affirms at para. 22-019 that whether there has been an accord and satisfaction is a question of fact. However, the construction of correspondence that is alleged is evidence of the accord is a question of law. The intention of both parties to have the new agreement act as accord and satisfaction must be ascertained objectively. Accord and satisfaction must be specifically pleaded (Chitty at para. 22-020 and Halsburyís at para. 1043).
[132] Rottacker Farms Ltd. v. C & M Farms Ltd., [1976] 2 W.W.R. 634 (Alta. S.C.), stands for the proposition that the defendant has the burden of proving accord and satisfaction on a balance of probabilities. However, the trier of fact must ìtake into account the fact that to find that there has been an accord and satisfaction will ëdeprive a plaintiff of an unquestionable right which accord and satisfaction assumes he hasíî, relying on Weldon v. Vaughan (1880), 5 S.C.R. 35 (Rottacker at 648). Therefore, in summary:
[I]f the defendant is to satisfy me that there was an accord and satisfaction, it must do so by a preponderance of evidence. That evidence should be of a cogent character and should be commensurate with the fact that the finding of accord and satisfaction would deprive the plaintiffs of the rights they would otherwise have under the agreementÖ. (Rottacker at 649)
[133] I do not find that accord and satisfaction occurred in this case such that Mr. Rademaker can avoid personal responsibility. As something of an aside, I do not believe that Talbot Creggy intended to accept the mere promise of the additional payment and share transfer as satisfaction given that it had already waited for four to six months for payment of any kind and all that it had received was a certificate for 95,000 shares that it considered did not comply with the terms of the agreement. It is more probable that before it agreed to relinquish its previous rights it would have waited to receive what it was owed. But there are more immediate problems.
[134] In order for Mr. Rademaker to escape liability using this doctrine, the accord would have to include Talbot Creggyís agreement not to hold Mr. Rademaker to his previous obligations. For many of the same reasons I outlined in the novation section, I do not believe that occurred. First, the December 1997 letter reaffirms Mr. Rademakerís obligation to deliver $185,000. It also says that the additional money is ì[i]n consideration of the extension of timeî and nothing about relieving Mr. Rademaker from liability. It says further that the additional $40,000 makes ìthe total outstanding $225,000 US. Payments will be made as funds are availableî. The passive voice obscures the party obliged to make the payment but it makes little sense for the defendants to assume that that comment transferred liability to Mr. Carter.
[135] Second, Mr. Creggyís December 16 letter indicates that he expected the payment to be ìmade on behalf of both partiesî, which I take to mean both Mr. Rademaker and Mr. Carter. The defendants argued that Mr. Creggyís use of this expression was an admission that parties were added to the contract. However, even if it could constitute such an admission, which I question on these facts, it simply means that Mr. Creggy accepted that the agreement was being changed in some way but that he clearly considered Mr. Rademaker to still be a party. It does not support the argument that Mr. Rademaker was relieved of personal liability.
[136] As something of an aside, Mr. Creggy also reserved all existing rights in the December 16, 1997 letter should payment not be received by February 15, 1998. This makes me question whether the December letter constitutes an accord of any kind, let alone one that would allow Mr. Rademaker to avoid responsibility for the transaction at issue.
[137] Third, the February 16, 1998 letter again refers to the consideration for the additional payments as ìthe extension of timeî and nothing about removing Mr. Rademakerís liability. It also mentions that Mr. Rademaker was obliged to pay the $225,000 as agreed, indicating that at least Mr. Carter considered that Mr. Rademaker was responsible for forwarding the entire sum to Mr. Creggy. Mr. Carterís intention is relevant when determining whether accord and satisfaction has occurred. No actors are specified for the three listed obligations.
[138] Finally on this topic, I again raise the issue of the pleadings. I conclude that even if the doctrine of accord and satisfaction could be of some assistance to Mr. Rademaker, he cannot, in any event, rely upon it as he did not specifically plead it.
III. CONCLUSION
[139] I conclude that Talbot Creggy had the capacity to assign this cause of action to Mr. Barnett.
[140] I confirm that Mr. Rademaker is in breach of his agreement to provide $185,000 to Talbot Creggy. The vend-in that Mr. Rademaker undertook would be done immediately upon receipt of $150,000 from Talbot Creggy did not occur, nor was a press release issued as was agreed. Mr. Rademaker also failed to deliver to Talbot Creggy through Mr. Dachner 100,000 free trading shares in Woodie I. Further, I find that Mr. Rademaker was in breach of the agreement by failing to hold 150,000 shares of Woodie I as security for the payment of the $185,000. Having power of attorney over a client firm account in Ireland where the shares are located is insufficient. I find that all of these obligations were those of Mr. Rademaker and not of Conrad International.
[141] I also conclude that there was no novation, implied rescission, nor accord and satisfaction by virtue of subsequent correspondence between Mr. Carter and Mr. Creggy. The August 22, 1997 agreement may have been amended but it remained the relevant contract.
[142] Therefore, I grant judgment against Mr. Rademaker in the amount of the Canadian equivalent of $185,000 USD. Mr. Barnett did not seek specific performance of the covenant to provide the shares in Woodie I, which makes sense because they are now worthless.
[143] In granting judgment in the amount of $185,000, I gave thought to whether the $35,000 portion of the amount to be paid by Mr. Rademaker above the $150,000 advanced constitutes a criminal rate of interest pursuant to s. 347 of the Criminal Code. For example, see Georgia 50.4 Sydicate v. Butler (1990), 49 B.C.L.R. (2d) 383 (S.C.), affíd (1995), 9 B.C.L.R. (3d) 328 (C.A.). However, as this issue was neither pleaded nor argued, I decided that it could not be of concern to the parties and thus not appropriate for me to raise on my own.
[144] I also award Mr. Barnett court ordered interest at Registrarís rates on the $185,000 from May 5, 2000, the date that his counsel advised Mr. Rademaker of the assignment and made demand for payment, to date of judgment.
[145] Mr. Barnett is entitled to his costs on Scale 3. In the circumstances, I do not award costs to Conrad International.
ìT.J Melnick, J.î
The
Honourable Mr. Justice T.J. Melnick