Maxer Ltd. (Bankrupt), Re, 2012 MBCA 92

• Judge: Steel, Beard and MacInnes, JJ.A.
• Court: Court of Appeal (Manitoba)
• Case Date: December 06, 2011
• Jurisdiction: Manitoba
• Citations: 2012 MBCA 92;(2012), 284 Man.R.(2d) 93 (CA)

Maxer Ltd. (Bankrupt), Re (2012), 284 Man.R.(2d) 93 (CA);

      555 W.A.C. 93

MLB headnote and full text

Temp. Cite: [2012] Man.R.(2d) TBEd. OC.037

Leigh C. Taylor and L.C. Taylor & Co. Ltd., Trustee of the Estate (respondents/appellants) v. Dr. Kenneth Kemkaran and 5244161 Manitoba Ltd. (applicants/respondents)

And Between:

L.C. Taylor & Co. Ltd., Trustee of the Estate (applicant/appellant) v. 5244161 Manitoba Ltd. (respondent/respondent)

(AI 11-30-07588; 2012 MBCA 92)

Indexed As: Maxer Ltd. (Bankrupt), Re

Manitoba Court of Appeal

Steel, Beard and MacInnes, JJ.A.

October 2, 2012.

Summary:

In February 2006, a trust agreement was entered into between Maxer Ltd. and 5244161 Manitoba Ltd. ("524"), for the sale and purchase of property (lots 17 to 20). Maxer filed an assignment in bankruptcy in 2009. A trustee was appointed. The following motions were heard concurrently: (1) a motion brought by the applicants, including 524, seeking an order setting aside the trustee's Notice of Dispute and confirming their claim; and (2) a motion brought by the trustee, seeking: (a) a declaration that lot 17 was property of Maxer and available for distribution to its creditors; and (b) a declaration that the transaction was void as against the trustee; alternatively, that 524 was in default of the February 2006 agreement and that, as a result, any beneficial interest conveyed by the agreement had reverted to the trustee.

The Manitoba Court of Queen's Bench, in a decision reported at 266 Man.R.(2d) 71, concluded the following: (1) the transaction was not void as against the trustee (s. 91 of the Bankruptcy and Insolvency Act did not apply); (2) the transaction included lot 17; and (3) 524 was not in default, nor did it breach the agreement; alternatively, 524 was entitled to a set-off or relief from forfeiture. Accordingly, 524 was the beneficial owner of lots 17 to 20 and was entitled to the transfer of those lots upon compliance with the conditions in the February 2006 agreement. The trustee appealed.

The Manitoba Court of Appeal dismissed the appeal.

Bankruptcy - Topic 7207

Setting aside transactions prior to bankruptcy - Person acquiring bankrupt's property - In February 2006, an agreement was entered into between Maxer Ltd. and 5244161 Manitoba Ltd. ("524"), for the sale and purchase of property (the trust agreement) - The purchase price was paid by way of a vendor take-back mortgage - Maxer filed an assignment in bankruptcy in 2009 - 524 sought an order requiring the trustee in bankruptcy to transfer the subject property to it as the rightful owner - The property was described in two certificates of title; one was for lot 17 - The sale agreement encompassed lots 17 to 20 - Lot 17 was not included in the property described in the trust agreement, or in the subsequent transfer, mortgage and caveat documentation, which were all filed in the land titles office - The trustee sought a declaration that the lot was available for distribution to Maxer's creditors - 524 requested rectification of the trust agreement for what it described as a mutual mistake - The motion judge rectified the trust agreement to include lot 17 as part of the property sold by Maxer and purchased by 524 - There was a mutual mistake, and that "a rectification can be utilized to restore the parties to their original intention or bargain between them" - To hold otherwise would promote a benefit to the trustee that was not intended by the parties to the agreements - The trustee appealed - The Manitoba Court of Appeal saw no error in the motion judge's appreciation of the law on the issue of rectification, nor palpable and overriding error on her application of the facts to the correct legal principles - See paragraphs 107 to 119.

Bankruptcy - Topic 7207

Setting aside transactions prior to bankruptcy - Person acquiring bankrupt's property - In February 2006, an agreement was entered into between Maxer Ltd. and 5244161 Manitoba Ltd. ("524"), for the sale and purchase of property - The purchase price was paid by way of a vendor take-back mortgage - Two tenants occupied the property and paid rent on a monthly basis - 524 was to receive the monthly rents and use them to make the mortgage payments - Maxer filed an assignment in bankruptcy in 2009 - The tenants were instructed by the trustee in bankruptcy to make the rental payments to the trustee - The trustee also demanded the mortgage payments from 524 - 524 sought an order requiring the trustee to transfer the property to it as the rightful owner - The trustee moved for a declaration that 524 was in default of the mortgage payment provisions of the February 2006 agreement and that, as a result, any beneficial interest conveyed by the agreement had reverted to the trustee - The motion judge held that 524 was not in default, nor did it breach the agreement - Alternatively, 524 was entitled to a set-off or relief from forfeiture - The trustee's actions of "redirecting" the rents were contrary to the agreement - Further, the trustee's position had not been prejudiced - Accordingly, 524 was the beneficial owner of lots 17 to 20 and was entitled to the transfer of those lots upon compliance with the conditions in the February 2006 agreement - The Manitoba Court of Appeal dismissed the trustee's appeal - See paragraphs 125 to 133.

Bankruptcy - Topic 7322

Setting aside transactions prior to bankruptcy - Settlements - Void settlements - The applicant sought an order requiring the trustee in bankruptcy to transfer the subject property to it as the rightful owner - At issue was whether the sale of the property for $600,000 on February 22, 2006, from the bankrupt to the applicant, was void as against the trustee (Bankruptcy and Insolvency Act (BIA), s. 91) - The purchase price was stipulated and non-negotiable; it was some $150,000 less than the 2005 appraised value; and it was paid by way of a vendor take-back mortgage (VTB mortgage) - Section 91(3) excluded from the operation of s. 91(2) a "settlement" made in good faith and for valuable consideration - The motion judge found that the trustee had not established that the transaction was a "settlement" to which s. 91(2) applied - The VTB mortgage constituted valuable consideration - The purchase price was not a gratuitous amount nor was it trifling, insignificantly small or a token - The trustee appealed, asserting that the motion judge erred in finding that the transaction was not a settlement - The Manitoba Court of Appeal held that the motion judge made no error - The motion judge clearly understood that a settlement under the BIA included a contract to the extent that it was gratuitous or made for merely nominal consideration - The motion judge then considered the evidence and concluded, as she was entitled to do, that the VTB mortgage for $600,000 amounted to valuable, not nominal, consideration, and that, on the facts, the contract was not a gratuitous contract - Not only was the motion judge entitled to make the findings she made, but she was correct in so doing - See paragraphs 79 to 93.

Contracts - Topic 3944

Performance or breach - Relief from forfeiture - When available - [See second Bankruptcy - Topic 7207 ].

Deeds and Documents - Topic 5055

Rectification - When available - Intention of parties - [See first Bankruptcy - Topic 7207 ].

Deeds and Documents - Topic 5057

Rectification - When available - Mistake - Mutual - [See first Bankruptcy - Topic 7207 ].

Equity - Topic 1063

Equitable relief - Relief from forfeiture - Jurisdiction - [See second Bankruptcy - Topic 7207 ].

Mistake - Topic 4007

Relief - Rectification v. rescission - [See second Bankruptcy - Topic 7207 ].

Sale of Land - Topic 8903

Remedies of purchaser - Relief from forfeiture - When available - [See second Bankruptcy - Topic 7207 ].

Cases Noticed:

Macatula v. Tessier (2003), 173 Man.R.(2d) 55; 293 W.A.C. 55; 2003 MBCA 31, refd to. [para. 44].

R. v. British Columbia Transit, 2006 TCC 437, refd to. [para. 69].

Midland Bank Trust Co. v. Green, [1981] A.C. 513 (H.L.), refd to. [para. 69].

Ship M.F. Whalen v. Pointe Anne Quarries Ltd. (1921), 63 S.C.R. 109, refd to. [para. 100].

F.H. v. McDougall, [2008] 3 S.C.R. 41; 380 N.R. 82; 260 B.C.A.C. 74; 439 W.A.C. 74; 2008 SCC 53, refd to. [para. 108].

Statutes Noticed:

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, sect. 81, sect. 91(2), sect. 91(3) [para. 2].

Authors and Works Noticed:

Anger and Honsberger, The Law of Real Property (3rd Ed. 2006) (2010 Looseleaf), vol. 2, para. 23:30.50 [para. 116].

Counsel:

J.I. Jardine, for the appellant;

C.E. Howden, for the respondent, 5244161 Manitoba Ltd.

This appeal was heard on December 6, 2011, before Steel, Beard and MacInnes, JJ.A., of the Manitoba Court of Appeal. In reasons written by MacInnes, J.A., the Court of Appeal delivered the following judgment, dated October 2, 2012.