Maxer Ltd. (Bankrupt), Re, (2011) 266 Man.R.(2d) 71 (QB)

• Judge: McKelvey, J.
• Court: Court of Queen's Bench of Manitoba (Canada)
• Case Date: June 08, 2011
• Jurisdiction: Manitoba
• Citations: (2011), 266 Man.R.(2d) 71 (QB);2011 MBQB 127

Maxer Ltd. (Bankrupt), Re (2011), 266 Man.R.(2d) 71 (QB)

MLB headnote and full text

Temp. Cite: [2011] Man.R.(2d) TBEd. JN.034

In The Matter Of: The Bankruptcy of Maxer Limited

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

And Between:

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

(BK 09-01-01385; 2011 MBQB 127)

Indexed As: Maxer Ltd. (Bankrupt), Re

Manitoba Court of Queen's Bench

Winnipeg Centre

McKelvey, J.

June 8, 2011.

Summary:

In February 2006, an 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 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.

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 - 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 February 2006 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 for what it described as a mutual mistake - The Manitoba Court of Queen's Bench held that the transaction included lot 17 - 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 - See paragraphs 35 to 50.

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 Manitoba Court of Queen's Bench 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 - See paragraphs 51 to 73.

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 - An issue was whether the sale of the property from the bankrupt to the applicant was void as against the trustee, pursuant to s. 91 of the Bankruptcy and Insolvency Act - The Manitoba Court of Queen's Bench considered the factual conditions or factors as set out in s. 91 - Section 91(2) required three material elements to be proven by the trustee in order to render the "settlement" of property void as against the trustee, namely, that the disposition of the property was a "settlement"; the settlor, at the time of making the settlement, was unable to pay its debts without the aid of the property disposed of; and the settlement occurred within five years of the settlor's becoming bankrupt - Section 91(3) provided a defence to the disposition by stating, "This section does not extend to any settlement made in favour of a purchaser, incumbrancer or holder of a charge in good faith and for valuable consideration" - "Involved in a consideration of these issues must be the fact that the transfer must have been made with the intention that the transferee retain the property in an original or traceable form" - See paragraph 23.

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, 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) - The Manitoba Court of Queen's Bench held that the trustee had not established that the transaction was a "settlement" to which s. 91(2) applied - The settlement of property was made within the five-year period before the 2009 bankruptcy - That being said, the trustee had failed to meet its burden of establishing that the bankrupt was, at the time of the transaction, incapable of carrying on its business without the liquidation of the property - The test was whether the bankrupt could pay its debts and carry on its business with the property left unsettled - The evidence demonstrated that the bankrupt could, and indeed did, carry on its business subsequent to the sale - The evidence that it was unable to pay its debts without the aid of the property was weak or non-existent - Also, the VTB mortgage constituted valuable consideration - The purchase price was not a gratuitous amount nor was it trifling, insignificantly small or a token - Section 91(3) excluded from the operation of s. 91(2) a "settlement" made in good faith and for valuable consideration - If the court was incorrect in finding that the transaction was not a settlement for the purposes of s. 91(2), it found that s. 91(3) operated to exclude the application of s. 91(2) to the transaction - See paragraphs 24 to 34.

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:

Ramgotra (Bankrupt), Re (1993), 108 Sask.R. 257; 18 C.B.R.(3d) 1 (Q.B. Bktcy.), affd. (1994), 120 Sask.R. 277; 68 W.A.C. 277; 26 C.B.R.(3d) 1 (C.A.), refd to. [para. 6].

Moss (Bankrupt), Re (2009), 243 Man.R.(2d) 88; 2009 MBQB 197, refd to. [para. 18].

Leger, Re (1995), 34 C.B.R.(3d) 133 (Ont. Gen. Div.), refd to. [para. 18].

Kostiuk (Bankrupt), Re, [1998] B.C.T.C. Uned. E17; 6 C.B.R.(4th) 46 (S.C.), refd to. [para. 23].

Thimianis, Re; Canadian Imperial Bank of Commerce v. Thimianis (1985), 54 C.B.R.(N.S.) 314 (Ont. S.C.), refd to. [para. 27].

Grant, Re (1926), 7 C.B.R. 254 (N.S.S.C.), refd to. [para. 28].

Springridge Farms Ltd. (Bankrupt) v. Spence (1991), 95 Sask.R. 193; 7 C.B.R.(3d) 228 (Q.B. Bktcy.), refd to. [para. 28].

MacPherson v. MacPherson (1994), 25 C.B.R.(3d) 279 (Gen. Div.), dist. [para. 34].

Pentagon Investments Ltd. (Bankrupt) v. Kwan et al. (2003), 216 N.S.R.(2d) 314; 680 A.P.R. 314; 45 C.B.R.(4th) 127; 2003 NSSC 169, dist. [para. 34].

Doucet (Bankrupt), Re (2004), 278 N.B.R.(2d) 203; 728 A.P.R. 203; 2 C.B.R.(5th) 153; 2004 NBQB 245 (Bktcy.), dist. [para. 34].

Fort Garry Care Centre Ltd. v. Hospitality Corp. of Manitoba Inc. (1997), 123 Man.R.(2d) 241; 159 W.A.C. 241 (C.A.), dist. [para. 39].

Willman v. Ducks Unlimited (Canada) (2003), 171 Man.R.(2d) 297; 2003 MBQB 41, refd to. [para. 40].

Ship M.F. Whalen v. Pointe Anne Quarries Ltd. (1921), 63 S.C.R. 109, refd to. [para. 45].

Amneet Holdings Ltd. v. 79548 Manitoba Ltd. et al. (2003), 172 Man.R.(2d) 305; 2003 MBQB 52, consd. [para. 71].

Statutes Noticed:

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, sect. 91(2), sect. 91(3) [para. 4].

Authors and Works Noticed:

Anger and Honsberger, The Law of Real Property (3rd Ed. 2006) (2010 Looseleaf), vol. 2, p. 23-78, § 23:30.50 [para. 47].

Houlden, Lloyd W., Morawetz, Geoffrey B., and Sarra, Janis P., Bankruptcy and Insolvency Law of Canada (3rd Ed.) (2005 Looseleaf Update), vol. 2, p. 4-12, para. F § 77 [para. 18].

Counsel:

Catherine E. Howden, for the applicants/respondent;

Janet I. Jardine, for the respondents/applicant.

These motions were heard concurrently before McKelvey, J., of the Manitoba Court of Queen's Bench, Winnipeg Centre, who delivered the following judgment on June 8, 2011.