National Bank of Canada et al. v. Merit Energy Ltd. et al., 2001 ABQB 680

• Judge: LoVecchio, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: July 04, 2001
• Citations: 2001 ABQB 680;(2001), 294 A.R. 36 (QB)

Nat. Bk. v. Merit Energy Ltd. (2001), 294 A.R. 36 (QB)

MLB headnote and full text

Temp. Cite: [2001] A.R. TBEd. AU.020

National Bank of Canada, Bank One NA and Bank One Canada (plaintiffs) v. Merit Energy Ltd. (defendant)

(Action No. 0001-04994; 2001 ABQB 680)

Indexed As: National Bank of Canada et al. v. Merit Energy Ltd. et al.

Alberta Court of Queen's Bench

Judicial District of Calgary

LoVecchio, J.

July 24, 2001.

Summary:

A purchaser defaulted under a purchase and sale agreement. Two clauses provided remedies for the vendor. The first clause entitled the vendor to claim an equitable mortgage. The second clause obliged the purchaser to pay a certain amount of money. The purchaser went bankrupt. The vendor made a claim. The trustee in bankruptcy applied for advice and directions respecting the vendor's claim.

The Alberta Court of Queen's Bench held that the vendor was entitled to an equitable mortgage. The vendor was not entitled to the certain amount payable by the purchaser because it was unenforceable as a penalty.

Contracts - Topic 4048

Remedies for breach - Liquidated damages and penalties - Penalty - What constitutes -[See Damages - Topic 1103 ].

Damages - Topic 1103

Liquidated damages - What constitutes a penalty - A clause in a purchase and sale agreement provided that if the purchaser defaulted, it was obliged to pay to the vendor "as a penalty ... (provided, however such amount, or any portion thereof which may be payable by the purchaser to the vendor shall represent unliquidated damages to the vendor) the amount of ..." - The vendor claimed $1,690,714.18 under that clause - The amount actually owing to the vendor for the purchaser's breach was $90,000 - The Alberta Court of Queen's Bench held that the clause was unenforceable as a penalty - See paragraphs 23 to 40.

Mortgages - Topic 207

Equitable mortgage - What constitutes an equitable mortgage - A clause in a purchase and sale agreement provided that if the purchaser defaulted, it was obliged, upon the written request of the vendor, to provide the vendor with security documentation whereby the purchaser would give the vendor "a first mortgage, charge and security interest over and with respect to the undivided interest of the purchaser in and to the assets acquired by the purchaser" - The vendor sent the purchaser two letters - The first one said that if the purchaser defaulted then the vendor requested the above mentioned security documentation - The second letter said that the purchaser defaulted - Security documentation was enclosed along with a request to the purchaser to execute it - The Alberta Court of Queen's Bench held that an equitable mortgage existed in favour of the vendor where (1) the purchaser agreed in writing to grant a mortgage upon the vendor's request, and (2) through the two letters it sent, the vendor clearly requested or demanded that the purchaser give the vendor a fixed charge debenture - See paragraphs 13 to 22.

Cases Noticed:

Royal Bank of Canada v. Boyd (Trustee of), [1991] A.J. No. 1276 (Q.B.), consd. [para. 16, footnote 3].

Canadian Imperial Bank of Commerce v. Rehnby (1992), 22 R.P.R.(2d) 93 (B.C.S.C.), consd. [para. 17, footnote 6].

Bank of British Columbia v. Collens Estate, [1983] 1 W.W.R. 185; 40 A.R. 336 (Q.B.), refd to. [para. 17, footnote 7].

Groat and Groat v. Canadian Imperial Bank of Commerce, [1985] 6 W.W.R. 698; 42 Sask.R. 241 (Q.B.), refd to. [para. 17, footnote 7].

Ashland Scurlock Permian Canada Ltd. et al. v. NESI Energy Marketing Canada Ltd. (Bankrupt) (1998), 226 A.R. 242 (Q.B.), consd. [para. 32, footnote 11].

Fern Investments Ltd. et al. v. Golden Nugget Restaurant (1987) Ltd. et al. (1994), 149 A.R. 303; 63 W.A.C. 303 (C.A.), refd to. [para. 33, footnote 13].

Calgary (City) v. Northern Construction Co. (1985), 67 A.R. 95; 42 Alta. L.R.(2d) 1 (C.A.), affd. [1987] 2 S.C.R. 757; 80 N.R. 394; 82 A.R. 395, refd to. [para. 33, footnote 13].

32262 B.C. Ltd. v. See-Rite Optical (1998), 216 A.R. 33; 175 W.A.C. 33 (C.A.), refd to. [para. 33, footnote 13].

Counsel:

Frances R. Dearlove (Bennett Jones LLP), for Arthur Andersen Inc.;

Jeffrey D. Vallis and Karen Tereposky (Borden Ladner Gervais LLP), for Milagro Energy Inc.

LoVecchio, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, heard this application on July 4, 2001, and delivered the following reasons for judgment on July 24, 2001.