Supreme Court

5C CIV 73 O U i^^ • it 6 1

I IN THE SUPREME COURT OF THE NORTHWEST TERRITORIES BETWEEN:

RAYMOND W. NL\SON and SANDR.A MASON, Plaintiffs - and -

MULTIBILT INDUSTRIES LTD. Defendant REASONS FOR JUDGMENT OF THE HONOURABLE MR. JUSTICE W. G. MORROW The Plaintiffs herein apply for an Order for Directions as to payment out of all monies paid into Court or to be paid f into Court by Kinross Mortgage Corporation pursuant to Judg­ment already pronounced by this Court on June 12, 1973. Affidavit evidence of Raymond W. Mason and David H. Searle, viva voce evidence of the Plaintiff Sandra Mason, and agreement as to some facts constitutes the material before, me on this application. The application is made pursuant to Rule 446(1) which provides: "446(1) The applicant may make a motion calling on the claimants to appear and state the nature and particulars of their claims, and either to maintain or relinquish them." By previous Judgment dated June 12, 1973, I awarded damages in favour of the applicants (hereinafter referred to as B "Masons") and as against the defendant Multibilt Industries Ltd.

274 I - 2 -(hereinafter referred to as "Multibilt") in the sum of $7,889.80 representing the cost to complete a building contract contracted by them, as well as further damages of $213.75 representing the amount required to discharge a Mechanic's Lien filed by one Gerard Janelle. On the 16th May 1972 the Masons (husband and wife) entered into a contract with Multibilt whereby Multibilt for a total price of $24,915.00 was to supply a type of prefabricated house to them. Delivery date was expressed as July 30, 1972 (approximate). Multibilt in turn ordered the prefabricated house from Ad Fab Structures Limited (hereinafter referred to as "Ad Fab' ) and collateral to their agreement a document re­ferred to as "Collateral Agreement'' was entered into by the two companies. The Collateral Agreement refers to an agreement between R. Mason and Multibilt dated September 29, 1972 and also refers to an agreement between Ad Fab and Multibilt whereby the first company is to build the home model covered by the Mason -Multibilt agreement. The agreement between Ad Fab and Multibilt is dated August 30, 1972 and provided for delivery of a dwelling house unit to the Mason premises. The collateral agreement makes reference to a mortgage loan having been approved by the Canadian Imperial Bank of Commerce (hereinafter referred to as "the bank") in favour of the Masons and states: "This agreement is collateral to

P"--p-375 9 - 3 ­and forming part of the said Agreement", the said agreement being the agreement between Multibilt and the .Masons. Certain paragraphs in this collateral agreement are im­portant enough to quote: "Now therefore Multibilt Industries Limited do hereby agree as follows: That Ad Fab Structures Limited will have claim on the subsequent advances on the mortgage monies from Canadian Imperial Bank of Comjnerce, Yellow-knife and that Multibilt ... will direct the said ... bank ... and the ... bank ... is hereby directed to pay Ad Fab ... in full from the sub­sequent advances from the said mort­gage monies , That Multibilt ... will do all work required to be done under the said contract between themselves and Ad Fab ... in order that the monies will become available under the mortgage agreement." It is interesting to note that the assignment refers to "subsequent advances" and the words "first and" occurring before "subsequent advances" in the above paragraph has been struck out. Also, there is a provision that if the work to be done is not done within 21 days from notification of what work ­is necessary for the release of the mortgage monies then Multi­bilt is to advance an equivalent amount to Ad Fab and recover this amount from the mortgage monies when the necessary work has been completed. Multibilt is also by covenant made responsible

f - 4 ­to discharge any liens that may come to be filed so as to ex­pedite the release of any monies held up because of such liens. A special paragraph provides for Multibilt to have first charge on the first and subsequent advances of mortgage monies from the Bank in respect to the foundation and basement works. While the above contracts refer to mortgage monies coming from the bank the actual monies were forthcoming from a mortgage advances on the security of tlie property by Kinross Mortgage Corporation. On October 6th 1972 the Masons signed an assignment addressed to "David K. Searle, Solicitor for the Kinross Corporation". This document provides that for good and valuable consideration they "irrevocably assign" unto Multibilt $22,415.00 out of monies payable to them from the Kinross Mortgage Corporation mortgage. The mortgage referred to was not executed until November 14, 1972. In his affidavit, filed in these proceedings, David H. Searle refers to himself being "a partner in the firm of Searle, Finall 5 Sigler, ... Solicitors for the Kinross Mortgage Corporation. Copies of certain letters are annexed as exhibits to his affidavit. One is a letter from Multibilt to Searle and Company confirming a conversation whereby all mortgage monies with respect to the Mason mortgage "may be paid directly to Ad Fab." A letter from Mr. Searle to the Masons advises them of the registration of the Kinross Mortgage, and of how his firm lias received the first advance of some $15,480.00 from the mortgage. The letter goes on to say that

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- 5 ­his firm has advanced $10,000.00 to Ad Fab '(as per an assign­ment from Multibilt on our file) and your telephone instructions." He then goes on to advise that from the advance he has also paid his firm's legal account, a surveyor's account and a trucking ac­count "which leaves a balance in our trust account of $5,036.50 and we will hold this until further advised by you. We trust you will contact us as soon as you are able with regard to releasing this amount to Ad Fab ... ." This letter was dated November 29th, 1972. Other letters attached to 'Mr. Searle's affidavit and dated after -November 29th indicate a dispute as between Ad Fab and Multibilt. In none of the evidence before me is there anything to indicate that with the exception of the $10,000.00 referred to above the Masons were ever served with notice of an assignment of the mortgage or were ever notified in any way. Throughout all of these transactions Mr. Searle appears to have been acting for the mortgage corporation and notice to him was not notice to the Masons. On the argument before me there were five main issues raised: 1. Is the collateral agreement of August 30,1972 between Multibilt and Ad Fab an effective assignment of mortgage proceeds from Multibilt to Ad Fab?

•r̂ - m' 0 2. If the above collateral agreement is an effective assignment was notice served upon the plaintiffs of the assignment? 3. If the above collateral agreement is an effective assignment is it sub­ject to any equities existing or arising between the plaintiffs and Multibilt? 4. Is the above collateral agreement an effective assignment of Multibilt's contractural rights arising out of the building contract with tiie plaintiffs? 5. If the above collateral agreement is an effective assignment is it subject to equities existing or arising between the plaintiffs and Multibilt? I I propose to treat these arguments in order although of necessity there cannot help but be some overlapping.

1. Is the collateral agreement of August "50 , 1972 between -MultTbTlt and AdFal)" an effective assignment of mortgage proceed from .'fultibilt to Ad Fab"? A close examination of the collateral agreement between Multibilt and Ad Fab shows many infirmities which may be fatal to its effectiveness. It refers to an agreement dated September 29, 1972 when the only agreement produced in these proceedings bears i[ the date May 16, 1972. While there are other infirmities as well, perhaps the most serious one is its reference to mortgage monies i from the Canadian Imperial Bank of Commerce when the mortgage monies i came from Kinross Mortgage Corporation.

£je;j|t «•»•;... - 7 -It would appear that most of the parties, including Mr. Searle, treated the assignment as affecting Kinross and made no distinction between Kinross and the bank. Except for the $10,000.00 advance referred to in the Searle letter of November 29, 1972, there is no evidence before me to indicate that the Masons ever accepted the position that Kinross and the bank were one and the same. Rather it should be noted that even the $10,000.00 was identified as Kinross money not bank money. In the absence of more substantial evidence to suggest that the Masons had adopted the situation I cannot accede to the argument that the collateral agreement ever became effective as between the Masons and Multibilt. Even without the above situation I cannot see how t'nis agreement can be treated as an irrevocable assignment in any event because of its own terms. That Ad Fab does not rely on it entirely for payment is clear from the covenant requiring Multi­bilt to advance an equivalent amount of monies to Ad Fab where the work necessary to release the monies is not completed within 21 days from notification. It seems to me, also, that the covenant, quoted above, requiring Multibilt to do all the work required to be done "in order that the monies will become available under the mortgage agreement" is a clear recognition that Ad Fab recognizes it is in a secondary position and can only take subject to any infirmities -- as of course is the position here where all work was not done.

- 8 -2. If the collateral atrecment of August 30th was an assignment of mortgage proceeds was notice served upon the Plaintiffs? I have already found as a fact that, except for the $10,000.00, there was no notice of the assignment on the Masons. At the hearing before me it was suggested that Mr. Searle was solicitor for the Masons and that notice to him was notice to them. The Masons thought he was their lawyer but all the cogent evidence before me shows he was Solicitor for the Kinross Cor­poration and the correspondence over his signature makes this quite clear. At page 427 of the 5th Edition of Cheshire 5 Fifoot on the Law of Contract the rule to be applied here is expressed: "The one essential in all cases is that notice should be clear and unambiguous." I cannot find such to be the case in the pre­sent case. 3 § 4. These headings will be discussed in my remarks in respect to heading 5 below. 5. If the collateral agreement of August 3'Oth is an effective aTsign­ment of Multibilt's contractual rights arising out of the building agreement with the plaintiffs, is It subject to equities existing or arising between the Plaintiffs and MultibiltT My conclusions reached in respect to heading number 1 have for the most part answered this proposition as well. The argument under this heading is to the effect that even if the collateral agreement is a proper assignment and notice

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- 9 ­had been properly given to the Masons, in any event such assign­ment would be subject to any equities arising out of and directly connected with the building agreement itself. A consideration of the effect of Sections 4 and 5 of the Choees in Action Ordinance, 1956 R.O.N.W.T. c. 12 in the present factual situation becomes necessary here; "4. An assignment of a debt or chose in action arising out of contract and not assignable by delivery is subject to any defence or set-off in respect of the whole or any part of the debt or chose in action existing at the time of the notice of assignment to the debtor or person sought to be made liable, in the same manner and to the same extent as such defence or set-off would be effectual in case there had been no assignment thereof, and such defence or set-off shall apply as between the debtor and any assignee of the debt or chose in action. 5. Where an assignment is made in con­formity with this Ordinance and notice thereof is given to the debtor or person liable in respect of the subject of the assignment, the assignee is entitled to have, hold and enjoy the same free of any claims, defences or equities that may arise subsequent to the notice by any act of the assignor or otherwise." The contract between the Masons and Multibilt provided for the supply of a building as described therein with the approxi­mate delivery date of July 30, 1972. Actual delivery took place in October 1972. The collateral agreement between Multibilt and Ad Fab refers to a completion date of September 25, 1972, but this agreement is itself undated. It must be assumed it was

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- 10 ­executed before November 1st, 1972 because the exchange of correspondence already referred to above began on this date. It is argued on behalf of the plaintiffs that this assignment, given its most favourable interpretation, can only attach what monies became owing and payable by the plaintiffs to Ad Fab and that Section 5 of the Ordinance (supra) goes no further. Reliance is placed on such cases as: Shepherd v. Livingstone, 1924 1 W.W.R. 455; Farquhar v. Toronto (1895) 26 O.R. 356; and Interior Trust Co, v. Essex Border Utilities Comm. (1928) 62 O.L.R. 551. On the other hand it is submitted for Ad Fab that the judgment obtained by the plaintiffs cannot be used as a set-off against Ad Fab because Ad Fab has complied with its part of the contract, comes to court with clean hands as it were, and is not fixed with any equities as between the Masons and Multibilt and reliance here is made on Stoddardt v. Union Trust Ltd. 1912 1 K.B. 181. The Stoddardt case must be read carefully. There the purchasing party could have repudiated the contract on the grounds of fraud and presumably had it done so there would have been no monies owing. Instead, this party elected to seek damages for the fraud which required it to elect to accept the contract. Accordingly the Court took the view that this was a personal claim and outside the contract and so could not be used as a set-off in respect to tlie assignment of tlie purchase monies from their vendor

- 11 ­to the assignee. In respect to the provisions of the Judicature Act referred to in that case (similar to the provisions of our Ordinance) Kennedy, L.J. had this remark: (page 194): "... I do not think that it can be truly said to come within the reasoning of those judgments to which I have referred, and which, so far as claims arising out of the contract itself are concerned, pronounce that the Judicature Act may be interpreted as giving the party sued by the assignee of a chose in action a right to set-off such claims, so as to diminish or wipe out the claim of the assignee." On the contrary such authorities as Farquhar v. Toronto (supra) have laid it down that the assignee at most acquired the highest right which the assignor had. In the present case the plaintiffs contracted v/ith Multibilt for a certain building to be supplied them for a cer­tain price. Multibilt in turn agreed to supply the building and position it in accordance v;ith the terms of the contract Ad Fab by its collateral agreement purported to acquire a first claim on subsequent advances by the bank, which contract itself con­tained words, already referred to, suggesting Ad Fab recognized the necessity of Multibilt doing all it had contracted to do "in order that the monies will become available under the mortgage agreement." The plaintiffs, it is true have sued Multibilt for damages but are they in the same position as the purchaser in

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- 12 ­the Stoddardt case. I cannot agree. The plaintiffs here have sued within their contract and the measure of their damages is for the cost of completing what Multibilt had agreed to do, as well as to pay lien claims v/hich were Multibilt's obligation. It seems to me that these facts are clearly distinguishable and bring the case more clearly within the principles entJlnciated in the cases relied on by counsel for the plaintiffs. In conclusion, therefore, the claim of Ad Fab is not allowed as against the plaintiffs and any monies paid into Court by Kinross Mortgage Corporation shall be paid out to the solicitors of the plaintiffs. The plaintiffs shall be entitled to costs to be taxed in Colunm 4.

Counsel: A. Jordan, Esq. , for the Plaintiffs.

G. Price , Esq. , for Ad Fab Structures Limited

No one appearing for Multibilt Industries Ltd, or the Department of National Revenue, although served with notice.

W. G. Morrow, Yellowknife, N.W.T. October 31, 1973.

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- 13 -ADDENDUM At the above hearing counsel for all parties concerned agreed that the circumstances in respect to documentation and in respect to notice of assignment were the same in respect to two further actions, namely, Donald .MacArthur and Mary Ellen MacArthur v. Multibilt Industries Ltd. and Milburn M. Smith and Doreen Smith v. Multibilt Industries Ltd. It was agreed that whatever findings I should make in the Mason case would be equally applicable in these. .A.ccordingly an order shall go in respect of these actions in the same manner as above.

W. G. Morrow Yellowknife, N. W. T. October 31, 1973. •-fy>':.