Archive for September, 2008

I’m Moving

Monday, September 22nd, 2008

I’ve been a bit distracted lately from writing any blog posts and I apologize but this will likely stay that way for a couple of more weeks.  The reason for it is because I am packing up the solo practice and moving to a firm in Markham with approximately 20 lawyers.

My new firm is Wilson Vukelich.  After much deliberating on my part I finally decided to agree to join the firm.  Don’t get me wrong, there is absolutely nothing wrong with the firm.  As several of my friends put it, the decision to join them was a “no brainer”.  Take a bunch of former Bay Street lawyers who realized at different times that there was more to life than working at the firm and missing out on family.  Have them also realize that they could charge their clients decent rates, reduce their overheads and be able to live decent lives and still be lawyers for larger files.  In that respect, I fit in very well with the firm.  Take also the fact that the firm has built up its corporate-commercial side and has a lot of room for growth on the litigation side that I could build up and, again, it’s a perfect match.  The problem – I was having too much fun on my own.  If I ever needed something to get done, I thought about it for a nanosecond and decided what to do and how to do it.  Whenever you start to add other decision makers, though, the same decision might get made (although not always) but it certainly cannot get made as quickly.  As the saying goes, there are a million problems with dictatorships, but the trains usually run on time.  In my case, I was the dictator and could decide what I wanted when I wanted.  The big question was whether it was worth it for me to let go of my little power trip.

In the end it was.  A very real example of this was when I recently had to go to Europe for personal matters.  Who was going to cover for me if one of my files “blew up” and somebody had to be in court to represent my client?  On a similar note, while I was away, if I wasn’t handling things remotely (and I could not do that all the time given the time-zone difference), then who was making money for the business while I was away?  Again, where was the firm going?  I had a three year plan, but nothing beyond that.  Did I see myself taking on associates or partners?  Not likely in the combination of my current situation and the economy.  That being the case, then where was I going to be in five years?  I didn’t have an answer.

None of these “problems” were serious.  So I didn’t have a working five year plan.  I could easily sit down and devise one.  So I didn’t have anyone to easily cover for me, I had people who could do it for me – and who did cover while I was away.  So what if I didn’t make any money while I was away for 11 days – it’s not as if I was away for 4 months. 

When everything was said and done, I was completely torn on the issue since for every reason to pack up the practice there was an equally compelling reason to keep going on.  In the end, after almost 6 months of serious contemplation, the offer was just too good to refuse.  In this situation, 2 + 2 should very easily equal 5.  Together the combination of myself and Wilson Vukelich is far greater than anything I could achieve on my own and despite the personal hesitations, I came to the realization that, as my friends had put it, it was a “no brainer”.

So, effective October 1 I will be the newest member of the Wilson Vukelich team.  Between now and then, I will be busy with my regular work combined with closing things up in my office and getting ready to start afresh in Markham.

By the way, if anyone is looking to sub-let an office for the next 3 years, please give me a call.

CALC

Rectification of Contracts – Watch Your Wording

Monday, September 8th, 2008

The Ontario Court of Appeal released a decision on Wednesday that deals with the issue of rectification of contracts.  In RBC v. El-Bris, the Bank gave a loan to a company for $700,000.  As security for the loan, the owner of the company gave a personal guarantee for $700,000 and also gave a mortgage over his house for the same amount.  The borrowing of the company eventually grew to $3.5 Million before the company failed financially.  The owner paid the Bank $700,000 and asked for, and received, a discharge of the mortgage.  However, the Bank then claimed that the owner owed the Bank a further $700,000 for the guarantee.  Its position was that the owner had agreed to give $700,000 in security through the mortgage and then a further $700,000 worth of security through the personal guarantee.  When the owner refused to pay the additional $700,000, the Bank sued the owner and the company (although the claim against the company was likely worth little).

At trial judgment was given against the company (no big surprise there) but not against the owner.  This decision was upheld at the Court of Appeal.

The mortgage did not make reference to the guarantee and it stated that the mortgage was in addition to, and not in substitution for, any other security and that the Bank could claim on the guarantee even though it may have had other security for the debt.  Similarly, the guarantee made no reference to the mortgage.  As items looked on paper in black and white, there were two separate securities, each worth $700,000, that the Bank could rely upon.  However, this was not enough since the documentary and verbal evidence given at trial showed that the true intention of the parties was to provide security for a total of $700,000 – with two avenues of securing repayment of that amount.  This, of course, made sense when you realize that at the time the documents were signed the maximum amount of the loan was $700,000.

In the end, the trial court and the appellate court permitted the contracts to be “rectified” (that is, corrected) to show that the total amount that could be obtained by the Bank under either or both of the guarantee and the mortgage was $700,000.  Since that amount was paid by the owner, the Bank had no further claim against him for any losses the Bank suffered on its loan to the company.

This type of wording is very common in financial institution documents.  While rectification is not given every day (far from it), it once again shows the importance that good paper work is important – in this case to rebut the presumption that the formal documents permitted a much larger recovery for the Bank.  Without the other documents (including a letter of undertaking and a Planning Act document) which corroborated that the total amount sought by the Bank was only $700,000, the owner would have been on the hook for $1.4 Million.  More importantly, it also shows how important it is to look at the wording of your agreements.  If the Courts had not been convinced that there was sufficient “extraneous” evidence to support the claim that the intent had always been a total security of $700,000, then, as both the trial and appeal courts noted, the clear wording would have permitted, in effect, double recovery.

CALC

Incorporation … If it looks too good to be true …

Friday, September 5th, 2008

I happened to be browsing a newspaper today in Toronto that is very well known for its sports section and if you are right-wing type of person who likes pictures of women in bikinis then this is your newspaper.  Honest, I picked it up for the sports section.

In any event, I happened to be flipping through its classified section and an ad caught my eye that said something to the effect of “Incorporations – Same Day – $200″.  This is truly “buyer beware”.  Why?  Because if all I had to do was pay $200, that wouldn’t cover the filing fee for articles of incorporation (which in Ontario the last time I checked were $300 if you filed electronically and $360 if you filed over the counter).

Oh, so what it really means, then, is $200 fee PLUS the out-of-pocket expenses like the filing fee.  OK, just a little miscommunication there, I get it now and all is right with the world.  Um … er … well, nope.  “Same day”.  Yes, most likely, but that is if you want a numbered company – for example, 1234567 Ontario Inc.  If you want a named company – for example “Caruana Corporation” – then you need to obtain a NUANS search AND there cannot be any sufficiently similarly named companies.  Using my example, let’s say someone else had “Caruana Incorporated”, then I would have to pick another name.  That is likely to take more than 1 day and even this also assumes that the NUANS search report can be obtained right away.  The end result is that it is only guaranteed “same day” if you have a numbered company, and if you want a named company then there cannot be such a guarantee.  Oh, another little miscommunication.

Then we have the biggest miscommunication of them all.  I have had several clients come in over the years who incorporated with an operation like this and, yes, that is exactly all that they got – an incorporated company and the original copy of the articles of incorporation.  As I have previously explained to my clients, think of it like this:

- the incorporation is like giving birth to a person who has a skeleton, skin, hair and internal organs – but nothing else.  The company is “alive”, but it cannot do anything.

- ORGANIZATION of the company (through the allocating of shares to shareholders, the passing of by-laws, the holding of the first directors’ and shareholders’ meetings at which resolutions are passed, applying for a business number with Revenue Canada, etc.) is the equivalent of giving this new person muscles, a brain and a nervous system that now allows the person to actually DO something (and, in this case, gives the actors – directors, officers, shareholders – by which those things can be done).

In the case of the ad I saw, $200 will get you the incorporation (ie. creation of the company) – that is after you pay the other expenses.  But most people when they think of incorporation, they actually think of both incorporation and organization.  They expect that when they walk out of the office they have a corporation that exists and is authorized to do things like open bank accounts and sell goods and pay taxes, etc.  However, in this case, the offer is $200 solely to do the incorporation – the organization of the company is not included.  Again, another little miscommunication.

Why does this matter?  As an example, I recently had a client come to me.  The client is a very good client who has run a reputable business for well over a decade.  I looked at the client’s corporate records and realized that not only had the client not been properly organized, but the client also had not passed any annual resolutions since the corporation was first incorporated – being almost 15 years ago.  The end result was a quite hefty legal bill while I figured out what had happened and cleaned everything up.  Far more than the client initially saved of approximately $600 by going with a “$200 to incorporate” operation.

This is not to say, however, that such places are a scam.  BUT, before you decide to go with such an operation, you should definitely ask what all the costs are and determine if the service being offered is both incorporation and organization or only the incorporation.

CALC