Executive Summary: Key Legal and Evidentiary Issues

• Whether a mortgage securing a $300,000 payment represented a standalone unconditional debt or security for a contingent obligation tied to receipt of a cannabis cultivation license from Health Canada
• Proper methodology for contract interpretation when the plain language of one document (the mortgage) differs from related agreements (the APS and consulting agreement)
• Characterization of the mortgage as either a "forbearance agreement" permitting delayed enforcement or as security for payment upon a contingent event
• The relevance and evidentiary weight of a closing document (Statement of Adjustments) crediting the appellant with $600,000 in consulting fees
• Materiality of the fact that Health Canada never issued the requested cultivation license, thereby preventing the condition precedent from occurring
• Appropriateness of summary judgment as a procedural mechanism when documentary evidence clearly established the conditional nature of the obligation

Factual background and transaction structure

Amanda Brant was married to Robbie Allen Brant, who held a preliminary medical cannabis cultivation license and owned a property in Amherstburg, Ontario. In December 2017, Mr. Brant was in the process of transferring the cannabis license to a numbered corporation in which he and Amanda were the sole officers. When Mr. Brant died suddenly in January 2018, Amanda became the sole owner of the property and the sole authorized signatory of the numbered corporation.

Following her husband's death, 2609413 Ontario Inc. (referred to in the judgment as "260") approached Amanda and expressed interest in acquiring both the property and the rights associated with the cannabis license. The parties structured their transaction through two key agreements. First, they executed an Agreement of Purchase and Sale (APS) for the property. Second, and critically, they entered into a "Transfer and Consultancy Agreement" dated February 6, 2018, which provided for payment of two $300,000 installments from 260 to Amanda characterized as "consulting services" fees, in addition to the property sale.

Payment terms and the license contingency

Under the Consultancy Agreement, 260 was obligated to pay Amanda $300,000 upon the signing of the APS for the property. The agreement further required a second payment of $300,000 upon the receipt of a cultivation license from Health Canada, with this receipt required to occur no later than May 31, 2018. These payment terms were explicitly reflected in the APS, which stated that upon closing, the purchaser would pay a consulting fee to Amanda "in accordance with the Consulting Services Agreement," including the payment of $300,000 "upon receipt of Cultivation Licence by Purchaser issued by Health Canada."

The first $300,000 payment was made in installments in accordance with the agreement upon the closing of the property. However, the second payment was not made by the May 31, 2018 deadline, nor had 260 received the cultivation license from Health Canada by that date. The property sale did not close until August 9, 2019. Since the second payment had not yet been made, a mortgage was registered in favor of Amanda in the sum of $300,000, described in the documents as "security for payment of said balance." This mortgage was due one year from its registration, on August 9, 2020.

Default and the dispute

260 never received the cannabis license from Health Canada. After 260 defaulted on the mortgage, the property was sold under a Power of Sale. The proceeds of the sale were received in trust by Barton J. Seguin and Halliwell Seguin LLP. Amanda claimed that she was entitled to $300,000 of these funds to discharge the mortgage. In response, 260 commenced proceedings and brought a motion for summary judgment against Amanda.

The contractual interpretation dispute

Before the motion judge, Amanda asserted that the mortgage represented a "forbearance agreement"—meaning that 260 had granted the mortgage as security in exchange for her agreement to extend the time to complete the purchase of the property. Under this interpretation, Amanda argued that her receipt of $300,000 was not contingent on the receipt of a cannabis cultivation license, but rather represented an unconditional debt secured by the mortgage. 260 took the opposite position, arguing that the $300,000 payment was only payable upon receipt of the license, as clearly outlined in both the APS and the Consultancy Agreement.

Amanda placed considerable emphasis on the wording of the Statement of Adjustments, a document tendered at closing which stated that at the time of closing, she was to receive a credit of $600,000. In her submission, this language reinforced her position that the second $300,000 payment was owed to her unconditionally. The amendments to the APS, signed December 14, 2018, and April 9, 2019, also referenced sums to be credited towards the payment of the "consulting fee of $600,000," which Amanda argued supported her interpretation.

The motion judge's decision

The motion judge granted summary judgment to 260, finding that the second $300,000 payment was contingent on 260 receiving a cultivation license from Health Canada. Since no such license was ever received, the payment never became due. The motion judge emphasized that the APS specifically provided that upon closing, the purchaser would pay the consulting fee "upon receipt of Cultivation Licence by Purchaser issued by Health Canada," and that the mortgage was specifically referred to as "security for payment of said balance." She found that the importance of obtaining a cultivation license was clearly apparent and clearly reflected in both the agreement and the APS, and that the mortgage was put in place to secure a conditional payment, not to create an unconditional standalone debt. Accordingly, she granted judgment to 260, including prejudgment interest of $5,732.88, and directed that the mortgage be deleted, vacated and expunged from the register, with the $300,000 held in trust to be released to 260.

The appeal and appellate analysis

On appeal to the Court of Appeal for Ontario, Amanda renewed her claim that the mortgage was a forbearance agreement. She advanced two main arguments. First, she contended that the motion judge erred by failing to examine the plain terms of the mortgage itself, which contained no condition tying payment to the receipt of a cultivation license. The appellate court rejected this submission, finding that the motion judge properly examined the mortgage in context with other relevant documents including the APS and the Consultancy Agreement. The court noted that these documents were part of the factual matrix and that the terms of the mortgage could not be considered in isolation. Since the reference in the APS to the mortgage as "security for payment of said balance of Consulting Service Fee" was a reference to the fee under the Consultancy Agreement, which explicitly specified that the fee was contingent on 260 receiving a cultivation license, it was open to the motion judge to find that Amanda's entitlement to $300,000 was conditional.

Second, Amanda argued that the motion judge committed a palpable and overriding error by failing to reconcile key pieces of evidence that Amanda tendered, particularly the Statement of Adjustments which referenced a $600,000 credit. The appellate court was not persuaded by this argument, noting that the motion judge's reasons indicated she was aware of the language in the various agreements that $600,000 was to be credited to Amanda. The court found no support for the submission that the motion judge had ignored Amanda's evidence, observing that she had referred explicitly to Amanda's evidence regarding the alleged forbearance agreement at several points in her reasons. Ultimately, the appellate court found no palpable and overriding error in the motion judge's interpretation of the written documents.

Outcome

The Court of Appeal for Ontario dismissed Amanda's appeal, upholding the lower court's decision. 2609413 Ontario Inc. was the successful party. The appellate court awarded costs of the appeal in the amount of $6,000, all-inclusive, payable to 260.