Executive Summary: Key Legal and Evidentiary Issues

• Reid claimed an oral collateral agreement existed alongside the written Debt Settlement Agreement, entitling him to excess proceeds if FAC share values increased beyond a profit cap in 2020.

• The Trust successfully argued the alleged oral agreement failed to meet essential elements of contract formation, including intention to create legal relations and certainty of terms.

• Text message exchanges between the parties did not establish consensus ad idem, as each party was referring to different terms during negotiations.

• Expressions of "trust" and "faith" between friends and business partners were held insufficient to create binding contractual obligations.

• The alleged collateral agreement contradicted the written DSA's $1,500,000 net value threshold by proposing a simpler $150,000 profit cap.

• Credibility assessment was deemed unnecessary for summary judgment because the legal test for contract formation is objective, making subjective intentions irrelevant.

Background and relationship between the parties

Stephen Reid and Joe Dand were entrepreneurs and businessmen who became good friends through their teenage sons who were friends and played competitive soccer together. Their families frequently socialized and even holidayed together once. In March 2017, Dand's AMRY Family Trust advanced Reid a $1 million loan under a Promissory Note dated March 24, 2017, at an interest rate of 20% per annum, secured by 300,000 FAC shares Reid personally owned in Founders Advantage Capital Corp, a publicly traded yield fund that Reid had co-founded.

The loan default and settlement negotiations

When the loan became due for repayment in 2018, Reid sought an extension because the FAC shares were in a stage of depressed value and he wanted to continue holding the assets until their value recovered. On March 1, 2019, the parties extended the repayment date to November 1, 2019, with another 300,000 FAC shares as additional security. By October 2019, Reid informed Dand he would not be able to meet the November 1 repayment deadline. Dand began exerting significant pressure, making statements such as "If you don't clean up the Loan, I have a nasty lawyer," "it will get nasty," "we will sue," and "we will embarrass you with your co-workers, family and business partners."

Reid did not want to sell any of his other assets to repay the loan, instead deciding to use 750,000 of his FAC shares as consideration for full settlement of the loan. Both parties were familiar with the value of FAC stock, and on October 8, 2019, Reid had informed Dand of a possible privatization of FAC that Reid was leading with his group of investors. Dand agreed to enter into the DSA and settle the loan in contemplation that if the FAC Privatization occurred in 2020, it would lead to a quick recovery and profit for the Trust.

The disputed adjustment concept

During negotiations, Reid wanted to include in the DSA a cap on the profit the Trust could make from the FAC shares and a refund of the profit balance to Reid in cash or shares if the value of the FAC shares increased significantly in 2020. Multiple draft agreements were exchanged between December 16-20, 2019. Reid's lawyer initially included an adjustment mechanism with a $100,000 profit cap and three triggering events: sale of shares, dividend payments, or year-end share valuation based on the previous 90-day trading average. Dand rejected these terms, stating he was "NOT willing to adjust upside because: 1. Too complicated; 2. Wording doesn't work; 3. He has significant losses on the Scopa and Lina's investments etc." Dand asked Reid to trust that if he received upside he would deal appropriately with Reid, but was not willing to formalize that in an agreement.

Text messages on December 19, 2019 at 4:40 PM showed Reid asking: "Is it your intention to refund money or shares over the $100k threshold if the windfall happens in 2020?" Dand replied "We talked 150" and Reid responded "Yes and we agree!" The court found these messages did not constitute a binding agreement, as Dand's answer did not clearly and absolutely assent to Reid's question, and the parties were referring to different things.

The executed Debt Settlement Agreement

After further negotiations conducted under deadline pressure, the parties executed the DSA made effective December 19, 2019. Clause 5 of the final agreement provided that if a sale or disposition by the Trust of the Consideration Shares occurred on or before December 31, 2020 whereby the Trust realized net proceeds above $1,500,000, or if a dividend was issued whereby the net after-tax receipt by the Trust was greater than $1,500,000, then the Trust would pay to Stephen the amount of net proceeds in excess of $1,500,000. This $1,500,000 net value threshold was calculated using the loan balance at approximately $1.2 million, the $150,000 that Stephen had initially proposed as a profit cap, interest through December 31, 2020 being $130,000, and costs.

Reid received personal forgiveness of approximately $1.2 million and a full release from the loan debt under the DSA in exchange for his FAC shares valued at the time at $845,000 and $60,000 for administrative matters.

The court's analysis of contract formation

The court applied established principles for oral collateral contracts, requiring proof of: intention to create legal relations, consideration, certainty of terms, essential elements distinct from the main contract, and consistency with the written agreement. Justice C.B. Thompson found Reid's alleged collateral agreement failed on all elements.

Regarding intention, the court held that Dand's expressions of "trust" and "faith" were nothing more than mutual friendly understanding or expectation to be expected between close friends and business partners, which are not sufficient to create a contractual obligation. The court noted that Dand explicitly stated he was "not willing to formalize" any adjustment in an agreement initially, and when he did develop such intention, his terms differed from Reid's proposals.

On certainty, Reid's references to "if the windfall happens in 2020" and "if we succeed in 2020" were found vague, uncertain, indeterminate, and unenforceable. His "Primary Agreement" with a "reasonable premium or fee" lacked an agreed amount for an essential term, rendering it incomplete and unenforceable. The parties' text messages showed no meeting of the minds, as each was referring to different things throughout their exchanges.

Ruling and outcome

The Court of King's Bench of Alberta dismissed Reid's appeal and upheld the Decision and Order of Judge Prowse, confirming the summary dismissal of Reid's claim. Justice C.B. Thompson concluded that Reid failed to establish any genuine issue requiring a trial, finding sufficient objective evidence on the record to make necessary factual findings without viva voce evidence or a trial. The Trust successfully demonstrated there was no merit to Reid's claim, and the court found that no oral collateral agreement existed between the Trust and Reid in respect of the loan settlement. If the parties cannot agree on costs, they may make written submissions of no more than 5 pages, the Trust within 30 days, and Reid within 60 days, of the date of the Reasons. No specific monetary amount was ordered or granted.