



COURT OF APPEAL FOR ONTARIO

CITATION: Loran v. Weissmann, 2019 ONCA 962

DATE: 20191206

DOCKET: C66854

Watt, Hourigan and Trotter JJ.A.

In the Estate of Ellery Jay Muchmaker, deceased

BETWEEN

Yaniv Loran in personal capacity, in his capacity as
    Attorney for

Property of Ellery Jay Muchmaker, in his capacity as Estate
    Trustee of

the Estate of Ellery Jay Muchmaker and in his capacity as
    Trustee of

the Jay Muchmaker Family Trust

Appellant

and

Larry Weissmann

Respondent

Svetlana Shpigelman, for the appellant

Miranda Spence, for the respondent

Heard: November 28, 2019

On appeal from the
    judgment of Justice Penny of the Superior Court of Justice, dated January 4,
    2019.

REASONS FOR DECISION

Introduction

[1]

This appeal arises out of a dispute regarding a provision in the will of
    the late Ellery Jay Muchmaker. That provision granted the respondent an option
    to purchase Master Auto Supply Co. Limited (Master Auto). Mr. Muchmaker owned
    Master Auto, and the respondent is a long-term Master Auto employee.

[2]

The respondent was given the option to purchase Master Auto for the
    lesser of $1.75 million or the price determined by multiplying the earnings of
    Master Auto (averaged over the last three fiscal periods) by a factor of 5.5. The
    will provided that the purchase price be delivered by way of a promissory note,
    with interest payable at 5% per annum. A gross annual payment to the estate of
    not less than $180,000, to be made in monthly payments, was required. The
    promissory note was to be secured by a general security agreement against
    Master Autos assets as well as the registration of a collateral mortgage
    against the respondents residence.

[3]

The respondent attempted to exercise his option to purchase Master Auto.
    However, he was unable to reach an agreement with the estate. The parties appeared
    before the application judge for directions.

[4]

In reasons dated January 4, 2019, the application judge gave directions
    regarding the sale of Master Auto. He found that the purchase price shall be
    $529,611, being $716,921 calculated in accordance with the formula in the will,
    less $187,310, representing payments improperly made out of the company to the
    estate after Mr. Muchmakers death. Further, he ruled that the respondent was
    not obligated to provide a collateral mortgage.

[5]

On appeal, the appellant submits that the application judge made the
    following errors: (i) he treated the respondent as a beneficiary instead of a
    favoured purchaser; (ii) he dispensed with the requirement of a collateral
    mortgage; (iii) he accepted the respondents evidence regarding the amount to
    be credited for Mr. Muchmakers salary for the purposes of calculating earnings;
    and (iv) he deducted from the purchase price monies paid out of the company to
    the estate. For the following reasons, we do not give effect to these grounds
    of appeal.

Analysis

(i)

Beneficiary vs. Favoured Purchaser

[6]

The appellant submits that the application judge treated the respondent
    as a beneficiary under the will by shifting the testators intention from
    maximizing the estates value to ensuring that the respondent was able to
    purchase the company. He argues that the application judge interpreted the
    option as a gift or bequest that must not fail.

[7]

There is nothing in the application judges reasons wherein he
    explicitly or implicitly treated the respondent as a beneficiary. His reasons
    evince that he was alive to his obligation to interpret the will in a manner
    that gave effect to the testators intention.

[8]

We are not persuaded that the will establishes that the testators
    intention was to maximize value on the sale of Master Auto. There is no
    reference to selling at market value and there is no requirement for the
    trustee to expose the company to the market or to solicit other offers. The application
    judge found that Mr. Muchmaker intended that the respondent would purchase the
    company in a simple, straightforward transaction, the terms and conditions of
    which would be as stated in the will and as reasonably required by
    implication. That finding is consistent with the terms of the will.

[9]

The provision in the will regarding the sale of Master Auto was not
    detailed. It fell to the application judge to give directions that furthered
    the testators intention. In so doing, he treated the respondent as a potential
    purchaser only and not as a beneficiary who had an absolute right to purchase
    the company. Therefore, we reject this ground of appeal.

(ii)

Collateral Mortgage

[10]

At the time of the execution of the will, the respondent did not own a
    home. The application judge noted that the will did not provide any direction
    about minimum equity or the assumed value of this security. In the circumstances,
    he concluded that the collateral mortgage was from a financial point of view
    at least meaningless.

[11]

Neither party disputes that the application judge had the discretion to
    apply commercially reasonable terms as necessary to carry out the testators
    intention. Given that the mortgage requirement was so vague that it provided no
    security to the estate, the application judge did not err in dispensing with
    this requirement. His finding was made as part of his discretion to provide
    directions regarding a commercially reasonable transaction and it is owed
    deference.

[12]

Before leaving this issue, we note that the appellant brought a motion
    to adduce fresh evidence to the effect that at some point before the execution
    of the will the respondent owned his own home. We do not believe this evidence is
    relevant on the appeal and, in any event, it was available prior to the
    application hearing, had the appellant exercised due diligence. Accordingly,
    the motion to adduce fresh evidence is dismissed.

(iii)

Salary

[13]

The salary attributed to Mr. Muchmaker had an impact on the earnings of
    Master Auto, which, in turn, had an effect on the purchase price for the
    company. The application judge concluded that the personal benefits paid by
    Master Auto on Mr. Muchmakers behalf should be normalized in the earnings formula.
    The application judge rejected the $70,000 normalization amount proposed by the
    appellants valuator and accepted the figure proposed by the respondents
    valuator.

[14]

The appellant submits that the application judge erred in finding the
    respondents experts determination of salary more persuasive. That figure was
    based on survey data from other-similarly sized printing companies and the
    appellant says reliance on generalized information fails to account for case
    specific factors. Specifically, it ignores Mr. Muchmakers lack of involvement
    in Master Auto in the relevant three-year fiscal period due to illness and the
    fact that he was a hands-off manager who sometimes lived overseas
.

[15]

We do not give effect to this argument. As the application judge noted,
    the appellants report does not explain its assessment of the salary at the
    $70,000 figure. He preferred the position of the respondents valuator, as he
    was entitled to do. We note that in advancing this ground of appeal in his
    factum, the appellant submitted that the figure in his expert report was just
    as, if not more, persuasive than the figure in the respondents report. This
    was a judgment call for the application judge, and we are not satisfied that he
    erred in making it or that there is any basis for appellate interference.

(iv)

Support Payments

[16]

The estate trustee caused
    Master Auto to pay certain dependent support payments to Mr. Muchmakers
    common-law spouse, totalling $187,310. He did so because the estate lacked
    liquidity to make these payments. The estate trustee stated that Master Auto
    will be made whole for these payments by means of declaring a dividend from
    Master Auto to the estate at a later time. The application judge held these
    funds must be deducted from the purchase price.

[17]

The appellants position is that as the sole shareholder of Master Auto,
    the estate has the right to withdraw dividends from Master Autos excess
    working capital at its pleasure, provided that the withdrawal does not
    adversely affect the companys functionality. He notes that the application
    judge did not require an adjustment to be made for the dividends paid following
    Mr. Muchmakers death. His point is that there is no principled basis to
    differentiate between dividends and the support payments that will later be
    repaid from dividends.

[18]

We reject this ground of appeal. The application judge was prepared to
    grant the estate some leeway in declaring dividends, despite the fact that he
    found that the estate trustee had refused to provide information about the
    historical dividend practice. According to the application judge, provided the
    declaration of a dividend did not impair the companys operation, no adjustment
    need be made to the purchase price. In his words, the dividend should not be
    repaid unless the dividends could be said to have improperly stripped assets
    from the company to the companys detriment.

[19]

The application judge drew the line when it came to the support payments
    paid to Mr. Muchmakers common law spouse. While a dividend could have been
    declared and the support payments could have been paid from the dividend, that
    is not what happened. Had a dividend been declared, no doubt the application
    judge would have reviewed same to determine whether it qualified as a stripping
    of assets. The application judge drew a distinction between dividends and
    gratuitous payments from the companys cash reserves. That decision was within
    his discretion and there is no basis to interfere with the exercise of that
    discretion.

Disposition

[20]

For the foregoing reasons, the appeal is dismissed. The estate shall pay
    the respondent his costs of the appeal and the fresh evidence motion, fixed in
    the all-inclusive amount of $10,000.

David
    Watt J.A.

C.W.
    Hourigan J.A.

G.T. Trotter J.A.


