ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 2728/11
DATE: 2012-03-29

B E T W E E N:

MERIDIAN CREDIT UNION LIMITED

J. Ross MacFarlane, for the Plaintiff

Plaintiff

• and -

ALVIN MCGEE

Gregory F. Stewart, for the Defendant

Defendant

HEARD: February 10, 2012 at Welland

WHITTEN J.

JUDGMENT

[ 1 ] Meridian Credit Union Limited (Meridian), the successor to Niagara Credit Union (Niagara) has moved pursuant to Rule 20 for summary judgment on a personal guarantee by Alvin McGee (Alvin). Alvin had guaranteed up to $250,000 of the indebtedness of the corporation A. Bill McGee Company. The latter corporation had been set up by Alvin’s son Bill to operate a car dealership.

Issue

[ 2 ] The fact of the guarantee is acknowledged, along with the existence of several forbearance agreements, also executed by Alvin. The factual issue in this litigation is whether or not three payments made by a corporation controlled by Alvin, namely Leaseway Transportation a division of McGee Leasing (Goderich) Inc. (Leaseway), had the effect of reducing his liability as a guarantor. The question on this motion is whether or not this factual issue can be addressed in a motion for summary judgment.

General Background

[ 3 ] Alvin McGee has worked his entire adulthood in the automotive industry. He first became involved in his early 20s in his father’s business. He left active involvement in his late 60s around 1998/1999. He still remains a licensed salesperson and owner of Leaseway. He acknowledges he was successful in the past.

[ 4 ] At one point Alvin was the owner of McGee Motors which is based in Goderich. That business is now owned by his son Martin. Alvin periodically helps out at the dealership.

[ 5 ] Alvin provided seed capital to his other son Bill, to start up A. Bill McGee Limited, a GM dealership in the Niagara Peninsula. Bill arranged a credit agreement with Niagara July 14 th , 2009. On the face of it, the agreement appears to reflect the fact that the dealership had previous lines of credit and indebtedness. The agreement provided for ongoing operating credit for a dealership located in St. Catharines selling Saturn, Saab and Isuzu vehicles. The agreement speaks of a reduction of the line of credit from $770,000 to $450,000 over a six to seven month period. It was also anticipated that the indebtedness would be further reduced by the sale of the surplus GM parts inventory. Apparently the dealership lost the GM franchise in the reorganization of General Motors in the latter part of the last decade, when GM struggled to survive.

[ 6 ] In any event, it was Alvin’s personal guarantee of $250,000 that was one of the pieces of security for the credit agreement. The guarantee by Alvin is dated January 30 th , 2001 and comes complete with a certificate of independent legal advice.

[ 7 ] The first payment Alvin claims he made with the understanding that it would reduce the extent of his guarantee was October 7 th , 2009. Leaseway, Alvin’s company, paid $76,190.23 to McGee Motors, Alvin’s other son Martin’s company. This payment came about according to Alvin as a result of a conference call, in which he and his son Bill participated in along with two Meridian employees, one of whom was John Peters, Director of Commercial Credit for Meridian. The payment was to cover payment for trucks purchased by Bill’s company from Martin’s company. The memo or reference line on the cheque is filled out, but it is impossible to discern. Alvin had also made a cheque payable to McGee Motors, October 2, 2009 for some kind of “expense”. This latter cheque was not referred to as reducing Alvin’s liability.

[ 8 ] The next cheque issued that Alvin claims reduced his liability is dated November 18, 2009. That cheque from Leaseway in the amount of $25,000 was payable to Meridian.

[ 9 ] Between the November 18, 2009 cheque and the final payment by means of a bank transfer April 12 th , 2010 in the amount of $80,000, Alvin signed a forbearance agreement. In fact, it was signed two days after the $25,000 payment to Meridian. Basically in the forbearance agreement, Meridian agreed not to enforce its security and to provide Bill’s company the opportunity to repay its indebtedness.

[ 10 ] In paragraph 12 of the agreement Alvin acknowledged all the notices that had been sent in enforcement of the debt, and more importantly that the security given in support of the debt was “enforceable”. Paragraph 32 of that agreement was in essence to the same effect.

[ 11 ] As mentioned, the last transfer was November 18 th , 2009. The email instructions from the Meridian staff are addressed to Alvin at alvin@mcgeemotors.ca. A handwritten notation appears to have suggested that Leaseway caused this transfer.

[ 12 ] This transfer was followed by two more forbearance agreements signed by Alvin; April 22 nd , 2010 and December 9 th , 2010. These agreements contain the same assurances by Meridian and Alvin.

[ 13 ] By the summer of 2010, Bill is seeking to invigorate his company with a further injection of credit from Meridian. In his email of July 15 th , 2010 to Virginia Selemidis, a Meridian employee, he speaks of “We are providing you with a quarter million dollar guarantee”. In a subsequent email dated September 29 th , 2010 in which he asks for credit to market products distributed by Mahindra U.S.A. Inc., he states, “This $400,000 line of credit may be secured with 75 Scott Street West, the $250,000 guarantee from my father…”

[ 14 ] In the deposition of John Peters, November 24 th , 2011 at page 25, question 72, Mr. Peters acknowledges a conversation with Alvin in which it was suggested that a payment be made to allow honouring certain cheques made out by Bill’s company. Mr. Peters responded, “There was a conversation along those lines. To frame it more appropriately it was a situation where his son reached out to him”. Later on in his deposition at page 31, question 89, Mr. Peters describes how Bill indicated that he had spoken to his father, and his father was willing to inject some funds.

[ 15 ] Obviously the deposed evidence of Mr. Peters dovetails with the email of Bill, which reveals a willingness on Alvin’s part to do whatever was necessary to keep Bill’s company solvent.

The Applicable Law

[ 16 ] The pertinent sections of Rule 20 are:

20.04(2), the Court shall grant summary judgment if,

(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence;…

(2.1) In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties, and if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interests of justice for such powers to be exercised only at a trial.

1. Weighing the evidence,

2. Evaluating the credibility of a deponent,

3. Drawing any reasonable inference.

[ 17 ] A five member panel of the Court of Appeal in Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764 , described a “full appreciation test” to decide whether or not a trial is required in the interests of justice. More specifically, the question to be asked by a motions judge is “Can a full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment or can the full appreciation only be achieved by way of a trial?” (Paragraph 50 and paragraph 75)

Analysis

[ 18 ] The general background set out above is the evidence that would be presented in a trial court. It literally will not get any better.

[ 19 ] The understanding of a reduction in his guarantee that Alvin deposes to is in contrast with the evidence of the Meridian employees. The conversations that he refers to never seem to have direct statement that the guarantee will be reduced. The conversations attested to are the kind of conversations that take place between commercial lenders and borrowers. Financial institutions do monitor the accounts of their clients, in fact the original credit agreement contemplates Bill’s company providing ongoing information; for example, the GM dealer statement. No doubt it was suggested to Bill from time to time his cheques would not be honoured unless there was an influx of capital.

[ 20 ] Bill was very dependent upon his father Alvin from time to time. Dad had contributed startup capital, a guarantee in the amount of $250,000, and other assistance from time to time. An example of the latter is the payment by Leaseway to Martin’s company for trucks Bill’s company had purchased. There is an obvious fiscal proximity between father and son(s).

[ 21 ] One could raise the question, why would Alvin get credit for payments made by another legal entity “Leaseway”? Obviously it enured somehow to Alvin’s advantage to use his corporation to make such payments. In any event, the issue in this case cannot be narrowly decided on the basis of the existence of a corporate veil.

[ 22 ] The evidence at the highest for Alvin is that his word prevail over the evidence of the Meridian employees. He would have to succeed on a balance of probabilities. However, framing the conflict in evidence in this way ignores the documentary evidence. Alvin consistently in three forbearance agreements always acknowledges the validity of the $250,000 guarantee. And this acknowledgment is both before and after the last alleged payment on account of the guarantee. His own commercial behaviour, namely signing these agreements contradicts his assertion of “an understanding”.

[ 23 ] Can the execution of the forbearance agreements be explained away by the fact he is an elderly man who has significant health issues? As mentioned at the outset, he has been in the car business for well nigh 60 years. He considered himself “successful” in the past. He still has some minimal involvement in Martin’s dealership, that’s his email address. He had lived with the guarantee for at least eight years by the time of the first forbearance agreement. He had received independent advice with respect to the original guarantee.

[ 24 ] To emphasize his age would be to risk age discrimination. The emerging pattern is not that of a person bereft of wisdom, it is a picture of a father who has tried to keep his son Bill afloat in a tumultuous time in the automotive industry. Despite this understandable allegiance, Alvin committed himself commercially in contrast to his proffered understanding. The final blow to his assertions, lies in the emails of Bill, who months after the last payment by Alvin is still talking about the $250,000 guarantee. Bill is still brandishing his dad’s guarantee as intact, without diminution. Bill, who participated with his father in conference call with Meridian is not deposing the guarantee was reduced by the payments made.

[ 25 ] For all of the above, it can be said that there is no genuine issue for trial. There is no justification for this matter proceeding to trial. To so allow is to delay the inevitable.

Conclusion

[ 26 ] There is no genuine issue for trial, summary judgment will issue against Alvin McGee in the amount of $250,000.

[ 27 ] If counsel cannot agree as to the level and quantum of costs (keeping in mind the comments of the Court of Appeal in paragraph 67 of Combined Air Mechanical Services Inc. v. Flesch (Ibid), submissions no greater than 5 pages in length, above and beyond the Bill of Costs, are to be exchanged and forwarded to this court within 60 days of the release of this judgment.

Whitten J.

Released: March 29, 2012

COURT FILE NO.: 2728/11
DATE: 2012-03-29

ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: MERIDIAN CREDIT UNION LIMITED Plaintiff - and – ALVIN MCGEE Defendant JUDGMENT WHITTEN J. ACRW:mg

Released: March 29, 2012