ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 4686/11
DATE: 2012-10-04

BETWEEN:

ROYAL BANK OF CANADA Plaintiff – and – 1306121 ONTARIO INC., PHARMA SUPPLY CANADA INC., MUSTAFA PARDHAN aka MUSTAFA KASSAMALI PARDHAN and FATIMA PARDHAN aka FATIMA FAZAL aka FATIMA AKBARALI FAZAL Defendants

Shawna M. Sosnovich, Counsel for the Plaintiff
David Seed, Counsel for the Defendants

HEARD: September 20, 2012

REASONS FOR JUDGMENT

MURRAY J.

[ 1 ] The plaintiff bank seeks summary judgment against the defendants with respect to amounts owing to the bank.

[ 2 ] The defendant 1306121 Ontario Inc. (hereinafter “1306121”) is a company incorporated pursuant to the laws of the Province of Ontario, with its registered head office being located in the city of Vaughan in the Province of Ontario. 1306121 Ontario Inc. is a company owned and operated by the defendant Mustafa Pardhan who is an officer, director and sole shareholder. This defendant did not contest the plaintiff's motion for summary judgment for the amount claimed. On July 11, 2012 summary judgment was granted in favour of the Royal Bank of Canada against 1306121 Ontario Inc. in the amounts of $185,313.92 and $5518.05.

[ 3 ] The defendant, Pharma Supply Canada Inc. (hereinafter “Pharma”) is also a provincially incorporated company with its head office being in the City of Vaughan. It was at all material times a guarantor of the debts and liabilities of 1306121 Ontario Inc. Pharma is a company which was owned and operated by Musadiq Pardhan who is the son of Mustafa and Fatima Pardhan. 1306121 and Pharma shared a business premises. Pharma did not contest the plaintiff's motion for summary judgment for the amount claimed. On July 11, 2012, judgment was granted against Pharma Supply Canada Inc. in the amount of $183,750.

[ 4 ] The defendants Mustafa Pardhan (a.k.a. Mustafa Kassamali Pardhan) and Fatima Pardhan (a.k.a. Fatima Fazal a.k.a. Fatima Akbarali Fazal) are both residents of the City of Vaughan in the Province of Ontario and were at all material times guarantors of the debts and liabilities of 1306121. The individual defendants executed guarantees in 2002 agreeing to be guarantors of the credit facility of 1306121. Fatima Pardhan also agreed that the credit facility would be secured by a charge against the matrimonial home which was held in the name of Fatima Pardhan.

[ 5 ] The individual defendants did not dispute the indebtedness of 1306121 to the bank as calculated by the bank. The individual defendants argued that the loan on which the bank sought recovery was a new loan and not covered by their guarantees. As a result of this submission on behalf of the individual defendants, further written and oral submissions were made.

[ 6 ] On September 20, 2012 summary judgment was granted in favour of the bank against Mustafa Pardhan and Fatima Pardhan in the amount of $193,472.37.

[ 7 ] I indicated I would give brief written reasons for my decision to grant summary judgment against Mustafa and Fatima Pardhan at a later date. These are those reasons.

The Evidence

[ 8 ] 1306121 is a company which is owned and operated by the defendant Mustafa Pardhan. Fatima Pardhan is the spouse of Mustafa Pardhan. She is the owner of the matrimonial home at 111 Knightswood Ave. in Maple, Ontario and title to that property is in her name.

[ 9 ] In 2002, the plaintiff bank extended a revolving demand credit facility to 1306121 in the amount of $350,000. Security for the borrowings of 1306121 included a general security agreement covering all property of 1306121. In addition, the bank sought and obtained guarantees from Fatima and Mustafa Pardhan.

[ 10 ] On August 1, 2002 and on August 13, 2002 respectively, Mustafa Pardhan and Fatima Pardhan executed guarantees in favour of the bank. Under the terms of the guarantees, each of them guaranteed payment on demand to the bank of all debts and liabilities, present or future, direct or indirect, absolute or contingent, matured or not, at any time owing by 1306121 Ontario Inc. to the bank. In addition, Fatima Pardhan agreed to secure the credit facility by a charge against the matrimonial home municipally known as 111 Knightswood Ave. in Maple Ontario which was owned by her. Both the guarantee of Mustafa Pardhan and that of Fatima Pardhan are limited to the sum of $350,000 with interest from the date of demand for payment at the banks prime rate in effect from time to time +2% per annum. Both Mustafa and Fatima Pardhan acknowledge that in 2002 they guaranteed the credit facility provided by the bank to 1306121 and that the credit facility was secured by a general security agreement over the assets and inventory of 1306121, by a personal guarantee from each of them and by a charge against the matrimonial home owned by Fatima Pardhan.

[ 11 ] Fatima and Mustafa Pardhan deposed that in 2008, 1306121 made a decision to pay off its indebtedness to the bank, that the loan was paid off and that the charge against the matrimonial home at 111 Knightswood Ave. was discharged. They deposed that the current indebtedness of 1306121, which is the subject matter of the demand from the bank and this summary judgment motion, was as a result of 1306121 defaulting on a new credit facility granted to 1306121 by the bank in 2009. Both Mustafa and Fatima further deposed that they did not provide guarantees for any new loan in 2009 to 1306121. Their position was that they were not obligated as guarantors in 2002 of the credit facility of 1306121 to repay a “new loan” made to 1306121in 2009.

[ 12 ] In addition, Fatima Pardhan deposed that on June 10, 2008 she faxed a letter to Amit Brahme, Senior Account Manager with the plaintiff Royal Bank of Canada in which she advised him that: $175,125.76 had been paid by her to reduce the indebtedness of 13006121 Ontario Inc.; and that "my accountability as guarantor to 13006121 Ontario Inc. has been cleared and am no longer responsible for any transactions carried out by 13006121 Ontario Inc. Any guarantees and cross guarantees are now null and void." Fatima Pardhan did not produce any transmission report indicating that this letter had been faxed to the bank on June 10, 2008. The evidence of Amit Brahme, Senior Account Manager with the plaintiff Royal Bank of Canada is that there is no record of such a letter ever being received. While I have grave doubts as to whether the letter dated June 10, 2008 was ever sent by Fatima Pardhan to the bank, in the end, whether the letter was sent by her and received by the bank is of no moment and for reasons set out below has no effect on the outcome of this case. The documentary evidence of the bank established that on June 10, 2008 and for the period of 30 days thereafter, the indebtedness of 13006121 Ontario Inc. exceeded the amount claimed in this summary judgment motion.

[ 13 ] On July 29, 2009, the plaintiff bank entered into a Loan Agreement with 1306121 Ontario Inc. Pursuant to the agreement, the bank agreed to loan 1306121 Ontario Inc. an amount of up to $175,000 by way of a revolving demand facility with interest thereon at the bank’s prime rate in effect from time to time +2% per annum. The terms and conditions of the loan were the same as the revolving demand facility of 2002 except that the bank sought and obtained an additional guarantee and postponement of claim from Pharma Supply Canada Inc. on July 31, 2009. Pharma’s liability was limited to $175,000 with interest from the date of demand for payment at the bank’s prime rate in effect from time to time +2% per annum.

[ 14 ] The evidence of Mr. Amit Brahme, Senior Account Manager with the plaintiff Royal Bank of Canada, provided affidavit evidence and produced bank records related to the loan in question. Mr. Brahme dealt personally with the individual defendants with respect to the bank’s loan to 1306121.

[ 15 ] The evidence of Mr. Brahme and the records of the bank conclusively establish that a payment of $175,125.76 was received on or about June 17, 2008 and the collateral mortgage given by Fatima Pradhan on the matrimonial home was discharged at about the same time. Coincidentally, the bank received substitute security for the discharged collateral mortgage on the matrimonial home in the form of cash collateral security in the amount of $175,000. Contrary to the defendant's position that the 2002 loan was paid off in June 2008, the evidence of the bank is that the payment of $175,125.76 did not pay off the loan but simply reduced the outstanding liability of 1306121. The payment of $175,125.76 served to reduce the outstanding balance of the debt from $345,000 to $169,874.24. The loan records of the plaintiff bank also establish that two days after the payment of $175,125.76 was received by it, the outstanding balance of the loan was back up to $349,874.24.

[ 16 ] The affidavit of Mr. Brahme and documentary evidence produced by him on behalf of the plaintiff bank conclusively establish that the assertion by the defendants that there was a new loan made in 2009 is not correct. The evidence of the bank establishes that in 2009 a loan agreement was signed which confirmed the reduction of the existing and continuing 2002 credit facility from $350,000 down to $175,000. The reduction in the amount of the credit facility resulted from a decision by the bank to reduce its exposure as it appeared to the bank from the 1306121’s financial statements that there was a declining profitability. The records of the bank - particularly the loan history - establish that the 2002 loan was reduced on July 28, 2009 from $345,000 to $175,000. At the time the 2009 loan agreement reduced the existing loan facility from $350,000 down to $175,000, the cash collateral security was applied to reduce the outstanding balance of the loan to lower the outstanding balance.

[ 17 ] By reason of default, the bank on the 11th day of July, 2011 made demand for payment of the full outstanding indebtedness of 1306121 Ontario Inc. On 11 July, 2011, the bank also made demand for payment of the indebtedness of 1306121 Ontario Inc. pursuant to the guarantees of Pharma, Mustafa Pardhan and Fatima Pardhan. At the time of the demand, the indebtedness pursuant to the revolving demand facility was in excess of $176,000. In addition, on July 11, 2011, 1306121 Ontario Inc. was further indebted to the bank as a result of an overdraft in excess of $5,000 in its bank account.

Analysis

[ 18 ] As indicated above, the individual defendants Mustafa and Fatima Pardhan argued that the loan on which the bank sought recovery was a new loan and not covered by their original guarantees and that the original loan in favour of 1306121 was paid off in 2008. Fatima Pardhan indicated that a payment of in excess of $175,000 was received towards the loan on June 17, 2008 and the collateral mortgage given by Fatima Pardhan was discharged at that time. Furthermore, Fatima Pardhan in her affidavit evidence deposed that on June 10, 2008, she sent a letter to the plaintiff bank indicating that her accountability is a guarantor for the company should be cleared and stating that her guarantee was null and void following the payment of $175,125.76.

[ 19 ] The evidence of Amit Brahme and the documentary evidence contained in his affidavit including the loan history clearly establish that the 2002 loan was reduced not eliminated on July 28, 2009. The payment of $175,125.76 served to reduce the outstanding balance of the debt from $345,000 to $169,874.24. The loan records of the plaintiff bank also establish that two days after the payment of $175,125.76 was received by it, the outstanding balance of the loan was back up to $349,874.24.

[ 20 ] The evidence of the bank conclusively establishes that there was no new loan in 2009 and that the 2009 loan agreement reduced the existing loan facility provided by the bank to 1306121 Ontario Inc in 2002 from $350,000 down to $175,000.

[ 21 ] As outlined above, each of Mustafa and Fatima Pradhan executed guarantees in favour of the bank in which they guaranteed payment on demand to the bank of “all debts and liabilities, present or future, direct or indirect, absolute or contingent, matured or not, at any time owing by 1306121 Ontario Inc. to the bank.” The liability of each of them was limited to a maximum of $350,000.

[ 22 ] Although I have found that there was no new loan in 2009, given the language of the guarantee, that fact is really not significant. The guarantee was for the indebtedness of 1306121 Ontario Inc. present or future. In this case, in 2009 there was no material alteration in the terms of the original loan agreement made in 2002 between 1306121 Ontario Inc. and the bank. In such circumstances, there is no reason to release a guarantor from liability on the guarantee where the guarantor has entered into a guarantee such as those entered into by Mustafa and Fatima Pradhan in which they guaranteed payment of all debts and liabilities “present or future, direct or indirect, absolute or contingent, matured or not, at any time owing by 1306121 Ontario Inc.”. In my respectful opinion, the liability of the guarantors in the situation is clearly established in the jurisprudence. See: Manulife Bank of Canada v. Conlin , 1996 182 (SCC) , [1996] 3 SCR 415 and also the decision of Echlin J. in Royal Bank of Canada v. Adecon Transport Inc. [2004] O.J. No. 6249 in which much of the relevant jurisprudence is reviewed.

[ 23 ] The Guarantee and Postponement of Claim signed by the defendant Fatima Pradhan contains the following language:

The undersigned or any of them may, by notice in writing delivered to the manager of the branch or agency of the bank receiving this instrument, with effect from and after the date that is 30 days following the date of receipt by the bank of such notice, determine their or his/her liability under this guarantee in respect of liabilities thereafter incurred or arising but not in respect of any liabilities theretofore incurred or arising….

[ 24 ] As a result, even if the letter of June 10, 2008 was sent by Fatima Pradhan to Amit Brahme, the terms of the guarantee provide that the determination of liability of Fatima Pradhan would have effect 30 days following the date of receipt by the bank of such notice. On the assumption that the bank did receive such notice on the date indicated on the letter, that is, on June 10, 2008, the evidence of the bank clearly establishes the indebtedness of 13006121 Ontario Inc. 30 days following the date of alleged receipt by the bank of such notice well exceeded the amount claimed in this summary judgment motion.

Conclusion

[ 25 ] For the above reasons the plaintiff bank was granted judgment against Mustafa Pradhan and Fatima Pradhan in the amount of $193,472.37 plus costs of $5,000 on 20 September, 2012.

MURRAY J.

Released: October 4, 2012