ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: C-362-11
DATE: 2013-06-19
BETWEEN:
2148251 Ontario Inc.
Plaintiff
– and –
Catan Canada Inc. and Leanne Duscio
Defendants/Plaintiffs by Counterclaim
Mark A. Radulescu, Counsel for the Plaintiff
Kevin D. Sherkin and Marc A. Gertner. Counsel for the Defendants/Plaintiffs by Counterclaim
-and-
2148251 Ontario Inc., Calum Waddell and Leslie Waddell carrying on business as Keystone Settlements International
Defendants by Counterclaim
HEARD: May 24, 2013
The honoruable Justice James W. Sloan
[1] The plaintiff brings this motion for summary judgment on its claim and to dismiss the counterclaim.
[2] The defendants oppose the motion but did not bring a claim of their own.
[3] The plaintiff’s claim is on a promissory note in the amount of $500,000 dated the 25th day of April 2008.
[4] The promissory note appears to be professionally drafted.
[5] The note calls for interest only to be paid “from and including the 25th day of May 2008 to and including the 25th day of April 2009”.
[6] No interest was ever paid. The maturity date of the note appears to be April 25, 2009.
[7] A demand was made for payment on May 31, 2010 and the statement of claim was issued on April 20, 2011.
LIMITATION PERIOD
[8] If the limitation period runs from the maturity date of the note being April 25, 2009 or the date of demand on May 31, 2010 it does not run afoul of the limitation period of two years.
[9] If however the limitation period, commenced to run from the date when the first interest payment was due, which would be June 25, 2008 this action would appear to have been commenced outside of the two year limitation period.
[10] The plaintiff argues that the limitation period did not start to run until the maturity date set out in the note, being April 25, 2009.
[11] The plaintiff’s basis for this argument rests on the following paragraphs in the promissory note: (the underlining is mine)
“The note will be payable on demand after the maturity date or at the discretion of the Payee on the occurrence of any of the following events:
(a) if the Payor does not pay when due any of its obligations to the payee”.
[12] Section 4 the Limitation Act, 2002, S.O. 2002, c. 24 Sched. B. reads:
Unless this act provides otherwise, a proceeding shall not be commenced in respect of the claim after the second anniversary of the date on which the claim was discovered.
[13] Section 5(1) of the Limitation Act reads in part:
A claim is discovered on the earlier of, (a) the day on which the person with the claim first knew, (i) that the injury, loss or damage had occurred.
[14] Section 5(3) of the Limitation Act reads:
For the purposes of subclause (1)(a)(i), the day on which injury, loss or damage occurs in relation to a demand obligation is the first day on which there is a failure to perform the obligation, once a demand for the performance is made.
[15] Promissory notes are either demand obligations or contingent obligations (or perhaps also delayed-demand obligations, see Ewachniuk Estate v. Ewachniuk, 2011 BCCA 510). While this appears, on the face of the provision, to be a mixed obligation, in fact, it is a demand obligation and therefore s. 5(3) of the Limitation Act applies.
[16] As stated by Justice Perell in Skuy v. Greenough Harbour Corp., 2012 ONSC 6998 (S.C.J.) there are confusing aspects to this law as “a non-demand obligation can have a demand component to it.” However, Justice Perell recommends turning to the Bills of Exchange Act, R.S.C. 1985, C. B-4 for guidance on determining what is meant by “demand obligation”. Under the Bills of Exchange Act, if a bill is payable at a certain date or after a certain contingent event (a death, a default of payment, etc.) then the note is classified under s. 23 as a contingent obligation not a demand obligation:
- A bill is payable at a determinable future time, within the meaning of this Act, that is expressed to be payable
(a) at sight or at a fixed period after date or sight; or
(b) on or at a fixed period after the occurrence of a specified event that is certain to happen, though the time of happening is uncertain.
[17] Payment for the promissory note in question is due “on demand after the maturity date”. While the maturity date presents a determinable future time, the addition of “on demand” clarifies that s. 23 does not apply. This is not a fixed period after a date, because the date of the demand is uncertain (therefore s. 23(a) does not apply).
[18] Neither is payment under 23(b) that is, due at a fixed period after an occurrence of a specified event that is certain to happen. The only continent event that is properly described as “is certain to happen” is clause (i) the death of the Guarantor but again, the Payee has the discretion not to demand payment and therefore there is no determinable date of payment.
[19] As a result, this note is a demand obligation as defined under s. 22 of the Bills of Exchange Act and s. 5(3) of the Limitation Act applies (see Skuy v. Greenough Harbour Corp., 2012 ONSC 6998 (S.C.J.), Peca v. Peca, 2011 ONSC 770 (S.C.J.)). The limitation period therefore begins to run once demand for performance is made:
- (1) A bill is payable on demand
(a) that is expressed to be payable on demand or on presentation; or
(b) in which no time for payment is expressed.
[20] The promissory note is a moderately sophisticated one. In addition to the note, a mortgage was taken as collateral security over property owned by Catan Canada Inc.
[21] At the time the note was entered into, it appears that the parties who controlled the corporations involved, were friends and/or acquaintances of each other and/or their spouses.
[22] In addition the evidence points to the fact that the parties and/or their spouses who controlled the corporations were people with business experience.
[23] The personal defendant Leanne Duscio now states that there was never to be any interest paid, and that in fact the promissory note was never to be repaid, but instead was an advance on her share of profits from an entity known as Keystone.
[24] In support of this position she states that interest was never demanded, the note itself was not demanded until May 31, 2010 more than a year after its maturity on April 25, 2009 and this action was not commenced until April 20, 2011.
[25] I fail to see how the defendants can lead parole evidence to try to make changes to the written and signed promissory note which is very plain on its face.
[26] The defendants by their attempt to introduce parole evidence are in fact suggesting that the promissory note and therefore the collateral mortgage are meaningless and that there is a whole other oral agreement to form a partnership which preceded the promissory note and collateral mortgage.
[27] It also makes no sense that the plaintiff expended legal fees to have the note drawn up and a mortgage registered for no reason at all.
[28] It makes even less sense, if that is possible, that the defendants would sign the promissory note and mortgage if the monies received were not a loan and were not to be paid back!
[29] On the principles laid down in Combined Air Mechanical Services v. Flesch, 2013 ONCA 304 I find that there is no genuine issue requiring a trial with respect to the validity of the promissory note.
[30] With respect to the payment of interest, the note clearly states that the principal of the note would only become payable on the happening of an event, such as non-payment of interest when due, but then, if and only if payment was demanded “at the discretion of the payee".
[31] There was no demand for payment before the due date of the note and I therefore find that the limitation period started to run from the date of demand being May 31, 2010 and therefore the action was commenced within the two years of the date of demand as required by the Limitations Act.
[32] To hold otherwise would require the court, to give no effect to the plain meaning of the words used in the contract/promissory note and would make no commercial or common sense. The note is not difficult to read and understand, particularly for business people who have access to legal representation. The parties all agreed to the terms of the promissory note.
WHO IS THE PARTY WHO FUNDED THE LOAN
[33] The evidence on this is unclear at this stage and if the money did not come from the plaintiff, the defendant questions what legal right the plaintiff has to make the claim involved in this action.
[34] The cheque which funded the $500,000 promissory note is set forth at Tab 2D of the plaintiff's motion record. The cheque came from an entity called the Keystone Settlements International and is payable to a lawyer in trust. No other notation such as a numbered corporation is set forth anywhere on the face of the cheque and in particular not the plaintiff, 2148251 Ontario Inc.
[35] At Tab C of the Undertaking Brief, a Business Names Report from the Government of Ontario shows that Keystone Settlements International is a business name for a sole proprietorship owned by Cal Waddell who is also involved with the Plaintiff, 2148251 Ontario Inc.
[36] In Mr. Waddell's cross examination held on December 10, 2012 at questions 82 through 84 he indicated that the $500,000 came from a different Corporation one with the last three numbers of its incorporating number being 249. Then in a series of questions following question 404, he indicated that Corporation ending in 251 did not have cheques and therefore he transferred money from 251 to Keystone to make the cheque to his lawyer in trust.
[37] To say the least at this stage of the proceedings is unclear to me what entity funded the $500,000.
[38] I am not convinced however, that this matters. The cheque in question was made payable to a lawyer in trust and the promissory note clearly sets out who the money is to be paid back to, and that appears on the face of the note to be 2148241 Ontario Inc. It appears that the number of the company in the promissory note and the number of the company as plaintiff is different by 10 digits however this is most likely a typo.
THE CORPORATIONS INFORMATION ACT
[39] The defendants argue that since the plaintiff is not up to date with its annual filings the plaintiff is not capable of maintaining a proceeding in Ontario and in this case, the plaintiff has not asked the court for leave to bring or continue this proceeding.
[40] Section 18 reads:
A Corporation that is in default of a requirement under this Act to file a return or notice or has unpaid fines or penalties is not capable of maintaining a proceeding in a court in Ontario in respect of the business carried on by the Corporation except with leave of the court. (the underlining is mine)
[41] The evidence before me, is that the plaintiff has not filed its 2011 and if due its 2012 annual returns.
[42] The evidence before me is that the plaintiff is a holding company and is not in the business of lending money. The transaction in question is a loan of $500,000 between business acquaintances/friends.
[43] I therefore find that Section 18 of the Corporations Information Act, R.S.O. 1990, c. C.39 does not preclude the plaintiff from maintaining this action.
THE BUSINESS NAMES ACT
[44] The defendant also states pursuant to section 7 of the Business Names Act, R.S.O. 1990, c B.17 that the plaintiff cannot maintain the action because Keystone is not registered to the plaintiff but rather to Mr. Waddell personally.
[45] If Keystone was the plaintiff, the defendant may have an argument but it is not. Who gave the money to the plaintiff, if it did not have the money to lend to the defendants is irrelevant.
[46] The promissory note clearly states who the money is to be repaid to.
COUNTERCLAIM
[47] By way of counterclaim, Leanne Dusico says that she is a partner with Mr. Waddell in Keystone and that the $500,000 promissory note was an advance against profits and that no interest was ever to be paid.
[48] While both parties admit that there was a falling out between the parties sometime in July, August or September of 2009, the defendants suggest, that given their falling out, there must be some agreement between them. They point to the fact that there was no immediate demand for interest or the principal until May 31, 2010 and no action commenced until April 20, 2011.
JUDGMENT
[49] On the evidence before me, the defendants agreed that they got the $500,000 and agreed that they signed the promissory note & collateral mortgage. Based on these facts and my findings previously set out in this judgment, there shall be judgment for the plaintiff as requested in Paragraph 1 of their notice of motion.
[50] Since there is no evidence to the contrary and in fact it appears that neither counsel noticed the mistake, I find that the corporation set out on the face of the promissory note being 2148241 Ontario Inc. is a typographical error and should have read 2148251 Ontario Inc.
[51] On the evidence before me I dismiss the Plaintiff’s claim for relief in paragraphs 2 & 3 of their motion so that the counterclaim may proceed.
[52] The judgment on the promissory note is not stayed until the counter claim decided.
COSTS
[53] If the parties are unable to agree on costs Mr. Radulescu shall forward his brief submissions on costs to me by June 26, 2013. Mr Sherkin shall forward his brief response to me by July 6, 2013. Mr. Radulescu shall then forward his reply, if any, to me by July 13, 2013. Cost submissions may be sent to my attention by email, care of Kitchener.Superior.Court@ontario.ca.
James W. Sloan J.
Released: June 19, 2013
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2148251 Ontario Inc.
Plaintiff
– and –
Catan Canada Inc. and Leanne Duscio
Defendants/Plaintiffs by Counterclaim
-and-
2148251 Ontario Inc., Calum Waddell and Leslie Waddell carrying on business as Keystone Settlements International
Defendants by Counterclaim
REASONS FOR JUDGMENT
James W. Sloan J
Released: June 19, 2013