2015 ONSC 2139
COURT FILE NO.: CV-14-505788
DATE: 20150424
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SNOW INVESTMENTS INC.
Applicant
– and –
SELECT TENENBERRY PRODUCTS CORP. c.o.b. as SIMPLE FOOD APPETIZERS & ROLLS,
PHILIP TENENBAUM
and ERLINDA DELGADO
Respondents
Lauren Sigal, for the Plaintiff-Moving Party
Meaghan Richardson, for the Defendants-Respondents
HEARD: April 1, 2015
DOW, j
reasons
[1] The plaintiff seeks summary judgment with regard to three separate one-year interest only loans totaling $155,000 made to the defendant, Select Tenenberry Products Corp. c.o.b. as Simple Food Appetizers & Rolls against all the defendants given the personal guarantees provided in writing by the defendants, Philip Tenenbaum and Erlinda Delgado who are the directing minds of the corporate defendant. The defendant opposes the plaintiff’s motion given the manner in which the plaintiff proceeded claiming same was unreasonable, contrary to law and a breach of contract.
Facts
[2] The background can be summarized as follows:
(a) the defendants started its business in or about 2009 preparing baked goods, particularly cheesecakes using a gluten-free recipe (paragraphs 6-8 of the affidavit of Philip Tenenbaum sworn February 6, 2015);
(b) the defendant sought financing and spoke to “their” lawyer, Corrine Rivers of C M R Law Office who (unbeknownst to them at the time) was the godmother of the child (“Snow”) of the operator of the plaintiff company, Helena Wong;
(c) Snow Investments is a company involved in providing financing to startup companies (although its conduct in May, 2014 and willingness to assume a one-third ownership interest in the defendant company suggests a more entrepreneurial purpose);
(d) the defendants agreed to borrow from the plaintiff in the first instance, the sum of $25,000 on or about May, 2013 and executed the first of three identical “commitment letters” the key terms being payment of interest only at 12 percent per annum, with payments for one year. The agreement also contains a “SPECIAL CLAUSES” term providing for delivery of monthly financial statements with a detailed list of receivables within 15 days of each month end (Exhibits A, D and G of Helena Wong’s affidavit sworn September 18, 2014);
(e) for each commitment letter there was also a promissory note providing the personal guarantee of the defendants, Tenenbaum and Delgado if default occurs (Exhibits B, E and H of the affidavit of Helena Wong sworn September 18, 2014);
(f) there was also a security agreement executed in favour of the plaintiff with regard to the corporate defendants’ property and assets (Exhibits C, F and I of the affidavit of Helena Wong sworn September 18, 2014);
(g) only in the security agreement is “default” defined and states same occurs when there is a failure to make “any payment of principal or interest required to be made”;
(h) the second loan is made for $100,000 on or about June 21, 2013 with a third loan in the amount of $30,000 made on or about November 14, 2013;
(i) the defendants also sign a CONSENT TO ACT RE: CONFLICT form in favour of C M R Law Office with respect to each loan (Exhibit O of the affidavit of Helena Wong sworn September 18, 2014);
(j) Helena Wong attends the Canada Innovation Show with the defendants in October, 2013 where the defendants are exhibiting their products and purportedly attracting interest from major grocery chains in the Greater Toronto Area;
(k) the defendants were operating out of 145 Industrial Parkway, Unit 1, Aurora in space rented from Aurora Investments Inc. operated by Vincenzo and Yolanda Congiusti where, by May, 2014 they had fallen behind in the payment of rent identified to be in the amount of $26,186.68;
(l) the defendants request a fourth loan for reasons which are detailed in an email February 24, 2014 (Exhibit A to the supplemental affidavit of Helena Wong sworn February 11, 2015) in an amount not specified;
(m) on March 18, 2014, after the three interest payment cheques for March have been paid, the plaintiff sends three identical letters from its counsel, K. K. Metz, L. Ngan demanding repayment of each loan in full for failure to provide monthly financial statements (Exhibit J of the affidavit of Helena Wong sworn September 18, 2014); but that had not been previously requested or provided;
(n) the letters of March 18, 2014 results in a meeting between the parties where Philip Tenenbaum deposes – Helena Wong advises she did “not know what was happening with the business and needed updates” and received “a projection” in order to facilitate an additional loan;
(o) Ms. Wong advised she was sending an individual, Wayne Murdock (actually Wong’s ex-spouse) to meet with them to assist in managing their business;
(p) when Murdock attended on May 8 he did so with a draft Appointment of Receiver form which included handing over day to day operations, signing rights and ownership of the recipes for which he was to be paid $5,000 per month (Exhibit B to the affidavit of Philip Tenenbaum sworn February 6, 2015);
(q) Murdock apparently contacted the landlord with the result that by May 12, a draft agreement was being put to the defendants in which ownership of the company by the defendants would be reduced to 30 percent with the other 70 percent to be held by the plaintiff and the landlord, with Marco Congiusti (Vincenzo and Yolanda’s son) to begin full time employment at $3,000 per month and to be trained by the defendants;
(r) the defendants object and on May 16, 2014, the landlord changes the locks on the premises and begins selling the defendants’ equipment;
(s) the plaintiff starts this action on June 6, 2014 in Toronto;
(t) the defendant starts an action June 23, 2014 in Newmarket against the landlord for wrongful possession and damages;
(u) the defendant serves its defence and counterclaim against the plaintiff for breach of contract and damages July 21, 2014;
(v) the plaintiff’s motion for summary judgment is dated September 18, 2014.
Issue – Genuine Issue for Trial
[3] The plaintiff’s position that this is a simple debt acknowledged by the paperwork is flawed. As indicated above, and admitted in submissions, the only definition for “default” is with regard to the failure to make a payment of principal or interest required to be made. As of March 18, the letter alleging default was based upon the non-delivery of financial statements which had never been previously requested.
[4] In my view, this was inappropriate given the pattern of conduct in not previously receiving or requesting such financial statements and not having given any notice of an intention to demand and/or rely on such financial statements.
[5] The defendants rely on the principle enunciated in the decision of the Supreme Court of Canada, R.E. Lister Limited v. Dunlop Canada, 1982 CanLII 19 (SCC), [1982] 1 S.C.R. 726 that a defaulting party is entitled to reasonable notice. This principle was refined by our Court of Appeal in Kavcar Investments Ltd. v. Aetna Financial Services Ltd., 1999 CanLII 3726 (ON CA), [1999] O.J. No. 1723 where the Court identified various factors to analyze what constitutes reasonable notice. In my view, the evidence presented by the plaintiff fails to show it met the test of reasonable notice.
[6] Counsel for the plaintiff also submitted minimal notice would be reasonable relying on the decision of Bank of Montreal v. Maple City Ford Sales, [2002] O.J. No. 3573 where one of the three situations described (upon which the plaintiff relied) involved “the giving of more time would serve no useful purpose because the debtor does not have the means to satisfy the demand”. In support of this, counsel for the plaintiff submitted the defendants had “ceased operations” as of March, 2014 but could point to no specific evidence of same in the materials filed.
[7] Although not raised by counsel, I am also aware of Section 244 of the Bankruptcy and Insolvency Act, R.S.O. 1985, c. B-3, which requires, among other things, a secured creditor to give an insolvent person 10 days’ notice of its intention to enforce a security and this requirement has largely replaced the above cases on what constitutes reasonable notice.
[8] The parties agree that the decision of the Supreme Court of Canada in Hryniak v. Mauldin governs the analysis to be applied with regard to whether there is a “genuine issue requiring a trial”. Given the basis for the default utilized by the plaintiff does not appear to have been in accord with the documents upon which it must rely, I reject it is entitled to summary judgment. There is some evidence of a breach of contract which may relieve the defendant of its obligation to repay the debt or give rise to damages as occurred in the Royal Bank of Canada v. W Got & Associates Electric Ltd., 1999 CanLII 714 (SCC), [1999] 3 S.C.R. 408 decision where the Royal Bank had not given reasonable notice and the defendant succeeded at trial showing a breach of contract entitling it to damages. The situation at hand falls within that set out in paragraph 50 of the Hryniak decision where Justice Karakatsanis states “…a process that does not give a judge confidence in her conclusions can never be the proportionate way to resolve a dispute.” In my view, there appears to be additional evidence to be obtained. I note counsel advised discoveries have not proceeded nor have affidavits of documents been exchanged. Given the allegations by the defendants of an attempt by the plaintiff and the landlord to take over the business and the plaintiff’s denial of same, there is a concern about credibility which might well require evaluation under the rigors of oral evidence including cross-examination. As a result, the plaintiff’s motion must be dismissed.
[9] In the circumstances, the Supreme Court of Canada in Hryniak at paragraph 78 directs that I consider whether there are any compelling reasons that I not remained seized of the matter. This matter is at a very early stage and there would appear to be a companion action commenced by the defendants against the landlord with issues, law and facts that may be common to both actions and the subject of a motion for a trial together. This could also facilitate transferring this action to Newmarket where the other action has been commenced and the defendant’s premises were situate. I have made no findings of fact on the evidence beyond concluding there is a genuine issue for trial in the main action. In my view, the parties would be better served by proceeding in the normal course and without my remaining seized of the matter.
Costs
[10] This matter originally was returnable November 13, 2014 and was adjourned at the defendants’ request by Justice Whitaker with an order the defendants pay the plaintiff $2,500 forthwith. I was advised at the outset of submissions by counsel that such costs have been paid.
[11] The defendant, having been successful, has submitted a costs outline in the amount of $5,323 inclusive of fees, HST and disbursements. Counsel for the plaintiff, submitted a costs outline for the entire action in the range of $26,874.23 for partial indemnity costs and $39,434.68 for substantial indemnity costs. Counsel for the plaintiff sensibly acknowledged the claim for costs by defence counsel was not unreasonable in the circumstances. I agree. Costs of this motion are fixed in the amount of $5,323 inclusive of fees, HST and disbursements in favour of the defendants and payable by the plaintiffs forthwith.
Mr. Justice G. Dow
Released: April 24, 2015
2015 ONSC 2139
COURT FILE NO.: CV-14-505788
DATE: 20150424
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SNOW INVESTMENTS INC.
Applicant
– and –
SELECT TENENBERRY PRODUCTS CORP. c.o.b. as SIMPLE FOOD APPETIZERS & ROLLS,
PHILIP TENENBAUM
and ERLINDA DELGADO
Respondents
REASONS FOR JUDGMENT
Mr. Justice G. Dow
Released: April 24, 2015