ONTARIO SUPERIOR COURT OF JUSTICE
NEWMARKET
COURT FILE NO.: CV-14-119805-00
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Royal Bank of Canada
Plaintiff
– and –
Leonard Kenneth Biddell and Ruth Ellen Biddell
Defendants
Mark van Zandvoort, for the Plaintiff
John M. Clarke, for the Defendants
HEARD: August 6, 2015
RULING ON MOTION
Overview
1This is a motion brought by the plaintiff, Royal Bank of Canada (the “Bank”), for summary judgment against the defendant, Ruth Ellen Biddell (“Ruth”), in the amount of $310,000 pursuant to guarantees executed by Ruth in favour of the Bank. The Bank is also requesting pre-judgment and post-judgment interest pursuant to the terms of the guarantee or in the alternative, pursuant to the provisions of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended, along with judgment for possession of a property municipally known as 14 Thorny Brae Drive, Markham, Ontario (the “Property”) and a writ of possession of the Property.
2The defendant, Ruth, opposes the summary judgment motion of the Bank with the position that there are issues that require a trial, namely whether the guarantees executed by her in favour the Bank are legally binding against her.
3The defendant Leonard Kenneth Biddell (“Leonard”) was noted in default and partial judgment was obtained against him on January 29, 2014.
Background
4Ruth is the wife of Leonard. Leonard was the sole shareholder, director and officer of Vent Mate Inc. (“Vent Mate” or “Debtor”). The Debtor entered into a written loan agreement with the Bank dated January 28, 2001, which was subsequently amended on March 16, 2012, May 14, 2012 and May 17, 2013.
5The Bank provided the Debtor with a revolving credit facility in the amount of $600,000 (the “Loan Agreement”).
6In addition to security provided by the Debtor for the credit facility, the Bank required a personal guarantee and postponement of claim in the amount of $310,000 from each of Leonard and Ruth, whereby each jointly and severally guaranteed the obligations of the Debtor to the Bank under the Loan Agreement.
7The Bank also required Ruth’s guarantee to be substantiated by a letter of independent legal advice.
8The solicitor who provided independent legal advice to Ruth on the guarantee was Myer Botnick (“Botnick”). In that letter of independent legal advice dated June 23, 2011 (the “Botnick Legal Advice Letter”), Botnick indicated that he was consulted by Ruth as to the liability which she would incur by signing or endorsing a joint and several personal guarantee in the amount of $310,000 for the purpose of securing the liabilities, whether past, present or future of the Debtor to the Bank. Further, Botnick represented that,
I have advised the Obligant fully as to the effect of that action and the liability which the Obligant would incur by taking it, and the manner in which that liability could be enforced. The Obligant understands the nature and effect of the liability which would arise from the taking by the Obligant of that action. I have given this advice to the Obligant as Solicitor for and in the Obligant’s interest only, and without regard to or consideration for the interests of the Customer or of the Bank. I have not given any legal advice either to the Customer or to the Bank in connection with this matter.
9Also, Ruth signed the acknowledgment in the Botnick Legal Advice Letter on June 23, 2011,
I hereby acknowledge that all the statements made in the foregoing letter are true and correct. Neither the Customer, nor the Bank nor any of the officers, employees or agents of either of them have used any compulsion or made any threat or exercised any undue influence to induce me to take the action mentioned in that letter. Myer Botnick, the writer of that letter, in advising me as stated in it, was consulted by me as my personal Solicitor and in my own interest only.
10Ruth executed the guarantee on June 23, 2011 (the “Guarantee”). The Botnick Legal Advice Letter and the Guarantee were forwarded back to the Bank.
11Ruth is 54 years old and is the mother of three children. For the past 10 years, Ruth has worked as an elementary school teacher in the Toronto area. She has no business experience.
12Approximately two years after signing the Guarantee and acknowledgment under the Botnick Legal Advice Letter, the Debtor’s financial circumstances started to deteriorate. On or about July 23, 2013, the Bank, through its lawyers, issued a demand letter to the Debtor requiring that its outstanding indebtedness be repaid.
13On or about July 23, 2013, the Bank, through its lawyers, issued a demand letter to Ruth demanding she pay the $310,000 guaranteed indebtedness. The amount of money owed by the Debtor to the Bank pursuant to the Loan Agreement, with principal and interest as of July 22, 2013, was $485,422.75 which included $475,831.78 for the line of credit and $9,590.97 for a VISA business credit card. Interest accumulated on the line of credit at the rate of $59.86 per diem.
14Leonard negotiated a forbearance agreement with the Bank (the “Forbearance Agreement” or “Letter Agreement”). The Forbearance Agreement, in the form of a letter from the Bank’s counsel, is dated August 2, 2013. Pursuant to said agreement, the Bank agreed to continue to fund the credit facilities under the Loan Agreement and refrain from exercising its rights until November 30, 2013, or as otherwise specified.
15In order to obtain the Forbearance Agreement and in consideration of same, the Bank required further security from Ruth and Leonard. This further security was by way of a collateral charge in the amount of $180,000 (the “Collateral Charge” or “Collateral Mortgage”) over Ruth and Leonard’s jointly held matrimonial home, the Property. The Bank also required a further letter of independent legal advice regarding Ruth’s execution of the Collateral Charge in favour of the Bank. Another lawyer provided that letter of independent legal advice. That lawyer was Samuel Sochaczewski (“Sochaczewski”). That letter of independent legal advice is dated August 14, 2013 (the “Sochaczewski Legal Advice Letter #1”).
16The Bank’s lawyers sent the Letter Agreement to the Debtor, Leonard and Ruth, setting out and explaining the terms and requirements for the extension agreement, being the Forbearance Agreement as defined above. In that Letter Agreement, the Bank’s lawyers stated,
The Debtor has no credit availability under the Credit Agreement and is unable to obtain funds to continue operations. RBC has made demand for payment of amounts owed under the Credit Agreement on July 23, 2013. The Debtor and Guarantors have requested that RBC forbear from taking enforcement steps or provide accommodation to permit continued credit facility under the Credit Agreement until the Debtor’s credit availability is within margin.
In consideration of the forbearance and accommodation with RBC, Leonard and Ruth have agreed to provide RBC a collateral charge in the sum of $180,000 over the property described as 14 Thorny Brae Drive, Markham, Ontario (“the Property”) and the Debtor has agreed to a stage reduction of credit facility under the Credit Agreement.
17Further along in the Letter Agreement, paragraphs 1(d) and 1(g) state,
(d) The Guarantors each remains liable for the indebtedness which may arise under the Guarantee including: interest and recovery fees, costs and expenses; and, other charges now or hereafter properly payable by the Guarantors to RBC, without any right of set-off, counterclaim or other deduction or reduction of any kind whatsoever, whether at law or in equity.
(g) the Guarantee is and shall continue to be in full force and effect and are valid, binding and enforceable in accordance with their terms until the obligations of the Debtor to RBC have been indefeasibly paid and satisfied in full;
18The Letter Agreement further states conditions required to obtain the Forbearance Agreement, at paragraphs 2(b), (c) and (d), as follows,
(b) Upon the execution and delivery of this Forbearance Agreement, and as further security in favour of RBC, the Guarantors shall deliver or cause to deliver to and in favour of RBC a third charge/mortgage over the Property in the principal amount of $180,000, bearing interest at rate of RBC prime rate plus 5% per annum, and incorporating RBC’s standard charge terms 20015 (the “Mortgage”);
(c) The Guarantors shall deliver or cause to deliver to and in favour of RBC a certificate of independent legal advice regarding Ruth’s grant of the Mortgage to and in favour of RBC; and
(d) The Guarantors shall deliver a legal opinion (the “Opinion”) from their Ontario counsel, in the form satisfactory to RBC, acting reasonably, opining that the Mortgage is a valid and enforceable third charge mortgage over the Property, including, without limitation, compliance with the Family Law Act (Ontario).
19The Forbearance Agreement and ancillary documents as forwarded by the Bank was signed by Leonard and by Ruth. The Sochaczewski Legal Advice Letter #1 was provided to the Bank. Ruth signed the same acknowledgment in the Sochaczewski Legal Advice Letter #1 as she signed in the Botnick Legal Advice Letter.
20The charge was registered on Leonard and Ruth’s Property in favour of the Bank on August 19, 2013.
21Subsequently, Leonard requested another extension of the Forbearance Agreement. The extension agreement dated December 12, 2013, was executed by Leonard on January 3, 2014 and by Ruth on January 10, 2014 (the “Extension Agreement”). Sochaczewski again provided his letter of independent legal advice to the Extension Agreement (the “Sochaczewski Legal Advice Letter #2”). The Extension Agreement extended the standstill period/forbearance period until May 30, 2014. Ruth executed the same acknowledgment as was in the Botnick Legal Advice Letter and the Sochaczewski Legal Advice Letter #1.
22The amount owed under the Loan Agreement was not repaid by May 30, 2014. Accordingly, on June 27, 2014, the Bank, through its lawyers, issued a second demand letter to Ruth demanding that she pay the amount of $310,000 pursuant to her personal Guarantee dated June 23, 2011, and issued a notice of sale on a mortgage dated July 14, 2014. This action was commenced by the Bank on August 26, 2014 and an amended statement of claim, pursuant to the order of McKelvey J. dated August 23, 2014, was issued on October 14, 2014. Ruth commenced third party proceedings against solicitors Botnic and Sochaczewski on November 12, 2014 requesting contribution indemnity for any amounts which Ruth may be found responsible to pay to the Bank. Both Botnic and Sochaczewski defended the third party claim.
23At the time Ruth signed the Collateral Mortgage there were two pre-existing mortgages on the Property held by The Toronto-Dominion Bank (the “TD Bank”). These mortgages are being paid and the debt is being reduced accordingly. Ruth utilized the “same lawyers” to execute the mortgages in favour of the TD Bank and obtained independent legal advice.
24Ruth never met with anybody from the Bank nor did she speak to anyone from the Bank dealing with the guarantees. To the best of Ruth’s knowledge, she did not request any documents from the Bank concerning the Loan Agreement nor the financial liability of Vent Mate.
25Ruth, in her affidavit sworn February 28, 2015, and in her statement of defence and cross-claim, states that:
(a) The Bank should never have required a personal guarantee from Ruth to support the credit facility.
(b) Ruth was reluctant to provide the personal guarantee in support of the Loan Agreement and she was the recipient of an “active campaign of psychological and emotional pressure, undue influence, misrepresentation and deceit” from Leonard in order to persuade her to execute the personal guarantee.
26The lawyer that facilitated the purchase of the shares for Vent Mate for Leonard was Botnick.
27Ruth states that she had “no choice” but to accede to the demands of Leonard and execute the Collateral Mortgage and the personal Guarantee. She did so because she believed by failing to do so, her marriage would be “in jeopardy”.
28Leonard did not keep her advised as to the financial viability of Vent Mate. Leonard, Ruth deposes, misrepresented to her the financial viability of Vent Mate. Leonard actively kept her “in the dark” on the circumstances revolving around Vent Mate and “actively deceived” her in both regard to Vent Mate and the risk that she would be assuming by executing the personal Guarantee in favour of the Bank.
29It is the evidence of Ruth that she was harassed and intimidated by Leonard to sign the personal Guarantee and then later to sign the Forbearance Agreement and the Collateral Mortgage to be registered on the Property. Ruth also takes issue with respect to the independent legal advice she obtained from Botnick and from Sochaczewski, who, she says, was a colleague of Botnick. Ruth contends that she did not receive true and proper independent legal advice from both solicitors.
Position of the Bank
30The position of the Bank is quite simple and clear. The Bank takes the position that Ruth signed the loan documents, signed the Guarantees, and obtained independent legal advice three times, once from Botnick and twice from Sochaczewski. She knew what she was signing. She never requested any documentation or information from the Bank. She never spoke to anyone from the Bank with respect to the Loan Agreement, the Guarantee, the Collateral Mortgage, the Forbearance Agreement or the Extension Agreement.
31It is therefore the Bank’s position that, there is no reason that Ruth should not be found liable to the Bank in the amount of $310,000 pursuant to her Guarantee, and that the Bank has the right to collect on the Collateral Mortgage and obtain possession of the Property.
Position of Ruth
32It is Ruth’s position that she is not responsible on the Guarantee and that the Guarantee should be void ab initio. She did not receive “proper” independent legal advice. She was intimidated and harassed by Leonard to sign the Guarantee, the Collateral Mortgage, the Forbearance Agreement and the Extension Agreement. Botnick was in a conflict of interest. Leonard was an agent of the Bank with respect to delivery of the Guarantee documentation. Paragraph 20 of Ruth’s statement of defence and cross-claim sets out clearly her position,
This defendant pleads that she has no liability whatsoever arising from the personal guarantee that she executed in favour of RBC on the 23rd of June 2011, as it was void ab initio. It was so, because RBC failed to provide her with any current financial information on Vent Mate, and failed to ensure that she had received proper independent legal advice. RBC has also failed to ensure that hers was an informed decision, and that she was aware not only of the terms of the guarantee but, also of the risk that she was assuming by signing it. RBC had the legal obligation to provide Ruth with all of the related financial agreements that Vent Mate had entered into, and to ensure that she understood the significance and independence of them.
33In effect, it is the position of Ruth that it would be unconscionable in the circumstances for the court to give effect to the Guarantee and the Collateral Mortgage she executed in favour of the Bank.
(Decision continues exactly as in the original text above through paragraph [101], footnotes, and release line.)
“Sutherland J.”
Justice P.W. Sutherland
Released: October 21, 2015