ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-14-096
DATE: 2015/12/15
BETWEEN:
Prince Edward/Lennox & Addington Community Futures Development Corporation
Plaintiff
– and –
Town Coffee Plus Inc., James Douglas Smith and Stephenette D’Souza
Defendants
Kelly Henderson , for the Plaintiff
James Douglas Smith, self-represented for all of the Defendants
HEARD AT PICTON: November 20, 2015
DECISION ON MOTION
KERSHMAN J.
Introduction:
[1] This is a motion for summary judgment brought by the Plaintiff against the Defendants.
[2] In addition, there is a motion by the Defendants for summary judgment against the Plaintiff.
Factual Background
[3] Prince Edward/Lennox and Addington Community Futures Development Corporation (“PELA”) is a non-profit corporation which operates as a federally funded lending group aimed at financially encouraging local entrepreneurship and economic development.
[4] Town Coffee Plus Inc. (“Borrower”) is a business incorporated pursuant to the laws of the Province of Ontario, which carries on business as a coffee shop in Amherstview, Ontario.
[5] James Douglas Smith resides in Kingston. He is the owner and operator of Town Coffee Plus Inc.
[6] Stephenette D’Souza resides in Kingston. She is the owner of a 1982 CS 36 Canadian Sailcraft bearing Hull Identification Number (“HIN”) ZCUW2173M8OJ (“Boat”).
[7] PELA advanced a loan in the sum of $80,000 to the Borrower pursuant to an agreement dated June 3, 2011 (“the Loan”). Interest was payable on the Loan at the rate of 7% per annum, compounded monthly. The Loan was repayable in blended monthly payments of principal and interest based on a 5-year term and a 5-year amortization in the amount $1,584.22, commencing one month from the date of drawdown. The $80,000 was advanced on June 3, 2011, with the first payment to begin July 3, 2011.
[8] Mr. Smith executed a guarantee (“Guarantee”) on June 14, 2011, which guaranteed the payment of any and all amounts owing by the Borrower under the Loan plus interest thereon.
[9] A General Security Agreement was executed on June 14, 2011 (“GSA”), pursuant to which Stephenette D’Souza (“Guarantor”) granted PELA a security interest in the Boat registered to her to secure the payment to PELA of all amounts owing by the Borrower together with interest thereon. A 5-year Personal Property Security Act, R.S.O. 1990, c. P.10 (“PPSA”) Registration was filed on June 17, 2011. Ms. D’Souza remains the owner of the Boat, which is otherwise unencumbered.
[10] As additional security, a residential building lot in Prince Edward County owned by Mr. Smith was given to PELA by way of a first mortgage.
[11] The Borrower defaulted on payments due and owing to PELA under the Loan in or about July 2012. PELA demanded payment from the Borrower and Mr. Smith, but payments were not made in accordance with the Loan and Guarantee.
[12] Mr. Smith subsequently sold the building lot on or about September 27, 2013. The net proceeds from the building lot of $45,625.83 were applied against the outstanding Loan.
[13] No payments were made on the Loan from August 2012 until the sale of the building lot in 2013. No payments were made after the sale of the lot.
[14] Based on Plaintiff’s argument, as of August 7, 2015, the outstanding balance due under the Loan was $41,399.42, comprised of:
(a) Principal amount outstanding – $36,580.80; and
(b) Interest to and including February 18, 2014 – $4,818.62.
[15] Interest continues to accrue on the balance outstanding at the rate of 7% per annum, compounded monthly.
[16] A Statement of Defence and Counterclaim was filed by all of the Defendants, who no longer have a lawyer acting on their behalf.
[17] At the motion, on consent, it was agreed that Mr. Smith as a non-lawyer could act on behalf of all of the Defendants.
[18] In their Statement of Defence, all of the Defendants admitted all of the essential elements of the Plaintiff’s claim against them, including the fact that the monies were borrowed, the monies were advanced, the guarantee was executed and that a GSA was registered with the Boat as security.
[19] PELA is seeking summary judgment against the Borrower and the Guarantor in the amount equal to the outstanding balance owing on the Loan. It is also seeking summary judgment to obtain possession of the Boat from the Defendant Stephenette D’Souza, which is currently located at Loyalist Cove Marina, 100 Bayshore Drive, Bath, Ontario. The Boat has been out of the water since 2011. It has been listed for sale with Harris & Ellis Yachts for approximately 2 years for $65,000. The Boat remains unsold.
[20] There are no other liens registered against the Boat or Ms. D’Souza in the PPSA registry system. Other than PELA’s lien, the Boat is unencumbered. PELA seeks to take possession of the Boat and sell it pursuant to the GSA and PPSA Registration.
Counterclaim by the Defendants
[21] The Defendants filed a counterclaim for damages of $250,000 against PELA. The allegations against PELA include allegations that PELA failed to provide “advice and assistance” to the Defendants, that PELA failed to “visit the business site” of the Defendants and “assess the state of the business or offer advice of services” and that PELA insisted on the Defendants paying the full amount of the net proceeds from the sale of the building lot to PELA upon the sale of that property which served as security for the Loan.
[22] PELA argues that the only contracts between PELA and the Defendants related to the Loan and are before the Court. They argue that there is no other contract in existence between the parties which entitles the Defendants to advance the claim for damages set out in the counterclaim.
Issues:
1. Should summary judgment be granted to the Plaintiff on the claim?
2. Should summary judgment be granted to the Defendants in relation to their counterclaim?
The Law
Motion for Summary Judgment
[23] A plaintiff may, after the defendant has delivered a statement of defence, move with supporting affidavit material or other evidence for summary judgment on all or part of the claim in the statement of claim. Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 20.01(1).
[24] A defendant may, after delivering a statement of defence, move with supporting affidavit material or other evidence for summary judgment dismissing all or part of the claim. Rules of Civil Procedure, r. 20.01(3).
[25] The test for granting summary judgment is whether the court is satisfied that there is “no genuine issue requiring a trial”. The court shall grant summary judgment if it is satisfied that there is no genuine issue for trial with respect to a defence. Rules of Civil Procedure, r. 20.04(2).
[26] In determining whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and the judge may exercise any of the following powers for the purpose:
a) Weighing the evidence;
b) Evaluating the credibility of a deponent; and/or
c) Drawing any reasonable inference from the evidence.
Rules of Civil Procedure, r. 20.04(2.1).
[27] Summary judgment motions must be granted whenever there is no genuine issue requiring a trial. Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at paras. 47, 68 [Hryniak].
[28] If the moving party demonstrates a prima facie right to summary judgment, the evidentiary burden is placed on the responding party to provide evidence that there is a genuine issue requiring a trial. Toronto Dominion Bank v. 466888 Ontario Ltd., 2010 ONSC 3798, 103 O.R. (3d) 502, aff’d 2011 ONCA 149, at para. 2 [Toronto Dominion Bank].
[29] Summary judgment ruled must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims. Hryniak, at para. 5.
[30] The summary judgment motion is an important tool for enhancing access to justice because it provides a cheaper, faster alternative to a full trial. Hryniak, at paras. 23, 24.
[31] On a Rule 20.04 motion for summary judgment, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before the court, without using the fact-finding powers. If there appears to be a genuine issue requiring a trial, the judge should then determine if the need for a trial can be avoided by using the powers under Rules 20.04(2.1) and (2.2). Hryniak, at para. 66.
[32] There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result. Hryniak, at para. 49.
[33] When a summary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceedings to trial would generally not be proportionate, timely or cost effective. Hryniak, at para. 50.
Plaintiff’s Motion for Summary Judgment
Plaintiff’s Position
[34] The Plaintiff argues that there is no genuine issue requiring a trial in relation to the Plaintiff’s claim. It argues that all of the relevant facts in relation to the Loan, the Loan payments, and the security held by PELA have all been admitted by the Defendants in their Statement of Defence.
[35] The Plaintiff argues that there is no issue as to the amount outstanding on the Loan, which is admitted in the Statement of Defence.
[36] In relation to enforcement of the security against the Boat, the Plaintiff argues that pursuant to section 62(1)(a) of the PPSA, a secured party has the right to take possession of the collateral upon default.
[37] The Plaintiff argues that there are no issues as to the validity of the security, as the Defendant D’Souza has admitted that the security is valid in the Statement of Defence and that she is in possession of the Boat.
Defendants’ Position
[38] The Defendants acknowledge that the Borrower received the full $80,000. The Defendants argued that cost overruns deprived the Borrower of a full marketing budget and on occasions, Mr. Smith had to deliver flyers to homes.
[39] All of the Defendants acknowledge that the Loan fell into arrears, and has not been brought up-to-date. No payments were received after the lot was sold in 2013.
[40] When the lot was sold, the Defendants wanted to use $13,039.27, which were additional monies from the sale of the property for business improvements. This money was used by the Borrower Defendant to pay down the Loan. The Defendants argued that these monies would have left the Defendants with enough operating capital to invest in the future of the business.
[41] The Defendants argued that PELA turned down this proposal and kept all of the money. They argued that PELA keeping these monies caused the business to fall into financial difficulty and subsequently close.
[42] The Defendants also argued that they have been attempting to sell the Boat, but that they have not been able to find a buyer willing to pay anywhere near the $65,000 asking price.
Analysis
[43] The Court has reviewed the Statement of Defence filed by the Defendants in this matter. The Court notes that the Defendants admit all of the allegations set out in the Statement of Claim save and except for two which relate to paragraphs 5 and 10.
[44] Paragraph 5 of the Statement of Claim reads as follows:
“The Defendant, Stephenette D’Souza is an individual residing in the City of Kingston. She is James Douglas Smith’s wife.”
[45] The Court finds that whether Mr. Smith and Ms. D’Souza are husband and wife is not material to the issues before the Court or fatal to the Plaintiff’s claim.
[46] Paragraph 10 of the Statement of Claim reads as follows:
“Following default, PELA CFDC repeatedly demanded payment from the Borrower pursuant to the loan and from the guarantor pursuant to the guarantee.”
[47] It would appear that the Defendants dispute the definition of the word “repeated”. The Court finds that this is not a material issue and is not fatal to the Plaintiff’s claim.
[48] The Court finds that the pleadings in these 2 paragraphs do not represent genuine issues requiring a trial.
[49] The Court finds that PELA has demonstrated a prima face right to summary judgment, particularly in light of the Defendants’ admissions.
[50] The evidentiary burden then shifted to the Defendants to provide evidence that there is a genuine issue requiring a trial. Toronto Dominion Bank, at para. 2. The Court finds that the Defendants have not satisfied this evidentiary burden, particularly taking into account that they admitted the essential facts of the Plaintiff’s claim in their Statement of Defence.
[51] On the aforesaid basis, and based on the Hryniak case, the Court finds that summary judgment should be granted to the Plaintiff in relation to the debt owing by the Defendants in the sum of $41,399.42 plus interest on this amount at the rate of 7% per annum, compounded monthly from August 7, 2015.
[52] Post-judgment interest shall be in accordance with the Courts of Justice Act, R.S.O. 1990, c. C.43.
[53] The Court is satisfied that the Boat is held as valid security by the Plaintiff.
[54] The Defendant D’Souza has admitted in the Statement of Defence that the Boat was granted as security for the Loan and that the Loan is in default. She has also acknowledged that she is in possession of the Boat.
[55] Therefore, based on the pleadings of the Defendant D’Souza, the Court finds that the Plaintiff has a security interest over the Boat, that the Loan is in default and that the Plaintiff is entitled to possession of the Boat. The Court orders that the Plaintiff take possession of the Boat wherever it may be located.
Defendants’ Cross Motion for Summary Judgment
Defendants’ Position
[56] The Defendants argue that PELA’s mandate includes providing advice and support to help promote and support local businesses.
[57] After the PELA Loan fell into arrears due to events beyond the Defendants’ control, Mr. Smith argues that he made every effort to bring the Loan payments up-to-date. He made a proposal to PELA that if accepted, would have brought the Loan payments up-to-date, and would have allowed the Borrower to continue in business.
Plaintiff’s Position
[58] The Plaintiff argues that the Loan has been in arrears for some period of time and that no payments were received after June 2012, save and except from the sale of the residential lot.
[59] The Plaintiff argues that the only contracts between PELA and the Defendants related to the Loan and that there were no other contracts in existence between the parties.
[60] Furthermore, the Plaintiff argues that it had no duty to forbear from calling its Loan when it had the legal right to do so; Fifth Third Bank v. O’Brien, 2013 ONCA 5, at para. 8 [Fifth Third Bank].
[61] The Plaintiff further argues that the relevant contractual arrangements did not and do not obligate PELA to continue to extend credit or to provide business advice and contractual support to the Defendants as alleged in the counterclaim. As such, summary judgment should not be granted in this case.
Analysis
[62] In this case, the Court has reviewed the Defendants’ pleadings and arguments and finds that the Defendants have not demonstrated a prima face case for summary judgment.
[63] The Defendants do not show any breakdown for how the $250,000 damages sought are to be calculated. Furthermore, following the reasoning in the Fifth Third Bank case, the Court finds that PELA had no duty to forbear from calling its Loan when it had the legal right to do so.
[64] Based on the evidence, there is no basis in fact or in law to grant the summary judgment as requested. Therefore, the motion for summary judgment is dismissed.
[65] The Defendants’ alternative claim for relief is that possession of the Boat should be granted to the Plaintiff in full satisfaction of the amount due and owing to PELA on account of the Loan and that no further amounts, costs, fees, or penalties should be payable by the Defendants to the Plaintiff.
[66] According to the Defendants’ evidence, the Court notes that the latest Boat survey provided is dated May 13, 2010, and is only a partial survey of the Boat, which sets its value at approximately $95,000.
[67] In addition, the Boat has been out of the water since 2011 and has not been maintained since that date.
[68] The Court finds that the Boat will have decreased in value due to it not being properly maintained and it being out of the water for approximately 4 years.
[69] The Defendants seek to have the Plaintiff accept the net proceeds from the sale of the Boat in full satisfaction of the outstanding debt. The Court is not persuaded to provide such relief. The evidence in the pleadings on the motion shows that the cost of storage has not been paid for the Boat for a lengthy period of time and now exceeds approximately $10,000. In addition, there will be costs for insuring the boat as well as for repairing it. Based on this information, there may be a shortfall after the boat is sold.
[70] The Court sees no reason why the Plaintiff should have to suffer any shortfall in relation to the Loan if there is one.
[71] The Court finds that the Plaintiff is entitled to pursue the Defendants for any shortfall after the Boat is sold and after taking into account all costs of repossession incurred by the Plaintiff in relation to the Boat.
[72] The Court does not find that the Plaintiff should have to accept the Boat in full satisfaction of the monies or costs due and owing to it. The Defendants have not demonstrated any reason why this should occur. Accordingly, this relief is not granted.
[73] In conclusion, the Defendants’ motion for summary judgement fails.
[74] The Court has reviewed the pleadings and the evidence. Following the Hryniak case, the Court does not find on the face of the Defendants’ pleadings that any genuine issue has been raised that would require a trial of this matter.
[75] The Plaintiff had no duty to forbear in relation to the repayment of the Loan. The contractual obligations in the loan agreement did not obligate the Plaintiff to provide business advice and or contractual support to the Defendants. There was a loan with specific repayment terms. The Loan was not repaid as required, even though the Plaintiff provided latitude in terms of repayment.
[76] The Court orders that the counterclaim be dismissed as there is no genuine issue for trial.
Costs
[77] The matter of costs will be dealt with on January 21, 2016, at 3:00 p.m. Each party will provide a costs outline at the hearing and each party will be allowed 10 minutes to argue the issue of costs.
[78] Order accordingly.
Mr. Justice Stanley Kershman
Released: December 16, 2015