Royal Bank of Canada v. Daniele, 2015 ONSC 793

COURT FILE NO.: CV-14-502432

DATE: 20150203

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

ROYAL BANK OF CANADA

Plaintiff

– and –

MARIO DANIELE, JULIE CAPUANO-DANIELE aka JULIA CAPUANO-DANIELE aka JULIA CAPUNANO-DANIELE aka JULIE CAPUNANO-DANIELE aka JULIE CAPUANO aka JULIA CAPUNANO aka JULIA CAPUANO aka JULIE DANIELE aka JULIA DANIELE aka JULIE CAPUNANO and 2285805 ONTARIO LIMITED

Defendants

Natalie Marconi for the Plaintiff

Philip W. Sutherland for the Defendants

HEARD: January 22, 2015

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION

[1] The Royal Bank of Canada, or RBC, (the “Bank”) was the banker for the Defendant 2285805 Ontario Limited, which carried on business as Nut ‘N Gluten. The Bank provided 2285805 Ontario Limited with: (a) a demand Operating Loan (sometimes referred to as Loan 1); (b) a Small Business Loan (sometimes referred to as Loan 2); and (c) two credit cards for the business.

[2] 2285805 Ontario Limited signed a General Security Agreement and a Security Agreement (Chattel Mortgage for other than Inventory and Consumer Goods). The Defendants Mario Daniele and Julie Capuano-Daniele signed Guarantees.

[3] Mr. Daniele also had a personal credit card that was not connected to 2285805 Ontario Limited.

[4] The Bank brings a summary judgment motion for the balance owing on: (a) the Operating Loan; (b) the Small Business Loan; (c) the credit card account for the business; (d) the Guarantees; and (e) Mr. Daniele’s personal credit card account.

[5] The Defendants resist the Bank’s motion, and they submit that the Bank’s action should be heard at the trial of the Defendants’ counterclaim, which is also associated with the Defendants’ defence to the Bank’s action. The Defendants allege, in effect, that they have a defence, setoff, or counterclaim that will substantially reduce if not eliminate their indebtedness to the Bank.

[6] The alleged defence and counterclaim arises because of the Bank’s alleged negligent misrepresentation that the Defendants need not take steps to recover the property that their landlord had seized from 2285805 Ontario Limited. .

[7] Mr. Daniele also claims an entitlement to the reward points he had earned on his personal credit card.

[8] For the reasons that follow, the Bank’s summary judgment motion should be granted and the Defendants’ counterclaim should be dismissed.

B. FACTUAL AND PROCEDURAL BACKGROUND

[9] In the fall of 2011, Mr. Daniele established the Defendant 2285805 Ontario Limited (“2285805 Ontario”) as a start-up specialty food business in Oakville, Ontario, specializing in gluten and nut free products.

[10] The Bank granted the business an Operating Loan and a Small Business Loan. 2285805 Ontario signed a General Security Agreement and a Security Agreement (Chattel Mortgage for other than Inventory and Consumer Goods).

[11] Mr. Daniele deposed that at the time that he executed the General Security Agreement and the Security Agreement (Chattel Mortgage for other than Inventory and Consumer Goods), no particular attention was given to clauses 11(d) and 13(d) that allow the Bank to escape from any liability for failing to take possession of, collect, enforce, and realize on the collateral of 2285805 Ontario. These provisions state:

Remedies

11(d) [13(d) is identical] In addition to those rights granted herein and in any other agreement now or hereafter in effect between Debtor and RBC and in addition to any other rights RBC may have at law or in equity, RBC shall have, both before and after default, all rights and remedies of a secured party under the P.P.S.A. Provided always, that RBC shall not be liable or accountable for any failure to exercise its remedies, take possession of, collect, enforce, realize, sell, lease or other dispose of Collateral or to institute any proceeding for such purposes. Furthermore, RBC shall have no obligation to take any steps to preserve rights against prior parties to any Instrument or Chattel Paper, whether Collateral or proceeds and whether or not in RBC’s possession and shall not be liable or accountable for failure to do so.

[12] The Operating Loan (Loan 1) was a revolving loan with a credit limit of $25,000 with interest at the Bank’s prime rate plus 3.25 per cent per annum before and after demand and judgment.

[13] The Small Business Loan (Loan 2) was for $202,098.00 with interest at the Bank’s prime rate plus 3 per cent per annum before and after default and judgment in monthly instalments in the amount of $2,405.93 plus interest over a term of 60 months with the first payment due thirty days after the first drawdown.

[14] For present purposes, the relevant terms of the Small Business Loan are set out below:

Events of Default

Each “Event of Default” shall entitle the Bank, in its sole discretion, to cancel any Credit Facility, demand immediate repayment in full of any amounts outstanding under any Credit Facility, together with accrued interest and any other indebtedness under or with respect to any Credit Facility, and to realize on all or any portion of any Security. The term Event of Default has the meaning set out in the standard terms provided herewith.

General Covenants

Without affecting or limiting the right of the Bank to terminate or demand payment of, or cancel or restrict availability of any unutilized portion of, any Credit Facility, Borrower covenants and agrees with the Bank that the Borrower:

(a) will pay all sums of money due under the terms of this Agreement; …

(h) will immediately advise the Bank of any unfavourable change in its financial position which may adversely affect its ability to pay or perform its obligations in accordance with the terms of this Agreement;

(i) will not, without the prior written consent of the Bank, grant, assume or suffer to exist any mortgage, charge, lien, pledge, security interest or other encumbrance affecting any of its properties, assets, or other rights;

(j) will not, without the prior written consent of the Bank, sell, transfer, convey, lease or otherwise dispose of any of its properties or assets other than in the ordinary course of business and on commercially reasonable terms; ….

Events of Default

…, each of the following shall constitute an “Event of Default,” which shall entitle the Bank in its sole discretion, to cancel any Credit Facility, demand immediate payment in full of any amounts outstanding under any Credit Facility, together with outstanding accrued interest and any other indebtedness under or with respect to any Credit Facility, and to realize on all or any portion of any Security:

(a) failure of the Borrower to pay any principal, interest, or other amount when due pursuant to the Agreement;

(b) failure of the Borrower to observe any covenant, condition, or provision contained in this Agreement …

(e) if in the opinion of the Bank there is a material adverse change in the financial condition, ownership structure or composition or operation of the Borrower, or any Guarantor, if applicable;

[15] Mr. Daniele, who was the President of 2285805 Ontario, and his wife Ms. Capuano-Daniele signed Guarantees to secure the repayment of the indebtedness of 2285805 Ontario. Before signing the guarantees, Mr. Daniele did not obtain independent legal advice and none was suggested. Ms. Capuano-Daniele did obtain independent legal advice.

[16] I pause here to say that there is nothing in the factual circumstances of this case upon which one could establish a defence of non est factum, unconscionability, undue influence, or duress, economic or otherwise.

[17] Under the Guarantee, Mr. Daniele and Ms. Capuano-Daniele are jointly and severally liable for 2285805 Ontario’s debts and liabilities to the Bank limited to $50,524.50 with interest at the Bank’s prime rate plus 3 per cent per annum before and after demand and judgment.

[18] It is an express term of the Guarantee that the Bank shall not be bound to exhaust its recourse against the customer or other or any securities it may at any time hold before being entitled to payment from the guarantor.

[19] In addition to the credit cards for the business, Mr. Daniele had a personal credit card. Under the Credit Card Agreements: (a) the Bank may cancel the credit cards at any time and the cardholder must then pay all amounts owing on the credit cards and return the cards to the Bank; and (b) the cardholder must pay the Bank interest on all outstanding amounts both before and after demand and judgment at the Bank’s credit card rate in effect (i.e. 19.99 percent per annum).

[20] After securing from the Bank, it appears that 2285805 Ontario purchased equipment and got its business up and running. It leased premises for its specialty food business from Sun Life Assurance Company of Canada.

[21] In June 2013, 2285805 Ontario had a disagreement with Sun Life. Sun Life gave notice of default and demanded payment of rent arrears.

[22] 2285805 Ontario decided to no longer remain at the leased premises.

[23] On June 18, 2013, 2285805 Ontario defaulted in payment of the Small Business Loan and that fault still continues.

[24] On June 21, 2013, Mr. Daniele telephoned the Bank and advised it that 2285805 Ontario had ceased operating and that he wanted to move all the equipment from its current location to another location. Mr. Daniele further wanted 2285805 Ontario’s debt to be transferred to another operating company.

[25] Meanwhile, around July 2, 2013, Sun Life issued a Notice of Distress demanding payment in the sum of $54,886.70 plus costs within 5 business days failing which business’s assets would be sold.

[26] Mr. Daniele says that it was his understanding that Sun Life had terminated the lease and could not distrain the assets. He contacted the bailiff, but arrangements to re-enter the premises never materialized, and Mr. Daniele was unable to obtain access to 2285805 Ontario’s equipment, assets, and property.

[27] Mr. Daniele says that he again advised the Bank about the deteriorating situation with Sun Life. He said that he did not know what steps Sun Life was going to take with respect to the assets.

[28] Mr. Daniele says that his account manager, Marcelaine DeBarros, was uncertain what should be done, and that she advised him to call the Bank’s collection team for assistance.

[29] Mr. Daniele says he asked that Bank’s representative whether he should move 2285805 Ontario’s equipment and inventory because he believed that the Bank should immediately take possession of the assets, which seizure would be in both parties’ interest.

[30] The Bank’s representative advised Mr. Daniele not to move the assets and said that the Bank was fully capable of protecting its interest.

[31] Relying on the Bank’s representations and instructions, Mr. Daniele did not move the assets. He says that he continued to telephone the Bank to ascertain its course of action with respect to the assets, but it was not until August 2013, that the Bank began to take action by sending its appraiser to assess the equipment. However, by this time, it was too late; the assets had already been removed by Sun Life.

[32] Sun Life completed its distress sale, and the assets were sold to Benaco Sales Ltd., leaving a deficiency of $6,450.75 for Sun Life’s unpaid rent claim.

[33] Between August and October 2013, Mr. Daniele made numerous telephone calls to the Bank to try to find out if the Bank was going to try to re-acquire the assets, and what steps 2285805 Ontario should take.

[34] In October 2013, Mr. Daniele learned that the Bank would not attempt to re-acquire the assets and would look to enforce the Guarantee executed by Mr. Daniele and his wife.

[35] Mr. Daniele says that he relied on the Bank’s representations and instructions to not remove 2285805 Ontario’s assets. He says that to the detriment of 2285805 Ontario and to his own detriment, the Bank’s representations turned out to be misleading and false. He says that 2285805 Ontario had significant equipment and machinery, which had originally been purchased for $239,920.47. He says that if the Bank had acted promptly to secure the equipment when Mr. Daniele advised them about the situation, then he would have either been able to continue operating 2285805 Ontario from another location or the equipment could have been sold to discharge 2285805 Ontario’s indebtedness to the Bank.

[36] Mr. Daniele believes that if it were not for Bank’s negligence in not taking immediate action when he contacted it and when he requested that it secure the business’s assets there would be no debts outstanding to the Bank. He says that the original cost of all the equipment was $239,920.47 and he estimates that it would be valued at more than $150,000.00 based on 30% depreciation. He says that he acted reasonably, honestly, and diligently, but the Bank failed to act in an efficient and reasonable manner.

[37] Instead, the Bank demanded repayment of the loans, including a demand in writing on March 24, 2014, but the Defendants have refused to pay.

[38] The Bank claims the following sums:

• $5,934.26 for Mr. Daniele’s personal credit card as at December 24, 2014

• $11,312.43 for the business’s credit card as at July 8, 2014

• $26,730.67 for the Operating Loan as at July 8, 2014

• $168,761.45 on the Small Business Loan as at July 8, 2014

• $51,405.36 on the Guarantees as of July 8, 2014.

[39] In January 2014, the Bank froze all of Mr. Daniele’s personal accounts and cancelled his personal credit card, which was not in default at the time. Mr. Daniele has continued to make payments.

[40] Mr. Daniele does not dispute that he is responsible for the outstanding amount owing on his personal credit card. He submits that he has always made payments towards his personal credit card and never defaulted. He submits that he is entitled to the reward points (approximately 165,000) that the Bank cancelled.

[41] On June 12, 2014, a year after it had abandoned the premises, 2285805 Ontario’s lawyers wrote Sun Life’s lawyer and took the position that Sun Life had terminated the lease by changing the locks and then seizing 2285805 Ontario’s assets constituting an illegal distress. The letter stated:

In review of this matter with our client and the Notice of Default provided, it is the writer’s position from our preliminary investigation, that you client, Sun Life Insurance Company of Canada terminated the Lease with our client when your client changed the locks on the unit.

Furthermore, we understand from our client that Sun Life Insurance Company of Canada improperly distrained the equipment, machinery and inventory in the unit, too possession of that property and has sold the property. ….

Furthermore, your client has forced our client to incur significant and substantial damages due to your client’s improper and illegal actions in: (a) distraining the property owned by our client; (b) taking possession of the property; (c) selling that property must likely in an improvident manner; (d) failing to account to our client pursuant to the terms of the Act.

[42] In response to the letter from 2285805 Ontario’s lawyers, Sun Life’s lawyer replied by letter dated June 12, 2014:

…. You are entirely incorrect that there was a termination of the Lease and/or an improper distress. Your client abandoned the Premises over a year ago and it was as a result of its failure to operate and its abandonment of the Premises, that it was necessary for the Landlord to enter into the Premises in order to secure and preserve them. A Notice was provided to the Tenant clearly indicating that this was done only for the purposes of the preservation of the Premises and not a termination of the lease; and the keys were available for pick up from the Bailiff. A copy of this Notice dated June 18, 2013 is attached. Your client failed to take any steps to pick up the keys or go back into operation. ….

C. DISCUSSION AND ANALYSIS

[43] At first blush, the Defendants’ defence and counterclaim constitute a clever legal argument that would seem to provide them with a means to avoid repaying the loans made by the Bank.

[44] However, in my opinion, the Defendants’ argument is not supported by the facts. Moreover, upon examination, the defence and counterclaim do not survive the legal analysis of their merits, which turn out to be wanting.

[45] The destruction of the Defendants’ defence and counterclaim begins by noting that there is no genuine issue for trial that the debts under the credit cards, loans, and guarantees exist and that the debts have not been repaid.

[46] The Bank is, therefore, successful in showing that there is a no genuine issue for trial that it is owed repayment of the various credit cards, loans, and guarantee debts.

[47] The Bank’s claim is made out, but the Defendants assert that the Bank should not recover a judgment for the indebtedness because the Bank is, in truth, the author of its own misfortune because there are genuine issues for trial that:

• (a) the Bank could have realized and recovered and should have realized and recovered its security, but the Bank did not realize or recover the valuable security it had in the assets and property of 2285805 Ontario because the Bank responded too slowly or not at all to the information provided by Mr. Daniele to the Bank’s representatives that Sun Life had unlawfully taken the property and assets of 2285805 Ontario;

• (b) the Bank misrepresented to Mr. Daniele (and the Defendants) that he need not take any steps because the Bank did not need his assistance and relying on this misrepresentation, the Defendants lost the value of the assets and property of 2285805 Ontario that could have been used to fully repay the Defendants’ indebtedness to the Bank.

[48] Upon scrutiny, there are five fatal weaknesses in the Defendants’ argument.

[49] The first fatal weakness is that the Bank could not, in any event, have recovered the assets of 2285805 Ontario after the property was under Sun Life’s distress for arrears of rent.

[50] In Commercial Credit Corp. Ltd. v. Harry D. Shields (1981), 1981 1840 (ON CA), 32 O.R. (2d) 703 (C.A.), Commercial Credit had a security interest (a chattel mortgage) registered under the Personal Property Security Act, R.S.O. 1970, c. 344 and it sent a notice claiming possession of the secured property. After the secured creditor’s notice was sent, the debtor’s landlord distrained for arrears of rent. The Court of Appeal held that a distress confers on the landlord a lien within the meaning of s. 3(1)(a) of the Personal Property Security Act with the effect that the landlord’s distress has priority over the creditor’s security interest.

[51] In the case at bar, there is no genuine for issue that Sun Life was very careful to levy distress and not to terminate the lease. Sun Life’s claim to the assets has priority to the claim of the Bank.

[52] The second fatal weakness in the Defendants’ defence and counterclaim is that the Defendants were also not in a possession to remove 2285805 Ontario’s property and to secrete it to some other location and for some other business. To do so would constitute a “fraudulent removal” subject to penalties and the landlord’s continuing rights under the Commercial Tenancies Act, R.S.O. 1990, c. L.7.

[53] The third fatal weakness is that there was no misrepresentation by the Bank’s representatives that would constitute the elements of a negligent misrepresentation claim. The Bank’s representative said nothing untrue and, as already noted, neither the Bank nor the Defendants were in a position to interfere with Sun Life’s distraint of the goods of 2285805 Ontario.

[54] The fourth fatal weakness is that there is no evidence, other than Mr. Daniele’s belief based on the original purchase price of the assets, that there was sufficient value in the property of 2285805 Ontario to offset the debt owed the Bank.

[55] The fifth fatal weakness is that the Bank is entitled to rely on the provisions of the Guarantee and the Security Agreement that permit it to enforce its debt instruments without any obligation to realize on the assets and property of 2285805 Ontario.

[56] Thus, there is no genuine issue for trial and there is no merit to the Defendants’ defence and counterclaim.

[57] There is one last issue to address; i.e., Mr. Daniele’s claim for the points from the rewards program of his personal credit card. Under the Terms and Conditions of the Bank’s Rewards Program, to which Mr. Daniele agreed, if his account is closed for any reason other than at Mr. Daniele’s request, then his points may be automatically cancelled. In the circumstances of this case, he has no right to the points.

D. CONCLUSION

[58] For the above reasons the Bank’s summary judgment motion is granted and the Defendants’ counterclaim is dismissed.

[59] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with the Bank’s submissions within 20 days of the release of these Reasons for Decision, followed by the Defendants’ submissions within a further 20 days.

Perell, J.

Released: February 3, 2015

CITATION: Royal Bank of Canada v. Daniele, 2015 ONSC 793

COURT FILE NO.: CV-14-502432

DATE: 20150203

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

ROYAL BANK OF CANADA

Plaintiff

– and –

MARIO DANIELE, JULIE CAPUANO-DANIELE aka JULIA CAPUANO-DANIELE aka JULIA CAPUNANO-DANIELE aka JULIE CAPUNANO-DANIELE aka JULIE CAPUANO aka JULIA CAPUNANO aka JULIA CAPUANO aka JULIE DANIELE aka JULIA DANIELE aka JULIE CAPUNANO and 2285805 ONTARIO LIMITED

Defendants

REASONS FOR DECISION

PERELL J.

Released: February 3, 2015