CITATION: Toronto-Dominion Bank v. Konga, 2016 ONSC 1628
COURT FILE NO.: 15-63692
DATE: 2016/03/10
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Toronto-Dominion Bank
Plaintiff
– and –
Raymond Kuate Konga
Defendant
Fraser MacKinnon Blair, for the Plaintiff
Ronald F. Caza and Alyssa Tomkins, for the Defendant
HEARD: February 12, 2016
REASONS FOR DECISION
PATRICK SMITH J.
Brief Factual Overview
[1] This is a motion for summary judgment brought pursuant to Rule 20 of the Rules of Civil Procedure, by the Toronto-Dominion Bank (TD Bank) against the respondent Guarantor, Raymond Kuate Konga (Konga).
[2] TD Bank extended credit to Vertamin Inc. (Vertamin) including a line of credit with an authorized limit of $800,000, a corporate VISA card and a separate fixed term loan on the maximum amount of $288,000.
[3] All of the obligations owed to TD Bank by Vertamin were guaranteed by the respondent, Konga, under an unlimited and continuing guarantee.
[4] TD Bank claims that Vertamin breached the terms of the Loan Agreements and, on November 13, 2014, it simultaneously demanded repayment of the loans both from Vertamin and from Konga in his capacity as Guarantor. Currently, TD Bank is only pursing payment from Konga.
[5] TD Bank is seeking judgment in the amount of $1,098,646.22 plus interest and costs.
[6] Konga opposes the motion for summary judgment. He states that the guarantee provided, as conditions that had to be met before the guarantee could be called upon, that there be a demand for payment by TD Bank to Vertamin, that Vertamin be provided a reasonable time for repayment and that Vertamin default on the payment.
[7] Konga submits that TD Bank’s motion for summary judgment be dismissed for two reasons:
TD Bank’s right to demand payment from the Guarantor had not crystalized at the time TD Bank issued the Demand for Payment, rendering the demand invalid and;
he is entitled to be discharged from his guarantee obligations because the actions of TD Bank seriously interfered with or destroyed his rights of subrogation to and indemnification from Vertamin and forced Vertamin’s demise.
[8] Konga asks this court to dismiss TD Bank’s motion and to grant summary judgment in his favour. In the alternative, he states that there is a genuine issue for trial and asks that trial dates be scheduled.
The Law of Summary Judgment Motions
[9] Rule 20.04(2)(a) of the Rules of Civil Procedure provides that the court shall grant summary judgment if, “the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.”
[10] With amendments to Rule 20 introduced in 2010, the powers of the court to grant summary judgment have been enhanced. Rule 20.04(2.1) states:
20.04(2.1) In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
Weighing the evidence.
Evaluating the credibility of a deponent.
Drawing any reasonable inference from the evidence.
[11] In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Supreme Court of Canada held that on a motion for summary judgment under Rule 20, the court should first determine if there is a genuine issue requiring trial based only on the evidence in the motion record, without using the fact-finding powers enacted when Rule 20 was amended in 2010. The analysis of whether there is a genuine issue requiring a trial should be done by reviewing the factual record and granting a summary judgment if there is sufficient evidence to fairly and justly adjudicate the dispute and a summary judgment would be a timely, affordable and proportionate procedure.
[12] If, however, there appears to be a genuine issue requiring a trial, then the court should determine if the need for a trial can be avoided by using the powers under Rules 20.04(2.1) and (2.2). As a matter of discretion, the motions judge may use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if their use will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.
[13] Hryniak v. Mauldin encourages the use of a summary judgment motion to resolve cases in an expeditious manner provided that the motion can achieve a fair and just adjudication. Speaking for the Supreme Court of Canada, Justice Karakatsanis opened her judgment by stating:
Ensuring access to justice is the greatest challenge to the rule of law in Canada today. Trials have become increasingly expensive and protracted. Most Canadians cannot afford to sue when they are wronged or defend themselves when they are sued, and cannot afford to go to trial. … Increasingly, there is recognition that a culture shift is required in order to create an environment promoting timely and affordable access to the civil justice system. This shift entails simplifying pre-trial procedures and moving the emphasis away from the conventional trial in favour of proportional procedures tailored to the needs of the particular case. The balance between procedure and access struck by our justice system must come to reflect modern reality and recognize that new models of adjudication can be fair and just.
[14] At para. 22 of her judgment in the companion case of Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8, [2014] 1 S.C.R. 126, Justice Karakatsanis summarized the approach to determining when a summary judgment may or may not be granted; she stated:
Summary judgment may not be granted under Rule 20 where there is a genuine issue requiring a trial. As outlined in the companion Mauldin appeal, the motion judge should ask whether the matter can be resolved in a fair and just manner on a summary judgment motion. 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. If there appears to be a genuine issue requiring a trial, based only on the record before her, the judge should then ask if the need for a trial can be avoided by using the new powers provided under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice.
[15] Justice Corbett provided a useful summary of the Hryniak v. Mauldin approach in Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, where he stated at paras. 33 and 34:
[33] As I read Hryniak, the court on a motion for summary judgment should undertake the following analysis:
(1) The court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial;
(2) On the basis of this record, the court decides whether it can make the necessary findings of fact, apply the law to the facts, and thereby achieve a fair and just adjudication of the case on the merits;
(3) If the court cannot grant judgment on the motion, the court should:
(a) Decide those issues that can be decided in accordance with the principles described in (2), above;
(b) Identify the additional steps that will be required to complete the record to enable the court to decide any remaining issues;
(c) In the absence of compelling reasons to the contrary, the court should seize itself of the further steps required to bring the matter to a conclusion.
[34] The Supreme Court is clear in rejecting the traditional trial as the measure of when a judge may obtain a "full appreciation" of a case necessary to grant judgment. Obviously greater procedural rigour should bring with it a greater immersion in a case, and consequently a more profound understanding of it. But the test is now whether the court's appreciation of the case is sufficient to rule on the merits fairly and justly without a trial, rather than the formal trial being the yardstick by which the requirements of fairness and justice are measured.
[16] Hryniak v. Mauldin does not alter the principle that the court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial. The court is entitled to assume that the parties have respectively advanced their best case and that the record contains all the evidence that the parties will respectively present at trial: Dawson v. Rexcraft Storage & Warehouse Inc. (1998), 1998 CanLII 4831 (ON CA), 111 O.A.C. 201 (C.A.); Bluestone v. Enroute Restaurants Inc. (1994), 1994 CanLII 814 (ON CA), 18 O.R (3d) 481 (C.A.); Canada (Attorney General) v. Lameman, 2008 SCC 14, [2008] 1 S.C.R. 372, at para. 11. The onus is on the moving party to show that there is no genuine issue requiring a trial, but the responding party must present its best case or risk losing: Pizza Pizza Ltd. v. Gillespie (1990), 75 O.R. (2d) 255 (Gen. Div.); Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 CanLII 7979 (ON SC), 28 O.R. (3d) 423 (Gen. Div.), aff’d [1997] O.J. No. 3754 (C.A.).
[17] In Hryniak v. Mauldin, although the Supreme Court of Canada commanded a very robust summary judgment procedure, it did not foreclose lower courts from simply dismissing the summary judgment motion and ordering that the action be tried in the normal course. Indeed, where there are genuine issues for trial and the lower court concludes that employing the enhanced forensic tools of the summary judgment procedure would not lead to a fair and just determination of the merits, the court should not decide the matter summarily: Mitusev v. General Motors Corp., 2014 ONSC 2342, at para. 79; Gon (Litigation Guardian of) v. Bianco, 2014 ONSC 7086, 124 O.R. (3d) 65, at paras. 41 – 47.
Summary of the Issues
[18] The issues before the court may be summarized as follows:
Is TD Bank entitled to judgment in relation to Konga’s liability under the Guarantee? Specifically:
i. Has the right to payment by Konga crystallized?
ii. Does the Bank’s conduct entitle Konga to a discharge?
Factual Background
[19] Before engaging in an analysis of the issues, the following additional factual information is relevant to provide context to my decision.
[20] The Defendant/Respondent, Raymond Kuate Konga, is a director, the CEO, and a majority shareholder of Vertamin Inc. On November 6, 2012, TD Bank began providing loan and credit facilities to Vertamin in the form of a line of credit and a corporate credit card.
[21] Vertamin is a corporation incorporated under the laws of Canada having its primary place of business in Ottawa, Ontario. It is an internet arbitrage company and conducts transactions to buy aggregate advertising space on the internet that it then sells to large advertisers.
[22] The line of credit with TD was required to provide Vertamin with working capital to fund its operations. As required by the loan agreement, on December 19, 2012 Konga signed a personal guarantee of the indebtedness of Vertamin.
[23] On December 23, 2013, TD Bank agreed to provide further credit facilities to Vertamin: a fixed-term committed loan in the amount of $288,000. This new Loan Agreement superseded the previous arrangement but continued to include the existing Line of Credit and corporate credit card, thus recapturing the terms of the first lending agreement and replacing it as the sole lending agreement. The security required for the new agreement included a General Security Agreement (GSA) and a subordination agreement from a different creditor in favour of TD Bank. TD Bank’s standard lending terms were included in the new agreement as Schedule “A”.
[24] Under the 2013 Loan Agreement, the credit limit under the Line of Credit was to be a fraction of Vertamin’s accounts receivable (a borrowing base arrangement) and Vertamin was to maintain a tangible net worth of $1,250,000 at all times.
[25] The 2013 Loan Agreement provided that Vertamin’s credit limit under the Line of Credit would be a fraction of its accounts receivable. This type of credit arrangement is known as borrowing base. To determine this credit limit, Vertamin was required to provide TD Bank with, among other financial information, its accounts receivable listing for each month within 25 days from the end of that month. Regardless of the value of its accounts receivable, the 2013 Loan Agreement imposed a firm upper limit of $800,000 on the amount of credit available to Vertamin through the Line of Credit.
[26] The 2013 Loan Agreement was subject to the terms and conditions of the 2013 Facility Letter and the terms contained in TD Bank’s Standard Terms and Conditions (the “Standard Terms and Conditions”). The 2013 Facility Letter included the following provisions:
a. The Line of Credit would be repayable to TD Bank on demand, made available at TD Bank’s discretion and not automatically available upon Vertamin’s compliance with the terms and conditions of the 2013 Loan Agreement;
b. Vertamin was required to maintain a tangible net worth of at least 1,250,000 at all times; and
c. TD Bank could accelerate the payment of the Term Loan upon the occurrence of any “Event of Default”, as defined in the Standard Terms and Conditions.
[27] The Events of Default under the Standard Terms and Conditions, included, among other events:
a. The non-payment of principal outstanding under the agreement; and,
b. The breach, non-performance or non-observance of any term or condition in the 2013 Loan Agreement.
[28] In addition, the Standard Terms and Conditions also required Vertamin to provide TD Bank with information and financial data as it may request from time to time.
[29] The Guarantee include the following provisions:
a. Section 1: “The Guarantor unconditionally and irrevocably guarantees payment of all debts and liabilities, present or future… of [Vertamin] to [TD Bank].”
b. Sections 2 and 4: The Guarantor’s liability under the Guarantee is unlimited and continuing.
c. Section 6: Payment shall be made by the Guarantor upon receipt of a written demand from TD Bank.
d. Section 11: TD Bank is not required to exhaust its recourse against Vertamin or under any security before being entitled to demand payment from the Guarantor.
[30] As a continuing and unlimited guarantee of all present and future debts and liabilities of Vertamin, Konga guaranteed the repayment of any and all its indebtedness to TD Bank. Konga further agreed that any such indebtedness would be repaid upon TD Bank’s demand and that TD Bank was not required to exhaust its recourse against Vertamin before becoming entitled to demand repayment under the Guarantee.
[31] In April 2014, TD Bank advised Vertamin that it had been overdrawn from the Line of Credit and in breach of the tangible net worth requirement since January 2014. The Line of Credit remained overdrawn in May, June, and July 2014. Vertamin’s tangible net worth had not been restored to $1,250,000 during this time. TD Bank cautioned Vertamin at this time that it was reserving its rights under the 2013 Loan Agreement as against Vertamin.
[32] A dispute arose over the information that Vertamin was providing TD Bank. TD Bank alleges that Vertamin failed to produce its accounts receivables listings for September 2014 thereby preventing it from determining Vertamin’s compliance with the limits of the Line of Credit or the health of the business.
[33] TD Bank states that Vertamin diverted its receivables and refused to provide the information agreed to unless the bank waived its rights under the new loan agreement to reduce the amount of available credit under the line of credit or demand repayment. TD also alleges that Vertamin’s failure to deposit a loan from the Business Development Bank of Canada (BDC) constituted a diversion of funds and breach of the lending agreement.
[34] Konga maintains that the allegation that Vertamin diverted receivables is untrue for two reasons:
a. the funds alleged to be diverted were not receivables as defined by Schedule “A”; and
b. TD Bank was aware of Vertamin’s practice of setting off amounts owed to its suppliers against incoming receivables from the same sources. With respect to the loan proceeds from BDC, Konga states that the loan from BDC was granted for the purpose of renovating property and that it would have been a breach of Vertamin’s lending agreement with BDC for it to deposit the funds with TD Bank.
[35] On September 23, 2014, Konga and Vertamin’s CFO, Mr. Benjamin Nsoga, met with Steele Campbell of the TD Bank. At the meeting, Konga was advised for the first time that all sums deposited with the Bank would be used to pay down the line of credit and would no longer be available as working capital to Vertamin.
[36] On October 6, 2014 Vertamin’s account was transferred to TD Bank’s Financial Restructuring Group and all money deposited into the operating line was frozen in order to pay down and close the account.
[37] On October 27, 2014, TD Bank issued a further written caution to Vertamin. This was followed by a additional letter on November 3, 2014. Between November 3 and November 5, 2014, a number of letters passed between TD Bank and Vertamin discussing the possibility of replacement financing.
[38] On November 13, 2014, TD Bank issued a formal demand for immediate repayment of Vertamin’s indebtedness and a notice to enforce the GSA in ten days. TD Bank also issued a simultaneous demand to Konga as the Guarantor for immediate repayment of the same amount.
[39] Vertamin and Vertamin Real Estate Inc. (VREI), a related company, each filed a notice of intention to make a proposal under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, on November 21, 2014, triggering an automatic 30 day stay of proceedings.
[40] TD Bank has not taken any steps against Vertamin since issuing its demands for payment to enforce its security.
[41] On December 23, 2014, Vertamin’s proposal trustee erroneously assigned it and VREI into bankruptcy. The error was reversed by the Office of the Superintendent in Bankruptcy.
[42] Prior to this incident, Vertamin was able to obtain conditionally approved replacement financing from the Bank of Nova Scotia. After the assignment in bankruptcy, Scotiabank advised that it no longer wished to proceed.
[43] TD Bank opposed Vertamin’s request for an extension of the deadline for it to make a proposal.
[44] At the hearing held on January 16, 2015, TD Bank represented to the court that it held 51% of Vertamin’s debt and therefore a veto over any proposal.
[45] The Bank has supported a motion by the Trustee to annul the proposal on the basis that what Konga asserts is patently unreliable information.
Position of the Parties
I. Has the right to payment by the Guarantor crystalized?
a. Position of the Moving Party, TD Bank
[46] TD Bank submits that the right to demand payment by Konga as Guarantor crystalized upon Vertamin’s defaults under the 2013 Loan Agreement. At the time of the demand, Vertamin was overdrawn from the Line of Credit, in breach of the net worth requirement, and had not provided its account receivable listings. Each of these actions constituted a breach of the agreement entitling TD Bank to call the loan and demand repayment.
[47] TD Bank argued that it was not require to provide a reasonable period of time to allow Vertamin to obtain alternative funding before seeking payment from Konga. The Bank asserts that a creditor is not required to provide notice of the principal debtor’s default to a guarantor, and that the express provisions of the Guarantee provide that the Guarantor was to repay the Bank on demand.
[48] In the alternative, TD submits that it did provide Vertamin with numerous opportunities to comply with its contractual obligations and sufficient advance warning of the pending demand to satisfy any obligation to provide time to Vertamin to remove itself from default or arrange for alternate funding.
b. Position of the Responding Party, Raymond Kuate Konga
[49] Konga argues that his liability as the Guarantor flows from section 1 of the guarantee but that it is only triggered and due when there is a demand made in accordance with section 6. To state the argument another way, but for the demand, the obligation would not be due.
[50] The specific wording of Section 6 of the Guarantee states: “If any Obligation is not paid by the Customer when due, the Bank may treat all Obligations as due and payable by the Customer and may demand immediate payment under this Guarantee of all or some of the Obligations”.
[51] TD Bank sent simultaneous demands for immediate payment to the debtor, Vertamin, and Konga, the Guarantor. A demand for immediate payment did not provide a reasonable amount of time (or any time) for Vertamin to satisfy the demand. Konga argues that the right to demand payment from the Guarantor had not crystalized at the time that the demand was made and is therefore null and void: see Kavcar Investments Ltd. v. Aetna Financial Services Ltd. (1989), 1989 CanLII 4274 (ON CA), 70 O.R. (2d) 225 (C.A.), citing Ronald Elwyn Lister Ltd. v. Dunlop Canada Ltd., 1982 CanLII 19 (SCC), [1982] 1 S.C.R. 726; Mister Broadloom Corporation (1968) Ltd. v. Bank of Montreal (1979), 1979 CanLII 1902 (ON SC), 25 O.R. (2d) 198 (H.C.); and Royal Bank of Canada v. W. Got Associates Electric Ltd., 1999 CanLII 714 (SCC), [1999] 3 S.C.R. 408.
[52] Notwithstanding the evidence to the contrary, Konga asserts that section 6 of the guarantee imposes a third condition precedent that had also not been fulfilled when the demand was made, namely, that Vertamin was in default in payment at the time that the demand for repayment was made.
[53] With respect to the argument that the wording of section 6 is superseded by the wording in the blanket clauses elsewhere in the agreement, Konga submits that such a result would be contrary to the principle of interpretation that provides that the specific must take precedence over the general. Further, such a reading would run contrary to the contra proferentem principle which requires any ambiguities in a contract to be interpreted in the manner least beneficial to the drafter.
II. Does the Bank’s conduct entitle the Guarantor to a discharge?
a. Position of the Moving Party, TD Bank
[54] TD Bank submits that it has done nothing that would entitle Konga to a discharge from his obligations as Guarantor. TD Bank acted in good faith and gave Vertamin many opportunities to cure the default before seeking payment. Vertamin was in breach of the 2013 Loan Agreement and remained in breach until the time of the demands. These breaches were the result of Vertamin’s own conduct, not that of TD Bank.
[55] Further, TD Bank asserts that the decision to make an assignment into bankruptcy rested solely with Konga, as director and CEO of Vertamin, and the impact of that decision is his to bear.
b. Position of the Responding Party, Raymond Kuate Konga
[56] Konga submits that he is entitled to be discharged from his obligation because of the conduct of the creditor. Relying on Bank of Montreal v. Wilder, 1986 CanLII 3 (SCC), [1986] 2 S.C.R. 551, at para. 27, he asserts that, where a creditor by his own conduct (a) causes the default of the principle debtor, (b) materially increases the risk to the Guarantor, and (c) impairs the security that is available to the Guarantor on payment of his guarantee obligation to the creditor, then the Guarantor is entitled to a discharge.
[57] Konga submits that TD Bank knew, or ought to have known, that calling the loan without providing a reasonable time to pay would render Vertamin insolvent and thus cause the default of the principle debtor. This in turn materially increased the risk to him as the Guarantor and impaired the security, entitling the Guarantor to a discharge.
[58] Konga further submits that the Bank’s reliance on Section 4 of the Guarantee to preclude the availability of a discharge is irrelevant since the application of this section has not been triggered because of the Bank’s failure to comply with Section 6. In the alternative, Konga submits that Section 4 does not contain clear and express language sufficient to preclude discharge in the present situation.
Findings
[59] On the basis of the evidence presented, I find that there is no genuine issue for trial. The evidence before this Court is sufficient to allow me to make a fair and just determination on the merits of the case as well as to make the necessary findings of fact and to apply the law to the facts to achieve a proportionate, expeditious and less expensive means to arrive at a just result without the necessity of a trial.
[60] There is, therefore, no need to exercise the fact finding powers set out in Rules 20.04(2.1) - 20.04(2.2).
[61] For the reasons set out below, the motion for summary judgment is granted in favour of TD Bank.
Issue #1 – The Crystallization of the Guarantee
[62] The Guarantor (Konga) admitted signing the Guarantee in order to obtain credit facilities and loans for Vertamin and also that TD Bank had a right to be repaid. He admitted that he received a demand for payment from TD Bank under the Guarantee, that payment has not been made and that at the time of the demand Vertamin's indebtedness to TD Bank was $1,098,646.22.
[63] In my view, the language of the Guarantee is clear and unambiguous. Sections 1 and 2 bind the Guarantor to pay the unlimited liability (“all debts and liabilities, present or future”) of the debtor, Vertamin.
[64] I find that section 11 of the Guarantee does not require TD Bank to exhaust its recourse against Vertamin or under any other security held by TD Bank in respect of Vertamin's indebtedness before becoming entitled to make a demand under the Guarantee.
[65] The evidentiary record confirms that TD Bank made numerous good faith attempts between October 14 and November 12, 2014 to resolve Vertarnin’s default under the 2013 Loan Agreement before making a demand.
[66] Despite several warnings by TD Bank, Vertamin continued its default of the terms of the 2013 Loan agreement by being overdrawn on the Line of Credit, in breach of the tangible net worth requirement and by refusing to provide its accounts receivable listings for August and September 2014. All these defaults crystallized TD Bank’s right to demand payment. Once Vertamin received the demand it was obligated to make immediate payment to TD Bank for the full amount of its indebtedness.
[67] Further, section 10(d) of TD Bank’s Standard Terms and Conditions permitted TD Bank to accelerate payment of the principal and interest under the Term Loan.
[68] Konga, the Guarantor, alleges that TD Bank did not provide any time for the repayment of Vertamin’s indebtedness by Vertamin or by the Guarantor, breaching an implied duty of good faith. He further alleges that reasonable time for repayment was required to allow Vertamin to obtain alternative financing in order to pay off the debt.
[69] Konga also argues that TD Bank was obligated to provide him with notice of Vertamin’s breaches to provide time to allow him to repay Vertamin’s indebtedness.
[70] I disagree. Absent a contractual provision to the contrary, a creditor is not required to provide notice of the principal debtor’s default to the Guarantor. To require notice to be given to the Guarantor in this case makes no sense because Konga, the Guarantor, is the 91% shareholder, chief executive officer and controlling mind of Vertamin and was well aware of Vertamin's breaches of the 2013 Loan Agreement: see Irving Oil Ltd. v. Dobbin, 1982 CanLII 4228 (NB CA), 44 N.B.R. (2d) 177, (C.A.) at paras. 15 and 34; Hongkong Bank of Canada v. Watson (1993), 1993 CanLII 2779 (BC CA), 89 B.C.L.R. (2d) 71, at para. 16 (C.A.); Bank of Nova Scotia v. Saskatoon Leatherland Ltd., 1985 CanLII 2839 (SK QB), 41 Sask. R. 116, at para. 11 (Q.B.); Granata Family Trust (Trustee of) v. Royal Bank (2000), 40 R.P.R. (3d) 6 (Ont. S.C.), at para. 20.
[71] The express provisions of the Guarantee state that Konga, the Guarantor, was obligated to repay TD Bank on demand. Implying a term requiring TD Bank to provide notice of default and an undefined time for repayment contradicts the clear and unambiguous language of the Guarantee: M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 CanLII 677 (SCC), [1999] 1 S.C.R. 619, at para. 29.
[72] The record shows that TD Bank notified Vertamin through Konga, the Guarantor, of its defaults on numerous occasions and cautioned it on October 27, November 3, November 4 and November 7, 2014 that it would demand repayment should Vertamin continue to be in default of the 2013 Loan Agreement.
[73] TD Bank took no steps to realize on its security until issuing this action in March 2015. To date, Konga has been provided 16 months to comply with TD Bank’s demand and has failed to do so.
Issue # 2 Does the Bank’s Conduct entitle the Guarantor to a Discharge?
[74] Citing the case of Bank of Montreal v. Wilder, Konga asserts that the conduct of TD Bank has been such that he is entitled to a discharge of his obligations under the Guarantee. Specifically, he argues that he should be discharged from his obligations to the Bank because TD Bank by its conduct has: (a) caused the default of the principal debtor, (b) materially increased the risk to the Guarantor, and (c) impaired the security that is available to the Guarantor on payment of his guarantee obligation to the creditor. To state the argument another way, Konga asserts that his equitable rights of subrogation to, and indemnification from, the company were seriously interfered with, if not effectively destroyed, by the actions of the Bank.
[75] I disagree. I find that at all times TD Bank acted in good faith it its dealings with both Konga, as Guarantor, and Vertamin, the debtor. As set out above, TD Bank provided Konga and Vertamin with notice that it was reserving all of its rights under the 2013 Loan Agreement should Vertamin’s defaults not be rectified.
[76] The principle of good faith implied in contractual dealings does not supersede the express wording of a written contract executed by sophisticated parties nor does it “impose a duty of loyalty or of disclosure or require a party to forgo advantages flowing from the contract” or impose a duty on a party to subordinate any of its interests: K. P. McGuiness, The Law of Guarantee, 3rd ed., (Scarborough, Ont.: LexisNexis Canada Inc., 2013) at 908-909; Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, at paras. 70, 73 and 86.
[77] TD Bank was not responsible for the erroneous assignment by Vertamin’s proposal Trustee, nor the decisions taken by the Bank of Nova Scotia. TD Bank was within its rights to oppose the request for an extension of the proposal under the Bankruptcy and Insolvency Act. These actions do not constitute bad faith. I am therefore not persuaded by any of the arguments put forward by Konga.
Disposition
[78] For the reasons set out above, an Order shall issue granting summary judgment in favour of TD Bank for the sum of $1,098,646.22 plus accrued pre-judgment interest and costs in accordance with sections 7 and 16 of the Guarantee respectively.
[79] Should the parties be unable to resolve the quantum on interest and/or costs they may file brief written submissions within 30 days.
Patrick Smith J.
Released: March 10, 2016
CITATION: Toronto-Dominion Bank v. Konga, 2016 ONSC 1628
COURT FILE NO.: 15-63692
DATE: 2016/03/10
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Toronto-Dominion Bank
Plaintiff
– and –
Raymond Kuate Konga
Defendant
REASONS FOR DECISION
Patrick Smith J.
Released: March 10, 2016