CITATION: Toronto-Dominion Bank v. 2259716 Ontario Inc.et al., 2017 ONSC 826
COURT FILE NO.: CV-16-68822
DATE: 2017/02/06
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
The Toronto-Dominion Bank
Plaintiff/Moving Party
– and –
2259716 Ontario Inc., 2259724 Ontario Inc., Mahemud Charania and David Hayes
Defendants/Responding Parties
Fraser Mackinnon Blair for the Plaintiff/Moving Party
No one appearing for the
Defendant/Responding Party, Mahemud Charania
HEARD: January 12, 2017
RULING ON MOTION FOR SUMMARY JUDGMENT
CORTHORN J.
[1] The Toronto-Dominion Bank (“TD Bank”) brings this motion for summary judgment based on a guarantee executed by the defendant Mahemud Charania (“Charania”) with respect to the liabilities of 2259716 Ontario Inc. (the “Borrower”).
Background
[2] The Borrower is a privately held company that formerly carried on business as a Pandora jewelry franchise in the City of Ottawa. Charania is the President of the Borrower.
[3] Charania and the defendant, David Hayes (“Hayes”) are shareholders of the defendant, 2259724 Ontario Inc. Hayes is the former Chief Financial Officer of 2259724 Ontario Inc.
[4] Each of the defendants, other than Charania, has been noted in default in the action. Only Charania delivered a statement of defence. Hayes has filed an assignment in bankruptcy.
[5] As a result, TD Bank is pursuing Charania on the Guarantee and seeks summary judgment against him.
[6] Pursuant to credit facility letters extended between November 2010 and May 2014, by TD Bank to the Borrower, TD Bank provided the Borrower with an operating line of credit with an authorized limit of $400,000 and a term loan in the amount of $95,000 (collectively, the “Lending Agreement”).
[7] By the express terms of the Lending Agreement, the line of credit was repayable to TD Bank on demand. The positive covenants of the Lending Agreement required the Borrower to satisfy a number of obligations including the following:
a) Maintain its existence as a sole proprietorship, corporation, partnership, or limited partnership as the case may be, and keep all material agreements, rights, franchises, licenses, operations, contracts, or other arrangements in full force and effect;
b) Pay all taxes; and
c) To continue to carry on its business as a Pandora jewelry franchise.[^1]
[8] As security for the Lending Agreement, Charania and two other guarantors – the defendants 2259724 Ontario Inc. and Hayes (each a “Guarantor” and collectively the “Guarantors”) – executed separate and unconditional written guarantees of all present and future liabilities of the Borrower to TD Bank (the “Guarantees”). All of the Guarantees were executed in November 2010.
[9] The Guarantees include the following express terms:
a) Each Guarantor guarantees the due payment and discharge of the indebtedness and liability to TD Bank of the Borrower howsoever incurred;
b) Each Guarantee is a continuing guarantee, is unlimited as to amount, covers the existing and future indebtedness of the Borrower to TD Bank, and is not confined to any particular indebtedness or liability of the Borrower to TD Bank; and
c) TD Bank is not required to take any steps against the Borrower before requiring or being entitled to payment from the Guarantors.
[10] In November 2015, TD Bank was advised by Pandora Franchise Canada Ltd. (the “Franchisor”) that the Borrower has ceased carrying on business. The Borrower’s franchise agreement with Pandora was, for the reasons which follow, terminated on November 6, 2015: non-payment of federal income taxes; failure to complete financial reporting; and the Borrower’s insolvency.
[11] In accordance with the terms of the Lending Agreement set out in paragraphs 7(a) and (b), above, TD Bank treated each of the notice of termination received by the Borrower from the Franchisor and the grounds relied upon for termination as separate breaches of the Lending Agreement.
[12] On November 18, 2015, TD Bank notified the Borrower in writing of its breaches under the Lending Agreement. The Borrower failed to correct its breaches of the terms of the Lending Agreement.
[13] As a result, on December 2, 2015, TD Bank demanded repayment of the Borrower’s indebtedness from the Borrower and Guarantors. At the date of this demand, the Borrower was indebted to TD Bank in the amount of $507,761.45. That amount consisted of the following:
Line of credit $ 395,000.00
Accrued interest $ 1,466.69[^2]
Discharge Fee $ 750.00
Credit cards $ 110,265.06
Total $ 507,461.75
[14] Following the December 2015 demands for payment, the assets of the Borrower were sold to a third party. The proceeds of this transaction, $219,240.00, were applied to reduce the Borrower’s indebtedness to TD Bank.
[15] In February 2016, Charania advised TD Bank of a potential sale of the assets of the Pandora franchise operated in Toronto and from which sale proceeds of approximately $275,000 would be realised. TD Bank stood to recover approximately $103,125 from that sale if it proceeded. Specifically because of that potential sale, TD Bank did not seek to enforce its rights immediately following the December 2015 demands for payment. Ultimately, the potential sale of the assets of the Toronto-based Pandora franchise was not completed.
[16] Charania also proposed to leverage other jewelry stores that he owned through various corporations. Charania was not able to secure the co-operation of the shareholders of the companies involved in other jewelry stores. As a result, leveraging was not carried out.
[17] On May 13, 2016, after it was clear that neither the potential sale nor the leveraging would proceed, TD Bank demanded the payment of $316,854.85 from all of the defendants. That amount was calculated based on the remaining amount of the Borrower’s indebtedness, including interest, after the proceeds of the sale transaction were applied towards payment of the indebtedness. The amount is broken down as follows:
• The principal and accrued interest as of May 13, 2016 was $300,717.95. The principal was in the amount of $296,965.80 and interest in the amount of $3,752.15.
• The fees and expenses to May 13, 2016 were $16,136.90. That figure represents bank fees of $2,500.00 and legal fees, disbursements, and applicable HST in the amount of $13,636.90. The latter amount is subsumed in the bill of costs submitted at the hearing and discussed in greater detail below.
[18] Each of the defendants, including Charania, has failed to satisfy all or part of these demands.
[19] The statement of claim was issued in June 2016. TD Bank claims $316,854.85 plus interest from May 13, 2016, and its costs on a full indemnity basis. Interest is claimed at the rate of 21 per cent per year, in accordance with the Lending Agreement.[^3] TD Bank also relies on the terms of the Lending Agreement in support of its claim for costs on a full indemnity basis. The costs claimed are in the amount of $33,730.
The Issues
[20] The sole issue to be determined is whether TD Bank is entitled to summary judgment based on the terms of the Guarantees.
Analysis
a) Summary Judgment - Generally
[21] The framework for determination of motions for summary judgment has evolved because of recent amendments to the Rules of Civil Procedure, including to Rule 20. In addition, the Supreme Court of Canada in Hryniak v. Mauldin[^4] established key principles to be followed in the context of a cultural shift mandated by the decision. The cultural shift to be made is the recognition by parties, lawyers, and judges alike “that a process can be fair and just, without the expense and delay of a trial, and that alternative models of adjudication are no less legitimate than the conventional trial.”[^5]
[22] Summary judgment must be granted whenever there is no genuine issue requiring a trial. 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.[^6]
b) The Charania Pleading
[23] Charania delivered a statement of defence. In his pleading, Charania alleges that “[a]t all times, TD [Bank] represented to Charania that they would not call on the Charania Guarantee provided that the Additional TD Loans remained in good standing. Charania relied upon TD’s representations to this effect.”[^7] The “Additional TD Loans” are identified in the Charania pleading as related to Charania’s business interests in three other Pandora locations.[^8]
[24] On the motion for summary judgment, TD Bank relies on the affidavit of Vitaly Kormakov (“Kormakov”) sworn on September 12, 2016 (the “Kormakov Affidavit”). Kormakov’s evidence is that at no time did anyone from TD Bank or counsel for TD Bank make any representations such as those alleged in the Charania pleading. Kormakov’s evidence is based on a discussion with Keegan Gomes (“Gomes”) and on review of the relevant documents and correspondence. Gomes was the commercial banking account manager responsible for the management and administration of the Borrower’s account and the Guarantees prior to the transfer of the responsibility for same to Kormakov.
[25] Charania did not respond to the motion for summary judgment. As a result, Kormakov’s evidence is uncontradicted. I find that the representations described in the Charania pleading were not made. The defence advanced in that regard is without merit.
c) The Lending Agreements and Guarantees
[26] Based on the record before me, I am satisfied that there is no genuine issue requiring a trial. I find that TD Bank is entitled to enforce the Guarantee executed by Charania in November 2010:
• The assignment in bankruptcy by Hayes does not affect Charania’s obligations, as a guarantor;[^9]
• There was no delay on the part of TD Bank in seeking to enforce Charania’s obligations pursuant to the Guarantee. It was reasonable for TD Bank to engage in discussion with Charania, as it did in early 2016, in an effort to recover payment of the balance owing.[^10]
• TD Bank is entitled to recover expenses incurred to enforce Charania’s obligations. The expenses it is entitled to recover include “all fees and expenses (including but not limited to all legal fees) incurred by [TD] Bank in connection with the preparation, registration and ongoing administration of [the Lending Agreements]”.[^11]
[27] The only evidence before me as to the amount owing is that of Kormakov. Pursuant to section 19 of the Standard Terms and Conditions, that evidence is “conclusive evidence” of the Borrower’s indebtedness and therefore the amount for which Charania, as guarantor, is liable to TD Bank.
[28] I therefore find that TD Bank is entitled to recover from Charania the following amounts:
• Principal owing as of May 13, 2016 in the amount of $296,965.80;
• Interest accrued as of May 13, 2016 in the amount of $3,752.15; and
• Bank fees in the amount of $2,500.00.
[29] I also find that TD Bank is entitled to its costs on a full indemnity basis. As noted above, those costs are said to total $33,730. I have reviewed the bill of costs submitted. While I appreciate that the costs outlined include those related to pre-litigation steps in addition to steps taken in the litigation, I find that the amount claim is slightly excessive. I reduce the full indemnity fees from the $28,782 claimed to $24,000. I find the disbursements claimed of $1,212.77 (plus HST in the amount of $113.72) to be reasonable.
[30] In summary, TD Bank is entitled to costs on a full indemnity basis in the amount of $28,446.49.[^12]
[31] TD Bank seeks pre-judgment interest (from May 13, 2016 forward) and post-judgment interest at the rate of 21 per cent per year. The rate at which pre-judgment and post-judgment interest are claimed is based on section 3 of the Standard Terms and Conditions of the Lending Agreement.[^13] That section provides as follows:
For loans not secured by real property, all overdue amounts of principal and interest and all amounts outstanding in excess of the Credit Limit shall bear interest from the date on which the same became due or from when the excess was incurred, as the case may be, until the date of payment or until the date the excess is repaid at 21 % per annum.
[32] I find that the $2,500.00 in bank fees and the costs portion of the award do not fall within the scope of that section. As a result, the bank fees are subject to a pre-judgment and post-judgment interest rate in accordance with the Courts of Justice Act.[^14] For the same reason, the costs awarded are subject to a post-judgment interest rate in accordance with the Courts of Justice Act. The pre-judgment interest rate is 0.8 per cent per year.
Summary
[33] For the reasons set out above, I order as follows:
- Mohamed Charania shall pay to TD Bank the following sums:
a) Principal owing as of May 13, 2016 in the amount of $296,965.80;
b) Interest accrued as of May 13, 2016 in the amount of $3,752.15; and
c) Bank fees in the amount of $2,500.00.
- Mohamed Charania shall pay to TD Bank pre-judgment interest,:
a) At the rate of 21 per cent per year, from May 13, 2016 to the date of this Ruling, on the principal amount of $296,965.80; and
b) At the rate of 0.8 per cent per year, from May 13, 2016 to the date of this Ruling on the bank fees in the amount of $2,500.00.
- The post-judgment interest payable shall be calculated as follows:
a) At the rate of 21 per cent per year on $296,965.80 being the principal amount owing as of May 31, 2016; and
b) In accordance with the Courts of Justice Act, on the bank fees of $2,500.00 and on the costs awarded of 28,446.49.
Madam Justice Sylvia Corthorn
Date: February 6, 2017
CITATION: Toronto-Dominion Bank v. 2259716 Ontario Inc.et al., 2017 ONSC 826
COURT FILE NO.: CV-16-68822
DATE: 2017/02/06
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: The Toronto-Dominion Bank, Plaintiff/Moving Party
AND
2259716 Ontario Inc., 2259724 Ontario Inc., Mahemud Charania and David Hayes, Defendants/Responding Parties
BEFORE: Madam Justice Sylvia Corthorn
COUNSEL: Fraser Mackinnon Blair for the Plaintiff/Moving Party
No one appearing for the Defendant/Responding Party
Mahemud Charania
RULING ON MOTION FOR
SUMMARY JUDGMENT
Madam Justice Sylvia Corthorn
Released: February 6, 2017
[^1]: See section 7 of the Standard Terms and Conditions of the Lending Agreement.
[^2]: Interest was identified to the Borrower as accruing at the rate of $51.35 per day.
[^3]: See section 3 of the Standard Terms and Conditions of the Lending Agreement.
[^4]: 2014 SCC 7, [2014] 1 S.C.R. 87.
[^5]: Hryniak, at para. 27.
[^6]: Hryniak, at paras. 47 and 49.
[^7]: Charania statement of defence, at para. 12.
[^8]: The other Pandora franchises are in Toronto, Hamilton, and Ottawa.
[^9]: See section 11 of the Charania Guarantee.
[^10]: See section 14 of the Charania Guarantee.
[^11]: See section 17 of the Standard Terms and Conditions to the Lending Agreement.
[^12]: $28,446.49 = $24,000 (fees) + $3,120 (HST) + $1,212.77 (disb.) + $113.72 (HST).
[^13]: Kormakov Affidavit, exhibit ‘D’.
[^14]: R.S.O. 1990, c. C.43.