Court File and Parties

COURT FILE NO.: CV-17-581097 DATE: 201902 11 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Business Development Bank of Canada, Plaintiff AND: VDF Wine Importers Inc. and Natale Santelli, Defendants

BEFORE: Nishikawa J.

COUNSEL: Samantha Green, for the Plaintiff William Jones, for the Defendant VDF Wine Importers Inc. Roman Botiuk, for the Defendant Natale Santelli

HEARD: February 7, 2019

Endorsement

Overview and Procedural History

[1] The Plaintiff, Business Development Bank of Canada (“BDC”), bring this motion for summary judgment on a loan agreement and guarantee entered into with the Defendants, VDF Wine Importers Inc. (“VDF”) and Natale Santelli, respectively.

[2] In an unusual set of circumstances, Mr. Santelli believed that he was the “owner” of VDF, both when he obtained the original loan and at the commencement of this proceeding. Mr. Botiuk served a Statement of Defence on both Defendants’ behalf. During the course of another proceeding, it became apparent that Mr. Santelli was not a director or officer of VDF, but was a shareholder, as further detailed below. The Statement of Defence filed by Mr. Botiuk was withdrawn on VDF’s behalf. Mr. Jones advises that VDF takes no position on this motion. The Defendant, Mr. Santelli, opposes the relief sought by BDC.

Factual Background

The Loan Agreement and Guarantee

[3] On June 6, 2013, the Plaintiff and the Defendant entered into an agreement pursuant to which BDC loaned VDF $100,000.00 (the “Loan Agreement”).

[4] On the same day, Mr. Santelli executed a guarantee guaranteeing VDF’s indebtedness of $100,000 to BDC (the “Guarantee”). The Guarantee stated that:

The Guarantor acknowledges having read and understood this guarantee and has either obtained independent legal advice in connection with this Guarantee or has voluntarily determined not to seek such independent legal advice.

[5] In July 2017, VDF defaulted on its obligations under the Loan Agreement. By letters dated July 12, 2017, BDC demanded repayment of the outstanding amount, $47,007.24, both under the Loan Agreement and the Guarantee. As the outstanding amount was not repaid, BDC commenced this action in August 2017.

[6] The Statement of Defence admitted a number of the allegations in the Statement of Claim, including that:

(a) Santelli was the owner of VDF; (b) VDF applied for a $100,000 loan from BDC; (c) In executing the guarantee, Santelli acknowledged that he had obtained independent legal advice or voluntarily determined not to seek such independent legal advice; (d) VDF defaulted on its obligations; (e) BDC delivered written notice to VDF and Santelli of the default; (f) As of July 12, 2017, $47,007.24 was due and owing to the Plaintiff on account of the loan; and (g) Pursuant to the Loan Agreement and Guarantee, the Defendants are liable to pay the Plaintiff interest on the sum.

[7] Since the Statement of Defence was withdrawn in respect of VDF, under r. 23.06(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, VDF is deemed to be noted in default. Where a defendant has been noted in default, the defendant is deemed to admit the truth of the allegations made in the statement of claim: r. 19.02(1).

Mr. Santelli’s Role in VDF

[8] As noted above, when the Loan Agreement and Guarantee were executed, Mr. Santelli believed that he was the owner of VDF. Pursuant to a share purchase agreement dated December 31, 2012, Mr. Santelli purchased all of the shares of VDF from Domenic Scolledaro and was thus the sole shareholder when he entered into the Loan Agreement and Guarantee. The shares were subsequently transferred back to Mr. Scolledaro pursuant to an agreement in February 23, 2017. The corporate profile report and filings for VDF, however, indicate that Mr. Scolledaro has always been the sole officer and director of VDF.

[9] In August 2017, Mr. Santelli and VDF commenced a separate proceeding against Mr. Scolledaro before the Superior Court in Brampton for fraud and misappropriation, among other things (the “Brampton Action”). That proceeding was later resolved on consent, as indicated in the endorsement of Price J. The minutes of settlement, dated November 23, 2017, recognized this proceeding by BDC and required that Mr. Scolledaro pay $25,000 on the amount owing to BDC. Mr. Scolledaro and VDF also agreed to indemnify Mr. Santelli for all claims in respect of the Guarantee.

[10] On April 27, 2018, VDF delivered a cheque for $25,000.00 to BDC. VDF acknowledged the debt owing by VDF to BDC, stating: “Please find attached hereto a cheque in the amount of $25,000 payable to your firm to be credited to the obligations owing by VDF…”

The Parties’ Positions

[11] The Plaintiff submits that VDF defaulted on the loan and that it is liable for the outstanding principal and interest. The Plaintiff also takes the position that it is entitled to enforce the Guarantee given by Mr. Santelli.

[12] Mr. Santelli submits that there is a genuine issue requiring a trial in respect of the enforceability of the Guarantee. Mr. Santelli’s position is that the Guarantee cannot be enforced because it is incomprehensible. Mr. Santelli further submits that the Guarantee is unconscionable, because he has a Grade 10 education, and BDC did not ensure that he obtain independent legal advice (“ILA”). Mr. Santelli argues that had he obtained ILA, he would have discovered that he was not a director, officer or owner of VDF. Mr. Santelli maintains that he would not have guaranteed a loan for a company in which he did not have an ownership interest.

Analysis

Principles Applicable to Summary Judgment

[13] Rule 20.04(2)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, states that a 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.

[14] The Supreme Court of Canada has held that “summary judgment must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims” Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 5. An issue should be resolved on a motion for summary judgment if: (i) the motion affords a process that allows the judge to make the necessary findings of fact, (ii) apply the law to those facts, and (iii) is a proportionate, more expeditious, and less expensive process to achieve a just result than going to trial: Hryniak, at para. 49.

[15] On a motion for summary judgment, the judge must first determine whether there is a genuine issue requiring a trial based only on the evidence before him or her, without using their 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 rr. 20.04(2.1) and (2.2): Hryniak, at para. 66.

[16] On a motion for summary judgment, the court is entitled to assume that the record contains all the evidence that the parties would present if the matter proceeded to trial: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, [2014] O.J. No. 851, at paras. 26-27, aff’d 2014 ONCA 878, [2014] O.J. No. 5815, leave to appeal to SCC refused, [2015] S.C.C.A. No. 97. Each party must “put their best foot forward” with respect to the existence or non-existence of material issues to be tried: Sweda, at para. 26.

[17] In a proceeding under the simplified procedure, the court must ensure that a motion for summary judgment is consistent with the efficiency rationale of r. 76.

Did VDF Breach the Loan Agreement?

[18] There is no genuine issue requiring a trial as to VDF’s breach of the Loan Agreement. VDF is deemed to admit the truth of the Plaintiff’s allegations. In any event, the evidence leaves no doubt that VDF entered into the Loan Agreement and that it defaulted in July 2017. VDF also recognized the debt in the Minutes of Settlement and agreed to indemnify Mr. Santelli for claims on the Guarantee. In addition, VDF made a payment of $25,000 toward the outstanding amount, and confirmed the debt in the letter accompanying the payment.

Is the Guarantee Enforceable?

[19] The Guarantee must be reviewed as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract: Creston Moly Corp v. Sattva Capital Corp., 2014 SCC 53 at paras. 47-48. The Guarantee is not “incomprehensible” as Mr. Santelli argues. The Guarantee is a one-page document. The key provision describes the loan made by BDC to VDF and states that “the guarantor(s) agree(s) to guarantee the obligations of the Borrower under the Loan.” The Guarantee further states that the obligation to pay will not be reduced or discharged for any reason and lists certain examples. It is clear from the terms of the Guarantee that Mr. Santelli agreed to guarantee the indebtedness of VDF. The question of Mr. Santelli’s subjective understanding of the Guarantee does not impact on its enforceability. The Guarantee is enforceable.

Is the Guarantee Void for Unconscionability?

[20] Mr. Santelli argues that the Guarantee is void for unconscionability. In order to establish unconscionability, Mr. Santelli must demonstrate both the inequality in bargaining power and an improvident bargain: Buccilli v. Pilliteri, 2015 ONSC 6624 at para. 153. The question is whether the agreement was unconscionable at the time it was entered into. Mr. Santelli alleges an inequality in bargaining power between himself and BDC, since BDC is a sophisticated party and he did not complete Grade 10. Assuming that Mr. Santelli has demonstrated an inequality in bargaining power, however, he is not able to demonstrate that the Guarantee itself was an improvident bargain. The Guarantee simply guarantees the indebtedness of VDF for the amount of $100,000.

[21] The unconscionability that Mr. Santelli relies upon is his claim that he would not have guaranteed a loan for a company in which he had no ownership interest. At the time the Guarantee was made, however, Mr. Santelli was the owner of VDF, as supported by the terms of the Share Purchase Agreement. The subsequent sale back to Mr. Scodellaro would confirm that the shares were transferred. Mr. Santelli relies upon an affidavit of Mr. Scolledaro filed in the Brampton Action, in which Mr. Scolledaro states that the shares were never transferred to Mr. Santelli. There is no evidence to support this statement. The evidence is consistent with the parties’ belief that Mr. Santelli owned the shares of VDF when he executed the Guarantee. Even if Mr. Santelli did not have an ownership interest in VDF, there is no evidence to suggest that the Guarantee was conditional upon Mr. Santelli having an ownership interest in VDF, or that this was known to BDC. Mr. Santelli’s subsequent discovery that he was never a director or officer of VDF has no impact on the enforceability of the Guarantee.

[22] In addition, the Guarantee specifically stated that he obtained or voluntarily determined not to seek ILA. Failure to obtain ILA does not in every case allow the guarantor to escape liability: Bank of Montreal v. Featherstone (1989), 68 O.R. (2d) 541 (C.A.) at para. 15. In the absence of undue influence, fraud, misrepresentation, or non est factum, failure to obtain ILA may not be fatal to the bank’s claim: Bank of Montreal v. Featherstone at para. 17. Mr. Santelli has alleged no fraud, misrepresentation or undue influence on the part of BDC.

[23] While Mr. Santelli alleges non est factum, in order to rely upon this principle, he must demonstrate that he signed the Guarantee under a mistake as to its nature and character as a result of a misrepresentation, and was not careless in doing so: Bulut v. Carter, 2014 ONCA 424 at para. 24. Mr. Santelli does not allege that he signed the Guarantee as a result of a misrepresentation as to its nature but rather that he mistakenly believed that he was guaranteeing a loan for a company of which he was the owner. If this was a mistake, it was one of Mr. Santelli’s own making, based on information that was within his own capacity to discover.

[24] The cases that Mr. Santelli relies upon to argue that the transaction should be voided because of the lack of ILA do not assist. Those cases involve close family members who provided guarantees for the business of a family member, and who had little understanding of the transaction that they had entered into: see e.g. Royal Bank of Canada v. 2240094 Ontario Inc., 2013 ONSC 2947. In Mr. Santelli’s case, he guaranteed the loan of a company that he believed he owned, and did in fact own shares in.

[25] Mr. Santelli also relies upon a provision of the Loan Agreement in which the parties acknowledge that in compliance with BDC’s internal policies in respect of “knowing your client,” BDC is required to verify information regarding the borrower, guarantor, directors, authorized signing officer and shareholders. Santelli argues that BDC failed to follow its own policies, which would have brought to light the fact that he was not an officer or director of VDF. Based on the context and language of the provision, its purpose is to ensure BDC’s ability to comply with the applicable laws on anti-money laundering and anti-terrorist financing. Under the circumstances, if BDC failed to follow its own policy to verify customer information, this would not permit Mr. Santelli to void the Guarantee.

[26] In essence, Mr. Santelli is arguing that BDC should have discovered that he was not a director, officer or owner of VDF and should have disclosed this to him. However, it is Mr. Santelli who told BDC that he was the owner of VDF, and the evidence is that he was a shareholder at the time. If his role in VDF was determinative of his decision to sign the Guarantee, it was up to Mr. Santelli to determine what his role or interest was. Mr. Santelli believed and held himself out to be the owner of VDF. It was not up to BDC to demonstrate otherwise. It is worth noting that Mr. Santelli’s confusion regarding his role in VDF led his counsel to defend this action and commence the Brampton Action on VDF’s behalf. Even if BDC had insisted upon Mr. Santelli obtaining ILA, it is not clear that this would have clarified his role or led to a different result in respect of the Guarantee.

[27] In resolving the Brampton Action, Mr. Santelli obtained an indemnity from VDF, indemnifying and holding him harmless from “all claims and actions or any nature whatsoever now existing or hereafter arising on part of the BDC in respect of his personal guarantee of the obligations of VDF to BDC.” This demonstrates that he believed himself to be bound by the Guarantee and sought to protect himself when he realized that his role in VDF was not as he had assumed.

Conclusion

[28] Based on the issues and the evidence before me, I find that a summary judgment motion affords a process that allows the court to make the necessary findings of fact and apply the law to those facts. I also find that a summary judgment motion is a proportionate, more expeditious, and less expensive process to achieve a just result than going to trial in this case. There is no genuine issue requiring a trial regarding VDF’s liability on the Loan Agreement and Mr. Santelli’s liability on the Guarantee.

[29] The Plaintiff is entitled to judgment in the amount outstanding on the Loan, $25,363.94, plus pre and post-judgment interest, with costs.

Costs

[30] In the event that no agreement is reached on costs, BDC’s counsel will submit a costs outline within seven days of the release of these reasons. Mr. Santelli’s responding costs submissions are due within seven days of receiving BDC’s cost submissions. No costs submissions shall exceed five pages, including a costs outline. If no costs submissions are received within this time frame, the parties will be deemed to have resolved costs.

Nishikawa J. Date: February 11, 2019