Court File and Parties

Court File No.: CV-16-69905 Date: 2019/03/07 Ontario Superior Court of Justice

B E T W E E N:

Toronto-Dominion Bank Plaintiff – and – 1633092 Ontario Ltd., 2362378 Ontario Inc., Matthew Rooney and Haley Rooney Defendants

Counsel: Michael R. Kestenberg and Beverley C. Jusko for the Plaintiff Andrew D. Ferguson for the Defendants

Heard: January 11, 2019 (at Ottawa)

Amended Reasons for Decision

The Style of Proceedings of the original Reasons for Decision released March 7, 2019 was corrected on March 7, 2019. Counsel for the Plaintiff and Defendants were in reverse.

O’Bonsawin J.

Background

[1] The Plaintiff, The Toronto-Dominion Bank (“the Bank”), and the Defendants, 1633092 Ontario Ltd., 2362378 Ontario Inc. (“236”), Matthew Rooney and Haley Rooney (“the Rooneys”), have brought cross motions for Summary Judgment. The Bank is seeking Judgment on various outstanding loans in the sum of $929,106.51 and a dismissal of the Counterclaim. The Defendants are seeking Judgment on their Counterclaim for ten million dollars for negligence, negligent misrepresentation and breach of contract.

[2] The Rooneys owned and operated 1633092 Ontario Ltd., also known as the Tosh Steakhouse & Bar (“Tosh”). The Bank advanced several loans to Tosh. The loans were guaranteed by Tosh’s principals, the Rooneys, as well as by the corporate Defendant 236, another corporation owned and controlled by the Rooneys.

[3] In June 2006, the Rooneys purchased the family home from Mr. Rooney’s parents for the amount of $800,000.00. The home came with an additional two acres of land adjacent to it that was to be severed off and given back to Mr. Rooney’s parents.

[4] In December 2007, the family home was refinanced with the Bank. The appraisal obtained by the Bank was valued at $1,002,000.00 which was used by the Bank to provide the Rooneys with a Home Equity Line of Credit (“HELOC”) in the amount of $750,000.00.

[5] The Rooneys argue that unbeknownst to them at the time, the Bank used an incorrect property description to value the family home and the appraisal obtained by the Bank was inaccurate.

[6] Based on this new appraisal, the Rooneys gave Mr. Rooney’s parents the amount of $150,000.00 available from their HELOC. They submit that since they thought they had underpaid for the family home, this would be the fairest practice. In addition, this would form a large part of their eventual estate.

[7] Based on the amount of the HELOC, the Rooneys’s take the position they would still have 25% of the value of the family home as equity. This 25% of equity was to be used by the Rooneys to extend their net worth and also act as a safety net should something go wrong with their business.

[8] In 2008, the Rooneys opened the Tosh in Arnprior. They submit that in order to finance the construction of Tosh, they secured the financing through the Renfrew branch of the Bank by means of a Canada Small Business Financing Loan Program (“CSBFL”), which had been recommended by the Bank.

[9] Based on the success of Tosh, the Rooneys decided to expand their business and open 236. They wanted to use the revenue stream from Tosh to open the second business, a catering branch for Tosh. The goal was to have this project completed by the summer of 2014. After operating from September 2008 to April 2014, Tosh was destroyed in a fire, which also claimed all its equipment and inventory. The Rooneys decided to reopen Tosh at the new catering business’ location since it was already partially constructed.

[10] In September 2014, Ms. Rooney met with Mr. Bernier, a Financial Advisor with the Bank’s Renfrew’s branch, in order to secure financing in the amount of $350,000.00 to complete the renovations at 236. The Bank submits that Ms. Rooney insisted on seeking a CSBFL since she was familiar with the product from the 2008 financing. In addition, at no time did Mr. Bernier advise Ms. Rooney that the CSBFL was the best product for the project. He also advised her that he was unfamiliar with the product. The Rooneys wished to re-open Tosh by May 2015.

[11] Mr. Bernier requested that the Rooneys provide various financial documents in order to start the application process for the CSBFL. In November 2014, the Rooneys submitted the requested financial information and submitted a credit application for a maximum CSBFL amount of $350,000.00. They also submitted a project budget detailing the estimated total costs in the amount of $827,757.83. The breakdown is as follows:

• Fit Up Cost $635,049.83
• Furniture, Equipment, etc. $122,337.00
• Inventory $35,000.00
• Marketing & Advertising $35,371.00
• TOTAL: $827,757.83

[12] According to the Rooneys, the project budget also comprised the source of the funds that was supposed to be used to pay the estimated costs. The project budget showed the various sources of funds, amongst them, the proposed $350,000.00 loan:

• Future Personal Investment $100,000.00
• Bank Loan $350,000.00
• Investment to Date $377,194.55
• TOTAL: $827,194.55

[13] The Rooneys were of the view the entire $350,000.00 loan was going to cover 55.11% of the $635,049.83 that was required for the fit up cost.

[14] The Bank submits that in December 2014, there were further discussions concerning the application process, the requirements and allowances for the Rooneys to potentially qualify for the maximum CSBFL amount. Mr. Bernier never told the Rooneys that they would receive the full amount of $350,000.00 for which they were applying. Instead, he advised the Rooneys that further financial information was required, including financial projections, financial statements, copies of paid invoices and outstanding invoices amongst other documentation.

[15] The Rooneys, on the other hand, argue that on December 19, 2014, the Bank advised them it was attempting to ensure that they would qualify for the maximum funding under the CSBFL program for the amount of $350,000.00.

[16] There is disagreement between the parties about when the further information was received by the Bank. The Rooneys submit that the necessary documentation for the application was submitted on November 12, 2014 and the Bank argues that it did not receive the further financial information until March 2015. They both agree, however, that the conditional approval for the CSBFL was obtained on April 2, 2015.

[17] Main conditions were required to be fulfilled prior to the final approval. Firstly, a notice of a security interest in favour of Business Development Bank of Canada (“BDC”) had to be discharged under the Personal Property Security Act, R.S.O. 1990, c. P.10 (“PPSA”). BDC had provided previous funding and held a security interest in first position over Tosh’s assets and as such, $450,000.00 had to be paid in order to discharge the security interest. Ms. Rooney advised the Bank that she required the insurance proceeds from the fire in order to pay off the BDC loan. Secondly, the notice of a security interest in favour of Merchant Advance Capital also had to be discharged under the PPSA. They had been paid out, however, the registration had not been removed.

[18] On September 18, 2015, Ms. Rooney received confirmation from the insurance company that a cheque was mailed to BDC so that the PPSA registration could be discharged.

[19] Given the delay in paying off the BDC loan, the conditional approval that had been obtained in April was expiring and as such, an extension was required which necessitated acquiring further financial information from the Rooneys. The further information was provided by mid November 2015. The final item required by the Bank, which was a letter from BDC confirming that all loans had been paid out, was provided on November 17, 2015. On November 21, 2015, the conditions were removed and the CSBFL was approved.

[20] On November 25, 2015, the Bank advised the Rooneys that the property taxes had to be paid prior to the funds being advanced. The Rooneys argue that despite the Town of Arnprior forbearing on any collection of the taxes until Tosh was back up and running, they had no other choice but to use a large portion of their remaining funds to pay the taxes as required by the Bank in order to proceed with the CSBFL.

[21] On November 21, 2015, the Rooneys attended at the branch and signed all of the banking documentation in support of the CSBFL, which included a Credit Agreement for $350,000.00, unlimited guarantees from Ms. Rooney, Mr. Rooney and 236, as well as a collateral.

[22] On December 11, 2015, the Bank registered a mortgage on title to the property owned by Tosh in the amount of $350,000.00.

[23] The Rooneys submit the Bank then told them that some additional documents had to be signed for the funding to occur by the end of the following week. Based on those assurances, the Rooneys went ahead and paid the trades for the work done so far on the project with the view that the Bank would fully reimburse them.

[24] There is also disagreement regarding the Industry Canada’s Loan Registration Form. This is an important document in this litigation. The Rooneys submit that on December 21, 2015, despite no explanation of the documents from the Bank, they signed the form since they needed the funding. They did not sign a Subordination Agreement that had been provided to them without explanation because they knew that they did not have the agreement of the PPSA holder to sign such an agreement. On January 8, 2016, the Bank confirmed that it required the Subordination Agreement as a last-minute condition. Since the Subordination Agreement contained errors, the document was sent back to the Bank and the Rooneys only received the document back on January 22, 2016. On this same date, at the request of the bank, the holder of the PPSA registration agreed to subordinate the registration on the condition that the Rooneys reimbursed him the legal fees, which they did. On January 23, 2016, the Authorization to Fund form was again submitted by the Rooneys with all the supporting documents in order to receive an advance on the CSBFL. The Rooneys had submitted $110,338.20 of eligible invoices and were waiting for the full funding and reimbursement. On January 25, 2016, the Bank responded that the Rooneys had to sign an appendix to the Subordination Agreement.

[25] Since the Rooneys still had not received the funding from the Bank, they decided to visit the Bank’s branch to express their concern over the process. They were told by one of the Bank’s representative that nothing could be done and that it would not allow any relief to the Rooneys’ business operating line of credit.

[26] For its part, the Bank argues that on January 14, 2016, Industry Canada forwarded the Loan Registration Form to the Bank. Industry Canada determined that the percentage of asset cost to be financed by the CSBFL was only 55.11%. The percentage of asset financing was determined by Industry Canada on a case by case basis. The Bank did not make this determination. The funding occurred in February 2016, which was based on eligible invoices submitted by the Rooneys. As such, the sum of $54,371.47 was advanced.

[27] On February 3, 2016, the Bank reimbursed the Rooneys for a Rona invoice for building supplies in the amount of $19,531.30 and funded the $7,000.00 CSBFL fee to itself. The Rona invoice and the Bank’s fee were funded at 100%.

[28] On February 12, 2016, the Bank reimbursed $24,231.90 of the remaining invoices that were submitted by the Rooneys. However, this was only a portion of the full amount that was sought by the Rooneys. The Bank then proceeded to inform the Rooneys that they would only fund 55.11% of the amounts that were being submitted. The Rooneys submit that this was the first time they were told that they were not getting full funding required to meet the project budget.

[29] There are a series of the Bank’s internal emails recognizing that there is something odd with the CSBFL transaction.

[30] The Rooneys submit that at this point, they realized they had been put in a precarious position and that their project was now destined to fail. They sought legal representation in order to seek a resolution with the Bank.

[31] The Rooneys argue that on April 20, 2016, the Bank’s representatives, Patricia Trump, Karen Gauthier and Lil Reposo, advised them that arrangements were being made in order to fund a special loan that would not be under the CSBFL program but would fund the invoices for their project. The Rooneys were relieved to be getting their funding.

[32] The Bank argues that when it became apparent that the Rooneys would not receive the full $350,000.00, it attempted to assist them in obtaining further funding. However, the Rooneys then retained counsel and threatened litigation.

[33] On May 17, 2016, without any explanation or warning to the Rooneys, the Bank sent them Notices of Intention to Enforce Security pursuant to the PPSA and the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3. Litigation thereafter ensued.

Issue

[34] The issue is clear in this matter: should a Summary Judgment be granted to either party?

Position of the Parties

[35] The Bank argues that the default occurred under the various loans and as a result of which it instituted these proceedings seeking the approximate sum of $900,000.00 and the possession of two mortgaged properties: the matrimonial home as well as a property mortgaged by 236 as security for a small business loan.

[36] The Defendants defended the action and counterclaimed against the Bank for the amount of $10,000,000.00 alleging breach of contract, negligence and negligent misrepresentation. The Defendants make two arguments. Firstly, the Bank failed to advance the full amount of a small business loan in the amount of $350,000.00, which impaired their ability to complete renovations to Tosh, thereby impairing its ability to operate and earn a profit. Secondly, the Bank advanced too much money under the HELOC, as a result of which there was no equity in the Rooneys’ family home which they intended to use as a safety net. This resulted in their inability to pay their creditors and complete the renovations to the restaurant.

Analysis

[37] Further to my overview of this matter, I turn to the law. Both parties have agreed that the present case is amenable to a Summary Judgment. As per Rule 20.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (“Rules”), after a Defendant has delivered a Statement of Defence or serve a Notice of Motion, a Plaintiff may move for Summary Judgment on all or part of the claim in the Statement of Claim. As per Rule 20.04(1), the Court shall grant a Summary Judgment if it is satisfied that there is no genuine issue requiring a trial with respect to a Claim or Defence. The framework for the granting of Summary Judgments is stated by the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7 [2014] 1 S.C.R. 87. At paras. 47-49, the Court states:

Summary judgment motions 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.

[38] Furthermore, Hryniak sets out the obligations of a judge on a motion for Summary Judgment. In order for a judge to first determine if there is a genuine issue requiring a trial, she/he must make a determination based only on the evidence before her/him without using the new fact-finding powers. The new powers can be used by a judge if there appears to be a genuine issue requiring a trial. The new powers under Rule 20.04(2.1) include the weighing of evidence, evaluating the credibility of a deponent and drawing any reasonable inference from the evidence. In addition, as per Rule 20.04(2.2), a judge may order that oral evidence be presented by one or more parties, with or without time limits on its presentation. As per Ray J. in Ali v. Toyota Canada Inc., 2016 ONSC 5909, at para. 8, the Plaintiff must put his/her best foot forward when a Defendant brings a motion for Summary Judgment. The parties must “lead trump of risk losing” (Da Silva v. Gomes, 2018 ONCA 610, at para. 18).

[39] The burden of proof in a motion for Summary Judgment rests with the moving party. The burden only shifts to the responding party after the moving party has discharged its evidentiary burden of establishing that there is no genuine issue for trial (Clearway Construction Inc. v. City of Toronto, 2018 ONSC 1736).

[40] In addition to the Summary Judgment caselaw that we are all aware of, there is new emerging caselaw in Ontario regarding whether or not it is appropriate for a judge to grant a partial summary judgment. In Mason v. Mongenais, 2018 ONCA 978, the Court of Appeal concluded that a partial Summary Judgment should be a rare procedure. The Court stated as follows:

22 In my view, the motion judge erred in principle in granting partial summary judgment, in the context of this litigation as a whole. In doing so, the motion judge failed to heed the advice given by this court in Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450, 120 O.R. (3d) 438, about the risks associated with granting partial summary judgment. Those risks were repeated in this court's decision in Butera v. Chown, Cairns LLP, 2017 ONCA 783, 137 O.R. (3d) 561. As Pepall J.A. said in Butera, at para. 34:

A motion for partial summary judgment should be considered to be a rare procedure that is reserved for an issue or issues that may be readily bifurcated from those in the main action and that may be dealt with expeditiously and in a cost effective manner.

23 The potential liability of the respondent to the appellant is not an issue that can be readily bifurcated from the rest of the appellant’s claim. The nature of the appellant's claim is such that it is inextricably linked to the claim against the other defendants, especially Chambers. Indeed the motion judge appears, at one point, to recognize this problem when he says, at para. 99:

I recognize that nothing is certain and there are risks of both duplication and that a judge could look at the same undisputed facts that I have reviewed and possibly see them differently.

[41] In Butera v. Chown, Cairns LLP, 2017 ONCA 783, 137 O.R. (3d) 561, the Court of Appeal determined that in addition to the “danger of duplicative or inconsistent findings considered in Baywood and CIBC, partial summary judgment raises further problems that are anathema to the stated objectives underlying Hryniak” (at para. 29). The Court listed four such possible issues with motions for partial Summary Judgment: 1) they cause delays; 2) they may be expensive; 3) the record will not be as expansive as the record at trial which could lead to inconsistent findings; and 4) they differ from a motion for Summary Judgment (at paras. 30-35).

[42] Additionally, there is the issue of breach of contract. In Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007), 2007 ONCA 205, 85 O.R. (3d) 254 (C.A.), at para. 24, the Court of Appeal confirmed that a commercial contract is to be interpreted as follows:

(a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

(b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the “cardinal presumption” that they have intended what they have said;

(c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and

(d) to the extent that there is ambiguity in the contract, in a fashion that accords with sound commercial principles and good business sense, and that avoids a commercial absurdity.

[43] I agree with the Bank that in determining the legal rights and obligations of the parties under written contract, the primary task of a review in Court is to ascertain the objective intentions of the parties and the scope of their understanding regarding the rights and obligations at issue. In Martenfeld et al v. Collins Barrow Toronto LLP et al., 2014 ONCA 625, 122 O.R. (3d) 568, at paras. 39 and 40, the Court of Appeal stated as follows:

courts are to undertake this task with a view to “the contract 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”…Under this approach, while the circumstances surrounding the formation of the disputed contract are relevant as an interpretive aid, they cannot overtake the written words used by the parties…“[t]he interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract.

[44] At this point, it is important to describe the CSBFL. The Defendants argue that the CSBFA creates a system whereby the federal government guarantees a portion of certain loans to encourage financial institutions to loan money to what might otherwise be a risky endeavor.

[45] In Royal Bank of Canada v. Ultimate Holographic Reproductions Inc., 2013 ONSC 1838, 1 P.P.S.A.C. (4th) 161, aff’d at 2014 ONCA 38, at para. 24, Whitten J. dealt with the key provisions of the Canada Small Business Financing Act, S.C. 1998, c. 36 (“CSBFA”), and concluded as follows: “[a]ll in all, the regime under the statute and the regulations is for the benefit of the lender institution who makes loans to qualifying small businesses”.

[46] A CSBFL may be used to finance real property or immovable, leasehold improvements; equipment; and 2% registration fees as long as the assets financed are used as part of the operation of the small business. In the present case, the Rooneys qualified because their project budget required financing for the leasehold improvements in the amount of $635,049.83 (Canada Small Business Financing Regulations (“Regulations”), SOR/99-141, ss. 4(1) and 5(1)).

[47] In order for a lender to benefit from a CSBFA loan, it must comply with certain obligations as set out in the CSBFA. There are security requirements and due diligence that is required of the lenders so that they may qualify for this reimbursement program (CSBFA, S.C. 1998, c. 36, ss. 4(1)).

[48] Sub-section 5(1) of the CSBFA states: “the Minister is liable to pay any eligible loss, calculated in accordance with the regulations, sustained by it as a result of a loan in respect of which the requirements set out in this Act and the regulations have been satisfied.” Consequently, if the requirements are met, a lender may be reimbursed by Industry Canada in the event of a default.

[49] All expenses submitted to be loaned by the lender to the borrower must meet the eligibility criteria in that it has to be for a qualified expense and it must have been incurred within 180 days of the loan being approved (Regulations, ss. 5(1) and 6(1)).

[50] A Loan Registration Form must be filed within three months of a loan being made, but can also be filed within six months of the loan being made in some circumstances. It must contain certain information, however, there is no requirement for it to contain the percentage of asset costs to be financed by the loan (Regulations, ss. 2(1), 2(2) and 3(1)).

[51] Industry Canada does not determine the percentage of asset cost to be financed. While the previous regulations under the CSBFA did cap the funding at 90%, there is no such limitation in the current version of the regulations (Canada Small Business Financing Regulations, SOR/99-141, s. 5(5) (previous version from April 1, 2009 to January 28, 2014)). The percentage of financing “can be determined by the lender and negotiated with the borrower based on internal lending policies and the risk and needs of the borrower” (Canada Small Business Financing Program, Guidelines, (Ottawa: Innovation, Science and Economic Development Canada, February 2016) at p. 16).

[52] In Royal Bank of Canada v. Ultimate Holographic Reproductions Inc., 2014 ONCA 38, 2 P.P.S.A.C. (4th) 250, the Court of Appeal examined the implications that the CSBFA has on the contractual relations between the parties. The statute and regulations serve to determine the extent of the risk to the lender and have no bearing on the contractual relationship between the parties. The Court stated at para. 3:

[3] In granting summary judgment, the motion judge held that the statute and regulations only determine the extent of the risk to the lender and not the contractual relationship between the parties. This holding is consistent with other decisions of the Superior Court of Justice. For example, in ACFMD 2005 Inc. et al. v. Pizza One Group Inc. et al., 2006 ONSC 19426, Ground J. held at para. 4, that any breach of the regulations would only affect the claim by the bank against the government for reimbursement. Further, the Act does not give any right of action to the borrower or the guarantors.

[53] Williams J. recently dealt with this issue in Toronto-Dominion Bank v. Fares, 2018 ONSC 6512, when she concluded:

[25] Whether the Fares and Bakhos guarantees comply with the regulations under the CSBFA, while perhaps relevant in another context, is not a finding relevant to the applications before me. This is because I accept that if a lender fails to follow the provisions of the CSBFA, this may affect the lender's ability to collect from the federal government on a defaulted loan but does not affect the relationship between the bank and its customer: Royal Bank of Canada v. Ultimate Holographic Reproductions Inc., 2013 ONSC 138, aff’d 2014 ONCA 38.

[54] The Defendants allege that the Bank was negligent by failing to ensure that Tosh received the full $350,000.00 loan and assessing the value of the family home at greater than its actual value.

[55] In Labreche Estate v. Harasymiw (1992), 1992 ONSC 8629, 89 D.L.R. (4th) 95 (Ont. Gen. Div.), at para. 24, Valin J. set out the requirements in order to establish liability for negligence. They are as follows:

(a) that one party was owed a duty of care by the other;

(b) that the duty of care was breached by failing to observe the required standard of care;

(c) that there existed a reasonably close causal connection between the conduct and loss, sometimes called the proximate cause;

(d) actual loss or damages resulting to the interest of another; and

(e) the absence of any conduct by the injured party that would preclude her/him from recovery.

[56] In cases of pure economic loss arising from negligent misrepresentation or performance of a service, in order to determine whether a duty of care exists, the Court must look at the proximity between the parties which entails asking whether the parties are in such a “close and direct” relationship that it would be “just and fair having regard to that relationship to impose a duty of care” (Deloitte & Touche (now continued as Deloitte LLP) v. Livent Inc., 2017 SCC 63, [2017] 2 S.C.R. 855, at paras. 23-26). In addition to considering the proximity between the parties, to determine whether a duty of care exists, the Court must also consider whether injury to the party was a reasonably foreseeable consequence of the other party’s negligence. Accordingly, a duty of care is established where proximity and reasonable foreseeability of injury are found (Deloitte & Touche, at paras. 32-35).

[57] In cases of pure economic loss arising from negligent misrepresentation or performance of a service, two factors are determinative in the proximity analysis: one party’s undertaking and the other party’s reliance. Where the party undertakes to provide a representation or service in circumstances that invite the other party’ reasonable reliance, the party becomes obligated to take reasonable care, and the other party has a right to rely on the party’s undertaking to do so. Any reliance however, that falls outside the scope of the party’s undertaking of responsibility, i.e. the purpose for which the representation was made or service undertaken, falls outside the scope of proximate relationship and, therefore, outside the scope of the party’s duty of care (Deloitte & Touche, at paras. 30 and 31).

[58] The Defendants submit that the Bank breached its standard of care. In Good Mechanical v. Canadian Imperial Bank of Commerce (2005), 49 C.L.R. (3d) 183 (Ont. S.C.), at para. 34, the standard of care for a bank to its customer is described as follows:

34 As stated in Hilton v. Westminster Bank Ltd. (1926), 135 L.T. 358 (C.A.) and Selangor United Rubber Estates Ltd. v. Cradock and Others (No. 3), [1968] 1 W.L.R. 1555 (Ch. D) at 1607-1609, and Groves-Raffin Construction Ltd. v. Bank of Nova Scotia (1975), 1975 BCCA 912, 64 D.L.R. (3d) 78 (B.C.C.A.) the relationship between a bank and its customer is a contractual relationship which includes a duty on the bank to take reasonable care in the carrying out for its customer of its customer’s business. The standard of that reasonable care and skill is an objective standard applicable to all bankers. Whether or not it has been attained in any particular case has to be decided in light of all of the relevant facts of the case.

[59] The Bank argues that in the event that this Court finds that it owed the Defendants a duty of care with respect to the HELOC, whether or not the Bank breached its duty of care is irrelevant because the Defendants are precluded from recovery, for the following reasons: (a) accord and satisfaction; (b) promissory estoppel; and (c) waiver.

[60] In Adelaide Capital Corporation v. The Toronto-Dominion Bank et al., 2006 ONSC 39459, rev’d on findings of fact at 2007 ONCA 456, at paras. 17-19, Pierce J. describes the principle of accord and satisfaction as follows:

“Accord and satisfaction” is defined in Garner’s Dictionary of Modern Legal Usage (2d ed.) Oxford University Press, 1995 as follows:

“An accord is an agreement to substitute for an existing debt or obligation some alternative form of discharging that debt; a satisfaction is the actual discharge of the debt by the substituted means. Stated otherwise, an accord is the agreement to perform (in an alternative way), and the satisfaction is the actual performance. Any claim…may be discharged by an accord and satisfaction.”

The definition of “accord and satisfaction” in Wharton’s Law Lexicon (14th ed.) Universal Law Publishing Co. Pvt. Ltd. 2001, New Delhi is to similar effect:

“Accord and satisfaction…, an agreement between two persons, one of whom has a right of action against the other, that the latter should do or give and the former accept something in satisfaction of the right of action. When the agreement is executed, and satisfaction has been made, it is called accord and satisfaction. Accord and satisfaction bars the right of action…”

It is a principle of our law that parties should be encouraged to settle disputes. Having done so, such agreements should not be set aside absent compelling reasons, such as fraud. Finality also limits the burdens on the courts of re-litigation. See Mohammed v. York Fire and Casualty Insurance Company, 2006 ONCA 3954, par. 43.

[61] With regards to promissory estoppel, in Toronto-Dominion Bank v. Beaudin, 2006 ONSC 32919, 23 B.L.R. (4th) 131 (Ont. S.C.), at para. 12, Day J. stated the law on this manner as follows:

The authority presented on this issue is Maracle v. Travellers Indemnity Co. of Canada, 1991 SCC 58, [1991] 2 S.C.R. 50; [1991] S.C.J. No. 43. At paragraph 13 Justice Sopinka had this to say:

The principles of promissory estoppel are well settled. The party relying on the doctrine must establish that the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on. Furthermore, the representee must establish that, in reliance on the representation, he acted on it or in some way changed his position. In John Burrows Ltd. v. Subsurface Surveys Ltd., 1968 SCC 81, [1968] S.C.R. 607, Ritchie J. stated, at p. 615:

It seems clear to me that this type of equitable defence cannot be invoked unless there is some evidence that one of the parties entered into a course of negotiation which had the effect of leading the other to suppose that the strict rights under the contract would not be enforced, and I think that this implies that there must be evidence from which it can be inferred that the first party intended that the legal relations created by the contract would be altered as a result of the negotiation. [emphasis added]

[62] Lastly, the issue of waiver was also dealt with by Day J. He cited Major J. when he described waiver as follows:

Waiver occurs where one party to a contract or to proceedings takes steps which amount to foregoing reliance on some known right or defect in the performance of the other party …The elements of waiver were described in Federal Business Development Bank v. Steinbock Development Corp. (1983), 42 A.R. 231 (C.A.) … (Laycraft J.A. for the Court, at p. 236):

The essentials of waiver are thus full knowledge of the deficiency which might be relied upon and the unequivocal intention to relinquish the right to rely on it. That intention may be expressed in a formal legal document, it may be expressed in some informal fashion or it may be inferred from conduct. In whatever fashion the intention to relinquish the right is communicated, however, the conscious intention to do so is what must be ascertained.

Waiver will be found only where the evidence demonstrates that the party waiving had (1) a full knowledge of rights; and (2) an unequivocal and conscious intention to abandon them. The creation of such a stringent test is justified since no consideration moves from the party in whose favour a waiver operates. An overly broad interpretation of waiver would undermine the requirement of contractual consideration.

[63] The Defendants also allege that the Bank negligently misrepresented that the CSBFL was the correct product for the project; and that the HELOC would not be greater than 75% of the value of the Rooneys’ family home.

[64] In order to support a claim for negligent misrepresentation, five general requirements must be present:

(a) there must be a duty of care based on a special relationship between the representor and the representee;

(b) the representation in question must be untrue, inaccurate or misleading;

(c) the representor must have acted negligently in making the misrepresentation;

(d) the representee must have relied, in a reasonable manner, on the said negligent misrepresentation; and

(e) the reliance must have been detrimental to the representee in the sense that the damages resulted (Apotex Inc. v. Ivax Pharmaceuticals s.r.o., 2009 ONSC 14039, at paras. 22-25).

Findings

[65] This is not an overly complicated case, the necessary facts and evidence have been provided, and I can apply the law to reach a just and efficient determination of the issues raised in these motions.

[66] Based on the evidence that has been submitted by the parties, I make the following findings of fact:

• In December 2007, the Rooneys’ family home was appraised by the Bank’s appraiser at $1,002,000.00 which provided them with available financing up to $750,000.00.
• The Rooneys used the Bank’s appraisal to value the home and pay the purchase price to the vendors.
• The Rooneys did not default on the HELOC until March 2016, when the Bank did not fully fund the CSBFL.
• The Rooneys required $350,000.00 to pay for tenant fit ups. The Bank was aware based on the project budget that in order for the Rooneys to complete their project, they had to borrow the sum of $350,000.00. If the Rooneys did not obtain $350,000.00 in full, the project would fail.
• The Bank’s representative, Mr. Bernier, had very little experience with CSBFLs. He was the primary point of contract for the Rooneys.
• On November 21, 2015, the Rooneys signed all the required documents for the loan such as guarantees, security agreements and a Credit Agreement as per the Bank’s instructions. This was the extent of the written agreements.
• On December 11, 2015, the Bank registered a mortgage on title of the property owned by 236 in the amount of $350,000.00.
• The Rooneys signed the Industry Canada Registration Form on December 21, 2015, one month after the loan documents were signed and ten days after the Bank registered the mortgage. This is the first time the figure of 55% appeared in any of the documents.
• On January 23, 2016, the Rooneys submitted a second Authorization to Fund form with all the supporting documents and $110,338.20 of eligible invoices.
• On February 3, 2016, the Bank fully funded the invoice from Rona totalling $19,531.30 and funded the $7,000.00 CSBFL fee. The $7,000.00 fee was 2% of the $350,000.00 loan.
• On February 12, 2018, the Bank only funded 55.11% of the eligible invoices that were submitted.
• In order to complete the project, the CSBFL was intended to pay for 55.11% of the $635,049.83 required for the Fit Up Cost (i.e. the leasehold improvements).
• The Bank knew that it was supposed to fund $350,000.00 of eligible invoices at 100%.
• The Bank acknowledged its error in the internal emails.
• Rather than funding the loan, on May 17, 2016, the Rooneys received Notices of Intention to Enforce Security pursuant to the PPSA and the Bankruptcy and Insolvency Act. Litigation ensued.

[67] I find that Ms. Rooney submitted her project budget as required and that the Bank was fully aware of the funds required by the Rooneys to successfully complete their project. I find that the Bank agreed to provide the Rooneys with the full amount of $350,000.00 by registering a mortgage in this amount on 236’s property on December 11, 2015.

[68] The internal emails of the Bank also confirm that its employees thought that the Rooneys were approved the amount of $350,000.00. On February 12, 2016 at 6:47 p.m., the Renfrew Branch Manager sent the following email to the Area Manager Business Banking:

Although Richard & I have been told by Donna Alex at CSBFL Funding why she is only funding 55.11% of the submitted invoices, it’s still confusing. I know she must know what she is doing, but I am questioning if she is interpreting the approval/funding properly. And after reviewing the numbers again, it doesn’t seem right. …

If TD approved the deal based on the eligible project cost to be $757,387.00

CSBFL Financing approved for $350,000.00

They had already shown they put approx.. $377,500 into the project before the approval. Now they need to actually spend ANOTHER $638,000 to obtain the $350,000. which will total a lot more than the estimated project cost. She is only looking to obtain 100% of the funding for what invoices are eligible she submits. She submitted approx. $100,000.00 in invoices. Her funding so far is approx. $54000. If she only has that to spend for her next funding, her next amount being funded will only be $29700. And the one after that will even be less.

Unfortunately, I will be on vacation next week. She doesn’t want to speak to Richard or Ashley. I don’t have anyone else to refer her to. I know you shouldn’t actually be communicating with her, but is there anything we can do to revisit? I can call her next week when I’m on vacation but need help to dig further to see what else can be done. And then I can communicate it to her.

I’m sorry this deal has gotten out of control, Bob. If there is anything you can do to help us, we’d really appreciate it [emphasis mine].

[69] On the same day at 7:58 p.m., the Area Manager responded: “Do we have the evidence.to.show they put the $377M into this already?” The Branch Manager responded at 8:17 p.m.:

We have a spreadsheet with the $377,194.55 total showing what was spent and on what. It includes the amount and the cheque number for those expenses paid by cheque and also other expenses paid by Visas. She didn’t provide the original receipts with it, and some of those burned in the fire. When Richard did the Site Visit, he did see the furniture, and equipment that they purchased.

Richard knows what is going on so you can have him help however he can…

[70] On February 18, 2016 at 10:58 a.m., Mr. Bernier responded to the Area Manager:

As per Susanne’s note below how do we go about getting an exception to help fund part of the $377,194 and the extra $100,000 the bank required her to inject into the project to qualify for the $350,000 CSBFL which was included in her budget at the very beginning of the approval process. At this rate of 55% she would have to inject another $286,000 plus $350,000 = $636,000 in order to receive the approval CSBFL of $350,000; which would mean the renovations would have to cost $1,113,194. At this point the current invoices should have been paid at 100% re-imbursement based on previous injection and capital by the client prior to final approval.

The budget clearly showed her portion injected of:

$329,000 personal investment already done

$200,000 to come

$350,000 CSBFL

$879,000 in renovation and lease hold improvements

On the system we inputted under CSBFL Worksheet:

$122,337 equip

$635,050 leasehold

$35,000 inventory

$35,371 opening cost

$827,758 total cost

$757,387 eligible cost

Financing

$350,000 CSBFL

46.21% eligible

42.28% of total cost

$477758 other

$827,758 Total

Class of loan

Leaseholds-Tenants $350,000

Percentage of leaseholds being financed 55.11%

If you can look into this and advise if we need to appeal the approval with the adjudicator or through the CSBFL funding or senior manager with your recommendation [emphasis mine].

[71] After a further exchange of emails, the Area Manager advised Mr. Bernier: “Ok, at least we have gotten them some funding to keep things moving I’m waiting to discuss with Anthony to see what we potentially can do”.

[72] These emails clearly demonstrate that the Bank was in agreement that a mistake had been made and that 100 percent of the invoices should be funded. Further, it was clearly the understanding of the Rooneys and the Bank that 100 percent of the invoices would be funded.

[73] On November 21, 2015, the Rooneys signed the Canada Small Business Financial Act Loan Credit Agreement (“CSBFALCA”). Under the heading “Floating Rate Loan”, the CSBFALCA lists the following information: loan amount of $350,000.000, the interest rate, the payments of principal plus interest, the set up fee, the frequency, the first principal payment date, the first interest payment date, the term, the term end date, the estimated residual payment and the amortization date. The figure of 55% or 55.11% is not located anywhere on the CSBFALCA.

[74] On December 21, 2015, Mr. Rooney signed the Canada Small Business Financing Act Loan Registration Form. This form lists the amount of loan to be registered as $350,000.00 and the percentage of asset cost financed by the CSBF loan at 55%. The registration fee which is 2% of the amount of the loan is listed at $7,000.00. The Bank argues that this is the contract between the parties. I disagree. The CSBFALCA is the agreement that regiments the loan between the parties.

[75] In this case, the Bank relies on the Loan Registration Form and tries to blame Industry Canada for making the decision to grant the Defendants only 55% of the $350,000.00. The provisions of the CSBFA do not support the Bank’s argument. The Defendants argue that I should conclude that the Bank did not fund the loan to the Rooneys because it did not wish to be exposed without the safety of the federal government covering its losses. It specifically chose to breach its contract with the Rooneys in the hopes that its losses would be less under this process rather than its potential losses had it just funded the loan as promised. This is a valid argument.

[76] The Credit Agreement signed by the Rooneys on November 21, 2015 contained the following regarding the payment of invoices:

Payment of Invoices. You acknowledge and agree that the Bank will fund the payment of invoices or portions thereof which relate solely to eligible assets under the Canada Small Business Financing Loan Act program and that the Bank will debit any of your accounts with the Bank for any ineligible invoice or portion thereof. You authorize the Bank to pay the full remaining balance due on any invoice by issuing a draft payable to the issuer of the invoice. You also authorize the Bank to debit any of your accounts with the Bank for the portion of the purchase price not financed by the Loan.

[77] Based on the representations of the Bank and the wording of the Credit Agreement, I agree with the Defendants that the Rooneys were led to believe that the Bank was going to fund the payment of eligible invoices. The invoices submitted by the Rooneys were clearly for work that was eligible under the CSBFL and this was never questioned by the Bank – they paid the first set of invoices.

[78] Consequently, I find that the Bank breached its contract with the Defendants. The evidence supports that the Bank breached the provisions of the Credit Agreement when it failed to provide the Defendants with the funding of $350,000.00.

[79] With regards to the Defendants’ allegation that the Bank was negligent, they rely on the fact that the Rooneys had been the Bank’s clients for many years. The Bank was intimately aware of the financial circumstances of the Rooneys and it had assisted them with a previous CSBFL. I agree that this supports the conclusion that the Bank was negligent.

[80] The caselaw supports that a bank owes a duty of care to its clients. Based on my review of the evidence and my findings of fact, I find that the Bank owed the Rooneys a duty of care to secure the loan in the amount of $350,000.00. If such a loan was not feasible, the Bank had a duty to inform the Rooneys of this before they expended all these necessary fees and were ultimately denied the funding they were promised. Consequently, I agree that the Bank breached its standard of care. The Bank did not take reasonable care in carrying out for the Rooneys their business.

[81] I agree with the Defendants that the Bank negligently breached the contract with the Rooneys. The Bank was required to exercise proper diligence in ensuring that it would carry out the goals of the Rooneys’ business. In this circumstance, this was the rebuilding of the Rooneys’ restaurant the Tosh. The Bank failed in that duty throughout the entire process.

[82] The requirements in order to establish liability for negligence have been met. As previously stated, I find that the Bank owed a duty of care to the Defendants. This duty of care was breached by failing to observe the required standard of care. Throughout this whole process, the evidence supports that the Bank’s actions of not following through on the loan in the amount of $350,000.00 led to the loss suffered by the Defendants. Their loss resulted to the interest of the Bank and there was no conduct by the Defendants that would preclude them from recovery.

[83] This is a case of pure economic loss arising from the Bank’s negligent misrepresentation. The evidence supports that the Rooneys relied on the Bank’s indications and actions leading them to believe that the Bank was going to loan them the amount of $350,000.00.

[84] With regards to the HELOC, however, I come to a different conclusion. Once Ms. Rooney became aware that the appraisal of the family home was based on an appraisal that included property that she did not own and that the Bank had loaned too much money, she took three steps. Firstly, she advised the Bank of the issue. Secondly, Ms. Rooney and the Bank entered into a new agreement in which the Bank agreed to decrease the interest rate on the line of credit from prime plus 6% to prime plus .5% thereafter. Lastly, Ms. Rooney continued to draw on her line of credit and service the credit facility at the new reduced interest rate. Given that Ms. Rooney entered into a new agreement with the Bank after learning that she did not have 25% equity in her family home and continued to draw on the line of credit, there was accord and satisfaction. Consequently, this bars Ms. Rooney the right of action – she cannot now take the position that the Bank was negligent as a result of the over inflated appraisal.

[85] Since I have found that the principle of accord and satisfaction applies to the issue of the HELOC, I need not review the issues of promissory estoppel and waiver.

[86] Based on my findings of fact and the evidence that I have reviewed, I find that there is no genuine issue requiring a trial. The Bank agreed to provide the amount of $350,000 to the Defendants and failed to do so. With regards to the HELOC, the Defendants cannot rely on the improper valuation of the family home.

Damages

[87] With regards to the issue of damages, the parties advised me that they have agreed that only liability is to be determined on these motions. The issue of damages will be bifurcated and will be the only issue going to trial.

Costs

[88] In this matter, both parties were partially successful on their motion for Summary Judgment. I encourage the parties to attempt to settle the issue of costs. If they cannot agree, they may provide my office with brief written submissions not exceeding three pages, exclusive of the Bill of Costs. The Defendants will have until March 22, 2019 to provide their submissions and the Bank will have until April 5, 2019 to do the same. The Defendants will be allowed a brief reply if deemed necessary, of no more than one page which shall be provided by April 12, 2019.

[89] I wish to thank counsel for their helpful written and oral submissions.

Justice M. O’Bonsawin

Released: March 7, 2019

COURT FILE NO.: CV-16-69905 DATE: 2019/03/07 ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: Toronto-Dominion Bank Plaintiff – and – 1633092 Ontario Ltd., 2362378 Ontario Inc., Matthew Rooney and Haley Rooney Defendants AMENDED REASONS FOR DECISION O’Bonsawin J. Released: March 7, 2019