Court File and Parties

COURT FILE NO.: CV-17-570187 DATE: 2020-06-09 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Kenneth James, Plaintiff AND: Anna Chedli and Anna Chedli in her capacity as Estate Trustee for the Estate of Amdouni Chedli aka Dennis Chedli, Defendants

BEFORE: Pinto J.

COUNSEL: Patrick Bakos, for the Plaintiff/Responding Party Michael R. Kestenberg, for the Defendants/Moving Parties

HEARD: March 11, 2020

REASONS for decision

Overview

[1] The defendants Anna Chedli personally, and as estate trustee for the estate of her late husband Dennis, move for summary judgment dismissing this action. Dennis died on September 12, 2015. Anna was appointed Estate Trustee on November 6, 2015.

[2] The plaintiff James is a former lawyer. James met Dennis in 1993 through a common acquaintance, Nick De Luca, a chartered accountant. James provided corporate and real estate legal services to De Luca and a number of De Luca's clients. Dennis operated a mechanical contracting business and engaged in various real estate transactions. Anna claims to have no knowledge of Dennis' business dealings.

[3] In 1993, De Luca retained James to register mortgages against Dennis and Anna's matrimonial home in respect of loans to Dennis and Anna. On October 28, 1993, Dennis and Anna transferred title of the home to Anna alone. By 1999, the loans were fully repaid and the mortgages discharged.

[4] The claim is based on two promissory notes issued in the mid-2000s. The First Note, signed by Dennis and Anna in favour of James, is dated October 18, 2006. It is in the amount of $531,000, plus simple interest of 10% per year, and came due on October 25, 2007. The debt was secured under an Acknowledgment and Direction dated October 18, 2006 signed by Anna, with Dennis’ consent, authorizing the registration of a Collateral Mortgage against their matrimonial home.

[5] The second promissory note, signed by Dennis alone, in favour of a Panamanian registered company holding the note in trust for James, is dated April 17, 2008. It is in the amount of $650,000 plus interest at 15% per year, compounded monthly and due on July 17, 2008. Whether the Second Note was in Canadian or US currency is in dispute.

[6] At the time the two promissory notes were issued, James had not personally advanced all the funds in question. However, by 2012, the syndicate of investors who had advanced the funds had been paid out, so James issued the claim in his own name.

[7] It is undisputed that the last payment on both Notes was made in March 2010. James formally demanded payment in October 2016 and commenced the within action in February 2017. In the action, he claims payment under the Notes and a declaration that he is the owner and is entitled to possession of the matrimonial home based on the Collateral Mortgage provided with the First Note.

[8] The defendants bring summary judgment on the basis that the claim is statute barred pursuant to the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B ("Limitations Act") and rely on provisions of the Bills of Exchange Act, R.S.C. 1985, c. B-4; the Evidence Act, R.S.O. 1990, c. E.23; and the Mortgages Act, R.S.O. 1990, c. M.40. The plaintiff denies that the claim is statute barred and submits that there are genuine issues requiring a trial.

[9] For the reasons that follow, summary judgment is granted in favour of the defendants. The claim is dismissed with costs awarded to the defendants.

Background Facts

The First Note

[10] In 2006, Dennis and Joseph Chetti, a business associate, secured an option to purchase a parcel of land in Mississauga from a lawyer, Joseph Burnett, with the intention of flipping it. To finance the property transaction, De Luca arranged a loan for Dennis through a syndicate of investors. The loan was realized via the First Note and Collateral Mortgage, both dated October 18, 2006. The $531,000 amount was based on $500,000 going towards the purchase price of the Mississauga property, $25,000 as a loan arrangement fee, and $6,000 to cover James' legal fees and disbursements. James acted as trustee for the syndicate of investors.

[11] By November 2006, Dennis and Chetti were able to successfully flip the property. On or around November 20, 2006, Dennis and Chetti attended at James' law firm and made payment in the amount of $550,000 to the firm's trust account ("James' trust account").

[12] The evidence suggests that the $550,000 came in the form of a certified cheque from a numbered company acting on Dennis' behalf. The amount was deposited into James' trust account. On Dennis' instructions, James then issued two cheques from his firm's trust account as follows: $500,000 to Shibley Righton, a law firm retained by Chetti, and $50,000 to Dennis.

[13] In a November 20, 2006 letter to Dennis and Anna, James confirmed receipt of the $550,000 and the request that "the said sum of $500,000.00 be re-advanced on the above noted loan", the loan being the First Note and Collateral Mortgage. In the same letter, James stated that "The amount secured by the promissory note is now reduced to $500,000.00 and the interest payments due thereunder remain at ten (10%) per annum but will now be payable quarterly in the amount of $12,500.00 each on the 15th day of February, May, August and November in each year until repaid."

[14] The parties disagree on the proper legal characterization of this transaction. The defendants submit that "for all practical purposes this represented payment in full of the First Note." They reason that if the First Note was fully paid off, then the mortgage, which was collateral to the First Note, is no longer enforceable, and part of the claim drops away. The defendants characterize the readvanced funds of $500,000 as a "New Loan".

[15] Conversely, the plaintiff claims that Dennis did not want to pay off the balance of the loan, and instead wanted to use the monies to invest in another real estate transaction. The plaintiff claims that, since the First Note was not paid off and its terms simply revised, the Collateral Mortgage remains enforceable. I return to the legal significance of this transaction in my analysis of the issues below.

[16] In May 2007, Chetti, on behalf of Dennis, paid $50,000 to James' trust account. In an affidavit, James explained that this payment represented two quarterly interest payments of $12,500 each (i.e. $25,000) for the payments that were already due; plus, a pre-payment of $25,000, for the two remaining quarterly payments due to maturity of the 2006 loan.

[17] In November 2007, the loan was extended for an additional year, to November 15, 2008, with quarterly interest payments (at $12,500 each) during the extension term. James confirmed the terms of the extension in a letter to Dennis and Anna dated November 15, 2007.

The Second Note

[18] In April 2008, Dennis took out a new loan of $650,000. The new loan was realized via a promissory note dated April 17, 2008, payable to Tithe Holdings Inc. in Trust, a company registered in Panama, which held the note in trust for James. The interest was 15% annually, compounded monthly with the principal and interest becoming due on July 17, 2008.

[19] This Second Note was issued in Canada for $650,000 with no specification as to currency. However, when transmitting the funds, $650,000 in American currency was wired to the trust account of an attorney in Oklahoma City, United States, with a reference to "Cyprium Resources Inc." as the remitter. Apparently, at the time in 2008, the Canadian and American currencies were roughly on par. James stated that the funds were wired based on Dennis' instructions.

Payment History on Both Loans

[20] By the late summer and fall of 2008, the interest payments due on the first and second loans had fallen into arrears. For clarity, by first loan, I refer to the October 2006 loan for $531,000 as revised and extended, sometimes referred to in the motion materials as the "Chetti loan"; and by second loan, I refer to the April 2008 loan for $650,000, sometimes referred to as the "share purchase" loan.

[21] The evidence suggests that, over the course of 2008, Dennis made sporadic payments in various amounts from different sources towards the interest accruals with respect to both loans. Overall, however, Dennis had fallen into arrears.

[22] In a letter to Dennis and Anna dated November 19, 2008, James revised the terms of the first loan and combined payment terms with the second loan. The letter states:

Dear Dennis and Anna,

Re: Chetti Loan

Nick and I have reviewed with the lenders your concerns and the problems you are have (sic) encountered recently with respect to Mr. Chetti meeting his payment obligations to you, and they have agreed to further extend the loan to you on a month to month basis to hereafter become due on demand.

As the payments on the extension of this loan are now to be combined with those payable monthly by Dennis on his share purchase loan, the Chetti loan will change from quarterly to monthly payments of $4,166.67 and combined with the share purchase loan payments of $8,125.00 the total monthly payment will be $12,291.67 commencing December 15th 2008. Please arrange to provide me with post-dated cheques at your convenience.

The interest payment due on maturity of this loan and the October and November payments on the share purchase loan are currently due. These total $28,750.00 and I confirm Dennis' advice that he is arranging to secure this sum from the broker who holds the shares on his behalf. Please ensure you do this before the monthly payments due under the revised re-payment plan commence next month.

Best wishes to you both,

Ken. James

[23] In January 2009, Dennis provided James with a series of post-dated cheques in the aggregate amount of $680,000, covering the period from January 2009 to March 2010. The cheques were drawn on the account of Matthew Sacco, one of Dennis' business associates. However, a number of cheques were subsequently dishonoured due to insufficient funds. Dennis provided four further payments of $30,000 each between July and November 2009. After receiving each payment, James provided Dennis with a letter confirming receipt of the funds and how they had been applied with respect to each of the two loans. No party produced documents from Dennis or Anna acknowledging James' letters.

[24] The parties are in agreement that the last payment made in respect of the two loans occurred on March 17, 2010.

[25] On March 20, 2010, James wrote to Dennis regarding the consolidation and revision of both loans. James claims that, by this time, Dennis had arranged for additional security to be provided to James in the form of convertible debentures from a company called "Hear at Last". The key provisions of the March 20 letter stated that:

(a) As of March 16, 2010, no further interest would accrue or be charged on either of the loans; (b) The then current balance of principal and interest would both become due on demand; (c) Until the "Hear at Last" shares were sold, Dennis would continue to make quarterly payments of $30,000 (commencing June 15, 2010) to reduce the March 16 consolidated debt; and (d) When the debenture was converted and sold the proceeds of the asset given to James would be applied towards the "share purchase" portion of the consolidated debt.

[26] James admitted, in cross-examination, that although it was his intention at the time of the March 20, 2010 letter to charge no interest, he reverted to charging interest without notifying Dennis or Anna. The accrual of interest up to the present constitutes part of the claim.

[27] In his affidavit, James stated that throughout the period of November 2010 to April 2012, he and De Luca met regularly with Dennis, and occasionally with Sacco, to discuss Dennis' ability to repay both loans and the steps that Sacco was taking to redeem the convertible debenture to assist Dennis. James produced letters to Dennis dated November 15, 2010, June 27, 2011, and April 26, 2012.

[28] The April 26, 2012 letter states, in part:

It is now 2 years since we received any payment on these loans and our long time personal relationship with you has been stretched by what we consider the BS we are being fed by the people you claim are committed to assisting you to repay them.

We have no more wish than you to see this devolve into litigation between us but there comes a point where it cannot be avoided even if you are reluctant to seek your own remedies against Mathew [Sacco] and your own partners.

Please speak to Patrick [Carbone] and your other partners at Tac [Dennis' mechanical contractor business] about mortgaging the Kelfield property.

[29] Patrick Carbone was Dennis' business partner and Anna's brother-in-law. In the letter, James suggested to Dennis that he speak to Carbone and his other business partners about one of Dennis' businesses taking out a loan secured by a mortgage on a commercial property located at 36 Kelfield Street in Toronto. The loan could then be used to repay Dennis' debt obligation to James.

[30] James and De Luca claimed that, between 2012 and Dennis' death on September 12, 2015, they continued to meet with him to discuss the status of both loans and the prospects of repayment. However, since March 2010, no further payments were made.

[31] Anna claimed that she only learned of the Collateral Mortgage while probating Dennis' will in October 2015. Anna was appointed Dennis' Estate Trustee on November 6, 2015.

[32] On October 11, 2016, James' counsel made a formal demand for payment with respect to both loans. The action was commenced on February 23, 2017.

Summary of the Parties' Positions

The Defendants' Position

[33] The defendants argue that the action can be appropriately determined by way of summary judgment since the facts are largely undisputed, and the issues can be decided based on the documentary record. The defendants submit that:

(a) The Collateral Mortgage is only enforceable if the First Note remains enforceable. (b) The First Note in the amount of $531,000 was paid off on or around November 20, 2006 when the $550,000 payment was made. Thereafter, Dennis took out a new loan for $500,000. The Collateral Mortgage did not attach to the new loan. (c) Even if the loan was not paid off, but rather it was extended, it and the Second Note remained term notes, as opposed to demand notes. (d) The relevant limitation period for term notes under the Limitations Act is two years from the end of the term, or from the receipt of the last payment on each of the Notes. (e) The last payment on the Notes was made on March 17, 2010 but the plaintiff's claim was not issued until February 23, 2017, hence the claim is statute barred. (f) Since the claim on the Notes is statute barred, the claim based on the Collateral Mortgage is unenforceable. (g) In any event, the defendants are not liable as there is no evidence that Anna or Dennis assented to the alteration of the Notes. Under section 144(1) of the Bills of Exchange Act, a promissory note is voided where it is materially altered "without the assent of all parties liable on the bill." (h) The plaintiff James did not provide evidence of Dennis' assent, independent of James' own evidence. Therefore, James did not satisfy section 13 of the Evidence Act which states that, to succeed in an action by or against a deceased's estate, a living person's evidence must be corroborated by some other material evidence.

The Plaintiff's Position

[34] Not surprisingly, the plaintiff takes a diametrically opposite position on the above points. The plaintiff submits that:

(a) The 2006 loan was never repaid. Instead, on November 20, 2006, Dennis paid off only $31,000 on account of the loan arrangement fee and legal costs portion of the loan. The Collateral Mortgage continued to attach to the loan, albeit with a reduced principal balance of $500,000. (b) Although the Notes commenced as term notes, they were converted to demand obligations following discussion with Dennis concerning his money problems. (c) The limitation period for demand obligations only begins to run once a demand is made. (d) Here, the first time a demand was made was on October 11, 2016, and the action was commenced only 4 months later, in February 2017. (e) In the alternative, even if the First Note was not converted to a demand obligation, the action is not statute barred with respect to the First Note and Collateral Mortgage since the 10-year limitation period under the Real Property Limitations Act, R.S.O. 1990, c. L.15 applies, and not the 2-year limitation period under the Limitations Act. (f) The First Note originally provided for a payment due date of October 25, 2007, and the action was commenced on February 23, 2017, so the 10-year limitation period had not expired. (g) Whether Dennis or Anna assented to the alteration of the Notes, and other aspects of the parties' positions, are issues requiring a trial as they are dependent on findings of credibility. Accordingly, the motion for summary judgment should be dismissed.

Test on a Motion for Summary Judgment

[35] I adopt the test on a motion for summary judgment as set out in Janeric Engineering Inc. v. 2496110 Ontario Inc., 2020 ONSC 220, at paras. 19-22, per Favreau J.:

[19] Under subrule 20.04(2) of the Rules of Civil Procedure, summary judgment is to be granted if the Court is satisfied that there is no genuine issue requiring a trial.

[20] As set out in Hryniak v. Mauldin, 2014 SCC 7, at para. 49, there will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits using the summary judgment process. This is 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."

[21] On a motion for summary judgment, the judge should first determine if there is a genuine issue requiring a trial based on the evidence before him or her without using the fact-finding powers in subrule 20.04(2.1). If there appears to be a genuine issue requiring a trial, Rule 20.04(2.1) permits the motion judge, at his or her discretion, to: (1) weigh the evidence, (2) evaluate the credibility of a deponent, or (3) draw any reasonable inference from the evidence unless it is in the "interest of justice" for these powers to be exercised only at trial: Hryniak, at para. 66. The motion judge is also permitted to use the expanded powers under Rule 20.04(2.2) to direct a procedure such as a mini-trial, rather than a full trial.

[22] The responding party cannot rely on the prospect that additional evidence may be tendered at trial; the respondent must put its best foot forward in response to a motion for summary judgment: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 (Ont. S.C.J.), at para. 26, aff'd 2014 ONCA 878 (Ont. C.A.), leave to appeal to SCC refused, [2015] S.C.C.A. No. 97 (S.C.C.).

Analysis

[36] I have organized my analysis of the issues under the following five questions:

(1) Can the action be appropriately determined by way of summary judgment? (2) Was the First Note paid off and is the Collateral Mortgage now unenforceable? (3) Were the Notes converted from term to demand obligations? (4) Does part of the plaintiff's claim still survive due to the Real Property Limitations Act? (5) What of the ancillary issues on the motion?

1. Can the action be appropriately determined by way of summary judgment?

[37] I have concluded that a trial is not required and that the action can be determined by way of summary judgment. I am confident that I can make the necessary findings of fact and apply the law based on the motion material presented to me.

[38] The parties provided full motion records and comprehensive facta. The defendants' motion materials included main and supplementary affidavits from Anna, as well as an affidavit from Patrick Carbone, Dennis' business partner. In the run-up to the hearing of the summary judgment motion, the plaintiff successfully sought leave to file additional affidavit material and conduct witness examinations pursuant to Rule 39.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194: see Reasons for Decision of Master Muir, James v Chedli, 2019 ONSC 235.

[39] The plaintiff's motion materials included main and supplementary affidavits from James, as well as affidavits from De Luca, Chetti, and Rosemary Cremer, a bookkeeper employed by James' law practice from 1988 to 2012. The motion materials also included the transcripts of cross-examination of the plaintiff James, the defendant Anna, and De Luca, Chetti, Cremer, Carobone, and Sacco. In other words, a very full record was presented to the court on the motion for summary judgment.

[40] Notably, the plaintiff initially brought his own cross-motion for summary judgment but later withdrew that motion after motion materials were delivered and cross-examinations completed. At the hearing of the summary judgment motion, plaintiff's counsel had difficulty articulating why a trial was required, repeatedly falling back on the generic argument that various credibility issues had to be determined. However, I found those credibility issues, such as the extent to which Anna was truthful when she claimed to have no memory of co-signing the First Note, or whether she wanted to live “mortgage free”, to be immaterial to the issues in the action. The argument proceeded on the basis that Anna had clearly co-signed the First Note and the Authorization and Direction vis à vis the Collateral Mortgage. Tellingly, the plaintiff's factum and oral submissions largely focused on the lack of merit in the defendants' limitation period arguments.

[41] In sum, I am satisfied that this action can be dealt with by way of summary judgment as it is a proportionate, more expeditious, and less expensive means to achieve a just result.

2. Was the First Note paid off and is the Collateral Mortgage now unenforceable?

[42] The face amount of the First Note dated October 18, 2006 was $531,000 due, with interest, on October 25, 2007.

[43] The defendants submit that the First Note was wholly paid off on or around November 20, 2006 when Dennis and his business associate Chetti attended at James' law office and made a $550,000 payment. The defendants claim that $500,000 was subsequently re-advanced to Dennis only, as a new loan, to which the Collateral Mortgage did not attach. If this latter argument is accepted, the part of the claim relating to the Collateral Mortgage falls away since the mortgage was collateral to the First Note that was paid off: Stetler v Stetler, 2012 ONSC 4466, at para. 45.

[44] James acknowledged that $550,000 in certified funds was paid into his firm's trust account, and that he then issued new cheques to Dennis and Shibley Righton for $50,000 and $500,000 respectively. James provided the following response in cross-examination:

Q. So from my understanding of this letter, [Dennis] came in, paid off the promissory note and then asked for an indulgence and additional or new monies so that he could do something else that he was involved in and use the promissory note as security for that fresh advance, is that correct? A. He asked that the loan be -- the loan was paid off within a month of it being advanced, and he asked that the money -- that the 500 [i.e. $500,000] be allowed to run to maturity of the note which was the subsequent year. Q. I understand, but you'll agree with me that when he came in and paid the $550,000 he, for all practical purposes, paid off the promissory note and then there was a fresh advance and used the promissory note as security for that fresh advance. A. Well, no. My -- my recollection is that he paid the costs of the note. The $31,000.

[45] A document prepared by the plaintiff, purporting to be a schedule of amounts accrued and paid on the first loan, shows: a "principal advance" of $531,000 on October 18, 2006 (when the First Note was issued); an interest accrual of $4,800.82; and a payment of $35,800.82, resulting in a "balance of loan" of $500,000, as of November 20, 2006. Notably, the document does not show the receipt of $550,000 (the amount brought in by Dennis) or the receipt of $500,000 (the purported repayment of the principal of the loan). But the plaintiff's document also does not correspond to the plaintiff's answer in cross-examination that only the "costs of the note" were paid, since an interest payment of $4,800.82 was also paid.

[46] Joseph Chetti, Dennis’ business associate, briefly touched on this question at paras. 12 and 13 of his affidavit:

12. The real estate transactions [associated with the Mississauga land flip] closed approximately 30 to 60 days after I removed the conditions in the agreement of purchase and sale, and the net profits were paid to and disbursed by the lawyer, [James], in accordance with the directions of myself, Dennis, and the Coluccio brothers.
13. At the time, I had a number of other ventures in the formative stage into which Dennis and the Coluccio brothers had agreed to participate by re-investment of the $500,000.00 principal that Dennis had borrowed from De Luca’s client. I am advised by James, and verily believe, that James was directed by Dennis to make the proceeds of his renewal and extension of the said loan payable to the law firm of Shibley Righton, which was the law firm that was handling my legal work at the time.

[47] Nick De Luca, in his affidavit at para. 16, stated that “I recall Dennis had brought in the money to pay the loan in full after a short period of time, but asked if the investors would allow the loan to run its term to maturity, namely, the one year.” In cross-examination, De Luca responded as follows:

Q. …And it’s my understanding that shortly after the loan was advanced, [Dennis] brought in the money to pay off the loan and in fact provided a cheque to Mr. James for 500 odd thousand dollars to pay the loan off, correct? A. I believe so, yes. Q. An Mr. James then advanced $550,000. $500,000 to Shibley Righton and $50,000 to [Dennis], do you remember that? A. That -- that I do not recall.

[48] Rosemary Cremer, James' accountant, was cross-examined on an affidavit she provided that touched on the sequence of payments in question. Cremer confirmed that Dennis brought in funds on November 20, 2006, paid the loan, and then those funds were held "in suspense" to be re-advanced to Dennis.

[49] In James' November 20, 2006 letter to Dennis and Anna, he not only stated that the sum of $500,000 be "re-advanced on the above noted loan", he also changed the amount and terms of the loan from what was indicated on the First Note. The "re-advanced" loan for $500,000 still had a 10% annual interest rate, but the interest payments were revised from monthly to quarterly, resulting in $12,500 per interest payment. James, at the time a practicing lawyer, confirmed in cross-examination that he did not get any written authorization from Dennis or Anna regarding the "re-advance" loan transaction.

[50] When I asked plaintiff's counsel why the plaintiff used the word "re-advanced" in the November 20, 2006 letter if the original loan was not paid, counsel responded that the plaintiff's choice of words was poor.

[51] Based on the evidence, I agree with the defendants' position that the First Note was paid-off in full, rather than with the plaintiff's assertion that Dennis did not want to pay off the original loan. However, the evidence also suggests that Dennis wanted the terms of the re-advanced funds to run to the maturity date of the original note. My finding is supported by Chetti, De Luca, and Cremer’s evidence that Dennis brought in the funds and paid off the original loan. Chetti used the term “re-investment”; James used the term “re-advanced” which is suggestive of funds coming in (and being paid off) and then going out again, as opposed to funds never being paid off in the first place.

[52] James' answer in cross-examination was equivocal, and his ultimate position inconsistent with the preponderance of the evidence demonstrating that the First Note was paid off. As James was the trustee for the syndicate that had provided the loan, he was also authorized to receive the loan repayment from Dennis on behalf of the lenders. The repayment of the First Note was concluded, at law, when James received the $550,000 payment.

[53] If the First Note was fully paid-off, the Collateral Mortgage is no longer enforceable: Royal Bank v. Chittick, [1965] 2 O.R. 37 (H.C.).

[54] My finding also relies on the terms of the First Note and the Collateral Mortgage themselves. The First Note, in the amount of $531,000, does not contain any language referencing extensions or alteration of terms as was the case in Caisse populaire de Néguac ltée v. Forbes, 2009 NBQB 295, 354 N.B.R. (2d) 5. In Néguac, the promissory note, which was found to be enforceable, contained the language, “This guarantee is binding on the endorsers notwithstanding any extension of the time allowed for repayment of any amount owing or any alteration to the terms of payment agreed to by the Caisse and the borrower.” [emphasis added]

[55] Here, the mortgage/charge document, constituting the Collateral Mortgage, has under its provisions the amount of $531,000 and an indication of monthly interest payments in the amount of $4,425. Under "Additional Provisions", the mortgage document states "Payments made under the terms of the Promissory Note shall pro tanto be payments on the within mortgage and upon satisfaction of the sum due under the said Promissory Note, the Chargor shall be entitled to a discharge." [emphasis added] Accordingly, with the First Note having been paid off in full, Dennis and Anna were entitled to a discharge of the mortgage and the mortgage is unenforceable against the defendants.

3. Were the Notes converted from Term to Demand Obligations?

[56] If my conclusion about the unenforceability of the Collateral Mortgage due to the First Note being paid off is wrong, it would mean that the First Note, as amended, and the Collateral Mortgage continued to be in force after November 20, 2006. The defendants argue that it would not matter as ultimately, any claim based on the purported enforceability of both Notes and Collateral Mortgage is statute barred. They argue that the Notes were not converted to demand obligations and therefore remained term notes to which the two-year limitation period under the Limitations Act applies.

Limitation Periods Under the Limitations Act

[57] Under section 4 of the Limitations Act, a basic limitation period of two years runs from the day a claim is discovered. Discoverability is addressed under section 5:

5 (1) A claim is discovered on the earlier of, (a) the day on which the person with the claim first knew, (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and (b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

Presumption

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved. 2002, c. 24, Sched. B, s. 5 (2).

Demand obligations

(3) For the purposes of subclause (1) (a) (i), the day on which injury, loss or damage occurs in relation to a demand obligation is the first day on which there is a failure to perform the obligation, once a demand for the performance is made. 2008, c. 19, Sched. L, s. 1.

Same

(4) Subsection (3) applies in respect of every demand obligation created on or after January 1, 2004. 2008, c. 19, Sched. L, s. 1.

[58] In the case of a demand note, the 2-year limitation period only begins to run once a demand for repayment is made: section 5(3) of the Limitations Act. Put another way, if no demand for repayment is made, the limitation period does not begin to run. Here, the plaintiff asserts that (a) both Notes were converted from term notes to demand notes; and that (b) no demand for repayment occurred until October 2016, therefore the claim, which was commenced in February 2017, is not statute barred.

[59] Where the debt obligation is not a demand obligation, the commencement of the running of the limitation period will depend upon the date when the lender is aware, or ought to have been aware, that he or she may sue to enforce the loan because there has been a breach of the lending contract: Skuy v. Greenough Harbour Corporation, 2012 ONSC 6998, at para. 43.

[60] In the case of a term note, the limitation period begins to run from the maturity date subject to partial payment and acknowledgments extending the limitation period: section 13 of the Limitations Act dealing with "Acknowledgments"; also see Skuy, at para. 46.

[61] Here, it is agreed that both Notes started out as term notes since each had maturity dates. With respect to the First Note, its maturity date was October 25, 2007. In November 2007, the maturity date was extended to November 15, 2008, if one accepts the plaintiff's position that the First Note was not paid off and was, in fact, revised.

[62] With respect to the Second Note, its maturity date was July 17, 2008.

[63] Given that the last payment made in respect of the two loans occurred on March 17, 2010, the payment would have constituted an acknowledgment under section 13 of the Limitations Act, having the effect of restarting the limitation period clock. Accordingly, if the Notes remained term notes, the limitation period under the Limitations Act, would have expired two years later, on March 17, 2012. Since the action was only commenced in February 2017, the entire claim would be statute barred under the Limitations Act.

[64] Whether the more forgiving 10-year limitation period under the Real Property Limitations Act applies is a question that I will address later in these Reasons. Accordingly, leaving aside the RPLA issue, the only way that the plaintiff's claim can proceed in the face of the Limitations Act, is if the Notes were converted from term to demand notes.

Plaintiff's Evidence That Notes Were Converted to Demand Notes

[65] The plaintiff provided two letters that explicitly referenced one or both loans being altered and becoming due on demand.

[66] The first letter is the plaintiff's letter to Dennis and Anna dated November 19, 2008 that was reproduced in its entirety earlier in these Reasons. Here, the relevant part of the letter states, "[the lenders] have agreed to further extend the loan to you on a month to month basis to hereafter become due on demand." The second letter is the plaintiff's letter to Dennis only dated March 20, 2010.

[67] The plaintiff did not produce any evidence of Dennis and/or Anna's written acknowledgement of, or agreement with, the two letters.

[68] The plaintiff describes the March 20, 2010 letter as a confirmation of Dennis and James’ agreement regarding the consolidation and revision of both loans. However, the defendants characterize this letter as James’ proposal. The letter contains a number of conditions that would have had to be fulfilled before the agreement was secured. None of the conditions materialized. In the letter, James used the words “we are prepared to agree as follows”, rather than “we have agreed as follows” or “I confirm our agreement”. Moreover, it is undisputed that Dennis’ last payment occurred on March 17, 2010, which is shortly before this letter was issued. In other words, nothing referenced in this letter came to pass. I find that the letter and the circumstances around it suggest that it was a proposal from James to Dennis, rather than a confirmation of their agreement.

[69] In any event, one of the key provisions of the March 20, 2010 letter states "The then current balance of principal and interest would both become due on demand." James was cross-examined on the purported consolidation and restructuring of the loans:

Q. What consolidation and restructuring of the loans were you referring to, sir? A. The agreement to combine the payments and to restructure the loans from a term to demand notes. Q. All right. And when you decided to restructure the loans from term to demand notes, you got nothing signed by [Dennis] confirming that the loans had been restructured and had been consolidated. Nothing signed by him to confirm that? A. Nothing signed, no. Q. Correct. And nothing signed by [Anna]? A. No.

[70] Anna stated that she was not asked to, nor did she agree to, either orally or in writing, convert the First Note from a fixed term note to a demand note, and she had no knowledge of steps taken by Dennis or James in that regard. James agreed, stating that he never spoke to Anna about the notes being converted from term notes to demand notes.

[71] The defendants submit that the Notes in question are unenforceable within the meaning of the Bills of Exchange Act since they were materially altered without the assent of Dennis or Anna.

[72] Sections 144(1) and 145 of the Bills of Exchange Act deal with the material alteration of a bill:

144 (1) Subject to subsection (2), where a bill or an acceptance is materially altered without the assent of all parties liable on the bill, the bill is voided, except as against a party who has himself made, authorized or assented to the alteration and subsequent endorsers.

145 In particular, any alteration (a) of the date, (b) of the sum payable, (c) of the time of payment, (d) of the place of payment, or (e) by the addition of a place of payment without the acceptor's assent where a bill has been accepted generally, is a material alteration.

[73] There is no question that the plaintiff's alterations to the Notes constitute material alterations, therefore the focus moves to whether Dennis or Anna assented to the alterations, in particular, the purported conversion of the term notes to demand obligations.

[74] As described above, the plaintiff does not dispute Anna's position that she never consented to the alteration of the notes. However, the plaintiff submits that Dennis' assent is corroborated by James' correspondence to Dennis as well as by evidence from a number of the affiants or witnesses on the motion.

[75] The defendants caution, however, that "with respect to the Estate this court should be wary of finding Dennis' assent to the alleged alterations based solely on the evidence of James. Pursuant to s.13 of the Evidence Act to succeed in an action by or against a deceased's estate, a living person's evidence must be corroborated by some other material evidence". The corroboration required by s. 13 must be evidence, independent of the evidence of the claimant, that shows that his evidence on a material issue is true. It can be either direct or circumstantial. It can consist of a single piece of paper or several pieces considered cumulatively: Burns Estate v. Mellon (2000), 48 O.R. (3d) 641 (C.A.), at para. 29. I agree that this is an accurate statement of the law.

[76] The plaintiff provided several examples of purported corroboration beyond James' letters:

(a) The evidence of Nick De Luca, Dennis' long-time accountant, an affiant in this proceeding. The plaintiff claims that De Luca's affidavit confirms, inter alia, "the extension of the 2006 Note, Dennis' ongoing difficulties obtaining monies from his business associates, his regular meetings with Dennis from 2010 until Dennis' passing in 2015 to discuss repayment of the debt, cheques provided by Dennis (many of which were returned as insufficient funds), his discussion with Dennis about restructuring his affairs to try to generate money to repay the debt, and other evidence in relation to the subject debts." Unfortunately for the plaintiff, missing from this list and from De Luca's evidence, is any corroboration that Dennis or Anna assented to the conversion of the notes to demand obligations. (b) The evidence of Matthew Sacco, Dennis' business associate, who was examined by plaintiff's counsel in this proceeding. In particular, the plaintiff claims that cheques provided by Sacco to James, in the aggregate amount of $680,000, "were intended to cover the interest accruals on both promissory notes." However, a careful review of Sacco's evidence reveals that Sacco did not know about the first loan as Dennis never discussed it with him; he had never seen the March 20, 2010 letter prior to his examination, and he described Dennis' obligation to repay the loan allegedly secured by the Second Note as a "moral obligation" based on Dennis having introduced Sacco to James, and Sacco's subsequent inability to repay the advance. This does not constitute corroboration of Dennis or Anna's assent to material alterations of the Notes. (c) The $30,000 bank draft provided by Dennis to James in July 2009. The plaintiff submits this is corroboration of the interest arrears under both loans. A copy of this bank draft was included as an exhibit to James' affidavit. The bank draft, in and of itself, does not contain information beyond the fact that it is payable to James' law firm in trust in the amount of $30,000. When one asks, "what is the source of information about this bank draft?", it turns out to be James himself, through his affidavit. Accordingly, I do not consider this to be independent corroboration and, even to the extent there is some alignment between the $30,000 amount and the combined interest payments that are referenced in James' letters, this is far from independent corroboration that Dennis assented to the material alterations of the Notes. (d) The evidence of Joseph Chetti, an affiant on the motion. The plaintiff claims that Chetti "discuss[ed] the circumstances surrounding the 2006 Note and the 2018 USD Note". A review of Chetti's affidavit discloses some general information about Chetti's dealings with Dennis in relation to the First Note, but no specific information about the alteration of its terms; and no information whatsoever about the Second Note. (e) The evidence of Patrick Carbone, an affiant on the motion. Carbone's affidavit states, in part, "Accordingly, prior to the summer of 2016 I had no knowledge of the First or Second Notes at issue in these proceedings, or with respect to any of the discussions that allegedly took place between Dennis, James, and DeLuca, prior to Dennis' death, about those transactions. I fail to see how such evidence is helpful to the plaintiff on the "material alternations" point. (f) The evidence of Rosemary Cremer, James' long-time accountant. The plaintiff claims that her evidence speaks to, inter alia, "the receipt of payments towards both subject debts." However, Cremer's affidavit states "After mid-summer of 2008, Dennis dealt directly with Mr. James regarding the payments that fell due on the two loans that Dennis had previously had me deliver to Mr. James." Given that we are looking for corroboration, independent of James, regarding the content of his letters dated November 19, 2008, and March 20, 2010, I cannot see how Ms. Cremer's evidence assists the plaintiff.

[77] I conclude, based on the foregoing, and pursuant to s.13 of the Evidence Act, that the plaintiff has not provided evidence, independent of the evidence of James, that shows that Dennis or Anna assented to the material alteration of the Notes, in particular, their conversion from term to demand notes. Accordingly, as there is no evidence of assent, the Notes are voided and are not enforceable against the defendants.

4. Does part of the plaintiff's claim still survive due to the Real Property Limitations Act?

[78] Recall that the plaintiff's action is based on two promissory notes, but the Collateral Mortgage was only attached and collateral to the First Note. There is no mortgage associated with the Second Note.

[79] The plaintiff submits, relying on the Ontario Court of Appeal's decision in Hilson v. 1336365 Alberta Ltd., 2019 ONCA 1000, 148 O.R. (3d) 609, that the limitation period to enforce a mortgage and any related promise to pay the debt secured by the mortgage, is subject to the 10-year limitation period under s. 43(1) of the Real Property Limitations Act (“RPLA”), and not the two-year basic limitation period under the Limitations Act.

[80] The plaintiff argues that, since the First Note and Collateral Mortgage originally provided for a payment due date of October 25, 2007, the most conservative interpretation of the 10-year limitation period is that it expired on October 25, 2017. Since the action was commenced on February 23, 2017, the claim is not statute barred under the RPLA.

[81] Section 43 (1) of the RPLA states:

No action upon a covenant contained in an indenture of mortgage or any other instrument made on or after July 1, 1894 to repay the whole or part of any money secured by a mortgage shall be commenced after the later of, (a) The expiry of 10 years after the day on which the cause of action arose; and (b) The expiry of 10 years after the day on which the interest of the person liable on the covenant in the mortgaged lands was conveyed or transferred. 2002, c. 24, Sched. B, s. 26 (1).

[82] In Hilson, the Court of Appeal dealt with a dispute involving mortgages and guarantees. In particular, one of the issues before the appeal court was whether the 10-year limitation period under the RPLA applied to certain "stand alone" guarantees. In interpreting the meaning of "any other instrument" in reference to the guarantees in question, the Court of Appeal stated the following:

[27] Third, we agree with the trial judge, at para. 51, that there is "no justification for having different limitation periods depending on whether the guarantee covenant is in the mortgage or in a separate document." Giving "any other instrument" the narrow reading sought by the appellants would introduce an anomalous distinction between identical guarantees. It would also create an awkward distinction between the limitation period to enforce a mortgage and the limitation period to enforce a closely related promise to pay the debt secured by the mortgage. The legislature removed a similar distinction that existed before 1893 and it is difficult to see why the legislature would want to create a similar distinction in 1939.

[83] I read the Court of Appeal's decision in Hilson, as giving the words "any other instrument" a wide interpretation. Although the Hilson case was about guarantees, I fail to see why a promissory note secured by a mortgage should be treated differently. Accordingly, I agree with the plaintiff that the 10-year limitation period under the RPLA applies to the First Note which was secured by a collateral mortgage, and not the basic two-year limitation period under the Limitations Act. This means that part of the plaintiff's claim based on the First Note and the Collateral Mortgage is not statute barred.

[84] However, it does not mean that the surviving part of the claim is viable. This is for two reasons. First, since I found that the First Note was fully paid off, the repayment had the effect of fully discharging the First Note; and since the mortgage was collateral to the First Note, the Collateral Mortgage too is not enforceable. Second, even assuming my conclusion is wrong about the First Note being paid off, the First Note was voided due to James' material alterations of the First Note without the assent of Dennis or Anna. In other words, the plaintiff's claim based on the First Note and Collateral Mortgage is not defeated because it is statute barred, but rather because the First Note was paid off, or because the First Note is voided under the Bills of Exchange Act and is unenforceable.

[85] Of course, the Second Note is statute barred under the Limitations Act. Therefore, the entire claim is unenforceable and must be dismissed. Summary judgment must be granted in favour of the defendants.

5. What of the ancillary issues on the motion?

[86] The parties raised a number of issues in their facta that were not pursued, or not strongly pursued, in oral argument. I will touch on them briefly, indicating my findings.

Standard Charge Terms of Mortgage

[87] The plaintiff argues that Paragraph 19 of the Standard Charge Terms (#200033) incorporated into the mortgage collateral to the First Note protects the plaintiff’s right to extend or renew the debt secured by the mortgage without further consent from the defendants:

19. No extensions of time given by the Chargee to the Chargor or anyone claiming under him, or any other dealing by the Chargee with the owner of the land or any part thereof, shall in any way affect or prejudice the rights of the Chargee against the Chargor or any other person liable for the payment of the money secured by the Charge, and the Charge may be renewed by an agreement in writing at maturity for any term with or without an increased rate of interest notwithstanding that there may be subsequent encumbrances.

I disagree that Paragraph 19 can be read as the defendants waiving their right under the “material alteration” provisions of the Bills of Exchange Act.

Anna as an "Accommodation Party"

[88] The defendants argue that Anna was "an accommodation party" as defined by section 54 of the Bills of Exchange Act:

54(1) An accommodation party to a bill is a person who has signed a bill as drawer, acceptor or endorser, without receiving value therefor, and for the purpose of lending his name to some other person.

[89] The burden of proof is on a party asserting accommodation party status to prove that they received no value in exchange for their execution of the promissory note: Bank of Montreal v. Bonner, at para. 90.

[90] The defendants submit that, as an accommodation maker, Anna is entitled to all the defences available to a surety. They submit that Anna received no benefit from the funds advanced pursuant to the First Note which were in respect of Dennis and Chetti's real estate "flip".

[91] The plaintiff disagrees and submits that "any of [Dennis'] business and investment deals stood to the benefit of their marital unit"; and that “within only a few months of Dennis' passing in 2015, Anna arranged for all of Dennis' assets to be transferred into her name, as she is the sole beneficiary of Dennis' entire estate.”

[92] I agree that it is Anna's burden to prove, but the evidence indicates that Anna received no value for the First Note. The First Note was issued in respect of Dennis and Chetti’s Mississauga “property flip” venture. De Luca confirmed, in cross-examination, that the business deal had nothing to do with Anna. There was no evidence of Anna receiving any value from it. A line of cases has held that the extension of credit to a husband is not consideration to the wife: Bonner, at paras. 97-98. Accordingly, Anna is an accommodation maker. I do not agree that her transferring her deceased husband's assets some 9 years later has some bearing on the accommodation maker point.

The Doctrine of Laches

[93] The defendants argue that, leaving aside all other reasons, enforcement of the Notes should be barred under the doctrine of laches. I find that the defendants' argument has no merit. The plaintiff rightly points out that laches does not arise where the action was instituted within the limitation period: Intact Insurance Co. of Canada v. Lombard General Insurance Co. of Canada, 2015 ONCA 764, at para. 42.

Mortgage on Melina Bruzzese’s Property

[94] The plaintiff claims that in 2016 there was additional security for the loans in the form of a second mortgage on a property in Richmond Hill belonging to Melina Bruzzese. This mortgage is said to evidence an acknowledgement in 2016 of Dennis’ debt to James which presumably would restart any notice period. Ms. Bruzzese was not put forward as an affiant. I would draw an adverse inference from the plaintiff’s failure to present her evidence. The plaintiff’s submissions on this point were not supported by proper evidence.

Conclusion

[95] Stepping back from the details of this case, one is left wondering why James, a former lawyer, waited as long as he did to pursue this claim. This is particularly true given that Dennis’ last payment was in March 2010, and that James’ April 26, 2012 letter contemplated the possibility of litigation when it stated “we have no more wish than you to see this devolve into litigation between us but there comes a point where it cannot be avoided even if you are reluctant to seek your own remedies against Matthew and your own partners.” James allegedly continued to talk to Dennis for another three and a half years until Dennis’ death in September 2015, and then James waited an entire additional year before sending a demand letter to Dennis’ widow Anna in October 2016.

[96] I was also struck by the plaintiff’s inability or failure to produce documentation from Dennis and Anna other than the Two Notes and the Authorization / Direction. The defendants did not deny that Dennis, at the time of his death, may have still owed a debt to James. However, the problem for the plaintiff is that legally, under the Limitations Act and the Bills of Exchange Act, the claim to recover the debt is no longer enforceable. I therefore grant summary judgment in favour of the defendants. The plaintiff’s action is dismissed against the defendants and the Collateral Mortgage is discharged.

Costs

[97] The defendants are awarded their costs on the motion and for the action. If the parties cannot agree on costs, the defendants may make written submissions as to costs within 15 days of the release of these Reasons. The plaintiff has 10 days after receipt of the defendant’s submissions to respond. Such written submissions shall not exceed five (5) double-spaced pages, exclusive of Costs Outlines, Bills of Costs, Offers to Settle and authorities and are to be forwarded to me via the Motions Coordinator. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.

Pinto J.

Date: June 9, 2020