COURT FILE NO.: CV-19-81522

DATE: 2020/12/09

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

Joanne Sicotte

Plaintiff

– and –

2399153 Ontario Ltd., Josée Virgo, Philippe Grandmaitre and Denis Marchand

Defendants

COUNSEL:

Martin Z. Black, for the Plaintiff

J. Alden Christian, for 2399153 Ontario Ltd., Josée Virgo, and Philippe Grandmaitre

Nadia J. Authier, for Denis Marchand

HEARD: September 23, 2020

REASONS FOR DECISION ON MOTION FOR SUMMARY JUDGMENT

RYAN BELL J.

Overview

[1] Joanne Sicotte moves for summary judgment against Josée Virgo, Philippe Grandmaitre, and Denis Marchand as guarantors of a mortgage granted by 2399153 Ontario Ltd. (“239 Ontario”) in favour of Ms. Sicotte (the “Mortgage”). Ms. Sicotte says that the Mortgage became due in July 2019, 239 Ontario is in default, and she is entitled to look to the guarantors pursuant to the terms of the guarantee they signed.

[2] Ms. Virgo, Mr. Grandmaitre, and Mr. Marchand argue that 239 Ontario is not currently in default under the Mortgage and therefore, they are not presently liable on their guarantee. They rely on a postponement of debt agreement (the “Postponement”) executed by Ms. Sicotte, 239 Ontario and the Business Development Bank of Canada (“BDC”) in July 2018.

[3] For the reasons that follow, I am satisfied that the determination of whether 239 Ontario is in default under the Mortgage does not require a trial. I find that because of the operation of the Postponement, 239 Ontario is not currently in default. I grant summary judgment to Ms. Virgo, Mr. Grandmaitre, and Mr. Marchand, and dismiss Ms. Sicotte’s claim against them.

Background Facts

[4] Ms. Virgo, Mr. Grandmaitre, and Mr. Marchand, together with Marc Robert, are shareholders, directors, and officers of 239 Ontario.[^1] Ms. Sicotte and Mr. Robert are spouses.

[5] In January 2014, Ms. Sicotte loaned $800,000 to 239 Ontario (the “Sicotte Loan”). Ms. Sicotte registered the Mortgage over 2628 St. Joseph Blvd., Ottawa (“the Property”), owned by 239 Ontario. 239 Ontario intended to build a commercial complex on the Property.

[6] The terms of the Sicotte Loan required 239 Ontario to make interest-only payments of $3,333.33, with the interest rate fixed at five per cent. The loan amount and the outstanding interest were not due until the construction of the buildings on the Property was complete and 239 Ontario had obtained term financing.

[7] Events of Default are defined in s. 4.1 of the Sicotte Loan agreement. Section 4.1 provides in part:

The Loan Amount and all interest thereon payable pursuant to this Agreement shall at the option of the Lender, unless otherwise provided herein, become immediately due and payable and any security held by the Lender for the payment thereof shall, at the option of the Lender, become immediately enforceable in each and every of the following events (the “Events of Default”):

(a) If the Borrower makes default in the payment of any interest and/or Loan Amount when it becomes due and payable and such default is not be [sic] remedied within ten (10) days following notice being given to the Borrower.

(e) If the Lender in good faith and acting reasonably believes that the ability of the Borrower to pay any of its obligations to the Lender or to perform any of the covenants contained in this Agreement is impaired or the security referred to in this Agreement is impaired or is in jeopardy.

[8] In addition to the Mortgage, the Sicotte Loan was secured by a January 30, 2014 guarantee (the “Guarantee”) provided by Ms. Virgo, Mr. Grandmaitre, and Mr. Marchand. Under the terms of the Guarantee, each of the guarantor’s liability is several and limited to one-third of the total obligations as defined in the Guarantee. Section 3.01 of the Guarantee provides:

At any time that the Lender is entitled to enforce its security in accordance with the provisions of the Mortgage, the Lender shall be entitled to make demand upon any one or all persons comprising the Guarantor for payment and performance of all Obligations.

[9] On August 1, 2014, the terms of the Sicotte Loan agreement were amended to increase the amount of the Sicotte Loan. The repayment terms required 239 Ontario to make interest-only payments in the amount of $4,4049.26. The increased loan amount and any outstanding interest were not due until the construction of the buildings on the Property was complete and 239 Ontario had obtained term financing.

[10] On June 1, 2016, the Sicotte Loan agreement was amended for a second time to increase the amount of the loan. Under the amended repayment terms, 239 Ontario was required to make interest-only payments in the amount of $7,613.79. The increased loan and any outstanding interest were due once construction of the buildings was complete and 239 Ontario obtained term financing.

[11] At the same time, the guarantors signed an amendment to the Guarantee to recognize the increased amount of the Sicotte Loan. Section 1.1 of the amending document amends the obligations of the guarantors as follows:

1.1 Obligations. Section 1.01 of the Guarantee is hereby deleted and replaced with the following:

The Guarantor [collectively defined as Ms. Virgo, Mr. Grandmaitre, and Mr. Marchand] unconditionally and irrevocably guarantees payment of all the debts and liabilities, present or future, direct or indirect, absolute or contingent, matured or not, at any time owing by the Borrower [239 Ontario] to the Lender [Ms. Sicotte] or remaining unpaid by the Borrower to the Lender under, and the performance by the Borrower of its obligations pursuant to, the terms of (a) a loan agreement between the Lender and the Borrower...in respect of the Loan, as amended from time to time, including, without limitation, two (2) amendment[s] to the Loan Agreement dated August 1, 2014 and June 1, 2016, respectively, and (b) all security for the Loan including, without limitation the charge/mortgage...of the lands and premises known municipally as 2628 St. Joseph Blvd., Ottawa...

[12] In June 2016, 239 Ontario secured construction financing that would allow it to move forward with the construction of the commercial buildings on the Property. Under the terms of the construction loan commitment, 239 Ontario was prevented from making any payments on the Sicotte Loan during the term of the construction mortgage. On June 21, 2016, the Sicotte Loan agreement was amended for a third time to recognize this restriction:

1.1 No Payments. Section 1.3 of the Second Amendment is hereby deleted and replaced with the following:

Repayment Terms. The repayment terms of the Increased Loan shall be as follows:

(a) During the term of the Construction Mortgage, interest in the amount of $7,613.79 per month shall accumulate commencing on June 30, 2016. The Increased Loan and the accumulated and outstanding interest shall be due once (i) the construction of the buildings on the Land is complete, (ii) all units in the Building are leased, (iii) the Lender’s financial ratios as provided in the Loan Agreement are met and (iv) the Borrower has obtained Term Financing.

(b) Provided the Borrower has first discharged the Construction Mortgage and any other obligation owed to Caisse Populaire Trillium Inc. in respect of the development on the Lands, the Borrower may repay all or any part of the Increased Loan together with interest accrued thereon at any time [italics in original].

[13] In 2018, 239 Ontario sought and obtained financing from BDC in the amount of $3,900,000. Ms. Virgo describes 239 Ontario’s financial position at the time as “dire.” Mr. Grandmaitre’s evidence is that “we basically had to sign whatever was presented at the risk of losing it all.”

[14] BDC’s letter of offer specified the maturity date of BDC’s loan as August 21, 2043. Ms. Virgo, Mr. Grandmaitre, Mr. Marchand, and Mr. Robert were required to guarantee the repayment of the BDC loan. In addition, BDC’s letter of offer specifically required the “Postponement of Debt totalling $1,500,000 owed by 2399153 Ontario Ltd. to Marc Robert. Interest may not be paid.” This term was subsequently amended to reflect that the Sicotte Loan is owed by 239 Ontario to Ms. Sicotte, not Mr. Robert.

[15] 239 Ontario accepted these terms.

[16] On July 4, 2018, Ms. Sicotte, 239 Ontario and BDC executed the Postponement. Consistent with BDC’s letter of offer, the Postponement provides in part:

...the Creditor [Ms. Sicotte] agrees with the Bank that any claim of the Bank in respect of the Loan shall take precedence over and be fully paid in priority to the Debt [the Sicotte Loan], and repayment of the Debt is hereby expressly postponed in favour of the Bank, all its or his right, title and interest in any security in respect of the Debt postponed by these presents; and the Creditor will not, so long as the Borrower is indebted to the Bank in respect of the Loan, demand payment, either in whole or in part, of the Debt, nor pledge nor transfer to any person any of the rights of the Creditor in respect of the Debt.

[17] A Postponement of Interest was registered on title to the Property on July 6, 2018.

[18] On July 7, 2018, the directors of 239 Ontario – Ms. Virgo, Mr. Grandmaitre, Mr. Marchand, and Mr. Robert – signed a resolution amending the original Mortgage between 239 Ontario and Ms. Sicotte as follows:

(i) deleting the principal amount of $800,000 and inserting the principal amount of $1,522,757.00;

(ii) deleting the interest rate of 5.0% and inserting the interest rate of 6.0%;

(iii) inserting the term of one year; and

(iv) deleting the payment amount of $3,333.33 and inserting the payment amount of $7,613.79 (acknowledged to be interest only).

[19] A Notice formally amending the Mortgage as set out above was registered on title on July 10, 2018.

[20] Ms. Sicotte commenced this action against the defendants in September 2019. She moves for summary judgment against the guarantors only because BDC has taken the position that, pursuant to the Postponement, Ms. Sicotte is prevented from demanding payment on 239 Ontario or enforcing the Mortgage until such time as BDC is paid in full, that is, in August 2043.

Summary Judgment is Appropriate

[21] The parties agree that there is no genuine issue requiring a trial with respect to Ms. Sicotte’s claim against the guarantors[^2] but they disagree on the outcome. Ms. Sicotte says that she is entitled to judgment against the guarantors, each as to one-third of the amount of $1,522,757, plus interest. Ms. Virgo, Mr. Grandmaitre, and Mr. Marchand argue that the claim against them should be dismissed.

[22] The Court of Appeal for Ontario has confirmed that the court has the authority to grant “boomerang” summary judgment orders and that this authority does not depend on the bringing of a cross-motion: Meridian Credit Union Limited v. Baig, 2016 ONCA 150, at para. 17. Ms. Sicotte does not argue otherwise. The parties agree that this is an appropriate case for summary judgment and there is no need for further evidence from additional witnesses.

[23] There is no dispute that Ms. Virgo, Mr. Grandmaitre, and Mr. Marchand guaranteed the Sicotte Loan, and the terms of the Guarantee are not in dispute. There is no dispute that the Postponement was a condition of BDC granting its loan to 239 Ontario, or that Ms. Sicotte, 239 Ontario and BDC agreed to the Postponement. The issue I must decide is whether 239 Ontario is currently in default under the Mortgage so as to entitle Ms. Sicotte to enforce the Guarantee. I find that there is no genuine issue requiring a trial because the evidentiary record permits me to fairly and justly determine this issue. I am able to make the necessary findings of fact and apply the law to those facts: Hryniak v. Mauldin, 2014 SCC 7, at paras. 4 and 49. Summary judgment is a timely, affordable and proportionate procedure in this case.

Analysis

[24] Ms. Sicotte maintains that the Mortgage is currently in default for two reasons. First, she says that because of the July 2018 amendments to the Mortgage, monthly payments were required commencing in August 2018. Payments were made in August and September 2018 but not thereafter. Accordingly, as of October 2018, 239 Ontario was in default. Second, and in any event, because the Mortgage was amended in July 2018 to have a one-year term, the Mortgage matured in July 2019. According to Ms. Sicotte, the Postponement is irrelevant to the issue of whether the Guarantee can be presently enforced against Ms. Virgo, Mr. Grandmaitre, and Mr. Marchand. Ms. Sicotte submits that the only reasonable interpretation of the July 2018 Mortgage amendment is that the maturity date of the Mortgage was not tied to the payout or the term of the BDC mortgage. Instead, the Mortgage term was fixed at one year from the date of the Notice, that is, July 10, 2019.

[25] In support of her position, Ms. Sicotte relies on s. 1.02 of the Guarantee which provides in part:

Obligations Absolute. The liability of the Guarantor in this guarantee will be absolute and unconditional and will not be affected by:

(a) any lack of validity or enforceability of any agreement between the Borrower and the Lender;

(e) any other law, regulation or other circumstance that might otherwise constitute a defence available to, or a discharge of, the Borrower in respect of any or all of the Obligations.

[26] In addition, Ms. Sicotte relies on the “No Release” clause of the Guarantee. Section 2.01 provides that the guarantors’ liability will not be released by anything done or permitted by Ms. Sicotte in connection with any liabilities of 239 Ontario to Ms. Sicotte, or any security provided. In particular, without obtaining the consent of or giving notice to the guarantors, Ms. Sicotte is permitted to:

(a) discontinue, reduce, increase or otherwise vary the terms of the Loan to the Borrower in any manner whatsoever;

(b) make any change in the time, manner or place of payment under, or in any other term of, any agreement between the Borrower and the Lender...;

(c) grant time, renewals, extensions, indulgences, releases and discharges to the Borrower;

(d) take or abstain from taking or enforcing securities or collateral from the Borrower or from perfecting securities or collateral of the Borrower;

(g) otherwise deal with the Borrower and all other persons and securities as the Lender may see fit.

[27] Ms. Sicotte maintains that in 2018, the parties clearly intended that the term of the Mortgage be one year; she says that to suggest the parties’ intention was overridden by the Postponement does not accord with a common sense interpretation of the totality of the documents.

[28] For their part, the guarantors say that Ms. Sicotte must be held to the bargain she struck: the postponement of the repayment by 239 Ontario of the Sicotte Loan in favour of the BDC.

[29] I begin with the guarantors’ obligations under the Guarantee. Pursuant to s. 1.01 as amended, the guarantors agreed to guarantee 239 Ontario’s debts and liabilities “at any time owing” by 239 Ontario to Ms. Sicotte, including under the Mortgage. Ms. Sicotte is not obligated to exhaust her remedies against 239 Ontario before being entitled to demand payment or performance from the guarantors: s. 2.02. The Guarantee contains an entire agreement clause: s. 4.02. All amendments to the Guarantee must be in writing and executed by the guarantors and Ms. Sicotte.

[30] Are 239 Ontario’s liabilities to Ms. Sicotte under the Mortgage presently “owing”? In my view, the answer to this question is “no”, based on a plain reading of the Postponement executed by Ms. Sicotte.

[31] “[T]he interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction”: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 47. The primary object of contract interpretation is to give effect to the intention of the parties at the time the contract was formed. The intent of the parties is determined by reading 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”: Sattva Capital, at para. 47.

[32] As the Supreme Court of Canada observed in Sattva Capital, at para. 47, “[c]onsideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning.” The Supreme Court cited Lord Wilberforce’s statement in Reardon Smith Line Ltd. v. Hansen‑Tangen, [1976] 3 All E.R. 570:

No contracts are made in a vacuum: there is always a setting in which they have to be placed... In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

[33] In Bell Canada v. The Plan Group, 2009 ONCA 548, 96 O.R. (3d) 81, at para. 37, the Court of Appeal for Ontario held that a commercial contract should be interpreted: (i) as a whole, in a manner that gives meaning to all the terms of the contract and avoids an interpretation that would render any term ineffective; (ii) by determining the intention of the parties with reference to the words used in the contract; (iii) 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 (iv) to the extent that there is any ambiguity in the contract, in a fashion that accords with sound commercial principles and good business sense, and that avoids a commercial absurdity.

[34] Giving the words used in the Postponement their ordinary and grammatical meaning, Ms. Sicotte agreed:

(i) the repayment of the BDC loan takes precedence over and shall be fully paid in priority to the Sicotte Loan;

(ii) repayment of the Sicotte Loan is postponed in favour of the BDC;

(iii) Ms. Sicotte’s right, title, and interest in any security in respect of the Sicotte Loan is postponed in favour of the BDC; and

(iv) while 239 Ontario is indebted to BDC, Ms. Sicotte is not entitled to demand payment of the Sicotte Loan.

[35] As the Postponement expressly states, BDC made its loan to 239 Ontario conditional on the Sicotte Loan being postponed.

[36] The wording of the Postponement is clear and unequivocal. I find that the intention of the parties to the Postponement – BDC, Ms. Sicotte, and 239 Ontario – was that no payments (interest or otherwise) could or would be made on the Sicotte Loan until such time as the BDC loan is repaid in full. The BDC loan has not been repaid in full; it matures in August 2043. I find that 239 Ontario remains indebted to Ms. Sicotte but, by operation of the Postponement, no amounts are presently “owing” by 239 Ontario under the Sicotte Loan and Ms. Sicotte has no right to insist on payment.

[37] I reject Ms. Sicotte’s contention that the Postponement is irrelevant and her argument that the guarantors are not entitled to rely on an agreement to which they are not parties. To the contrary, Ms. Sicotte must be held to the clear terms of the agreement she and 239 Ontario made with BDC. Because of that bargain, there are no amounts presently owing by 239 Ontario to Ms. Sicotte under the Mortgage. Therefore, the Mortgage is not in default and the guarantors’ obligations are not triggered.

[38] Ms. Sicotte submits it would be unreasonable to interpret the maturity date of the Mortgage, as amended in July 2018, as tied to the payout or the term of the BDC loan in 2043. The July 2018 Mortgage amendments inserted a one-year term, changed the principal amount, changed the interest rate, and inserted a new interest-only payment amount. But the Mortgage amendments did not (and could not) change the intent and effect of the Postponement: to preclude payments on the Sicotte Loan and to postpone Ms. Sicotte’s interest in any security, including the Guarantee, in respect of the Sicotte Loan until the payout of the BDC loan in 2043.

[39] The “No Release” clause in the Guarantee does not assist Ms. Sicotte. Section 2.01(e) of the Guarantee states that Ms. Sicotte is permitted to “otherwise deal with the Borrower and all other persons and securities as [she] may see fit.” Ms. Sicotte contends that the reference to “other persons” in this clause could extend to the BDC. Even if Ms. Sicotte’s contention is correct, this does not mean that the guarantors are, at this time, liable under the Guarantee. To go further would permit Ms. Sicotte to do an “end run” around the clear terms of the Postponement, including the term postponing Ms. Sicotte’s interest in any security in respect of the Sicotte Loan.

[40] Ms. Sicotte relies on the decision in CIBC Mortgages Inc. v. Derlago, 2018 ONSC 5949. The facts of CIBC Mortgages are distinguishable from those before me. In CIBC Mortgages, the primary issue was whether the plaintiff was entitled to enforce the defendant’s guarantee to pay the loan amount before the plaintiff had taken steps to sell the property by power of sale. There was no issue that the mortgage was in default. Charney J. granted the plaintiff’s motion for summary judgment on the basis that pursuant to the terms of the loan agreement, CIBC was legally entitled to require the defendant to pay the loan amount as soon as the payments required by the mortgage were in default. In this case, because of the operation of Postponement, 239 Ontario is not in default in the payment of any interest or the loan amount.

[41] Accordingly, because there are no amounts owing at this time by 239 Ontario to Ms. Sicotte in respect of the Sicotte Loan, the payment of such amounts having been postponed in favour of BDC, the guarantors have no present obligation under the terms of the Guarantee.

[42] Ms. Virgo, Mr. Grandmaitre, and Mr. Marchand raise an additional point. When the Sicotte Loan agreement was amended for the third time in July 2016, the repayment terms provided that all units must be leased before the loan amount and outstanding interest became due. The evidence is that to date, all the units have not been leased. Ms. Sicotte asserts that these repayment terms were not carried forward after the BDC loan was put in place. I am unable to make such a finding based on the record before me. Therefore, I find that for this reason too, 239 Ontario is not presently in default, and Ms. Sicotte is not entitled to enforce the terms of the Guarantee.

Disposition

[43] Ms. Sicotte’s claim against Ms. Virgo, Mr. Grandmaitre, and Mr. Marchand is dismissed.

[44] If the parties are unable to agree on costs of the motion and the action, they may make written submissions limited to a maximum of three pages. Ms. Virgo, Mr. Grandmaitre, and Mr. Marchand shall deliver their costs submissions by December 23, 2020. Ms. Sicotte shall deliver her responding costs submissions by January 7, 2021. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as amongst themselves.

Madam Justice Robyn M. Ryan Bell

Released: December 9, 2020

COURT FILE NO.: CV-19-81522

DATE: 2020/12/09

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

Joanne Sicotte

Plaintiff

– and –

2399153 Ontario Ltd., Josée Virgo, Philippe Grandmaitre and Denis Marchand

Defendants

REASONS FOR DECISION ON MOTION FOR SUMMARY JUDGMENT

Ryan Bell J.

Released: December 9, 2020

[^1]: In the summer of 2018, Mr. Grandmaitre resigned as a director of 239 Ontario; however, he maintains that his resignation was not valid because the conditions on which he resigned were not met. This factual dispute is not relevant to the legal issue to be determined on this motion for summary judgment.

[^2]: In their written submissions, Ms. Virgo, Mr. Grandmaitre, and Mr. Marchand took the position that summary judgment was not appropriate. At the hearing, they confirmed that they were seeking a “boomerang” summary judgment order dismissing the claim against them.