Court File and Parties
COURT FILE NO.: CV-20-2867
DATE: 20210420
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
ROYAL BANK OF CANADA
Plaintiff
– and –
9745858 CANADA CORP., FORTUNATO PITARO and SONIA PITARO
Defendants
J.C. Davies, for the Plaintiff
S. Singhal, for the Defendants
HEARD via videoconference: April 14, 2021
reasons for judgment on summary judgment motion
McCARTHY J.
[1] This was a motion by the Plaintiff for summary judgment. On April 14, 2021, I allowed the motion with reasons to follow. These are my reasons.
Rule 20.04 and Hryniak v. Mauldin
[2] The roadmap on summary judgment motions was established by the Supreme Court of Canada in Hryniak v Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87. It is a two-step test. Motions judges must first determine whether there is a genuine issue requiring a trial based only on the evidence contained in the motion record, without using any of the powers set out in Rule 20.04(2.1). The second step need only be canvassed if the motions judge finds that there is a genuine issue requiring a trial.
[3] On the pleadings and evidence before me, I find that that there are no genuine issues requiring a trial of the action. The evidentiary record permits me to arrive at a fair and just determination on the merits. A trial judge would be in no better position to do so. Viva voce evidence is not necessary to determine this matter. Summary judgment is a proportionate and expeditious means to achieve a just result. Put more bluntly, a trial would be a waste of time and money.
Factual Background
[4] The facts are simple and, for the most part, not in dispute. The Defendant corporation (“974”) entered into a loan agreement with the Plaintiff in March 2017 for an amount of $326,400.00. The purpose of the loan was to assist with the construction of a film production studio on leased premises in Concord, Ontario (the “leased premises”).
[5] As security for the loan, both Fortunato Pitaro and Sonia Pitaro (“The Personal Defendants”) provided a personal guarantee limited to 25 percent or $86,100.00 of the loan. Since Fortunato Pitaro was the principal of 974, only Sonia Pitaro sought and obtained independent legal advice.
[6] The loan was advanced to the Defendants in instalments with the final instalment being made on February 19, 2018. Following the advance of funds and during the construction phase at the leased premises, the Defendants encountered financial difficulties. The business was not generating income; loan payments were not made on schedule. Despite accommodations afforded by the Plaintiff, the business ceased to operate completely when the landlord took possession of the leased premises. This prompted the Plaintiff to issue the demands on October 2, 2020 requiring payment of $214,142.20 from 974 and $81,600.00 from the Personal Defendants as guarantors.
[7] The Defendants do not dispute that the loan documents were executed, that the loan was advanced, that the Defendants defaulted on the loan or that the Plaintiff has properly exercised its rights to demand payment under the loan agreement and the personal guarantees. Nor do they deny that the quantum claimed by the Plaintiff is payable, absent the available defences.
The Defendants’ Pleading
[8] The Statement of Defence contains the following paragraphs:
In response to paragraph 7, 9, 10, 11, 12, 13, 14, 21, 22, 23 and 24 of the Statement of Claim, Fortunato pleads that at the time of entering into the loan agreement he had no knowledge of the security agreement and its enforcement clause.
The Loan Agreement and related documents were signed by Fortunato with the bank’s representative and he signed without knowledge of the consequences in case of default. The default clause was not specifically brought to the Defendants attention.
[9] The statement of defence also contains several paragraphs which allude to the Covid-19 pandemic and the doctrine of frustration. Paragraph 23 states as follows:
- In response to paragraph 18, 19 and 20 of the Statement of Claim, the Defendants deny that the Plaintiff is entitled to recover the alleged amount from them. The credit facility was availed for business purpose which eventually failed due to Covid-19.
The Defendants’ Evidence
[10] The April 5, 2021 affidavit of Fortunato Pitaro, with accompanying attachments, is the only evidence that the Defendants have added to the evidentiary matrix. With the greatest respect, it adds nothing but very light colour to the record. Rather too conveniently, it minimizes the fact that the Defendants’ business was earning no income and was defaulting on loan payments well before Covid-19 hit and long before the landlord took possession of the premises.
[11] In terms of the theme sketched out in the statement of defence about the execution of the loan documents, it merely repeats the allegations without providing specifics, detail, substance or context. Like their counterpart paragraphs in the pleading, they appear to be nothing more than boiler plate type allegations. The affidavit does add one paragraph stating that the Plaintiff misrepresented to the Personal Defendants that their liability under the personal guarantees was joint and several.
Analysis
The Loan Agreement and Other Related Documents
[12] Neither the statement of defence nor the evidence establish a genuine issue requiring a trial pertaining to the loan agreement and other related documents.
[13] While the allegations in the pleading might barely raise non est factum, there is absolutely nothing in the evidence to support that potential defence. In fact, the affiant rather cryptically asserts that “the representative of RBC did not fully explain the terms of the loan agreement to the Defendants”; “the personal defendants signed wherever they were pointed out by representative [sic] of RBC”; and “the default clause was not specifically brought to the Personal Defendants’ attention”.
[14] It was incumbent upon the Defendants to put their best foot forward. There is no evidence that the Personal Defendants did not understand what they were signing; failed to read or review the documents on their own; were otherwise unaware of their contents; or that they were ignorant of the practical and legal implications of a default.
[15] As well, the evidence demonstrates that Sonia Pitaro received independent legal advice; there is no evidence that the advice she received was deficient or misleading.
[16] Finally, the statement at paragraph 24 of the affidavit of April 5, 2021 that the Plaintiff misrepresented to the Personal Defendants that their liability under the personal guarantees was joint and several with a collective exposure limited to $81,600.00 is a red herring. That statement, if it was ever made, was not a misstatement at all – the liability under the personal guarantees was indeed joint and several with a collective exposure limited to that amount.
Frustrated Contract
[17] The doctrine of frustration cannot apply here. The key to the doctrine of frustration is the idea of a radical change in the contractual obligation arising from unforeseen circumstances in respect of which no prior agreement has been reached, those circumstances having come about without the default of either party: see Gerstel et al. v. Kelman et al., 2015 ONSC 978, at para. 43.
[18] In Sub-Prime Mortgage Corporation v. Kaweesa, 2021 ONSC 739, at para. 28, this court considered the question of whether the ongoing Covid-19 pandemic and the accompanying lockdown measures served to alter a lending agreement to such an extent that to compel performance would cause the defendants to do something that was “radically different” than what the parties had agreed to. The answer was no. The court found that the obligation of the defendants was to pay a specified sum on a specified date, in exchange for specified actions by the plaintiffs. The pandemic and the lockdowns did not alter those obligations.
[19] That reasoning, which I adopt, applies here. There is nothing about the Covid-19 pandemic which altered the fundamental nature of the contract at bar; the agreement was nothing more than the lending of a sum of money upon certain terms, including personal guarantees on a portion of the loan, in return for which repayment was required. In the case of a default under the loan, the lender had a right to demand and seek payment, and to look to the guarantors for a portion of that payment.
[20] Nor can the evidence support a finding that it was Covid-19 which rendered the Defendants’ project untenable. The Defendants’ business had not earned any income by the time the pandemic hit in March 2020. Fiscal year 2019 saw the business operating at a loss. Despite receiving the full amount of the loan by February 2018, the Defendants ran short of funds to purchase the necessary production equipment and to complete the renovations to the leased premises. It was already evident that the Defendants’ business was in a dire financial situation when it failed to make any loan payments between November 2018 and April 2019. This resulted in the Plaintiff agreeing to defer principal payments well before the pandemic hit a year later.
[21] I conclude that the defence of frustrated contract is not a genuine issue requiring a trial.
Disposition
[22] There are no genuine issues requiring a trial of this action. The Plaintiff is entitled to judgment in accordance with the relief claimed and sought in the notice of motion. There shall be an order to go accordingly.
[23] At the conclusion of argument, I advised the parties that I was allowing the motion and granting summary judgment to the Plaintiff, with reasons to follow.
[24] I then received submissions on costs. The Plaintiff sought $9,755.67, all-inclusive, in respect of both the motion and the action. This strikes me as reasonable. An opposed summary judgment motion is rarely simple. The amount of money involved, and the notion of frustrated contract lent the matter a moderate degree of both importance and complexity. The Plaintiff was entirely successful on the motion. Those costs are entirely proportionate to the amount claimed and recovered.
[25] For those reasons, I would allow the Plaintiff’s costs of the motion and the action. I would fix those costs at $9,755.67 all-inclusive. Those costs are payable forthwith by the Defendants, jointly and severally.
[26] Having found in favour of the Plaintiff, I invited its counsel to provide me with a proposed draft judgment. I have now received that draft judgment, together with a calculation of interest chart. In fairness to the Defendants and their counsel, it is appropriate to afford them an opportunity to review the form and content of the proposed judgment and either approve same or propose a different version.
[27] The Defendants shall therefore have until April 30, 2021 to provide their approval to the form and content of the proposed draft order, failing which either party would be at liberty to take out an appointment before me through the trial coordinator at Newmarket to address any outstanding issues related to that proposed judgment.
McCarthy J.
Released: April 20, 2021