COURT FILE NO.: 17-60243
DATE: 2021-05-25
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Scott Wilson and Physiomed Health Holdings Inc.
Ronald Allan, for the Plaintiffs
Plaintiffs
- and -
Medcap Real Estate Holdings Inc. and John Cardillo
F. Scott Turton, for the Defendants
Defendants
HEARD: January 11, February 17, 18 and March 10, 2021
REASONS FOR JUDGMENT
A.J. GOODMAN J.:
[1] This is an action seeking liquidated damages from debts claimed under a Promissory Note and a claim for possession over real property securing the indebtedness by way of a mortgage.
[2] According to the impugned Promissory Note, the plaintiffs, Scott Wilson (“Wilson”) and Physiomed Health Holdings Inc. (“Physiomed”), are the lenders, and the defendants, Medcap Real Estate Holdings Inc. (“Medcap”) and John Cardillo (“Cardillo”) are the borrowers.
[3] Physiomed is a corporation incorporated pursuant to the laws of the Province of Ontario. Wilson is the principal of Physiomed.
[4] Cardillo is the principal and directing mind of Medcap. He is also the founder of the former fitness chain known as the Premier Fitness clubs.
[5] Wilson and Physiomed brings this motion for summary judgment seeking judgment for the full amount owing under the promissory note.
Background:
[6] Medcap is the owner of the commercial property municipally described as 635 Upper Wentworth Street, Hamilton, Ontario (“Upper Wentworth Property”), which is encumbered by the mortgage which is subject of this action.
[7] As of August 23, 2013, Medcap and Cardillo were indebted, on a joint and several basis, to Physiomed and Wilson for the principal sum of $1,580,000 together with applicable interest pursuant to a promissory note dated August 23, 2013 (the “Promissory Note”). The terms of which, inter alia, are as follows:
a. That the principal sum of the indebtedness is $1,580,000;
b. Monthly interest payments of $3,000.00 were payable on the 24^th^ day of each month commencing on September 24, 2013, through to December 24, 2016;
c. The principal sum together with annual interest of 2.28%, calculated daily, totaling $120,000.00 was be payable on or before December 24, 2016.
[8] All sums owing under the Promissory Note are secured by a second mortgage or mortgages registered against the Upper Wentworth Property, as instruments WE752073 and WE919326 (“Plaintiffs’ Mortgage”), which mortgages were registered on April 5, 2011 and August 28, 2013 respectively.
[9] There is a multi-faceted relationship between various parties. This includes a Loan and Priorities Agreement (“L&P Agreement”) dated February 4, 2014, between Heffner Investments Limited (“Heffner”), Wilson, Physiomed, and Medcap. The L&P Agreement deals with, among other things, the priority of the Physiomed/Wilson mortgages and the Heffner mortgage on the Upper Wentworth Property.
Positions of the Parties:
[10] The plaintiffs submit that the documents clearly speak for themselves and that the Promissory Note is a valid instrument evidencing the defendants’ obligations to them. The allegations made by the defendants in their statement of defence date back to 2011 or early 2012 and have never been asserted whatsoever prior to the commencement of their counterclaim on March 28, 2017.
[11] The plaintiffs take the position that the claims made by the defendants are wholly without merit and are being advanced solely for the purpose of attempting to confuse the court by raising a multitude of completely unrelated issues. The set-off claims/defences are being asserted in a disorganized and incoherent manner. Extensive documentary evidence has been inserted into the responding record that has little relevance or is unsupportive of the allegations being advanced by the defendant. Clearly, this is an attempt to create an issue for trial.
[12] The plaintiffs submit that the set-off defenses asserted cannot succeed for numerous reasons including, among other things, the fact that the Promissory Note contains an entire agreement provision, which precludes the argument that the debt claimed is subject to some unspecified agreement between the parties to set-off mutual debts. Moreover, the alleged claims asserted by the defendants are improperly characterized as a claim or defence for set-off. They are more properly characterized as claims for damages, which characterization has legal consequences to this motion and the viability of such claims. Coincidentally, no steps have been taken by the defendants to advance the counterclaim.
[13] In any event, the plaintiffs submit that these alleged set-off/claims as described by the defendants as a debt owing by the plaintiffs, are completely unsupported by evidence and devoid of a legal and factual basis to successfully resist summary judgment.
[14] The defendants respond that for summary judgment, the first question is whether the motion will determine all issues in the action. When the action hinges on a central issue that will be decided by the court one way or the other on the summary judgment motion, the motion, win or lose, determines the issue that decides the case either way and the action is concluded. If the situation is that the motion will not decide all in issues in the action, either in favour of the plaintiff or the defendant such that the motion ends the action, then the matter should proceed to trial, and judicial resources should not be consumed with motions that will not clearly result in the conclusion of the litigation.
[15] The defendants deny that they are liable to make payment under the Promissory Note. Instead, they assert that the plaintiffs and defendants had numerous dealings, unrelated to the Promissory Note/Plaintiffs’ Mortgage at issue and/or that the Mortgage and/or Promissory Note “are not free-standing obligations but part of a greater context…”. The defendants further assert that, on account of these other dealings, the plaintiffs owe money to them, which sums exceed the total indebtedness of Medcap and/or Cardillo under the Promissory Note.The plaintiffs entered into long term leases for space they occupied at Premier Fitness locations. In this way, the defendants have counterclaimed for the sums or claims that they seek to have set-off from the debt sought in connection with the Promissory Note.
[16] In any event, the defendants argue that we are not dealing with promissory or demand notes within the meaning of the Bills of Exchange Act, R.S.C. 1985, c. B-4. The document, as drafted, cannot be interpreted as such. There was payment of the loans in question clearly adopted by the parties, as well as obligations owed to them by the plaintiffs. Physiomed clinics at many locations did not pay rent since December 2011. The plaintiffs received the benefit of over a million dollars. Not every amount asserted by Medcap/Cardillo on their side of the ledger is uncontroversial. Some items will be disputed and an accounting is necessary. The defendants say that this action must go to trial.
Legal Principles:
[17] Under Rule 20.01 (1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, a plaintiff may move for summary judgment on all or part of a claim in the Statement of Claim, with supporting affidavit material or other evidence, after the defendant has delivered a Statement of Defence.
[18] Summary judgement is available when the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence. In determining whether a genuine issue is present, the court must consider the evidence submitted by the parties and relevant legal principles. In doing so, the judge may exercise any of the following powers for this purpose, unless the interest of justice require that such powers be exercised only at a trial, including the weighing of the evidence, evaluating the credibility of a deponent and drawing reasonable inferences: Hryniak v. Mauldin, 2014 SCC 7, at paras. 43, 44 and 45.
[19] The evidence is deemed to be sufficient to grant summary judgment if the motions judge is confident that the dispute can be resolved fairly. The evidence does not need to be the same as equivalent to the evidence at a trial: Hryniak, at para. 57.
[20] A judge should determine if there is a genuine issue requiring a trial based only on the evidence before him/her, without using the new fact-finding powers. There will be no issue requiring a trial if the summary judgment process provides him/her with the evidence required to fairly and justly adjudicate the dispute under rule 20.04(2.1) and (2.2). A judge may employ the expanded fact-finding powers at his/her discretion, provided that it is not against the interests of justice and will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole: Hryniak at para. 66.
[21] The mere possibility that a defence may exist if the action is permitted to proceed to trial is not sufficient. Where the plaintiff has made out a prima facie case, the defendant must show the defence has a real chance of success. Each side must “put their best foot forward”.
[22] A judge is entitled to draw inferences from the evidence on a common-sense basis and may look to the overall credibility of a party’s case. Merely raising an issue of credibility will not be an answer. Issues of credibility must be genuine and not spurious: Bhakhri v. Valentim 2012 ONSC 2817, at para. 8.
Analysis:
[23] Leaving aside for the moment the defendants’ counterclaim, there is no real dispute that Medcap and Cardillo were indebted to Physiomed and Wilson for the principal sum of $1,580,000 as of August 23, 2013. There is also no dispute that the balance of the sums owing remained unpaid as of the maturity date of the Promissory Note, being December 24, 2016.
[24] The plaintiffs’ claim is on a written document called Agreement and Promissory Note. The Statement of Claim also refers to two mortgages that it describes as collateral. It is not controversial that two mortgages were granted to the plaintiffs by Medcap and there was no advance of funds under either mortgage. The mortgages are stated to be collateral to earlier promissory notes (one dating back to 2007 and one to 2011). However, in this motion, the claim is not for payment under those mortgages.
[25] I observe that the entire agreement provision contained in the Promissory Note, states:
This Note contains the entire agreement of the parties hereto with respect to the subject matter of this Note and supersedes all prior agreements with respect to its subject matter.
[26] Cardillo was assisted by counsel with respect to the document. He gave evidence during his cross-examination confirming that the Promissory Note is a standalone agreement and not subject to any “unrelated” set-off or otherwise.
[27] Further, the express terms of the Promissory Note require that any amendments to the Promissory Note are to be made in writing. There is no evidence of any written agreements incorporating or confirming these unsupported claims of set-off into the Promissory Note.
[28] On this record, the certain claims for set-off relied upon by the defendants are summarized as follows:
a. That Medcap and/or Cardillo made a payment to an unrelated party, Equirex Leasing Corp. (“Equirex Leasing”) on behalf of the Plaintiffs, for which the Plaintiffs received a credit from Equirex;
b. That the L&P Agreement dated February 4, 2014, precludes the Plaintiffs from taking any enforcement action against Wentworth Property and/or under the Promissory Note in the circumstances;
c. That the Plaintiffs had agreed to pay out the first mortgage registered against the Upper Wentworth Property (the “Sun Life Mortgage”), and as a result of their failure to do so, Cardillo and/or Medcap incurred $450,000.00 in damages/costs;
d. That Physiomed and/or Wilson are liable to the Defendants for breaching an agreement to acquire the assets of the Premier Fitness clubs, which occurred sometime in 2012.
[29] The defendants further allege that Physiomed or Wilson owe money to Medcap or Cardillo for alleged missed rent payments. These amounts claimed exceed the sums owing under the agreement or Promissory Note, and therefore, once these sums are set-off against the Promissory Note, nothing will be owing by the defendants to the plaintiffs.
[30] I accept the plaintiffs’ submissions that for this motion, the defendants have failed to provide cogent records to quantify or account for the sums that they are seeking to set-off against the Promissory Note. The defendants have also failed to produce a single document and/or instrument that would confirm that monies are owed by Physiomed or Wilson to Medcap and/or Cardillo.
[31] The defendants’ position appears to be in stark contrast to the numerous debt instruments contained in the evidentiary record, (from the periods of 2007 to 2016), demonstrating that either Cardillo and/or Medcap and/or Cardillo associated companies owe or owed monies to Physiomed or Wilson. The Promissory Note provides for a limited system of set-off of rents owing under lease between “2264533 Ontario Inc. and its successors or assigns and Cardillo Capital Corp. an/or Medcap Real Estate Holding Inc”. This set-off is expressly limited to any missed interest payments associated with the agreement, a point to which I will return later in the judgment.
[32] In fact, on March 4, 2016, funds were advanced by Physiomed for the benefit of Medcap. This is the most recent debt instrument between the parties. The March 4, 2016, loan agreement makes no mention of any system of set-off to be accounted for in respect of repayment of same. Much like the Promissory Note in this action, the agreement provides for payment upon specific terms and dates, none of which considers or is subject to a global accounting.
The L&P Agreement and Mortgage:
[33] Before addressing the proper characterization of the Promissory Note and the availability of the set-off defence and counterclaim, I will briefly discuss the defendant’s arguments regarding the L&P agreement and its impact on this action.
[34] The defendants rely on paragraph 3.02(b) of the L&P Agreement in support of their position, that so long as the Sun Life Mortgage (the first mortgage on the Upper Wentworth Property) remains in good standing, that Physiomed and Wilson are precluded from enforcing the Plaintiffs’ Mortgage. This position relates to the express language of para. 3.01(i) of the L&P Agreement, which states:
“3.01: The Borrower hereby confirms to and agrees with the First Lender and the Second Lender:
(i) that default under the Security of any Lender or the Sun Life Security shall constitute default under the Security of the other Lender, notwithstanding any provision to the contrary in any Security; and
(iii) that upon the Sun Life indebtedness being paid and satisfied by the Borrower, the Borrower will then pay to the First Lender and the Second Lender, on a monthly basis, an amount equal to the monthly payment that was being paid on the Sun Life indebtedness prior to the Sun Life indebtedness being paid in full, such payments to continue until…
[35] Accordingly the defendants argue that, correctly understood, the L&P Agreement provides that default under the security of any of the lenders (including the Promissory Note and/or Plaintiffs’ Mortgage) constitutes a default under all security, including the Sun Life Security. There is no documentary evidence that Wilson agreed to payout the Sun Life Mortgage upon maturity.
[36] Again, the defendants have failed to produce any written collateral agreement or documentary evidence to support this allegation. Where the parties’ intention is plainly expressed in the language of the agreement, this court should not stray beyond the four corners of the agreement.
[37] There is an additional matter that arises from a specific provision in the L&P Agreement among Wilson and Physiomed, Heffner Investments Limited, and Medcap. In that agreement the plaintiffs are called the “Second Lender”, distinguishing them from Heffner Investments Limited who is the “First Lender”. The fourth recital in this agreement recites that the Borrower, Medcap, “is indebted to the Second Lender in the aggregate amount of $1,580,000.00 as of February 4, 2014”) defined as the “Wilson Indebtedness”, “under and pursuant to a Charge/Mortgage. These two mortgages are defined as the “Wilson Security”.
[38] Paragraph 3(b) of the L&P Agreement states:
The First Lender and the Second Lender hereby agree that so long as the Borrower is not in default in payment of the Sunlife Indebtedness [the first mortgage on the subject property] or is otherwise not in default under the Sunlife Security and is not in default in the performance of any of the terms of this agreement, then the First Lender or Second Lender shall not make a demand for payment of the Heffner Indebtedness pursuant to the Heffner Security or the Wilson Indebtedness pursuant to the Wilson Security, provided that in the event the Property is sold or transferred then notwithstanding the foregoing, the First Lender may demand payment of the Heffner Indebtedness pursuant to the Heffner Security or the Second Lender may demand payment of the Wilson Indebtedness pursuant to the Wilson Security subject to this Agreement including paragraph 2.02 hereof.
[39] The defendants say that a condition precedent to the plaintiffs bringing action on their mortgages is a default under the first mortgage, a default under the February 4, 2014 agreement, or a sale or transfer of the property. The plaintiffs do not plead the existence of any of those defaults. Moreover, Cardillo deposes that there is no default.
[40] In any case, the Sun Life mortgage was in default as of September 24, 2015, before the mortgage matured. Therefore, if such an agreement did exist, then it was frustrated by Medcap’s failure to keep the Sun Life mortgage in good standing. Such failure does not rest to the detriment of the plaintiffs.
[41] As an additional point regarding the mortgage, there is no basis for a claim of possession and plaintiffs’ counsel did not pursue that objective or make submissions in relation to this issue during the course of the hearing.
Characterizing the Promissory Note:
[42] The next question that must be answered on this motion is whether the Promissory Note, is in fact, a promissory note within the meaning of the Bills of Exchange Act, R.S.C., 1985, c. B-4. This is because the characterization of the note has legal consequences for the viability of the set-off claims raised by the defendants. As I noted in Allen v. Succession Capital Corp., 2011 ONSC 3300, at para. 44, where an agreement is a promissory note, equitable set-off is not available in law, and claims for legal set-off are minimized.
[43] The plaintiffs argued this motion on the basis that the contract was a bill of exchange, though in their materials they did plead that even if it was not, summary judgment remained available. In their submission, the Promissory Note is a clear, unambiguous promise to pay a sum certain in money.
[44] I am, however, persuaded by the defendants’ submission that the Promissory Note cannot be categorized as a bill of exchange. Though seemingly contrary to the express language of the Promissory Note, the substance of the agreement is what governs.
[45] Section 176(1) of the Bills of Exchange Act, R.S.C., 1985, c. B-4 provides the following definition for a promissory note:
176(1) A promissory note is an unconditional promise in writing made by one person to another person, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person or to bearer.
[46] In this circumstance, it cannot be said the Promissory Note, despite its title, amounts to an unconditional promise to pay a sum certain in money. In fact, Article 2(b) makes the amount ultimately due subject to the potential set-offs for interest payments with reference to leases that are external to the document. This goes to the document’s negotiability as well as the certainty of the final sum owing.
[47] Article 6 of the contract further erodes the negotiable character of the bill and certain nature of the amounts due under the agreement. It reads:
In addition to Lender’s other rights and remedies, in the event Borrower shall fail to pay any payment of Principal or interest, or both, required hereunder, the Borrower shall pay all collection costs (including legal fees and expenses) incurred by Lender.
[48] A collections clause has been held to vitiate a note’s character as a bill of exchange, as such a clause effectively makes the sum ultimately owing uncertain: Sniderman v. Gibbs (2004), 2004 CanLII 34233 (ON SC), [2004] O.T.C. 913 (S.C.), at para. 26, aff’d: 2006 CarswellOnt 1132 (C.A.); Harvey v. Bielawski (1998), 81 O.T.C. 318; Dawson v. Tomljenovich (1986), 1986 CanLII 763 (BC CA), 7 B.C.L.R. (2d) 139 (C.A.); Alberta Treasury Branches v. D & L Insulation (1985) (1991), 1991 ABCA 263, 83 Alta. L.R. (2d) 181 (C.A.).
[49] For these reasons I find that the Promissory Note is not a bill of exchange but is in line with a contract or loan agreement. It is a valid contract evidencing the indebtedness of the defendants to the plaintiffs.
[50] It must be pointed out that, whether a loan agreement or promissory note, the contract also contains an entire agreement clause. It cannot be rebutted outside a claim of mistake or fraud. Once such a clause is drafted clearly and unambiguously, the court should not hesitate to find that the entire agreement clause supersedes and replaces a prior agreement.
[51] In discussing the impact of an entire agreement provision in McNeely v. Herbal Magic Inc.,2011 ONSC 4237, 89 B.L.R. (4th) 226, at para. 19, the court determined that the provision demonstrated that the parties’ intended that the written agreements represented their entire agreement, notwithstanding any prior oral representations or discussions regarding the subject matter of the agreements.
[52] Generally, it is presumed that the parties mean what they say in their contracts: Rossman v. Canadian Solar Inc., 2018 ONSC 7172, 52 C.C.E.L. (4^th^) 133, at para. 62, aff’d 2019 ONCA 992. This is doubly so where the parties are sophisticated and represented by counsel in negotiating the agreement.
[53] I also observe that the entire agreement provision contained in the loan agreement expressly indicates that it “supersedes all prior agreements.” The Promissory Note also requires that any amendments thereto must be made in writing. Hence, the document was a complete agreement at the time of its making and was never subsequently amended to incorporate an agreement to set-off mutual debts beyond what was contemplated in the contract itself.
Set-off Defence:
[54] The defendants submit that based on set-off between the parties, the Promissory Note does not satisfy the definition in s.176 of the Bills of Exchange Act is of particular relevance to the availability of the set-off. Had I found the Promissory Note to be a bill of exchange, equitable set-off would have no application. Given that the contract is not a bill of exchange, a determination must be made on whether set-off raises a genuine issue for trial. As I will elaborate below, the loan agreement contains an entire agreement clause, and the set-offs claimed are unrelated to the debt evidenced by the contract.
[55] As a preliminary note, it is trite law that on a motion for summary judgment, the parties are required to put their best foot forward and the court is entitled to assume that the record contains all of the evidence that the parties would present if the matter proceeded to trial.
[56] While I need not necessarily proceed with fact finding authority under rule 20.04 (2.1), if there is any legitimate dispute about the sums owing under the mortgage, I prefer the evidence of Wilson over that of Cardillo. If required, I am prepared to draw inferences and/or make limited findings of credibility. There are significant credibility issues with the affidavits filed by Cardillo and Proctor that form the basis for the set-off claims.
[57] In this case, the defendants’ affidavits contain bald allegations or denials.[^1] Cardillo’s evidence during cross-examination is somewhat self-serving without providing supporting evidence.
[58] The remaining set-off claims asserted by the defendants fall into four major categories and can be summarized as follows:
a. That Medcap and/or Cardillo made a payment to an unrelated party, Equirex Leasing Corp. (“Equirex Leasing”) on behalf of the plaintiffs, for which the plaintiffs received a credit from Equirex;
b. That the plaintiffs had agreed to pay out the first mortgage registered against the Upper Wentworth Property (the “Sun Life Mortgage”), and as a result of their failure to do so, Cardillo and/or Medcap incurred $450,000.00 in damages/costs ;
c. That Physiomed and/or Wilson are liable to the defendants for breaching an agreement to acquire the assets of the Premier Fitness clubs, which occurred sometime in 2012; and
d. That Physiomed or Wilson owe money to Medcap or Cardillo for alleged rent payments.
[59] Set-off can be legal, equitable, or contractual. The distinction between legal set-off and equitable set-off was discussed by the Supreme Court of Canada in Telford v. Holt, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193. Legal set-off, as contemplated by s.111 of the Courts of Justice Act, R.S.O. 1990, c. C.43, requires (i) that both obligations are debts, in essence that they are liquidated in nature; and (ii) that the debts be mutual cross-obligations. Mutual cross-obligations has been interpreted by the courts to mean, practically, debts due from either party to the other for liquidated sums, or money demands which can be ascertained with certainty at the time of pleading: see Telford, at para 26; Strellson AG v. Strellmax Ltd., 2018 ONSC 1808, 62 C.B.R. (6th) 328, at paras. 40-41.
[60] Equitable set-off requires: (1) The party claiming set-off must show some equitable ground for being protected from his adversary's demands; (2) that ground must go to the very root of the plaintiff's claim; (3) the counterclaim must be so clearly connected with the plaintiff's demand that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the counterclaim; (4) the claim and counterclaim need not arise out of the same contract; and (5) unliquidated claims are on the same footing as liquidated claims: see Canaccord Genuity Corp. v. Pilot, 2015 ONCA 716, at para. 57.
[61] Here, the express terms of the agreement states that “all payments and prepayments and all obligations for payments or prepayments made hereunder shall be made without penalty or bonus, setoff, counterclaim or deduction of any kind”. Again, such a clause is tantamount to an entire agreement provision insofar as it prevents the defendants from arguing that the loan agreement was varied through conduct, actions, oral agreements, whether the relied upon actions occurred before or after the making of the contract.
[62] In fact, the defendants’ have not produced any agreements, or anything that could be construed as an agreement, that was entered into after August 23, 2013, being the date of the “Promissory Note”. Nor have the defendants put forward any credible evidence of the existence of a set-off, collateral agreement, or otherwise that go beyond what is expressly provided for in the document. The defendants’ spreadsheet is merely that: a spreadsheet without substance. There is no admission by Wilson that the parties ever engaged in a system of set-off that is not confined to the express language of the loan agreement.
[63] As noted in the plaintiff’s factum, Cardillo admits that Wilson did not agree to be bound by any system global of set-off at the time of entering into the Promissory Note. Hence, all actions carried out by the parties fell within conduct contemplated within the Agreement and Promissory Note.
[64] The set-offs also do not appear to go to the root of the plaintiffs’ claim. Particularly in light of the entire agreement clause, these claims do not amount to the kinds of claims for which legal and equitable set-off are available.
[65] There is, however, a third type of set-off available: contractual set-off. I will discuss this concept momentarily as it pertains to this case.
The Counterclaim:
[66] As mentioned, in this case, set-off is claimed in both the defence and counterclaim. Specifically, the defendants seek a certificate of pending litigation and an accounting related to the issues of set-off of rents.
[67] The defendants say that their counterclaim is valid and cannot be determined on the summary judgment motion. The defendants submit that no new materials were served by the plaintiff addressing the issues raised in the counterclaim and they have not pleaded dismissal of the claim. The plaintiffs have simply failed to provide the court with an evidentiary challenge to the counterclaim.
[68] The defendants argue that now that the leases are ended, and there is no more rent to set-off, it is time to do an accounting between the parties. The result of the accounting will be that not only is there nothing owed to the plaintiffs, but there is a balance owed by Scott Wilson and Physiomed to Medcap.
[69] In their affidavits, the defendants lay out the items owed to it and their quantification. They say that Wilson did not respond with any details or quantification at all. Instead, they plaintiffs attempt to pick out of their decade of dealings two loans and say they must be paid. The defendants argue that this however ignores Wilson’s own evidence that payments were made on these two loans by set-off and fails to deal with the many hundreds of thousands of dollars of rent not paid by the Physiomed clinics to Medcap. By agreement and conduct of the parties that unpaid rent was credited towards the amount of the loans from Wilson/Physiomed. The plaintiffs direct their efforts to inapplicable principles regarding promissory notes. Cardillo states in his affidavit of May 12, 2017 that:
The defendants do not owe the plaintiffs anything, rather the plaintiffs are liable to make payment to the defendants. The mortgages the plaintiffs base their claim on should be discharged. The Agreement and Promissory Note in August 2013 and the mortgages form part of the dealings had among these parties for over a decade and cannot be correctly interpreted without recourse to the context in which they came into existence and the course of dealings over the years among the parties. As I will set out in this affidavit, the mortgages and Agreement and Promissory Note are not free standing obligations but part of a greater context that informs the reciprocal rights and obligations of the parties toward each other.
[70] Again, on this record, these comments do not have much evidence in support of their assertions. A witness for the defendants, Neil Proctor, was asked about documentation of these arrangements. He stated that “they were all verbal initially”. He was asked if they “were always papered” to which he responded: “No. I can’t say they all were.” He was asked if he had any of these loan agreements and undertook to look in his computer and send what he found. If I were to assess Proctor’s evidence, it is without cogent foundation and is rejected as unreliable and entirely self-serving.
[71] The defendants also say that Wilson produced none of his accountings although he did not deny he had created many. He produced none of the set-off agreements, although he did not deny he had made them and the defendants claim that two more such agreements that dealt specifically with set-off from the $1,150,000 note were not disclosed by the plaintiffs. Of course, the onus is on the defendants to produce some reliable evidence in support of their position.
[72] Moreover, the defendants argue that the Court of Appeal has repeatedly set out as to why motions for partial summary judgment should not be entertained. In Butera v. Chown Cairns LLP, 2017 ONSC 783 at paras. 29-33, the court listed four further problems that “partial summary judgment raises … that are anathema to the stated objectives underlying Hryniak”. This is in addition to the danger of duplicative or inconsistent findings. Such motions cause the resolution of the main action to be delayed. The court went on to opine that this obstructs the determination of the real issue. Aside from the gross unfairness of proceeding with these motions, it means that these motions cannot resolve the entirety of these three actions.
[73] The defendants say that this is a similar situation that unless all issues in the action are determined on the summary judgment motion the same parties will go to trial with the same witnesses testifying to the same facts. The Court of Appeal disapproves of partial summary judgment in such situations.
[74] The court in Noreast Electronics Co. v. Danis, 2018 ONSC 5169, was asked to consider the impact of a counterclaim on the adjudication of a summary judgment motion. The counterclaimant defendant took the position that the main action should not be adjudicated on by way of summary judgment in the face of the counterclaim which would require a trial. The court recognized that granting judgment on the main action would still require the parties to go to trial on the counterclaim. The court nonetheless granted summary judgment in favour of the Plaintiff on the main action, stating: “…accepting the defendants’ argument would be tantamount to accepting that a summary judgment motion could never succeed in any case where the defendant had counterclaimed.”
[75] Similarly, the recent case of Lee v. Jung, 2019 ONSC 5950, is a matter where the plaintiff sought payment on a promissory note. The defendant filed a defence and counterclaim alleging that the sums due and owing under the promissory note ought to be set-off in relation to the alleged damages suffered by the defendant. In granting summary judgment, the court took note of a number of factors, and specifically made reference to: 1) the lack of connection between various damages claims made by the defendant and the sums borrowed from the plaintiff; 2) the failure of the defendant to assert the alleged claims in a timely manner; 3) the lack of evidence in support of any of the alleged claims made by the defendant; 4) the failure of the defendant to file any evidence in support of the quantum of damages sought; and 5) the likelihood that the claims being advanced by the defendant were statute barred.
[76] In Rescon Financial Corporation v. New Era Developments, 2018 ONSC 259, aff’d 2018 ONCA 530, the court confirmed that a motion to dismiss the counterclaim of the appellant was not necessary in light of the fact that the defence and counterclaim were essentially the same or overlapping.
[77] While it is arguable that the defendants’ counterclaim in this action is overlapping or identical to their defence, I turn to the one final area raised by the defendants in relation to the loan agreement, as I have determined its legal effect.
[78] The “Agreement and Promissory Note” provide as follows, at Article 2(b):
The accrued interest of $120,000.00 (the “Accrued Interest”) shall be forgiven provided the borrower pay a reduced monthly interest of $3,000, calculated as 2.28% annual interest on the principal amount, equaling $36,00.00 divided monthly. For the borrow to receive this interest forgiveness, all twelve monthly payments must be made to the lender not later than 11:59pm on the 24^th^ of every month commencing September 24, 2013 through to December 24, 2016. Should any payment be late and/or missed, then any rent payable by 2264533 Ontario Inc. (including its successors or assigns) pursuant to a lease (including any amendments or addenda thereto) with Cardillo Capital Corp. and/or Medcap Real Estate Holdings Inc. shall be set-off against the Accrued Interest; should said set-off not satisfy the full amount of the Accrued Interest, then interest will be calculated and payable at 2.28% on the principal balance for the remainder of the term from the date of default until the entire monies owing hereunder have been paid in full and asset out herein including section 7 (emphasis added).
[79] Returning to contractual set-off, it is not subject to the usual strict requirements of legal set-off – “the parties are free to contract for whatever results they wish”: see Baylin Technologies Inc. v. Gelerman, 2021 ONCA 45, 154 O.R. (3d) 65 at paras. 68-70. The Promissory Note, at Article 2(b) provides for a clear contractual right to set-off amounts owing for accrued interest against rents payable between certain entities and their successors and assigns. These amounts are not inconsequential and present a clear issue for trial to determine the exact amounts owing between the parties.
[80] In Kentner v. Stefanovic, 2019 ONSC 2386, the court discussed the effect of a counterclaim on the enforcement of a mortgage debt. Similar to the present case, the defendant in Kentner attempted resist summary judgment on a mortgage action by seeking to have the sums claimed thereunder set-off pursuant to a counterclaim. The judge rejected the defendant’s position, noting at para. 43, that the “claim for potential set-off is not an impediment to partial summary judgment.”
[81] In applying this approach, the court in Kentner recognized that there was an enforceable contract that the plaintiff was seeking to impose and that the claims made by the defendant did not affect the validity of the mortgage. The court indicated that the plaintiffs should not have to wait until the counterclaim is determined before they can get the monies owed to them under the mortgage, noting that the counterclaims were sufficiently distinct to permit judgment on the mortgage while leaving the counterclaim as an issue for trial. Kentner is instructive.
[82] In my opinion, given the evidence in this motion regarding the relationship between the parties, the validity of the loan agreement and the set-off of rents does not afford a defence, per se, it is still a live, albeit nuanced issue in the counterclaim.
[83] During the course of my analysis, I have expressed some scepticism as to the merits of the counterclaim. However, despite the apparent lack of supporting documentation to bolster the defendants’ position, or a viable limitations argument raised by the plaintiffs, on the distinct interpretation of this provision in the agreement, I cannot dismiss it out of hand.
[84] As such, I am prepared to resolve this summary judgment matter in favour of the plaintiffs and narrow the case to go forward as a trial of an issue related to any accrued interest owing under the loan agreement with the counterclaim for set-off of rents. The case of Gravina v. Walsh, 2018 ONSC 5638, 53 C.C.L.T. (4^th^) 332, at para. 73, provides for my discretion in resorting to rule 20.04 (3) to grant summary judgment in favour of a moving party, while permitting the discrete issue of damages in the counterclaim to be litigated.
Conclusion:
[85] In sum, the plaintiffs have satisfied me that the record is capable of determination and resolution in order to fairly and justly adjudicate the dispute in a timely, affordable and proportionate manner.
[86] Given the evidence in this motion regarding the method of payment between the parties and notwithstanding my conclusion that the Promissory Note is not a bill of exchange, per se, it remains a valid contract evidencing a debt between the parties to which general claims of set-off are no defence. On this record, the substantive, evidentiary basis for the defendants’ defence to the loan agreement is lacking and I accept the documents as they pertain to the parties’ intentions and obligations.
[87] In my opinion, on the principal action, there is no genuine issue requiring a trial. Therefore, I find in favour of the plaintiffs and the motion for summary judgment is granted, with one allowance.
[88] Judgment is ordered in favour of the plaintiffs in the amount of $1,580,000 (plus applicable post-judgment interest).
[89] For all of the aforementioned reasons, the defendants’ have framed a nuanced issue in the counterclaim based on the full interpretation of the loan agreement, and in particular, clause 2(b). Leave is granted to the defendants’ to proceed with their counterclaim on their claim for a set-off amount for rents owing related to any outstanding interest owing or accrued on the terms of the loan agreement. This may proceed to as a trial of an issue before a different jurist.
[90] If the defendants’ fail to prosecute the counterclaim within a reasonable timeframe, then all the amounts claimed by the plaintiffs including pre-judgement interest shall be awarded accordingly. I will remain seized of the matter should the plaintiffs require a revised judgment due to a failure of the defendants to continue with their counterclaim.
Costs:
[91] If the parties cannot agree on costs, the plaintiffs shall file their submissions within 10 days of the release of this ruling. The defendants shall file their response within 10 days of receipt of the plaintiffs’ submissions. The plaintiffs may file a brief reply within five days thereafter. These submissions shall not exceed three pages in length (not including Bills of Costs or Offers to Settle). If submissions are not received prior to June 25, 2021, the matter of costs will be considered resolved and the file will be closed.
A.J. Goodman J.
Released: May 25, 2021
COURT FILE NO.: 17-60243
DATE: 2021-05-25
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Scott Wilson and Physiomed Health Holdings Inc.
Plaintiffs
- and –
Medcap Real Estate Holdings Inc. and John Cardillo
Defendants
REASONS FOR JUDGMENT
A.J. Goodman J.
Released: May 25, 2021
[^1]: I also observe that defendants’ counsel repeatedly and unnecessary interrupted legitimate questions posed by Mr. Allan to Cardillo during cross-examination of the affidavit.