Court File and Parties

COURT FILE NO.: CV-21-00654679-0000

DATE: 20210618

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

BANK OF MONTREAL

Plaintiff

– and –

2643612 ONTARIO LTD. also known as 2643612 ONTARIO INC. carrying on business as DON CHERRY’S @ GATEWAY and BAR DOWN PUB & PATIO, and HELEN GRIFFITHS also known as HELEN DAWN GRIFFITHS

Defendants

COUNSEL:

Randy Schliemann, for the Plaintiff

Chris Argiropoulos, for the Defendants

HEARD: June 10, 2021

Reasons for Decision

VERMETTE J.

[1] The Plaintiff, Bank of Montreal (“Bank”), brings a motion for summary judgment against the Defendants pursuant to their respective obligations to the Bank under a loan agreement and a guarantee.

Factual Background

[2] The Defendant 2643612 Ontario Ltd. (also known as 2643612 Ontario Inc.) (“264”) operates a restaurant/bar connected to three hockey rinks in the Gateway Arena in Stoney Creek, Ontario. The restaurant is accessed by customers from the main doors to the arena. The Defendant Helen Griffiths is a principal of 264. She states in her affidavit that 90% to 95% of the customers of 264’s restaurant/bar operation are parents who accompany their children to the hockey rinks.

[3] In November 2018, the Bank granted 264 a small business loan in the amount of $306,000.00 with interest accruing at the Bank’s prime rate of interest in effect from time to time plus 3.00% per annum (“Loan”). The Loan was granted pursuant to a Loan Application and Agreement dated November 23, 2018 (“Loan Agreement”) that was signed by Ms. Griffiths as 264’s President. The Loan Agreement is a short document – the main terms are set out on two pages.

[4] Ms. Griffiths also signed the following documents on November 23, 2018: a Guarantee for Indebtedness of an Incorporated Company (signed personally) (“Guarantee”), an Assignment, Postponement and Subordination Agreement (signed both personally and on behalf of 264) (“Subordination Agreement”), and an Ontario Personal Property Security Act Security Agreement (signed on behalf of 264) (“Security Agreement”). The Security Agreement was registered in accordance with the Personal Property Security Act, R.S.O. 1990, c. P.10.

[5] The liability of Ms. Griffiths under the Guarantee is limited to $76,500.00 plus interest thereon at a rate of 3.00% per annum above the Bank’s prime interest rate in effect from time to time. The Guarantee includes the following provisions, among others:

IT IS AGREED that no change in the name, objects, capital stock, ownership, control or constitution of the Customer [i.e. 264] shall in any way affect the liability of the undersigned with respect to transactions occurring either before or after any such change. […]

THE UNDERSIGNED represents and warrants that (i) it fully understands the provisions of this Guarantee and its obligations hereunder; (ii) it has been afforded the opportunity to engage independent legal counsel, at its own expense, to explain the provisions of this Guarantee and its obligations hereunder; and (iii) it has either engaged legal counsel in connection with its execution of this Guarantee or has decided, at its sole discretion, not to do so.

THIS GUARANTEE shall remain in effect notwithstanding any change in the circumstances having led the undersigned to execute this Guarantee and notwithstanding the termination of or a change in the office or duties of such undersigned or in any relationships between such undersigned and the Customer.

[6] On November 29, 2018, Ms. Griffiths signed a Floating Rate – Promissory Note on behalf of 264 (“Promissory Note”). Pursuant to the Promissory Note, the Loan was to be repaid in monthly instalments of $3,642.86 ($3,642.62 in December 2018) until November 2025. The Promissory Note provides that in the event of a failure to pay any amount of principal or interest on the date upon which the payment is due, the whole of the principal then remaining unpaid and all accrued interest thereon shall, at the option of the Bank, become due and payable forthwith.

[7] 264 made its monthly payments under the Loan Agreement and the Promissory Note from December 2018 to March 2020, but has failed to deliver its monthly payments since April 2020. In March 2020, at the beginning of the COVID-19 pandemic, the Bank agreed to a six-month deferral of 264’s obligation to make payments towards the principal of the Loan. On November 9, 2020, the Bank made demand on 264 and Ms. Griffiths for repayment of the Loan in full pursuant to their respective obligations, and for possession of 264’s assets. No payment was received, and the Bank commenced this action on January 12, 2021. As of June 10, 2021, the date of the hearing, $268,124.66 was owing.

[8] The Bank has filed an affidavit of Tery Tsiliganos, a Relationship Manager with the Bank, who dealt with Ms. Griffiths and 264 in relation to the Loan. According to Mr. Tsiliganos, prior to beginning the application for the Loan, he had preliminary conversations with Ms. Griffiths during which he discussed the Loan with her and provided information that she requested. Mr. Tsiliganos sent the documents related to the Loan to Ms. Griffiths by e-mail on November 21, 2018 for her review, including the Loan Agreement, the Promissory Note, the Guarantee, the Subordination Agreement and the Security Agreement (“Loan Documents”). Mr. Tsiliganos states in his affidavit that Ms. Griffiths did not reach out to him between November 21 and November 23, 2018, when she visited his office with the Loan Documents. He further states that upon Ms. Griffiths’ visit to his office, they reviewed the Loan Documents, and he explained each of them to her. He also asked if she had any questions, which they then discussed. Mr. Tsiliganos’ evidence is that after their review of the Loan Documents, Ms. Griffiths indicated that she had no further questions. She was comfortable with the material and she executed the Loan Documents in his office.

[9] Ms. Griffiths filed a responding affidavit on this motion. She does not directly contradict or dispute Mr. Tsiliganos’ evidence. However, she states the following in her affidavit:

At no time was I advised by the plaintiff’s employees or agents that I should obtain independent legal advice with respect to the Loan Application, the Promissory Note, the Assignment, Postponement and Subordination Agreement, General Security Agreement or Guarantee referenced in the herein action. As such, I did not understand the legal implications of the documents that I signed.

I certainly did not understand the legal implications of the documents and the defendants’ responsibility to honour the loan agreement given the impact of the COVID-19 pandemic on the defendants’ business endeavour since March 2020.

The restaurant/bar closed down on March 16, 2020, and has not re-opened since. As a result, the defendant 2643612 Ontario Ltd. is not in a position to repay the loan and I am not in a position to honour my obligations pursuant to the guarantee.

It is my position that there is a genuine issue for trial with respect to the defendants’ obligation to repay the loan pending the resumption of normal business activities mandated by the Government of Ontario and/or the Government of Canada in the context of COVID-19. I propose to amend the defendants’ Statement of Defence accordingly.

[10] Ms. Griffiths attaches to her affidavit a proposed Amended Statement of Defence in which the Defendants allege, among other things, that “due to circumstances beyond their control caused by the COVID-19 pandemic, any and all agreements for the repayment of monies by the defendants to the plaintiff are frustrated.”

Discussion

[11] A party moving for summary judgment has the evidentiary burden of showing that there is no genuine issue requiring a trial with respect to a claim or defence. However, each party must put its best foot forward to establish whether or not there is an issue for trial. The Court is entitled to assume that the record contains all the evidence that the parties would present at trial: see Toronto-Dominion Bank v. Hylton, 2012 ONCA 614 at para. 5. A responding party cannot rely on allegations or denials in the pleadings, but must present evidence demonstrating that there is a genuine issue for trial: Sylvite v. Parkes, 2020 ONSC 5569 at para. 16.

[12] In my view, this is an appropriate case for summary judgment. The case is not complex, and the key facts are not in dispute. This Court is able to make a fair and just determination on the merits of this case based on the record that is before it on this motion.

[13] The allegations that Ms. Griffiths did not obtain independent legal advice and did not understand the legal implications of the documents that she signed do not raise a genuine issue requiring a trial, for the following reasons:

a. The case law is clear that in the absence of fraud or other improper conduct inducing 264 and/or Ms. Griffiths to enter into the Loan and related agreements, the onus must rest upon them to review the documents and satisfy themselves of their advantages and disadvantages before signing them. There is no justification for shifting the Defendants' responsibility to act with elementary prudence onto the Bank: see Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection Co. (1997), 1997 4452 (ON CA), 34 O.R. (3d) 1 (C.A.). It is not suggested that 264 and Ms. Griffiths were rushed or pressured in any way into signing the Loan Documents. Nor is it suggested that the Bank engaged in any dubious conduct to achieve this end. Ms. Griffiths was sent the Loan Documents a few days before she signed them and was given time to read them and consider their terms. She was also given the opportunity to ask questions, and did ask questions, of the Bank’s representative regarding the Loan Documents, which were reviewed with her: see Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection Co. (1997), 34 O.R. (3d) 1 (C.A.).

b. Ms. Griffiths did not directly contradict Mr. Tsiliganos’ evidence regarding their conversations and the fact that he reviewed the Loan Documents with her, explained each of them to her, and gave her the opportunity to ask questions. By failing to address this evidence, the Defendants failed to put their best foot forward.

c. In the Guarantee, Ms. Griffiths represented that she fully understood the provisions of the Guarantee and her obligations hereunder, and that she had been afforded the opportunity to engage independent legal counsel.

d. In any event, it was not a requirement for Ms. Griffiths to obtain independent legal advice. Independent legal advice is not required prior to the signing of a guarantee if the guaranteeing party is an officer and director of the corporation receiving the loan, which is the case here: see Meridian Credit Union Limited v. 2428128 Ontario Limited, 2017 ONSC 4578 at paras. 23-24.

[14] While the pandemic has had a devastating impact on certain businesses, the Defendants’ argument based on frustration must also be rejected.

[15] The law of frustration was reviewed by the Divisional Court in Cowie v. Great Blue Heron Charity Casino, [2011] O.J. No. 5573 at paras. 19-23 (Div. Ct.). The Court stated, in part:

19 In Naylor Group Inc. v. Ellis-Don Construction Ltd, 2001 SCC 58, [2001] 2 S.C.R. 943 at paras. 53 and 55 ("Naylor Group"), the Supreme Court of Canada reviewed general principles regarding the circumstances in which a contract will be frustrated.

Frustration occurs when a situation has arisen for which the parties made no provision in the contract and performance of the contract becomes “a thing radically different from that which was undertaken by the contract”: Peter Kiewit Sons' Co. v. Eakins Construction Ltd., 1960 37 (SCC), [1960] S.C.R. 361, per Judson J., at p. 368, quoting Davis Contractors Ltd v. Fareham Urban District Council, [1956] A.C. 696 (H.L.), at p. 729.

The court is asked to intervene ... to relieve the parties of their bargain because a supervening event ... has occurred without the fault of either party. For instance, in the present case, the supervening event would have had to alter the nature of the appellant's obligation to contract with the respondent to such an extent that to compel performance despite the new and changed circumstances would be to order the appellant to do something radically different from what the parties agreed to under the tendering contract ...

20 In providing this summary, the Supreme Court relied in part on the following explanation of “radical change of obligation” provided in G.H.L. Fridman, The Law of Contract in Canada, 4th ed. (Scarborough: Carswell, 1999) at 677:

The key to both the understanding and the application of the doctrine of frustration in modern times 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 default by either party. What would appear essential is that the party claiming that a contract has been frustrated should establish that performance of the contract, as originally agreed, would be impossible.

23 The concept of frustration can also apply to “situations where the contract may be both physically and legally capable of being performed but would be totally different from what the parties intended were it performed after the change that has occurred”. It was in regard to these types of situations -- and not the case of legal impossibility that is involved here -- that Fridman commented at 679-680:

The distinction is made and drawn between complete fruitlessness and mere inconvenience, hardship, loss of advantage, or the like. It is also necessary to differentiate a disruption that is permanent, vis-à-vis the contract (albeit that it may not be permanent in other respects) and one that is temporary or transient. The latter might add to the difficulties of performance. It might make performance less desirable, economically valuable, or more expensive to undertake. But it will not constitute frustration.

[16] In Ontario, the Frustrated Contracts Act, R.S.O. 1990, c. F.34 applies to a contract that has been frustrated and to the parties to such a contract who have been discharged. Neither the Bank nor the Defendants have made submissions regarding this statute, in particular section 3. That being said, I do not need to consider the statute’s application because, as explained below, I have come to the conclusion that the doctrine of frustration does not apply to this case.

[17] The pandemic and the ensuing lockdowns did not render the Loan Agreement and the related agreements substantially different from the agreements that the parties executed in November 2018. In exchange for specified actions by the Bank, including granting the Loan, the obligation of 264 was to make specific payments on specified dates and Ms. Griffiths’ obligation under the Guarantee was to guarantee payment to the Bank of all of 264’s debts and liabilities. The pandemic and the lockdowns did not alter these obligations and did not make them “radically different” from what the parties had agreed to do: Sub-Prime Mortgage Corporation v. Kaweesa, 2021 ONSC 739 at para. 28; Sub-Prime Mortgage Corporation v. Kaweesa, 2021 ONCA 215 at para. 26.

[18] The parties’ contractual obligations are not contingent on 264 operating its restaurant/bar. Further, the Loan Agreement and related agreements do not specify how the Loan is to be repaid, or that it must be repaid from funds earned from the operation of 264’s restaurant/bar. The fundamental nature of the agreement between the parties was the lending of a sum of money upon certain terms, including a personal guarantee on a portion of the Loan, in return for which repayment was required. While COVID-19 and pandemic-related measures have undoubtedly made the Defendants’ obligations much more difficult to meet, they have not changed the nature of these obligations: Royal Bank of Canada v. 974585 Canada Corp., 2021 ONSC 2908 at paras. 17-19. Further, the pandemic-related measures do not constitute a permanent disruption: Cowie v. Great Blue Heron Charity Casino, [2011] O.J. No. 5573 at para. 23 (Div. Ct.). In light of the foregoing, the doctrine of frustration does not apply.

[19] While the parties could not have contemplated the COVID-19 pandemic in November 2018, this is neither here nor there because the fact that the parties’ contractual obligations have not been rendered radically different from the obligations that they originally agreed to is sufficient to dispose of the frustration argument: see Sub-Prime Mortgage Corporation v. Kaweesa, 2021 ONCA 215 at para. 26.

Conclusion

[20] The motion for summary judgment is granted. 264 is ordered to pay to the Bank the outstanding amount of the loan, $255,000.20, plus accrued and unpaid interest at the Bank’s prime rate of interest in effect from time to time plus 3.00% per annum up to the date of this Judgment. Post-judgment interest shall be at the same rate. I am satisfied that pre-judgment and post-judgement interest should be at the rate specified in the Loan Agreement: see subsections 128(4)(g) and 129(5) of the Courts of Justice Act, R.S.O 1990, c. C.43 and Lundy’s Regency Arms Corp. v. Niagara Hospitality Hotels Inc., 2016 ONSC 4199 at paras. 12-13.

[21] Ms. Griffiths is jointly and severally liable with 264 to make payment to the Bank up to the sum of $76,500.00 plus interest at the same rate.

[22] In addition, 264 is ordered to deliver to the Bank possession of any and all assets of the Company.

[23] The Bank can update the figures in its draft Judgment and, when approved as to form and content by counsel for the Defendants, send it to my assistant for my signature.

[24] If costs cannot be agreed upon, the Bank shall deliver submissions of not more than three pages (double-spaced), excluding the bill of costs, within 10 days of the date of this Judgment. The Defendants shall deliver their submissions (with the same page limit) within 7 days of their receipt of the Bank’s submissions.

Vermette J.

Released: June 18, 2021