COURT FILE NO.: CV-19-00630443

DATE: 20210809

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Melvin I. Rotman, for the Plaintiff

10443204 Canada Inc.

Plaintiff

– and –

2701835 Ontario Inc. and Chirag Jagdishbhai Patel

Defendants

Blaine Edson, for the Defendants

HEARD: June 25, 2021

REASONS FOR JUDGMENT

SHARMA j.

[1] The plaintiff moves for summary judgment to enforce a mortgage, promissory note, and personal guarantee, and for possession of a coin laundry business it sold to the defendants.

[2] The defendants bring a cross-motion for production of a further and better affidavit of documents that includes financial records of the coin laundry business for the three years prior to its sale to the defendants.

[3] The plaintiff sold the coin laundry business to Chirag Patel (“Chirag”) and a numbered company 2701835 Ontario Inc. (“270”) incorporated by Chirag.

[4] Under the terms of the sale agreement, 270 agreed to a vendor take-back mortgage of $190,000. This mortgage was secured by a personal guarantee and promissory note from Chirag. Only the first payment on the mortgage was made.

[5] The defendants argue summary judgment should not be granted for three reasons:

(a) the plaintiff negligently or fraudulently misrepresented the income of the business, and this issue requires a trial;

(b) if summary judgment were granted, there is a risk of inconsistent findings because of a related action the defendants have commenced against the real estate agent who was involved in this transaction. Therefore, it would not be in the interests of justice to grant summary judgment;

(c) the plaintiff has not produced financial records which the defendants say are relevant.

[6] For the reasons that follow, I find that summary judgment should issue in favour of the plaintiff.

I. Summary of Facts

[7] Amulbhai Patel (“Amulbhai) is the sole shareholder and director of the plaintiff, 10443204 Canada Inc. (“104”). His full-time job is as a machine operator in a manufacturing company.

[8] 104 owned and operated a coin laundry business (“the Business”) in Brampton from 2017 to the date of its sale – July 23, 2019. The Business also offered wash and fold and dry-cleaning services. Amulbhai’s evidence is that it was operated as a family business, with his wife and son working at it primarily.

[9] Amulbhai decided in February of 2019 to sell the Business. He arranged for a real estate agent, Jayant Vyas, to list the Business for sale on the Multiple Listing Services (“MLS”).

[10] The defendant, Chirag, is an IT professional by trade, although his post-secondary education is in business administration. His professional experience is limited to the IT industry where he has worked for 17 years.

[11] In April of 2019, he searched for a small retail business to purchase to generate income for his family and in which he had approximately $100,000 to invest. He had no prior experience owning or operating a business.

[12] In May of 2019, Chirag learned about the plaintiff’s business being for sale through an MLS search. The purchase price was $349,000. He contacted the listing broker, Mr. Vyas.

[13] Chirag did not have his own real estate agent. Instead, he also used Mr. Vyas for the purchase of the business. Chirag subsequently had discussions with Mr. Vyas and Amulbhai to negotiate the sale.

[14] Chirag stated that he was from the same region in India as Amulbhai, and Amulbhai used this fact to assure Chirag that Amulbhai could be trusted during their negotiations.

[15] Chirag stated that Amulbhai told him that the coin laundry business was profitable. Amulbhai, according to Chirag, said it generated $12,000 per month in gross income at a first meeting they had with Chirag. Whether this was in fact communicated at this first meeting is in dispute.

[16] Chirag stated that based on these representations, he offered to purchase the business for $290,000. This was $59,000 less than the listing price.

Agreement of Purchase and Sale

[17] On May 16, 2019, a conditional Agreement of Purchase and Sale (APS) was entered into by the parties. It noted Mr. Vyas’ multiple representation for 104 as the seller and Chirag (and “a company to be formed”) as the purchaser. A subsequent amendment to the APS made Chirag and 270 the purchasers.

[18] The relevant terms of the APS were as follows:

(a) Purchase price of $290,000, with a deposit paid of $20,000.

(b) The purchase was to close on June 27, 2019.

(c) The seller covenants “the Business has been carried on in the ordinary course and all financial statements and other information provided to Buyer are true, accurate and correct in all material respects and have been prepared in accordance with generally accepted accounting principles …” (para 7(f)).

(d) There is an “entire agreement clause”. It reads: “There is no representation, warranty, collateral agreement or condition, affecting this Agreement other than as expressed herein. If there is conflict or discrepancy between any provision added to this Agreement (including any Schedule attached hereto), and any provision in the standard pre-set portion hereof, the added provision shall supersede the standard pre-set provision to the extent of such conflict” (para 17).

(e) The Purchaser acknowledges and certifies that:

(i) The financial position of the Business is now and will be at the Closing Date at least as good as that shown on or reflected in the Financial Statements delivered to the Purchaser (Schedule A, para 5);

(ii) All financial transaction (sic) of the Vendor relating to the business have been accurately recorded in the financial books of the Business in accordance with generally accepted accounting principles and practice as that shown or reflected in the Financial Statements delivered to the Purchaser (Schedule A, para 9).

(f) The agreement was subject to various conditions, including the buyer’s solicitor approving the terms of the APS, within 15 business days of acceptance of the offer (Schedule A).

(g) There is a further “entire agreement clause” in Schedule A. It reads “[i]t is agreed that there is no representation, warranty, collateral agreement or condition affecting this Agreement or the Property or supported hereby other than as expressed herein in writing” (Schedule A).

(h) The purchaser had a right to audit the business income, and if unsatisfied, the APS shall be null and void. It reads: “[t]he purchaser shall have the right to enter the property and look for the business for at least 15 days to verify the income. If purchaser does not satisfy (sic), this agreement shall be null and void and the Purchaser shall be entitled to the immediate return of the deposit in full in accordance with this Agreement” (Schedule A).

Income of Business

[19] On May 24, 2019, Chirag asked Mr. Vyas for the financial statements of the business, including the notice to reader for the last two years.

[20] Shortly thereafter, Mr. Vyas provided to Chirag a brief one-page statement prepared by Mr. Vyas. Amulbhai provided the information that was included in this document prepared by Mr. Vyas. It indicated gross monthly income of the business at $12,000/month, plus various expenses. At the bottom of the page, it stated “Buyer/Buyer agent must verify”.

[21] During his cross-examination, Amulbhai confirmed the monthly income on this one-page statement was his own calculation. He further indicated that he only communicated this amount through his real estate agent, and not directly to Chirag. Although, as noted above, Chirag states Amulbhai did tell him at their first meeting the business did generate $12,000 per month.

[22] Pursuant to the APS, Chirag conducted his inspection of the revenues for the business over a 14-day period from May 23, 2019 to June 7, 2019. He was entitled to attend for a full 15 days. He mostly went on evenings and weekends. The evidence is that Amulbhai’s son advised Chirag of the cash count each day, with a total over the fourteen days of $5,231.75, or an average of $373.70 per day. Amulbhai took notes of this money each day. This income was consistent with the $12,000 per month income set out in the financial statement. During his cross-examination, Chirag confirmed that the income from those 14 days was reasonably in accordance with his expectations.

[23] While Chirag relied on the money count provided by Amulbhai or his son, the language of the APS suggests that he could have counted the money independently or together with Amulbhai or his son “to verify the income”. This he did not do.

Vendor Take-Back Mortgage

[24] In early June of 2019, Chirag was not able to obtain financing to complete the purchase of the business. Mr. Vyas advised Chirag that a vendor-take back mortgage (VTB) could be used to complete the transaction. According to Chirag, Mr. Vyas advised Chirag that he would lose his deposit if he did not complete the transaction and that Amulbhai would sue Chirag for additional damages. Chirag did not seek his own advice from a lawyer or another real estate agent on this point.

[25] Chirag’s further evidence is that, on June 15, 2019, he e-mailed Mr. Vyas agreeing to a VTB. The email included calculations in which he states he relied on the $12,000 monthly income as per the financial statements in his assessment of his ability to repay the mortgage.

[26] On July 11, 2019, a VTB was agreed upon by way of Amendment to the APS. Chirag would pay $100,000, and there would be VTB for the remaining $190,000, repayable over four years at 7.00% interest, with monthly payments of $4,540.99. A missed or late payment would entitle the plaintiff to initiate enforcement proceedings without notice and the Business would be transferred back to the plaintiff.

[27] In addition, the defendants also executed a Promissory Note to the plaintiff for the VTB, and Chirag provided a personal guarantee to the VTB, which were executed by the defendants on July 22, 2019.

[28] Upon completion of the vendor-take back mortgage, the sale of the business closed on July 23, 2019.

Business Income After Closing

[29] Following the close of the sale of the business, the monthly income was significantly less than the $12,000 that Chirag had believed. From August of 2019 to March of 2021, the gross monthly income generated from the coin laundry was only $3,557.31. Chirag also states that the estimated income from dry cleaning and wash and fold services was also much less than anticipated.

[30] Chirag borrowed funds from a friend to pay the first VTB monthly payment to the plaintiff. After the second month, he could no longer afford to make the VTB payments. In the third month, Chirag states his rent cheque for the business was returned NSF, and he had to use his personal line of credit to cover business expenses.

Litigation

[31] The plaintiff commenced this action against the defendants in 2019. A statement of defence and counterclaim was filed on February 24, 2020. In their counterclaim, the defendants allege fraudulent and/or negligent misrepresentation, as well as breach of contract.

[32] On May 7, 2021, the defendants commenced a separate action against Mr. Vyas and Re/Max Realty for breach of fiduciary duty and negligent misrepresentation.

II. Analysis

Legal Principles

[33] On a summary judgment motion, the moving party has the onus of establishing there is no genuine issue requiring a trial: Rule 20, Rules of Civil Procedure.

[34] A motion judge must first determine if there is a genuine issue requiring a trial based only on the evidence before the Court, without using the fact finding powers in rule 20.04 (2.1) and (2.2). If the Court is satisfied the evidence exists to fairly and justly determine there is no genuine issue requiring a trial, summary judgment may issue. However, if there appears to be a genuine issue requiring a trial, the judge may then determine if the need for a trial can be avoided by using the fact finding powers in rule 20.04(2.1) and (2.2): Hryniak v. Mauldin, 2014 SCC 7 (“Hryniak”) at para 66.

[35] Parties are required to put their best foot forward on a summary judgment motion. The court is entitled to assume that the record on a motion for summary judgment contains all the evidence the parties would present at trial (see Sweda Farms v. Egg Farmers of Ontario, 2014 ONSC 1200 at paras 26 and 27).

Issue 1: Has the plaintiff established that there are no genuine issues for trial and that judgment should issue?

[36] It is not disputed by the defendants that the APS, VTB, promissory note and personal guarantee signed by Chirag were all duly executed, and that the defendants have defaulted on their payment obligations.

[37] However, the real issue on this motion is whether or not the defendants claim of fraudulent or negligent misrepresentation against the plaintiff raises a genuine issue requiring a trial. I discuss this next.

Issue 2: Are the negligent or fraudulent misrepresentation claims against the plaintiff a genuine issue requiring a trial?

[38] The plaintiff states that there were no negligent or fraudulent misrepresentations made to the defendants. There is a factual dispute as to whether or not Amulbhai directly advised Chirag that the business earned $12,000 per month at an initial meeting, but otherwise, there are few material facts in dispute.

[39] To the extent there is a dispute about whether Amulbhai made a representation to Chirag at their first meeting about the income of the business, the plaintiff relies upon the two “entire agreement” clauses in the APS. They confirm there is no representation affecting this Agreement other than as expressed in the Agreement itself. They further rely on the several opportunities that the defendants had to conduct their own due diligence, to exercise conditions to cancel the APS, to consult a lawyer, real estate agent or accountant, or to demand greater financial disclosure during the negotiations and prior to closing.

[40] The defendants rely on caselaw for the proposition that a defence of misrepresentation cannot be discounted or ignored on a summary judgment motion because of the existence of an entire agreement clause.

[41] They cite a recent decision of the Ontario Court of Appeal in Royal Bank of Canada v 1643937 Ontario Inc., 2021 ONCA 98 (“Royal Bank”). In that case, the Court was reviewing a decision of a motion judge who granted summary judgment in favour of the Royal Bank on personal guarantees signed by the appellants. The appellants had alleged there were misrepresentations made by the bank, but the motion judge relied on an entire agreement clause in the personal guarantees as a basis for precluding the appellants from relying on those representations. On this aspect of the judge’s decision, the Court of Appeal said at para 43:

In my view, this conclusion was erroneous. It is well-established that the defence of misrepresentation is not precluded or diminished by reason only of the existence of an entire agreement clause: Bank of Nova Scotia v. Zackheim(1983), 1983 CanLII 1891 (ON CA), 3 D.L.R. (4th) 760 (Ont. C.A.), at pp. 761-62; Beer v. Townsgate I Ltd. (1997), 1997 CanLII 976 (ON CA), 152 D.L.R. (4th) 671 (Ont. C.A.), at paras. 25-32, leave to appeal refused, [1997] S.C.C.A. No. 666. I would not uphold the motion judge’s finding on this issue.

[42] In my view, the Royal Bank case can be distinguished. In Royal Bank, there was unequal bargaining power. In this case, there was no evidence that Amulbhai was more sophisticated than Chirag. In fact, Chirag is university educated and an IT professional; Amulbhai is a machine operator in a factory. From a review of the evidence, I am not satisfied that there is unequal bargaining power, or that Amulbhai is more sophisticated than Chirag.

[43] Furthermore, in Royal Bank, the Court held the defence of misrepresentation is not precluded or diminished by reason only of the existence of an entire agreement clause. But in this case, there were several other factors, in addition to the entire agreement clause, which suggest that the defendants cannot rely on alleged misrepresentations to abandon a deal into which they entered. In particular,

(a) The defendants could have demanded disclosure of the plaintiff’s banking records as a condition of the APS or demanded a guaranteed minimum income for the business within the APS, but they did not.

(b) The defendants had a chance to walk away from the APS after their lawyer reviewed its terms or if they were unable to secure financing, but they did not. Chirag’s affidavit states he did not walk away from the deal because his real estate agent, Mr. Vyas, indicated he would get sued. But on cross-examination, Chirag admitted he did not consult a lawyer or another real estate agent to independently verify that possible eventuality.

(c) The defendants could have sought the assistance of an accountant and had an audit of the business’ income as a condition of the sale, but the evidence of Chirag is that he did not.

(d) And notably, the defendants were given an express opportunity, as a condition of the APS, to review and verify the sales of the business for a 15-day period. If they were at all unsatisfied, the agreement was null and void, and the deposit paid was to be returned. On cross-examination, Chirag said he was satisfied with the income of the business after the 14-day audit he undertook.

[44] Chirag’s affidavit states that he relied “completely” on Amulbhai’s representation of the income of the business. But a review of the express words used in the APS make it clear that this is not accurate. Chirag also negotiated a right to independently verify the business’ income, which right he exercised. As such, the written record and actions taken by Chirag make clear that it is not accurate to conclude that any representation made by Amulbhai was the complete basis upon which Chirag relied.

[45] In my view, these factors all weigh heavily in my conclusion that the existence of the entire agreement clause requires enforcement. If there had been a misrepresentation, without opportunities provided for in the agreement for the defendants to conduct their own due diligence and to walk away from the deal if unsatisfied, my conclusion might well be different.

[46] The defendants also rely on Issa v Jarrah, 2019 ONSC 6744 at para 17 for the proposition that an entire agreement clause will not override a specific representation on a point of substance which was intended to induce the making of the agreement. I note, however, that Justice Ferguson, in her decision in that case, noted that each case is fact specific. And as noted, there are specific facts in this case which demonstrate that even if a misrepresentation was made – either negligently or fraudulently – there were several opportunities for the defendants to conduct their own due diligence, to obtain independent legal, accounting or real estate advice, and to walk away from the deal before it closed.

[47] The defendants are seeking a guaranteed minimum business income from the plaintiff after the close of the transaction. In my view, that time has passed.

[48] To interpret a minimum level of business income as a contractual term, now, after the close of the sale, would offend the parol evidence rule. The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary or contradict a contract that has been reduced to writing: Creston Moly Corp. v. Sattva Capital Corp, 2014 SCC 53 at para 59.

[49] The defendants cite the five elements of the tort of negligent misrepresentation: (1) duty of care based on a special relationship; (2) representation made must be untrue, inaccurate or misleading; (3) the representor acted negligently; (4) the representee relied on the negligent representation; and (5) reliance was detrimental to the representee and damages resulted: Queen v Cognos Inc., 1993 CanLII 146 (SCC).

[50] The plaintiff argues the defendants have not established there was an untrue representation. In the APS, the defendants as purchasers have acknowledged and certified that “all financial transaction (sic) of the Vendor relating to the business have been accurately recorded in the financial books of the Business.” Moreover, as I explained above, the entire agreement clause in the APS should be enforced, and as such, there are no representations other than the ones set out in the APS.

[51] There was also evidence submitted which could have legitimately explained why the higher $12,000 monthly income was earned prior to the sale. Notably, Amulbhai’s family (his son and wife) were operating and attending to the business each day. In contract, the defendants did not devote equal care to the business which could explain the difference in revenue. There are other variables that could legitimately explain any reduced income, other than a negligent misrepresentation.

[52] It is also questionable whether there was a special or fiduciary relationship as between Amulbhai and the Chirag. As I have found, Amulbhai did not exercise superior bargaining power, and there were several independent avenues for Chirag to exercise due diligence, exert power, and to walk away from the deal. From my review of the affidavits and the transcript of the cross-examinations, I do not find that Chirag was peculiarly vulnerable or at the mercy of Amulbhai.

[53] The defendants also cite the elements of the tort of fraudulent representation: Midland Resources Holding Limited v Shtaif, 2017 ONCA 320 at para 162. Without recounting the elements, I note that there is no evidence from the affidavit or cross-examination which would suggest that Amulbhai made a false misrepresentation that would invoke this tort given the circumstances of this case. The circumstances in which this agreement was reached whereby the defendants had opportunity to independently verify the income of the business, and whereby the plaintiff provided the defendants opportunities to exit the contract if at all unsatisfied, suggest that on a balance of probabilities, the elements of this tort could not be established. Again, there are sound reasons to enforce the entire agreement clause.

[54] For these reasons, I conclude that the misrepresentation claims against the plaintiff do not create a genuine issue requiring a trial. Those claims are dismissed.

Issue 3: Should the Court grant summary judgment if there is a possibility of inconsistent findings in the related Vyas and Re/Max action?

[55] I do not believe that the action the defendants have commenced against their real estate agent, Mr. Vyas, has the potential to result inconsistent findings. The defendants’ claim against Mr. Vyas is based on a breach of fiduciary duty and negligent misrepresentations.

[56] In this case, there is a factual dispute as to whether or not, at the first meeting among Amulbhai, Chirag and Mr. Vyas, Amulbhai directly represented to Chirag that the business earned $12,000 per month. A factual finding as to whether this statement was made may be relevant in the action against Mr. Vyas.

[57] However, as explained in the previous section, the circumstances of this case are such that the entire agreement clause ought to be enforced, and as a result, it is not necessary for me to conclude whether or not Amulbhai made this statement. Therefore, there is no risk of inconsistent findings, and there do not appear to be other significant facts in dispute.

[58] It is possible that a court may find that Mr. Vyas and Re/Max are liable to the defendants, but the relationship between a real estate agent and his client, including the duty of care, is different from the relationship between the purchaser and vendor in this case.

[59] For these reasons, there is little to no risk of inconsistent findings.

Issue 4: Should the plaintiff be required to produce financial records of the business to verify the gross income?

[60] The answer to this question is “no”. The deal has closed. There were opportunities for the defendants to ask for this information during their negotiations and to make it a condition of closing, all before the transaction closed. They cannot not now demand this information, especially after they were provided with an opportunity to independently verify the income of the business.

III. Judgment

[61] For the reasons set out above, the plaintiff’s motion for summary judgment is granted, and the defendants’ cross-motion is denied.

[62] The plaintiff is directed to prepare a draft Judgment that reflects the summary judgment sought and granted. The plaintiff shall share it with the defendants before submitting it to the Court. If the language of the draft Judgment cannot be agreed upon, a case conference can be scheduled through my assistant.

IV. Costs

[63] Parties are encouraged to agree on an appropriate cost award. If an agreement cannot be reached, parties may submit a 3-page cost submission with an attached Bill of Costs. The plaintiff shall have 14 days from the release of this decision to deliver submissions. The defendants shall have 14 days thereafter for any responding submissions. The plaintiff shall have 7 days thereafter for any reply submission.

JUSTICE MOHAN SHARMA

Released: August 9, 2021

COURT FILE NO.: CV-19-00630443

DATE: 20210809

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

10443204 Canada Inc.

Plaintiff

– and –

2701835 Ontario Inc. and Chirag Jagdishbhai Patel

Defendants

REASONS FOR JUDGMENT

Sharma J.

Released: August 9, 2021