COURT FILE NO.: 18-77344
DATE: 2021/08/16
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Sluyter Capital Investments Inc.
Plaintiff
- and -
1902408 Ontario Ltd., Dennis Bank and Margaret Bank
Defendants
AND BETWEEN
1902408 Ontario Ltd., Dennis Bank and Margaret Bank
Plaintiffs by Counterclaim
– and –
Sluyter Capital Investments Inc. and Paul Sluyter
Defendants by Counterclaim
Jennifer Therrien for the Plaintiff and Defendants by Counterclaim Sluyter Capital Investments Inc. and Paul Sluyter
Gigi Costanzo for the Defendants/Plaintiffs by Counterclaim, 1902408 Ontario Ltd., Dennis Bank and Margaret Bank
HEARD: September 19, 2012 and February 12, 2021
decision on summary judgment motion
Justice Sally Gomery
[1] Sluyter Capital Investments Inc. (“Sluyter Capital”) moves for summary judgment on its action for payment of a promissory note executed in its favour by Dennis Bank, Margaret Bank and their company 1902408 Ontario Ltd. (“BankCo”) on August 13, 2014 (the “Promissory Note”).
[2] The Promissory Note was originally for an amount of $273,000. According to the Note’s recitals, it executed as part of a deal to settle debt that the Banks owed to Sluyter Capital pursuant to a 2013 share purchase agreement. The settlement of this debt was important to the Banks because Sluyter Capital held a mortgage on property that they had agreed to purchase for the purpose of redevelopment (the “Brockville Property”). They needed to obtain a discharge of the mortgage prior to closing on the purchase of the Property.
[3] In Schedule A to the Note, the Banks and BankCo (collectively, the “Bank Group”) acknowledged that their remaining indebtedness to Sluyter Capital was $1,476,672. To settle this debt, Sluyter Capital agreed to accept a portion of the price that BankCo would pay for the Brockville Property ($877,000), as well as the amount that the Banks promised to pay in the Promissory Note ($273,000). It agreed to waive the balance of the debt ($326,672) so that the sale of the Property could close. Pursuant to a mutual release attached to the Note, Sluyter Capital, Mr. Sluyter, the Banks and BankCo released each other from any other claims each might have in respect of the Brockville Property and the mortgage, save and except for the Bank Group’s obligations pursuant to the Promissory Note.
[4] Further to the Promissory Note’s terms, the members of the Bank Group were required to pay Sluyter Capital $273,000 by August 1st, 2017, failing which interest at 12% per year would begin to accrue. In August 2017, the parties signed an amendment to the Promissory Note whereby the Banks agreed to make two payments totalling $23,000 to reduce the capital owed to $250,000 and Sluyter Capital agreed to forgive any interest owed until August 1st, 2018. The Bank Group made the two payments required pursuant to the amended Note in late 2017 and early 2018, but subsequently took the position that it was unenforceable. This prompted Sluyter Capital to begin this action.
[5] Sluyter Capital contends that the Promissory Note, prepared by the Banks’ lawyer, constitutes an unconditional promise by Mr. and Mrs. Bank and BankCo to pay it $273,000 by the due date. Following its amendment in August 2017 and their payment of $23,000, they are jointly and severally liable for balance owed on the Note. It seeks summary judgment for $250,000 as well as interest of 12% per year as of August 1st, 2018, and the reasonable costs and expenses incurred and paid by Sluyter Capital to enforce the Note. It also asks for the dismissal of the Bank Group’s counterclaim against it and its president, Paul Sluyter.
[6] In their defence and counterclaim, the Banks and BankCo allege that the Note is unenforceable because:
(i) the Promissory Note was the result of an oral collateral agreement between Mr. Sluyter and the Banks and was executed as a stratagem to justify the eventual issuance of a charitable receipt to Sluyter Capital by a charity to be established by BankCo ;
(ii) the Bank Group received no consideration for its execution of the Promissory Note;
(iii) the Banks relied on fraudulent misrepresentations by Mr. Sluyter that the Promissory Note would not indebt the Bank Group and would never be enforced;
(iv) the stratagem of using a promissory note to conceal the parties’ true intentions was illegal, unconscionable and contrary to the provisions of the Income Tax Act, and enforcement of the Promissory Note is therefore contrary to public policy; and
(v) The Promissory Note and its amendment were signed and the payments of $23,000 were made under duress.
[7] The Banks and BankCo claim that they are entitled to be indemnified by Mr. Sluyter for any amount they are ordered to pay to Sluyter Capital as a result of the Promissory Note and that they are entitled to repayment by Sluyter Capital of the $23,000 they paid on the Note in 2017 and 2018.
[8] On this motion, the Bank Group contends that this is not an appropriate case for summary judgment because the issues raised in their defence and counterclaim cannot be fairly adjudicated without a full evidentiary record, including viva voce evidence, at trial.
[9] On this motion, I must resolve the following questions:
A. Is this a suitable case for adjudication by way of summary judgment motion?
B. If so:
(i) Does the Promissory Note, as amended, represent the agreement between the parties, or was there a collateral agreement for the issuance of a charitable receipt?
(ii) Was there consideration for the Bank Group’s promise to pay $273,000?
(iii) Did the Banks sign the Promissory Note or the amendment to it, or make payments on it, under duress?
(iv) Did Mr. Sluyter make fraudulent misrepresentations to induce them to sign the Promissory Note?
[10] For the reasons that follow, I find that the claim and counterclaim can be fairly adjudicated on the record currently before me and that it is appropriate to do so. Although the Banks have had ample opportunity to do so, they have produced no admissible, credible evidence to support their contention that the Promissory Note was not intended to be enforceable or that there was a collateral agreement that it would not be enforced. There is also no admissible and credible evidence that the Banks signed the Note or the amendment to it under duress, or that Mr. Sluyter made fraudulent misrepresentations to induce them to sign. For various reasons, the Bank Group’s claim about the Promissory Note are frankly implausible. I therefore find that Sluyter Capital’s action should be granted and the Bank Group’s counterclaim dismissed.
A. Is this a suitable case for adjudication by way of summary judgment motion?
The principles governing summary judgment motions
[11] Rule 20.01(1) provides that a plaintiff may move for summary judgment, with supporting affidavit material, once the defendant has delivered a statement of defence. The plaintiff is not required to wait until the parties have participated in examinations for discovery.
[12] Rule 20.04(2) states that the court shall grant summary judgment if it “is satisfied that there is no genuine issue requiring a trial”. In Hryniak v. Mauldin, 2014 SCC 7, the Supreme Court of Canada held that judges should not assume that every case should go to a full trial. They should instead consider what procedures will permit a fair adjudication of the issues, bearing in mind the goal of securing the just, most expeditious, and least expensive determination of every civil proceeding on its merits.
[13] Further to r. 20.02(2.1), in determining whether there is a genuine issue, the court “shall consider the evidence submitted by the parties”. The responding party to a summary judgment motion is required to put their best foot forward, and the Court is entitled to assume that each party has filed the available evidence; Danos v. BMW Group Financial Services Canada, 2014 ONSC 2060, aff’d 2014 ONCA 877, at paras. 13-22. If, on the record, the Court can make the necessary findings of fact and apply the law to those facts, there is no genuine issue for trial.
[14] Rule 20.02(1) provides that “an affidavit for use on a motion for summary judgment may be made on information and belief as provided in subrule 39.01(4), but, on the hearing of the motion, the court may, if appropriate, draw an adverse inference from the failure of a party to provide the evidence of any person having personal knowledge of contested facts”. A party’s failure to cross-examine the opposing party’s affiant, or to call evidence from a key witness, entitles a motion judge to draw an adverse inference: 2212886 Ontario Inc. v. Obsidian Group Inc, 2018 ONCA 670, at para. 49.
[15] If the motion is heard by a judge, he or she may exercise fact-finding powers in r. 20.04(2.1) to determine if there is a genuine issue for trial, “unless it is in the interests of justice for such powers to be exercised only at a trial”. These powers include weighing the evidence, evaluating the credibility of a deponent, and drawing any reasonable inference from the evidence. Where appropriate, the judge may, for the purpose of exercising these powers, order that oral evidence be presented by one or more of the parties; r. 20.04(2.2).
[16] It is important for a motion judge to state the reason why summary judgment is appropriate in any given case. In its recent decision in Royal Bank of Canada v. 1643937 Ontario Inc., 2021 ONCA 98, at para. 24, the Court of Appeal set out a two-stage analysis:
- The judge must first determine if there is a genuine issue requiring a trial without using the enhanced fact-finding powers in r. 20.04(2.1) and r. 20.04(2.2). If there is no such issue, adjudication by way of summary judgment is appropriate. If there is, the judge must proceed with the second stage of the analysis.
2 ) On the second stage, the motion judge must determine if the need for a trial could be avoided by using the enhanced powers under r. 20.04(2.1) and 20.04(2.2) to weigh the evidence, evaluate the credibility of a deponent, and draw any reasonable inference from the evidence. The judge may also order that oral evidence be presented by one or more parties.
[17] If credibility disputes are important to determining key issues, the motion judge should specifically consider whether it is appropriate or necessary to hear oral evidence under r. 20.04(2.2). If credibility cannot be assessed on a written record, “that should be a sign that oral evidence or a trial is required”; 2212886 Ontario Inc., at para. 41.
[18] Judges hearing summary judgment motions must also take care to assess the advisability of the process in the context of the litigation as a whole. As noted by Justice Karakatsanis in Hryniak, at para. 60:
[I]f some of the claims against some of the parties will proceed to trial in any event, it may not be in the interest of justice to use the new fact-finding powers to grant summary judgment against a single defendant. Such partial summary judgment may run the risk of duplicative proceedings or inconsistent findings of fact and therefore the use of the powers may not be in the interests of justice.
[19] This principle limits the use of partial summary judgment motions. Rule 20 may be used to resolve one of several claims in a litigation in a way that is proportionate, timely and cost effective; Hryniak, at para. 60. Where the resolution of such a claim requires an appreciation of the same evidence relevant to claims that would still have to go to trial, however, partial summary judgment is not an efficient use of the court’s and the parties’ resources.
Application of these principles in this case
[20] The parties have filed a voluminous record. The Bank Group contends that the Court cannot justly adjudicate this case based on this record, which includes conflicting evidence given by Mr. Sluyter and Mr. Bank in affidavits and transcripts of cross-examinations. It argues that I cannot assess Mr. Bank’s assertions about the true nature of the parties’ agreements, and the circumstances in which the Promissory Note and its amendment were prepared and signed, without hearing directly from witnesses. The Bank Group also contends that it has not had the opportunity, given the timing of the summary judgment motion, to develop and present a full record.
[21] In support of its position, the Bank Group relies primarily on the Court of Appeal’s decision in Baywood Homes Partnership v. Haditaghi, 2013 ONSC 2145, rev’d at 2014 ONCA 450. Haditaghi sued Baywood on two promissory notes signed by its principal. Baywood countered with a lawsuit accusing Haditaghi and related parties of, among other things, fraud, duress, and lack of consideration. After these actions were consolidated, Haditaghi brought a summary judgment motion seeking to dismiss Baywood’s claim and to obtain judgment on his action for recovery of the money owed on the promissory notes. After hearing submissions and holding a mini-trial to hear testimony from three witnesses, Justice Belobaba held that Baywood’s lawsuit could not succeed based on an admission made by its principal that the parties had signed a written release that resulted in a “clean slate” between them. The judge concluded, on the other hand, that he could not fairly determine if the promissory notes were enforceable, because both parties admitted that they routinely “fabricated and executed documents that did not reflect the true state of affairs”; Baywood ONSC, paras. 10 and 22. He accordingly granted partial summary judgment, dismissing Baywood’s claims and referring Haditaghi’s claim on the promissory notes to trial.
[22] The Court of Appeal granted Baywood’s appeal of this decision and referred both the claim and counterclaim to trial. It held that the judge had failed to assess the advisability of granting partial summary judgment in the context of the litigation as a whole. His finding that the parties’ written agreements were routinely fabricated was incompatible with his finding that the parties’ written release was authentic and valid. The Court of Appeal also expressed reservations about the judge’s finding that Baywood’s principal had, during cross-examination on his affidavit, unequivocally and unambiguously acknowledged he had relinquished his claims against Haditaghi when he signed the release. It wrote at para. 44 that “[g]reat care must be taken by the motion judge to ensure that decontextualized affidavit and transcript evidence does not become the means by which substantive unfairness enters, in a way that would not likely occur in a full trial where the trial judge sees and hears all”.
[23] The Bank Group argues that the Court of Appeal’s reasoning in Baywood Homes dictates the dismissal of the summary judgment motion here. It contends that, given the complicated history of dealings between the parties and Mr. Bank and Mr. Sluyter’s conflicting accounts of what was agreed upon in August 2014, a full trial is the only way to determine if the Promissory Note represents the true agreement between the parties.
[24] Baywood Homes is distinguishable from this case in two critical ways. First, there is no basis to find that the parties routinely fabricated and executed false documents. Second, both the claim and counterclaim in this case centre on a single agreement, the Promissory Note as amended. If I find that this agreement is valid and enforceable, and that it was not signed under duress or based on fraudulent misrepresentations, this puts an end to all claims. Unlike the situation in Baywood Homes, if Sluyter Capital’s action on the Promissory Note succeeds, the Bank Group’s counterclaim must necessarily be dismissed.
[25] The Bank Group also relies on In Re Trotter Estate, 2014 ONCA 841, a decision overturning a motion judge’s summary judgment in an estate litigation. At para. 55 of her reasons, Benotto JA observed that it is “not always a simple task to assess credibility on a written record” and that, if this cannot be done, “that should be a sign that oral evidence or a trial is required”. She found that the motion judge had not engaged in a credibility analysis or attempted to provide conclusions on credibility and this amounted to a reversible error in the circumstances of the case.
[26] These are recognized principles to which I have already alluded. The decision in Trotter Estate does not stand for the proposition that a motion judge should never make findings of credibility on a written record, so long as it is possible to do this in a way that respects the letter and spirit of rule 20 and the guidance of the Supreme Court and the Court of Appeal on its application.
[27] Having reviewed the caselaw and the evidence, I find that this case is appropriate for summary judgment. On the record, I can make the necessary findings of fact and apply the law to those facts. There is accordingly is no genuine issue for trial.
[28] Most of the issues can be determined based on the application of well-established legal principles, including well-established rules of contractual interpretation and the parol evidence rule. This could still leave some genuine issues for trial if I were unable to weigh the evidence, evaluate the credibility of the affiants, and draw reasonable inferences from the evidence. I am satisfied that it is appropriate in this case, however, to exercise the enhanced powers conferred on me by r. 20.04(2.1).
[29] The use of the enhanced fact-finding powers is appropriate here because, for reasons that will become more fully apparent as I go through the analysis, I can fairly make determinations, on the evidence before me, about the plausibility of the Bank Group’s assertion that the Promissory Note was a stratagem to conceal a collateral agreement, that the Note was executed under duress, and that Mr. Sluyter made fraudulent misrepresentations. I can furthermore do this without holding a mini-trial under r. 20.04(2.2).
[30] I am able to make these findings based largely on what is missing from the motion record. The Bank Group has not put forward any evidence to corroborate most of Mr. Bank’s assertions. For example, Mr. Bank says that he discussed the law regarding charitable receipts with his lawyers over several months. Despite this, at his cross-examination, his lawyer admitted on the record that he reviewed the solicitors’ files and found no record of any such discussion and no affidavit has been filed from any of those solicitors explaining the absence of such records. Mr. Bank has also asserted that the debt owed to Sluyter Capital in August 2014, as set out in the Promissory Note, has not been fully accounted for. Mr. Sluyter has, however, produced banking records fully substantiating the advances he says were made by Sluyter Capital. Mr. Bank denies that these records are accurate yet has produced no evidence to contradict them.
[31] I am also able to draw inferences about the plausibility of the Bank Group’s claims based on the terms of the Promissory Note, on the actions taken by the Banks when it came due, and on their failure to protest the Promissory Note or its amendment when they were executed.
[32] Finally, I am able to weigh the credibility of Mr. Bank and Mr. Sluyter by comparing their evidence to contemporaneous records.
[33] As already mentioned, a party responding to a summary judgment motion is required to put their best foot forward. The Bank Group has had ample opportunity to do so. The summary judgment motion was served in April 2019 and was originally scheduled to be heard on September 19, 2019. On the motion date, the Bank Group asked for a postponement so that they could amend their defence and counterclaim, which had been filed almost a year earlier, and for authorization to file additional documents. I granted the relief sought and adjourned the summary judgment motion to early 2020. The hearing was postponed due to the Covid-19 pandemic. It was eventually heard in February 2021. In the interim, the parties each filed additional affidavit evidence and cross-examinations.
[34] The Bank Group therefore had just shy of two years to respond to the summary judgment motion. This gave them ample time to develop an evidentiary record to support their allegations, if such evidence exists.
[35] The issues in this case are, in the end, straightforward. Since I am able to make necessary findings of fact on the motion record, there is no basis to conclude that it is in the interests of justice to refrain from doing so and referring the parties to trial. It would in fact be against the interests of justice and the parties, in the circumstances, to require them to participate in a trial.
B.(i) Does the Promissory Note, as amended, represent the agreement between the parties, or was there a collateral agreement for the issuance of a charitable receipt?
[36] If there is no admissible and credible evidence of a collateral agreement, the Note would be enforceable unless the Bank Group could prove duress or fraudulent misrepresentation.
[37] The Banks’ execution of the Promissory Note culminated two years of dealings between the Banks and Mr. Sluyter. The motion record includes evidence about these dealings. Although much of the parties’ history is not directly relevant to the resolution of the claim or counterclaim, I will review it before turning to the terms of the Note itself.
Background to the dealings
[38] Mr. Sluyter is the president of Sluyter Capital. Sluyter Capital is owned by a family trust. This same trust owned another company, Sluyter Organization Inc. The two companies amalgamated in 2013 and continued as Sluyter Capital. Because they have amalgamated, I will generally refer to both companies as Sluyter Capital in these reasons.
[39] Mr. Sluyter co-founded another company, Sluyter Isaac Investments Inc. (“Sluyter Isaac”). When Mr. Sluyter first began to deal with the Banks, Sluyter Capital owned 50% of the common shares of Sluyter Isaac. The other 50% were held by a company called Negotiart, which was owned by an individual named Tony Isaac. Up until the time that Sluyter Capital sold its shares in Sluyter Isaac, Mr. Sluyter was president of the company.
[40] Although he has no post-secondary degree, Mr. Sluyter has had a successful business career involving, among other things, property transactions. He is currently retired.
[41] Mr. and Mrs. Bank are married. For many years, Mr. Bank has engaged in construction projects under the name Cover Story Construction. During his cross-examination, Mr. Bank acknowledged that he also promotes his experience as a property developer. Mr. and Mrs. Bank own BankCo,
[42] Based on the evidence on cross-examination and the parties’ affidavits, both Mr. Bank and Mr. Sluyter are experienced and sophisticated businessmen. The Banks were represented by legal counsel throughout their dealings with Mr. Sluyter.
Sluyter Isaac’s purchase of the Brockville Property and advances received from Sluyter Capital
[43] According to Mr. Sluyter’s August 22, 2019 affidavit, Sluyter Isaac purchased the Brockville Property for a price of $1,150,000 on December 1st, 2009. This is evidenced by a registered record of transfer.
[44] In his July 29, 2019 affidavit, Mr. Bank states that he was informed by Mr. Sluyter and Mr. Isaac and he believes that they purchased the Brockville Property for $600,000. This is clearly inaccurate, given the record of transfer. Mr. Bank’s evidence on this point is perplexing because he has full knowledge of the actual transaction through his later acquisition of the shares of Sluyter Isaac and the Property itself. I mention this inaccuracy because it is an early example of assertions by Mr. Bank that are uncorroborated and inconsistent with objectively reliable evidence.
[45] Mr. Sluyter asserts that, between May 2010 and December 2012, Sluyter Capital made loans and advances to Sluyter Isaac totalling $1,149,500. In his affidavit dated December 18, 2019, he detailed each of the advances made and produced banking records for Sluyter Capital and Sluyter Isaac to support his evidence, as well as a corporate register of debt obligations.
[46] Mr. Sluyter further states that, on February 1st, 2013, the directors of Sluyter Isaac passed a special resolution to convert certain shares held by Sluyter Capital to an additional debt of $600,000. This evidence is supported by a signed copy of the resolution.
[47] In February 2011, a mortgage was registered on the title of the Brockville Property. According to an excerpt from the Land Registry Office, the capital amount of the mortgage was $1,500,000. The chargees were Sluyter Organization Inc., holding an 80% interest, and Isaac Organization, holding the balance.
The 2012 Share Purchase Agreement
[48] According to Mr. Bank, Mr. Sluyter approached him in March 2012 with an offer to sell him the Brockville Property, which was the former location of Grenville Christian College. Mr. Bank was interested because he wanted to use the Property to establish a conference and retreat centre for his organization, My Strong Tower Ministries.
[49] In May 2012, the Banks entered into a share purchase agreement (the “2012 SPA”) to buy Sluyter Capital’s common shares in Sluyter Isaac and to assume its debt to Sluyter Capital. The 2012 SPA stated that Sluyter Isaac owed Sluyter Capital a total of $1,600,100, based on its advances of $1,000,000 in December 2009 and April 2011, and $600,000 in further indebtedness. The Banks agreed to be assigned this indebtedness and to buy Sluyter Capital’s common shares in Sluyter Isaac for $300,100. The 2012 SPA provided that, once Sluyter Capital’s shares were sold to the Banks, it would no longer have any ownership interest in Sluyter Isaac and Mr. Sluyter would resign as president of the company.
[50] Pursuant to the 2012 SPA, the Banks were required to pay a deposit of $75,025 for one quarter of the shares and a further $75,025 on or before June 8, 2012. The shares would be transferred in their entirety once these amounts plus a further $400,000 had been paid, “and mutually agreeable financing terms have been agreed to or the remaining loans are paid in full”.
[51] After signing the 2012 SPA Banks paid $150,050 to Sluyter Capital, as evidenced by a copy of the cheque written on their company’s account. In the summer of 2012, the Banks took possession of the Brockville Property and began to remediate it at significant expense. This is consistent with Mr. Bank’s evidence that the Bank Group intended eventually to purchase it for redevelopment.
The 2013 Share Purchase Agreement
[52] On May 30, 2013, Mr. Sluyter and the Banks signed a further share purchase agreement (the “2013 SPA”). Mr. Bank makes no reference to the 2013 SPA in his July 29, 2019 affidavit. As a result, Mr. Sluyter’s evidence about the genesis and purpose of this agreement is unchallenged.
[53] According to Mr. Sluyter, the 2012 SPA was revised because the Banks asked him to reduce the total amount they would have to pay, making it easier for them to secure financing. He states that, “as a sign of good faith and in an effort to preserve the business relationship”, Sluyter Capital agreed to transfer its shares in Sluyter Isaac to the Banks on receipt of another $150,000. It agreed that the price paid for the shares was $100, receipt of which was acknowledged.
[54] On the same day the 2013 SPA was signed, the Banks made a further payment of $150,000, as evidenced by another cheque from their construction company. For reasons that are not explained anywhere on the record, this cheque was made out to Sluyter Isaac, as opposed to Sluyter Capital. The Banks also signed an “Acknowledgement of Receipt of Shares and Declaration”. It stated as follows:
We herby [sic] acknowledge receipt of the original October 12, 2004 Sluyter Isaac Investments Inc. share certificate of 100 shares transferred from Sluyter Capital Investments Inc. to Dennis Bank. We declare that we have received independent legal advice from our lawyer, Hugh Hammond, in regards to all matters regarding our dealings with Paul Sluyter, Tony Isaac and Sluyter Isaac Investments Inc. on the Brocks Landing (Former Grenville Christian College) Property, including all agreements, but not limited to, those agreements dated May 30, 2013: (Share Purchase Agreement from Sluyter Capital Investments Inc., Promissory Note Cancellation and New Issuance, Pledge to Donate, Mutual Release and Indemnification and the Payment of $150,000 to Sluyter Isaac Investments Inc.)
[55] In the May 2013 Pledge to Donate mentioned in the acknowledgement, Sluyter Capital undertook to donate $600,000 to a charitable organization to be created by the Banks, in return for which the Banks agreed to issue a charitable receipt for this same amount. In his August 2019 affidavit, Mr. Sluyter said that, had the conditions for the Pledge been fulfilled prior to its expiry date of December 31, 2013, the Bank Group’s debt to Sluyter Capital pursuant to the 2013 SPA would have been reduced from $1,600,000 to $1,000,000. The Bank Group did not, however, set up a registered charity prior to the expiry of the Pledge.
The sale of the Property to BankCo
[56] At para. 18 of Mr. Bank’s July 2019 affidavit, he asserts that he entered into an agreement of purchase and sale to purchase the Brockville Property on June 17, 2013. He does not provide any record of this agreement, with whom it was negotiated or any details with respect to it. He simply states, at para. 19 of his affidavit, that:
Tony Isaac refused to complete this transaction because according to him he had invested another $600,000 in the Property and he needed compensation for this. Tony Isaac claimed that he had invested the additional $600,000, even though it wasn’t recorded in the financial records of Sluyter Isaac. Paul Sluyter told me that Tony Isaac put the $600,000 into Sluyter Isaac and then withdrew it for another investment. It was because of these demands for more money that Paul Sluyter came up with a plan to provide to him and Tony Isaac a tax deductible receipt that would net each of them about $250,000 in benefit. As an additional attempt to resolve this impasse, on May 30th, 2013, Paul Sluyter suggested that Sluyter Capital would donate the chattels on the Property to a charitable organization to be created by my wife and I after closing the purchase in exchange for a charitable tax receipt.
[57] The only document that Mr. Bank produces in support of these assertions is the May 2013 Pledge to Donate.
[58] Mr. Bank’s account of these interactions and his explanation of its relationship to the Pledge to Donate do not make sense. He does not produce a copy of the alleged June 17, 2013 agreement to purchase the Brockville Property. He states that Mr. Isaac refused to complete the sale, and in response Mr. Sluyter devised the plan for a charitable receipt. The Pledge to Donate was, however, signed before Mr. Bank supposedly entered into an agreement of purchase and sale, which means it preceded Mr. Isaac’s alleged refusal to complete it. The allusion to “demands for more money” by Mr. Isaac further implies that the Banks had not, in fact, reached a deal to purchase the Property. They were still haggling with Mr. Isaac about the price (since he owned half the shares in the seller, Sluyter Isaac) and with Mr. Sluyter about what it would take to discharge Sluyter Capital’s mortgage.
[59] This is borne out by the correspondence between the parties in the summer of 2013. On July 24, 2013, Mr. Bank sent a letter to Mr. Isaac, which was copied to Mr. Sluyter. This letter was on the letterhead of “Thousand Islands Village”, the name that the Banks had given to the project they intended to develop on the Brockville Property. The letter centered on problems arising from an easement for the use of lagoons on land adjacent to the Brockville Property for sewage. Mr. Bank said that, based on a deal he had reached with the owner of this land, “we were comfortable with entering into a final purchase agreement on June 17th, 2013 for $3,500,050”. Two days later, however, Mr. Bank received a letter from the neighbour’s lawyer, that indicated that the easement was disputed and that the Banks would have to pay significant fees to continue using the lagoons. According to Mr. Bank, this put the viability of the Thousand Islands Village project “in serious jeopardy”. He therefore was reducing his offer for the Property to $1,500,000.
[60] This letter reinforces the inference that no enforceable agreement was reached on June 17, 2013. At most, BankCo had made an offer, either verbally or in writing, which had not yet been accepted.
[61] On August 2, 2013, Mr. Sluyter wrote an email to Mr. Bank proposing terms for a resolution of the issues between the parties. In this email, he referred to “Extra due to non cash payment and lack of charitable receipt $150,000”. Mr. Bank responded with a lengthy counter proposal two days later. In it, he stated that: “The tax deductible receipt is still a go as long as it is legal and doesn’t jack up purchase price and thus taxes etc.”.
[62] On February 19, 2014, Mr. Bank sent a detailed letter of intent to Mr. Sluyter and Mr. Isaac. He proposed the purchase of the Brockville Property by a company to be incorporated for $1,500,000, and Negotiart’s transfer of its shares of Sluyter Isaac. The price would be reduced by approximately $123,000 that Mr. Bank had allegedly advanced to Sluyter Isaac, $500,000 would be split between Mr. Sluyter and Mr. Isaac on closing, and a balance of $877,222 would be evidenced by a loan agreement or promissory note payable within twelve months, and would be secured by a second mortgage on the Property. Of this secured amount, $627,222 would be owed to Mr. Sluyter and $250,000 to Mr. Isaac. A first mortgage would be issued to the third party lender who loaned the Banks $1,000,000 for its payment of the amount due on closing and for expenses in connection to the Property.
[63] In para. 29 of Mr. Bank’s July 2019 affidavit, he asserts that:
Paul Sluyter refused to carry out the transaction intended in the letter of Intent dated February 19th, 2014 because he was not satisfied with how the tax deductible receipts were to be issued. My wife and I felt Paul Sluyter was deliberately holding us hostage until the lender intending to finance the purchase of the Property got frustrated and cancelled their loan. On many occasions during our negotiations Paul Sluyter threatened to cancel the entire deal and take back the Property from us.
[64] There is again no evidence to corroborate the allegation about Mr. Sluyter’s motivations for refusing the offer in the February 2014 letter of intent or the allegation that he threatened to take action on Sluyter Capital’s mortgage. The letter of intent contains no reference to a charitable receipt. In his evidence, Mr. Bank does not mention any specific occasions when Mr. Sluyter allegedly threatened to cancel the deal and take action on the mortgage held by Sluyter Capital. There is no correspondence produced that contains such threats. There is no reference to specific dates or words allegedly spoken by Mr. Sluyter. Although Mrs. Bank has produced an affidavit, in it she states only that she has reviewed her husband’s July 2019 affidavit and confirms it to be true and accurate. This does not meaningfully corroborate any of Mr. Bank’s evidence.
[65] On March 13, 2014, Sluyter Isaac entered into an agreement of purchase and sale for the Brockville Property (the “2014 APS”) with BankCo The purchase price was $1,500,000, reduced by a loan of $122,778 that the Banks had made to Sluyter Isaac. The first $500,000 of the purchase price payable was payable in equal shares to Sluyter Capital and a company owned by Mr. Isaac on closing. The balance of $877,222 owed to Sluyter Isaac was payable within twelve months and would be secured by a vendor-take back mortgage. The closing date was March 21, 2014.
[66] In his July 2019 affidavit, Mr. Bank states that the sale was not completed on March 21, 2014, again because Mr. Sluyter demanded more money in return for discharging Sluyter Capital’s mortgage on the Property and that he and Mrs. Bank felt they had no choice but to comply because they did not want to lose the money they had already invested to redevelop it. This is the basis for their allegation that they signed the Promissory Note under protest.
The 2014 Share Purchase Agreement and the Promissory Note
[67] On August 13, 2014, the parties reached a revised agreement with respect to the Sluyter Isaac shares. According to the documents produced, the Banks agreed to pay $877,000 of the purchase price for the Brockville Property to Sluyter Capital and to sign a promissory note for a further payment of $273,000 (the “Promissory Note”). In return, Sluyter Capital agreed to forego some of the money owed to it by Sluyter Isaac that had been assigned to the Banks pursuant to the 2012 SPA, and to discharge its mortgage on the Property.
[68] The Promissory Note signed as part of this revised agreement states that:
FOR VALUE RECEIVED, 1902408 Ontario Ltd, Dennis Bank, Margaret Bank (each a “Promisor” and collectively, the “Promisors”) hereby jointly and severally acknowledge themselves as indebted to and unconditionally promise to pay to the order of Sluyter Capital Investments Inc (the “Holder”) at such place as the Holder may designate, in lawful money of Canada, the principal amount of TWO HUNDRED SEVENTY THREE THOUSAND DOLLARS ($273,000) as set out below.
[69] The Promisors agreed to pay the principal amount on or before August 1, 2017, failing which interest would accrue, commencing on August 2, 2017, on the unpaid balance at a rate of 12% per year. In case of default, the Promisors became liable to pay the balance of any principal amount still outstanding, along with any accrued interest and fees, at the demand of Sluyter Capital. The Promisors also agreed to pay all “reasonable costs and expenses incurred and paid” to enforce the Note.
[70] The recitals stated that:
After Mr. Bank purchased Mr. Sluyter’s shares in Sluyter Isaac for $100, BankCo entered into an agreement to purchase the Brockville Property from Sluyter Isaac for $1,427,000. It was a condition of the sale, set to close on August 13, 2014, that Sluyter Capital’s mortgage be discharged from the title to the Property.
Taking interest into account, the amount outstanding under the mortgage in Sluyter Capital’s favour on the Brockville Property was, as of August 13, 2014, approximately $1,871,066. The mortgage was registered to secure Sluyter Isaac’s debt to Sluyter Capital for advances made to it by Sluyter Capital and its predecessor organizations. The recitals stated that the total amount was “supported by among other things, records of advances and resolutions executed by [Sluyter Isaac] acknowledging all or a portion of the indebtedness”.
“In an effort to resolve matters and to facilitate the closing of the Sale Transaction”, Sluyter Capital agreed to accept payment of $877,000 from BankCo in exchange for a discharge of the mortgage, “which shall constitute full and final payment of amounts owing to [Sluyter Capital] by [Sluyter Isaac]”. BankCo, Dennis Bank and Margaret Bank would also execute the Promissory Note in favour of Sluyter Capital for the principal amount of $273,000.
[71] The circumstances giving rise to the Promissory Note are set out in more detail in Schedule A. It stated that:
Paul Sluyter, Sluyter Capital and a predecessor corporation, Sluyter Organization Inc. had, as of December 31, 2012, loaned Sluyter Capital $1,149,500. The Sluyter Group had also been issued 4,000,000 shares which was converted by Sluyter Isaac to a debt of $600,000. This increased the total amount owed by Sluyter Isaac to Sluyter Capital to $1,749,500.
The Banks had made payments against this amount in 2012 and 2013 totalling $300,050. A portion of these payments reduced the capital amount owed to $1,476,672.
BankCo’s payment of $877,000 for the Brockville Property would further reduce the amount owed to Sluyter Capital to $599,675, taking into account the attribution of some of this payment to discharge a lien to a third party.
Sluyter Capital would incur a loss of $326,672 on its loans to Sluyter Isaac because the sale of the Brockville Property would not have closed otherwise.
The Bank Group were “essentially buying the remainder of this $599,672 debt for $273,000”, the amount of the Promissory Note.
[72] The recitals stated that, through corporate resolutions and other records, Sluyter Isaac had acknowledged “all or a portion” of its debt of over $1,800,000 to Sluyter Capital. Each of the members of the Bank Group furthermore acknowledged Sluyter Capital’s “position as outlined in Schedule ‘A’”. The Schedule was, however, “for illustrative purposes only” and was “not intended to alter the principal amount or payment arrangements or other obligations” undertaken by the Bank Group in the Note.
[73] The Promissory Note did not include a “whole agreement” clause. The parties did, however, sign a comprehensive mutual release, which was attached to the Note. In the release, the Bank Group released the Sluyter Group from any claims “with respect to any document, agreement or other dealings between any member of the Bank Group and any member of the Sluyter Group”, including any claims that the Bank Group might have in connection with the Brockville Property and any mortgages registered against it. The Sluyter Group likewise provided a comprehensive release to the Bank Group. The one exception carved out in the release were the Bank Group’s obligations pursuant the Promissory Note.
[74] The Promissory Note, Schedule ‘A’ and the attached mutual release were prepared by James Doris, the Banks’ solicitor. In an August 10, 2014 email to Mr. Sluyter, he wrote:
Attached for your review is a draft Promissory Note regarding the $273,000 to be paid to your company 3 years after the transfer of the property (subject to your company receiving $877,000 on closing this month and your company discharging the subject mortgage).
You will see the Promissory Note includes Recitals and additional details in Schedule “A” regarding the reason for the Note and the basis for the amount owing thereunder. Although this information is not necessary for the Note to be legally binding, we do understand you wanted background information included to provide context to the reader.
[75] Having said this, it is apparent that the contents of Schedule ‘A’ were based on an account of the parties’ dealings prepared by Mr. Sluyter. Although he initially denied that he had any role in drafting the Note, he later acknowledged in cross-examination that he sent an August 7, 2014 email to Mr. Bank asking that Mr. Doris include an acknowledgement by the Bank Group with respect to the facts that were subsequently set out in the Schedule.
[76] On August 13, 2014, the directors of BankCo passed a resolution acknowledging the company’s debt of $273,000 to Sluyter Capital pursuant to the Promissory Note. The resolution was signed by Mr. Bank.
The closing of the Brockville Property sale and the side agreement with Sluyter Isaac
[77] Although the sale of the Brockville Property had been set to close on August 13, 2014, it was not in fact completed until August 29, 2014. On that day, BankCo paid Sluyter Isaac the purchase price, Sluyter Capital received $877,000 of the proceeds, and it discharged its mortgage against the Property.
[78] On the day that the sale closed, BankCo entered into an agreement with Sluyter Isaac for the purchase of the chattels on the Brockville Property (the “Chattel Agreement”). The Chattel Agreement provided that the Bank Group would either pay Sluyter Isaac $600,000 within two years or provide it, within that same period of time, with a charitable receipt for this same amount, to be issued by a charitable corporation to be established by BankCo. To secure payment under this Agreement, BankCo signed a promissory note for $600,000 in favour of Sluyter Isaac. The Chattel Agreement and promissory note were accompanied by a letter from Mr. Bank, dated August 29, 2014, setting out various scenarios with respect to the issuance of a charitable receipt. The letter stated that, if BankCo could not create a charitable corporation through reasonable efforts within two years, or if the Canada Revenue Service refused to accept the charitable receipt, the parties agreed that BankCo could pay Sluyter Isaac $50,000 in full satisfaction of its obligations under the Chattel Agreement and the promissory note. This letter was counter-signed by Mr. Isaac on behalf of Sluyter Isaac.
[79] During his January 28, 2020 cross-examination, Mr. Bank acknowledged the terms of the August 29, 2014 letter agreement between BankCo to Sluyter Isaac.
Interactions between Sluyter Capital and the Bank Group in 2017 and 2018
[80] As of August 1st, 2017, the Bank Group had not paid Sluyter Capital any of the money owed by virtue of the Promissory Note. Mr. Sluyter met with the Banks on August 12, after which he sent them this email:
Hi Dennis,
Thanks for meeting me this morning and spending the time to give me a tour of the property. I have considered your proposal that I forgive you and Margaret of your debt obligation of $273,000.00
The answer is no.
The $273,000 Promissory Note was offered by you and Margaret three years ago to close the real estate deal. This was after more than 2 years of negotiations. We all signed a very detailed Mutual Release that has served us both well.
You now threaten me that the release is meaningless and the debt should be forgiven. I do not like to be called a liar, an embezzler or evil. Your perspective at this point in time and your treatment of me this morning is something I cannot work with.
[81] Mr. Sluyter went on to outline two options. The first was that he sue the Banks and BankCo on the Promissory Note. The second was for the parties to renegotiate the terms of the note “to allow you and Margaret some time”. He said that, if they were prepared to make a payment of $23,000, he would be willing to not take any immediate legal action and continue the loan for another year interest-free.
[82] Mr. Bank responded the next day, August 13, 2017, with an email saying that he had a third option: “we choose to continue with the agreement that is in place and took 2 years to negotiate as per part #1 of the note”. He then cited the payment provision of the Promissory Note, whereby the Bank Group agreed to pay the principal amount in full by August 1st, 2017, failing which, interest would accrue on the unpaid balance. In response, Mr. Sluyter pointed out that, since the Bank Group was in default of its payment obligation, “interest will accrue and I will seek remedy through the courts at your expense”.
[83] On August 17, 2017, Sluyter Capital and the Bank Group signed an agreement amending the terms of the Promissory Note effective August 1st, 2017, the date that payment in full of the $273,000 owed otherwise would have been due. The Bank Group agreed to make two payments, the first on August 17, 2017 and the second on February 1st, 2018. These payments would total $23,000 and reduce the principal owed to $250,000. In exchange, Sluyter Capital agreed to forego interest on the principal until August 1st, 2018. The parties agreed to meet in August 2018 “to discuss the best path forward to clear the remaining balance of the Note”.
[84] This amendment was favourable to the Bank Group. In addition to giving the Banks another year to fulfill their full payment obligation, the Sluyter Group forewent interest that would otherwise have been payable on the capital. The parties agree that the amendment was drafted by Mr. Bank personally.
[85] The Bank Group complied with the Amended Promissory Note by making two payments totalling $23,000 to Sluyter Capital on August 18, 2017 and February 2, 2018. In each case, a payment was made only after Mr. Sluyter sent emails to the Banks on the due dates, reminding them of the amounts due. On receiving the first payment of $13,000, Mr. Sluyter wrote the following email to Mrs. Bank:
Got it. Thanks Margaret.
I am very happy that both you and Dennis have decided to pay this small amount. It was important to me that my debt is taken seriously and is respected based on our deal 3 years ago. I did not get that feeling when I met with Dennis on Saturday. My faith has been restored. I look forward to the Feb. 1st 10k payment and working WITH you to the best possible outcome for all of us. Thanks for working with me and not against me.
Paul
[86] On receipt of the second payment on February 2, 2018, Mr. Sluyter wrote an email to Mrs. Bank as follows:
The transfer arrived. Thanks!
The balance is now an even $250,000 and is interest free until August 1st. On August 1st the amount is due and interest accrues at 12%.
As stated earlier, I would like to work with you and Dennis to clear the debt.
I would like to ask you to give some thought to how we can work together to clear this balance. If we wait until the last minute (August 1st) it creates unneeded stress on both sides. I would like monthly payments. If you can make a fair and reasonable offer with monthly payments now, then we could then begin to clear the balance and I might forgive interest which starts August 1st, based on the amounts paid. Please give it some thoughts and make me an offer.
You need to be commended for what you have done. My respect for both of you is very high.
[87] The Bank Group has not produced any responses to these messages denying the accuracy of their content.
[88] On March 26, 2018, Mr. Sluyter wrote to the Banks again about their payment of the remaining $250,000 owed on the Promissory Note. He offered another year of interest forgiveness if the Defendants made a payment of $20,000 on April 30, 2018 and monthly payments of $2000 beginning August 1st, 2018. Mr. Bank acknowledged the email on April 16, saying that he was “working on a solution that will bring this matter to a close soon. Will keep in touch.”
[89] Having receive no response to this proposal, Mr. Sluyter wrote again to the Banks on May 23, 2018 asking to “please update me on your solution and the timing of that solution”.
[90] On June 3, 2018, Mr. Sluyter sent an email to Mr. Bank saying he intended to sue him on the Promissory Note and seek summary judgment. On June 19, 2018, a lawyer acting for Sluyter Capital sent a letter to the Bank Group demanding repayment by June 26, 2018 of the balance of $250,000 owed on the Promissory Note. He took the position that an Event of Default had been triggered by Mr. Bank’s denial of the debt in correspondence with Mr. Sluyter. Sluyter Capital subsequently began this action.
Principles governing the interpretation of the Promissory Note
[91] In interpreting a contract, a judge must seek to determine the intent of the parties and the scope of their understanding. In order to do so, “a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, para. 47. Relevant contextual factors can include the purpose of the agreement and the nature of the relationship created by the agreement.
[92] There are, however, important limits to the court’s ability to look for the parties’ intention outside the written terms of the contract.
[93] From a procedural perspective, the parol evidence rule limits the evidence that is admissible for this purpose. The rule prohibits the admission of evidence “outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing”; Sattva, para. 59. The purpose of the parol evidence rule is to preserve the finality and certainty of a written contract, by hampering a party’s ability “to use fabricated or unreliable evidence to attack a written contract”: United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., 1993 CanLII 88 (SCC), [1993] 2 S.C.R. 316, at pp. 341-42, cited in Sattva, para. 59.
[94] In Sattva, para. 61, the Supreme Court noted that “some authorities and commentators suggest that the parol evidence rule is an anachronism, or, at the very least, of limited application in view of the myriad of exceptions to it”. The Court nonetheless declined to declare it dead. As a result, although evidence of circumstances surrounding the formation of a contract may be admitted, the rule stands to preclude the admission of such evidence if it squarely contradicts or negates the terms of the written agreement.
[95] From a substantive perspective, even where the parol evidence rule does not render inadmissible evidence of the parties’ interactions and intentions prior to signing an agreement, a judge may not rely on such evidence to ignore the terms of the contract that they ultimately signed. As the Supreme Court held at para. 57 of Sattva, the surrounding circumstances of an agreement “must never be allowed to overwhelm the words of that agreement” or be used “to deviate from the text such that the court effectively creates a new agreement”. These interpretive principles were captured neatly in Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), 1997 CanLII 4085 (BC CA), 101 B.C.A.C. 62, para. 20, a case cited in Sattva:
The factual matrix is the background which may deepen an understanding of what the parties meant by the language they used, but the Court cannot make a new agreement. Our search is always for the meaning intended by the parties as expressed in the agreement. [Emphasis added.]
[96] Finally, evidence of the parties’ conduct after they have signed an agreement may be admissible and relevant to show that it was later modified or rescinded (Shelanu Inc. v. Print Three Franchising Corp., 2003 CanLII 52151 (ON CA), [2003] O.J. No. 1919 (C.A.), paras. 49-60) or to construe an ambiguous term (Canadian National Railways v. Canadian Pacific Ltd. (1978), 1978 CanLII 1975, 95 D.L.R. (3d) 242 (B.C.C.A.) at 262, aff’d [1979] 2 S.C.R. 688).
Application of these principles
[97] I conclude that there was no oral agreement between the parties in 2014, collateral to the Promissory Note, whereby the Note would not be enforceable but was simply executed to justify the later issuance of a tax receipt to Sluyter Capital.
[98] Based on the 2013 Pledge to Donate and some of the parties’ correspondence up until February 2014, Mr. Sluyter actively considered the possibility of forgiving some of the debt owed by the Bank Group in return for the promise of a future tax receipt. The evidence does not, however, show that an agreement premised on a charitable receipt was reached. First, applying the parol evidence rule, there is no admissible evidence of such an agreement. Second, because the alleged collateral agreement would gut the Promissory Note of any meaning, this evidence cannot be used to interpret the Note, even if it were admissible. Third, there is no credible evidence in any event that Mr. Sluyter and the Bank Group had a collateral agreement. In fact, the evidence is consistent with the absence of such an agreement.
[99] Turning first to the parol evidence rule, the case of Latner Estate v Latner, 2016 ONSC 364, aff’d 2017 ONCA 859 is instructive. In it, the parol evidence rule, as interpreted in Saatva, was found to apply in the context of an action to enforce a promissory note. Justice McEwen held that the rule precluded “admission of evidence outside the words of the written contract, made in advance of the formation of the contract, that would add to, subtract from, vary or contradict a contract that has been wholly reduced to writing”; Latner, para. 30. He held that this rendered inadmissible evidence about an oral agreement allegedly made prior to the execution of a promissory note that would prevent its enforcement.
[100] Latner is arguably distinguishable from this case because the agreement pursuant to which the promissory note was signed in that case contained a whole agreement clause. The Promissory Note in this case does not. This distinction is not meaningful, for two reasons. First, McEwen J. found that the parol evidence rule excluded evidence of an oral collateral agreement without reference to the whole agreement clause. It was only in the alternative that he found that the whole agreement clause replaced any prior written or oral agreement. Second, the mutual release attached to the Promissory Note in this case has the same effect as an entire agreement clause. It prevents any of the parties from seeking to enforce any agreement except for the Promissory Note.
[101] I agree with the ambit of the rule as expressed in Latner. Applying it, it alone disposes of the Bank Group’s allegation about a collateral agreement for a charitable receipt.
[102] Even if the parol evidence rule did not apply, however, the principles of contractual interpretation set out in Saatva would preclude me from finding that a prior agreement between the parties negated the Promissory Note’s terms. Further to s. 176 of the Bills of Exchange Act, RSC, 1985, c. B-4, 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 bearer”. The Promissory Note, as written, corresponds to this definition. Its terms are unambiguous. If I accepted the Bank Group’s allegation about the oral side agreement, the terms set out in the Note would have no meaning.
[103] Beyond this, neither common sense nor the evidence supports the existence of a side agreement wherein the parties agreed that the Bank Group should make no further payment to Sluyter Capital.
[104] Conceptually, the scheme described by the Bank Group would not make sense from Sluyter Capital’s perspective. If the Promissory Note was never meant to be enforceable, why would Sluyter Capital have agreed to reduce the amount payable pursuant to it to $273,000? Based on the calculation set out in Schedule A to the Note, the balance of the debt assigned from Sluyter Isaac to the Banks as of August 2014 was $599,672. If the Note was executed solely to justify the later issuance of a charitable tax receipt in Sluyter Capital’s favour, why would it have agreed to write off $326,672 in the Promissory Note? No explanation has been advanced for this by the Bank Group.
[105] There is no compelling evidence to support the existence of a collateral agreement. The Bank Group has filed no written documentation of either the side agreement or discussions about such an agreement, even though Mr. Bank testified that the latter records existed. During his September 2019 cross-examination, Mr. Bank affirmed that he and Mr. Sluyter had “written correspondence back and forth for over a year about a tax-deductible receipt” and, more specifically, they exchanged correspondence about the fact that the Promissory Note had no cash value. Because he had not produced any such correspondence prior to the cross-examination, he made an undertaking to produce “all correspondence confirming … the discussions that the promissory note had no cash value prior to litigation” (Q. 304). In answer to this undertaking, however, Mr. Bank stated that he had not been able to locate any records.
[106] Mr. Bank has consistently maintained that there is no record of the alleged collateral agreement because of concerns that such a deal might be unlawful or contrary to the Income Tax Act. At para. 42 of his July 2019 affidavit, he states that “I was told by Paul Sluyter and my lawyer that the side agreement could not be referred to in the Promissory note because it would not meet the requirements necessary to obtain a charitable receipt”. During his cross-examination in August 2019, he expanded on this as follows, at Q. 154:
Q: And you’re aware that it’s fairly common practice to draft a pledge to donate when large donations like this are made?
A: We thought it was that easy at the beginning. What we found out was that we could not draft an agreement of this nature prior to a charity being set up. It’s you can’t do up an agreement if your charity isn’t there. I was advised that that was inappropriate and that was illegal.
We had to have some sort of mechanism without mention of the charity, that that was just out of the good will of the individual that would donate that. Because if we set up and had a document or a side deal or a contract saying that we would produce a receipt when we didn’t have that organization set up was improper, so that we would have to — we couldn’t have a documentation following that kind of rule, because if that was — came up later, that would invalidate the receipt.
So we did everything we could to make sure it was valid when we got it, which means there could be no attachments to a company that — or alluding to something that wasn’t there yet. [Emphasis added.]
[107] Later during the same cross-examination, Mr. Bank had the following exchange with examining counsel, at Q. 288 to 291:
Q: All right, so you’d agree with me, sir, that you have not produced any documentary evidence proving that Sluyter Capital agreed to accept a charitable tax receipt for $273,000; correct?
A: Our advice was that it could not be in writing ahead of this, because the charitable donation company was not set up yet, that that would be illegal.
Q: So yes or no, you have not produced any documentary evidence?
A: Because it can’t exist.
Q: So that’s a yes?
A: In writing.
Q: That’s a yes?
A: That’s correct. [Emphasis added.]
[108] The record indicates that Mr. Sluyter and Mr. Bank had discussions about a charitable tax receipt even after the expiry of the Pledge to Donate. They support Mr. Bank’s testimony that the parties were concerned about how to go about this. This could, notionally, support his contention that Sluyter Capital and BankCo had only an oral agreement because the arrangement was illegal and could not be reduced to writing.
[109] This proposition falls apart, however, in the face of the agreement reached between BankCo and Sluyter Isaac in August 2014. The Banks had still not created a registered charity at this point. Based on Mr. Bank’s testimony at cross-examination, an agreement premised on a receipt from a charity that had not yet been founded was illegal. This is why, according to him, the true purpose of the Promissory Note was not the subject of a written agreement. But both the Chattel Agreement and the accompanying August 29, 2014 letter from BankCo set out, in detailed terms, a deal for the issuance of an eventual charitable receipt in lieu of payment of $600,000 and the actual cash value of BankCo’s promissory note ($50,000). The August 2014 agreement between BankCo and Sluyter Isaac is utterly incompatible with Mr. Bank’s evidence about why there is no documentary evidence of the alleged collateral agreement with Sluyter Capital.
[110] There is furthermore nothing to corroborate Mr. Bank’s evidence that he received legal advice that “the side agreement could not be referred to in the Promissory note because it would not meet the requirements necessary to obtain a charitable receipt”. During his August 2019 cross-examination, Mr. Bank stated that he discussed the matter with three of his own lawyers, James Doris, Paul Franco and Charles Rotenberg, and also with Mr. Sluyter’s lawyer, Marty Black. According to Mr. Bank, “the group of them went in circles for about six months on the tax-deductible receipt portion”.
[111] After this exchange, Mr. Bank was asked at Q. 315 if he had made any effort to obtain an affidavit from any of these lawyers about these alleged discussions. In response, the Bank Group’s lawyer stated on the record that he had reviewed the solicitor’s file and had found “nothing of relevancy”. He added, at Q. 327, that he had received “the entire file contents of him and his colleagues Mr. Rotenberg and Mr. Franco” and reiterated that he had found “nothing of relevance”. This admission of the absence of any record of the many discussions that Mr. Bank allegedly had with his lawyers on the issue of a charitable receipt was reaffirmed in an answer to undertaking.
[112] It is frankly inconceivable that the Bank Group’s lawyers would have spent months discussing the legality of the alleged collateral agreement with Sluyter Capital, and given advice to Mr. Bank on this issue, and yet there is no trace of any of this work — no notes, time charges, correspondence, memos or any other records. I draw an adverse inference based on the absence of any paper trail of this alleged legal work. I draw a further adverse inference from the Bank Group’s failure to file any evidence from their legal counsel that would support Mr. Bank’s evidence about the work done and the advice he allegedly sought and received.
[113] The conduct of the Banks in 2017, when the Promissory Note became due, is also inconsistent with their allegation of a collateral agreement. I will return to this evidence when I consider the fraudulent misrepresentation claim.
[114] The Bank Group relies on an email that Mr. Sluyter sent to Mr. Bank on August 13, 2014. In it, he reassured Mr. Bank that, as per his request, “I have not discussed our “side deal” with Tony [Isaac]”. In his December 2019 affidavit, Mr. Sluyter said that this “side deal” was the Promissory Note. He explained that Mr. Bank had asked him not to disclose to Mr. Isaac that the Bank Group had agreed to pay Sluyter Capital $273,000, because Mr. Bank said he feared that Mr. Isaac would want more money for the transaction with respect to the Brockville Property. During his second cross-examination in January 2020, Mr. Bank acknowledged that the side deal referred to the Promissory Note but contended that it also referred to the oral agreement for a charitable tax receipt. I accept Mr. Sluyter’s evidence on this issue, as it explains the email. I do not accept Mr. Bank’s allegation that it refers to a scheme for a tax receipt, given the lack of evidence about such a scheme and its fundamental implausibility.
[115] The Bank Group also relies on an email that Mr. Bank sent to Mr. Isaac on June 3, 2018, in which he wrote that “Both of you were offered charitable receipts if they were legal … the secret side agreements were to add validity to the eventual charity receipts with both of you”. Given that this email was sent after Mr. Sluyter had repeatedly asked the Banks for payment on the Promissory Note, I do not place any weight on this self-serving statement.
[116] Based on all of the admissible evidence, and even taking into account some inadmissible evidence, I conclude there was no oral collateral agreement between the parties that the Promissory Note would not be enforced and that its real purpose was to justify the eventual issuance of a charitable receipt. I do not need to exercise enhanced fact-finding powers to reach this conclusion, based on the application of the principles of contractual interpretation set out in Sattva, the parol evidence rule, and the incompatibility of the Bank Group’s allegation with Sluyter Capital’s willingness to write-off debt of over $325,000 in the Promissory Note. I have exercised such powers solely to emphasize that my conclusion is supported on the evidentiary record.
B. (ii) Was there consideration for the Bank Group’s promise to pay $273,000?
[117] As stated by A.J. Goodman J. in Mora v. Mora, 2011 ONSC 2965, para. 30, a promissory note is presumptively issued for consideration:
There is a presumption that every party whose signature appears on a promissory note received valuable consideration. Any consideration sufficient to support a simple contract may constitute valuable consideration for a promissory note. The presumption of consideration is rebuttable, the onus resting on the party alleging no consideration to establish this fact on the evidence.
[118] If this presumption is not overcome, the only thing that a plaintiff must show to obtain judgment on a promissory note is proof that it was signed by the defendant(s) and that payment is overdue on its face.
[119] Further to s. 52(1) of the Bills of Exchange Act, valuable consideration for a promissory note may be constituted by “any consideration sufficient to support a simple contract”, or “an antecedent debt or liability”. A promise to forbear from exercising a legal right, such as taking steps to enforce a debt, is sufficient consideration in exchange for a promise to pay, per Francis v. Allan, 1918 CanLII 502 (SCC), [1918] 57 SCR 373, para. 10; Globex Foreign Exchange Corporation v. Kelcher, 2011 ABCA 240, para. 120; and other authority cited therein.
[120] The Bank Group contends that they have overcome the presumption that the Promissory Note was issued for consideration. Relying on Glesby v. Mitchell, 1931 CanLII 57 (SCC), [1932] S.C.R. 260, para. 42, they argue that parol evidence may be admitted to prove the actual value received for the issuance of the Note. They contend that there is evidence that could, if accepted by a trier of fact, overcome the presumption that the Note was issued for valid consideration.
[121] On the face of the Promissory Note, consideration was given to the Banks for their promise to pay. The Note sets out the details of this consideration in the recitals and Schedule A. Sluyter Capital agreed not to take any steps to enforce the debt owed to it by the Banks, pursuant to the 2012 SPA, for a period of three years. It also agreed to reduce the Banks’ total indebtedness from $599,672 to $273,000. Both of these agreements constituted sufficient consideration for the Banks’ promise to pay.
[122] The Bank Group alleges that Sluyter Capital has not proved the level of indebtedness stated in the Promissory Note. During his January 2020 cross-examination, Mr. Bank testified that he disagreed with Mr. Sluyter’s evidence relating to advances made by Sluyter Capital to Sluyter Isaac and he did not know how these funds were used.
[123] Despite these assertions, the Bank Group did not seek to cross-examine Mr. Sluyter on his evidence with respect to the advances made by Sluyter Capital to Sluyter Isaac, or the records he produced evidencing transfers of money between the companies. In fact, Mr. Bank agreed during his cross-examination that the bank records produced in Mr. Sluyter’s December 2019 affidavit showed the transfer of funds stated in the Promissory Note. He also admitted that he had been invited by Mr. Sluyter in 2013 and again in 2014 to perform an audit on the debts owing by Sluyter Isaac to Sluyter Capital, but he declined to do so.
[124] The Bank Group relies on an opinion prepared by Irene Boychuk, a chartered accountant. In cross-examination, Ms. Boychuk admitted that she was unable to determine Sluyter Isaac’s indebtedness to Sluyter Capital because she was missing pertinent information. She had not been provided Sluyter Capital’s bank statements prior to preparing her opinion. She had no opportunity to speak to a representative of Sluyter Capital or Sluyter Isaac, or to speak with Mr. Sluyter or Mr. Isaac. She was not given Mr. Sluyter’s December 2019 affidavit in which he detailed all of the transfers of funds. As a result, Ms. Boychuk could not reach a conclusion as to whether the calculations in Schedule A to the Promissory Note were accurate.
[125] As a result of the incomplete factual basis for Ms. Boychuk’s opinion and the inconclusive nature, I conclude that Ms. Boychuk’s evidence is of little value. It is appropriate to make this assessment because the shortcomings of her opinion are apparent on the face of the record.
[126] As already noted, there is a presumption that consideration was received for a promissory note. The Banks have not overcome the presumption in this case.
[127] In the alternative, BankCo argues that it did not receive any consideration for its undertaking to pay in the Promissory Note, because the debt that underlay it was owed by the Banks personally.
[128] In Peel Halton Kitchens Inc v. 1485625 Ontario Inc., 2004 CanLII 11170 (ON Div. Ct.), the Divisional Court upheld a decision by Master McLeod (as he then was) granting summary judgment on a promissory note. The individual defendants were shareholders of a numbered company that owed money to the plaintiff Peel Halton Kitchens. The shareholders had each signed promissory notes in return for Peel Halton Kitchens’ agreement not to take steps to enforce the debt. Justice McLeod rejected their argument that the shareholders had received no consideration for the notes. At paras. 14 and 15 of its reasons, the Divisional Court upheld this ruling on two bases:
It is a reasonable inference that the individual Appellants did gain some form of benefit or profit from the willingness of Peel Halton Kitchens to allow 1485625 Ontario Inc. to pay its debt over time through the use of the promissory notes in view of the evidence of their connection to 1485625 Ontario Inc.
It is also clear that the promise need not benefit the promisor. If B lends money to X in exchange for A’s promise to guarantee repayment, there is no doubt that there is a bargain between A and B and that A’s promise is enforceable without any inquiry into whether A benefited by the advance of the money to X (See S.M. Waddams, The Law of Contracts, 3rd Edition (Toronto: Canada Law Book Inc. 1993): para 118; also see Caligiuri v. Tumillo, [2003] M.J. No. 345). In this case the individual defendants essentially agreed to guarantee the promissory note for the benefit of 1485625 Ontario Inc.
[129] On similar reasoning, I find that BankCo received consideration for the Promissory Note. BankCo agreed to guarantee the Promissory Note for the benefit of the Banks, its shareholders. I also infer that BankCo gained some form of benefit from the willingness of Sluyter Capital to allow the Banks to pay the debt owed over time, and to reduce the debt.
[130] I conclude that neither the Banks nor BankCo has overcome the presumption that each received consideration for their execution of the Promissory Note.
B.(iii) Did the Banks sign the Promissory Note or the amendment to it, or make payments on it, under duress?
[131] The Banks allege that they signed the Promissory note and the amendment to it under duress, and that they also made payments totalling $23,000 in 2017 and 2018 under duress.
[132] In order to prove duress, a defendant must show that their will was coerced and that the pressure exerted by the other party was illegitimate: Gordon v. Roebuck, 1992 CanLII 7443 (ONCA), at p. 3. The court should consider four factors in determining whether a defendant was coerced:
(i) Did he protest?
(ii) Was there an alternative course open to him?
(iii) Was he independently advised?
(iv) Did he take steps to avoid the contract after entering it?
[133] Consideration of these factors does not support the Banks’ contention that they were subject to duress:
(i) There is no record showing that the Banks protested the Promissory Note, or its amendment in August 2017, or the payments totalling $23,000 in 2017 and 2018.
(ii) They could have avoided the execution of the Promissory Note by paying the amounts owed to Sluyter Capital on the purchase of the Brockville Property, thereby obtaining the discharge of the mortgage. They could have avoided the need for the 2017 amendment, and the need to pay the payments totalling $23,000, by paying the amount owed when the Note became due.
(iii) The Promissory Note was prepared by the Banks’ lawyer, from whom they received independent legal advice. Although Mr. Bank says that they no longer had a lawyer when they signed the 2017 amendment and made payments pursuant to it, I have already found that Mr. Bank was an experienced businessperson. I therefore conclude that the lack of independent legal advice in 2017 and early 2018 is not significant.
(iv) The Banks’ conduct after signing the Promissory Note shows that they intended to be bound by it. On August 13, 2014, BankCo’s directors passed a resolution that it was jointly and severally obligated, pursuant to the Note, to pay $273,000 to Sluyter Capital. Three years later, when Mr. Sluyter sought payment of the Note, Mr. Bank responded in his August 13, 2017 email that the Banks “choose to continue with the agreement that is in place and took 2 years to negotiate”. The Banks’ conduct after signing the 2017 amendment similarly shows an intention to be bound by its terms. They made the two payments totalling $23,000 in late 2017 and early 2018, as required in the amendment.
[134] At para. 51 of his July 2019 affidavit, Mr. Bank stated that he and Mrs. Bank agreed to the amendment to the Note and to make the $23,000 payments because they did not want Mr. Sluyter to sue them. A creditor’s demand for payment of a debt owed, and even a threat to sue on that debt, doe not constitute illegitimate pressure. As stated in 12399745 Ontario Ltd. v. Bank of America Canada, 2003 CanLII 26791 (ON SC), para. 12, it is settled law that “a threat to exercise a right which a party is legally entitled to exercise, for example, the calling of a bank loan in our case, cannot be considered to be economic duress”.
[135] During his cross-examination, Mr. Bank said that he complied with Sluyter Capital’s demand for payment pursuant to the Promissory Note in 2017 because he feared that, if he did not, Mr. Sluyter would take steps to take the Brockville Property back. Given that the mortgage had been discharged three years earlier, and given that Mr. Sluyter had long since ceased to have any interest in or role within Sluyter Isaac, there was no basis on which he could have exerted this sort of pressure.
[136] Mr. Bank makes other assertions about threats and intimidation by Mr. Sluyter which are not in any way corroborated. For example, in para. 51 of his July 2019 affidavit, he states that he “communicated to Paul Sluyter at the time we signed the amended Promissory Note that we were signing the Promissory Note and making these payments under duress due to our circumstances”. There is no written record of such a communication and no particulars provided about where, when and how it occurred. I find that Mr. Bank’s allegations about these communications are implausible.
[137] I conclude that the Bank Group has not provided any credible evidence that supports their claim of economic duress. I reject Mr. Bank’s account of threats and intimidation because it is inconsistent with the parties’ conduct. I do not need to hear viva voce evidence directly from the parties before reaching this conclusion, given the record on the motion.
B.(iv) Did Mr. Sluyter make fraudulent misrepresentations to induce them to sign the Promissory Note?
[138] Mr. Bank alleges that he had a conversation with Mr. Sluyter at a Tim Hortons prior to the Note being executed, during which Mr. Sluyter purportedly told him that the Promissory Note would have no cash value. He says that Mr. Sluyter gave him similar assurances on August 12 and 13, 2014.
[139] A party claiming damages on the basis of fraudulent misrepresentations must prove that a false representation was made that caused them to act and resulted in a loss; Bruno Appliance and Furniture Inc. v. Hryniak, 2014 SCC 8, para. 21.
[140] The Bank Group has not presented any records to support its claim that Mr. Sluyter made any fraudulent misrepresentations about the lack of enforceability of the Promissory Note. There is no record of any correspondence in which Mr. Sluyter referred to a collateral agreement or promised that the Promissory Note would have no cash value.
[141] A fraudulent misrepresentation need not be made in writing. As already found, however, there is no admissible and credible evidence of a collateral oral agreement.
[142] The capital amount on the Promissory Note is incompatible with the claim of a fraudulent misrepresentation, just as it was the claim of a collateral agreement. If Mr. Sluyter told the Banks that he never intended to enforce the Note because its only purpose was to create a record consistent with a later tax receipt for $600,000, logically the Note should have been for the full amount of the indebtedness calculated in Schedule A rather than a reduced amount. There was no reason to limit its amount.
[143] The fraudulent misrepresentation allegation is also inconsistent with the Banks’ conduct between August 2017 and March 2018. Had Mr. Sluyter repeatedly reassured the Banks prior to execution of the Note that he would never seek to enforce it, I would expect them to have reacted with shock and dismay when he demanded payment three years later. When Mr. Sluyter sent an email to the Banks in August 2017 stating that he would sue if they did not pay at least a portion of the capital immediately, however, Mr. Bank responded that he and Mrs. Bank “choose to continue with the agreement that is in place and took 2 years to negotiate”. Given the content of Mr. Bank’s email, the agreement he is referring to is the Note. The parties subsequently negotiated an amendment, and the Banks made two payments on the capital.
[144] The Banks’ conduct during this period reinforces the implausibility of their allegation that Mr. Sluyter told them that the Note had no cash value and he would never seek to enforce it. Instead of repudiating their obligation to pay, they repeatedly reaffirmed their intention to be bound by the Note.
[145] In light of this, I find that Mr. Bank’s evidence about these representations is simply not credible. I do not need to hear oral evidence to reach this conclusion because of the abundance of evidence already before the Court that contradicts it.
[146] The Bank Group contends that fraud vitiates a contract and that the parol evidence rule does not preclude evidence that would show that a party was induced to enter an agreement as a result of fraudulent statements. I take no issue with these submissions. It is not enough, however, for a party to cry fraud in order to avoid adjudication by summary judgment motion. There must be something in the evidence that gives the allegation some air of reality. I do not find that the Banks have met this low bar.
[147] I accordingly conclude that the fraudulent misrepresentation claim does not give rise to a genuine issue that can only fairly be resolved at trial.
Disposition
[148] The motion for summary judgment is granted, Sluyter Capital’s action is granted, and the Bank Group’s counter-claim is dismissed. Sluyter Capital is entitled to payment of $250,000 plus interest at 12% per year as of August 2, 2018. It is also entitled to costs.
[149] If the parties are unable to agree on costs, they shall exchange and file costs submissions attaching a bill of costs and any relevant documents. The costs submissions for each party shall not exceed three pages in length. They shall be filed with the Court electronically no later than August 30, 2021.
Justice Sally Gomery
Released: August 16, 2021
COURT FILE NO.: 18-77344
DATE: 2021/08/13
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Sluyter Capital Investments Inc.
Plaintiff
- and -
1902408 Ontario Ltd., Dennis Bank and Margaret Bank
Defendants
AND BETWEEN:
1902408 Ontario Ltd., Dennis Bank and Margaret Bank
Plaintiffs by Counterclaim
– and –
Sluyter Capital Investments Inc. and Paul Sluyter
Defendants by Counterclaim
DECISION ON SUMMARY JUDGMENT MOTION
Justice Sally Gomery
Released: August 16, 2021