SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Kenneth White, Jacqueline Chepurnyj and Brenda Innes
AND:
6975429 Ontario Inc., carrying on business as Engreen Inc., and Anthony Guido
AND RE: Albino Armanasco and Anthony Fusco
AND:
Brenda Innes, Kenneth White and Jacqueline Chepurnyj
AND:
2402169 Ontario Inc., Engreen Inc. and Anthony Guido
BEFORE: Mr. Justice Chalmers
COUNSEL: C. J. Shammas, for Brenda Innes, Kenneth White and Jacqueline Chepurnyj
P. J. Zibarras, for 6975429 Ontario Inc., carrying on business as Engreen Inc., Anthony Guido and 2402169 Ontario Inc.
HEARD: February 4, 2021, in writing
ENDORSEMENT
OVERVIEW
Overview
1Kenneth White, Jacqueline Chepurnyj and Brenda Innes (the “Innes Parties”) were the owners of 2402169 Ontario Inc. (“240”). 240 granted a first mortgage registered as Instrument No. GB70810 (the “Mortgage”) in favour of Albino Armanasco and Anthony Fusco (the “Mortgagees”). The Mortgage was secured against a quarry owned by 240. Each of the Innes Parties were guarantors under the Mortgage. The Mortgage was also collateralized against the homes of Ms. Innes and Ms. Chepurnyj.
2On September 5, 2014, Engreen Inc. entered into an agreement to purchase all of the issued and outstanding shares in 240 from the Innes Parties (the “Agreement”). Pursuant to para. 3.1(a) of the Agreement, Engreen agreed to assume 240’s obligations under the Mortgage. Engreen and its principal, Anthony Guido (“Guido”), executed the Covenant of Indemnity in which they agreed to indemnify the Innes Parties with respect to the Mortgage. The Mortgage was not assigned in the sale transaction and 240 continued to be the Mortgagor. The Innes Parties continued to be guarantors.
3Engreen failed to make the Mortgage payments and the Mortgage fell into default. In November 2015, the Mortgagees delivered a Notice of Sale regarding the quarry and the homes of Ms. Chepurnyj and Ms. Innes. The default was not remedied. The Mortgagees commenced an action against the Innes Parties, Court File No. CV-16-554150-00A1 (the “Mortgage Action”). The Innes Parties brought a Third Party Claim against Engreen, Guido and 240 seeking contribution and indemnity for any amounts they had to pay to the Mortgagees. On February 19, 2019, the Mortgagees obtained judgment against the Innes Parties in the amount of $577,893.07, plus pre-judgment interest at the rate of 10 percent per annum from June 3, 2016 and costs of $35,000 (the “Judgment”). The Judgment was reached on consent. The Innes Parties obtained a forbearance from the Mortgagees for the enforcement of the Judgment. The Innes Parties have not paid the Judgment and Ms. Innes and Ms. Chepurnyj have not delivered possession of their homes.
4The Innes Parties brought a motion for summary judgment on the Third Party Claim. The motion was heard at the same time as the summary judgment motion brought by the Innes Parties in a related action, Court File No. CV-15-125070-00CT. I heard both motions on July 23, 2019 and delivered my reasons on September 13, 2019. In the Mortgage Action, I granted summary judgment in favour of the Innes Parties against Engreen and Guido. I granted a declaration to the Innes Parties that Engreen and Guido are required to indemnify them for all costs, claims, payments and demands in respect of the Judgment. The amounts owing by Engreen and Guido will be determined by a reference. I did not grant judgment in favour of the Innes Parties against 240.
5Engreen and Guido appealed my decision. The Innes Parties brought a cross-appeal with respect to the dismissal of the summary judgment motion against 240. By reasons released on October 6, 2020, the Court of Appeal dismissed the appeal brought by Guido and Engreen. On the cross-appeal, the Court of Appeal stated that I provided no reasons for the dismissal of the Innes Parties’ claim in relation to 240 and, as a result, that aspect of the appeal was not capable of review. The claim against 240 was remitted back to me for determination.
6I convened a case conference on December 7, 2020. The parties agreed that the issue respecting the claim against 240 for indemnity could be determined in writing. The parties were permitted to refile any material upon which they intended to rely in the motion. The Innes Parties delivered their material on December 23, 2020; Engreen, Guido and 240 delivered their material on January 26, 2021.
ANALYSIS
Analysis
7By endorsement dated September 13, 2019, I found Engreen and Guido liable to the Innes Parties. Engreen was liable pursuant to para. 3.1(a) of the Agreement in which it assumed the Mortgage. Engreen and Guido were liable pursuant to the Covenant of Indemnity in which they agreed to indemnify the Innes Parties with respect to the Mortgage.
8The Innes Parties argue that 240 is liable pursuant to the terms of the Mortgage. It is their position that, as guarantors, they are entitled to indemnity from the Mortgagor, 240. They also argue that they have a right to assert their remedy against 240 when the guaranteed debt should have been paid, even if they have not made a payment to the Mortgagees. The Innes Parties rely on para. 24(c) of the standard charge terms of the Mortgage, which provides as follows:
Any payment by the Guarantor of any moneys under this guarantee shall not in any event be taken to affect the liability of the Chargor for payment thereof but such liability shall remain unimpaired and enforceable by the Guarantor against the Chargor and the Guarantor shall, to the extent of any such payments made by him, in addition to all other remedies, be subrogated as against the charger to all rights, privileges and powers to which the Chargee was entitled prior to payment by the Guarantor, provided, nevertheless that the Guarantor shall not be entitled in any event to rank for payment against the lands in competition with the Chargee and shall not unless and until the whole of the principal, interest and moneys owing on the security of the Charge shall have been paid, be entitled to any rights or remedies whatsoever in subrogation to the Chargee.
9Paragraph 24(c) provides that a payment made by the guarantors does not affect the liability of the mortgagor and the mortgagor continues to be responsible for the entire amount of the Mortgage. It also provides that the guarantor has a right of subrogation against the mortgagor “to the extent of any such payments made by him,” and that the guarantors have no right of subrogation until the whole of the principal, interest and moneys owing on the Mortgage have been paid. Here, the Innes Parties have not made any payments on the Mortgage.
10Although they have not made any payments, the Innes Parties argue that they have an action against 240 on the basis that 240 failed to pay the debt when due. The Innes Parties rely on Drager v. Allison, 1959 CanLII 79 (SCC), [1959] SCR 661, in support of their position. In Drager, the plaintiff guaranteed the payments to be made by the defendants under an agreement to purchase property. Although payment was not due and the vendor did not demand a payment, the plaintiff paid the balance of the purchase price. The defendants sold the property and the plaintiff claimed a lien on the sale proceeds for the amount of his payment. The defendants argued that the plaintiff was not obligated to make the payment and therefore the payment was a gift. The court held that the fact that a guarantor pays a debt before it is due does not result in the guarantor losing his right to claim this amount; however, the guarantor cannot accelerate his remedy. He can only claim his right to a remedy when the guaranteed debt would have ordinarily been paid. The Innes Parties argue that the guaranteed debt ought to have been paid by 240 after Engreen purchased its shares and, as a result, the Innes Parties have a right to claim the amount owing from 240.
11In my view, this case does not support the Innes Parties’ position. In Drager, the guarantor had made a payment on the debt. The case turned on whether a guarantor who makes a payment before it is due loses the right to claim this amount from the debtor. The trial judge stated that as long as the guarantor pays anything under the guarantee in relief of the principal debtor, he has an immediate right of action. This statement of the law was confirmed by the Supreme Court.
12Paragraph 24(c) of the Mortgage governs the right of the Innes Parties to bring an action against 240. The paragraph states that the guarantor has a right of action to the extent of any payments made by the guarantor. No payments have been made by the Innes Parties. Based on the language of the Mortgage, the cause of action against 240 will arise only when the Innes Parties make a payment on the Mortgage: see Hoare v. Tsapralis, [1997] O.J. No. 2195, (Gen. Div.), at paras. 8-9, aff’d 1999 CanLII 2127 (ON CA), 117 O.A.C. 396.
13As of the date of this endorsement, the Innes Parties’ only crystallized right of action is against Engreen and Guido. Pursuant to para. 3(1)(a) of the Agreement, Engreen agreed to make all payments and assume all obligations of the Mortgage after closing. Pursuant to the Covenant of Indemnity, Engreen and Guido are liable to indemnify the Innes Parties for all liabilities, claims, costs, payments and demands arising out of the Mortgage. I am of the view that the cause of action against 240 has not yet crystallized because the Innes Parties have not paid the amount owing on the Mortgage. If such payment is made by the Innes Parties, they will have a cause of action against 240 at that time.
DISPOSITION
Disposition
14I find that the Innes Parties do not currently have a right to bring a subrogated action against 240 with respect to any amounts owing pursuant to the Mortgage. I dismiss the summary judgment motion brought by the Innes Parties against 240. I make no further order as to costs.
DATE: February 10, 2021