Court File and Parties

COURT FILE NO.: CV-21-672154

DATE: 20220614

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: The Maher Organization Ltd. and Zelig Krajden, Plaintiffs

AND:

HCI Mercantile Inc. and Max Warner, Defendants

BEFORE: W.D. Black J.

COUNSEL: Josh Suttner, for the Plaintiffs

Samy Ouanounou, for the Defendants

READ: June 7, 2022

Endorsement

Overview

[1] This is the plaintiffs’ motion for summary judgment. The parties have agreed not only that the motion is appropriate for consideration on summary judgment, but also that it should be dealt with in writing.

[2] The parties also agree that there are no material facts in dispute.

Relevant Facts

[3] The relevant facts include the following:

(a) On March 16, 2018 the Maher Organization Ltd. (“Maher”) and Zelig Krajden (“Krajden”; together with Maher, the “plaintiffs”) loaned the defendant, HCI Mercantile Inc. (“HCI”), USD $125,000.

(b) Interest accrued on the loan at 10% per annum.

(c) HCI promised to pay the loan within 60 days of March 6, 2018, on demand and with interest.

(d) The loan was evidenced by a promissory note titled “Demand Promissory Note” (the “Promissory Note”), which was signed by HCI’s principal Max Warner on behalf of HCI and as guarantor.

(e) The plaintiffs did not demand payment pursuant to the Promissory Note until March 26, 2021.

(f) Shortly after the demand, the parties entered into a settlement agreement (the “Settlement Agreement”) pursuant to which both Dr. Warner and HCI agreed to pay the plaintiffs USD $163,000 by November 1, 2021.

(g) The defendants admit that the Settlement Agreement is genuine and that Dr. Warner’s signatures on all relevant documents are genuine.

(h) On July 10, 2018, the defendants’ lawyer advised the plaintiffs that the defendants’ planned source of funding to repay the loan had fallen through, but they were actively pursuing other sources of funding and asked that the plaintiffs not make a demand on the loan while the defendants were exploring these other options.

(i) Between May 16, 2018 and March 2021 the defendants made repeated promises that they were attempting to find new transactions to generate proceeds to repay the loan.

(j) On November 11, 2020, Dr. Warner sent Larry Maher (the president of Maher) and Krajden an email confirming Dr. Warner’s continued efforts to source funds to repay the loan.

(k) No payments were made following Dr. Warner’s November 11, 2020 email.

(l) On March 26, 2021, counsel on behalf of the plaintiffs made a written demand for repayment under the Promissory Note (the “Demand Letter”). The Demand Letter provided a deadline of March 31, 2021 for the defendants to repay the loan, failing which the plaintiffs would commence an action for all outstanding amounts.

(m) On April 23, 2021, plaintiffs’ counsel wrote to Dr. Warner enclosing the proposed Settlement Agreement and release. The covering letter indicated that the Settlement Agreement was being proposed in an effort to avoid incurring the costs of immediate litigation and to provide the defendants with a further opportunity to repay the loan and interest.

(n) The parties executed the Settlement Agreement effective May 6, 2021. The Settlement Agreement recited much of the foregoing information, and then included the following terms:

(i) The defendants would pay the plaintiffs USD $163,000 plus interest calculated in accordance with the loan (the “Settlement Amount”), comprised of the principal amount of the loan (USD $125,000) plus interest at 10% per annum up to October 31, 2021.

(ii) If the defendants paid before November 1, 2021, the settlement amount would be reduced to reflect interest not yet accrued.

(iii) The defendants would provide sworn statements concerning their assets and liabilities and related matters.

(iv) If the defendants failed to pay the Settlement Amount, the plaintiffs would be entitled to issue a statement of claim and to judgment against HCI and Dr. Warner, jointly and severally, plus costs on a full indemnity basis. In this event the plaintiffs would authorize their counsel to execute consents and other necessary documents to obtain judgment.

(o) Both Dr. Warner personally and HCI delivered sworn statements concerning their assets and liabilities.

(p) The defendants have failed to pay the Settlement Amount.

Defendants’ Position

[4] The defendants appear to deny liability on three grounds:

(a) That enforcement of the loan agreement and Promissory Note is statute-barred (such that the Settlement Agreement does not relate to a valid outstanding amount);

(b) That the implied interest rate under the loan agreement exceeds 60% per annum and is thus void and unenforceable; and

(c) That Dr. Warner never guaranteed the loan agreement or accompanying Promissory Note.

[5] I will first address the second and third bases on which the defendants deny liability.

Interest Rate Issue

[6] Per the loan agreement, HCI was required to pay three components to the plaintiffs. In addition to the USD $125,000 loan, principal amount and interest at 10% per annum, HCI was to pay a USD $375,000 “Bonus” from funds that HCI was to receive from a third party. As I understand the argument the Bonus reflects an implied rate of return exceeding 60% interest per annum.

[7] The Promissory Note, however, did not include the Bonus provision; rather, it provided that the principal amount of the loan and interest of 10% per annum were payable. It did not include the implied interest higher than 60% per annum (if one treats the Bonus as reflecting interest on the original loan). Moreover, the Settlement Agreement sought to be enforced on this motion again expressly contemplates only the principal loan amount plus interest of 10% per annum.

[8] The Court can potentially correct for interest rates that exceed 60% per annum and contravene the Criminal Code, R.S.C., 1995, c. C-46. However, in my view, there is no need to resort to that measure here since the implied interest rate, based on a notional rate of return attached to the Bonus, is not claimed and not in issue before me.

Guarantor Issue

[9] I also reject the suggestion that Dr. Warner did not sign as guarantor. The loan agreement and Promissory Note both say, just above the line where Dr. Warner signed the respective documents: “I hereby guarantee all obligations of HCI Mercantile Inc. contemplated by the [Agreement/Promissory Note]”. In each case, Dr. Warner signed as “Dr. Max Warner (Guarantor)”. The Settlement Agreement likewise defines Dr. Warner as “Guarantor”. It is clear the intention was for Dr. Warner to be a guarantor.

Settlement Agreement and Limitations Issues

[10] The issues relative to the Settlement Agreement and the effect of the limitation period are a bit more nuanced.

[11] First, there is no question that the defendants received consideration for the Settlement Agreement. Various cases, including the Court of Appeal for Ontario’s decision in Benzie v. Hania (2012 ONCA 766), have confirmed that an agreement to forbear from starting an action in exchange for a settlement constitutes consideration.

[12] In this case, it is evident and not disputed that the Settlement Agreement was entered into in order to avoid the costs of immediate litigation.

[13] The main argument on behalf of the defendants is that the loan agreement and Promissory Note were not enforceable as of the date the Settlement Agreement was signed, inasmuch as limitation periods for the enforcement of the loan and the Promissory Note had expired. More specifically it is the defendants’ position that enforcement had to take place within two years of May 16, 2018, the stated date on which the loan was repayable.

Plaintiffs’ Response

[14] The plaintiffs’ response is twofold.

[15] First, the plaintiffs say that the Promissory Note was a demand obligation, that the only demand for repayment was made on March 26, 2021, and that therefore the claim, commenced within nine months of that date, is well within time.

[16] Second, the plaintiffs say that, taking into account the suspension of timelines in response to COVID-19, the relevant limitation period has not expired in any event.

[17] With respect to the demand obligation, the plaintiffs rely on section 5(3) of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, and on case law including Justice Perell’s decision in Skuy v. Greennough Harbour Corporation (2012 ONSC 6998).

[18] In that case, His Honour confirmed the following principles:

• A bill payable on demand, generally, is one which is either expressed to be payable on demand or in which no time for payment is expressed.

• A guarantee for which no time for repayment is expressed will be a demand obligation.

• Where a debt obligation is payable on a fixed date, even if contingent on a demand or notice, it is not a demand obligation.

• The limitation period relative to a demand obligation does not run until a demand is made.

• It is a matter of contractual interpretation whether an actual demand is required to enforce the debt.

Analysis of Arguments re Demand Note and Running of Limitation

[19] On balance, while not as clear a document as would be optimal, in my view the Promissory Note in this case is properly understood as a demand obligation.

[20] The loan agreement and Settlement Agreement refer to the Promissory Note as a “Demand Promissory Note”, and indeed it is titled as such. While under the Promissory Note HCI promises to pay “within 60 days from the date of this demand promissory note on demand…”, there is no fixed date specified for repayment. Even if the 60‑day repayment obligation is interpreted as a fixed date for repayment, paragraph two of the Promissory Note specifically provides that no legal proceeding shall be commenced until a demand has been made and there has been a failure to pay following the demand.

[21] If instead the Promissory Note is not a demand obligation but subject to a fixed repayment date, and if the limitation period started to run on May 16, 2018, the limitation period had not in any event expired by the date on which the parties entered into the Settlement Agreement.

[22] On March 16, 2020, limitation periods were suspended because of COVID-19 pursuant to O. Reg 73/20. On September 14, 2020, the Regulation was revoked, and suspended limitation periods began to run again. If May 16, 2018 was the starting date for the limitation period for the Promissory Note, that means that as of September 14, 2020, two months remained within which a claim could be commenced.

[23] On November 11, 2020, Dr. Warner provided a specific written acknowledgement of the outstanding obligation. Section 13 of the Limitations Act provides that if a person acknowledges liability for a claim to a liquidated sum, the act or omission on which the claim is based is deemed to have taken place on the date of the acknowledgement. Importantly, s. 13(10) provides that the acknowledgement must be in writing and signed.

[24] Dr. Warner’s November 11, 2020 acknowledgment was in writing and unequivocally confirmed that the debt was outstanding. The potential issue is whether the requirement for a signature is met.

[25] In my view, the signature requirement in s. 13(10) is intended to ensure that a written acknowledgement is authentic. As noted above, Dr. Warner has not challenged the authenticity of the November 11, 2020 email.

[26] Moreover, this Court has come to recognize that wider latitude must be given to digital communications when determining whether signature requirements have been satisfied. For example, in the pre-pandemic Divisional Court decision of Lev v. Serebrennikov (2016 ONSC 2093), Justice Pattillo wrote, at paras. 24-25:

“In my view, an email can satisfy the requirements of s. 13 of the Act concerning acknowledgement. The issue in every case will be one of fact concerning authenticity.

Turning then to the facts in the present case, although the email in question is not signed by the appellant with his signature, his name is on the email and based on the other emails filed as exhibits, it was clearly sent by him from his email address which is noted. Again, the appellant did not deny that it was his email at trial. Finally, the acknowledgement is within the original limitation period. All of that is sufficient, in my view, to bring the matter in this case within s. 13(10) of the Act and to extend the limitation period for the debt from November 11, 2012 pursuant to s. 13(1).”

[27] Justice Pattillo’s remarks are especially apt during the pandemic, as using digital communications in lieu of in-person signatures has become commonplace.

[28] I agree that the primary consideration should be authenticity. While each case in which this issue arises will have to be carefully considered on its own facts, in the case before me there is no suggestion that the email in issue was not sent by Dr. Warner, and in my view therefore no issue as to its authenticity. Accordingly, that email is sufficient to extend the limitation period in this case.

Conclusion

[29] For these reasons, I find that the Settlement Agreement is enforceable, and I grant Judgment in favour of the plaintiffs against HCI and Dr. Warner in the amount of USD $163,000, plus interest at the rate of 10% per annum.

Costs

[30] The plaintiffs have provided a costs outline in which they seek partial indemnity costs in the amount of $12,067.50, plus disbursements of $1,159.52. They also provide amounts for substantial indemnity and full indemnity, but I see no basis to depart from the presumptive basis of partial indemnity costs here.

[31] The defendants’ costs outline reflects a very similar amount.

[32] Costs are payable from the defendants to the plaintiffs on a partial indemnity basis in the amount of $12,067.50 plus disbursements in the amount of $1,159.52 within 30 days of the date of this endorsement.

W.D. Black J.

Date: June 14, 2022