COURT FILE NO.: CV-22-621
DATE: 2022 09 29
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Business Development Bank of Canada, Plaintiff
AND:
Snowflake Home Services Inc. and Alexander Susarin, Defendants
BEFORE: Doi J.
COUNSEL: Jordan N. Potasky, for the Plaintiff
Laman Meshadiyeva, for the Defendants
HEARD: June 22, 2022
ENDORSEMENT
Overview
[1] On this motion, the Plaintiff, Business Development Bank of Canada (“Bank”), seeks summary judgment in respect of its loan agreement with the Defendant, Snowflake Home Services Inc. (“Snowflake”), after the loan went into default. The Defendant, Alexander Susarin, personally guaranteed Snowflake’s obligations under the loan agreement in favour of the Bank.
[2] For the reasons that follow, I find that summary judgment should be granted.
Legal Principles
[3] Rule 20.04(2)(a) provides that the court shall grant summary judgment if satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.
[4] There will be no genuine issue requiring a trial where the court is able to reach a fair and just determination on the merits of a motion for summary judgment, which will be the case where the process: a) allows the judge to make the necessary findings of fact, b) allows the judge to apply the law to the facts, and c) is a proportionate, more expeditious and less expensive means to achieve a just result: Hryniak v. Mauldin, 2014 SCC 7 at para 49.
[5] A summary judgment motion involves a two-step approach. The court must first determine whether there is a genuine issue that requires a trial based only on the evidence in the record without using its fact-finding powers. Summary judgment must be granted if there is no genuine issue that requires a trial. If there appears to be a genuine issue requiring a trial, the court must then decide whether the need for a trial can be avoided by using its fact-finding powers under Rules 20.04 (2.1) and (2.2) to weigh evidence, evaluate credibility, and draw inferences: Hryniak at para 66.
[6] On a motion for summary judgment, the court may assume that the record contains all of the evidence that would be available at trial: Tim Ludwig Professional Corporation v. BDO Canada LLP, 2017 ONCA 292, 137 O.R. (3d) 570, at para 54. If a moving party adduces evidence to show no genuine issue requiring a trial, the responding party must refute or counter the moving party’s evidence or risk a summary judgment: Riha v. A. Wilford Professional Corporation, 2022 ONSC 1110 at para 5. The responding party cannot rest on mere allegations or denials in its pleadings: Mercedes-Benz v. Janosh Chandrakularajah, 2021 ONSC 296 at para 7. Each side to a summary judgment motion must put its “best foot forward” as to the existence or non-existence of a genuine issue requiring a trial: Mazza v. Ornge Corporate Services Inc., 2016 ONCA 753 at para 9. A documentary record is often sufficient to resolve material issues fairly and justly: Hyrniak at para 57.
Background
[7] The facts in this case are not disputed.
[8] The Plaintiff, Business Development Bank of Canada (“Bank”) is a financial institution wholly owned by the Government of Canada under the Business Development Bank of Canada Act, SC 1995, c.28.
[9] The corporate Defendant, Snowflake Home Services Inc. (“Company”), is a small business that provides handyman services. The personal Defendant, Alexander Susarin, was at all material times an officer, director and shareholder of the closely-held Company.
[10] The Bank provided a $100,000.00 loan to the Company pursuant to a loan agreement dated January 19, 2021 (“Agreement”). The purpose of the loan was to support the Company as it developed its handyman business.
[11] Among other things, the Agreement contemplated the following:
a. the Company would pay the Bank monthly interest payments at the Bank’s floating base rate minus a variance of 1.00% per annum on the principal outstanding on the 19th day of each month commencing on the next occurring payment date following the first advance of the loan;
b. the Company would repay the principal by way of a single payment of $1,667.06 to be made on August 19, 2021 followed by 59 consecutive monthly payments of $1,666.06 payable on the 19th day of each month commencing September 19, 2021 and continuing up to and including July 19, 2026;
c. the Company would pay any fees due pursuant to the Agreement;
d. in the event of a default the Bank may, at its option, accelerate the Loan and demand payment; and
e. Mr. Susarin would personally guarantee repayment of the Company’s obligations to the Bank for the full amount of the Loan with interest plus any fees the Bank incurred in collecting the Loan.
[12] On January 19, 2021, Mr. Susarin signed a personal guarantee on the loan in favour of the Bank (“Guarantee”). The Guarantee contemplated that the guaranteed amount with interest would immediately be payable following a demand.
[13] Regrettably, like many other small businesses, the Company’s operations were negatively impacted by the business disruption caused by the global COVID-19 pandemic. Despite making best efforts to pay its loan obligations, the disruption to its business activities left the Company unable to meet its monthly payments to service the loan which fell into arrears on and off starting in September 2021.
[14] On February 24, 2022, the Bank emailed the Defendants that the loan was two (2) months in arrears. The Bank gave the Defendants until March 3, 2022 to bring the arrears current, failing which it advised of its intention to demand the loan in full and seek its legal costs. However, the Defendants did not bring the arrears current by that date.
[15] On March 7, 2022, the Bank through its solicitors wrote to the Company and Mr. Susarin to demand repayment of the loan in full with interest. The Bank also advised of its intention to bring legal proceedings to recover this amount unless it was paid by March 17, 2022.
[16] By email sent on March 7, 2022, the Defendants responded that the loan was current except for a monthly payment that was due on February 19, 2022. However, the Bank’s loan history records show that the Company’s monthly payment for November 2021 was reversed for non-sufficient funds. The Company tried to make a “double” monthly payment for December 2021 but this transaction was reversed again for non-sufficient funds. In January 2022, the Company paid its arrears using reserve funds and its January monthly payment to the Bank was received. However, the Company’s February 2022 monthly payment was reversed once again for non-sufficient funds. In submissions, the Defendants acknowledged that the loan was two months in arrears by February 24, 2022.
[17] Starting on March 8, 2022, the Defendants made reserve and principal payments to the Bank to bring its account and arrears current. The Defendants also retained counsel to negotiate terms with the Bank’s solicitors to resolve this matter.
[18] By March 15, 2022, the Company had paid all of its arrears to the Bank to bring its account current. However, before agreeing to regularize the loan and have it return to its regular payment schedule, the Bank asked the Defendants for financial disclosure, “to get a better understanding of the position of the borrower and guarantor.” The Defendants cooperated with the Bank by providing the disclosure it requested, namely Mr. Susarin’s updated personal net worth statement, the Company’s financial statements for the last two (2) years, and bank statements from February 2021 to February 2022.
[19] After reviewing the disclosure, the Bank concluded that the borrower lacked the financial means to honour the loan payments. Accordingly, the Bank commenced this litigation to call in and recover the loan.
Analysis
[20] Having regard to the evidentiary record on this motion, I find that there are no genuine issues that require a trial. In my view, the evidence is sufficient to fairly adjudicate the issues in dispute. Summary judgment is an affordable and proportionate procedure for deciding this case.
[21] I am satisfied that the Agreement and the Guarantee are enforceable.
[22] In the statement of defence, the Defendants plead that the Bank did not give a “succinct explanation” of the terms of the Agreement and Guarantee, particularly the default provisions, that purportedly left them with no understanding that the Bank could demand the loan in full upon some defaults on payments. However, it is settled law that an ordinary lender/borrower relationship does not raise a fiduciary duty on the part of the lender towards the borrower: Baldwin v. Daubney (2006), 8 OR (3d) 308 (CA) at para 15, leave to appeal refused 2007 CanLII 15975 (SCC). Absent a special relationship or exceptional circumstances, which were neither pleaded nor established by the evidence, a lender owes no duty to the borrower in making the loan: Canada Trustco Mortgage Co. v. Pierce, 2005 CanLII 15706 (ON CA), [2005] OJ No. 1886 (CA) at para 27; B2B Bank v. Letrado, 2022 ONSC 4569 at paras 35-36. Accordingly, I am satisfied that the Bank had no obligation to explain the loan instruments to the Defendants.
[23] The Agreement contains an “entire agreement” clause which provide:
4.5 This is the entire agreement
This is the entire agreement between us. No other commitments or representations, whether spoken or written, apply to it.
This provision, in tandem with the parole evidence rule, make it rather apparent that the Bank was not required to provide the Defendants with an explanation of the Agreement: BMO v. Durham Foods Limited & Sheehan, 2014 ONSC 3608 at para 46; B.D.B.C. v. Cavalon, 2011 ONSC 7080 at para 10(b).
[24] It was incumbent on the Defendants to consult their own lawyer if they had any questions about the Agreement or Guarantee. In any event, these loan instruments are relatively short documents that use simple language, legibly-sized fonts, and large headings in bold text with double-spacing which make them fairly easy to understand and accessible to read.
[25] By entering into the Agreement and Guarantee with the Defendants without explaining the terms of the debt obligations and security interests under them, the Defendants claim that the Bank did not fulfill its duty to act in good faith. In making this submission, the Defendant rely on the duty of good faith as set out in Bhasin v. Hrynew, 2014 SCC 71 at paras 92-93 as follows:
[92] I conclude that at this point in the development of Canadian common law, adding a general duty of honest contractual performance is an appropriate incremental step, recognizing that the implications of the broader, organizing principle of good faith must be allowed to evolve according to the same incremental judicial approach.
[93] A summary of the principles is in order:
(1) There is a general organizing principle of good faith that underlies many facets of contract law.
(2) In general, the particular implications of the broad principle for particular cases are determined by resorting to the body of doctrine that has developed which gives effect to aspects of that principle in particular types of situations and relationships.
(3) It is appropriate to recognize a new common law duty that applies to all contracts as a manifestation of the general organizing principle of good faith: a duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations.
[26] Respectfully, I do not find that the good faith doctrine in Bhasin assists the Defendants.
[27] I recognize that the “organizing principle of good faith” underpins various principles governing contractual performance. As the Supreme Court set out in Bhasin at para 63, that organizing principle “is simply that the parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily.” Applying this general principle to the facts before me, I am unable to see how it would assist the Defendants. The Bank’s efforts to accelerate the loan were entirely consistent with the terms of the Agreement and the Guarantee. There is no evidence to suggest that the Bank acted without honesty or good faith, or in any fashion other than to simply exercise its rights under the contracts as it was entitled to do.
[28] Notably, the Agreement contained the following provision:
1.1 You must make your payments on time
You must make your payments on the 19th day of each month.
If you don’t make your payments on time or if you make partial payments:
• Any unpaid interest will accumulate, and you will have to pay interest on it at the same rate. In other words, you will end up paying interest on the interest.
• You will be in default.
If you are unable to make a payment, please contact us immediately. We might be able to work something out. [Emphasis added]
[29] Nothing in this provision compelled the Bank to negotiate a work-out or otherwise agree on terms once the Company was in default of its payment obligations. There was no contractual or equitable obligation on the part of the Bank to have the Agreement continue after default.
[30] Although the Company was able to bring the arrears current after the loan was demanded in full with costs, the Bank asked the Company to provide financial disclosure to show that it would be in a position to honour the agreed upon loan payments in the future. The Company co-operated by providing the requested disclosure and understood and appreciated why the Bank wanted to review this information. After considering the financial disclosure, the Bank reasonably concluded that the Company lacked the financial means to honour the loan payments under the Agreement as it advised the Defendants through counsel by email on March 23, 2022. Having regard to the excerpts of the Company’s financial disclosure which the Bank included in its record for the motion, I accept that the Bank arrived at its conclusion by taking an evidence-based approach that was fair in light of the evidence of the Company’s poor financial situation which clearly supported the Bank’s conclusion to call the loan. In the circumstances, I am satisfied that the Bank acted honestly and reasonably in exercising its discretion on whether to continue the loan or call the loan and request its full repayment. In turn, I am satisfied that the Bank appropriately exercised its discretion in good faith and acted reasonably in meeting its obligations under the good faith doctrine: Bhasin at para 63; Stericycle ULC v. HealthPRO Procurement, 2021 ONCA 878 at para 43; Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 at paras 58-63 and 88.
[31] As stated earlier, the Bank was not under a fiduciary duty to the Defendants to explain the loan instruments. Accordingly, I am not persuaded that the Bank breached the good faith doctrine by not explaining or summarizing the Agreement. In addition, I do not accept that the lack of an explanation or summary amounted to a misrepresentation that induced the Defendants to enter into the Agreement and Guarantee and implicates the non est factum defence. The defence of non est factum is available to someone who, as a result of misrepresentation, signs a document but is mistaken as to its nature and character and was not careless: The Bank of Nova Scotia v. Jarada, 2021 ONSC 3620 at para 27; Royal Bank of Canada v. 2414973 Ontario Limited, 2020 ONSC 6047 at para 86, citing The Toronto-Dominion Bank v. Fares, 2018 ONSC 6512 at para 33. On the facts of this case, I am satisfied that no misrepresentation occurred which clearly defeats this defence. In any event, I do not accept that the good faith doctrine applies to support Mr. Susarin who seeks to not fulfill his contractual obligations under the Guarantee which he signed: Royal Bank of Canada v Surje & Company Inc., 2017 ONSC 1237 at para 69. I find no triable issues on any of these grounds.
[32] Having regard to the evidentiary record, including the Bank’s loan history records, I am satisfied that the Company breached the Agreement, that Mr. Susarin guaranteed the Company’s obligations, and that the Bank was entitled to $92,600.08 for the loan as of March 6, 2022.
[33] The Agreement provides for interest under a floating base rate of 4.55% with -1.00% subtracted from the floating base rate. Absent exceptional circumstances, the contractual rate of interest that governs a loan prior to breach is the appropriate rate to govern the post-breach loan: Bank of America Canada v. Mutual Trust Co., 2002 SCC 43 at paras 49-50. In this matter, I find no exceptional circumstances. Accordingly, I find that the contractual rate of interest should apply both pre and post judgment.
Outcome
[34] Based on the foregoing, the motion for summary judgment is granted. The Bank shall have judgment for $92,600.08 plus pre and post judgment interest.
[35] If the parties are unable to agree on the interest owing or on costs, the Bank may deliver brief written submissions together with a costs outline and related materials within 20 days after which the Defendants may respond with brief submissions on the same terms. Reply submissions shall not be delivered without leave.
Doi J.
Date: September 29, 2022
COURT FILE NO.: CV-22-621
DATE: 2022 09 29
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Business Development Bank of Canada, Plaintiff
AND:
Snowflake Home Services Inc. and Alexander Susarin, Defendants
BEFORE: DOI J.
COUNSEL: Jordan N. Potasky, for the Plaintiff
Laman Meshadiyeva, for the Defendants
ENDORSEMENT
Doi J.
DATE: September 29, 2022