Principal of corporations who defaulted on mortgage personally liable

No genuine issue requiring trial found on issue of principal's responsibility as personal guarantor

Principal of corporations who defaulted on mortgage personally liable

The Ontario Court of Appeal has declined to reverse the summary judgment granted in a case involving a straightforward interpretation of contractual documentation, including loan agreements and a guarantee, between sophisticated and represented parties.

In Devi Financial Inc. v. Everwood Place Ltd., 2022 ONCA 104, the respondent offered financing of $2,650,000. The appellant corporations granted mortgages over two properties to secure the financing. The principal of both corporations, who was also an appellant, entered into a guarantee for this purpose. However, the corporate appellants eventually defaulted on the mortgage.

The motion judge, granting summary judgment, found that the principal was liable as a personal guarantor and that there was no genuine issue requiring a trial.

The corporations and their principal appealed, arguing that the motion judge erroneously applied the test on the availability of summary judgment in Hryniak v. Mauldin, 2014 SCC 7, because he made a credibility finding relating to the principal. This finding was unavailable given that the motion judge failed to rely on any fact-finding powers under r. 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the appellants said.

The Ontario Court of Appeal dismissed the appeal. First, the court said that the motion judge’s conclusion that the principal signed as a personal guarantor was not driven by any credibility finding. Instead, the motion judge supported his conclusion with the law on contract interpretation. Objectively interpreting the loan agreements and the guarantee would lead to the conclusion that the appellant signed as a personal guarantor.

In addition, there was no ambiguity that could give rise to the admissibility and relevance of the principal’s personal understanding of the documentation he signed, the court said. The appellants did not plead any grounds that could give rise to such relevance, like non est factum, misrepresentation, unconscionability or unequal bargaining power. The principal’s affidavit or cross-examination also included nothing that could trigger any of those defences, found the court.

Second, the court found that the motion judge did not err in finding that the amount owed to the respondent was $3,214,264.15 inclusive of interest. This matter also involved simple contractual interpretation and no ambiguity, said the court.

Third, the motion judge’s interpretation of the standard clause was correct, the court held. The motion judge found that the clause provided that, if the charger was in default for at least 15 days, 35 days’ notice could be given until the chargee would enter and lease or sell the land.

In this case, the appellants were in default of payment for over 15 days when the respondent sent the notice of sale on Dec. 11, 2019. The notice of sale provided the outstanding amount and gave the appellants until Jan. 22, 2020 to pay, so there was notice of more than 35 days.

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