Royal Bank v. Wedding Paradise Ltd.

Royal Bank v. Wedding Paradise Ltd.

 

Royal Bank of Canada, Plaintiff/Moving Party and Wedding Paradise Ltd., Giovanni Dileo also known as John Dileo and Theresa Dileo, Defendants/Responding Party

 

Ontario Master

 

Albert Master

 

Judgment: September 9, 1999

Heard: August 30, 1999

Docket: 48847/98

 

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Counsel: L. Keown, for Plaintiff.

 

J. Radnoff, for Defendant.

 

Subject: Corporate and Commercial; Civil Practice and Procedure

 

Practice — Summary judgment — Requirement to show no triable issue

 

Individual defendants gave guarantees to bank after business loans were consolidated — Loan payments were taken from business’s operating account — Bank allowed overdraft protection — After new manager took over account, bank stopped deducting payments and loan went into default — Bank also ended overdraft protection — No written notice was given that bank would no longer take loan payments from operating account overdraft — Bank commenced action to recover debt and brought motion for summary judgment — Motion dismissed — Bank failed to establish there was no genuine issue of fact for trial — Requirement and sufficiency of notice given by bank to discontinue overdraft protection was in dispute — Whether guarantees were provided as consideration for overdraft protection was also in dispute — Disputed facts were material as their determination could affect outcome of action.

 

Banking and banks — Loans and discounts — General

 

Individual defendants gave guarantees to bank after business loans were consolidated — Loan payments were taken from business’s operating account — Bank allowed overdraft protection — After new manager took over account, bank stopped deducting payments and loan went into default — Bank also ended overdraft protection — No written notice was given that bank would no longer take loan payments from operating account overdraft — Bank commenced action to recover debt and brought motion for summary judgment — Motion dismissed — Bank failed to establish there was no genuine issue of fact for trial — Requirement and sufficiency of notice given by bank to discontinue overdraft protection was in dispute — Whether guarantees were provided as consideration for overdraft protection was also in dispute — Disputed facts were material as their determination could affect outcome of action.

 

 MOTION by bank for summary judgment in action to recover debt.

 

Master Albert:

 

1   This is a motion brought by the plaintiff the Royal Bank of Canada (“Royal”) for summary judgment against the three defendants: Wedding Paradise Ltd., Giovanni Dileo and Theresa Dileo.

 

2   The Dileo’s operate Wedding Paradise Ltd.(“Wedding”).

 

3   This action is a collection proceeding by Royal against Wedding on a promissory note and an overdraft facility, and against the individuals on personal guarantees. The amount claimed against Wedding is roughly $39,800 plus interest, and the amount claimed against each of the Dileo’s is $51,000 plus interest.

 

Background

 

4   Wedding is in the business of selling wedding accessories such as cards, matches, serviettes and gifts. It is a family business operating in a residential neighbourhood, and the Dileo’s and their family live above the store.

 

5   Wedding has carried on its banking business exclusively with Royal during the period leading to this lawsuit. Prior to February 1994 the Dileo’s had not given their personal guarantees on any of the several loans granted by Royal to Wedding (the “prior loans”).

 

6   In December, 1993 Royal asked Wedding to consolidate its prior loans into one consolidated loan in the amount of $52,900 (the “consolidated loan”). In February 1994 the Dileo’s did so.

 

7   The terms of the consolidated loan required that it be repaid in weekly installments of $170 plus interest. Payments were deducted by Royal directly from Wedding’s operating account. The evidence of the defendants is that the payments were withdrawn by Royal on a regular basis. Sometimes this caused the account to become overdrawn. The overdraft would fluctuate and deposits were made by the Dileo’s to pay down the overdraft amount.

 

8   As a condition of the consolidated loan, Royal required each of the Dileo’s to provide their personal guarantee in the amount of $51,000. The Dileo’s agreed and personal guarantees were signed by each of the defendant Dileo’s on December 15, 1994.

 

9   The Dileo’s claim in their evidence that as consideration for entering into the consolidated loan and agreeing to provide personal guarantees, Royal agreed to provide overdraft protection of up to $3,000. This agreement is not in writing. There was no evidence provided as to the conditions under which Royal would be permitted to withdraw the overdraft protection.

 

10   Royal agrees that overdraft protection was provided to Wedding, but does not agree that it was granted in consideration of the Dileos’ personal guarantees. Royal’s evidence is that the overdraft protection was not granted until October 1996 for an amount of up to $2000, increased to $3000 in July 1997. Royal’s position regarding the negative balances in Wedding’s account before that date is that Royal simply covered cheques when the account was overdrawn, without forcing cheques to be returned to creditors “NSF”, as the bank recognized that the defendants continued to make sporadic payments on the account.

 

11   The pattern of Royal extending overdraft protection to the Dileo’s when their weekly loan payments caused them to go into a negative balance position continued until October 1996, when the defendants encountered financial problems. In October 1996 Royal agreed to reduce the loan payments to $300 per month, interest only, until December 1996 and from January 16, 1997 onwards Royal agreed that the payments of $300 per month would be treated as blended payments.

 

12   The December withdrawal from the account for the loan payment was in fact $236.00 and the January withdrawal was $300.00. Monthly payments of $300.00 continued to be deducted from the operating account of Wedding until October 1997.

 

13   In September or October 1997 a new account manager took over the Wedding account and the defendants were notified verbally that they must bring their overdraft account into good standing. While both parties agree to this fact, they disagree as to its implications.

 

14   From October 1997 onwards, Royal discontinued deducting the loan payments from Wedding’s operating account. While to do so would have required Royal to draw further into the overdraft of Wedding, that was no different than past instances when deducting the loan payment caused the overdraft to increase. Had the loan payments been taken from the operating account in October, November and December 1997, the amount that the account was overdrawn would not have exceeded the overdraft limit of $3000.

 

15   No written notice was given to the defendants in October 1997 that Royal would no longer take loan payments from the Wedding operating account overdraft. There is no evidence as to the date upon which it came to the attention of the defendants that Royal was no longer making the deductions, or that the loan had fallen into default as a result. There is also no evidence as to what efforts, if any, the defendants made to obtain financing elsewhere to pay their monthly loan payments, or ensure that the overdraft remained under the limit of $3000. In a motion for summary judgment, the parties are expected to put their best foot forward. Where there is no evidence put forward on what might be a relevant issue, I must draw an adverse inference against the party who failed to present evidence that would have or could have provided an explanation helpful to their position.

 

16   On January 2, 1998 the overdraft exceeded $3000.00 for a period of twelve days. It was then brought under $3000.00 on January 14, 1998.

 

17   As Royal was no longer deducting the loan payments from Wedding’s operating account, the loan payments from October 1997 onwards were not made and the loan went into default.

 

18   Royal submits evidence that written notice was given to both of the Dileo’s by letter dated February 6, 1998 from John DeBlasis to each of the individual defendants. Royal submits these letters as written notice to the defendants that the bank gave three weeks notice that it would no longer extend overdraft protection to Wedding and the Dileo’s. Copies of these letters are attached as exhibit “E” to the affidavit of Felix Lobo, sworn December 7, 1998. The affidavit fails to identify Mr. Lobo’s connection to Mr. DeBlasis or Royal or to the facts surrounding this action. Further, the letters that are attached as exhibits identify the named defendants, but fail to indicate the address to which the letters were delivered and the method of delivery. The Dileo’s deny having ever seen these letters before this motion was brought

 

19   Attached as exhibit “F” to the Lobo affidavit are various banking documents that include internal memos from April 1998, with the next most recent document from 1995. These documents are less than helpful. While they may establish that these records exist in the bank’s files, there is no evidence before me that testifies as to the and truth of the statements made in the bank documents. Accordingly I have disregarded the contents of these exhibits for the purpose of this motion.

 

20   The defendants take the position that they did not have reasonable notice of the plaintiff’s intention to discontinue their overdraft protection because the verbal notice was given during their busy season of wedding shows. As a result, the defendants claim, they suffered consequential losses because they did not have the funds to promote their products at the seasonal wedding shows and in turn, the anticipated annual revenues of $150,000 were not realized. There is no counterclaim by Wedding for business losses.

 

Facts in Dispute

 

21   The defendants state that the personal guarantees were given in 1994 in consideration of the consolidation of the prior loans of Wedding. The plaintiff states that the overdraft protection could not have been given as consideration for personal guarantees because it was not given until some two years after the personal guarantees were signed.

 

22   The evidence shows that the Wedding account constantly went into and out of overdraft from and after December 1994. However, the defendants have not provided any account records for the period prior to December 1994 to show whether Wedding was overdrawn on its account prior to December 1994.

 

23   The parties disagree as to whether Royal gave proper notice that

 

(i) it was discontinuing the agreed upon overdraft protection, and

 

(ii) it would no longer take the monthly loan payments by way of deduction from the operating account, thereby causing the loan to go into default without the knowledge of Wedding or the Dileo’s who had given their personal guarantees.

 

24   The issue in this motion is whether these are material facts in dispute.

 

The Law

 

25   The moving party must establish that there is no genuine issue of fact for trial. The current state of the law on summary judgment is succinctly quoted in Aguonie v Galion Solid Waste Material Inc. (1998) 38 O.R. (3d) 161, a decision of Justices of Appeal Carthy, Abella and Borins. At page 174 it is stated by Justice Borins:

 

Summary judgment, valuable as it is for striking through sham claims and defences which stand in the way to a direct approach to the truth of a case was not intended to, nor can it, deprive a litigant of his or her right to a trial unless there is a clear demonstration that no genuine issue exists, material to the claim or defence, which it is within the traditional province of a trial judge to resolve.

 

Justice Borins quotes Morden, A.J.C.A. in Ungerman Ltd. v Galahis (1991), 4 O.R. (3d) 545, wherein the learned associate chief justice interpreted the phrase “genuine issue for trial” and concluded:

 

It is safe to say that “genuine” means not spurious, and more specifically, that the words “for trial” assist in showing the meaning of the term. If the evidence on a motion for summary judgment satisfies the court that there is no issue of fact which requires a trial for resolution, the requirements of the rule have been met. It must be clear that a trial is unnecessary. The burden is on the moving party to satisfy the court that the requirements of the rule have been met. Further, it is important to keep in mind that the court’s function is not to resolve an issue of fact but to determine whether a genuine issue of fact exists. (See 6 Moore’s Federal Practice, 2nd ed. (1987 release), p. 56-391; Wright, Miller and Kane, supra, at vol. 10A, pp. 574-75.)

 

Borins, J.A. goes on to discuss the meaning of “material fact”:

 

An issue of fact must relate to a material fact. As Morden, A.C.J.O. pointed out in Ungerman, supra, at p. 550: “[(i)f a fact is not material to an action, in the sense that the result of the proceeding does not turn on its existence or non-existence, then it cannot relate to a ‘genuine issue for trial’.” In ruling on a motion for summary judgment, the court will never assess credibility, weigh the evidence, or find the facts. Instead, the court’s role is narrowly limited to assessing the threshold issue of whether a genuine issue exists as to material facts requiring a trial. Evaluating credibility, weighing evidence, and drawing factual inferences are all functions reserved for the trier of fact.

 

Analysis

 

26   The defendants assert that there are four genuine issue for trial:

 

i. Was the bank required to provide any notice before discontinuing the overdraft protection? Was there an agreement to provide overdraft protection in exchange for personal guarantees?

 

ii. Did the bank provide any notice?

 

iii. Did the defendant suffer any damages if no notice was given?

 

iv. Have the guarantees been discharged?

 

27   The notice relied on by Royal as written notice is questionable. There is no evidence as to when and how the letters providing written notice were served on the Dileo’s, or to what address the letters were sent. The Dileo’s dispute receiving the written notice.

 

28   There is no evidence that the Dileo’s were given notice that the practice of Royal would change in October 1997 such that the loan would go into default if they did not provide a monthly loan payment of $300.00 from a source other than their operating account.

 

29   Taken together, whether the Dileo’s and Wedding were given any notice, or whether they were given sufficient notice, is a fact in issue.

 

30   The Dileo’s gave personal guarantees to Royal where no personal guarantees had been given previously. Their evidence is that the personal guarantees were given as consideration for the extension of credit by way of overdraft protection, a valuable credit product for the Dileo’s given the nature of their business and the sporadic cash flow of the business, with periods of high expense and an uneven revenue stream. Royal has provided no evidence to explain why personal guarantees were given. Whether the personal guarantees were provided as consideration for the extension of overdraft protection, or for some other reason, is a fact in dispute. If the facts as alleged by the Dileo’s are proven to be correct, then the issue arises as to the consequences of Royal calling in the overdraft protection and whether these personal guarantees have been discharged.

 

31   The defendants claim that they suffered damages arising from loss of business revenue because Royal discontinued the overdraft protection and called in the loan. They assert that it was the bank’s fault that they did not have the cash flow to market their business in wedding shows, thus causing their business to suffer loss of revenue. In my view, based on the pleadings filed and the evidence before me on the motion, I find that this claim of the defendants is overstated. The evidence discloses many reasons why the business may have experienced a reduced revenue stream. Firstly, Mr. Dileo suffered health problems. Secondly, Mrs. Dileo had increased responsibilities, both in her personal life and in the business, such that she may have been overwhelmed and unable to perform effectively in the business. If the defendants rely on these allegations in this motion, they are required to put their best case forward. The facts do not support a finding that Royal was the cause of the defendants’ business woes. I give no weight to these allegations in deciding this motion for summary judgment.

 

Conclusion

 

32   In this action there are facts in issue relating to:

 

i. the circumstances under which the personal guarantees were given;

 

ii. the conditions under which overdraft protection was given;

 

iii. the notice given to discontinue the overdraft protection; and

 

iv. the notice given regarding the change to the automatic monthly loan payments, thereby resulting in the loan going into default.

 

33   I find that these are material facts which require resolution at trial. These facts are material as their determination could affect the outcome of the action, particularly as to the claim against each of the Dileo’s on their personal guarantees.

 

34   In my view, there are genuine issues for trial and the plaintiff’s motion for summary judgment must be dismissed.

 

35   If counsel are unable to agree on an appropriate disposition as to costs, then I may be spoken to by way of a telephone case conference scheduled through my Registrar.

 

Motion dismissed.