r v. Bank of Montreal, 2010 ONSC 1290

Carevest Capital Inc. v. North Tech Electronics Ltd. et al. [Indexed as: Carevest Capital Inc. v. North Tech Electronics Ltd.] 103 O.R. (3d) 231 2010 ONSC 1290 Ontario Superior Court of Justice, Divisional Court, Greer, Lederman and Sachs JJ. May 3, 2010 Civil procedure --

Summary judgment -- Evidence -- Motion judge erring in refusing to admit two of applicant's affidavits on motion for

summary judgment on grounds that they contained statements that were based on information and belief and did not properly reference sources of information relied upon. Civil procedure --

Summary judgment -- Genuine issue for trial -- Guarantors asserting on motion for

summary judgment by creditor that representations were made by employee of creditor that creditor would not seek to enforce guarantee -- That statement inconsistent with position taken by guarantors in their statement of defence -- Guarantee containing "whole agreement" clause -- Motion judge erring in dismissing motion for

summary judgment on basis that there was genuine issue for trial with respect to representations -- Respondent to

summary judgment motion not permitted to create genuine issue for trial by pointing to inconsistency between their own pleading and their own affidavit material -- Motion judge also erring in finding that there was genuine issue for trial in light of "whole agreement" clause in guarantee. When the borrowers failed to repay a loan which was secured by a mortgage, the creditor sold the property under power of sale, sued both the borrowers and the guarantors to recover the deficiency and moved for

summary judgment. The motion judge found that the two major affidavits filed by the creditor in support of the motion were inadmissible as they contained statements that were based on information and belief and did not properly reference the sources of the information relied upon. He granted

summary judgment against the borrowers, but declined to grant

summary judgment against the guarantors. The guarantors had alleged that certain representations were made by an employee of the creditor that affected their liability under the guarantee. For the purposes of the

summary judgment motion, relying on an "entire agreement" clause in the guarantee, the creditor admitted that the representations were made. The motion judge held that viva voce evidence at a trial was necessary to determine whether the representations were admissible. The creditor appealed. Held, the appeal should be allowed. The motion judge erred in holding that the affidavit evidence was inadmissible. The rules of civil procedure are to be liberally construed so as to secure the most just, expeditious and least expensive determination of a proceeding. Where an affidavit relied upon in support of a motion for

summary judgment does not state the source of the information and the fact of the deponent's belief, the court may nevertheless rely upon the substance of the exhibits to the affidavit in evaluating the merits of the applicant's case. Statements in affidavits based on information and belief that fail to state the source of the information are not automatically struck out.

Statements that deal with non-contentious matters can be saved through the application of rule 1.04 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 . [page232] The motion judge erred in finding that the issue of the alleged representations was a genuine issue for trial. The guarantors filed an affidavit stating that they were advised by an employee of the creditor that the creditor would never seek to recover any shortfall or deficiency from them. That statement was inconsistent with the position taken by the guarantors in their statement of defence. A respondent to a motion for

summary judgment cannot create a genuine issue for trial by pointing to an inconsistency between their own pleading and their own affidavit material. More fundamentally, the guarantee contained an "entire agreement" clause that made it clear that there were no additional terms other than those that were in the document itself. APPEAL from an order dismissing a motion for

summary judgment. Cases referred to Abco Box & Carton Co. v. Dafoe & Dafoe Inc., [1987] O.J. No. 2395, 65 C.B.R. (N.S.) 292, 20 C.P.C. (2d) 128, 5 A.C.W.S. (3d) 423 (Dist. Ct.) ; Bauer v. Bank of Montreal, 1980 CanLII 12 (SCC) , [1980] 2 S.C.R. 102, [1980] S.C.J. No. 46, 110 D.L.R. (3d) 424, 32 N.R. 191, 10 B.L.R. 209, 33 C.B.R. (N.S.) 291, 2 A.C.W.S. (2d) 450; Carevest Capital Inc. v. North Tech Electronics Ltd., [2009] O.J. No. 1688 (S.C.J.) ; Chant v. Infinitum Growth Fund Inc. (1986), 1986 CanLII 2740 (ON CA) , 55 O.R. (2d) 366, [1986] O.J.

No. 584, 28 D.L.R. (4th) 577, 15 O.A.C. 393, 38 A.C.W.S. (2d) 131 (C.A.); D'Angelo v. Maco Security Monitoring Inc., 2006 CanLII 30587 (ON SC) , [2006] O.J. No. 3542, 151 A.C.W.S. (3d) 389 (S.C.J.); Gutierrez v. Tropic International Ltd. (2002), 2002 CanLII 45017 (ON CA) , 63 O.R. (3d) 63, [2002] O.J. No. 3079, 162 O.A.C. 247, 33 B.L.R. (3d) 18, 115 A.C.W.S. (3d) 772 (C.A.); MCAP Service Corp. v. McLaren, [2009] O.J. No. 548 (Div. Ct.) ; Monteiro v. Toronto Dominion Bank, 2006 CanLII 124 (ON SCDC) , [2006] O.J. No. 48, 206 O.A.C. 281, 20 E.T.R. (3d) 305, 144 A.C.W.S. (3d) 1021 (Div.

Ct.); Oak Orchard Developments Ltd. v. Iseman, [1998] O.J. No. 1167 Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 1.04 , (1) , 20.02 , 39.01 ,

(4) Mark Hartman, for appellant. Charles Manners, for respondents.

[ 1 ] BY THE COURT: -- The appellant, Carevest Capital Inc. (the "appellant"), appeals from the order of Mr. Justice Matlow (the "Motions Judge") dated April 24, 2009 [ [2009] O.J. No. 1688 (S.C.J.) ]. The appellant asks that the order be set aside and that an order for

summary judgment be granted as against each of the defendants in accordance with the relief sought in the statement of claim. [ 2 ] The respondents on the appeal are all guarantors (the "Guarantors") of a loan made by the appellant to the defendants Riverdale Group Inc. and 1657825 Ontario Inc. as borrowers (the "Borrowers"). The Motions Judge granted

summary judgment against the Borrowers in respect of liability only, but otherwise dismissed the motion. [page233] Factual Background [ 3 ] Pursuant to a commitment letter dated June 29, 2005 (the "Commitment Letter"), the appellant agreed to advance the funding necessary to finance the Borrowers' acquisition and development of certain real property. The Borrowers agreed to repay the borrowed funds and the Guarantors agreed to guarantee the repayment of the Borrowers' debt.

The loan was secured by a mortgage against the real property in question. [ 4 ] The Guarantors signed a guarantee that contained the following "entire agreement" clause: 5.

Upon this Guarantee bearing the signature of the Guarantor coming into your hands or the hands of any officer, agent or employee thereof the same shall be deemed to be finally executed and delivered by the Guarantor and shall not be subject to or affected by any promise or condition affecting or limiting the Guarantor's liability except as set forth herein, and no statement, representation, agreement or promise on the part of any officer, employee or agent of the Lender, unless contained herein, forms any part of this contract or has induced the making thereof or shall be deemed in any way to affect the Guarantor's liability thereunder. 6.

No alteration or waiver of this Guarantee or any of its terms, provisions or conditions shall be binding on you unless made in writing over the signature of your duly authorized officers in that regard. [ 5 ] When the loan for $23,500,000 was called by the appellant for non-payment, it was not paid. Pursuant to the terms of the mortgage, the appellant sold the property under power of sale. The funds received from that sale were insufficient to repay the Borrowers' indebtedness, including the costs related to the enforcement of the mortgage and the costs related to the sale of the property.

The appellant commenced an action against the Borrowers and the Guarantors to recover the deficiency, which they alleged was $8,277,234.44 as of September 2, 2008. [ 6 ] After the statement of defence was delivered, the appellant brought a motion for

summary judgment. The Motions Judge's Decision [ 7 ] The Motions Judge found that the two major affidavits filed by the appellant in support of the motion for

summary judgment were inadmissible because they violated rules 20.02 and 39.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 "so extensively that neither can be admitted in evidence". Specifically, he found that both affidavits contained statements that were based on information and belief and that neither properly referenced the sources of the information relied upon. In the view of the Motions Judge [at paras. 18-19]: [page234] . . . it is not sufficient for a deponent to state that he or she was informed by one or more documents. The source of the information must be a named person.

There is no assurance that facts inferred from a document created by others in circumstances unknown to the deponent that is not otherwise admissible can be relied upon. Nor is it sufficient for a deponent to state that his or her evidence is a combination of personal knowledge and hearsay evidence without distinguishing which parts of his evidence are personal knowledge and which parts are hearsay.

Each piece of hearsay evidence must be clearly identified as such and the source of the information and the fact of the belief must be stated. [ 8 ] The Guarantors allege that certain representations were made by an employee of the appellant that affected their liability under the guarantee. For the purposes of the

summary judgment motion, relying on an "entire agreement" clause in the Guarantee, the appellant admitted that the representations were made. Nonetheless, the Motions Judge held that viva voce evidence at a trial was necessary to determine whether the representations were admissible.

Further, the Motions Judge held that, even if he had found that the affidavits were admissible, he would have drawn an adverse inference against the appellant due to the absence of an affidavit from the alleged representor. [ 9 ] The Motions Judge also found that an inconsistency between the Guarantors' allegation in their statement of defence and the allegation contained in their responding affidavit for use on the

summary judgment motion created a genuine issue for trial. [ 10 ] The Motions Judge identified [at para. 32] several issues that he found constituted "genuine issues of fact".

These issues included the timing of the execution of the Commitment Letter and the Guarantee, the representations made by the appellant's employee, an allegation that the Guarantors would never have entered into the obligations they did if they had not received a cost consultant's budget that underestimated site servicing and construction costs, an allegation that the appellant's sale of the property pursuant to the power of sale was an improvident one and the fact that there was insufficient evidence to establish the quantum of the debt. Motion for Leave [ 11 ] The motion for leave was heard by Mr.

Justice Jennings on September 30, 2009. He granted leave, finding firstly that there were conflicting decisions on the admissibility of the affidavits. He finds that one affiant "must have personal knowledge" of the facts she swore to, given her position with the lender. He further notes that the Motions Judge makes no reference to any case law in support of his position that the affidavits [page235] were inadmissible. He also notes that the Motions Judge did not refer to rule 1.04 in coming to the decision he did. In addition, says Mr.

Justice Jennings, the Motions Judge did not give the appellant an opportunity to make any submissions on his finding that the affidavits were inadmissible. Nor did the Guarantors even argue that point. [ 12 ] Mr. Justice Jennings says there is good reason to doubt the correctness of the decision. He further says that the exclusion of such affidavits as evidence on

summary judgment motions is an important issue for the profession, especially since it was raised for the first time in the Motions Judge's endorsement. In the last paragraph of his decision granting leave, he says that he hopes that should the panel see fit to allow this appeal, the record might be sufficient to allow the panel to dispose of this matter. The Standard of Review

[ 13 ] We agree with the appellant that the determination of whether or not a genuine issue for trial exists on a

summary judgment motion is one of mixed fact and law. In Monteiro v. Toronto Dominion Bank, 2006 CanLII 124 (ON SCDC) , [2006] O.J. No. 48, 206 O.A.C. 281 (Div. Ct.), the court held, at para. 26: The finding that a triable issue exists is a question of mixed law and fact and accordingly attracts deference from the reviewing court on the issue of the judge's appreciation of the evidence, but not on the issues of law. The Motions Judge, however, dismissed the motion on the issue of the admissibility of affidavit evidence. Since that is an issue of law, the standard of review on that issue is correctness.

Analysis [ 14 ] The appellant says that the Motions Judge erred in holding that the plaintiff's affidavit evidence was inadmissible in that he failed to apply or refer to the principles set forth in the case law for the admissibility of affidavit evidence on a motion. Therefore, says the appellant, the Motions Judge's conclusion is incorrect and the decision should be set aside. [ 15 ] We agree with the appellant that the Motions Judge erred in holding that such affidavit evidence was inadmissible. This was an issue not raised by the Guarantors and not argued on the motion.

The Motions Judge's analysis in paras. 18, 19 and 23 of his decision and his references to rules 20.02 and 39.01(4) make no mention of the case law in support of his holding. Further, he ignored the principles as set out in rule 1.04(1) . [page236] [ 16 ] The findings of the Motions Judge are contrary to case law, which sets out the appropriate legal principles in determining the sufficiency or otherwise of the affidavit material before the Motions Judge on a

summary judgment motion: see Abco Box & Carton Co. v. Dafoe & Dafoe Inc., [1987] O.J. 2395, 20 C.P.C. (2d) 128 (Dist. Ct.), at paras. 12-19 ; and D'Angelo v. Maco Security Monitoring Inc., 2006 CanLII 30587 (ON SC) , [2006] O.J. 3542, 151 A.C.W.S. (3d) 389 (S.C.J.), at para. 27 . The principles that emerge from that case law are:

(1) The rules of civil procedure are to be liberally construed so as to secure the most just, expeditious and least expensive determination of a proceeding.

(2) Where an affidavit relied upon in support of a motion for

summary judgment does not state the source of the information and the fact of the deponent's belief, the court may nevertheless rely upon the substance of the exhibits to the affidavit in evaluating the merits of the applicant's case.

(3) Statements in affidavits based on information and belief that fail to state the source of the information are not automatically struck out. Statements that deal with non- contentious matters can be saved through the application of rule 1.04 of the Rules of Civil Procedure . [ 17 ] The matters referred to in the two affidavits in question and the documents attached thereto were essentially non-contentious. Each affiant held a position of some importance and responsibility in the appellant company.

The calculation of damages set out in one affidavit was taken from the appellant's statement of claim and demand letter. It was never challenged with any specificity by the Guarantors in their statement of defence. The Guarantors cross-examined the person who prepared the calculations and asked her no questions about the issue.

Further, the Guarantors did not dispute that the documents attached as exhibits to the affidavits were the documents upon which their liability was based. [ 18 ] We find that the Motions Judge erred in law in coming to the conclusions he did that the affidavits in question were inadmissible, were based on hearsay and that the source of the information must be that of a named person. Furthermore, the inadmissibility of the affidavits was not even raised or argued by the Guarantors. On these grounds alone, the appeal is allowed. [ 19 ] The appellant submits that

summary judgment should now be granted by this panel. On a motion for

summary judgment, a [page237] defendant must put his or her best foot forward and must lead trump or risk losing on the motion. It is not sufficient to put forward self-serving evidence. [ 20 ] The Motions Judge found that the issue of the alleged representations was a genuine issue for trial. Specifically, the Guarantors filed an affidavit stating that they were advised by an employee of the appellant that the appellant would never seek to recover any shortfall or deficiency from the Woods family.

First, as the Motions Judge noted, this statement is inconsistent with the position taken by the Guarantors in their statement of defence. In para. 15 of their statement of defence, the Guarantors assert that they were told that the appellant "would not take any steps to attempt to enforce any of the guarantees prior to selling the Property". We agree with the appellant that a respondent to a motion for

summary judgment cannot create a genuine issue for trial by pointing to an inconsistency between their own pleading and their own affidavit material. Second, and more fundamentally, it is a well-established rule of law that by operation of the parole evidence rule, a collateral oral agreement cannot be established when it is inconsistent with, or contradicts the terms of a written agreement. In this case, both the Guarantee and the Commitment Letter contained "entire agreement" clauses that made it clear that there were no additional terms other than those that were in the document itself.

In the face of such a clause, the courts have found that any oral representations, including ones to the effect that a guarantee would "never be called", are of no force and effect: see Bauer v. Bank of Montreal, 1980 CanLII 12 (SCC) , [1980] 2 S.C.R. 102, [1980] S.C.J. No. 46, at pp. 7 and 8 (QL); and Chant v. Infinitum Growth Fund Inc. (1986), 1986 CanLII 2740 (ON CA) , 55 O.R. (2d) 366, [1986] O.J.

No. 584 (C.A.). [ 21 ] The Motions Judge says he would draw an adverse inference from the fact that the appellant filed no affidavit of Bob Kulchy ("Kulchyk"), a former employee of the appellant who is alleged to have made the representations that the Guarantors rely on to limit their liability. In this regard, we pause to note that for the purposes of the

summary judgment motion, the appellant admitted that the representations had been made. Accordingly, there is no further adverse inference that can be drawn. [ 22 ] Again, both the entire agreement clause in the Guarantee and the terms of the Commitment Letter state that there are no additional terms other than those contained in the documents themselves. In para. 27 of his endorsement, the Motions Judge refers to the fact that the appellant, for purposes of the motion, [page238] acknowledges that these representations were made by Kulchyk.

He then says, in para. 31: . . . it is impossible for me to determine whether or not the representations should be admitted or excluded despite the plaintiff's admission that they were made. This determination requires a detailed examination of the relevant evidence which can be done only after hearing viva voce evidence at a trial. With respect, we do not see that this raises a genuine issue for trial. In Gutierrez v. Tropic International Ltd. (2002), 2002 CanLII 45017 (ON CA) , 63 O.R. (3d) 63, [2002] O.J. No. 3079 (C.A.), at para. 23 , the court states,

"While representation and misrepresentation are alleged in the appellants' factum, and were asserted in oral argument before this court, such claims are not supported by the appellants' pleading." This was also the case before the Motions Judge, and he erred in his finding that there needed to be a detailed examination of the relevant evidence.

In para. 28, the court concludes: I conclude that even if the appellants' evidence concerning the Collateral Agreement is admissible, and accepted at trial, that evidence would not support a defence to the clear and unambiguous terms of the subsequently executed Redemption Agreement and Guarantee. We also adopt the Court of Appeal's reasoning in this regard. It applies to the documentation which was before the Motions Judge. Parole evidence is not itself sufficient to defeat

summary judgment. [ 23 ] Nor do we see that the allegation of the cost consultant's conduct is in any way supported by the evidence. In addition, it is not relevant to the determination of liability on the Commitment Letter and Guarantee. The evidence before the Motions Judge was that the decision to execute the Commitment Letter was reached prior to any retainer or involvement of the cost consultant.

Further, the budgetary assumptions contained in the Commitment Letter were provided by the Borrower, not the cost consultant. [ 24 ] The Motions Judge also found that the characterization by the Guarantors that there had been an "improvident sale" of the property was "accurate" and was an issue for trial. The evidence before the Motions Judge shows that this was not the case. The Guarantor, Boyd Kent Woods, had marketed the property himself before it was sold by the appellant. He was unable to obtain an offer better than $9,500,000.

The appellant sold the property under power of sale for $11 million, a figure supported by the appraisals which the appellant had commissioned be done. [ 25 ] The Motions Judge makes no reference to the appellant's evidence and case law respecting the conduct of power of sale [page239] proceedings. The duty of a mortgagee selling under power of sale is set out in Oak Orchard Developments Ltd. v. Iseman, [1998] O.J. No. 1167 (Gen. Div.) . On pp. 4 and 5 of that decision, Mr.

Justice Saunders summarizes the propositions from other decisions, including the proposition that the duty of a mortgagee is only to take reasonable precautions, which the appellant did. A mortgagee has no duty to wait for a higher price. The mortgagor, in this case, had no evidence to show that a better price could have been obtained. The appellant adequately marketed the property. There were nine offers made. The appellant accepted the Armstrong offer, being the highest offer, only to have the transaction fail due to non-delivery of deposit moneys.

The Motions Judge erred in finding that this was an issue to be tried. [ 26 ] The quantum of the debt is also not an issue and the Motions Judge erred in saying that it was. The quantum was clearly set out in the appellant's statement of claim. It was reconfirmed in one of the demand letters that went back and forth between the parties. It was never challenged with any specificity in the statement of defence. There was no evidence provided by the Guarantors to show that there was an error. The Guarantors cross-examined the person who prepared the figures and asked her no questions regarding this issue.

This was simply another bald allegation made by the Guarantors and as such does not raise a genuine issue for trial. [ 27 ] The Motions Judge also found that there was a genuine issue for trial respecting the order in which the Guarantee and the Commitment Letter were executed. This makes no sense when the wording of these documents is examined. If the Guarantee was signed before the Commitment Letter, the "entire agreement" clause in the Commitment Letter would have excluded the Guarantee, something that would have made no commercial sense.

Moreover, one of the Guarantors, Boyd Kent Woods, admitted, in para. 5 of his affidavit, ". . . the defendants all executed the Commitment Letter and subsequent security and guarantee documentation" (emphasis added). In addition, the Guarantee refers to the Commitment Letter dated June 29, 2005. The appellant submits that this reference makes it clear that the Commitment Letter predates the Guarantee.

We agree with the appellant in this regard and do not see this as a genuine issue for trial. [ 28 ] In the end, the Guarantors have not proferred any evidence to support the Motions Judge's finding that there are genuine issues for trial in any of his list as set out in para. 32 of the endorsement. The Motions Judge erred in accepting the [page240] unsupported facts presented by the Guarantors on these issues and ignoring the uncontroverted facts as presented by the appellant. Conclusion [ 29 ] We agree that the Motions Judge erred in dismissing the appellant's motion for

summary judgment against the Guarantors and erred in granting judgment on the issue of liability only against the Borrowers. As already noted in these reasons, the Motions Judge erred in law in excluding the affidavit evidence relied on by the appellant. [ 30 ] The appeal is granted. The order of the Motions Judge dated April 24, 2009 is set aside. We see no reason why we should not grant

summary judgment granted against all the Guarantors and the Borrowers in this case. The court can grant

summary judgment in cases such as this: see MCAP Service Corp. v. McLaren, [2009] O.J. No. 548 (Div. Ct.) . We do not agree with the Guarantors that this is a case which should be returned to the Motions Judge or be sent for a new hearing. The evidence is sufficient for us to grant

summary judgment. [ 31 ]

Summary judgment shall issue against the Borrowers and all Guarantors as set out in the appellant's statement of claim. [ 32 ] The appellant shall have its costs both here and before the Motions Judge and on the leave motion. The appellant says its costs on all three appearances before the court are in the range of $67,000, with its costs before the Motions Judge being slightly less than the $35,000 awarded by the Motions Judge to the defendants/respondents on appeal. Costs in mortgage cases are governed by the language in the mortgage itself and, in this case, also by the Guarantee.

The parties agree that the appellant is entitled to its substantial indemnity costs. [ 33 ] Counsel for the defendants/respondents on the appeal presented bills of costs for consideration by the court. On the leave motion, costs were reserved to the panel hearing the appeal. The Guarantors say their costs are $14,156.62, inclusive of disbursements. On the appeal itself, if successful, it would have sought costs of $17,552.20, inclusive of disbursements and GST. Therefore, both parties would have asked for the same amount of costs.

These costs are reasonable in the circumstances. [ 34 ] Given the above facts, we fix the costs of the appellant on all three attendances at $67,000, inclusive of disbursements and GST, payable forthwith.

Appeal allowed.