



COURT OF APPEAL FOR ONTARIO

CITATION: Sicotte v. 2399153 Ontario Ltd.,
    2021 ONCA 912

DATE: 20211221

DOCKET: C68978

MacPherson, Simmons and
    Nordheimer JJ.A.

BETWEEN

Joanne Sicotte

Plaintiff (Appellant)

and

2399153 Ontario Ltd., Josée
    Virgo,
Philippe Grandmaitre and Denis Marchand

Defendants (Respondents)

Martin Black, for the appellant

Alden Christian, for the respondents 2399153
    Ontario Ltd., Josée Virgo and Philippe Grandmaitre

Nadia Authier, for the respondent Denis
    Marchand

Heard: November 3, 2021 by video conference

On appeal from the judgment of Justice Robyn
    M. Ryan Bell of the Superior Court of Justice, dated December 9, 2020, with
    reasons reported at 2020 ONSC 7581.

Nordheimer J.A.:


A.

Introduction

[1]

The appellant, Joanne Sicotte, brought a motion for
    summary judgment on a guarantee of a commercial mortgage signed by the
    respondents, Josée Virgo, Philippe Grandmaitre, and Denis Marchand. The motion
    judge dismissed the appellants motion but granted summary judgment to the
    respondents dismissing the appellants action against them.

[2]

The result of the motion judges decision is
    that the appellant is prevented from enforcing the guarantee until another
    mortgage that the corporate respondent 2399153 Ontario Ltd. (the Borrower) made
    with the Business Development Bank of Canada (BDC) is paid out. By the terms
    of the BDC mortgage, the payout may not occur until 2043, or even later if BDC
    grants an extension.

[3]

The appellant submits that the motion judge
    erred in rendering a decision that has such a drastic and unfair result for her.
    I agree with the appellant. For the following reasons, I would grant her
    appeal, set aside the order below, and grant summary judgment in favour of the
    appellant.

B.

facts

(1)

The parties and events

[4]

The appellant loaned $800,000 to the Borrower in
    2014 in exchange for a mortgage over the Borrowers property pursuant to the
    terms of a loan agreement (the Sicotte Loan). The three individual
    respondents  Ms. Virgo, Mr. Grandmaitre, and Mr. Marchand  are officers,
    directors and shareholders in the Borrower and guarantors of this mortgage. Pursuant
    to a separate guarantee agreement, they agreed to guarantee the Borrowers debts
    and liabilities at any time owing by the Borrower to the appellant. A fourth
    officer, director and shareholder of the Borrower is Marc Robert, the
    appellants spouse.

[5]

The appellant says that the Borrower is
    obligated to make monthly mortgage payments, has failed to do so, and is,
    therefore, in default under the loan agreement. She looks to enforce the
    guarantee against Ms. Virgo, Mr. Grandmaitre and Mr. Marchand (the
    guarantors).

[6]

The complicating factor is that, in 2018, BDC
    loaned an additional $3.9 million to the Borrower in exchange for a mortgage
    over the same property as the one described in the Sicotte loan. As part of the
    BDC loan agreement, the appellant, the Borrower and BDC signed a Postponement
    of Debt Agreement (the Postponement Agreement) which provided in part:

[T]he Creditor [the appellant] agrees with the
    Bank [BDC] that any claim of the Bank in respect of the Loan [the BDC loan] shall
    take precedence over and be fully paid in priority to the Debt [the Sicotte
    Loan], and repayment of the Debt is hereby expressly postponed in favour of the
    Bank
and the Creditor will not, so long as the Borrower
    is indebted to the Bank in respect of the Loan, demand payment, either in whole
    or in part, of the Debt
[Emphasis added.]

[7]

Concurrent with the BDC loan, the original Sicotte
    mortgage was amended in significant respects by:


i.

deleting the principal amount of $800,000 and
    inserting a principal amount of $1,522,757;


ii.

deleting the interest rate of 5.0% and inserting
    an interest rate of 6.0%;


iii.

extending the term for one year; and


iv.

deleting the monthly payment amounts of $3,333.33
    and inserting monthly payment amounts of $7,613.79 (acknowledged to be payments
    of interest only).

[8]

The Borrower made the monthly interest payments to
    the appellant in July, August and September 2018. The payments then ceased. No
    payments have been made since. Further, the mortgage matured and became due and
    payable in full on July 10, 2019.

[9]

In reliance upon the Postponement Agreement, BDC
    advised the appellant that she could not demand payment from the Borrower, or
    enforce her mortgage against the property, until such time as BDC is paid in
    full, the ultimate due date being in August 2043 or, possibly by extension,
    even later.

[10]

The appellant appears to have accepted BDCs
    warning about the mortgage. Instead, she commenced this action on the guarantee
    and brought a motion for summary judgment against the guarantors. All parties
    agreed that the motion for summary judgment was an appropriate method for
    resolving the dispute and that there were two possible outcomes  summary
    judgment could be granted in favour of the appellant or an order could be made dismissing
    her action, notwithstanding the absence of a cross-motion for such relief: see
Meridian
    Credit Union Limited v. Baig
, 2016 ONCA 150, 346 O.A.C. 57, at para. 17,
    leave to appeal to S.C.C. refused, 36974 (March 2, 2017).

(2)

The motion judges decision

[11]

The motion judge dismissed the appellants
    motion. In its place, she granted an order dismissing the appellants entire
    action. The core of her reasoning was as follows:

Are 239 Ontarios liabilities to Ms. Sicotte
    under the Mortgage presently owing? In my view, the answer to this question
    is no, based on a plain reading of the Postponement executed by Ms. Sicotte.



Giving the words used in the Postponement
    their ordinary and grammatical meaning, Ms. Sicotte agreed:

(i) the repayment of the BDC loan takes
    precedence over and shall be fully paid in priority to the Sicotte Loan;

(ii) repayment of the Sicotte Loan is
    postponed in favour of the BDC;

(iii) Ms. Sicottes right, title, and
    interest in any security in respect of the Sicotte Loan is postponed in favour
    of the BDC; and

(iv) while 239 Ontario is indebted to BDC,
    Ms. Sicotte is not entitled to demand payment of the Sicotte Loan.

As the Postponement expressly states, BDC made
    its loan to 239 Ontario conditional on the Sicotte Loan being postponed.

The wording of the Postponement is clear and
    unequivocal. I find that the intention of the parties to the Postponement 
    BDC, Ms. Sicotte, and 239 Ontario  was that no payments (interest or
    otherwise) could or would be made on the Sicotte Loan until such time as the
    BDC loan is repaid in full. The BDC loan has not been repaid in full; it
    matures in August 2043. I find that 239 Ontario remains indebted to Ms. Sicotte
    but, by operation of the Postponement, no amounts are presently owing by 239
    Ontario under the Sicotte Loan and Ms. Sicotte has no right to insist on
    payment.

I reject Ms. Sicottes contention that the
    Postponement is irrelevant and her argument that the guarantors are not
    entitled to rely on an agreement to which they are not parties. To the
    contrary, Ms. Sicotte must be held to the clear terms of the agreement she and
    239 Ontario made with BDC. Because of that bargain, there are no amounts
    presently owing by 239 Ontario to Ms. Sicotte under the Mortgage. Therefore,
    the Mortgage is not in default and the guarantors obligations are not
    triggered.

C.

issues

[12]

The appellant advances three issues on the
    appeal:

1.

Did the motion judge err by failing to distinguish between a debt being
    owed and a debt being subordinated and temporarily unenforceable against the
    borrower?

2.

Did the motion judge err by failing to distinguish between the
    obligations of the primary debtor/borrower to the appellant as a lender and
    those of the guarantors?

3.

Did the motion judge err by applying a lease-up pre-condition to the
    repayment of the subject loan after such pre-condition had ceased to apply on
    the pay-out of the previous construction financing?

[13]

For the following reasons, I conclude that the
    motion judge made each of these three errors.

D.

analysis

(1)

Standard
    of review

[14]

I begin by noting that the motion judge was
    required to interpret several types of documents  loan, mortgage, guarantee,
    and postponement of debt. All these documents were commercial and contractual
    and, taken together, they involved several commercial and individual parties.

[15]

In
Sattva Capital Corp. v. Creston Moly
    Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50 and 52, the Supreme
    Court of Canada held that [c]ontractual interpretation involves issues of
    mixed fact and law and that, therefore, deference is owed to first instance decision-makers
    on points of contractual interpretation. Accordingly, the palpable and overriding
    error standard applies to these issues, which are issues of contractual
    interpretation with no extricable question of law: see
Heritage Capital
    Corp. v. Equitable Trust Co.
, 2016 SCC 19, [2016] 1 S.C.R. 306, at paras.
    21-24. The appellant, fairly, acknowledges in her factum that this is the
    appropriate standard of review on each of the three issues she raises on this
    appeal.

(2)

Issues 1 and 2: Failure to distinguish between
    the primary debt and the guarantee, and between owing and enforceable debt
    obligations

[16]

The first two issues greatly overlap and can be
    dealt with together. In my view, the motion judges central error is that she confused
    the appellants rights as they relate to the underlying debt with her rights as
    they relate to the guarantee. The two are separate and distinct contractual
    obligations, and that distinction must be respected. The result arrived at by
    the motion judge improperly conflates the two. In the circumstances, this
    amounts to an error of law, or at the very least a palpable and overriding
    error of mixed fact and law, as those concepts relate to the standard of
    review.

[17]

The Postponement Agreement, upon which both the
    guarantors and the motion judge placed exclusive reliance, was made between the
    appellant, the Borrower, and the BDC. The guarantors were not parties to the
    Postponement Agreement. Nothing in the Postponement Agreement purports to, or
    does, involve, much less alter, the relationship between the appellant and the
    guarantors. Simply put, there is nothing in the Postponement Agreement that
    purports to address or affect the appellants rights vis-à-vis the guarantors.

[18]

On that latter point, I do not accept that the
    reference in the Postponement Agreement that the [appellant] at the request of
    the [BDC] shall postpone in favour of the [BDC], all its or his right, title
    and interest in any security in respect of the Debt postponed by these
    presents refers to the guarantee. First, the guarantee is not a security
    postponed by these presents. Second, if the BDC had intended to impact on the
    rights and obligations of the guarantors, it presumably would have sought their
    concurrence to that impact, either by making them parties to the Postponement
    Agreement or through the execution of a separate agreement.

[19]

The motion judge also erred in concluding that
    the indebtedness of the Borrower to the appellant was not owing to the appellant.
    The motion judge recited this conclusion at para. 30, and again at para. 41, of
    her reasons. That conclusion reflects both a factual and a legal error. The
    mortgage, which secured the debt due by the Borrower to the appellant, has
    matured in accordance with its terms. It is an error to conclude that a matured
    mortgage does not represent monies that are due and owing.

[20]

If those facts were not, on their own,
    sufficient to address this point, I would also note that the guarantee refers
    to debts owing by the Borrower to the Lender or
remaining unpaid
by the
    Borrower to the Lender (emphasis added). It should be self-evident that the
    debt remains unpaid by the Borrower. Neither the principal amount of the
    mortgage has been paid nor have the monthly interest payments been made. The
    motion judge does not make reference to this language in her analysis. Nevertheless,
    the motion judge does note that section 2.02 of the guarantee entitles the
    appellant to demand payment or performance from the guarantors, even if she has
    not exhausted her remedies as against the Borrower. Yet the motion judge gives
    no effect to this section.

[21]

What the motion judge confused, with the active
    support of the guarantors, is the question of whether a debt is due and owing
    and whether a lender can enforce payment of a debt that is due and owing. The
    former addresses liability and the latter addresses enforcement. As this case
    demonstrates, just because a debt is due and owing does not necessarily mean
    that a lender can take steps to enforce payment of the debt. In this case, the
    appellant disentitled herself to enforce payment of the debt
by the Borrower
because of the contractual arrangements she entered into with the BDC, so as to
    permit the BDC to advance other monies to the Borrower. Understandably, the BDC
    insisted on being first in priority in terms of any enforcement rights against
    the Borrower (and its assets). The appellant contractually agreed to give the BDC
    that priority by postponing her enforcement rights as against the Borrower.

[22]

What the appellant did not do, and which is
    central to the issues in this case, is postpone or otherwise alter her rights
    of enforcement against the guarantors. Contrary to the finding of the motion
    judge, the Postponement Agreement did not do so. The first clue to that
    conclusion, as I alluded to above, ought to have arisen from the salient fact
    that the guarantors were not parties to the Postponement Agreement.

[23]

The motion judges conclusion about the
    Postponement Agreement is also inconsistent with the terms of the guarantee.
    The guarantee makes it clear that the obligations of the guarantors are
    independent of the obligations of the Borrower. By way of example, section 1.02
    of the guarantee states:

The liability of the Guarantor in this
    Guarantee will be absolute and unconditional and will not be affected by:

(a)     any lack of validity or
    enforceability of any agreement between the Borrower and the [appellant]

[24]

To a similar effect is section 2.01 of the
    guarantee, which states:

The liability of the Guarantor in this
    Guarantee will not be released, discharged, limited or in any way affected by
    anything done, suffered or permitted by the [appellant] in connection with any
    duties or liabilities of the Borrower to the [appellant] or any security
    therefor including any loss of or in respect of any security received by the
    [appellant] from the Borrower or others.

[25]

With respect, these provisions in the guarantee
    could not be clearer or more broadly worded. While the motion judge made
    reference to these provisions, she failed to give them any effect.

[26]

Consistent with the interpretative principles set
    out in
Sattva
,

the surrounding circumstances are relevant to
    a proper interpretation of the contractual document. Rothstein J. said, at
    para. 47:

[T]he interpretation of contracts has evolved
    towards a practical, common-sense approach not dominated by technical rules of construction.
    The overriding concern is to determine the intent of the parties and the scope
    of their understanding. To do so, a decision-maker must read the contract as a
    whole, giving the words used their ordinary and grammatical meaning, consistent
    with the surrounding circumstances known to the parties at the time of
    formation of the contract. [Citations omitted.]

[27]

The surrounding circumstances known to the
    parties here was that the Borrower needed to obtain construction financing to
    ensure that the vacant land that it held as its only asset could be developed
    so as to generate revenues to pay the Borrowers obligations. The appellant,
    recognizing that reality, agreed to postpone her rights as against the Borrower
    to enable that financing to take place. Indeed, she did so twice: once for the
    Borrower to obtain construction financing, and then again when the Borrower
    negotiated the loan with the BDC that, among other things, paid out the
    construction financing.

[28]

However, there was never any agreement that the
    appellants rights against the guarantors were to be similarly postponed. That
    conclusion flows inevitably from the factual record. In particular, there was
    an express agreement, at the time of the BDC financing, to amend the mortgage
    in four specific respects, as I set out above.

[29]

The respondents expressly agreed to these
    changes.
[1]
If the appellants rights were to be, in all respects, entirely subsumed and
    postponed to the BDC financing, as now urged by the guarantors, and as found by
    the motion judge, then there was no need for a one-year extension of the
    mortgage since, on the motion judges findings, the appellant was not able to
    enforce the mortgage, or the guarantee, until the BDC financing became due in
    2043. Nor does it appear that there was much practical purpose for providing
    that interest-only payments were to be made since, as the respondents would
    have it, there is no remedy for any failure to make those payments. Indeed,
    those interest-only payments, that the respondents expressly agreed were to be
    made, stopped only three months after they began and yet, in the result, the
    appellant is precluded from obtaining any relief arising from the failure to
    make those payments.

[30]

I would add, on this point, that there is
    evidence in the record that at least one of the purposes of the one-year
    extension was to allow time for the parties to pay out the Borrowers debt to
    the appellant. This intent is set out in an email from the appellants lawyer
    to the guarantors dated July 3, 2018, the same email that confirmed the
    guarantors acceptance of the terms, and the understanding upon which the
    appellant was postponing her rights against the Borrower to those of the BDC.
    If, as found by the motion judge, the appellant had waived her rights to
    payment of the debt, not only from the Borrower but also from the guarantors,
    there was no practical purpose to paying the appellant out, since the appellant
    had no rights of collection for the next twenty-five years. The motion judge
    did not address this evidence.

(3)

Issue 3: The lease-up of the property

[31]

The third issue arises from an alternative
    argument advanced by the guarantors. The guarantors contend that the
    construction financing contained a term that the loan amount did not have to be
    repaid until all of the units to be constructed in the buildings were leased.
    That has never happened. The guarantors submit that this is another reason that
    no amounts are owing by the Borrower, or by them, to the appellant.

[32]

That contention not only suffers from the same
    flaw of ignoring the distinction between the obligations under the principal
    debt and the obligations under the guarantee, but it also ignores the salient
    fact that the construction financing was paid out by the BDC financing. There
    is no basis in the record for concluding that the terms attached to the
    construction financing survived that payout and remained in force.

(4)

Potential new issue: Section 3.01 of the guarantee

[33]

Finally, the respondent Mr. Marchand raises what
    appears to be a new issue, and that is the effect of section 3.01 of the
    guarantee. Section 3.01 reads:

At any time that the [appellant] is entitled
    to enforce its security in accordance with the provisions of the Mortgage, the
    [appellant] shall be entitled to make demand upon any one or all persons
    comprising the Guarantor for payment and performance of all Obligations.

[34]

Mr. Marchand contends that because the appellant
    was not in a position to enforce her rights against the Borrower, she was not
    entitled to make a demand for payment under the guarantee. It is not clear if
    this issue was raised before the motion judge. Certainly, it is not referred to
    in her reasons. In any event, it does not assist the guarantors.

[35]

The appellant was entitled to enforce her
    security in accordance with the provisions of the Mortgage. Default had been
    made in the payments required and the mortgage had matured. The argument that
    there was no right to enforce because of the Postponement Agreement ignores the
    fact that section 3.01 of the guarantee refers expressly to the provisions of
    the mortgage, not any other document. The argument also ignores the specific
    provisions of the guarantee in sections 1.02 and 2.01 that I have referred to above,
    and it ignores section 4.02 which provides that the guarantee constitutes the
    entire agreement between the Guarantor and the [appellant]. Mr. Marchand
    acknowledges that the interpretation of the guarantee requires that all of its
    terms are to be read and considered as a whole.

E.

CONCLUSION

[36]

In the end result, as I have already observed,
    the conclusion of the motion judge has the effect of precluding the appellant,
    not only from being repaid the monies that were borrowed from her for the next
    twenty-two years, but also from receiving any interest payments to her on those
    same funds. Indeed, the time for repayment could go beyond that point since the
    BDC has the right to extend its financing. It means that the appellant must
    wait more than two decades, not only to be repaid the monies that she lent, but
    even to receive any return on those monies. That is a result that drives the
    interpretation of the security arrangements between the appellant and the
    guarantors to an absurd result. As noted by Cromwell J. in
Bhasin v. Hrynew
,

2014 SCC 71, [2014] 3 S.C.R. 494, at para. 45:

Further, as Lord Reid observed in
Schuler
    A.G. v. Wickman Machine Tool Sales Ltd.
, [1974] A.C. 235 (H.L.), at p.
    251, [t]he more unreasonable the result the more unlikely it is that the
    parties can have intended it.

[37]

I would allow the appeal, set aside the order of
    the motion judge, and grant summary judgment against the guarantors, each as to
    one-third of the outstanding debt, in accordance with the terms of the
    guarantee. I would award the appellant her costs of the appeal fixed in the
    amount of $15,000, inclusive of disbursements and HST. I would also award the
    appellant the costs of the action and the summary judgment motion fixed in the
    amount of $20,000, inclusive of disbursements and HST.

Released: December 21, 2021 J.C.M.

I.V.B.
    Nordheimer J.A.

I
    agree. J.C. MacPherson J.A.

I
    agree. Janet Simmons J.A.





[1]

I note that, arguably, the guarantors would have been bound
    by these changes in any event since section 2.01 of the guarantee provides that
    the appellant could deal with the Borrower 
without obtaining
    the consent of or giving notice to the Guarantor.


