



COURT OF APPEAL FOR ONTARIO

CITATION:

Fifth Third
    Bank v. O'Brien, 2013 ONCA 5

DATE: 20130110

DOCKET: C55094

MacPherson, Cronk and Lauwers JJ.A.

BETWEEN

Fifth Third Bank

Plaintiff (Respondent)

and

Ronald Edward OBrien,
Paul Gustav Morton


and
Cinitel Corp.

Defendants (Appellants)

Robert D. Malen and Robert J. Drake, for the appellants

Douglas O. Smith and Caitlin R. Sainsbury, for the
    respondent

Heard: January 7, 2013

On appeal from the judgment of Justice Michael A. Penny of
    the Superior Court of Justice, dated August 10, 2011.

BY THE COURT:

I.        Background

[1]

The appellants, Paul Gustav Morton (Morton) and Cinitel Corp.
    (Cinitel), guaranteed loan facilities provided by the respondent, Fifth Third
    Bank (the Bank), to MPI Packaging Inc. (MPI).  Following default by MPI on
    its loan obligations, the Bank obtained a court order appointing a receiver. 
    With court approval, the receiver sold MPIs assets and remitted the net
    proceeds to the Bank.  The Bank also made demand on the appellants guarantees
    and sued Morton and Cinitel for satisfaction of the shortfall between the
    amounts recovered by the receiver and the amount of MPIs indebtedness to the
    Bank.

[2]

By judgment dated August 10, 2011, M. A. Penny J. of the Superior Court
    of Justice granted summary judgment in favour of the Bank in the amounts of
    $5,406,484.74 (CDN) and $10,238.15 (USD), plus costs in the amount of
    $150,000.  Morton and Cinitel appeal from that judgment.

[3]

On appeal, the appellants renew their arguments, advanced before the
    motion judge, that: (1) the Bank failed to act in a commercially reasonable
    manner in its dealings with its security by failing to allow the sale of MPI as
    a going concern; and (2) after the date of their guarantees, material
    alterations or variations in the terms of MPIs loan facilities were made as
    between the Bank and MPI without Morton and Cinitels consent, thereby
    discharging their liabilities under the guarantees.

[4]

For the reasons that follow, we conclude that the appeal must be
    dismissed.

II.       Discussion

[5]

Although the appellants submit that summary judgment was not available
    in this case, they advance virtually no argument and provide essentially no
    particulars in support of this submission.  Further, there is no suggestion
    that the motion judge failed to appreciate the applicable test for granting
    summary judgment.

[6]

The motion judges reasons regarding liability are considered and
    thorough, spanning some 58 pages.  The reasons indicate that the record
    permitted him to have a full appreciation of the issues and the evidence required
    to make dispositive findings by way of summary judgment.  In particular, the
    reasons confirm that the motion judge addressed, directly and in detail, both
    grounds of appeal now raised by the appellants in light of the evidentiary
    record before him.

[7]

We have no hesitation in concluding that the motion judge was
    well-positioned to determine the Banks summary judgment motion on the merits,
    without the necessity of a trial, and that he properly applied the governing
    summary judgment test: see
Combined Air Mechanical Services Inc. v. Flesch
,
    2011 ONCA 764, 108 O.R. (3d) 1, leave to appeal to S.C.C. granted, [2012]
    S.C.C.A. No. 48.

[8]

Moreover, the motion judges key findings are dispositive of this
    appeal.  He held that: (1) the Bank absent express contractual obligations to
    the contrary or equitable principles...has no duty to forbear from calling its
    loans when it has the legal right to do so; (2) the appellants complaints, at
    heart, constituted a collateral attack on the Banks decision to seek the
    appointment of a receiver, rather than continue to extend credit to MPI while
    efforts were undertaken to sell it as a going concern; and (3) the relevant contractual
    arrangements did not oblige the Bank to continue to extend credit to MPI during
    the attempted sale process.

[9]

We agree with these findings, which are amply supported by the record. 
    They ground the motion judges holding that the Banks conduct in realizing on
    its security was not commercially unreasonable in the circumstances.  We note
    that, before this court, there is no direct attack on the commercial
    reasonableness of the Banks actual realization on its security, as effected by
    the court-appointed receiver and eventually approved by the court.

[10]

Given
    our conclusion that the motion judges findings regarding the commercial
    reasonableness of the Banks conduct are sustainable, it follows that it is
    unnecessary to address the appellants additional argument that the motion
    judge erred in his interpretation of the guarantees by holding that, in any
    event, the Bank had contracted out of its common law obligation to conduct any
    realization on its collateral in a commercially reasonable manner.

[11]

That
    said, we appreciate that the appellants argue that the Bank had a discrete
    obligation to them, as guarantors, distinct from its obligations to MPI, to
    protect and preserve MPIs assets.  This obligation, they say, required that
    the Bank continue to forbear on the enforcement of its security and to advance
    credit to MPI until it was sold as a going concern.  In the circumstances of
    this case, we disagree.

[12]

The
    motion judge considered and rejected this argument, stating:

I do not think the concept of commercial
    reasonableness can or should be extended beyond collateral realization.  It
    cannot be made to apply to the ability of the lender to insist on the debtors
    strict compliance with its obligations to the [Bank] under the agreements
    between them.

I agree with the [Bank] that to extend the duty of
    the [Bank] to act in a commercially reasonable manner when selling the debtors
    collateral to the [Banks] decision to rely on its contractual rights when
    making decisions
whether
to extend or
whether
to continue to
    extend credit, would be a fundamental change in the law and have a chilling
    effect [on] the willingness of financial institutions to extend credit.  In any
    event, I do not understand how reliance on strict legal rights in the context
    of commercial lending between sophisticated parties who have been represented
    by counsel, absent intervening principles of equity such [as] estoppel and the
    like, could be regarded as commercially  unreasonable.  That is what the
    parties bargained for.

[13]

We
    agree.  There was no requirement here that the Bank continue to extend credit
    to MPI, thereby increasing the Banks exposure on its credit facilities, when
    its loan agreements with MPI had expired and MPIs indebtedness to the Bank
    remained unpaid.

[14]

We
    note that, unlike
Bank of Montreal v. Wilder
, [1986] 2 S.C.R. 551 and
    related authorities relied on by the appellants, no agreement was concluded in
    this case with the Bank whereby the Bank agreed to continue to finance MPI
    while efforts were undertaken to dispose of MPI as a going concern.

[15]

Nor,
    in our opinion, is this case analogous to
Moase Produce Limited v. Royal
    Bank
, (1986) 59 Nfld. & P.E.I.R. 168 (P.E.I.S.C.  Gen. Div.),
    additional reasons at 66 Nfld. & P.E.I.R. 196 or
Bauer v. Bank of
    Montreal
, [1980] 2 S.C.R. 102.

[16]

In
Moase
, it was held that the defendant bank had misled the corporate
    debtor into believing that it had accepted a reorganization plan for the debtor
    at a time when, unbeknownst to the debtor, the bank was secretly planning a
    receivership.  That is not this case.  Again, there was no agreement or
    representation by the Bank in this case that it would continue to support MPI
    financially while sale efforts were undertaken.  Further, unlike the situation
    in
Bauer
, there is no suggestion here that the Bank would have been
    unable, by reason of its conduct, to deliver its security to the appellants
    prior to the receivers disposition of MPIs assets had the appellants paid
    MPIs debt to the Bank.

[17]

Finally,
    the motion judge held that the material variation rule discussed in
Holmes
    v. Brunskill
, [1987] 3 Q.B.D. 495

and
Manulife Bank of Canada
    v. Conlin
, [1996] 3 S.C.R. 415 does not apply here as the changes made to
    MPIs loan facilities were authorized by the principal loan agreements and
    guarantees.  Having reviewed the agreements in question, we see no basis on
    which to interfere with this holding.

[18]

This
    is not a case where the guarantors were uninvolved in the efforts to
    resuscitate and sell MPIs business.  Nor were they unaware of the Banks
    contractual arrangements with MPI or the terms of the guarantees.  On the
    contrary, the guarantors were intimately involved throughout.  The forbearance
    offered by the Bank after the expiry of MPIs credit facilities clearly
    benefitted the guarantors as it staved off the commencement of enforcement
    measures by the Bank and prevented, at least for a time, MPIs collapse and
    calls on the guarantees.

[19]

We
    therefore agree with the motion judge that there is no genuine issue requiring
    a trial with respect to the commercial reasonableness of the Banks dealings
    with its collateral or the appellants liability under the terms of their
    guarantees.

III.      Disposition

[20]

The
    appeal is dismissed.  The Bank is entitled to its costs of the appeal, on the
    substantial indemnity scale as agreed by the parties in the relevant guarantees. 
    We fix those costs in the amount of $24,000, inclusive of disbursements and all
    applicable taxes.

Released:

JCM                                                J.C.
    MacPherson J.A.

JAN 10 2013                          E.A. Cronk J.A.

P. Lauwers
    J.A.


