



COURT OF APPEAL FOR ONTARIO

CITATION: Toronto-Dominion Bank v. Konga, 2016 ONCA 976

DATE: 20161223

DOCKET: C61970

Gillese, Benotto and Roberts JJ.A.

BETWEEN

The Toronto-Dominion Bank

Plaintiff (Respondent)

and

Raymond Kuate Konga

Defendant (Appellant)

Ronald F. Caza and Alyssa Tomkins, for the appellant

Fraser MacKinnon Blair and David Elliot, for the
    respondent

Heard: November 23, 2016

On appeal from the order of Justice Patrick Smith of the
    Superior Court of Justice, dated March 10, 2016, with reasons reported at 2016
    ONSC 1628.

By the Court:

[1]

The appellant guaranteed a loan made by the respondent bank to Vertamin
    Inc. (the corporation). The respondent claimed that the corporation breached
    the terms of the loan agreement. It demanded payment of the loan from the
    corporation and from the appellant as the guarantor. The respondent moved
    successfully for summary judgment against the appellant for payment based on
    the guarantee. The appellant submits that the motion judge erred in law by
    misinterpreting the guarantee.  He further submits that the motion judge erred
    in failing to consider whether the corporation had been provided with a
    reasonable time for repayment and in finding that the obligation under the
    guarantee had crystalized. The appellant also submits that the conduct of the
    respondent entitles him to an equitable discharge from his obligations.

[2]

For the reasons that follow, we see no error in the motion judges
    interpretation of the guarantee and dismiss the appeal.

A.

Background

[3]

The appellant is a director, the Chief Executive Officer and a majority shareholder
    of the corporation. In 2012, the respondent began providing loans and credit
    facilities to the corporation. The appellant signed a personal guarantee of all
    of the corporations obligations to the respondent. In 2013, the parties signed
    a second loan agreement which superseded and incorporated the earlier
    agreement. Under this agreement, the credit limit on the corporations line of
    credit was linked to its accounts receivable up to a limit of $800,000. The
    corporation was also to maintain a tangible net worth of $1,250,000 at all
    times and to provide the respondent with certain financial information on a
    regular basis.

[4]

The loan agreement was subject to a facility letter which provided that
    the line of credit would be repayable on demand and that the respondent could
    accelerate the payment of the loan upon the occurrence of any event of default.
    Events of default were defined in the Standard Terms and Conditions to
    include the nonpayment of the outstanding principal and the breach of any term
    or condition in the 2013 loan agreement where the breach was left unremedied
    for 5 business days.

[5]

The appellant guaranteed the 2013 loan agreement.  At para. 29 of his
    reasons, the motion judge stated that the guarantee included the following
    terms:

a.

Section 1
: The Guarantor unconditionally and irrevocably
    guarantees payment of all debts and liabilities, present or future of [the
    corporation] to [the respondent].

b.

Sections 2 and 4
: The Guarantors liability under the
    Guarantee is unlimited and continuing.

c.

Section 6
: Payment shall be made by the Guarantor upon
    receipt of a written demand from [the respondent].

d.

Section 11
: [The respondent] is not required to exhaust
    its recourse against [the corporation] or under any security before being
    entitled to demand payment from the Guarantor.

[6]

In April 2014, the respondent issued a notice advising that the
    corporation was overdrawn on its line of credit and had been in breach of the tangible
    net worth requirement since January 2014. The respondent had issued an initial
    caution to the corporation in February 2014. The line of credit remained
    overdrawn into July
[1]
and the corporation continued to fail to meet its tangible net worth
    requirement. The respondent alleged that the corporation also failed to provide
    certain financial information for August and September 2014, diverted its
    receivables, and failed to deposit a loan received from the Business
    Development Bank of Canada. The respondent took the position that these acts
    constituted breaches of the loan agreement. The corporation denied that it had
    diverted its receivables as defined in the agreement.

[7]

On September 23, 2014, the respondent told the appellant that all sums
    deposited would be used to pay down the line of credit. The corporations
    account was transferred to the respondent banks Financial Restructuring Group
    on October 6. On October 14,
[2]
the respondent confirmed that all money deposited on the operating line would
    be frozen in order to pay down the account. On October 27, the respondent sent
    a written caution to the corporation. After several more letters, on November
    13, 2014, the respondent issued a formal demand for immediate repayment and a
    notice to enforce the general security agreement. At the same time, the
    respondent demanded immediate repayment of the same amount from the appellant
    as guarantor. The demand letter stated as follows:

The [respondent] hereby demands payment forthwith by the Debtor
    of all indebtedness and liability owing by the Debtor to the [respondent]. The
    [respondent] also demands such payment pursuant to the general security
    agreement and other security held by the [respondent].



the Debtor has ten (10) days from the date of this letter to
    permanently repay the indebtedness.

[8]

The corporation filed a notice of intention to make a proposal in
    bankruptcy. The respondent moved for summary judgment against the appellant
    guarantor.

[9]

Relying on his interpretation of the guarantee, the motion judge
    rejected the appellants submissions that the corporation had to be in default
    of payment under s. 6 of the loan agreement as a precondition to the demand for
    payment on the guarantee. The motion judge found that the corporation was in
    breach of the loan agreement by (i) being overdrawn on its line of credit; (ii)
    being in breach of the tangible net worth requirement; and (iii) not providing
    its accounts receivable listings.

[10]

He found that there was evidence that the corporation, despite several
    warnings, continued to be in default and that [a]ll these defaults crystalized
    [the respondent]s right to demand payment (at para. 66). The motion judge
    also rejected the appellants submission that the actions of the respondent
    interfered with his rights of subrogation to and indemnification from the corporation
    and that he was thus entitled to an equitable discharge.

B.

Analysis

[11]

In his factum, the appellant argued that the motion judge erred: (i) in failing
    to find that the respondent had not met the preconditions to making a demand on
    the guarantee; and (ii) in finding no grounds for an equitable discharge. We
    will address those submissions but first address the primary submission made by
    the appellant at the oral hearing of the appeal.

[12]

In oral argument, the appellant submitted that the November 13, 2014
    demand letter was invalid because it did not include: (i) a reference to the
    debtors entitlement to be afforded a reasonable time to pay; and (ii) a
    statement as to the precise amount of time that entailed.

[13]

We reject this submission.

[14]

The jurisprudence since
R.E. Lister Limited v. Dunlop Canada
,
    [1982] 1 S.C.R. 726, confirms that a debtor is entitled to a reasonable time to
    pay. That determination is fact-specific and dependent upon the conduct of the
    parties, before and after the demand. It would not be possible, or indeed
    workable, for the creditor to arbitrarily establish that timeframe for the
    debtor.

[15]

On the facts of this case, the corporation was afforded a reasonable
    time to pay following the issuance of the demands. The motion judge found that
    after issuing the demand letter, the respondent took no steps to enforce the
    demand for many months.

[16]

We turn now to a consideration of the appellants submissions, as contained
    in his factum and advanced at the oral hearing of the appeal.

Issue #1  Did the motion judge err in failing to find that the
    respondent had not met the preconditions to making a demand on the guarantee?

[17]

The appellant made a number of related arguments on
    this ground of appeal.  He argued that the corporation had to be given a
    reasonable time to repay before the respondent could make a demand against the
    guarantor. He also contended that a demand for payment pursuant to the
    guarantee was only available if the corporation had failed to make a payment
    and thereby committed an act of default in relation to a monetary term.

[18]

In making these arguments, the appellant relied
    on s. 6 of the guarantee which reads as follows:

The Guarantor shall make payment to the Bank under this
    Guarantee immediately upon receipt of a written demand for payment from the
    Bank. If any Obligation is not paid by the Customer when due, the Bank may
    treat all Obligations as due and payable by the Customer and may demand
    immediate payment under this Guarantee of all or some of the Obligations
    whether such other Obligations would otherwise be due and payable by the
    Customer at such time or whether or not any demands, steps, or proceedings have
    been made or taken by the Bank against the Customer or any other person
    respecting all or any of the Obligations.

[19]

The appellant attaches significance to the words not paid and due and
    payable in s. 6 and argues that a demand for payment under the guarantee could
    only be made if the corporation defaulted on a monetary term of the loan
    agreement. Breaches of the other requirements contained in the loan agreement,
    according to the appellant, do not trigger the respondents right to demand
    payment from the guarantor (as opposed to the corporation).

[20]

The short answer to this submission is a factual one:  on the findings
    of the motion judge, the corporation repeatedly failed to meet its financial
    obligations under the loan agreement and, therefore, had defaulted on its
    monetary terms. The corporation had failed to stay within its borrowing limits,
    was repeatedly in excess of its line of credit limit, and was overdrawn every
    month between January and November of 2014, except for March and April.

[21]

More fundamentally, however, this submission must fail because it amounts
    to an assertion that the motion judge erred in his interpretation of the
    guarantee. We do not agree.

[22]

The interpretation of the guarantee is a question of mixed fact and law,
    entitled to deference on appeal. The motion judges interpretation is,
    therefore, entitled to deference in accordance with
Sattva Capital Corp. v.
    Creston Moly Corp.
,
2014 SCC 53, [2014] 2 S.C.R. 633, at paras.
    46-53. We accept the respondents contention that there is no evidence on the
    record that the guarantee is a standard form contract.  Therefore, it does not
    attract a correctness standard of review. We note that this accords with the
    motion judges approach in considering the surrounding circumstances and
    factual matrix when interpreting the guarantee.

[23]

At para. 63 of his reasons, the motion judge found the language of the
    guarantee to be clear and unambiguous.  He said that ss. 1 and 2 bind the
    guarantor to pay the unlimited liability of the corporation and s. 11 did not
    require the respondent to exhaust its recourse against the corporation, or any
    other security held by the bank in respect of the corporations indebtedness,
    before being entitled to make a demand under the guarantee.

[24]

While the motion judge did not expressly advert to s. 6 in his analysis,
    it is clear that he was aware of it because he referred to its terms in the
    background section of his reasons and he acknowledged the appellants reliance
    on s. 6 when he set out the parties positions on the issue.  Further and in
    any event, in our view, the appellants proposed interpretation of s. 6 appears
    to be inconsistent with the first sentence of s. 6, which states that [t]he
    Guarantor shall make payment to the Bank under this Guarantee immediately upon
    receipt of a written demand for payment from the Bank. More significantly, it
    cannot stand in light of the motion judges interpretation of the balance of
    the guarantee. It is trite law that the provisions of the document must be read
    in a manner which gives meaning to all of its provisions.

[25]

Accordingly, we see no basis on which to interfere with the motion
    judges interpretation of the guarantee.

Issue #2  Did the motion judge err in finding that there were
    no grounds for an equitable discharge?

[26]

In the alternative, the appellant submits that the respondents conduct
    entitles him to a discharge. He acknowledges that the motion judge correctly
    set out the test in
Bank of Montreal v. Wilder
, [1986] 2 S.C.R. 551, but
    maintains that the motion judge failed to apply the test and, instead,
    addressed the issue of an alleged breach of the common law implied duty of good
    faith.

[27]

As the appellant acknowledges, the motion judge set out the correct
    legal principles on which to decide this issue. However, we do not agree that
    the motion judge failed to apply those principles. To obtain a discharge from
    the guarantee, the appellant had to establish that the respondent banks demand
    somehow caused the corporations default. It is clear on the findings of the
    motion judge that he did not accept that had occurred. On his findings, the
    bank played no role in the corporations excessive borrowings, its breach of
    the tangible net worth requirement, its refusal to submit its accounts
    receivable reports, and its continuing failures to cure its defaults despite
    the banks warnings.

[28]

These findings were open to the motion judge  indeed, they were
    virtually inescapable on the record.

[29]

It is within that context that we consider the motion judges statement that,
    at all times, the respondent acted in good faith with respect to the
    corporation and the appellant, as guarantor.

[30]

In our view, the motion judge was not going off on a tangent in making
    these findings.  On a reading of the reasons as a whole, the motion judge determined
    that the appellant was not entitled to a discharge because the appellant had
    failed to meet his onus of establishing that the actions of the respondent had
    caused the default of the debtor.  His comments about the respondent having
    acted in good faith must be understood in the context of the arguments advanced
    before him, as well as the legal principles that he articulated.

[31]

We see no basis on which to interfere with the motion judges
    determination that the appellant had failed to meet the
Wilder

requirements.

C.

Disposition

[32]

For these reasons, the appeal is dismissed, with costs
    payable to the respondent in the amount of $26,455.05 inclusive of
    disbursements and HST.

Released: December 23, 2016 (E.E.G.)

Eileen
    E. Gillese J.A.

M.L.
    Benotto J.A.

L.B.
    Roberts J.A.





[1]

Although amended accounts receivable received by the
    respondent in June 2014 cured the March and April 2014 overdrafts.



[2]
The motion judge referred to October 6, 2014. Nothing turns on this error.


