



COURT OF APPEAL FOR ONTARIO

CITATION: Royal Bank of Canada v. Ultimate Holographic
    Reproductions Inc., 2014 ONCA 38

DATE: 20140117

DOCKET: C56917

Rosenberg, MacPherson and LaForme JJ.A.

BETWEEN

Royal Bank of Canada

Plaintiff (Respondent)

and

Ultimate Holographic Reproductions Inc.,
Salvatore C. Vivona
and Leonhard Schuko

Defendants (Appellant)

Alfred S. Schorr, for the appellant

Nicole Brown Dunbar, for the respondent

Heard: January 8, 2014

On appeal from the judgment of Justice Alan C. R. Whitten
    of the Superior Court of Justice, dated March 27, 2013.

ENDORSEMENT

[1]

The appellant argues that the motion judge erred in granting summary
    judgment because the respondent did not comply with the terms of the
    Regulations to the
Canada Small Business Financing Act
, S.C. 1998, c.
    36. Section 14(1) of the Regulations provides as follows:

A lender must, when making a loan referred to in
    any of paragraphs 5(1)(
a
) to (
c
), take valid and enforceable first-ranking security in the assets of
    the small business whose purchase or improvement is to be financed by the loan.

[2]

Due to an error by the respondent it did not have
    first-ranking security in the assets of the small business. The appellant
    argues that because the lender did not comply with s. 14(1), its guarantee was
    not valid. He also argues that article (3) of the guarantee violated the terms
    of the Act and regulations. Article 3 provides that the Bank was not bound to
    exhaust its recourse against the customer or others before being entitled to
    payment from the guarantors.

[3]

In granting summary judgment, the motion judge held
    that the statute and regulations only determine the extent of the risk to the
    lender and not the contractual relationship between the parties. This holding
    is consistent with other decisions of the Superior Court of Justice. For
    example, in
ACFMD 2005 Inc. et al. v. Pizza One Group Inc. et al
., 2006 CanLII 19426, Ground J. held at para. 4, that any breach of the
    regulations would only affect the claim by the bank against the government for
    reimbursement. Further, the Act does not give any right of action to the borrower
    or the guarantors.

[4]

In this case, we need not decide that the Act and
    regulations give no remedy to the borrower or guarantors or that breach of the
    Act and regulations would have no effect on the validity of the guarantee. We
    are satisfied that the failure of the bank to obtain first-ranking security in
    the circumstances of this case does not invalidate the guarantee nor provide
    the appellant with any remedy. The appellant adduced no evidence on the motion
    for summary judgment that he was in any way misled by the respondent when he
    entered into the guarantee. The respondent was therefore entitled to enforce
    the guarantee in accordance with its terms.

[5]

We are also satisfied that article 3 of the
    guarantee did not violate the Act or regulations. The article is not
    inconsistent with anything in the Act or regulations. In particular, the
    guarantee is not inconsistent with s. 37 of the Regulations which simply
    requires the lender to realize on any security, guarantee or suretyship before
    submitting a claim to the Minister under s. 38. The demand made by the
    respondent in this case is consistent with the Regulations.

[6]

Accordingly, the appeal is dismissed. The
    respondent is entitled to its costs which we fix at $8,000 inclusive of HST and
    disbursements.

M.
    Rosenberg J.A.

J. C.
    MacPherson J.A.

H. S.
    LaForme J.A.


