



COURT OF APPEAL FOR ONTARIO

CITATION: Intercap Equity Inc. v. Bellman,
    2022 ONCA 61

DATE: 20220126

DOCKET: C69247

Doherty, Tulloch
    and Thorburn JJ.
A.

BETWEEN

Intercap Equity Inc.

Plaintiff/Moving Party (Respondent)

and

Michael
    J. Bellman, Kenneth D.F. MacNeil

and Capsule Media Inc.

Defendants/Responding Parties (
Appellants
)

J. Thomas Curry and
Derek Knoke,
for the appellants

Jeffrey Larry and Daniel Rosenbluth,
    for the respondent

Heard: January 7, 2022 by video conference

On appeal from the order of Justice Frederick
    L. Myers of the Superior Court of Justice, dated March 1, 2021, with reasons
    reported at 2021 ONSC 1510.

Thorburn J.A.:

BACKGROUND

[1]

Michael J. Bellman (Bellman) and Kenneth D.F.
    Mac Neil (Mac Neil) appeal the motion judges order granting the respondent
    Intercap summary judgment against them (the appellants) pursuant to a
    guarantee.

[2]

On the motion for summary judgment, Intercap
    sought to enforce a debt and a guarantee signed by Bellman and Mac Neil as principals
    of the corporate debtor, Capsule Media Inc. (Capsule). Capsule conceded
    liability for the debt. Bellman and Mac Neil did not.

[3]

The central questions on the motion were (i) whether
    the guarantee was a continuing guarantee and (ii) whether the debt under the
    most recent loan agreement was connected with the debt under the earlier loan
    agreement, such that the appellants were responsible to repay the loan.

[4]

The motion judge held that this was a continuing
    guarantee which applied to the most recent loan agreement. He concluded that
    the guarantee expressly contemplates that the termination of the initial loan
    agreement will not release the guarantors . under a subsequent [loan]
    agreement where the subsequent loan agreement is in connection with and arises
    from a prior loan agreement.

[5]

The motion judge formed his decision on the
    basis of the documentary record alone and held that the parties subjective
    views were inadmissible. He noted however that, had he considered evidence of
    the subjective views of the parties, he would have found it incredible that the
    debt obligation would no longer be subject to the guarantee by Bellman and Mac Neil.

[6]

The central issue to be determined on this
    appeal is whether the motion judge erred in his analysis and conclusion that
    the guarantee applied to the most recent loan agreement between the parties,
    namely the Second Amended and Restated Loan Agreement (This Loan) such that
    the appellants are liable to repay the funds guaranteed.

[7]

Before addressing the issues raised by the
    appellants, I will set out the history of the loan agreements and guarantees, and
    the terms in those agreements that are significant for the purposes of this
    appeal.

THE LOAN AGREEMENTS AND GUARANTEES

[8]

The parties are sophisticated businesspeople who
    negotiated the terms of their agreements and did not rely on standard form
    contracts.

[9]

Intercap is a merchant bank that invests in
    private and public companies. Capsule is an Ontario corporation in the business
    of cloud-based media management, owned by Mac Neils holding company and
    Bellmans spouse. Bellman is a former corporate lawyer with experience in
    private lending who has been involved in many loans.

The First Loan Agreement and Guarantee

[10]

On April 5, 2018, Intercap and Capsule entered
    into a loan agreement (the First Loan Agreement), whereby Intercap agreed to lend
    Capsule $250,000. The purpose of the loan was to repay funds to a prior lender and
    to provide general working capital. The loan agreement included a right to
    convert the loan into common shares of Capsule based on a conversion price
    formula set out in the loan agreement. The maturity date of the agreement was
    October 5, 2018.

[11]

On April 5, 2018, Bellman and Mac Neil provided Intercap
    with a joint and several personal guarantee of the initial $250,000 loan
    agreement (the First Guarantee). Paragraph 14 of the guarantee provides that
    Intercap may vary the terms and conditions of the loan without the guarantors
    consent provided the principal amount of the loan is not increased.

[12]

While the First Guarantee granted security over all
    of Bellman and Mac Neil's personal property, Intercap agreed that it would
    not register notice of its security interests over the appellants personal
    assets under the
Personal Property Security Act,
R.S.O. 1990, c. P.10
    (PPSA), unless Bellman and Mac Neil defaulted under the loan. Bellman
    acknowledged that he did not want a PPSA notice filed because registration could
    adversely affect his creditworthiness.

The Second Loan Agreement and Guarantee

[13]

In August of 2018, it became clear that Capsule
    would not be able to repay the loan by the maturity date of October 5, 2018 and
    that it required further funds. As such, on August 27, 2018, Intercap and Capsule
    entered into an Amended and Restated Loan Agreement (the Second Loan
    Agreement) to increase the loan amount from $250,000 to $450,000 and extend
    the maturity date from October 5, 2018 to November 6, 2018. The Second Loan
    Agreement also included a novation clause, but all other terms remained
    substantially the same.

[14]

Because the original guarantee required consent
    to increase the amount of the loan, the parties also entered into an Amended
    and Restated Personal Guarantee (the Second Guarantee) on August 27, 2018.

[15]

The Second Guarantee provides that:

Para. 1:
Guarantee
. The guarantee is
    of all present and future debts, liabilities and obligations of the Borrower
arising
    out of an Amended and Restated Loan Agreement as of August 27, 2018

and
    any ultimate unpaid balance thereof
.

Para. 2:
Liability Absolute
. The guarantee
    is unconditional and absolute irrespective of  any amendment, waiver or other
    modification of any obligations of the Borrower or any rights of the Lender
    under any Agreements, including, without limitation, any increase in the principal
    amount thereof[.]
This shall be a continuing Guarantee and shall cover all
    liabilities of the Borrower to the Lender
under the Amended and Restated
    Loan Agreement
and all such liabilities incurred before or after the date
    hereof in connection with
the Amended and Restated Loan Agreement and shall
    apply to and secure any ultimate balance due or remaining due to the Lender
    thereunder and shall be binding as a continuing security on the Guarantor.

Para. 12:
Continuing Nature
. 
This
    agreement shall continue and apply to any ultimate unpaid balance of the
    Guaranteed Obligations
and shall be reinstated if at any time payment of
    any of the Guaranteed Obligations is rescinded or must otherwise be returned by
    the Lender upon the insolvency, bankruptcy or reorganization of the Borrower or
    for any other reason whatsoever, all as though such payment had not been made.

Para. 14:
Dealings by the Lender
. The
    Lender, may from time to time (i)
renew, terminate and otherwise vary any of
    the terms and conditions of any loans;
all as the Lender may see fit,
    without prejudice to or in any way limiting or lessening the liability of the Guarantors
    under this agreement and without obtaining the consent of or giving notice to
    the Guarantors. The Lender covenants and agrees that it will not increase the
    principal amount of the Loan without the prior written consent of both
    Guarantors.

Para. 19:
Entire Agreement
. No
    alteration or waiver of this guarantee or of any of its terms, provisions or
    conditions shall be binding on the Lender unless made in writing by the
    President or Chief Financial Officer of the Lender. [Emphasis added.]

The Amending Agreement

[16]

The funds were not repaid by November 6, 2018.

[17]

Instead, on November 6, 2018, the parties entered
    into yet another Agreement (the Amending Agreement), amending the terms of
    the Second Loan Agreement to extend the maturity date to March 16, 2019 and add
    $20,000 to the loan to reimburse Intercap for legal fees.

[18]

The Amending Agreement also amended the terms of
    the Guarantee to remove the provision in the Second Loan Agreement that prohibited
    Intercap from registering a PPSA notice against Bellman and Mac Neil until
    there was a default or event of default.

[19]

The Amendment provides that the Second Guarantee
    shall continue in full force and effect. Bellman and Mac Neil personally
    executed the Amendment as guarantors.

[20]

On November 7, 2018, Intercap filed notices
    under the PPSA against Bellman and Mac Neil.

The Second Amended and Restated Loan Agreement (This Loan)

[21]

Because Capsule again failed to pay back any of the
    $450,000 loan by March 16, 2019, Intercap and Capsule entered into a Second
    Amended and Restated Loan Agreement (This Loan) on July 15, 2019. The
    repayment option of conversion to shares provides a different conversion formula
    than the one used in the First Loan Agreement. This Loan also extended the
    maturity date to March 31, 2020.

[22]

No further funds were advanced pursuant to This
    Loan.

[23]

The recital to This Loan provides as follows:
    And whereas the Lender and the Borrower wish to amend and restate the [Second]
    Loan Agreement by [This] Loan.

[24]

This Loan provides that:

1.01
Novation.
The First Amended and
    Restated Loan Agreement is hereby terminated  and replaced with the terms of
    this Agreement.

3.01
Establishment of Loan
. [T]he Lender
    hereby establishes in favour of the Borrower a non-revolving term loan (the
    Loan) in the amount of $450,000.00, of which $250,000 was advanced on April 5,
    2018 and $200,000 was advanced on August 27, 2018. No new money was advanced.

3.04
Use of Proceeds
. The Borrower
    used the proceeds of the Loan to repay funds owing to Clearflow Commercial
    Finance and for general working capital purposes. (meaning Capsule had spent
    the money);

3.05
Current Outstanding Loan Balance
. As
    of the date hereof, the total amount outstanding under the Loan is $518,966.93,
    being comprised of $450,000 in principal, $44,671.93 in accrued but unpaid
    interest, and $24,295 in legal and other fees (inclusive of HST).

11.07
Entire Agreement
.

This Agreement
    and the agreements referred to herein and delivered pursuant hereto constitute
    the entire agreement between the parties hereto and supersede any prior
    agreements, undertakings, declarations, representations and understandings,
    both written and verbal, in respect of the subject matter hereof.

[25]

Intercap claims there was no need to enter into
    a new guarantee when This Loan was executed, because the amount of the loan was
    not increased.

THE PARTIES POSITIONS ON THIS APPEAL

The Appellants Position

[26]

The appellants claim that the motion judge made
    the following errors in arriving at the conclusion that the Second Guarantee is
    a continuing guarantee that bound the appellants:

a.

The motion judge failed to address the hallmarks
    of continuing guarantees, he erred in finding that the debt under This Loan was
    connected to the debt under the Second Loan Agreement, and he failed to read
    the Second Guarantee in accordance with the proper principles of contract
    interpretation; and

b.

The motion judge failed to appreciate that the terms
    of the Second Guarantee were ambiguous, he failed to appreciate the effect of
    ambiguity on the law of personal guarantees, and he misconstrued the extrinsic
    evidence.

[27]

The appellants contend that, absent these errors,
    the motion judge would have concluded that there was no continuing guarantee
    that bound the appellants.

[28]

The appellants submit that the novation clause
    and the entire agreement clause demonstrate that This Loan is a new agreement,
    and because the Second Guarantee was not a continuing guarantee, the
    requirement to guarantee the amounts paid to Capsule in the Second Loan
    Agreement was terminated.

[29]

The appellants claim these are all issues of law
    subject to the correctness standard of review, save for the appellants allegation
    that the motion judge misconstrued or failed to consider extrinsic evidence to
    resolve ambiguity in the Second Guarantee. This, they claim, is a question of mixed
    fact and law subject to the deferential standard of palpable and overriding
    error.

The Respondents Position

[30]

The respondent submits that the appeal involves
    the interpretation of a negotiated contract, for which the standard of review is
    deferential.

[31]

The respondent further submits that, since the
    indebtedness evidenced in This Loan was incurred in connection with and ar[ose]
    out of the Second Loan Agreement, the Second Guarantee applies to that
    indebtedness as a continuing guarantee. The respondent submits that the
    novation and entire agreement clauses in This Loan are not relevant, as paragraph
    14 of the Second Guarantee expressly permits Intercap to renew, terminate and
    otherwise vary any of the terms and conditions of any loans  all as the Lender
    may see fit, without prejudice to or in any way limiting or lessening the
    liability of the Guarantors under this agreement and without consent of or
    giving notice to the Guarantors, on condition that the principal amount of the
    loan does not increase. This Loan did not increase the principal amount of the
    loan.

[32]

As such, the respondents say the Second Guarantee
    continues to apply and the appellants remain responsible for repayment of the
    loan.

[33]

The respondent further submits that the motion
    judge did not err in applying the principles of contractual interpretation, in
    excluding evidence of the parties subjective interpretations of the
    agreements, and in finding that even if the extrinsic evidence was admissible,
    he would have rejected it.

[34]

The respondent submits that even if the terms of
    the Second Guarantee were ambiguous, the extrinsic evidence does not assist the
    appellants as there is no reason why Intercap would have agreed to give up its
    right to indemnification from the appellants under the Second Guarantee, as
    none of the monies had been repaid at the time This Loan was executed.

ANALYSIS OF THE ISSUES AND CONCLUSION

The Appropriate Standard of Review

[35]

The central issues to be determined on this
    appeal are whether the motion judge erred in holding that the Second Guarantee
    is a continuing guarantee and whether the debt under This Loan is connected
    with the debt under the Second Loan Agreement. Analysis of these issues
    involves the interpretation of the contractual terms in negotiated agreements,
    the Second Guarantee and This Loan.

[36]

Contractual interpretation is a question of
    mixed fact and law and subject to a deferential standard of review, absent
    extricable questions of law such as the application of an incorrect principle,
    the failure to consider a required element of a legal test, or the failure to
    consider a relevant factor:
Sattva Capital Corp. v. Creston Moly Corp.,
2014
    SCC 53, [2014] 2 S.C.R. 633, at para. 53, citing
King v. Operating
    Engineers Training Institute of Manitoba Inc.,
2011 MBCA 80, 280 Man. R.
    (2d) 63
,
at para. 21. As noted by the Supreme Court in
Sattva
,
    at para. 55, [T]he goal of contractual interpretation, to ascertain the
    objective intentions of the parties, is inherently fact specific. The close
    relationship between the selection and application of principles of contractual
    interpretation and the construction ultimately given to the instrument means
    that the circumstances in which a question of law can be extricated from the
    interpretation process will be rare.

[37]

In this case, there are no extricable questions
    of law. The questions on this appeal involve the interpretation of provisions
    of negotiated agreements. As such, the standard of review is the deferential
    standard of palpable and overriding error:
Sattva
, at paras. 52-55;
Heritage
    Capital Corp. v. Equitable Trust Co.
,

2016 SCC 19, [2016] 1
    S.C.R. 306
,
at paras. 21-24.

The First Issue: The Hallmarks of
    Continuing Guarantees, Connection of Liabilities Under This Loan, and
    Principles of Contract Interpretation

A.

The Importance of
    Hallmarks

[38]

The appellants claim the motion judge failed to
    consider that continuing guarantees have the following hallmarks:

a.

Future advances are covered by continuing guarantees
    even after existing obligations have been satisfied and the consent of
    guarantors to enable a lender to provide future advances is not generally
    required: Kevin McGuinness,
The Law of Guarantee,
3rd ed. (Markham, Ontario:
    LexisNexis Canada Inc., 2013), at para. 15.44; see also
Royal Bank of
    Canada v. Samson Management & Solutions Ltd.,
2013 ONCA 313, 115 O.R.
    (3d) 380, at paras. 24-32, leave to appeal refused, [2013] S.C.C.A. No. 301;
Royal Bank v. Poisson
(1977), 26 O.R. (2d) 717 (H.C.), at pp. 718-719; and
Granata Family Trust (Trustee of) v. Royal Bank
, [2000] O.J. No. 4239 (Ont.
    S.C.), at paras. 12-16;

b.

The time for a continuing guarantee is usually
    indefinite, in which case the guarantor has a right to provide notice of cancellation
    for future liability which freezes the liability at the amount outstanding at
    the end of the notice period: McGuinness, at paras. 15.57, 15.62; and

c.

Continuing guarantees do not contain a reference
    to a specific loan agreement and cover future debts without qualification: see
Samson,
at para. 24;
Poisson,
at pp. 718-719;
Granata,
at paras.
    12-16.

[39]

The appellants submit that the Second Guarantee
    lacks these hallmarks as:

a.

Intercap agreed not to increase the principal
    amount of the Loan without the prior written consent of both Guarantors (para.
    14);

b.

The Second Guarantee does not have a mechanism
    to terminate liability for future advances; and

c.

The Second Guarantee refers to the Second Loan Agreement.

[40]

Therefore, the appellants submit that the Second
    Guarantee is not a continuing guarantee. I disagree.

[41]

There are no hard and fast rules to determine
    whether a guarantee is a continuing guarantee: McGuinness, at para. 15.55.

[42]

Moreover, to support their submission that a hallmark
    of a continuing guarantee is that it does not reference a specific loan
    agreement, the appellants rely on authorities that feature continuing all accounts
    guarantees. An all accounts guarantee extends to all debts owing or that may
    become owing to the creditor, whereas a continuing guarantee covers a series of
    transactions: McGuinness, at paras. 7.5, 15.43-15.44. While most continuing
    guarantees are also all accounts guarantees, this is not necessarily always the
    case: McGuinness, at para. 15.40.

[43]

In this case, the Second Guarantee specifically
    provides that it is a continuing guarantee that applies to the specific liabilities
    under the Second Loan Agreement and all liabilities incurred in connection
    with the Second Loan Agreement. However, the fact that it applies to specific
    liabilities does not mean that it is not a continuing guarantee.

[44]

In any event, while hallmarks may be of some assistance,
    what is most important is to look at the language of the agreements, giving the
    words their ordinary and grammatical meaning, consistent with the surrounding
    circumstances known to the parties at the time of contract formation:
Sattva,
at para. 47.

[45]

This is precisely what the motion judge did.

B.

Interpreting The
    Provisions in The Agreements

(i)

The Motion Judges Interpretation of the
    Provisions

[46]

The motion judge carefully reviewed the terms of
    the Second Guarantee and This Loan.

[47]

The motion judge rejected the appellants
    argument that the Second Guarantee was not a continuing guarantee. At paragraph
    66 of his reasons the motion judge held that:

There is nothing ambiguous about a continuing
    guarantee that is limited to future liabilities that are incurred in
    connection with a specific agreement. It means strictly what it says. If
    Intercap and Capsule do other business or if, for any reason, Capsule owes
    money to Intercap in future that is not incurred in connection with the first
    amended and restated loan agreement, then the guarantee is not engaged and the
    guarantors have no liability to pay. But
if future liabilities are incurred
    by Capsule in connection with the first amended and restated loan agreement,
    then the guarantors are liable and must pay
. [Emphasis added.]

[48]

He also rejected the appellants contention that
    any obligation to pay the debt in the Second Loan Agreement was extinguished upon
    execution of This Loan or that the liabilities set out in This Loan are not connected
    with the Second Loan Agreement.

[49]

He noted that the recital in This Loan provides
    that This Loan is amend[ing] and restat[ing] the [Second Loan Agreement] by
    [This Loan] and that, by the time This Loan was executed, the entire loan
    amount had been advanced and interest had accrued. He therefore concluded that:

It is perfectly clear that [This Loan] is
    extending, amending, and restating the same debt
as
    referred to in the [Second Loan Agreement]. There is no fresh advance. The
    advances are specified as the prior advances. Moreover, the accrued interest is
    recognized as accrued and continuing. The securities hold ran from the first
    agreement and not this agreement.

I find that the debt under [This Loan] is
    connected with the debt under the [Second Loan Agreement]. It is the very same
    advances. One does not need to go beyond the agreements to determine that
    question. [Emphasis added.]

[50]

The accrued but unpaid interest as of the day
    This Loan was executed was $44,671.93. A new loan does not have interest
    accrued on the day the loan is advanced and, in any event, there was no
    notional advance such that the monies would be considered new monies under This
    Loan.

[51]

He held that the debt under This Loan was connected
    with the debt under the Second Loan Agreement. To find that the guarantee was
    discharged, would be to ignore the continuing nature of the Second Guarantee, and
    the fact that while the Second Loan Agreement was terminated and replaced with
    This Loan, paragraph 14 of the Second Guarantee permits Intercap to terminate
    and otherwise vary the terms of any loans without prejudice to or in any way
    limiting or lessening the liability of the Guarantors under this agreement and
    without obtaining the consent of or giving notice to the Guarantors.

(ii)

Analysis and Conclusion on the Interpretation of
    the Provisions in the Second Guarantee and This Loan

[52]

I agree with the motion judges finding that the
    Second Guarantee is a continuing guarantee covering liabilities arising in
    connection with the Second Loan Agreement. I also agree with his finding that
    the liabilities under This Loan arose in connection with the liabilities under
    the Second Loan Agreement.

[53]

The Second Guarantee and the loan agreements
    contain entire agreement clauses such that all terms are contained in the
    written agreements. The Second Loan Agreement was terminated and replaced with
    This Loan. However, the terms of the Second Guarantee permitted Intercap to
    terminate the Second Loan Agreement, without releasing the guarantors, provided
    the liabilities under This Loan aris[e] out of and are in connection with
    the Second Loan Agreement.

[54]

Similarly, although the entire agreement clause
    in the Second Loan Agreement provides that no other loan agreements are binding
    on Capsule, a renew[al] of loan agreements is provided for at paragraph 14 of
    the Second Guarantee.

[55]

First, This Loan simply (i) restates the debt advanced
    in the Second Loan Agreement, (ii) it contains no fresh advance of funds, (iii)
    it provides that the interest accrued under the funds advanced pursuant to the
    Second Loan Agreement are payable under This Loan, and (iv) there was no
    notional advance such that the monies should be considered a new loan. This
    Loan reiterates the loan monies already advanced and interest accrued on the
    loan advanced in the Second Loan Agreement.

[56]

Second, the Second Guarantee extends beyond the
    Second Loan Agreement to all liabilities 
arising out of
the [Second
    Loan Agreement] as 
a continuing Guarantee
 covering all such
    liabilities incurred before or after the date hereof
in connection with
the [Second] Loan Agreement (emphasis added): Second Guarantee, at paras. 1
    and 2.

[57]

Third, the Second Guarantee provides that, This
    agreement
shall continue and apply to any unpaid balance of the Guaranteed
    Obligations
 (emphasis added): Second Guarantee, at para. 12.

[58]

This Court has repeatedly held that the phrase in
    connection with has a very broad meaning:
Mantini v. Smith Lyons LLP
(2003),
    64 O.R. (3d) 505 (C.A.), at para. 19, leave to appeal refused, [2003] S.C.C.A.
    No. 344;
Lawrence v. Toronto Humane Society
(2006), 271 D.L.R. (4th)
    329 (Ont. C.A.), at para. 84. The term connection means there is some
    relationship between two things or activities  that they have something to do
    with each other:
Lawrence,
at para. 85, citing
Kitchener-Waterloo
    Real Estate Board Inc. v. Ontario Regional Assessment Commissioner, Region No.
    21
(1986), 56 O.R. (2d) 94 (H.C.).


[59]

Because:

a.

The $450,000 loan advanced pursuant to the
    Second Loan Agreement remained unpaid when This Loan was executed;

b.

No new funds were advanced under This Loan;

c.

Interest on the principal under This Loan had already
    begun accruing before the day that This Loan was executed; and

d.

There was no notional advance such that the
    monies were considered a new loan;

the condition in the Second Guarantee
    that the debt obligation aris[es] out of and is in connection with the
    Second Loan Agreement is met, and the guarantors obligations are not extinguished.

[60]

The appellants point to the fact that a new guarantee
    was entered into when the Loan amount was increased from $250,000 to $450,000.
    This, they say, supports their argument that a new guarantee must be executed
    and that any obligations under the prior loan agreement are extinguished.

[61]

I do not agree. The Second Guarantee was
    executed because the principal amount of the loan was increased from $250,000
    to $450,000. The First Guarantee specifically required that consent must be
    obtained from the borrowers before increasing the principal amount of the loan
    and as such, a Second Guarantee had to be executed.

[62]

When This Loan was executed, by contrast, the
    principal amount of the loan was not increased and there was therefore no need
    to enter into a new guarantee.

[63]

Moreover, as noted by the motion judge, this
    case is distinguishable from
Dhawan v. Shails et al.
, 2018 ONSC 7116
    (Div. Ct.), cited by the appellants. In
Dhawan
, the language of the
    guarantee was ambiguous because of internal inconsistency. The same clause
    limited the scope to obligations arising under or in connection with a
    specific promissory note and also provided that this shall be a continuing
    guarantee and shall cover all of the obligations now or hereafter existing and
    shall apply to and secure any ultimate balance due or remaining due to the
    Lender.

[64]

In this case, by contrast, the Second Guarantee
    clearly contemplates that liability will continue even if the Second Loan
    Agreement is terminated provided liability is in connection with the Second
    Loan Agreement and the principal amount of the loan is not increased, which for
    the reasons set out above, I find it was. The terms of the Second Guarantee are
    unambiguous.

[65]

In sum, a review of This Loan and the Second Guarantee
    as a whole, giving the words their ordinary and grammatical reading, consistent
    with the objectives of the parties, leads to the conclusion that this is a
    continuing guarantee and that the liabilities under This Loan are connected to
    the liabilities under the Second Loan Agreement. The motion judge did not err
    in his application of the principles of contractual interpretation.

[66]

Thus, although the Second Loan Agreement was
    terminated and replaced with This Loan, the Second Guarantee enables Intercap to
    recover all such liabilities incurred before or after execution of the Second
    Guarantee in connection with the Second Loan Agreement, to secure any
    ultimate balance remaining.

The Second Issue: Ambiguity and the Motion
    Judges Use of Extrinsic Evidence

[67]

In the alternative, the appellants claim the
    provisions in the Second Guarantee are ambiguous and that, (i) where
    contractual provisions are ambiguous, the courts may consider extrinsic
    evidence to determine the scope and subject matter of the guarantee and, in any
    event, (ii) any ambiguity should be construed against the party who drafted the
    agreement, that is, the lender.

[68]

As noted above, I find the wording in the Second
    Guarantee is clear and unambiguous. Moreover, This Loan and the Second
    Guarantee contain entire agreement clauses such that all terms are set out in
    the written agreements.

[69]

However, even if the wording were ambiguous and
    extrinsic evidence were to be considered, the extrinsic evidence does not
    support the appellants assertion that it, went to the objective basis for how
    the appellants believed (and how Intercap could have believed) the Second
    Guarantee was limited to the Second Loan Agreement.

[70]

The appellant Bellman provided an affidavit in
    which he states that, for the First Guarantee, he negotiated the inclusion of
    specific reference to the First Loan Agreement. He claims that the language
    that the guarantee refer to a specific loan was maintained in the Second
    Guarantee. This, he says, was to ensure that the guarantees would be specific
    to the loan agreements. I note however that, contrary to this assertion, the signed
    copy of the Second Guarantee provides that, This shall be a continuing
    Guarantee and shall cover  all such liabilities incurred before or after the
    date hereof in connection with the [Second Loan] Agreement  and any ultimate
    balance due or remaining due to the Lender thereunder.

[71]

Second, Bellman said that in April 2019, when
    Intercap proposed extending the maturity date for the loan in exchange for
    acquiring a one-third interest in Capsule, Bellman told Intercap that he and
    Mac Neil would either provide personal guarantees or one-third of the company,
    but not both. However, Bellman admitted in cross-examination that there was no
    evidence in writing of this ultimatum and that Intercap never responded to it
    other than to say that was not how they sought to proceed.

[72]

Bellman asserted that subsequently, in the weeks
    leading up to the execution of This Loan, Intercap never mentioned guarantees but
    spoke only about acquiring a one-third interest in Capsule. However, he said
    that,

I decided to include language in Section 7.02
    that following execution Intercap would discharge all PPSA registrations
    against Mac Neil and me, but that it could refile upon a default. My rationale
    was that if Intercap was waiting to demand personal guarantees, this comment
    would force its hand. Alternatively, if Intercap had accepted the Extended
    Conversion Right in lieu of personal guarantees, that this would elicit a
    response accordingly.

[73]

Intercap replied to Bellmans proposal, indicating
    that it required that the proposed language in s. 7.02 be removed, as the PPSA
    registrations against Bellman and Mac Neil personally shall continue in place
    until paid out (to minimize the risk of there being an intervening registration).
    Bellman consented to Intercaps requested changes, incorporating them into This
    Loan. Bellman asserted:

An hour or so prior to execution, Meretsky
    circulated an email  that, among other things, advised Intercap of the expiry
    dates of its PPSA registrations against Capsule, Mac Neil, and me. I did not
    give it much (if any) consideration because I considered the PPSA registration
    to be without any purpose from a legal perspective.

[74]

There was no reason for Bellman to include this
    proposed language permitting Intercap to refile the
PPSA

notices against Bellman and Mac Neil if the Second Guarantee was no
    longer in effect. If the Second Guarantee was no longer in effect, the
PPSA

notices would have been discharged as of right (and could not have
    been refiled on default) because Intercaps security interest arose from the Second
    Guarantee. Moreover, it is difficult to understand why a sophisticated
    businessperson like Bellman would consider the PPSA registration to be without
    any purpose from a legal perspective.

[75]

In any event, Intercap rejected Bellmans
    proposed language and instead chose to maintain its PPSA registrations against
    Bellman and Mac Neil, pursuant to the Amending Agreement, which amended the Second
    Guarantee. This is evidence that the Second Guarantee remained in effect.

[76]

In short, Capsule had received two prior rounds
    of funding and had not paid any of the funds on three different maturity dates.
    Moreover, as noted above, although Bellman stated that prior to executing This
    Loan, he proposed that Intercap receive either a larger interest in Capsule or
    personal guarantees, but not both, there is no written confirmation of this
    ultimatum and Bellman himself acknowledged that Intercap did not respond to it
    other than to say that was not how they sought to proceed. He also asked for the
    PPSA registrations to be withdrawn unless there was another default. On July
    15, 2019, this was refused by Intercap. In his affidavit, at para. 70, Bellman
    claims Intercap insisted on keeping its PPSA registrations although they knew
    they were of no effect.

[77]

It is not plausible that, as Capsules financial
    situation weakened, Intercap would release the guarantee without further
    negotiation. If the company failed (and it had failed to repay money on three
    earlier maturity dates), it was important to ensure that its security interests
    against the guarantors personal assets remained perfected by registration. Whether
    or not Intercap obtained one-third of Capsule upon default, there is no reason
    why it would give up the right to collect on the personal guarantees.

[78]

As such, even if the extrinsic evidence of
    Bellman were admissible, it does not support the conclusion that this was not a
    continuing guarantee.

[79]

For these reasons, notwithstanding the able
    submissions by appellants counsel, the appeal is dismissed.

[80]

Costs of this appeal to the respondent in the
    amount of $20,000 all-inclusive, as agreed.

Released: January 26, 2022 D.D.

J.A.
    Thorburn J.A.

I
    agree. Doherty J.A.

I agree. M. Tulloch J.A.


