Fifth Third Bank v. O'Brien

Fifth Third Bank v. O'Brien Collection Decisions of the Court of Appeal Date 2013-01-10 Neutral citation 2013 ONCA 5 Docket numbers C55094 Judges MacPherson, James C.; Cronk, Eleanore Ann; Lauwers, Peter D. Subject Civil Decision Content 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 O’Brien, 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 MPI’s 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 MPI’s 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 MPI’s loan facilities were made as between the Bank and MPI without Morton and Cinitel’s 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 judge’s 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 Bank’s 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 judge’s 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 Bank’s 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 judge’s holding that the Bank’s 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 Bank’s 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 judge’s findings regarding the commercial reasonableness of the Bank’s 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 MPI’s 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 debtor’s 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 debtor’s collateral to the [Bank’s] 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 Bank’s exposure on its credit facilities, when its loan agreements with MPI had expired and MPI’s 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 receiver’s disposition of MPI’s assets had the appellants paid MPI’s 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 MPI’s 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 MPI’s business. Nor were they unaware of the Bank’s 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 MPI’s 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, MPI’s 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 Bank’s 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.”