Executive Summary: Key Legal and Evidentiary Issues

• The dispute concerns repayment of a $300,000 loan evidenced by a promissory note dated May 15, 2019, with specific terms for principal and interest.

• Defendant’s set-off defense, based on an alleged agreement to share fraudulent CERCA rent subsidy proceeds, was rejected as unenforceable due to illegality.

• Summary judgment was granted for the Plaintiff for $588,000 plus contractual and post-judgment interest, as the debt and amount owing were proven and no genuine issue for trial was found.

• On appeal, the Defendant raised a new argument regarding non-compliance with section 4 of the Interest Act, contending that the promissory note did not state an annual interest rate.

• Alberta case law allows consideration of the sophistication of the parties when applying section 4 of the Interest Act to commercial loans.

• The summary judgment was set aside only as it related to the calculation of interest after default; the principal amount of $300,000 remained owing.

Facts of the case

Mr. Hanlon, through his company 1994426 Alberta Ltd., borrowed $300,000 from Mr. Egger in May 2019. The terms of repayment were set out in a promissory note dated May 15, 2019. The principal was due by June 1, 2020, and interest payments of $12,000 per month (4% of the principal per month) were to be paid every month until April 30, 2020. A $6,000 interest payment was due May 1, 2019, reflecting the half-month of May. The principal was never repaid by the Defendant, and Mr. Egger sued for recovery.

Procedural history and summary judgment

In February 2025, Mr. Egger brought an application for summary judgment, which was granted with written reasons on March 11, 2025. The Applications Judge reviewed the affidavits of Mr. Egger (filed November 6, 2024, and January 15, 2025) and Mr. Hanlon (filed February 27, 2025). The Applications Judge found both the debt and the amount owing to be proven, found no merit to the defense, and found no genuine issue for trial. Summary judgment was granted in the amount sought by the Plaintiff, which was $588,000, plus contractual interest to the date of judgment, plus post-judgment interest pursuant to the Judgment Interest Act.

Arguments on appeal

The Defendant appealed the decision of the Applications Judge pursuant to Rule 6.14 of the Alberta Rules of Court. He repeated his position from below and raised a new issue on appeal. The Defendant’s primary argument before the Applications Judge was that there was a triable issue about the amount owing as a result of a later arrangement between Mr. Hanlon and Mr. Egger. Specifically, the Defendant argued that he and Mr. Egger had agreed to submit fraudulent documents to the government under the CERCA program to obtain rent subsidy payments, and that the proceeds should be credited against the amount owing under the 2019 promissory note. The Applications Judge rejected this argument, noting that set-off had not been properly pled and that the Court would not enforce an illegal contract. On appeal, the Defendant also argued that a trial was necessary to investigate all financial dealings and that overpaid rent or CERCA proceeds should be deemed payments toward the $300,000 principal. The Respondent denied any fraudulent agreement and argued that CERCA payments were irrelevant to the promissory note, which was owed to Mr. Egger personally, not his corporation. The evidence also showed that the CERCA application was dated August 30, 2020, after the default on the principal.

Discussion of policy terms and legal issues

The promissory note required interest payments of $6,000 on May 1, 2019, and $12,000 per month thereafter until April 30, 2020. After default, the borrower agreed to pay interest at the same rate (4% per month) on the principal and any overdue interest, both before and after judgment, until paid in full. The Defendant raised, for the first time on appeal, the argument that the promissory note did not include a statement of per annum rate of interest, and that section 4 of the Interest Act, RSC 1985, c I-15, therefore limited recoverable interest to 5% per annum. The Court noted that section 4 of the Interest Act is consumer protection legislation and discussed relevant case law, including Elcano Acceptance Ltd. v Richmond, Richmond, Stambler & Mills and Bearcat Explorations Ltd. (Bankrupt), 2004 ABQB 601. The Court found that while the pre-default interest arrangement was clear and ascertainable, the post-default interest clause did not comply with section 4, as it lacked an express statement of the yearly rate or percentage of interest. The Court also noted that the Interest Act defense was not pleaded or argued at the summary judgment stage but allowed its consideration on appeal.

Outcome and ruling

The Court concluded that there was no arguable issue regarding the $300,000 principal amount, but there was an arguable issue regarding the calculation of post-default interest due to the Interest Act argument. As a result, the summary judgment was set aside only as it related to the calculation of interest after default. The principal amount remained owing. The Appellant agreed to pay the costs thrown away as a result of the adjournment of the appeal from June 5 to 6, 2025. Otherwise, the parties were to bear their own costs. No exact total amount was determined for the final judgment due to the unresolved interest calculation.