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ROYAL BANK OF CANADA v. MAHRLE

April 2, 1993

ROYAL BANK OF CANADA, Plaintiff,
v.
DALE B. MAHRLE, Defendant.



The opinion of the court was delivered by: LORETTA A. PRESKA

 LORETTA A. PRESKA, U.S.D.J.

 This is an action on a promissory note. Defendant has moved for summary judgment and for the reasons stated below, the motion is granted.

 Background

 In 1985, defendant Dale B. Mahrle ("Mahrle"), executed a promissory note in the amount of $ 500,000 in favor of plaintiff Royal Bank of Canada ("Royal Bank") dated December 18, 1985 (the "1985 Note"). Affidavit of Dale B. Mahrle in Opposition to Plaintiff's Motion for Summary Judgment dated December 11, 1992 ("Mahrle Affidavit") P 2. In conjunction with the execution of the 1985 Note, Jilcan International, Inc. ("JII") executed a guaranty on December 19, 1985, and at the same time established a Fixed Term Deposit at Royal Bank in the amount of $ 500,000 (the "Fixed Term Deposit"). Mahrle Affidavit PP 4-6. JII assigned to Royal Bank its interest in the Fixed Term Deposit as collateral for all of JII's obligations to Royal Bank. The Fixed Term Deposit provided in pertinent part that:

 
The undersigned [JII] . . . grants to the Bank hereby a security interest in, the above collateral [$ 500,000 Royal Bank Fixed Term Deposit] for the fulfillment of all obligations, present or future, direct or indirect, absolute or contingent, matured or not, of the Customer [JII] to [Royal Bank].

 Mahrle Affidavit Exhibit C.

 These documents were executed as part of a financing package which enabled Mahrle to purchase JII (subsequently renamed Amsteel) from Joe Lewo for $ 5,422,576. Mahrle contends that Royal Bank loaned him the $ 500,000 evidenced by the 1985 Note as equity for the purchase of JII and that the 1985 Note was secured by the JII guarantee and the $ 500,000 Fixed Term Deposit. It is plaintiff's position that the Fixed Term Deposit was to be used solely as security for the 1985 Note and not as security for the general obligations of Lewo and companies owned and controlled by Lewo.

 On December 23, 1988, without notification to Mahrle, Royal Bank applied the Fixed Term Deposit to reduce the debt owed by Lewo and companies controlled by Lewo. Mahrle Affidavit P 7; Mahrle Affidavit Exhibit H.

 On June 9, 1989, Mahrle executed an Amended and Restated Promissory Note in favor of Royal Bank in the amount of $ 270,000 (the "1989 Note"). The 1989 Note provides:

 
The entire unpaid principal amount of this Note shall, at the option of the holder, immediately became due and payable without prior notice or demand, upon . .
 
1) the non-payment when due of any installment of principal or interest.

 Affidavit of Cynthia Wong ("Wong Affidavit"), Exhibit A. Mahrle maintains that he defaulted on the 1989 Note based on the expectation that "Royal Bank was fully secured and would be paid solely by the [Fixed Term] Deposit, which was to be applied only to a defaulted obligation under the 1985 and 1989 obligations." Mahrle Affidavit P 10.

 Royal Bank commenced this action against Mahrle to enforce his obligation on the 1989 Note and now moves for summary judgment. Mahrle opposes summary judgment on the ground that a material question of fact exists ...


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