Court File and Parties
COURT FILE NO.: 18-75186 DATE: 2018-11-01 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: The Toronto-Dominion Bank AND Anwar Fares, Maya Bakhos and 7865210 Canada Inc.
BEFORE: Madam Justice H.J. Williams
COUNSEL: Benjamin Frydenberg, Counsel for Applicant, The Toronto-Dominion Bank Percy Ostroff, Counsel for the Respondents Anwar Fares and Maya Bakhos
HEARD: June 14, 2018
JUDGMENT
Background:
[1] Anwar Fares and Maya Bakhos are spouses. Fares is an optician who moved to Canada from Lebanon in 1991. Bakhos moved to Canada from Lebanon in 2010.
[2] Fares and Bakhos incorporated 7865210 Canada Inc. in 2011 to buy and operate a Cora’s restaurant franchise. The franchise was to be a business opportunity for Bakhos, although Fares was also active in the business. Both Fares and Bakhos were directors of the company; Fares was its president and Bakhos was its vice-president.
[3] The Toronto-Dominion Bank lent Fares, Bakhos and 7865210 the money to buy the Cora’s franchise. It gave Fares and Bakhos a personal line of credit for $272,000.00 and it gave 7862510 a small business loan under the Small Business Loans Financing Act for $331,500.00. The small business loan was for a 120-month term; its interest rate was the bank’s prime rate plus three per cent.
[4] Fares and Bakhos personally guaranteed the small business loan.
[5] Fares and Bakhos each signed identical guarantees. The guarantees they signed were two-page forms titled TD Canada Trust Small Business Banking Guarantee. Section 3 of this form dealt with the extent of the guarantor’s liability and looked like this:
- Extent of Your Liability
The extent of your liability is as indicated below. If no section is indicated, you are deemed to have indicated an unlimited guarantee.
unlimited
’ limited to $_________________________ CAD, plus interest at the rate payable by the Customer accruing from the date of demand on you, plus the costs and expenses of the Bank in enforcing this Guarantee. If you are an individual providing a personal guarantee, the extent of your liability under this Guarantee for any and all loans and advances made under the Small Business Loans Act (each such loan an “SBL”) and under the Canada Small Business Financing Act (each such loan a “CSBFA”) shall be limited to 25% of the original amount of each SBL and CSBFA. If more than one individual is providing a personal guarantee for an SBL or CSBFA, the total liability of all individuals jointly and severally shall be limited to 25% of the original amount of each SBL and CSBFA, and the liability of each individual guarantor shall be limited to the same percentage of such original amount. In addition, in the case of a CSBFA, you, and if more than one individual is providing a personal guarantee, all such individuals jointly and severally are liable for interest on any judgement against you, taxed costs for, or incidental to, legal proceedings against you, and legal fees and disbursements, other than the axed costs referred to above, and other costs incurred by the Bank for services rendered to it for the purpose of the legal proceedings against you.
[6] In 2017, Fares and Bakhos decided not to renew 7862510’s franchise agreement and TD demanded payment of the small business loan and called on Fares’ and Bakhos’s personal guarantees.
The applications:
[7] There were two applications before me: 1) Fares and Bakhos brought an application requesting a declaration that their personal guarantees are invalid and unenforceable; 2) TD brought an application requesting judgment against 7862510 under the small business loan in the amount of $196,641.72, interest of $467.63, prejudgment interest from September 28, 2017 and postjudgment interest and judgment against Fares and Bakhos under their personal guarantees in the amount of $82,875.00, prejudgment interest from October 2, 2017 and postjudgment interest.
[8] In its notice of application, TD also requested judgment on a Visa account but the parties agree that the Visa account has been paid in full.
[9] 7862510 did not respond to TD’s application.
The parties’ positions:
Fares and Bakhos
[10] Fares and Bakhos argue that the guarantees they signed are invalid and unenforceable because the “x” in a box in s. 3 of the guarantees means that the guarantees are “unlimited” when TD told them that their guarantees would be limited to 25 per cent of the amount outstanding on 7865210’s loan on the date a demand was made under the guarantee.
[11] Fares and Bakhos argue that the regulations under the Canada Small Business Financing Act (CSBFA) restrict lenders from taking guarantees of more than 25 per cent of the original balance of a small business loan and also require that personal guarantees specifically state that the total liability of multiple personal guarantors of such a loan must not exceed 25 per cent.
[12] Fares and Bakhos argue that by demanding only 25 per cent of an unlimited guarantee, TD is really trying to rectify the guarantees but that rectification is not available in the circumstances.
[13] Fares and Bakhos also argue non est factum.
TD
[14] TD argues that the “x” in the box beside the word “unlimited” is irrelevant.
[15] TD argues that the guarantees signed by Fares and Bakhos specifically state that if the guarantor is an individual providing a personal guarantee for a loan under the CSBFA, the guarantor’s liability will not exceed 25 per cent of the original loan amount.
[16] TD argues that even if the guarantees are found to be unlimited, they remain effective as guarantees. TD argues that a bank has discretion to demand payment of less than the full amount of a guarantee and, in this case, it has demanded only 25 per cent of the original loan amount.
[17] TD’s evidence was that even when a guarantee was taken for a small business loan, it was common practice for an “x” to be placed in the “unlimited” box on the face of the guarantee so that the guarantee could be relied on for later loans to the same borrower.
Analysis and conclusions:
[18] I agree with Fares and Bakhos that the guarantees they signed were “unlimited” guarantees.
[19] TD urged me not to ignore the wording in the paragraph of the guarantee that begins on the line immediately below the box with the “x” in it and the word “unlimited”, that is to say, the paragraph preceded by the empty box which begins with the words “, “limited to $__________________CAD, plus…” and ends with the words, “…proceedings against you.” (I will refer to this paragraph as the “the ‘limited’ paragraph.”)
[20] The “limited” paragraph includes the following sentence:
If you are an individual providing a personal guarantee, the extent of your liability under this Guarantee for any and all loans and advances made under the Small Business Loans Act (each such loan an “SBL”) and under the Canada Small Business Financing Act (each such loan a “CSBFA”) shall be limited to 25% of the original amount of each SBL and CSBFA.
[21] TD argued that it would make no sense to interpret this sentence as modifying only unlimited guarantees and not both limited and unlimited guarantees.
[22] I disagree. I find that it is the counter-argument of Fares and Bakhos that makes sense: In order to engage the wording in the sentence reproduced in paragraph 20 of this endorsement, the entire “limited” paragraph would need to be engaged. TD could have engaged the wording in the “limited” paragraph by placing an “x” in the box that immediately preceded the paragraph but it did not do so.
[23] The interpretation of the guarantee in this respect could have been different if the sentences beginning with the sentence in paragraph 20 of this endorsement had been separated on the page from the first sentence in the “limited” paragraph. For example, the sentence in paragraph 20 could have started a new paragraph and its first word could have begun at the far left margin of the page. White space could have appeared below the first sentence of the “limited” paragraph and between that sentence and the new paragraph. The new paragraph also could have been assigned a heading.
[24] Regardless, I find that the guarantees of Fares and Bakhos were not limited by the wording in the sentence reproduced in paragraph 20 of this endorsement.
[25] Whether the Fares and Bakhos guarantees comply with the regulations under the CSBFA, while perhaps relevant in another context, is not a finding relevant to the applications before me. This is because I accept that if a lender fails to follow the provisions of the CSBFA, this may affect the lender’s ability to collect from the federal government on a defaulted loan but does not affect the relationship between the bank and its customer: Royal Bank of Canada v. Ultimate Holographic Reproductions Inc., 2013 ONSC 138, aff’d 2014 ONCA 38.
[26] The Fares and Bakhos guarantees are not, therefore, invalidated or unenforceable on the basis that they were not, on their face, restricted to 25 per cent of the original small business loan amount in accordance with the regulations under the CSBFA.
[27] Fares and Bakhos argue that they never agreed to give unlimited guarantees. They also argue that they had understood that the guarantees they gave were not only not unlimited but were limited to only 25 per cent of the amount of the small business loan that was outstanding at the time of default and not 25 per cent of the original amount of the loan.
[28] I have not considered the evidence of Fares and Bakhos regarding what the TD’s account manager said about the extent of their personal guarantees. The parol evidence rule precludes the admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing. The rule also prohibits evidence of the subjective intentions of the parties. The purpose of the parol evidence rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a party’s ability to use fabricated or unreliable evidence to attack a written contract. (Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, 2 S.C.R. 633, at para. 59).
[29] The parol evidence rule does not apply in the event that there has been fraud or misrepresentation, but the guarantees specifically provide that “[t]here are no representations, collateral agreements, warranties, or conditions with respect to, or affecting your liability under this Guarantee other than as contained in this Guarantee.”
[30] The existence of such a so-called “no representations clause” is considered to be indicative of an intention of parties to be bound only by those terms that are included in a written agreement and to exclude liability for any pre-contractual representations. By entering into a contract with such a clause, the parties acknowledge that they cannot rely on any such representations. (Bank of Montreal v. Maple City Ford Sales (1986) Ltd., 2002 CarswellOnt 3039 at para. 122, aff’d 2004 CarswellOnt 4574.)
[31] I am not without some sympathy for Fares and Bakhos. They were presented with a stack of densely-worded banking documents five days before their purchase of the Cora’s franchise was scheduled to close. Their evidence was that they met with the account manager at the bank 15 minutes before the branch’s closing time. However, although they said that they did not have enough time to read or review the documents before they signed them, the account manager’s evidence was that he did not pressure them to sign the documents that day, that they could have asked for more time before signing the documents and that they could have taken the document home to read or to have them reviewed by a lawyer or a translator.
[32] A person is bound by an agreement they have signed whether they have read the agreement’s contents or not. Failure to read a contact before signing it is not a legally acceptable basis for refusing to accept its terms. (Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection Co. (1997), 34 O.R. (3d) 1 (Ont. C.A.))
[33] I also do not accept Fares’ and Bakhos’s non est factum defence. The defence of non est factum is available to someone who, as a result of misrepresentation, has signed a document without understanding its nature and character and who has not been careless in doing so: Marvco Colour Research Ltd. v. Harris, [1982] 2 S.C.R. 774. Fares and Bakhos understood that they were personally guaranteeing TD’s loan to 7865210; they say that they did not appreciate that their guarantees that were unlimited.
[34] I find that Fares and Bakhos understood the nature and character of the guarantees. However, even if they did not, they both admit that they did not carefully read the documents they signed at the bank on December 12, 2012 before they signed them. Fares said that they were not given enough time to properly read or review the documents and Bakhos said that she did not carefully look at them. As I stated above, the bank’s account manager said that there was no reason that Fares and Bakhos could not have asked for time to read the documents before signing them.
[35] I find that Fares and Bakhos, not having carefully read the guarantees before they signed them, cannot offload responsibility for their decision to sign them to TD.
[36] I make this finding despite Bakhos’s argument that she was not fluent in English in 2012 when she signed the bank’s documents. Bakhos’s first language is Arabic. She did, however, study business at an American university from 1990 to 1994 at which courses were taught in Arabic and English and course materials were in English. The evidence of TD’s account manager was that he had no reason to believe that she had any issues with comprehension or ability to speak in English. If Bakhos truly did not understand what she was signing, she could have asked questions or she could have requested more time to review the document or to discuss them with Fares or a translator and it would have been careless of her not to have taken any of these steps.
[37] For these reasons, the defence of non est factum fails.
Conclusion:
[38] For the above reasons, TD shall have judgment in accordance with paragraph 1(a), 1(c), 1(e) and 1(h) of its January 17, 2018 notice of application.
[39] The amount of TD’s judgment against 7862510 under paragraph 1(a) of the notice of application shall be reduced by any amount received by TD that was recovered from the sale of 7862510’s collateral.
[40] With respect to the judgment under paragraph 1(a) and 1(e) of the notice of application, I exercise my discretion under s. 130 of the Courts of Justice Act, R.S.O. 1990, c. C. 43 to order postjudgment interest in accordance with the provisions of the Court of Justice Act and not at the rate applicable to the small business loan.
[41] Consistent with the judgment under paragraph 1(h) of TD’s notice of application, the application of Fares and Bakhos shall be dismissed.
[42] The parties exchanged and provided me with written bills of costs or cost outlines at the conclusion of the hearing of the application. The copies I was provided were in sealed envelopes and I have not yet looked at them.
[43] If the parties cannot agree on the costs of the application,
(a) TD may deliver written submissions to supplement its bills of costs or cost outline of no more than three pages in length within 14 days of the date of this decision;
(b) Fares and Bakhos may deliver written submissions in response of no more than three pages in length within 14 days of the date of receipt of TD’s submissions;
(c) TD may deliver any reply submissions of no more than three pages in length within seven days of the date of receipt of the plaintiff’s submissions.
[44] The costs submissions may be filed by sending them to me, care of the trial coordinator.