Court File and Parties

CITATION: 911943 Ontario Ltd. v. 407922 Ontario Limited, 2007 ONCA 792

DATE: 20071120

DOCKET: C45559

COURT OF APPEAL FOR ONTARIO

MACPHERSON, BLAIR and LAFORME JJ.A.

BETWEEN:

911943 ONTARIO LTD. and 751916 ONTARIO LIMITED

Plaintiffs (Respondents)

and

407922 ONTARIO LIMITED and STANLEY ROBERTS

Defendants (Appellants)

Counsel:

David Thompson for the defendants/appellants

David J. Kirwin and D. Medcalf for the plaintiffs/respondents

Heard and released orally: November 15, 2007

On appeal from the judgment of Justice D.R. McDermid of the Superior Court of Justice dated May 26, 2006.

ENDORSEMENT

[1] The appellants 407922 Ontario Limited and Mr. Roberts seek to set aside the judgment of Justice McDermid dated May 26, 2006, granted against them as guarantors of a line of credit extended by the Bank of Montreal to an automobile dealership, Charterlease Corporation.

[2] The appellants’ principal argument is that the trial judge erred in failing to hold that a forged Acknowledgement provided to the Bank on November 12, 1997, purportedly on their behalves, vitiated their earlier guarantees. We would not give effect to this submission.

[3] The forged document was provided to the Bank apparently by another Charterlease shareholder, in support of a further personal advance by the Bank to that shareholder. The appellants were admittedly unaware of it. One and a half years later, however, when Charterlease arranged new and higher refinancing with the Bank, and the Bank required a new Acknowledgement that the appellants’ guarantees continued, Mr. Roberts freely and knowledgeably provided signed Acknowledgments on the appellants’ behalves on May 5 and 11, 1999. Charterlease’s line of credit was then increased from the original amount of $230,000 (the original and continuing limits of the guarantees) to $850,000. Chartelease was ultimately unable to fulfill its financial obligations to the Bank and other guarantors, including the plaintiffs, became responsible for the indebtedness to the Bank. In this proceeding, they sought contribution against the defendants in that regard in their proportionate amount of the $ 230,000 liability.

[4] The trial judge accepted that the Bank placed some reliance on the forged November 1997 document, once it discovered in its file, although it had not requested the document in connection with the 1999 transaction. He found however, that the Bank never sought to enforce the forged document or take any action on it and, accordingly, that the appellants had suffered no prejudice as a result of its being in the Bank’s possession. He therefore concluded that the fraudulent document did not in law relieve the appellants from their obligations under their original guarantees.

[5] There was ample evidence to support the trial judge’s findings in this respect and we find no error in his legal conclusion based upon them. Nor are we persuaded that there was any material change in the Charterlease loan at the time of the forged document, as it was provided with respect to an increase in the other shareholder’s personal loan as noted above. Accordingly, the guarantees cannot be said to have been discharged on that basis either.

[6] Finally, we see no merit in the appellants’ submissions, not advanced strenuously before us:

a) that Charterlease’s breach of its obligation to pay Mr. Roberts $500 per month and provide a leased car in exchange for the continued guarantee, absolved him from his obligations under that guarantee to the Bank and,

b) that his lack of independent legal advice at the time of the May 1999 transaction had the same effect.

[7] The trial judge concluded that Mr. Roberts deliberately chose not to terminate his guarantee for fear of triggering instant liability and in the hope that Charterlease would prosper and that his guarantee could later be discharged. He knew what he was doing. The fact that Charterlease ultimately defaulted on the $500 payments and the car lease did not vitiate the obligations to the Bank under the guarantee. Mr. Roberts had access to independent legal advice but chose not to obtain it in May 1999. He did receive some advice from a lawyer at the time of that transaction. The trial judge found, as he was entitled to do, that independent legal advice was not required in the circumstances.

[8] Accordingly, the appeal is dismissed.

“J.C. MacPherson J.A.”

“R.A. Blair J.A.”

“H.S. LaForme J.A.”