Court of Appeal for Ontario

CITATION: Bulut v. Carter, 2014 ONCA 424

DATE: 20140523

DOCKET: C55507

Juriansz, Epstein and Pepall JJ.A.

BETWEEN

Nikolas (Nicholas) Bulut Plaintiff (Appellant/Respondent by way of cross-appeal)

and

William Russell Carter, Marilyin Rose Carter, Kurt Russell Carter and Amberlyn Miszcyzk Defendants (Respondents/Appellant by way of cross-appeal)

Sean C. Flaherty, for the appellant/respondent by way of cross-appeal

Howard W. Reininger, for the respondents/appellant by way of cross-appeal

Heard: April 14, 2014

On appeal from the judgment of Justice Johanne N. Morissette of the Superior Court of Justice, dated April 25, 2012.

ENDORSEMENT

[1] The appellant, Nikolas Bulut, and the respondent, William Carter, were engaged in various business dealings together, many of which involved the Carter family company, Carter’s Printing of London Ltd. The other respondents (the “Carter family members”) are members of Mr. Carter’s family and involved with Carter’s Printing. Marilyn Carter, Mr. Carter’s wife, is a director of the company. Kurt Russell Carter and Amberlyn Miszcyzk, William and Marilyn’s children, are shareholders of Carter’s Printing.

[2] In connection with their business dealings, in April 2006, Mr. Carter, on behalf of the company signed a promissory note in the amount of $300,000 in favour of Mr. Bulut which he also personally guaranteed. The Carter family members also executed the guarantee.

[3] Mr. Bulut made demand under the note and guarantees in October 2006. In November of 2006, Carter’s Printing went bankrupt.

[4] In this action, Mr. Bulut seeks payment of $300,000, plus interest, from all of the respondents, through the enforcement of their guarantees.

[5] Mr. Carter and the Carter family members have defended the claim on two grounds - lack of consideration for the note and relying on the defence of non est factum.

[6] The trial judge awarded judgment only against Mr. Carter in his capacity as guarantor of the note. She also concluded that there was consideration for the promissory note. However, she held that the Carter family members had satisfied the test for non est factum and therefore were not liable as guarantors. She dismissed the action against them.

[7] The appellant appeals the dismissal of the action against the Carter family members. He submits that the trial judge erred in two respects: (1) the defence of non est factum had not been pleaded and, (2) even if it were, it was not supported by the evidence.

[8] In his notice of appeal, the appellant also contested the post-judgment interest the trial judge awarded. However, in argument, the appellant abandoned this issue.

[9] In his cross-appeal, Mr. Carter seeks to set aside the judgment against him on the basis that the promissory note was given without consideration and the guarantee is therefore unenforceable. In the event the appellant succeeds in his argument that the trial judge erred in accepting their defence of non est factum, the Carter family members also rely on lack of consideration.

[10] At the conclusion of argument, we allowed the appeal and dismissed the cross-appeal with reasons to follow. These are our reasons.

The Appeal

[11] The appellant submits that non est factum was not pleaded and the trial judge therefore erred in allowing the respondents to rely on the defence.

[12] Fairness dictates that lawsuits be decided within the boundaries of the pleadings. A party has the right to know the case it has to meet and to have the opportunity to meet it: Rodaro v. Royal Bank of Canada (2002), 2002 41834 (ON CA), 59 O.R. (3d) 74 (C.A.).

[13] The defence of non est factum was not expressly identified in the respondents’ amended statement of defence and counterclaim. However, in their pleading, the respondents did allege that they did not understand the nature of the document they signed. On this basis the trial judge held that the respondents were entitled to rely on the defence, if proven.

[14] We agree. In their amended statement of defence and counterclaim the respondents asserted that they were unaware that they had personally guaranteed Carter’s Printing’s debt to the appellant and pleaded various circumstances surrounding that assertion. They alleged that the lawyer did not explain the document and did not provide them with an opportunity to read it. The respondents pleaded that they, in fact, signed the guarantee without reading it and it was only later that they learned that they had signed a document in which they personally guaranteed the company’s indebtedness under the promissory note.

[15] The defence was sufficiently set out to enable the appellant to respond and the record establishes that battle was joined on that issue.

[16] We would therefore not interfere with the trial judge’s decision to allow the respondents to raise the defence of non est factum.

[17] However, we agree with the appellant that the trial judge erred in concluding that the Carter family members established the defence.

[18] The trial judge correctly set out the test for non est factum identified in the seminal case of Marvco Colour Research Ltd. v. Harris, 1982 63 (SCC), [1982] 2 S.C.R. 774. The defence of non est factum is available to someone who, as a result of misrepresentation, has signed a document mistaken as to its nature and character and who has not been careless in doing so.

[19] The Carter family members testified that they believed they were signing the guarantee in their capacity as shareholders of the company. They testified that Mr. Carter instructed them, on an urgent basis, to go to the office of the lawyer who represented all parties for the purpose of signing some documents. They did so. The evidence of the Carter family members was that they did not know what they were signing - they did not understand that they were personally guaranteeing the indebtedness of the company.

[20] In our view, on their own evidence, the Carter family members were careless in signing the document that consisted of one page. The Carter family members did not read it. They did not ask any questions about it. They did not ask for an opportunity to obtain independent legal advice.

[21] With respect, the trial judge’s finding that the Carter family members were not careless is not supported by the evidence. See: Saunders v. Anglia Building Society, [1970] 3 All E.R. 961, [1970] 3 W.L.R. 1078, 114 Sol. Jo. 885 (H.L.), affd [1969] 1 All E.R. 1062, sub nom Gallie v. Lee, [1971] A.C. 1004.

[22] On this basis, the defence of non est factum was not open to them.

[23] Furthermore, while the trial judge recognized that for non est factum to apply, the guarantee must have been signed as a result of misrepresentation as to its nature, she did not consider this part of the test.

[24] Misrepresentation is essential to a plea of non est factum. See Dorsch v. Freeholders Oil Co. Ltd., 1965 90 (SCC), [1965] S.C.R. 670.

[25] The Carter family members are unable to demonstrate that they signed the guarantee due to any misrepresentation. Indeed they testified that they were not told anything about the document other than to sign it.

[26] Accordingly, the defence of non est factum was not open to the Carter family members on this basis as well.

The Cross-Appeal

[27] Mr. Carter and the Carter family members took the position at trial, as they do before this court, that the promissory note was given by Carter Printing without consideration. They argue that while Mr. Bulut advanced funds to the company in 2004 when the promissory note was agreed upon, this advance was pursuant to a previous contract. As such, the note was based on past performance and was not consideration for the 2006 promissory note.

[28] We disagree. There was ample evidence in support of a finding of consideration. Among other things, Mr. Carter admitted, as found by the trial judge, that funds were advanced to Carter’s Printing. I refer also to the evidence of Mr. Bulut, Mr. Carter and the Carter family members that the promissory note was given in order to ensure that the company could continue to engage in business dealings with Mr. Bulut.

Disposition

[29] For these reasons the appeal is allowed and the cross-appeal is dismissed. The trial judge’s dismissal of the action against the Carter family members is set aside and judgment is granted against them. That judgment is stayed on the same basis as the trial judge stayed the judgment against William Russell Carter.

[30] The appellant is entitled to his costs in this court fixed in the amount of $10,000 inclusive of disbursements and applicable tax. The appellant is also entitled to his costs at trial, the quantum of which is left to the judge hearing the counterclaim.

“R. G. Juriansz J.A.”

“Gloria Epstein J.A.”

“S.E. Pepall J.A.”