ONTARIO SUPERIOR COURT OF JUSTICE

NEWMARKET COURT FILE NO.: CV-12-108031-00
DATE: 2012-04-26

BETWEEN :

THE BANK OF NOVA SCOTIA

Plaintiff

— and —

2156909 ONTARIO INC. operating as FUNNELZ INDOOR PARTY AND PLAY CENTER, KOSTAS HAGITHOMAS also known as GUS HAGITHOMAS, MARIA HAGITHOMAS, DAVID MANGAL and LABROS BAKOGIANNIS also known as LAMBROS BAKOGIANNIS

Defendants

COUNSEL:

Oren Chaimovitch and Bernard H. Noik, for the Plaintiff

Jim Koumarelas, for the Defendants

HEARD: April 24, 2012

Ferguson J.

ENDORSEMENT

Relief Sought

[ 1 ] This is the plaintiff’s motion for summary judgment as follows:

(a) as against Maria Hagithomas and Labros Bakogiannis also known as Lambros Bakogiannis for payment of the sum of $62,500.00 together with pre-judgment and post-judgment interest thereon at the plaintiff’s prime interest rate in effect from time to time plus 2.50% per annum from November 8, 2011, or in the alternative, in accordance with the Courts of Justice Act, R.S.O. 1990, from November 8, 2011;

(b) as against David Mangal and Kostas Hagithomas also known as Gus Hagithomas for payment of the sum of $62,500.00 together with pre-judgment and post-judgment interest thereon at 5.00% per annum from November 8, 2011, or in the alternative, in accordance with the Courts of Justice Act, R.S.O. 1990, from November 8, 2011.

[ 2 ] As a preliminary point, I have been advised that Kostas Hagithomas (“Kostas”) and Maria Hagithomas (“Maria”) have filed a consumer proposal and that the action as against them is stayed. This decision affects the other defendants only, David Mangal (“David”) and Labros Bakogiannis, also known as Lambros Bakogiannis (“Lambros”). In the event that the consumer proposal is not found to be acceptable, this motion will continue against Kostas and Maria. Counsel have picked a tentative return date with respect to Kostas and Maria of June 13, 2012.

[ 3 ] Maria, Kostas, David and Lambros are and were the officers and directors of 2156909 Ontario Inc. operating as Funnelz Indoor Party and Play Center (“the Corporation”).

[ 4 ] The Corporation is indebted to the Bank of Nova Scotia (“the Bank”) pursuant to the Scotiabank Credit Agreement for Business –Term Loan made pursuant to the provisions of the Canada Small Business Financing Act, S. C., 1998, c. 36 dated March 11, 2008, (hereinafter referred to as the “Loan”) whereby the Bank provided the Corporation with a loan in the original amount of $250,000.00, which loan provided for fixed payments of principal each month together with interest payable on the balance owing under the Loan at the Bank ‘s prime interest rate in effect from time to time plus 2.50% per annum. The Loan is repayable in full in the event of default there under.

[ 5 ] Pursuant to a Guarantee dated March 11, 2008 (the “Maria and Lambros Guarantee”), Maria and Lambros guaranteed payment to the Bank of the indebtedness of the Corporation pursuant to the Loan in an amount limited to $62,500.00 payable forthwith after demand together with interest thereon from the date of demand at the same rate payable by the Corporation. The Maria and Lambros Guarantee was part of the Scotiabank Credit Agreement for Business –Term Loan included as Exhibit 2.

[ 6 ] Pursuant to a Guarantee dated March 11, 2008 (the “Kostas and David Guarantee”), Kostas and David guaranteed payment to the Bank of the indebtedness of the Corporation pursuant to the Loan in an amount limited to $62,500 payable forthwith after demand together with interest thereon from the date of demand at the Bank’s prime rate applicable at the time of demand plus 2% per annum.

[ 7 ] The Corporation defaulted in its payment obligations to the Bank in that it failed to make the monthly payments under the Loan as they became due. The last payment it made was in June of 2011. Written demand for payment of the outstanding indebtedness of the Corporation and pursuant to the Guarantees was made on November 8, 2011. On that date, the Corporation was indebted to the Bank pursuant to the Loan in the amount of $144,185.53. No payment has since been made.

[ 8 ] The Loan documentation specifically provides at Paragraph 13 of the Business Banking Services Agreement that the Bank is entitled to demand payment from a Guarantor even if it has not tried to get payment from the business customer or any other Guarantee or Guarantor. Paragraph 15 of the Business Banking Services Agreement provides that the Bank’s failure to realize on any security does not release the borrower and Guarantors from their obligations. The guarantors were officers and director of the Corporation.

[ 9 ] Both guarantees contain an entire agreement clause. The Kostas and David Guarantee of a Small Business Term Loan states the following at paragraph 15:

This guarantee embodies all the agreements between the parties hereto relative to the guarantee, assignment and postponement and none of the parties shall be bound by any representation or promise made by any person relative thereto which is not embodied herein; and it is specifically agreed that the Bank shall not be bound by any representations or promises made by the Customer to the Guarantor.

[ 10 ] The Scotia Bank Business Banking Services Agreement, which covers the Maria and Lambros Guarantee, states the following at paragraph 17:

You and we may amend the agreement at any time but each amendment must be in writing and signed by each of you and us. Any amendment made to the agreement may change the business arrangements between you and us, including the legal relationship.

[ 11 ] The defendants have filed an affidavit from David in which he sets out the understanding of the four guarantors, that they were only responsible for one quarter of the total personal guarantee amount; that upon attending the bank to sign the paperwork, no one took the time to explain the nature of the documents; that they now realize that they are each responsible for one hundred percent of the personal guarantee; in the event that one or some of them cannot pay their share, the others remain liable for the total; and that they were never advised that they should speak to a lawyer before they executed the documents.

The Law

Summary Judgment

[ 12 ] The parties do not dispute the law on summary judgment motions, which is as follows:

(i) Under Rule 20.04 (2), a motions court judge “shall grant summary judgment if, (a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or a defence.” Subsection (2.1) provides:

(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

1. Weighing the evidence.
2. Evaluating the credibility of a deponent.
3. Drawing any reasonable inference from the evidence.

Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 , as amended effective January 1, 2010

(ii) The general principals applicable on a motion for summary judgment are as follows:

(a) Although the burden is on the moving party, there is an evidentiary burden on the responding party to bring forward evidence showing that there is a genuine issue for trial. As stated by Justice Osbourne in 1061590 Ontario Limited v. Ontario Jockey Club : "a respondent on a motion for summary judgment must lead trump or risk losing."

1061590 Ontario v. Ontario Jockey Club (1995), (21) O.R. (3d) 547 (C.A.) at p.557

ITN Corporation v. ACC Long Distance Limited (1992), 9 O.R. (3d) 447 (Gen. Div.) at p. 450

Rogers Cable TV Limited v. 373041 Ontario Limited (1994), 22 O.R. (3d) 25 (Gen. Div.) at p. 27-28

(b) Apparent factual conflicted evidence does not end the inquiry. The court may, on a common sense basis, draw inferences from the evidence. Matters of credibility requiring evidence ought to go to trial; however, that depends upon the circumstances of the case; the court in taking the "hard look" at the merits must decide if any conflict is more apparent than real, i.e., whether there is really an issue of credibility that must be resolved in order to adjudicate on the merits.

Pizza Pizza Limited v. Gillespie (1990) , 75 O.R. (2d) 225 (Gen. Div.) at p. 238-239

(c) A self-serving affidavit is not sufficient in itself to create a triable issue in the absence of detailed facts and supporting evidence.

Royal Bank of Canada v. 1262019 Ontario Inc. [2000] O.J. 2431 (Ont. Sup. Ct.) (Q.L.)

(d) The mere existence of an issue of credibility will not defeat a motion for summary judgment. The issue of credibility must be a genuine issue.

Grossman Holdings Ltd. v. York Condominium Corp. No. 75 , [1999] O.J. No. 3289 (O.C.A.) (Q.L.)

(iii) The changes in the Rules give explicit powers of the motions judge to make evidentiary determinations. The test for summary judgment – whether there is a genuine issue of material fact that requires a trial for its resolution articulated in Irving Ungerman Ltd. v. Galanis , 1991, 4 O.R. (3d) 545 (C.A.) – has not changed. However, the cases that restricted a motions judge in assessing credibility, weighing evidence or drawing factual inferences have been superseded by the powers set out in the new Rule. The test remains largely the same as it was under Irving Ungerman, where the issue was whether the evidence “requires a trial” however, the new Rule 20.04 provides the judge with more tools to determine if this test is met.

Hino Motors Canada v. Kell , 2010 ONSC 1329 at para. 6 :

Lamarche v. Grebenjak , 2010 ONSC 2316 at para. 17 :

(iv) In deciding if the powers granted by the new Rule 20 should be used to weed out a claim as having no chance of success or be used to resolve all or part of an action, the motion judge must ask the following question: can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?

Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764 at para. 50 -54 , 73:

Issues

1. Was the bank under an obligation to ensure that the defendants obtained independent legal advice before signing the guarantees?

[ 13 ] In the absence of any undue influence, fraud or misrepresentation, or any evidence supporting a defence of non est factum , the bank was not under an obligation to ensure that the defendant obtained independent legal advice before signing the guarantee.

Bank of Montreal v. Featherstone , (1989) 68 O.R. (2d) 542 . (C.A.) p. 541, pp. 3 of QL version

Bank of Montreal v. 1480863 Ontario Inc. , para 19-27

[ 14 ] In Toronto-Dominion Bank v.1503345 Ontario Ltd. , the court confirmed at para. 22, that “insofar as the issue of independent legal advice is concerned, [the guarantor] was not required to obtain independent legal advice prior to signing of the Guarantee as he was and is an officer and director of the Corporation and received the direct benefit of the loan.” That is the exact situation before the court in this case.

2. Does the bank owe a duty of care to the guarantors?

[ 15 ] The court dealt with this in Bank of Montreal v. 1480863 Ontario Inc., at paras. 37 and 38 stating that:

… It is well established that absent special circumstances the relationship between a bank and its customer is that of debtor and creditor… More recently in September 2006, the Court of Appeal reaffirmed the above principle in Baldwin v. Daubney , 83 O.R. (3d) 308… Generally speaking, the relationship between a financial institution lender and its customer borrower is a purely commercial relationship of creditor and debtor. Absent any special relationship or exceptional circumstances such as would give rise to a fiduciary duty (which is not pleaded…), the courts have consistently held that the lender owes no duty to the borrower in connection with the making of the loan. In particular, the bank owes no duty to its customer to advise the customer not to undertake the loan.

[ 16 ] In this situation, there is no special relationship or exceptional circumstances. There is no fiduciary duty which, in any event, is not pleaded. The bank owed no duty to the guarantors to advise them not to undertake the loan and guarantee.

3. Does the defence of non est factum apply?

[ 17 ] A preliminary point has been made by the plaintiff that the defendants have not specifically pleaded this defence. While probably correct, the defence is “alluded to” in the statement of defence. I will therefore consider the defence.

[ 18 ] The law on non est factum is set out in Business Development Bank of Canada v. 1458314 Ontario Inc., at para. 1 :

In order for a person to establish the defence of non est factum , the onus is on the person to show

(a) That the signing of the document was not attributable to the person’s carelessness by not reading the document or not taking steps to ascertain its nature and

(b) That the document that was signed was fundamentally different than that which the person thought he or she was signing.

[ 19 ] The law is clear that the onus is on the party raising the defence of non est factum to establish that he was not careless in the manner in which he executed the document in question. There is no obligation on the plaintiff to address the defence of non est factum in bringing its motion for summary judgment. The defendants have not met the onus.

[ 20 ] In any event, these documents, specifically the guarantees, were not fundamentally different than that which the guarantors thought they were signing. The defendants were guarantors; they knew they were signing a guarantee; and they knew they were personally liable. The only difference is their allegation that they believed that they were only each responsible for a quarter of the amount pursuant to the guarantee, and not one hundred percent. The defence of non est factum fails.

The Operation of the Parole Evidence Rule

[ 21 ] Parole evidence is inadmissible to vary, contradict of add to the terms of the guarantees. It is inadmissible on any basis other than rectification. The court in Carevest Capital Inc. v. North Tech Electronics Ltd. , 2010 ONSC 1290 sets out the following in para. 20:

… it is a well-established rule of law that by operation of the parole evidence rule, a collateral oral agreement cannot be established when it is inconsistent with, or contradicts the terms of a written agreement. In this case, both the Guarantee and the Commitment Letter contained “entire agreement” clauses that made it clear that there were no additional terms other than those that were in the document itself. In the face of such a clause, the courts have found that any oral representations, including ones to the effect that a guarantee would “never be called”, are of no force and effect: see Bauer v. Bank of Montreal , [1980] 2 S.C.R. 102; and Chant v. Infinitum Growth Fund Inc. , 55 O.R. (2d) 366 (C.A.)

[ 22 ] In this case, both Guarantees contained entire agreement clauses that made it clear that there were no additional terms other than those that were in the document itself. As a result, even if any representations were made, it is clear that they cannot be relied on because of the parole evidence rule.

[ 23 ] When the allegations are raised as have been here, Carevest Capital Inc. also makes it clear that as a result of the entire agreement clause, such representations do not raise a genuine issue for trial that prevents summary judgment.

[ 24 ] The defendants rely on Royal Bank of Canada v. Uitrust Enterprises International Ltd., 2003 in which the judge “although not without hesitation” did not grant the motion for summary judgment. That case differs because the document in that case used the phrasing joint and several liability, which legal phrase was not interpreted anywhere on the document as resulting in personal liability. That is not the issue before this court.

Conclusion

[ 25 ] The bank’s motion for summary judgment is granted. As set out above, it is only granted against David and Lambros.

[ 26 ] If the parties cannot agree on costs, they can provide brief written submissions
on costs within 30 days.

The Honourable Madam Justice J.E. Ferguson

DATE RELEASED: April 26, 2012