SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-11-437200
DATE: 20120704

RE: Wellton Express International (Ontario) Inc.

Arif Noormohamed also known as Arif

BEFORE: Justice Moore

COUNSEL:
Peter Jones , for the Plaintiff/Applicant

Maya Poliak , for the Defendant/Respondent

HEARD: 29 June 2012

E N D O R S E M E N T

[ 1 ] In this summary judgment application, the applicant/plaintiff seeks to recover a judgment against the respondent/defendant for the Canadian equivalent of USD $750,000.

[ 2 ] The plaintiff, Wellton Express International (Ontario) Inc. (“Wellton”), is a freight forwarding company in the business of transport and import of clothing from China into Canada.

[ 3 ] The defendant, Arif Noormohamed also known as Arif Noor (“Noor”), is an officer and director of Clothing for Modern Times Inc. (“CMT”), a company that did business with Wellton over the course of many years.

[ 4 ] Wellton extended credit to CMT over time for freight, storage, duties and other charges in connection with the import of clothing. The monthly balances owed by CMT varied but occasionally exceeded CDN $750,000.

[ 5 ] In June of 2008, the president of Wellton prepared a credit agreement for CMT in the amount of $750,000 and delivered it to an employee of CMT for execution by Noor. Throughout their business dealings to this point, Noor had not personally guaranteed CMT’s debts owing to Wellton but the credit agreement delivered in June of 2008 contained a term reading: "the signatory on his/her own behalf agrees to be personally liable for credit extended!” and under Noor’s name on the bottom of the one page agreement is printed: "Signature of applicant, On his/her own behalf and on behalf of the company".

[ 6 ] The agreement is dated 4 July 2008 and there is an illegible signature on it that Noor admits resembles his but Noor has no memory of signing the agreement.

[ 7 ] There were no discussions or negotiations between the principals of Wellton and CMT regarding the form or content of this credit agreement.

The Positions of the Parties

Wellton’s Position

[ 8 ] Wellton asserts that in June and July of 2008 CMT and its bank negotiated terms of a new warehouseman's agreement, one that the principal of Wellton, Mr. Cheung (“Cheung”), concluded would require Wellton to second it's general right of lien to the position of the bank. As such, he was concerned that the long-standing arrangement between Wellton and CMT which gave the former comfort of a lien upon or access to the clothing imported for purposes of CMT's business operations could be jeopardized. Therefore, Cheung’s evidence is that Wellton required Mr. Noor’s personal guarantee going forward.

[ 9 ] Cheung therefore drafted the credit agreement in question and presented it to CMT’s senior financial analyst, Ms Sue (“Sue”), for execution by Noor. He testified that shortly thereafter, Sue told him that the agreement had been signed by Noor.

[ 10 ] Although Sue has no memory of these events, Wellton submits that her evidence does not contradict that of Cheung and the court may infer that Noor actually signed the agreement.

[ 11 ] Wellton accepts that the burden is upon the applicant to prove that Noor signed the credit agreement but it asserts that that burden is the civil burden of proof, or proof on a balance of probabilities. As Cheung testified that Sue told him that the document was signed by Noor, Wellton insists that a prima facie case has been made out and there is no evidence rebutting it since Noor professes no memory of signing the document at all. Forgery is not pleaded or argued and Cheung has not been challenged by cross-examination.

[ 12 ] Wellton submits that a proper interpretation of the agreement is that it is written in clear language that imposes personal liability upon Noor. Wellton submits that it does not matter whether the agreement imposes liability upon Noor as a guarantor, a surety or by way of joint and several liability along with CMT.

[ 13 ] Wellton insists that the document is clearly worded as a business document even though it lacks the legal precision that one often sees in documents created by lawyers. The agreement reflects the intention of the parties and the court should assist in carrying that intention out.

[ 14 ] Wellton argues that by signing the document, Noor accepted the terms of the agreement. Further, there are at least two provisions in the agreement that telegraphed to Noor that he was undertaking personal liability. In this regard, Wellton points to the language quoted in paragraph 5, above. Accordingly, Wellton asserts that without need or involvement of lawyers, Noor would have noticed, upon reading the plain meaning of the words used in the agreement that he was agreeing to personal accountability.

[ 15 ] Noor was an extremely successful businessman with vast experience in business matters in Canada and in California. There is every reason, Wellton asserts, to believe that a person with his sophistication would know the importance of reading business documents before signing them and it would be an extraordinary thing to let him off the hook for not reading and understanding this document.

[ 16 ] Wellton asserts that this is a simple case.

Noor’s Position

[ 17 ] Noor points to a different burden of proof; he insists that the burden on this application is upon Wellton to demonstrate that there is no genuine issue requiring a trial. In order to find that, based upon the evidence in the record, the court must conclude that it can come to a full appreciation of the evidence and issues, that there was a binding contract in place between Wellton and Noor and that the terms of that agreement make Noor personally liable.

[ 18 ] Noor submits that CMT was not a small corporation with Noor as its controlling mind. Until it's insolvency in July of 2011, CMT operated over 100 stores across Canada and employed over 1300 people with 80 employed at its head office. Noor was the majority shareholder but not the only shareholder; he was a director but not the only director. In 2008, the evidence establishes that Noor was not intimately involved in CMT’s operations; rather, he left operations and accounting matters to others.

[ 19 ] There has been no cross-examination of Sue or Noor; their affidavit evidence stands uncontradicted and does not support the assertion that Noor understood the language of the agreement to involve his personal liability to Wellton.

[ 20 ] Although Noor has not confirmed the signature on the agreement to be his, the strength of his position is that he did not intend to sign the document in his personal capacity; his affidavit evidence clearly confirms that if he had known that that was the intent of the document, he would have refused to sign it even if it meant that the business relationship between CMT and Wellton would then come to an end.

[ 21 ] Noor points to the inadequacy of the language used in the agreement. It is entitled an "Application for Credit" but it does not define or designate who the applicant is. It does not use language consistent with the creation of a guarantee in favor of Wellton; indeed the word "guarantee" does not appear in the document at all.

[ 22 ] The only place within the agreement where language is used that might be interpreted to imply personal liability is buried in small font in among the several “Terms of Credit”.

[ 23 ] Further, Noor submits that absent a meeting of the minds and consideration flowing to Noor in connection with his undertaking personal liability, there could be no contract between the parties. In this case, Noor insists there is no evidence of either; hence, there is a genuine issue requiring the forensic mechanism of a trial

[ 24 ] Neither Cheung nor anyone else on Wellton’s behalf drew the onerous implications of personal liability arising from execution of the agreement to Noor’s attention. Noor argues that the notion of personal liability or guarantee is nothing more than a late in the game attempt to make an individual liable for over $750,000 of the insolvent CMT Company’s debt to its supplier, Wellton.

[ 25 ] Noor points to and relies upon case law quoted in its factum and brief authorities supporting the assertion that where, as here, a contracting party proposes to hold another party accountable for onerous terms calling for personal liability the court should be cautious and cognizant of the objective intention of the parties to the contract.

[ 26 ] Where the language is unclear and inserted by the applicant, it must be interpreted against the interests of the applicant.

[ 27 ] Noor testified that the terms of the credit agreement do not reflect the terms on which credit was offered to CMT by Wellton both before and after July 2008. Contrary to the terms of credit set out above, Wellton never charged interest on overdue accounts and always offered credit on 60 day terms. Furthermore, the amount of credit extended by Wellton to CMT (both before and after July 2008) regularly exceeded $750,000 USD.

[ 28 ] Noor also testified that 6 October 2011 was the first time that he had seen the credit application. He has no memory of it being presented to him for signature and no knowledge of the circumstances that led to the execution of the credit application. He was not aware in July of 2008, or at any time prior to that, that Wellton was seeking to amend the terms on which it was providing credit to CMT or seeking to obtain a personal guarantee or an indemnity from him personally.

[ 29 ] In the result, Noor argues that there was no consensus ad idem at the time the agreement was signed.

[ 30 ] Noor defines these as genuine issues requiring a trial:

• a determination as to whether Noor signed the credit agreement and in what capacity;

• a determination as to whether the parties reached consensus ad idem on all material terms of the agreement;

• a determination with respect to consideration flowing from Wellton to Noor; and

• a determination of the extent and nature of Noor's liability, if any, under the agreement.

The Law

[ 31 ] The parties agree that the law governing the test to be applied to the determination of this application is as recently stated by our Court of Appeal in Combined Air [1] and 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 trial?

[ 32 ] Simply being knowledgeable about the entire content of the motion record is not the same as fully appreciating the evidence and issues in a way that permits a fair and just adjudication of the dispute. The full appreciation test requires motion judges to do more than simply assess if they are capable of reading and interpreting all of the evidence that has been put before them. [2]

[ 33 ] The obligation on the moving party to a motion for summary judgment is to put its best foot forward and in that context, it must do more than simply assert an uncorroborated fact. The ultimate burden of proof that there is no genuine issue for trial is on the moving party. [3]

[ 34 ] Where the record is incomplete and cannot be made adequate regardless of the specific tools available to the motion judge, a just result can only be achieved through the trial process. [4]

[ 35 ] In Ventas, [5] Blair J.A. enumerated principles for the interpretation of a commercial contract; it must be read:

a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the "cardinal presumption" that they have intended what they have said;

c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent that there is any ambiguity in the contract), and

d) in a fashion that accords with sound commercial principles and good business sense, and that avoid a commercial absurdity.

[ 36 ] With reference to the factual matrix, Blair J.A. stated [6] :

Contracts are not made in a vacuum, and there is no dispute that the surrounding circumstances in which a contract is negotiated are relevant considerations in interpreting contracts…. While the task of interpretation must begin with the words of the document and their ordinary meaning, the general context that gave birth to the document or its "factual matrix" will also provide the court with useful assistance.

[ 37 ] The factual matrix includes the origin of the agreement, its purpose and the commercial context in which the agreement was made and a consideration of the context in which the written agreement was made is an integral part of the interpretive process and is not something that is resorted to only where the words viewed in isolation suggests some ambiguity. To find ambiguity, one must come to certain conclusions as to the meaning of the words used. In conclusion as to the meaning of words used in a written contract can only be properly reached if the contract is considered in context in which it was made. [7]

The Agreement

[ 38 ] The agreement in question in this application is entitled "Application for Credit". It appears to be a standard form document onto which certain information has been added, such as the CMT business name and address, Noor's name as "name of owner(s)/directors and that the credit required is $750,000 USD.

[ 39 ] Much of the form remains incomplete including information under the following headings:

Years in business;

Bank name, address, phone number and contact person; and

Credit references [4 required with name of company, city, contact and phone number for each].

[ 40 ] The agreement does not describe the factual matrix from which it arises but the evidence is clear that until it was delivered to CMT for execution by Noor, its purpose, form and content had not been negotiated with Noor or anyone else at CMT.

[ 41 ] The form does not stipulate the name or names of the applicant for credit, it does not purport to name all of the officers and directors of CMT, it does not clarify the title over which Noor is to sign the document, it does not name Noor by his proper name, it does not clearly specify that Noor is to sign on his own behalf and on behalf of the company by providing two signature lines and it does not clarify the legal basis, terms conditions or timeline by which it purports to bind Noor personally for credit extended [presumably by Wellton to CMT].

[ 42 ] The agreement is therefore incomplete, ambiguous and confusing. Evidence of the factual matrix or the circumstances leading to the contract between the parties that the "Application for Credit" purports to confirm in writing is necessary in order that the court might obtain the full appreciation of the evidence and issues that is required to make dispositive findings in this matter.

[ 43 ] Noor's business acumen and experience notwithstanding, the evidence on this application confirms that had Wellton advised Noor of its intention to hold Noor personally liable for CMT's obligations, Noor would have never signed the Credit Application. Noor testified that it is his policy to never provide a personal guarantee or assume any personal liability in connection with any secured or unsecured loans obtained by CMT. Between 1989, when CMT was established, and the date of Noor's affidavit, in February 2012, Noor has never guaranteed or provided a personal indemnity in favour of any of CMT's creditors. [8]

[ 44 ] Further, I accept Noor’s evidence that if Wellton had advised Noor that it would not continue to provide services to CMT in the absence of a personal indemnity or guarantee from CMT, Noor would have instructed CMT to procure an alternative freight forwarding company.

[ 45 ] The evidence clearly establishes that the long-standing business relations between Wellton and CMT did not change as a result of the Application for Credit until CMT experienced the financial difficulties that led to its bankruptcy and ultimately to the 6 October 2011 demand letter from Wellton to Noor requesting payment pursuant to the provisions of the Application for Credit. In this regard, I accept the submissions of Noor detailed in paragraph 27, above.

[ 46 ] In these circumstances, I am unable to fairly interpret the provisions of the agreement in question and unable to understand the factual matrix surrounding its creation, execution and application to the business dealings that followed from it.

[ 47 ] Upon the evidence before me, I cannot, for example, determine the objective intent of the agreement with a reasonable degree of certainty. [9] I cannot assume that a meeting of the minds existed at the time of execution of the agreement, assuming Noor signed it at all, as it is clear on the evidence that the onerous personal liability provision asserted to flow from it was never made known to or understood by Noor.

[ 48 ] Consensus ad idem is as much a part of the law of written contracts as it is of oral contracts. The signature to a contract is only one way of manifesting consent to contractual terms. [10]

[ 49 ] Following upon cross examination of Noor, the court might form a fair appreciation of the objective understanding of the parties regarding the one line on the form that apparently calls for him to sign both for CMT and in his personal capacity and determine whether a single signature ought to bind both the corporation and the individual signing officer personally. [11]

Relief from Onerous Terms

[ 50 ] Further, the Court of Appeal stated in Tilden [12] that in modern commercial practice, many standard form printed documents are signed without being read or understood. In many cases the party seeking to rely on the terms of the contract know or ought to know that the signature of a party to the contract does not represent the true intention of the signer, and that the party signing is unaware of the stringent and onerous provisions which the standard form contains. Under such circumstances, the party seeking to rely on such terms should not be able to do so in the absence of first having taken reasonable measures to draw such terms to the attention of the other party, and, in the absence of such reasonable measures, it is not necessary for the party denying knowledge of such terms to prove either fraud, misrepresentation or non est factum.

[ 51 ] In cases where onerous language is imbedded in otherwise innocuous contracts and the onerous term has not been drawn to the attention of the person from whom payment is later sought, courts have been loath to enforce the contract against an unsuspecting signatory to the agreement, even where the person could have understood the onerous provision had she/he been more attentive. [13]

[ 52 ] The forensic machinery of a trial is required in this case to develop the facts necessary to determine whether relief from the onerous provisions of the agreement in question is warranted.

Disposition

[ 53 ] In my view, the applicant has not established that there is no genuine issue requiring a trial in this matter. Indeed there are issues requiring a trial and they are listed in paragraph 30, above.

[ 54 ] In the result, this application for summary judgment is dismissed.

[ 55 ] Counsel were directed to address costs issues following their oral submissions on the merits of this application. Having heard and considered their submissions and having reflected upon the factors enumerated in Rule 57 regarding costs, I fix the costs of this application at $4,750 and award costs to the respondent, Noor, payable forthwith, in any event of the cause.

Moore J.

Released: 4 July 2012

[1] Combined Air Mechanical Services Inc. v. Flesch , 2011 ONCA 764 at para. 50

[2] Ibid, at para. 53

[3] Ibid, at paras. 56 and 100

[4] Ibid, at para 39

[5] Ventas, Inc. v. Sunrise Senior Living REIT, 2007 ONCA 205 (C.A.) at para 24

[6] Ibid, at para 45

[7] Dumbrell v. Regional Group of Cos. , (2007), 2007 ONCA 59 , 85 O.R. (3d) 616 at para. 54 .

[8] See affidavit of Noor, at para. 36.

[9] Ron Ghitter Property Consultants Ltd. v. Beaver Lumber Company Limited , 2003 ABCA 221 (Alta C.A.) at paras. 8-9

[10] Tilden Rent-A-Car Co. v. Clendenning , (1978) 1978 1446 (ON CA) , 18 O.R. (2d) 601 at para. 15

[11] Builders’ Supplies Limited v. Fraser, 2004 CarswellOnt 3552 (Ont. S.C.J.)

[12] Supra, at para. 33

[13] Basic Chemicals Limited v. Belliveau, Unreported Decision of Webber CCJ, dated 28 February 1984, Action No. 12047/82.