ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-09-096482

DATE: 20130703

BETWEEN:

The Toronto Dominion Bank

Plaintiff

– and –

1745361 Ontario Corporation operating as Prince of Ales, Glenn Carter also known as Glenn Henry Carter also known as Glenn H. Carter and Jennifer Smith also known as Jennifer Eileen Anne Smith also known as Jennifer E. Smith

Defendants

Bois Wilson, for the Plaintiff

Mark A. Klaiman, for the Defendant Glenn Carter, also known as Glenn Henry Carter, also known as Glenn H. Carter

HEARD: June 24, 2013

REASONS FOR DECISION

EDWARDS j.:

Overview

[1] The plaintiff, Toronto Dominion Bank (the “Bank”) moves for summary judgment on a guarantee executed by the defendant, Glenn Carter (“Carter”). The guarantee was limited to twenty-five per cent of a small business loan (the “Loan”) made to the defendant, 1745361 Ontario Corporation (“174”). The guarantee provided:

Your liability under this guarantee is continuing absolute and unconditional….

[2] The Loan advanced to 174 went into default and a demand was made, pursuant to the terms of the guarantee, on Carter by the Bank in September 2009. The amount claimed on the guarantee is $62,500.00, plus interest at the Bank prime rate of interest, plus three per cent per annum.

The Facts

[3] The defendant, Jennifer Smith (“Smith”) had approached the Bank in 2005 to obtain financing for a pub, to be known as the Prince of Ales. Smith’s initial application was turned down as it appeared that she did not have the appropriate financial backing and a concern that she did not have appropriate experience. Her application was then resubmitted to the Bank for $250,000.00, which application included the participation of Carter. The application for the financing was accepted and $250,000.00 was to be advanced to 174 with guarantees from Smith and Carter; Carter’s guarantee limited to twenty-five per cent or the $62,500.00 now being claimed in this action.

[4] The guarantee was executed by Carter at a meeting with a representative of the Bank on January 24, 2008. At the meeting with the Bank’s representative, Carter maintains that he advised the Bank’s representative that he was to be a limited partner in the business venture with Smith and that he had not yet finalized his arrangements with her. As such, in the affidavit he filed in opposition to the motion for summary judgment, he indicates that the banking documents that he signed were rendered conditional until such time as he and Smith had finalized their business arrangement. Carter goes on in his affidavit to state that when he executed the guarantee and other banking documentation, he inquired of the Bank’s representative as to whether he knew what the arrangements were between himself and Smith and he was assured by the Bank’s representative that he was familiar with the nature of the agreement. As such, Carter goes on in his affidavit to depose that when he signed the guarantee, he reiterated to the Bank’s representative that any documents that he was going to be signing were conditional upon the finalization of his business affairs with Smith.

[5] It is worth noting that nowhere in Carter’s affidavit does he indicate that the guarantee was to be held in escrow, nor does he plead in his statement of defence that the guarantee was to be held in escrow. Rather, in his statement of defence, Carter pleads that the execution of the guarantee was conditional upon Carter finalizing his business arrangement with Smith, such that he would become a shareholder and that he and Smith would have executed a shareholders’ agreement. Carter’s statement of defence also pleads lack of independent legal advice. This defence was not advanced on the motion before me.

[6] After the guarantee was executed by Carter, he deposited, on January 25, 2008, $73,000.00 into the bank account of 174. Carter states in his affidavit that the deposit of the $73,000.00 was done by him in “anticipation of finalizing my arrangements with Smith”. On January 28, 2008, Carter indicates in his affidavit that he left a telephone message with the Bank’s representative, the purpose of which was to obtain copies of the various documents that he had signed, including the guarantee, on January 24, 2008. He also raised an inquiry in his voicemail message, about the fact that his signature in the banking documentation had been shown as an officer and director of 174. After the voicemail message to the Bank representative on January 28, 2008, Carter never followed-up again with respect to his concern that the execution of the guarantee was conditional upon the completion of his business arrangement with Smith. Carter was cross-examined on his affidavit and when questioned as to why he did not follow-up with the Bank’s representative about his concern regarding the conditional nature of the execution of the guarantee, Carter simply could not recall why he never followed-up.

[7] In addition to the fact that Carter deposited $73,000.00 into the bank account of 174, he also received, as part of the deal from the franchisor, $30,000.00 which, in his examination for discovery, he testified was to cover him “…for the total arrangement”. Also, as part of the so-called “total arrangement”, Carter received an indemnification of his guarantee from the franchisor. The indemnity agreement provided that Carter would be indemnified by the franchisor for the $73,000.00 as well as his liability under the guarantee. Effectively, if the Bank’s motion for summary judgment is successful, Carter’s exposure will have been limited by the $30,000.00 that he received from the franchisor, as well as the indemnity agreement from the franchisor.

Position of the Bank

[8] The Bank’s position is relatively simple. The guarantee executed by Carter provides that the guarantor’s liability is continuing, absolute, and unconditional and that no alteration or wavier of the guarantee or any of its terms shall be binding on the Bank unless expressly made in writing by the bank (emphasis added). As the conditional nature of the guarantee advanced as a defence by Carter was not reduced to writing, there can be no oral waiver of the terms of the guarantee, as it contradicts a specific written term in the guarantee, which makes clear that any alteration or waiver of its terms must be in writing. Counsel for the Bank relies on the parol-evidence rule which renders the type of evidence now being put before this court by Carter as inadmissible to vary, contradict, or add to the terms of a written agreement. See Bauer v. Bank of Montreal, (1980), 1980 12 (SCC), 110 D.L.R. (3d) 424 (S.C.C.) and Hawrish v. Bank of Montreal, (1969) 1969 2 (SCC), 2 D.L.R. (3d) 600 (S.C.C.).

[9] The Bank’s position, simply put, is that the guarantee makes clear on its face that it is unconditional and that any change to the guarantee must be in writing. Carter can present no evidence supporting a written agreement to render the guarantee conditional. In the absence of any written documentation limiting the nature of the guarantee, the Bank argues that this is a document driven case with very limited testimonial evidence and as such a motion judge is quite able to achieve the full appreciation of the evidence and issues that is required to make a dispositive finding. This is the type of case that the Court of Appeal in Combined Air Mechanical Services Inc. v. Flesch 2011 ONCA 764, [2011] O.J. No. 5431 (C.A.) makes clear is appropriate for summary judgment.

Position of Carter

[10] Carter takes the position that there are factual issues that require a full evidentiary hearing. Specifically, it is argued that the evidence of the bank representative and Carter’s evidence is quite diametrically opposed with respect to what was discussed when the guarantee was executed by Carter. Carter says the guarantee was conditional in nature while the Bank’s representative states no such discussion ever took place.

[11] The alternative argument that was advanced during the course of the oral argument by Mr. Klaiman suggests that what actually occurred on January 24, 2008 was an agreement that the guarantee would be held in escrow, pending the completion of the financial arrangements between Carter and Smith. In that regard, Mr. Klaiman relies on Hawrish where at page 518, Judson J. stated:

…There is nothing in this case to permit the introduction of the principle in Pym v. Campbell [(1856), 6 E. & B. 370, 119 E.R. 903.], which holds that the parol evidence rule does not prevent a defendant from showing that a document formally complete and signed as a contract, was in fact only an escrow.

The Result

[12] The difficulty that this court has with the alternative argument advanced by Mr. Klaiman to the effect that the parol-evidence rule does not prevent Carter from showing that the guarantee was to be held in escrow is that this argument was never factually advanced in Carter’s affidavit nor, for that matter, in the statement of defence. Leaving this aside, the definition of the word escrow suggests the involvement of a promisor, a promisee, and a third party, who would be holding a document pending the occurrence of a condition or a given amount of time or other terms. Escrow is defined in Black’s Law Dictionary, Ninth Edition, as follows:

Escrow – A legal document or property delivered by a promisor to a third party to be held by the third party for a given amount of time or until the occurrence of a condition, at which time the third party is to hand over the document or property to the promisee…the general arrangement under which a legal document or property is delivered to a third person until the occurrence of a condition creating an escrow.

[13] There is no suggestion of any third party in the discussions between Carter and the Bank’s representative. There is no evidence that the guarantee was to be held in escrow, formally or otherwise. In fact, the evidence might very well be perceived to point in an opposite direction, given the fact that Carter deposited his share of the investment of $73,000.00 into the business account of 174 the day after he executed the guarantee.

[14] A case that is somewhat similar to the facts presented by the case that I am called upon to decide was a decision of D. Lane J. in Toronto-Dominion Bank v. Turk [1992] O.J. No. 2053 (Gen. Div.); aff’d O.J. No. 353 (C.A.). In this case, the guarantor relied on various conversations that he had with the bank’s representative to the effect that the bank would not be relying on the guarantee. The question that D. Lane J. had to decide was whether, even if this evidence was accepted, the conversations had any legal effect. In rejecting the defendants defence in this regard, D. Lane J. stated:

The waiver defence is based upon a telephone conversation in the fall of 1985 in which Shirley Rind of the bank advised Howard Turk that once the loan on the Wilkinson Road project had been repaid (this is the first loan) the guarantees would not be relied upon. It is also based upon a conversation between Jonah Turk and Gerry Gallagher of the bank in 1988 in which Gallagher said briefly and out of the blue that the bank was not relying on the guarantees. This was described as an “en passant conversation” in the cross-examination. This evidence is denied by Rind and Gallagher. Accepting for this motion the evidence of Jonah Turk that the conversations took place, the question is whether these conversations have legal effect. The guarantee provides that no alteration or waiver of its terms is binding on the bank unless made in writing and that it is a continuing guarantee for all of the present and future indebtedness of the company. In my view this evidence is inadmissible because it is directly contrary to these provisions of the guarantee itself. These alleged conversations constitute a waiver of the guarantee and the document provides that such a waiver must be in writing. In my opinion this case is directly governed by the principles stated in the Supreme Court of Canada in Hawrish v. Bank of Montreal (1969), 1969 2 (SCC), 2 D.L.R. (3d) 600. There the trial judge found an oral agreement by the assistant bank manager that the guarantee, although expressed to be a continuing guarantee, was to cover only existing indebtedness and that Mr. Hawrish would be released from it when further guarantees were obtained from other people. The Supreme Court held that such an oral arrangement could not prevail over the written terms of the contract. It is clear to me that the conversations alleged here are equally inadmissible.

[15] Fundamentally, what Carter wants this court to do is to apply the parol-evidence rule in a situation where the Supreme Court of Canada in Hawrish and in Bauer have made quite clear such parol-evidence is not admissible. Any type of collateral oral agreement like that advanced by Carter cannot stand in the face of a written guarantee which, on its face, makes clear that it is absolute and unconditional and that any alteration of the guarantee or any of its terms must be in writing in order to be enforceable against the bank. In the absence of any written documentation to substantiate the position of Carter, the terms of the guarantee are binding. This is precisely the type of case contemplated by Combined Air where the court does have a full appreciation of the evidence and issues that are required to make dispositive findings and as such, summary judgment shall follow in favour of the Bank, in the amount of $62,500.00, plus interest.

[16] The parties may make written submissions to the court if the issue of costs cannot be resolved. The written submissions should be received within 15 days of the date of receipt of these reasons and limited to three pages in length. If the submissions are not received within the aforesaid 15 days, the court will assume that the issue of costs has been resolved.

Justice M.L. Edwards

Released: July 3, 2013