Toronto-Dominion Bank v. Eddymasks Limited, 2015 ONSC 2429
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
THE TORONTO-DOMINION BANK
Shawna Sosnovich, for the Plaintiff
Plaintiff
- and -
EDDYMASKS LIMITED, KAREN ANN SCHULZ, also known as KAREN A. SCHULZ, and EDWIN P. SCHULZ, also known as EDDY P. SCHULZ
D.G. Merner, for the Defendants
Defendants
HEARD: April 13, 2015, at Brampton, Ontario
Price J.
Reasons For Order
NATURE OF MOTION
1Edwin and Karen Schulz (“Mr. and Ms. Schulz”) are married persons who operated a corporation, Eddymasks Limited (“Eddymasks”) that manufactured masks for hockey goalies. Ms. Schulz, the Director, President, and sole shareholder of Eddymasks, entered into an agreement on its behalf with The Toronto-Dominion Bank (“the Bank”), under which Eddymasks borrowed $54,621 under the Small Business Loans Act (“CBSA”) and under the Canada Small Business Financing Act (“CSBFA”). Under the terms of that legislation, the total liability of all individuals, jointly and severally, is limited to 25% of the original amount of the Small Business Loan. Ms. Schultz additionally signed a “Small Business Banking Guarantee”, under which she guaranteed payment of all existing and future indebtedness of Eddymasks.
2Eddymasks later required additional financing, and the Bank made a demand loan to it. In order to extend the time for re-payment of Eddymasks’ loans, Ms. Schulz negotiated a consolidated loan, which reduced Eddymasks’ payments under its existing credit facilities, and extended the time over which the loans were required to be re-paid. Ms. Schulz who, as noted above, was the Director, President, and sole shareholder of Eddymasks, and Mr. Schulz, after obtaining independent legal advice and signing a Certificate of Independent Legal Advice, signed further Small Business Banking Guarantees, by which they guaranteed payment of all existing and future indebtedness of Eddymasks.
3Eddymasks defaulted on its obligations under its credit agreements, and the Bank made a demand for re-payment of all of its loans. The Bank seeks to enforce the guarantees that Mr. and Ms. Schulz gave to them of Eddymasks’ indebtedness. Mr. and Ms. Schulz have delivered a Statement of Defence in which they assert that their liability on their guarantees should be limited to 24% of all Eddymasks’ indebtedness, because they honestly believed that the statutory limit of 24%, which applied to Eddymasks’ Small Business Loan, also applied to all other loans that the Bank made to Eddymasks when the loans were consolidated.
4The Bank moves for summary judgment on its claims. Mr. and Ms. Schulz argue that their Statement of Defence, and the affidavits they have given in support of their position, give rise to a genuine issue for trial. For the reasons that follow, I find that they do not.
BACKGROUND FACTS
5Eddymasks entered into the following agreements with the Bank upon which it borrowed money from the Bank. The loans were repayable in full upon default:
a) A Canada Small Business Financing Act Loan Credit Agreement dated December 10, 2007, whereby the Bank loaned Eddymasks the original principal amount of $54,621 (“the second CSBFA loan”), with interest on the principal balance outstanding from time to time at the rate of 6% per year (that is, 3% per year, being the Bank’s prime rate of interest in effect at the material times, plus 3% per year), and on which the balance as of November 1, 2013, was $13,665.25;
b) A Small Business Banking Credit Agreement dated May 10, 2012, whereby the Bank made a demand loan to Eddymasks in the aggregate amount of $77,019.52 on a Line of Credit, revolving by overdraft, granted to Eddymasks in 2004, plus an outstanding amount of $10,656.87 of an earlier Canada Small Business Financing Act Loan Credit Agreement existing as of May 10, 2012, (“the first CSBFA loan”) for a total of $87,675 (“the Demand Loan”), with interest on the balance outstanding from time to time at the rate of 5% per year (that is, 3%, being the Bank’s prime rate of interest in effect at the material times, plus 2% per year);
c) A U.S. Bank Account Agreement whereby Eddymasks over-drew the sum of $111.77, which accrued interest on the balance outstanding at the rate of 21% per year from November 1, 2013;
d) A U.S. Bank Account Agreement whereby Eddymasks overdrew the sum of $996.98, which accrued interest on the balance outstanding at the rate of 21% per year from November 1, 2013;
6Ms. Schulz was at all material times the Director, President, and sole shareholder of Eddymasks. She signed two guarantees of the debts and liabilities of Eddymasks to the Bank, the first of the guarantees dated November 30, 2004, and the second dated December 10, 2005. Mr. Eddy, who was an employee of Eddymasks, signed a similar guarantee dated December 10, 2004. He obtained independent legal advice prior to signing his guarantee.
7The guarantees signed by Mr. and Ms. Schulz are unlimited, except with respect to the CSBFA Loans, in respect of which the amount guaranteed was limited to 25% of the principal amount of the loans. The original principal amount of the first CSBFA loan was $65,018.63, with the result that the guarantees of that loan were limited to $16,254.66, plus interest. At the time when the demand loan was made, which included the first CSBFA loan, the amount owing under the latter loan was only $10,656.87. That amount was less than the maximum amount of $16,254.66, plus interest, that Mr. and Ms. Schulz guaranteed in relation to the first CSBFA Loan. The original principal amount of the second CSBFA loan was $54,621, with the result that the guarantees of that loan were limited to $13,665.25 plus interest.
8The guarantees provided, among other things, the following:
a) The guarantor guaranteed payment on demand of all present and future debts and liabilities of the customer (“the Obligations”);
b) Obligations was defined to include debt and liabilities, whether incurred alone or jointly with others, whether absolute or contingent, whether matured or not, whether for principal, interest or fees, of the customer to the Bank under any and all credit facilities, overdrafts, etc.;
c) The liability was continuing, absolute, and unconditional, and would not be affected by any extension of time for payment or renewal of any loan or the granting of any indulgences or concessions to the customer;
d) The Bank did not have to exhaust its recourse against the customer, or under any security interest the Bank may have held before being entitled to full payment under the guarantee;
e) The guarantee was in addition to, and without prejudice to, any other guarantee of any kind when given, or in the future, given by the guarantor to the Bank and that the liability under each guarantee was cumulative and remained in full force and effect;
f) There were no representations, collateral agreements, warranties, or conditions with respect of or affecting liability under the guarantee; and
g) The guarantor waived notice of the existence, creation or renewal of all or any of the Obligations, presentment, demand, and all other notices of any kind.
9Eddymasks defaulted in its payment obligations to the Bank. On November 1, 2013, the Bank made a written demand for payment of the outstanding indebtedness of Eddymasks and of Mr. and Ms. Schulz’ indebtedness under their guarantees.
10As of November 1, 2013, when the Bank made its demand, Eddymasks was indebted to the Bank in the following amounts:
a) $28,666.68 for the second CSBFA loan;
b) $80,727.11 for the Demand Loan, including the first CSBFA loan;
c) $111.77 and $996.98, respectively, for the overdrafts.
11As of the same date (November 1, 2013), Mr. and Ms. Schulz themselves, based on their guarantees of Eddymasks’ indebtedness, were indebted to the Bank in the following amounts:
a) $13,655.25, based on their guarantees of the second CSBFA loan;
b) $80,727.11, based on their guarantees of the demand loan;
c) $111.77 and $996.98, based on their guarantees of the overdrafts.
ISSUES
12The Court must determine whether the defendants have raised a genuine issue requiring a trial.
PARTIES’ POSITIONS
13Mr. and Ms. Schulz argue that because the guarantees they signed were entitled “Small Business Banking Guarantee”, and they were told that under the guarantees, their liability in respect of the Small Business Loans was limited to 25%, their entire liability on the guarantees should be limited to 25% of the total indebtedness of Eddymasks, especially having regard to the fact that the demand loan incorporated the first CSBFA loan.
14The Bank says that Mr. and Ms. Schulz’s defence, and the affidavits they have submitted, do not raise a genuine issue requiring trial. It argues that only the Schulz’s liability on Eddymasks’ Small Business Loans was limited to 25%, and that their liability on the Eddymasks’ total indebtedness was unlimited, as stated in the guarantees.
ANALYSIS AND EVIDENCE
15Rule 20.04(2) of the Rules of Civil Procedure provides that the court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.1
16There is no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process:
(1) allows the judge to make the necessary findings of fact;
(2) allows the judge to apply the law to the facts; and
(3) is a proportionate, more expeditious and less expensive means to achieve a just result.2
17In the present case, there is no real dispute as to the material facts. Mr. and Ms. Schulz admit that they signed the guarantees, that the Bank advanced the funds to Eddymasks, and that the Bank was not re-paid. They admit that there was a default, and that the Bank demanded re-payment. They do not dispute the balance outstanding on the loans. Eddymasks has not defended the action against it, and the Bank has requisitioned default judgment against it.
18None of the Bank’s loans officers who had direct dealing with Mr. and Ms. Schulz provided affidavits. However, Mr. Schulz states in his affidavit:
When Karen [Ms. Schulz} directed me to do so, I attended at the bank and executed documents. This was usually at the request of the bank. In or about November 2005 I was advised by Karen that the bank required me to execute a Guarantee respecting the small business loan of $65,019.63. I attended at the bank on December 10, 2005 and executed a Guarantee which, on its face, purports to be un limited but which I was advised made me liable for 25% of the Canada Small Business Financing Act Loan. Prior to signing this Guarantee I received Independent Legal Advice.
19Mr. Schulz does not identify whether it was someone at the Bank, or Ms. Schulz, who told him that there was limited liability, but he says that all of his dealings with Bank were through his wife.
20As noted above, Ms. Schulz was, at all material times, the Director, President, and sole shareholder of Eddymasks. As such, she did not require independent legal advice regarding the guarantees she signed of the company’s indebtedness. In Royal Bank of Canada v. Besick Electric Ltd., Gotlib J. dismissed an appeal from summary judgment granted by Kitely J. for the Royal Bank against Anne Beswick, a secretary-treasurer of Beswick Electric Limited, whose indebtedness she had guaranteed. Gotlib J. stated:
Even if Mr. Cormier assumed sophistication on the part of the personal defendants, which they did not have, independent legal advice was still not the norm for a situation where the two signors of the guarantees were principals and active in the company.3
21In the present case, Ms. Schulz states:
I attended at the bank on May 10, 2012 and signed the documents, in the places indicated by Andrea. There was no discussion of the documents, the loans, or the amount of the payments. Our conversation largely was concerned with personal matters as she was experiencing some difficulties in her personal life. In particular, there was no discussion of a Guarantee nor was I advised that TD was taking the position that my Guarantee was being extended to the entirety of Eddymasks’ indebtedness. It was my understanding that this transaction simply resulted in smaller monthly payments which would last several years longer.
22The guarantees that Mr. and Ms. Schulz signed contain specific paragraphs unambiguously setting out the nature of the obligations they were guaranteeing and the extent of the liability they were undertaking. The guarantees state:
- Obligations Guaranteed
In consideration of the Toronto-Dominion Bank (the “Bank”) dealing with or continuing to deal with the Customer, you guarantee payment on demand, of all present and future debts and liabilities of the Customer of the Bank, (“Obligations”). Obligations includes, without limitation, debts and liabilities, both direct and indirect, (whether incurred alone or jointly with others, whether absolute or contingent, whether matured or not matured, and whether for principal, interest or fees) of the Customer to the Bank under any and all credit facilities, overdrafts, mortgages, guarantees, letters of credit, indemnities and includes all costs and expenses, including legal fees and expenses, incurred by the Bank in connection with its dealings with the Customer. You agree to be bound by each of the terms and conditions set out below.
- Extent of Your Liability
The extent of your liability is as indicated below. If no section is indicated, you are deemed to have indicated an unlimited guarantee.
T Unlimited
[Emphasis added]
Mr. Schulz and Ms. Schulz each initialed the box for “Unlimited” liability.
23The jurisprudence is clear that the Bank was not required to have Mr. or Ms. Schulz return to the Bank to sign a further guarantee when Eddymasks incurred further indebtedness. In Canadian Imperial Bank of Commerce v. Trapp, the B.C. Court of Appeal allowed an appeal from the trial judge, who held that the Bank had innocently misrepresented to the defendant that the guarantee he had signed was intended to secure only the indebtedness of $45,000 existing when the guarantee was signed, rather than the eventual indebtedness in excess of one million dollars. Citing the decision of the Supreme Court of Canada in Beaudoin-Daigneault v. Richard, Taggart J.A. stated:
With respect to the trial judge, my view of the evidence leads me to the conclusion that it does not support the innocent misrepresentation found by the trial judge. The fact that the ultimate loan on the operating account became something in excess of $1,000,000 cannot, in my opinion, alter the result. It may be the law should limit the use of guarantees unlimited as to amount in circumstances such as these, but that is not the law as I understand it to be today. Here, I think the form of guarantee clearly exposes Mrs. Trapp to the amount of indebtedness that the company ultimately reached. There being no innocent misrepresentation on the part of the bank, relief cannot be accorded to Mrs. Trapp.4
24The Bank had no duty to inform Mr. and Ms. Schulz respecting future credit facilities that Eddymasks entered into with the Bank, to ensure that they understood that such facilities became part of the indebtedness that they had earlier guaranteed. The guarantees were “continuing all accounts guarantees”, which Echlin J., in Royal Bank of Canada v. Adecon Transport Inc., held did not entail such an onus on the bank. Echlin J. stated, in this regard:
This guarantee speaks in terms of “future liabilities” at any time owing” “hereafter incurred or arising”. It also refers to itself as being a “continuing guarantee” and that it covers “all agreements between the parties”.
The type of guarantee relied upon by the plaintiff in this matter is a continuing all accounts guarantee. These types of guarantees have been upheld in Banque de Montréal c. Bérubé (1984), 1984 CanLII 4222 (NB QB), 53 N.B.R. (2d) 103 (N.B.Q.B.) and Bank of British Columbia v. Houston (1984), 1984 CanLII 283 (BC SC), 57 B.C.L.R. 91 (B.C.S.C.)
I find as a fact that the plaintiff bank, had no duty to inform the guarantor respecting future credit facilities. The onus is, at law, clearly upon the guarantor to inquire: Bank of Montreal v. Collum, [2003] B.C.J. No. 438 (B.C.S.C.)
I find that the subsequent obligations in this instance are not material variations to the principal contracts and in fact, were contemplated by the parties. Accordingly, I distinguish E-Z Finberglass Products Ltd. v. Harris, [1994] B.C.J. No. 2191 (B.C.C.A.)
I also distinguish Royal Bank v. Bruce Industrial Sales Ltd., 1998 CanLII 3050 (ON CA), [1998] O.J. No. 2665 (Ont. C.A.) as involving an instance in which a revolving loan was contracted to a fixed ban. This is not an instance in which the bank materially altered the existing loan agreement. Rather, it simply provided additional loan facilities and I find it appropriate that they be considered to be “future liabilities” as contemplated by the guarantee language.5
25Mr. and Ms. Schulz argue that the guarantees they signed are confusing on their face, in that they are entitled “Small Business Banking Guarantee.” They argue that this title creates confusion with a “Small Business Banking Loan”, which entails a 25% limit on the guarantor’s liability. I do not agree. The guarantees are unambiguous in stating that the indebtedness being guaranteed is unlimited. The Bank claims 25% of CSBFA loans, in accordance with the limitation imposed by the Small Business Act and the Canada Small Business Financing Act, and 100% of the remaining loans. The form of the guarantees, themselves, however, entitled “Small Business Banking Guarantee”, cannot reasonably be interpreted as incorporating the 25% limit applying to Small Business Loans in respect of all of the indebtedness referred to in the guarantees. If the form were entitled “Small Business Loan Guarantee”, the situation might be otherwise, but the title, “Small Business Banking Guarantee”, does not give rise to any ambiguity in this regard.
CONCLUSION AND ORDER
26Based on my conclusion that the defendants’ evidence does not give rise to a genuine issue requiring trial, it is ordered and adjudged that:
- The defendants Karen Ann Schulz, also known as Karen A. Schulz, and Edwin P. Schulz, also known as Eddy P. Schulz, pay to the Toronto-Dominion Bank the following amounts:
(a) The sum of $14,842.70 in respect of their guarantees of the second CSBFA loan. This judgment, for this amount, bears interest at the rate of 6% per year from April 13, 2015;
(b) The sum of $86,577.06 in respect of their guarantees of the demand loan. This judgment, for this amount, bears interest at the rate of 5% per year from April 13, 2015;
(c) The sum of $145.79 in respect of their guarantees of the first overdraft. This judgment, for this amount, bears interest at the rate of 21% per year from April 13, 2015;
(d) The sum of $1,300.42 in respect of their guarantees of the second overdraft. This judgment, for this amount, bears interest at the rate of 21% per year from April 13, 2015;
(e) The sum of $7,000.90 for costs, in accordance with the costs outline filed. This judgment, for this amount, bears interest at the rate of 2% per year from April 13, 2015.
Price J.
Released: April 14, 2015
Footnotes
- Rules of Civil Procedure, R.R.O. 1990, Reg. 194
- Hryniak v. Mauldin, 2014 SCC 7, at para. 49
- Royal Bank v. Beswick Electric Ltd. 1995 CarwellOnt 724, [1995] O.J. No. 4150 (ON Gen Div), para. 17
- Canadian Imperial Bank of Commerce v. Trapp et al. 1987 CanLII 2715 (BC CA), 1987 CarswellBC 40, 12 B.C.L.R. (2d) 35, at para. 23, citing Beadoin-Daigneault v. Richard, 1984 CanLII 15 (SCC), [1984] 1 S.C.R. 2.
- Royal Bank v. Adecon Transport Inc. 2004 CarswellOnt 9974, paras. 11 to 15