CITATION: CIBC v. Toolmetrix, 2015 ONSC 2574
COURT FILE NO.: 13-40531
DATE: 2015-04-20
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Canadian Imperial Bank of Commerce
Plaintiff
– and –
Toolmetrix Inc., Milan Ugrinov, Larry Stahlbaum and Kimberly Ouellete
Defendants
Michael J. Valente, for the Plaintiff
Evan Tingley, for the Defenant, Larry Stahlbaum
HEARD: February 11, 2015
G. E. Taylor
Introduction
[1] The plaintiff moves for summary judgment against Larry Stahlbaum based on a guarantee of the indebtedness of Toolmetrix Inc. The plaintiff seeks judgment for the principal amounts of $580,993.43 (Cdn.) and $50,887.26 (U.S.). (The amount of the indebtedness in U.S. dollars claimed in the Notice of Motion includes an amount for interest.)
Facts
[2] Stahlbaum was an officer and director of Toolmetrix together with the defendants Milan Ugrinov and Kimberley Ouellete. In April 2011, CIBC established a revolving operating line of credit in favour of Toolmetrix not to exceed $550,000. On September 14, 2011, the line of credit was increased to $600,000 (Cdn.) and $50,000 (U.S.). On March 28, 2012, the line of credit was decreased to $550,000 (Cdn.) and $50,000 (U.S.) and the interest rate was increased to 2% above the CIBC prime rate for Canadian loans and the CIBC base rate for U.S. loans. On April 16, 2012, the line of credit was increased to $575,000 (Cdn.) and $50,000 (U.S.) and the rate of interest was increased to 2.5% above the prime rate and base rate. The line of credit was repayable on demand. Stahlbaum, Ugrinov and Ouellete each jointly and severally guaranteed payment of the indebtedness of Toolmetrix to CIBC. Stahlbaum executed his guarantee on April 1, 2011. Stahlbaum’s guarantee was unlimited in amount.
[3] From and after September, 2011 Toolmetrix failed to comply with the terms of the credit agreement. In a letter dated December 1, 2011, CIBC advised Stahlbaum and the other officers directors and shareholders of Toolmetrix that the authorized line of credit of $650,000 had been breached on numerous occasions. Stahlbaum signed a written acknowledgment of receipt of that letter.
[4] There was a meeting in February 2012 attended by Stahlbaum, Ugrinov, Ouellete and Mark Garlough who was the person at CIBC with primary responsibility for the Toolmetrix account. Stahlbaum says that at the meeting he told Garlough he was leaving Toolmetrix completely, that he would no longer have signing authority for Toolmetrix and that he would no longer be liable to CIBC for his guarantee of the indebtedness of Toolmetrix. Garlough says that he was advised at the meeting about Stahlbaum’s decision to stop drawing a salary or wage from Toolmetrix and to find alternate employment. He says there was no suggestion that Stahlbaum would resign as an officer or director of Toolmetrix or that he would cease to be a shareholder. Garlough says there was no discussion about Stahlbaum’s personal guarantee of the indebtedness of Toolmetrix to the CIBC or that he would no longer have signing authority on behalf of Toolmetrix.
[5] On March 2, 2012 Stahlbaum submitted a hand written document to Ugrinov and Ouellete which stated as follows:
I Larry Stahlbaum resigned my position at toolmetrix [sic] and will seek employment elsewhere. Can get employed any wear [sic]/work for anyone or himself without any leagal [sic] obligations. I will keep all financial information about Toolmetrix confidential.
Stahlbaum did not provide a copy of this document to CIBC. The corporate records of Toolmetrix were not updated to reflect Stahlbaum’s resignation and no one at CIBC was aware that he had resigned.
[6] CIBC sent a letter to Toolmetrix to the attention of Ugrinov and Ouellete which is dated February 14, 2013 setting out terms and conditions for the ongoing operation of the account. Stahlbaum acknowledged receiving a copy of the letter referring to him as a guarantor. Upon receipt of this letter Stahlbaum did not contact CIBC to raise any concern that he had.
[7] On March 20, 2013, CIBC made a written demand on Toolmetrix for repayment of $583,031.43 (Cdn.) and $51,057.80 (U.S.). On the same date, CIBC demanded in writing that Stahlbaum pay the amount of the indebtedness of Toolmetrix pursuant to his guarantee. Upon receipt of the demand letter, Stahlbaum did not contact anyone at CIBC to inquire why it had been sent to him.
[8] On May 8, 2013 CIBC obtained a default judgment against Toolmetrix, Ugrinov and Ouellete for $639,696.76 plus costs. To date, CIBC has received no payments on account of the indebtedness of Toolmetrix or the judgment obtained.
[9] Stahlbaum alleges that between April 21, 2011 and April 30, 2012 Ouellete forged Stahlbaum’s and Ugrinov’s signatures on at least 157 Toolmetrix cheques totaling $450,637.17 which sum was misappropriated by Ouellete. Stahlbaum further alleges that between April 6, 2012 and December 1, 2012, Ouellete wrote 57 cheques on a Toolmetrix account, which she alone signed, in the total amount of $140,025.55 which sum was misappropriated by her. Stahlbaum also says that during the period April 6, 2012 to December 1, 201,2 Ouellete charged $43,599.76 worth of personal expenses on a Toolmetrix Visa card and made unauthorized electronic transfers from Toolmetrix into her personal bank account or the bank accounts of family and friends totaling $288,287.88.
[10] According to Stahlbaum, in total, Ouellete fraudulently misappropriated from Toolmetrix the sum of $922,555.36.
[11] Stahlbaum was unaware that Ouellete was stealing money from Toolmetrix. No one at CIBC was aware of Ouellete’s criminal conduct. The current whereabouts of Ouellete is unknown.
The Documentation
[12] The Guarantee signed by Stahlbaum on April 1, 2011 was for an unlimited amount and was a guarantee all of Toolmetrix’s debts to CIBC. The terms and conditions of the Guarantee included the following:
- Absolute Liability. My liability under this Guarantee is absolute and unconditional. It will not be limited or reduced, nor will CIBC be responsible or owe any duty (as a fiduciary or otherwise) to me, nor will CIBC’s rights under this Guarantee be prejudiced, by the existence or occurrence (with or without my knowledge or consent) of any one or more of the following events:
b) any increase, reduction, renewal, substitution or other change in, or discontinuance of, the terms relating to the Customer’s Debts or to any credit extended by CIBC to the Customer;
j) any failure by CIBC to abide by any of the terms and conditions of CIBC’s agreements with, or to meet any of its obligations or duties owed to me, the Customer or any Person, or any breach of any duty (whether as a fiduciary or otherwise) that exists or is alleged to exist between CIBC and me, the Customer or any Person;
i) any event whatsoever that might be a defence available to, or result in a reduction or discharge of, me, the Customer or any other Person in respect of either the Customer’s Debts or my liability under this Guarantee.
No Liability for Negligence, etc. CIBC will not be liable to me for any negligence or any breaches or omissions on the part of CIBC, or any of its employees, officers, directors or agents, or any receivers appointed by CIBC, in the course of any of its or their actions.
Terminating Further Liability. I may discontinue any further liability to pay the Customer’s Debts by written notice to the Bank Office. I will, however, continue to be liable under this Guarantee for any of the Customer’s Debts that the Customer incurs up to and including the 30th day after CIBC receives my notice.
[13] On April 1, 2011, Ugrinov on behalf of Toolmetrix, executed a Business Account Application and Agreement. That Agreement authorized any one of the president, secretary or vice president of Toolmetrix to exercise signing authority on behalf of the corporation. In the Business Account Application and Agreement, there is an acknowledgment that the CIBC Brochure entitled Business Account Operating Terms and Agreements (Version 10/10) had been received, read and understood. In cross examination, Stahlbaum was shown a CIBC brochure entitled Business Account Operating Terms and Agreements the front page of which is dated in handwriting “Oct 2010”. Stahlbaum testified that he did not remember ever seeing the Brochure.
[14] Under the heading Business Banking Agreement at pages 10 and 11 of the Brochure are the following clauses:
Responsibility to review statement and give notice. You agree that within 30 days of the date CIBC mails your account statement, you will review your account statement and the items that relate to it and notify CIBC in writing of any errors, irregularities or omissions that you discover including, among other things, improper debits and Instruments that are altered, are missing signatures or bear forged or unauthorized signatures.
Failure to notify CIBC. Except as stated in section 4, upon the expiry of the 30 day period mentioned in section 2, it will be finally and conclusively settled between CIBC and you that:
• all entries and the amount of the balance shown in your account statement are true and correct,
• all Instruments paid from your account are genuine, duly authorized and properly signed,
• all amounts that have been charged to your account are properly chargeable to you (including, among other things, all interest and service charges, even if the account statement does not disclose how any interest or charges are calculated),
• you are not entitled to be credited with any amount that is not shown on your account statement, and
• you release CIBC, its directors, officers, employees and agents from all claims in connection with your account and any Items related to your account.
- Exceptions. The provisions of section 3 do not apply to:
i) errors, irregularities and omissions if you notify CIBC in writing within the 30 day period mentioned in section 2 except as stated in Section 5, and,
ii) any amounts mistakenly or improperly credited to your account which CIBC may correct at any time.
- Exclusion of Liability. CIBC will not under any circumstances be liable to you for any damages or losses, even if CIBC is notified within the 30 day period mentioned in section 2, arising, directly or indirectly, from or in connection with:
v) any forged or unauthorized signature upon an Instrument, unless you prove:
• the loss was unavoidable despite your having taken all reasonable steps to prevent the forged or unauthorized signature and the resulting loss, and your having in place the procedures and controls to supervise and monitor your employees, agents or other representatives.
- Preparation of instruments and internal supervision.
You either have in place are will immediately put into place systems, procedures and controls effective to prevent and detect thefts, forgeries and frauds involving Instruments and to supervise and monitor your employees, agents and other representatives. You will also notify CIBC as soon as possible (but in no event later than 24 hours) after learning or suspecting of any loss or theft of Instruments or any other circumstances from which one may reasonably infer that a forgery or fraud may occur in connection with your account.
[15] Stahlbaum testified in cross examination that he did not review any of the monthly bank statements or any of the canceled cheques when they were received back from CIBC. He made no inquiries to determine if Ouellete was stealing money from Toolmetrix. Stahlbaum testified that other than the requirement that cheques be signed by two persons, there were no safeguards in place to make certain Ouellete that was not stealing money from Toolmetrix.
Discussion and Analysis
[16] Rule 20.04 (2) of the Rules of Civil Procedure provides that summary judgment is to be granted if there is no genuine issue requiring a trial. Rule 20.04 (2.1) goes on to state that in determining whether there is a genuine issue requiring a trial it is appropriate for the motion judge to weigh the evidence, evaluate the credibility of the deponent and draw any reasonable inference from the evidence.
[17] In Hryniak v. Maudlin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Supreme Court of Canada gave direction as to the appropriate interpretation to be given to the provisions of Rule 20.04 when it indicated that a trial is not required if a summary judgment motion can achieve a fair and just adjudication, if it provides a process that allows the motion judge to make the necessary findings of fact, apply the law to those facts and that is proportionate, more expeditious and less expensive means to achieve a just result than going to trial (paragraph 4). The Court held that summary judgment rules must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims (paragraph 5). In applying these principles, the Court stated that a trial is not the default procedure (paragraph 43).
[18] At paragraphs 49 and 50, the Court in Hryniak stated as follows:
There will be 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.
These principles are interconnected and all speak to whether summary judgment will provide a fair and just adjudication. When a summary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceeding to trial would generally not be proportionate, timely or cost effective. Similarly, a process that does not give a judge confidence in her conclusions can never be the proportionate way to resolve a dispute. It bears reiterating that the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute.
[19] Stahlbaum deposed in his affidavit in response to the motion that at a meeting in February 2012 he told the Garlough that he would no longer be liable pursuant to his Guarantee of the indebtedness of the Toolmetrix. He further deposed that Garlough did not ask him to put in writing that he was withdrawing his Guarantee. In cross examination, Stahlbaum said he told Garlough at the meeting that he was resigning his position Toolmetrix and that he “wanted off the books”. He did not specifically tell the Garlough that he would no longer be liable on his Guarantee.
[20] Garlough has a different version of what was said by Stahlbaum at this meeting. Garlough says that the only discussion was about Stahlbaum having decided to cease drawing a salary or wage from Toolmetrix and that he intended to seek alternate employment.
[21] In my view, a trial is not required to resolve this factual issue. Firstly, from the answers given on cross-examination, it is clear that Stahlbaum did not specifically say to Garlough that he wanted to be relieved of liability pursuant to the Guarantee. In my view, more is required than a statement that he “wanted off the books” to convey to Garlough that Stahlbaum was relieving himself of any obligation to be responsible for the indebtedness of Toolmetrix.
[22] In any event, Stahlbaum did not have the right to simply absolve himself from liability pursuant to his Guarantee by advising Garlough that he would no longer be liable for the indebtedness of Toolmetrix. Paragraph 14 of the Guarantee makes that clear. Pursuant to paragraph 14, Stahlbaum was entitled to terminate further liability under the Guarantee by written notice. Stahlbaum was not entitled to completely relieve himself of liability under the Guarantee by so advising CIBC. Furthermore, there is no suggestion that Stahlbaum gave written notice to CIBC of his stated intention.
[23] Therefore, the factual dispute as between Stahlbaum and Garlough about what was discussed at the meeting in February 2012 is not an issue requiring a trial to be resolved.
[24] Stahlbaum’s position is that he should not be liable on his Guarantee because of the theft and misappropriations from Toolmetrix by Ouellete. Stahlbaum says Ouellete forged his signature on at least 157 Toolmetrix cheques totaling $450,637.17. CIBC led no evidence on the motion to contradict that assertion. I therefore proceed on the basis that Ouellete forged Stahlbaum’s signature as alleged. There is also no evidence to contradict Stahlbaum’s assertion that Ouellete wrote cheques which she signed alone for her personal benefit, unrelated to the business of Toolmetrix, that Ouellete used the Toolmetrix CIBC visa card for personal expenses and that she electronically transferred Toolmetrix funds totaling $288,287.88 to her personal bank accounts or accounts of family or friends.
[25] In the Business Account Application and Agreement signed on April 1, 2011 by Ugrinov on behalf of Toolmetrix, there is an acknowledgment that the Brochure entitled Business Account Operating Terms and Agreements (Version 10/10) had been received, read and understood. A copy of a brochure entitled Business Account Operating Terms and Agreements with the handwritten date “Oct 2010” on the front page was shown to Stahlbaum on his cross examination and it was made an Exhibit. Stahlbaum testified that he did not remember seeing the Business Account Operating Terms and Agreements brochure. He also testified that he did not recall such a brochure being given to Ugrinov on April 1, 2011 at the time of the signing of the Business Account Application and Agreement.
[26] Counsel for Stahlbaum submits that there is no evidence to prove that the document marked as an Exhibit on Stahlbaum’s cross examination is the same brochure referred to as being received, read and understood in the Business Account Application and Agreement. Rule 20.04 (2.1) 3 permits the drawing of any reasonable inference from the evidence. I have no difficulty in inferring that the brochure referred to in the Business Account Application and Agreement is the same brochure as was marked as an Exhibit on the cross examination of Stahlbaum. In the Business Account Application and Agreement the brochure is referred to as being Version 10/10. I conclude this means that the brochure was last revised in the October 2010. The document which was marked as an Exhibit is dated October 2010 in handwriting. At the bottom right-hand corner of the last page are the printed numbers 9033 – 2010/10. Although a do not know the significance of the first number, I conclude that 2010/10 is meant to signify October 2010. Therefore, on balance of probabilities, I find that the contents of the brochure entitled Business Account Operating Terms and Agreements formed part of the terms governing the banking relationship between CIBC and the Toolmetrix.
[27] The Business Account Operating Terms and Agreements includes provisions dealing with the review of monthly statements, the requirement to notify CIBC of discrepancies and the exclusion of liability on the part of CIBC from loss as result of any forged or unauthorized the signature unless proven that the loss was unavoidable despite the customer having taken all reasonable steps to prevent the forged or unauthorized signature. Stahlbaum testified in his cross examination that he never reviewed any of the monthly bank statements, he never reviewed any of the canceled cheques returned from CIBC, he never made any inquiries to determine if Ouellete was stealing money from Toolmetrix and he was not aware of any safeguards in place to prevent someone from stealing money from Toolmetrix other than “the two signature scenario”.
[28] In his cross examination, Stahlbaum testified that he thought two signatures were required on every Toolmetrix cheque. The Business Account Application and Agreement signed by Ugrinov dated April 1, 2011 provides that any one of the president, secretary or vice-president had signing authority on behalf of Toolmetrix. Counsel for Stahlbaum pointed out in submissions the reference to “both of the undersigned” in the last paragraph of the Certificate regarding Corporate Banking Resolution and the words “Each of the undersigned” in the first paragraph of the Certificate of Officers and Directors. He argued that this wording is evidence of that two signatures were required on every Toolmetrix cheque. I disagree. The clear wording of the corporate banking resolution is of that any one of the officers of Toolmetrix had signing authority. In any event, the cheques totaling $450,637.17 on which Stahlbaum’s signature was forged also were signed by Ouellete.
[29] Accordingly, I am satisfied that there was in fact no “two signature scenario” in place which would satisfy the obligation on Toolmetrix as required by the brochure entitled Business Account Operating Terms and Agreements to have reasonable safeguards in place to prevent theft.
[30] I therefore conclude that the issue with respect to Ouellete’s forging of Stahlbaum’s signature on Toolmetrix cheques and the effect of such forgeries on Stahlbaum’s liability pursuant to his Guarantee is not an issue that requires a trial to be resolved.
[31] Stahlbaum asserts the defence that by amending the credit agreement between CIBC and Toolmetrix in March and April 2012, without his consent, his liability under the Guarantee is released.
[32] In Manulife Bank of Canada v. Conlin, 1996 CanLII 182 (SCC), [1996] 3 S.C.R. 415, the Supreme Court of Canada confirmed that while the general rule is that any material alteration of the principal contract between the lender and the debtor will release the guarantor from liability, it is open to a guarantor to contract out of that protection. In my view, that is what Stahlbaum did.
[33] Paragraph 10 of the Guarantee makes it clear that Stahlbaum’s liability is absolute and that it is not affected by any changes to the principal debt, anything done by CIBC or any event that might be a defence to his liability.
[34] I therefore conclude that a trial is not required to address the defence that Stahlbaum’s liability was discharged by the changes to the Credit Agreement between CIBC and Toolmetrix in March and April 2012.
Conclusion
[35] For these reasons, there will be judgment in favour of CIBC against the Stahlbaum for $580,993.43 (Cdn.) plus interest at 2.25% above the CIBC prime rate for Canadian commercial loans from March 21, 2013 and for $50,887.26 (U.S.) plus interest at 2.25% above the CIBC base rate for U.S. loans from March 21, 2013.
[36] If counsel are unable to agree on the appropriate disposition as to costs they may make written submissions. The written submissions on behalf of the plaintiff are to be delivered to my office within 14 days of the release of these Reasons, not to exceed three pages in length exclusive of a Bill of Costs and Costs Outline. Responding submissions are to be delivered to my office within 28 days of the release of this these Reasons, not to exceed three pages in length. Counsel are directed to file electronic copies of their cost submissions at Kitchener.Superior.Court@ontario.ca to my attention.
G. E. Taylor, J.
Released: April 20, 2015
CITATION: CIBC v. Toolmetrix, 2015 ONSC 2574
COURT FILE NO.: 13-40531
DATE: 2015-04-20
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Canadian Imperial Bank of Commerce
Plaintiff
– and –
Toolmetrix Inc., Milan Ugrinov, Larry Stahlbaum and Kimberly Ouellete
Defendants
REASONS FOR JUDGMENT
G. E. Taylor, J.
Released: April 20, 2015