CITATION: Royal Bank of Canada v. Lunardi, 2016 ONSC 2541

COURT FILE NO.: CV-15-529454

DATE: 20160414

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

ROYAL BANK OF CANADA

Plaintiff

– and –

MICHAEL A. LUNARDI

Defendant

Miranda Spence & Danielle Muise, (student-at-law) for the Plaintiff

Alistair Riswick, for the Defendant

HEARD: April 13, 2016

r.f. goldstein j.

[1] Can a defence of non est factum succeed where a businessman signs a personal guarantee to a Bank for $1,000,000.00 thinking that the guarantee was only for $500,000.00 when he admits that he did not actually read the document? In my view, the answer is "no". The Plaintiff, the Royal Bank, sued the Defendant, Mr. Lunardi, to collect on a loan in default. Mr. Lunardi pleaded non est factum. Non est factum literally means "not my deed" – which, in the circumstances of this case, means that Mr. Lunardi thought he was signing something different from what he actually did sign. The Bank now seeks summary judgment against him based on the personal guarantee, seeing to collect the outstanding amounts. In my view, the defence of non est factum does not raise a genuine issue for trial in this case. For the reasons that follow, I grant summary judgment.

FACTS

[2] Allform Group Limited was in the construction business. There were two principals: Mr. Lunardi and Frank Lecce. In August 2014 Mr. Lunardi bought Mr. Lecce's shares. Allform had a revolving loan of $1,500,000.00 from the Bank. Before Mr. Lunardi bought out Mr. Lecce the revolving loan had been drawn down about $400,000.00. Another $600,000.00 of the revolving loan was used to repay Mr. Lecce's shareholder loans. Thus, the revolving loan was up to about $1,000,000.00.

[3] When the revolving loan was originally negotiated, Mr. Lunardi and Mr. Lecce each granted a collateral mortgage to the Bank as security. Each mortgage was in the amount of $350,000.00. Thus, the Bank had personal security of $700,000 in total.

[4] On August 14 or 15 (the evidence is not clear but the date is immaterial) the share purchase agreement between Mr. Lunardi and Mr. Lecce closed. On the same day, Mr. Lunardi attended at the Bank and signed a new loan agreement on behalf of Allform as well as a personal guarantee. The terms of the loan agreement were virtually the same as the previous agreement: the Bank extended a revolving loan of $1,500,000.00 to Allform. The loan was secured by a collateral loan from Mr. Lunardi on his home for $500,000.00 as well as a personal guarantee from Mr. Lunardi for $1,000.000.00. Mr. Lunardi signed both documents. David Hladin was the Bank loan officer.

[5] Although the collateral mortgage on Mr. Lunardi's home was to be increased to $500,000.00, that never happened. Instead, the existing $350,000.00 mortgage stayed in place and Mr. Lunardi pledged a GIC of $150,000.00 to bring the security to $500,000.

[6] In March 2015 Allform was in financial trouble. On March 25 2015 the Bank demanded repayment from Allform as debtor and from Mr. Lunardi as guarantor. The total amount sought was $942,844.61. The Bank launched an action seeking the full amount. The Bank applied the $150,000 and Mr. Lunardi eventually sold his home, thus paying out the collateral mortgage of $350,000.00 plus interest. The Bank therefore now seeks summary judgment $483,934.56 as of the date the motion was argued, plus post-judgment interest.

[7] Mr. Lunardi pleaded non est factum in his statement of defence. In his affidavit he says that he thought his personal obligation was increased to $500,000.00, not $1,000,000.00. He says that when he was at the Bank signing the new loan agreement and the guarantee in August 2014 he signed the papers presented by Mr. Hladin, the loan officer, without reading them. He was under pressure and in a hurry to complete the share purchase agreement with Mr. Lecce that day. Mr Hladin, he says, did not explain the documents to him. He says that he did not agree to increase his personal liability to $1,000,000.00.

ANALYSIS

[8] The only question in this case is whether there is a genuine issue requiring a trial on the defence of non est factum.

[9] Where a judge is able to reach a fair and just resolution based on a process where he or she can make the necessary findings of fact, apply the law to the facts, and achieve a proportionate, more expeditious, and less expensive means to achieve a just result there will be no genuine issue requiring a trial: Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87 at para. 49. The onus is, of course, on the moving party to show that there is no genuine issue requiring a trial: Vincorp Financial Ltd. v. Hope's Holdings Ltd., 2010 ONSC 6819. That said, Mr. Lunardi signed the guarantee. There is clearly an evidentiary burden on the defence.

[10] In my respectful view there is no genuine issue requiring a trial because the defence evidence, even taken at its highest, does not make out a defence of non est factum.

[11] The three-part test for non est factum was recently canvassed by the Ontario Court of Appeal in Bulut v. Carter, 2014 ONCA 424. A defendant must show:

• That he or she signed the document mistaken as to its nature and character;

• That the mistake was the result of a misrepresentation; and,

• That he or she was not careless in doing so.

[12] The signatory must show that all three elements of the test are made out.

[13] I turn to each element of the test.

(a) Was Mr. Lunardi mistaken as to the nature and character of the guarantee?

[14] In my view, there is no genuine issue for trial as to whether Mr. Lunardi was mistaken as to the nature and character of the guarantee.

[15] There is certainly a difference of evidence between Mr. Hladin and Mr. Lunardi. Mr. Hladin says in his reply affidavit that he explained the documents to Mr. Lunardi, in accordance with his usual practice. He said that he specifically advised Mr. Lunardi that his liability under the guarantee was limited to $1,000,000.00. He says that he did not put pressure on Mr. Lunardi to sign, or hurry him.

[16] Mr. Lunardi says in his affidavit that Mr. Hladin simply presented papers to him to sign. He says that Mr. Hladin did not explain them to him. He says he had no idea that he was signing documents that increased his personal liability to $1,000.000.00.

[17] It is difficult to understand how Mr. Lunardi could have been mistaken about the nature and character of the guarantee. The guarantee is only three pages. The reference to the $1,000,000.00 is in bold type. Furthermore, the $1,000,000.00 guarantee is referenced in the loan document.

[18] I also have some difficulty with Mr. Lunardi's position because it makes no business sense. Allform had a revolving loan from the Bank for $1.5 million. About $400,000.00 had been drawn down at the time of the share purchase. About $600,000.00 was to be used to pay Mr. Lecce's shareholder loans back. The combined collateral on the loan when both Mr. Lecce and Mr. Lunardi were guarantors was $700,000.00. Mr. Lunardi's position, in essence, is that he thought the Bank would reduce the personal security available on the revolving loan to $500,000.00.

[19] I do not understand how any business person could truly think that a Bank would agree to increase the amount drawn on a revolving line from $400,000.00 to $600,000.00 (and the Bank was obviously required to agree to the increase for the purpose of repaying the shareholder loans) yet at the same time agree to decrease the amount of personal guarantee required from the principal of the company.

[20] Although I am inclined to accept Mr. Hladin's evidence on this point, I appreciate that Mr. Lunardi was not cross-examined on it and it was not put to him. At the end of the day, it is not necessary for me to make a finding on the point of Mr. Lunardi's credibility, but it does not help his case.

[21] In any event, Mr. Lunardi was clearly under a duty to inform himself of the contents of the document he was signing: Adrea Financial Corp. v. Pan Asia Investments Inc., 1984 CarswellBC 303 (C.A.); Guarantee Co. of North America v. Ciro Excavating & Grading Ltd., 2015 ONSC 4465 at paras. 21-22. He clearly did not do so. If he was mistaken about the nature and character of the guarantee it was his own fault. That point goes not only to his appreciation of the nature of the document, but also to his carelessness – as I consider below. There is no genuine issue requiring a trial on this point, even considering the issues of credibility as between Mr. Hladin and Mr. Lunardi.

(b) Was there a misrepresentation?

[22] There is also no genuine issue requiring a trial on the point of misrepresentation.

[23] There is correspondence (consisting of a letter and an email) between the Bank and Mr. Lunardi or his lawyer in which there is no mention of the increase in the personal guarantee. Mr. Riswick, on behalf of Mr. Lunardi, argues that this correspondence amounts to a misrepresentation.

[24] I cannot agree. In his affidavit, Mr. Lunardi does not allege that the Bank misled him or that Mr. Hladin made a misrepresentation to him. The letter and the email clearly reference the terms under which Mr. Lecce was to be paid out. The letter was written at the request of Mr. Lunardi's lawyer for the purposes of closing the share purchase agreement. The correspondence had nothing to do with the revolving loan going forward. There was no misrepresentation – not even a misrepresentation by omission.

(c) Was Mr. Lunardi careless?

[25] There is also no genuine issue requiring a trial on the issue of carelessness. It is clear even on Mr. Lunardi's evidence that he was careless about what he was signing. He stated in his affidavit:

"I was in a hurry and under pressure to complete the SPA that same day. I signed papers that were presented to me by Mr. Hladin. I did not read them."

[26] The SPA refers to the share purchase agreement between Mr. Lunardi and Mr. Lecce.

[27] It is clear that if Mr. Lunardi was in a hurry, that was because he wanted to close the deal with Mr. Lecce. It was not because of anything the Mr. Hladin or the Bank did or did not do. There can be no doubt that a person who has been careless may not successfully raise non est factum: Marvco Color Research Ltd. v. Harris et. al., 1982 CanLII 63 (SCC), [1982] 2 S.C.R 774. The magnitude and the extent of the carelessness and all other circumstances must be taken into account: Guarantee Co. of North America, at paras. 21-23.

[28] Mr. Lunardi did not trouble himself to read the documents, even though he was engaging in a major business transaction where his house and his business were on the line. If his evidence is to be believed, he did not even look at the first page of the guarantee where the words "$1,000,000.00 One Million Dollars" are in bold type. I have no difficulty in making a finding of fact that Mr. Lunardi was careless.

DISPOSITION:

[29] Summary judgment in the amount of $483,934.56 is granted to the Bank with post-judgment interest from April 13, 2016 at the rates provided for in s. 128 and s. 129 of the Courts of Justice Act.

COSTS:

[30] Counsel may each make costs submissions of no more than two pages within 30 days of the release of this judgment.

R.F. Goldstein J.

Released: April 14, 2016

CITATION: Royal Bank of Canada v. Lunardi, 2016 ONSC 2541

COURT FILE NO.: CV-15-529454

DATE: 20160414

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

ROYAL BANK OF CANADA

Plaintiff

– and –

MICHAEL A. LUNARDI

Defendant

REASONS FOR JUDGMENT

R.F. Goldstein J.