Court File and Parties

COURT FILE NO.: CV-19-623279

DATE: 2019-11-18

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2169460 ONTARIO LIMITED and 1218934 ONTARIO LIMITED, Applicants

AND:

JASWANT DASS and PREET DASS, Respondents

BEFORE: Sossin J.

COUNSEL: Brian Radnoff and Dylan Augruso, Counsel for the Applicants

Peter-Paul Du Vernet, Counsel for the Respondents

HEARD: October 7, 2019

REASONS FOR JUDGMENT

OVERVIEW

[1] This application raises the issue of whether certain promissory notes are valid and enforceable.

[2] The applicants, 2169460 Ontario Limited (“216”) and 1218934 Ontario Limited (“121”) are controlled by Salinderpal (“Paul”) Dass.

[3] The applicants seek to remove registrations against them and their properties on the grounds they are unenforceable and improper, and are impairing the applicants’ ability to carry on their businesses, and obtain financing.

[4] The respondent, Jaswant Dass, is Paul’s brother and is responsible for the registrations at issue in this case, which are based on two promissory notes.

[5] The applicants allege that Jaswant Dass, along with the other respondent, Gurpreet (“Preet”) Dass, are alleged by the applicants to have engaged in a fraud against Paul Dass.

[6] Jaswant Dass and Preet Dass argue that the only issue before the Court on this motion is whether the promissory notes are unenforceable on their face, a high bar which is not met in the circumstances of this case.

[7] For the reasons below, I find that the promissory notes are not enforceable against the corporate applicants.

BACKGROUND

[8] Jaswant Dass, Paul Dass and Rachhpal Dass are brothers who at one time were all involved in shared business ventures.

[9] The dispute arises out of an agreement dated July 30, 2014 (the July 30, 2014 agreement), entered into by the brothers in order to separate their business interests.

[10] As part of the July 30, 2014 agreement, cash payments were also made between the brothers, including a total of $806,000. which Jaswant Dass agreed to pay to Paul Dass.

[11] The alleged promissory notes are not referenced in the July 30, 2014 agreement, though the promissory notes are also dated July 30, 2014. Whether promissory notes were discussed at the meetings leading up to the July 30, 2014 agreement is a matter in dispute.

[12] One promissory note is in the amount of $1,388,342.16 and is described as “Re: Personal Funds paid by Jaswant Dass for the purchase of property located at 5758 Dixie Road, Mississauga, ON L4W 0C2 (the “Dixie promissory note”). The other promissory note is in the amount of $2,500,000.00 and is described as “Purchase of 25 common shares from Jaswant Dass for company 1310890 Ontario Ltd. (“131”) property known as Woodbine Banquet Hall and Woodbine Hotel & Suites (30 Vice-Regent Boulevard. Etobicoke, ON M4W 7A4 (the “Vice-Regent promissory note”).

[13] There is no evidence of any interest or payments sought on the alleged promissory notes between July 30, 2014 and April, 2019.

[14] In April, 2019, Jaswant Dass placed registrations on two properties under s.71 of the Land Titles Act (“LTA”); the Wolfedale Property owned by 121 and the Dixie Property owned by 216. PPSA registrations were also placed on each of those companies.

[15] The applicants brought an application to remove these registrations, dated July 8, 2019.

[16] On July 19, 2019, the parties appeared before Justice Kimmel, at which a timetable for the application was set out. Kimmel J. stated, in part, “Responding materials are to be delivered by August 19, 2019. If the respondents take the position that these issues cannot be dealt with on a paper record they are to arrange a chambers appointment before the end of August, 2019.”

[17] A case conference was held on August 29, 2019, before Justice Low, whose brief endorsement states: “Oct 7, 19 hearing to be solely on issue of whether the notes are enforceable on their face. The result will not affect the validity or enforceability of any alleged underlying debt.”

ANALYSIS

[18] As provided in the endorsement of Justice Low, the sole issue for this motion is whether the promissory notes are enforceable on their face. I will deal with each of the potential bases raised for the invalidity of the promissory notes.

Are The Promissory Notes Enforceable Against Either Or Both of 216 or 121, The Applicant Corporations?

[19] The relevant sections of the Dixie promissory note read as follows:

1. The undersigned (the “Maker”) hereby promises to pay to JASWANT DASS (the “Holder”) the amount of One Million Three Hundred Eighty-Eight Thousand, Three Hundred and Forty Two Dollars and 16 cents ($1,388,342.16) in lawful money of Canada (hereinafter sometimes called the “Principal Amount”) together with interest on the unpaid portion from time to time of the Principal Amount at the rate of ten per cent (10%) per annum, calculated monthly shall be in equal installments and in lawful money of Canada.

2. In the event that the Maker defaults in making any payment hereunder, the Holder may demand, the entire unpaid Principal Amount and all accrued and unpaid interest shall immediately become due and payable without notice.

3. Any amount paid in satisfaction of the indebtedness evidenced by this promissory note shall be applied first in satisfaction of any accrued and unpaid interest and then the remaining portion of such amount shall be applied in satisfaction of the Principal Amount.

4. The PROMISOR AGREES that this Promissory Note shall form a lien and/or charge on any real property owned by the Promisor anywhere in the world and without limiting the generality of the foregoing, this Promissory Note shall form a lien and/or charge on any real property owned by the Promiser in the Province of Ontario, Canada. On default, the lien and/or charge may be enforced in the same manner as a mortgage.

5. The HOLDER may register a lien and/or charge on any real property owned by the MAKER, without an acknowledgement and direction. No such notice will be required to register a mortgage or lien.

[20] The Dixie promissory note appears to be signed by Salinderpal Dass, and under the signature line, the following statement appears: “I have authority to bind the corporation.”

[21] Paul Dass denies that he ever signed this document. He also disputes the description of the promissory note, and submits that the funds used by 216 to purchase the Dixie Road property were from the mortgage of another property owned by the Dass brothers. Paul states that he did not purchase the Dixie Road property.

[22] The Vice-Regent promissory note has identical terms to the Dixie promissory note (save for the difference in amount and description of the note).

[23] Paul Dass also denies that he ever signed this document. According to the applicants, the funds for the purchase of the Vice-Regent Boulevard property came from compensation by the City of Toronto for the expropriation of another property owned by the Dass brothers. The applicants argue that the reference to shares in the 1310890 Ontario Limited are not consistent with the minute books for that company.

[24] The applicants sought the original copies of the Dixie and Vice-Regent promissory notes so as to inspect their authenticity. Jaswant Dass and Preet Dass allege that Paul is the holder of these original copies. The dispute as to the authenticity of the promissory notes remains to be resolved and goes beyond the scope of this motion.

[25] A consideration of the enforceability of the promissory notes on their face involves a comparison of the wording of the notes with the requirements of enforcement of promissory notes.

[26] Section 176(1) of the Bills of Exchange Act provides that to be valid and enforceable, a promissory note must meet the following criteria:

176(1) A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to, or to the order of, a specified person, or to bearer.

[27] The applicants argue that the Dixie and Vice-Regent promissory notes are invalid on their face as they are unclear as to the debtor. While Paul Dass’ signature appears on the notes, the line below the signature line indicates he is signing as a representative of a corporation with power to bind the corporation, though the name of the corporation is omitted.

[28] Jaswant Dass and Preet Dass dispute this characterization of the promissory notes. They state (at para. 16(a)):

(a) the debtor on each Promissory Note is clearly identified. The note refers to “the undersigned,” and in each case is signed by Paul Dass. The basis for the indebtedness of 216 and 121 to Jaswant for the interests was to forego is clear from the responding evidence, will be clear from the additional evidence, and in any case is beyond the scope of this hearing for determination and consideration; …

[29] In short, they argue that the promissory notes identify Paul as the debtor and Paul is liable for the debts through 216 and 121, the corporations he controls.

[30] The broader point made by the respondents is that the dispute about the promissory notes is one rooted in factual disputes which cannot be resolved on the incomplete record on this motion.

[31] I agree with the respondents that it would be improper to engage in a wide-ranging review of the facts on a motion limited to the validity of the promissory notes on their face. I conclude that such a review is not necessary for purposes of this motion.

[32] Viewed on their face, the promissory notes are not clearly drafted. The signature by Paul Dass, followed by the statement “I have authority to bind the corporation” creates ambiguity. The promissory note could intend for Paul Dass alone to be the debtor, in which case the phrase “I have authority to bind the corporation” is simply an error. Or, the promissory note could intend for 216 or 121 or both to be bound, with Paul Dass signing as the representative of one of the corporations, in which case the failure to mention the name of either or both corporations is simply an oversight.

[33] In the face of ambiguity as between an individual signatory and a corporate representative signatory, the case law indicates that personal liability in the individual will be found. In order to bind a corporation, it is necessary to do more than describe the signatory as signing in a representative capacity. For example, in H.S.C. Aggregates Ltd. v. McCallum, 2014 ONSC 6214 (“H.S.C. Aggregates”), Price J. faced a similar ambiguity in a promissory note, and concluded:

[39] In Mauch v. Burt, in 1964, the B.C. Supreme Court found the individual defendant liable on a promissory note, based on the fact that he had signed immediately below the name of the corporate defendant. Ruttan J. found that the word “we” in the body of the note signified the joint liability of the signer on his own behalf and on behalf of the corporation. He stated, “The document as drawn suggests an intention to create a joint liability, and if not perfected as to both signatures, it is reasonable to presume the note was completed as far as the individual defendant at least was concerned.”

[41] Ruttan J. held that, because Mr. Burt had not specified that he was signing in only a representative capacity, he could not claim the protection of what was then s. 52(1) of the Bills of Exchange Act. Under the strict application of the common law, as noted above, it was presumed that a person who signs a negotiable instrument is personally liable for the obligations it entails. Section 51(1) of the Bills of Exchange Act relieves against that presumption where the signer specifies, on the face of the instrument, that he is doing so in a representative capacity, as the agent or representative of a named principal. In that case, it is only the principal who is liable. The final sentence of section 51(1) qualifies the exception, by stating that where the signer specifies that he signs in a representative capacity, but does not identify the principal, he does not automatically avoid liability.

[42] The effect of Mauch v. Burt was that, in the absence of an express indication of a signer that he is signing only in a representative capacity on behalf of a named principal, the signer was still presumed to be personally liable. This rule applied even where the signer signed the note immediately above or below the printed name of the corporation of which he is a signing officer. Ruttan J. held that in the absence of an express indication of an individual that he or she is signing in only a representative capacity, the signature of the individual who had signed a note immediately below the name of his corporation imposed personal liability on him. (Footnotes omitted.) (Emphasis added.)

[34] In the case of the Dixie and Vice-Regent promissory notes, there is even more ambiguity with respect to Paul Dass acting in a representative caapcity, as there is no reference to any specific corporate entity.

[35] Further, Jaswant Dass’ affidavit evidence is that Paul Dass, not 216 or 121, owed him the funds reflected in the promissory notes. He stated (at para. 5 of his affidavit):

5. Paul has taken control of the property and shares that the payments were for, and made his own arrangements with Rachhpal, and must pay me for the Promissory Notes. Paul told me he would pay me the Dixie note when he sold the property. Then I discovered he had sold the property, without paying me or telling me.

[36] Jaswant Dass and Preet Dass argue that the promissory notes do identify the debtor and so are valid. They submit (at paras. 54-56 of their factum):

The Notes do identify a debtor. They are signed by Paul, and Paul is liable, as is confirmed by the Applicants’ submission that the Notes make no other reference to a corporation. At its highest, the Applicants’ argument may suggest an ambiguity that requires consideration of context and findings of fact.

121 and 216 are liable for their indebtedness. The Applicants’ submission, for example, that 216 did not purchase the property that gives rise to the indebtedness in relation to the Dixie land, is simply wrong. Jaswant’s advance was purchase money, 216 as holder the land was responsible to Jaswant, and Paul agreed as evidenced by the Note to personally pay.

The Notes, even if not technically bills of exchange as such, are and continue as evidence of the indebtedness, of which the registrations are notice, and in any case can be rectified.

[37] The respondents relay on O’Hanlon Paving Ltd. v. Serengetti Developments Ltd. 2013 ABQB 428 (“O’Hanlon Paving”), at para. 52, 57, fn 13. In O’Hanlon Paving, however, there was no ambiguity with respect to the debtor, but rather to other issues, such as whether a demand was necessary to trigger the obligation under promissory notes.

[38] The respondents also cite Beazer v. Tollestrup Estate, 2017 ABCA 429 (“Beazer”), for the proposition that mistakes in a written instrument can be rectified to give effect to the agreement of the parties. The majority in that case described this equitable doctrine as follows (at paras. 52-53):

[52] While a court may rectify an instrument that inaccurately records an agreement, it may not change the agreement to salvage what a party hoped to achieve, or to cure a party’s error in judgment in entering into an agreement: Fairmont at paras 3 and 19. The court’s task “is to restore the parties to their original bargain, not to rectify a belatedly recognized error of judgment by one party or the other”: Performance Industries Ltd. v Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19 at para 31, [2002] 1 SCR 678. It should not be used to “escape, after-the-fact, what has turned out to be a bad bargain” (Geoff R Hall, Canadian Contractual Interpretation Law, 2nd ed (Markham, Ont: LexisNexis Canada, 2012) at 167) or because it becomes evident in hindsight that it was a bad deal (Fridman at 777).

[53] Typically, a court will require evidence with a “high degree of clarity, persuasiveness and cogency before substituting the terms of a written instrument with those said to form the party’s true ... intended course of action”: Fairmont at para. 36. When there is a common mistake, the party applying for rectification must show that:

the parties had reached a prior agreement whose terms are definite and ascertainable; that the agreement was still effective when the instrument was executed; that the instrument fails to record accurately that prior agreement; and that, if rectified as proposed, the instrument would carry out the agreement (Fairmont at para 14). (Emphasis added.)

[39] In the case law where the ambiguity of a signature on a note has been adjudicated, both the person signing and the corporation at issue were identified on the promissory note. The issue in those cases was whether the signatory intended to bind the corporation or intended to be personally liable (see, for example, H.S.C. Aggregates, at paras. 84-90). In this case, however, there is no corporate entity referred to as a potential debtor whatsoever. Further, the evidence which the respondents may rely on to link each note to one of the applicant corporations is disputed, and depends on extraneous evidence which has yet to be tested.

[40] The mere presence of the words “I have authority to bind the corporation” under the signature line is not sufficient to indicate a common intention to make a particular corporation liable for the debt referred to in the promissory notes.

[41] The burden to show that the promissory notes are not enforceable on their face against 216 and 121 rests with the applicants. I am satisfied that the applicants 216 and 121 have established that they are not liable for any indebtedness pursuant to the Dixie promissory note or the Vice-Regent promissory note. Neither entity is mentioned in the notes, and therefore the notes, if authentic, establish only the personal liability of Paul Dass for the debts referred to in the promissory notes.

[42] If it were necessary to address whether the promissory notes should be rectified as a matter of equity, so as to make either or both of the applicant corporations indebted under the promissory notes, I find that there is no basis for doing so in these circumstances. There is no persuasive evidence on the record of a common intention between the parties to recognize the debts referred to in the promissory notes as owing by either or both corporate applicants.

[43] Therefore, to answer the first question, the promissory notes are not enforceable against the corporate applicants 216 and 121.

Are The Promissory Notes Void For Uncertainty?

[44] The applicants argue that a valid promissory note cannot purport to be payable both on demand and in installments. The applicants argue that is precisely what the terms of the Dixie promissory note and the Vice-Regent promissory note purport to do, and therefore that the notes are void for uncertainty.

[45] The wording of the promissory notes on this question is confusing. The first paragraph of the Dixie promissory, for example, provides:

The undersigned (the “Maker”) hereby promises to pay to JASWANT DASS (the “Holder”) the amount of One Million Three Hundred Eighty-Eight Thousand, Three Hundred and Forty Two Dollars and 16 cents ($1,388,342.16) in lawful money of Canada (hereinafter sometimes called the “Principal Amount”) together with interest on the unpaid portion from time to time of the Principal Amount at the rate of ten per cent (10%) per annum, calculated monthly shall be in equal installments and in lawful money of Canada.

[46] The second paragraph of the Dixie promissory note states that, “In the event that the Maker defaults in making any payment hereunder, the Holder may demand, the entire unpaid Principal Amount and all accrued and unpaid interest shall immediately become due and payable without notice.” (Emphasis added.)

[47] The fourth paragraph refers to “The extension of time for making any payment which is due and payable hereunder,” while the eleventh paragraph similarly states that, “The Holder may at any time direct the Maker to make any payment which is due and payable hereunder…” (Emphasis added.)

[48] According to the applicants, these provisions demonstrate that the promissory notes provide that payment on demand may occur, and also that installment payments are expected.

[49] Jaswant Dass and Preet Dass argue there is no uncertainty in the Dixie and Vice-Regent promissory notes, as they provide that the principal amount is payable on demand, and also allows for partial payments of the interest owing on unpaid portions of the promissory note, and for partial payments then to the principal amount. They state (at para. 57 of their factum), “There is certainty as to the principal payment, which is clearly set out, and that payment is due on demand.”

[50] The applicants rely on FWC Holdings Ltd. v. Virtue Films Inc., 2009 BCSC 1563 (“FWC”) at paras. 19 and 23 for the proposition that a promissory note cannot both be payable on demand, and in installments. While FWC does stand for this proposition, the actual promissory note in that case was upheld as valid, relying in turn on the decision of Verchere J., in Toronto-Dominion Bank v. Parkway Holdings Ltd. 1968 CanLII 705 (BC SC), [1968] B.C.J. 239, 1 D.L.R. (3d) 716 (“Parkway Holdings”). In FWC, Savage J. finds that the promissory note he was considering was similar to the one considered by Verchere J., which read:

The instrument sued on reads as follows:

$17,000.00 185 East Hastings St. at Main St., Vancouver 4, B.C. November 13, 1964. On Demand I promise to pay to the order of Parkway Holdings Ltd. at the Toronto-Dominion Bank here the sum of........SEVENTEEN THOUSAND........ DOLLARS With interest payable monthly at the rate of nil % per annum until paid, payable as $1,000.00 per month commencing on the first day of December, A.D. 1964. VALUE RECEIVED (signed) E. B. Coulter.

Verchere J. upheld the validity of this note as it was clear that the note was payable on demand, with the method of payment set out as monthly payments until the full amount with interest is paid.

[51] While poorly drafted, I find that the promissory notes provide sufficient clarity that the principal amount was payable on demand, and that, as in FWC and Parkway Holdings, the references to partial payments refers to how interest payments were to be made, and how payment of the principal may be made once a demand has been issued. Therefore, I am not satisfied that the promissory notes are void for uncertainty on this ground.

[52] The applicants raise other concerns with the wording of the promissory notes, and specifically argue that the notes fail to specify when payments are to be made, and how much is to be paid, and do not set out the amount of interest due under the notes.

[53] While there are ambiguities in the case of each of these elements in the promissory notes, I find that they are not so uncertain as to be void. The first paragraph of the note sets out that the interest amount will be 10%, and that the interest was to be calculated and paid on a monthly basis.

[54] Finally, the applicants argue that there was no demand on the promissory notes prior to the steps taken by Jaswant Dass and Preet Dass to obtain registrations on the basis of the notes.

[55] A formal demand, however, is not necessary as a precondition for action to enforce a debt under a promissory note; see O’Hanlon Paving, at para. 50.

[56] For these reasons, while not enforceable against the corporate applicants, I do not find that the promissory notes are invalid on their face as against Paul Dass personally.

Are The Promissory Notes Inconsistent With The July 30, 2014 Agreement?

[57] A considerable portion of the applicants’ submissions examine the background, context, scope and intent of the agreement of July 30, 2014. The applicants argue that a promissory note cannot be enforceable where it conflicts with the terms of the agreement that created the obligation of which the promissory note is evidence.

[58] The applicants rely as well on the July 30, 2014 agreement, which does not refer to the promissory notes, as support for their argument that the promissory notes are a forgery and part of a fraudulent scheme.

[59] Jaswant and Preet Dass argue that the promissory notes were signed prior to and as a condition for the July 30, 2014 agreement.

[60] The issue of the promissory notes’ congruence with the July 30, 2014 agreement, as well as the authenticity of the promissory notes, may be relevant to resolve the application as a whole, but goes beyond the limited scope of this hearing into the enforceability of the promissory notes on their face, where the authenticity of the promissory notes is assumed.

[61] In light of the findings above, it is not necessary to inquire further into the issue of consistency between the promissory notes and the July 30, 2014 agreement in order to resolve the narrow issue on this motion.

Was There Consideration For The Promissory Notes?

[62] The applicants also raise concerns with respect to whether there was any consideration in exchange for the alleged promissory notes.

[63] This issue, like the issue of the July 30, 2014 agreement, references the factual disputes in this application, in this case that Paul received any benefits from the promissory notes. The applicants argue that neither they nor Paul Dass could have benefitted from the Dixie promissory note because neither the corporations or Paul purchased the Dixie property. The applicants argue that neither they nor Paul Dass could not have benefitted from the Vice-Regent promissory note because neither they nor Paul never received a transfer of shares in the 131 corporation referenced in the note, as all shares in 131 were transferred to Rachhpal as part of the July 30, 2014 agreement.

[64] In my view, an inquiry into the applicant’s arguments with respect to consideration goes beyond the limited scope of this hearing, which is intended to examine the validity and enforceability of the promissory notes on their face.

Do the Promissory Notes Support a Registration Under the PPSA?

[65] The applicants finally raise a concern that the promissory notes, even if valid, do not justify the PPSA registrations.

[66] This issue is an extension of whether the promissory notes are valid and enforceable on their face. In light of the findings above, it is clear the promissory notes cannot be the basis for the registrations which have been made against the applicant corporations or properties owned by the applicant corporations, but could only be the basis at this stage for registrations against Paul Dass personally.

CONCLUSION

[67] For the reasons set out above, I find the Dixie promissory note and the Vice-Regent promissory note are not enforceable against the applicant corporations 216 and 121, though on their face, the promissory notes are not otherwise void and may, if shown to be authentic, be evidence of a debt owed by Paul Dass to Jaswant Dass.

[68] Jaswant Dass and Preet Dass argue that even if not qualifying as a bill of exchange, the promissory notes are evidence of the indebtedness of the applicants. Whether the promissory notes may be evidence of the indebtedness of the applicants remains to be determined once factual findings are at issue, but no such finding can flow from the promissory notes on their face.

[69] As is evident on this motion, there remain a number of disputed aspects of this application such as the authenticity of the promissory notes which may be necessary to resolve in order to make any final determinations on the alleged debts referred to in the promissory notes.

[70] In light of the findings on this motion, however, there is no basis at this point for registrations as against the corporate applicants 216 and 121 based on these promissory notes and those registrations should be removed.

COSTS

[71] I find the applicants are entitled to costs of this motion, though a portion of the applicants’ materials and submissions went into factual allegations and disputes beyond the scope of this limited motion. In the circumstances, I find the applicants are entitled to costs in the amount of $10,000, all inclusive, payable by the respondents, Jaswant Dass and Preet Dass, within 30 days of this judgment.

Sossin J.

Released: November 18, 2019