Court File and Parties

COURT FILE NO.: CV-18-592837 DATE: 20201009

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: ROYAL BANK OF CANADA, Plaintiff AND: 2414973 ONTARIO LIMITED O/A TANDIS FINE FOOD, MOHAMMAD BEZKOOL and HOMAYOUN BALALAEY, Defendants

BEFORE: Justice Glustein

COUNSEL: Michael J. Brzezinski, for the plaintiff Esmaeil Mehrabi, for the defendant Homayoun Balalaey

HEARD: October 1, 2020

REASONS FOR DECISION

Nature of issues and overview

[1] The plaintiff, Royal Bank of Canada (RBC), brings this motion for summary judgment in the present action against the defendant 2414973 Ontario Limited o/a Tandis Fine Food (Tandis) for the amount of $398,390.14[^1] owing under:

(i) a small business financing loan agreement executed on October 27, 2014 (the SBFL Agreement) under which RBC provided a variable rate term facility in the principal amount of $350,000, with interest at RBC’s prime rate plus 3% per annum,

(ii) two credit facilities collectively for $15,000 executed on October 27, 2014 for: (a) a “revolving demand facility in the amount of $5,000.00, available by way of Overdraft”, with interest at RBC’s prime rate plus 5% per annum, and (b) “VISA business to a maximum of $10,000.00”, pursuant to RBC’s VISA business card agreement (collectively, the VISA Agreement), and

(iii) a $200,000 credit facility by a master lease agreement dated December 10, 2015 under which Tandis acquired equipment for its business (the Tandis Equipment Lease).[^2]

[2] Tandis did not respond to this motion and did not retain new counsel as required to do so under Rule 15.04(7) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[3] There is no dispute that Tandis owes the funds claimed by RBC. Consequently, I grant summary judgment to RBC against Tandis, on the basis of Rule 20.04.

[4] The defendant Mohammad Bezkool (Bezkool) also signed personal guarantees for the Tandis loans. He did not defend the action and RBC obtained default judgment against him for the full amount under his guarantees.

[5] RBC also seeks summary judgment against the defendant Homayoun Balalaey (Balalaey) for liability under personal guarantees he signed on October 27, 2014. RBC seeks judgment for the principal amount of $302,500 plus interest as set out in three guarantees of $87,500, $15,000, and $200,000.

[6] Balalaey opposes the summary judgment motion. He acknowledges signing (i) a guarantee in the amount of $87,500 as security for the SBFL loan (the SBFL Guarantee) and (ii) a guarantee in the amount of $15,000 as security for the VISA loan (the VISA Guarantee). The combined value of those guarantees is $102,500, which collectively secure all of Tandis’ obligations to RBC.

[7] However, Balalaey submits that there is a genuine issue requiring trial that the guarantee of $200,000 relied upon by RBC (the Impugned Guarantee) cannot be enforced. Balalaey acknowledges that he signed the Impugned Guarantee as part of 13 documents put before him at the execution of the SBFL Agreement and the VISA Agreement on October 27, 2014. However,

(i) Balalaey relies on a non est factum defence. Balalaey submits that there is a genuine issue requiring trial that he had no knowledge of the Impugned Guarantee and did not understand that he signed it.

Balalaey submits that he was advised by RBC’s representative, Pedram Fini (Fini), that Balalaey’s guarantees were limited to $87,500 (25% of the $350,000 advanced by RBC under the SBFL Agreement) and $15,000 (for the $15,000 available to Tandis under the VISA Agreement). Those SBFL and VISA Guarantees were consistent with the SBFL and VISA Agreements he signed which only referenced those guarantees; and

(ii) Balalaey relies on a fraud defence. Balalaey submits that there is a genuine issue requiring trial that the Impugned Guarantee was fraudulently inserted into the group of documents signed by Balalaey on October 27, 2014.

[8] At the hearing, RBC submitted that, in the alternative, if the court found a genuine issue requiring trial with respect to the Impugned Guarantee, the court should still grant partial summary judgment and order payment by Balalaey under the SBFL and VISA Guarantees.

[9] For the reasons that follow, I find that there is a genuine issue requiring trial with respect to the enforceability of the Impugned Guarantee. The trial judge will need to determine, based on the credibility of the witnesses and the documentary evidence at trial, whether (i) Balalaey did not understand that he was signing the Impugned Guarantee because of Fini’s alleged misrepresentation; and (ii) Balalaey was not careless in signing the Impugned Guarantee.

[10] I also dismiss RBC’s alternative request for partial summary judgment on the SBFL and VISA Guarantees. First, given that the trial judge will be asked to consider the same evidence concerning the signing of all guarantees, the issues of the SBFL and VISA Guarantees cannot be “readily bifurcated”, as required under the principles set out in Mason v. Perras Mongenais, 2018 ONCA 978, and Butera v. Chowns, Cairns LLP, 2017 ONCA 783, 137 O.R. (3d) 561.

[11] Second, even if the issues could be readily bifurcated, the court should not exercise its gatekeeper role for the “rare” circumstances of partial summary judgment when there is no “advancement achieved in terms of the action as a whole by rendering partial summary judgment in this case”: Mason, at paras. 22 and 39.

[12] Concurrent with the present motion, RBC brought a summary judgment motion against 1898936 Ontario Inc. (189)[^3] and Balalaey in Court File No. CV-18-597047 (the 189 Action), seeking payment (i) for monies advanced to 189 and (ii) on two guarantees signed by Balalaey in the cumulative amount of $65,000.

[13] While the matters in both actions are related in that the loans and guarantees were all executed concurrently, the issues raised in each action are different. Consequently, I release a separate set of reasons in the 189 Action concurrently with these reasons.

Facts

Background facts

[14] Tandis is an Ontario corporation which operated as a grocery store in Richmond Hill, Ontario.

[15] Balalaey is an officer and director of Tandis and his partner, Bezkool, is a director of Tandis. Balalaey and Bezkool are the sole shareholders of Tandis.

[16] On September 22, 2014, Tandis entered into a lease agreement to rent the premises located at 10454 and 10456 Yonge Street[^4] to operate a supermarket in Richmond Hill (the Premises). The Premises were not zoned for a supermarket so Tandis had to apply for re-zoning.

[17] The re-zoning process took several months.

Prior dealings between RBC and Balalaey

[18] Prior to the Tandis loans and guarantees, Balalaey worked with RBC and its Small Business Financing Loan Program in relation to his other businesses.

The loan agreements and guarantees

(i) Background leading to the signing of the loan agreements and guarantees

[19] In October 2014, Balalaey and Bezkool applied for three credit facilities for Tandis from RBC:

(i) a small business financing loan for $350,000 under the Canada Small Business Financing Act, S.C. 1998, c. 36 (CSBFA),

(ii) a business VISA for $10,000, and

(iii) an overdraft credit facility for $5,000.

[20] Balalaey’s evidence as to the facts surrounding the signing of the Tandis loan agreements and guarantees is uncontested. I review his evidence below.

[21] For the Tandis (and 189) credit facilities, Balalaey and Bezkool dealt with Fini as the representative from RBC.

[22] Fini told Balalaey and Bezkool that they had to personally guarantee the entire $15,000 amount of the business VISA and overdraft credit facility; however, for the $350,000 small business financing loan, Fini represented that Balalaey and Bezkool were required to personally guarantee only 25% of the total loan, for an $87,500 guarantee.

[23] A few days later, Fini informed Balalaey and Bezkool that the Tandis credit facilities had been approved. On October 27, 2014, they attended at an RBC bank and met with Fini to execute all of the necessary Tandis documents. At the same time, Balalaey executed the necessary documents for the 189 credit facilities and guarantees.

(ii) The SBFL Agreement

[24] The SBFL Agreement was dated October 14, 2014 and executed on October 27, 2014.

[25] Consistent with the prior discussion with Fini, the SBFL Agreement provided that Balalaey and Bezkool had to personally guarantee $87,500 of the small business financing loan, which was equivalent to 25% of the $350,000 loan.

[26] The 25% personal guarantee was also consistent with the $50,000 guarantee that Balalaey was required to provide for the $200,000 small business financing loan by RBC to 189.

[27] Under the section in the SBFL Agreement entitled “Credit Facilities”, RBC agreed to provide a “variable rate term facility in the amount of $350,000.00”, with monthly principal repayments of $5,833.33 plus interest at RBC’s prime rate plus 3% per annum, based on a 60 month amortization. The term of the SBFL Agreement was for 60 months.

[28] Under the section in the SBFL Agreement entitled “Security”, RBC stated that its security for the SBFL “and all other obligations of the Borrower to the bank” included a “Guarantee … in the amount of $87,500.00 signed by HOMAYOUN BALALAEY AND MOHAMMAD BEZKOOL, JOINTLY AND SEVERALLY” [block letters in original].

[29] Consequently, the $87,500 SBFL Guarantee secured the Tandis loan obligations under the SBFL Agreement and all other Tandis obligations to RBC.

[30] Under the standard terms of RBC’s “Loan Agreement – CSBFL”, included as part of the SBFL Agreement, RBC was entitled upon an “event of default”, “in its sole discretion, to cancel any Credit Facility, demand immediate repayment in full of any amounts outstanding under any Credit Facility, together with outstanding accrued interest and any other indebtedness under or with respect to any Credit Facility, and to realize on all or any portion of any Security”.

[31] An event of default under those standard terms included “(a) failure of the Borrower to pay any principal, interest or other amount when due pursuant to this Agreement”, and “(c) the Borrower, or the Guarantor if applicable, is unable to pay its debts as such debts become due, or is, or is adjudged or declared to be, or admits to being, bankrupt or insolvent”.

[32] There was no mention of the Impugned Guarantee in the SBFL Agreement.

[33] Under the SBFL Agreement, Tandis is responsible for paying all costs incurred by RBC as a result of default under the agreement, including legal fees.

(iii) The VISA Agreement

[34] Under the VISA Agreement, there were two “credit facilities”: (i) a “revolving demand facility in the amount of $5,000.00, available by way of Overdraft”, with interest at RBC’s prime rate plus 5% per annum, and (ii) “VISA business to a maximum of $10,000.00” governed by a separate VISA business card agreement which was included in the signed documents.

[35] Under the section in the VISA Agreement entitled “Security”, RBC stated that its security for the credit facilities “and all other obligations of the Borrower to the Bank” included a “Guarantee … in the amount of $15,000.00 signed by Homayoun Balalaey and Mohammad Bezkool”.

[36] Consequently, the $15,000 VISA Guarantee secured the Tandis obligations under the VISA Agreement and all other Tandis obligations to RBC. Under the SBFL and VISA Agreements, Balalaey and Bezkool personally guaranteed $102,500 collectively for all of Tandis’ obligations to RBC.

[37] Under the standard terms of RBC’s “Loan Agreement”, included as part of the VISA Agreement, RBC was entitled upon an “event of default” ,“in its sole discretion, to cancel any Credit Facilities, demand immediate repayment in full of any amounts outstanding under any term facility, together with outstanding accrued interest and any other indebtedness under or with respect to any term facility, and to realize on all or any portion of any Security”.

[38] Under those standard terms, an event of default included “(a) failure of the Borrower to pay any principal, interest or other amount when due pursuant to this Agreement”, and “(c) the Borrower, or the Guarantor if applicable, is unable to pay its debts as such debts become due, or is, or is adjudged or declared to be, or admits to being, bankrupt or insolvent”.

[39] There was no mention of the Impugned Guarantee in the VISA Agreement.

[40] Under the VISA Agreement, Tandis is responsible for paying all costs incurred by RBC as a result of default under the agreement, including legal fees.

(iv) The SBFL and VISA Guarantees

[41] As noted above, as security for the SBFL and VISA Agreements, it is not contested that Balalaey and Bezkool agreed to two personal guarantees in the amount of $87,500 and $15,000. At the meeting with Fini, Balalaey and Bezkool signed these guarantees.

[42] Consistent with the language in the SBFL and VISA Agreements, the guarantees provided that they were not limited to any particular loan agreement. The agreements provided that the guarantees were for “all debts and liabilities, present or future, direct or indirect, absolute or contingent, matured or not, at any time owing by 2414937 ONTARIO LIMITED … to the Bank” [emphasis and block letters in original text].

[43] Under the SBFL Guarantee, the liability of Balalaey and Bezkool was “limited to the sum of $87,500.00 … together with interest thereon from the date of demand for payment at a rate equal to the Prime Interest Rate of the Bank plus 3.000 Three percent per annum as well after as before default and judgment” [emphasis in original text].

[44] Under the VISA Guarantee, the liability of Balalaey and Bezkool was “limited to the sum of $15,000.00 together with interest thereon from the date of demand for payment at a rate equal to the Bank’s Prime Interest Rate plus 5.00 percent per annum as well after as before default and judgment” [emphasis in original text].

[45] Consequently, under the SBFL and VISA Guarantees, Balalaey and Bezkool personally guaranteed $102,500 collectively for all of Tandis’ obligations to RBC.

[46] Both guarantees contained a “non-recourse” provision, under section 3:

The Bank shall not be bound to exhaust its recourse against [Tandis] or others or any securities it may at any time hold before being entitled to payment from the undersigned of the Liabilities. The undersigned renounce(s) to all benefits of discussion and division.

[47] Both guarantees also contained an “entire agreement” or “no representation” clause, at section 13:

This instrument covers all agreements between the parties hereto relative to this guarantee and assignment and postponement, and none of the parties shall be bound by any representation or promise made by any person relative thereto which is not embodied herein.

(v) The Impugned Guarantee

[48] RBC relies upon the Impugned Guarantee dated October 27, 2014. The Impugned Guarantee is signed by Balalaey and Bezkool, and is to secure all Tandis debt to RBC for an additional $200,000 plus interest at RBC’s prime rate plus 5% per annum.

[49] The Impugned Guarantee contains the same non-recourse and entire agreement clauses as the SBFL and VISA Guarantees.

[50] RBC led no evidence as to the signing of any of the guarantees. RBC’s evidence was provided by affidavit from Kevin Leung (Leung) of RBC’s Special Loans and Advisory Department (SLAS). Leung’s involvement with the Tandis account began only on August 10, 2017, when it was transferred to him due to the poor financial performance of Tandis. Leung has no knowledge of the signing of the Impugned Guarantee or any of the Tandis (or 189) loan documents.

[51] Leung produced the signed Impugned Guarantee (along with the signed SBFL and VISA Guarantees) as an exhibit to his affidavit.

[52] The only evidence as to the signing of the Impugned Guarantees (and the other Tandis documents) is provided by Balalaey, who attended at the October 27, 2014 meeting with Bezkool and Fini. Balalaey’s evidence as to the signing of the Impugned Guarantee was not contested, nor challenged on cross-examination.

[53] Balalaey acknowledges that he signed the Impugned Guarantee. Balalaey does not assert that his signature was forged or coerced.

[54] However, Balalaey denies any knowledge of having signed the Impugned Guarantee. He states:

I am now told by my lawyer, Mr. Esmaeil Mehrabi, that RBC has produced a guarantee that it alleges to have been signed by Bezkool and I on October 27, 2014, for $200,000.00. This document can be found under Tab 2 (I) of RBC’s Motion Record, at pages 136 to 140. At no time was I made aware of the fact that I was signing any other guarantees in addition to the guarantees under the SBFL Agreement for $87,500.00 and the Visa Agreement for $15,000.00.

[55] Balalaey’s evidence is uncontested (as set out at paragraphs 20 and 22 above) that Fini had earlier represented that Balalaey and Bezkool would be required to personally guarantee only 25% ($87,500) of the $350,000 small business financing loan.

[56] Balalaey’s uncontested evidence is that he did not know he had signed the Impugned Guarantee. Balalaeys states that at the October 27, 2014 meeting, Fini showed Balalaey and Bezkool (i) the SBFL Agreement which reflected Fini’s prior representation that Balalaey and Bezkool were required to personally guarantee only 25% of the total loan ($350,000) being $87,500 and (ii) the VISA Agreement which reflected Fini’s prior representation that Balalaey and Bezkool were required to personally guarantee the entire $15,000 amount of that credit facility.

[57] A total of 13 documents were executed at the same time, in relation to both the Tandis and 189 loans. Those documents were (i) for the Tandis Loans: the SBFL and VISA Agreements, the SBFL, VISA, and Impugned Guarantees, and a General Security Agreement and Cash Collateral Agreement, and (ii) for the 189 Loans: the 189 SBFL and VISA Agreements, the SBFL and VISA Guarantees signed by Balalaey for 189’s obligations to RBC, and a General Security Agreement and Cash Collateral Agreement.

[58] Leung’s reply evidence is that “[i]t is RBC’s standard practice to require guarantees from a borrower’s owner(s) and/or related parties/individuals that either fully or substantially cover the principal amount being advanced”. However, Leung provides no evidence of RBC’s practice at the time of the Tandis loans and guarantees, particularly as until April 1, 2014, guarantees for small business financing loans under the Canada Small Business Financing Regulations, SOR/99-141 (CSBF Regulations) could not exceed 25% of the principal.

[59] Balalaey’s evidence is (quoted verbatim):

(i) After seeing the SBFL Agreement and the Visa[^5] Agreement, Fini put various documents in front of us to sign;

(ii) Relying on what Fini told us and looking at both the SBFL Agreement and the VISA Agreement, we signed all the documents at RBC bank in front of Fini. At no time were we told or given the opportunity to seek independent legal advice;

(iii) At no time was I made aware of the fact that I was signing any other guarantees in addition to the guarantees under the SBFL Agreement for $87,500.00, and the Visa Agreement for $15,000.00; and

(iv) I relied on the content of the SBFL and Visa Agreements and the representations made by Fini. As evidenced in the documents noted above, it was shown to Bezkool and me that the extent of our personal liabilities was $102,500.00.

The Tandis Equipment Lease

[60] There was a long delay to obtain the rezoning approval for the Premises from the Town of Richmond Hill and to complete the construction of the store. In the fall of 2015, approximately one year after obtaining the SBFL Agreement and the VISA Agreement, Tandis wanted to purchase equipment for the supermarket. For this purpose, Fini indicated to Balalaey that RBC could provide the necessary financing to lease the equipment, under certain conditions.

[61] In order to obtain approval from RBC for the credit facility to lease the equipment, Tandis was required to open a GIC account and place $50,000 into it, as a letter of credit. Tandis agreed to this arrangement, and subsequently opened a GIC account and placed $50,000 into the account. RBC then provided Tandis with a $200,000 credit facility (the Tandis Equipment Lease) to purchase the equipment. The price of the leased equipment was $152,846.34.

[62] Under the Tandis Equipment Lease, Tandis was to pay $2,869.73 monthly for a term of 60 months.

[63] There was no reference to any guarantee in the Tandis Equipment Lease.[^6]

[64] Under the Tandis Equipment Lease, Tandis is responsible for paying all costs incurred by RBC as a result of default under the agreement, including legal fees.

Subsequent events

[65] The store started operating in the summer of 2016.

[66] By June of 2017, Tandis owed $98,278.91 to its landlord, and received a Notice of Default from the landlord dated June 23, 2017. Shortly thereafter, the landlord terminated the lease and repossessed the Premises.

[67] On August 10, 2017, Tandis’ RBC account was transferred to Leung at SLAS, due to the poor financial performance of Tandis.

[68] On October 30, 2017, RBC issued demand letters to Tandis, Balalaey, and Bezkool and issued a Notice of Intention to Enforce Security to Tandis, pursuant to section 244(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3.

Failure to respond to the motions and appoint new counsel

[69] The summary judgment motions in the present action and in the 189 Action were originally returnable before Justice Sossin on July 9, 2019. However, on the hearing date, prior counsel for the defendants advised the court that his firm had scheduled motions for July 18, 2019 to get off the record in both actions for Tandis, 189 and Balalaey. In reliance on the advice of counsel, Justice Sossin adjourned the motions to December 2, 2019, on the following terms:

(i) The defendants were to retain new counsel by August 15, 2019;

(ii) The defendants were to deliver their responding motion materials by September 5, 2019; and

(iii) RBC was granted its costs thrown away.

[70] On July 18, 2019, Master Short issued orders in the present action and in the 189 Action removing prior counsel for the defendants as lawyers of record. Master Short’s orders further provided that the defendants had 30 days from the date of being served with the orders to appoint a new lawyer or, in Balalaey’s case, deliver a notice of intention to act in person, failing which the court may strike their statements of defence.

[71] The summary judgment motions were brought before me on December 2, 2019. At that time, none of the defendants had retained counsel. Balalaey sought a brief adjournment to retain counsel, since he had not been able to do so despite his best efforts. I granted the adjournment until January 10, 2020 and remained seized of the motions.

[72] After Balalaey retained counsel on December 7, 2019, RBC sought a further adjournment to prepare reply materials. The motions were adjourned to April 3, 2020 and then later adjourned as a result of the COVID-19 pandemic.

[49] Neither Tandis nor 189 delivered notice that they retained a new lawyer nor did they deliver responding material to the motions.

Analysis

The general principles applicable to the law of summary judgment

[73] In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 SCR 87, the court held that summary judgment is only appropriate where it leads to “a fair process and just adjudication”: at para. 33. A judge can grant summary judgment only if the process “gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute”: at para. 50. The evidence before the court “must be such that the judge is confident that she can fairly resolve the dispute”: at para. 57.

[74] In the recent decision of Mason, the Court of Appeal reiterated the caution that “the overriding principle [is] that summary judgment is only appropriate where it leads to ‘a fair process and just adjudication’”: at para. 44. The court further held, at para. 44:

Certainly there is nothing in Hryniak that suggests that trials are now to be viewed as the resolution option of last resort. Put simply, summary judgment remains the exception, not the rule.

[75] In Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450, 120 O.R. (3d) 438, the court cautioned against reliance on a documentary record when the credibility of an affiant can be determinative at trial. The court held, at para. 44:

Evidence by affidavit, prepared by a party's legal counsel, which may include voluminous exhibits, can obscure the affiant's authentic voice. This makes the motion judge's task of assessing credibility and reliability especially difficult in a summary judgment and mini-trial context. Great care must be taken by the motion judge to ensure that decontextualized affidavit and transcript evidence does not become the means by which substantive unfairness enters, in a way that would not likely occur in a full trial where the trial judge sees and hears it all.

[76] In Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, aff’d 2014 ONCA 878, Justice Corbett reviewed the process by which the court considers whether summary judgment is appropriate. He stated, at para. 33:

[T]he court on a motion for summary judgment should undertake the following analysis:

1. The court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial;

2. On the basis of this record, the court decides whether it can make the necessary findings of fact, apply the law to the facts, and thereby achieve a fair and just adjudication of the case on the merits;

3. If the court cannot grant judgment on the motion, the court should:

a. Decide those issues that can be decided in accordance with the principles described in 2) above;

b. Identify the additional steps that will be required to complete the record to enable the court to decide any remaining issues;

c. In the absence of compelling reasons to the contrary, the court should seize itself of the further steps required to bring the matter to a conclusion.

[77] A responding party to a motion for summary judgment is entitled to rely on the evidence put before the court by the moving party: Pereira v. Contardo, 2014 ONSC 6894, 123 O.R. (3d) 271, at paras. 41 and 43.

The general principles applicable to the availability of partial summary judgment

[78] The Court of Appeal in both Mason and Butera have affirmed the principle that partial summary judgment is a “rare procedure”: Mason, at para. 22; Butera, at para. 34.

[79] Under the test in Mason and Butera, partial summary judgment can only be granted if the court is satisfied that there is an “issue or issues” that (i) “may be readily bifurcated from those in the main action” and (ii) “may be dealt with expeditiously and in a cost effective manner”: Mason, at para. 22, Butera, at para. 34.

[80] The first requirement avoids the risk of inconsistent judgments on factual issues at trial, and ensures that the trial judge has a full appreciation of the facts: Mason, at para. 23.

[81] The second requirement engages the gatekeeper role of the court to ensure that partial summary judgment is only permitted if it is a cost-effective process that promotes judicial economy. Consequently, partial summary judgment will not be appropriate if “there does not appear to be any advancement achieved in terms of the action as a whole by rendering partial summary judgment”: Mason, at para. 39.

[82] The court must consider the concerns of “delay, added expense, [and] the unproductive use of scarce judicial resources” when assessing suitability for partial summary judgment: Mason, at para. 41.

Application of the law to the present case

[83] I first consider whether RBC is entitled to summary judgment against Balalaey under the Impugned Guarantee.

[84] I then consider whether RBC is entitled to partial summary judgment against Balalaey under the SBFL and VISA Guarantees, given my finding that summary judgment under the Impugned Guarantee is not appropriate.

(i) Summary judgment on the Impugned Guarantee

[85] RBC asks the court to find that the Impugned Guarantee is enforceable. However, as I discuss below, both the non est factum and fraud defences raise genuine issues requiring trial based on the evidentiary record before the court.

1. The non est factum defence

[86] The definition of the non est factum defence is set out by Justice H.J. Williams in The Toronto-Dominion Bank v. Fares, 2018 ONSC 6512, at para. 33:

The defence of non est factum is available to someone who, as a result of misrepresentation, has signed a document without understanding its nature and character and who has not been careless in doing so: Marvco Colour Research Ltd. v. Harris, 1982 CanLII 63 (SCC), [1982] 2 S.C.R. 774.

[87] In the present case, there is evidence that requires a trial to determine whether Balalaey’s non est factum defence will succeed.

[88] RBC filed no evidence from Fini as to the circumstances of the signing of the Impugned Guarantee. Leung stated on cross-examination that he did not know if Fini still worked for RBC. Leung had no knowledge of the circumstances of the signing of the Impugned Guarantee.

[89] The only evidence about the signing of the Impugned Guarantee is from Balalaey. His evidence is not contested on this motion.

[90] Balalaey stated that Fini represented that Balalaey and Bezkool were required to personally guarantee only 25% of the $350,000 under the SBFL Agreement,[^7] i.e. $87,500, and Balalaey and Bezkool were required to personally guarantee the full $15,000 under the VISA Agreement.

[91] The 25% SBFL Guarantee was also consistent with the $50,000 guarantee that Balalaey was asked to provide for the $200,000 small business financing loan provided by RBC to 189,[^8] with those documents being signed concurrently with the Tandis documents on October 27, 2014.

[92] Balalaey’s evidence is that at the October 27, 2014 meeting, Fini then showed Balalaey and Bezkool the SBFL and VISA Agreements, which were consistent with the representations Fini had made about the scope of the personal guarantees being limited to $87,500 and $15,000.

[93] Further, as I note above, Balalaey’s evidence is (quoted verbatim):

(i) After seeing the SBFL Agreement and the Visa[^9] Agreement, Fini put various documents in front of us to sign;

(ii) Relying on what Fini told us and looking at both the SBFL Agreement and the VISA Agreement, we signed all the documents at RBC bank in front of Fini. At no time were we told or given the opportunity to seek independent legal advice;

(iii) At no time was I made aware of the fact that I was signing any other guarantees in addition to the guarantees under the SBFL Agreement for $87,500.00 and the Visa Agreement for $15,000.00; and

(iv) I relied on the content of the SBFL and Visa Agreements and the representations made by Fini. As evidenced in the documents noted above, it was shown to Bezkool and me that the extent of our personal liabilities was $102,500.00.

[94] Consequently, Balalaey’s uncontested evidence is that “[a]t no time was I made aware of the fact that I was signing any other guarantees in addition to the guarantees under the SBFL Agreement for $87,500.00, and the Visa Agreement for $15,000.00”.

[95] Further, RBC’s evidence establishes that Balalaey signed 13 documents at the October 27, 2014 meeting, in relation to both the Tandis and 189 loan obligations.

[96] The above evidence, if accepted at trial, could support a finding that “as a result of misrepresentation, [Balalaey] signed a document without understanding its nature and character and … has not been careless in doing so”: Fares, at para. 33.

[97] RBC relies on the “entire agreement” or “non-representation” clause at section 3 of the Guarantees. RBC submits that as in Fares, Balalaey cannot ask the court to rely upon a representation or ask the court to permit parol evidence when the words of the Impugned Guarantee establish that Balalaey provided the $200,000 additional guarantee. I do not agree.

[98] In the present case, Balalaey does not rely on a representation to modify the terms of a guarantee that he understood he was signing. Such a position would be prohibited based on the entire agreement clause: Fares, at para. 30. It was in that context that Justice H.J. Williams did not accept the non est factum defence in Fares. She held, at para. 33:

Fares and Bakhos understood that they were personally guaranteeing TD's loan to 7865210; they say that they did not appreciate that their guarantees that [sic] were unlimited.

[99] Consequently, Balalaey’s position is not akin to what occurred in Fares, when the guarantors sought to rely upon a representation that was not included in the contract.

[100] By submitting that he did not understand that he was signing the Impugned Guarantee due to the misrepresentations of Fini, Balalaey is relying on the non est factum defence. While an entire agreement clause would prevent a guarantor from submitting that the amount of the guarantee signed was represented to be a lower amount (as in Fares), such a non-representation clause does not preclude a non est factum defence.

[101] Consequently, if Balalaey’s evidence is accepted at trial, he can rely on the non est factum defence to submit that (i) Fini represented that only the SBFL and VISA Guarantees were required, for a total of $102,500, and (ii) as such, Balalaey did not understand that he was signing the Impugned Guarantee for an additional $200,000 and was not “careless” in so doing, regardless of the “entire agreement” or “no representation” clause.

[102] If RBC’s position on the “entire agreement” clause was accepted, a defendant would be bound by a contract which contained such a clause, even if the defendant had no knowledge of the contract and was not careless in signing it. Such a position would vitiate the non est factum defence, and would be inconsistent with the case law.

[103] RBC further submits that Balalaey cannot rely on the lack of independent legal advice as a basis to support his non est factum defence. RBC relies on case law that holds independent legal advice is not required if the guarantor is an officer or director of the corporation receiving the loan: Meridian Credit Union Limited v. 2428128 Ontario Limited, 2017 ONSC 4578, 73 B.L.R. (5th) 262, at paras. 23-24.

[104] However, in Meridian Credit, the guarantor was seeking to have the guarantee invalidated because he did not have independent legal advice when signing it. In the present case, Balalaey does not submit that the Impugned Guarantee is not valid because he did not receive independent legal advice. Instead, the lack of independent legal advice is relevant to whether Balalaey was given the opportunity to review the document with counsel who could have identified that the Impugned Guarantee was included amongst the 13 agreements that Fini put before Balalaey for signing on October 27, 2014. That issue is relevant to whether Balalaey was “careless” in signing the Impugned Guarantee, which is a factor in a non est factum defence.

[105] Finally, RBC submits that Balalaey cannot rely on a non est factum defence since a failure to read a contract before signing is not a legally acceptable basis for refusing to accept its terms. RBC relies on the decision in Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection Co. (1997), 1997 CanLII 4452 (ON CA), 34 O.R. (3d) 1 (C.A.), in which the court held the onus was on the plaintiff to review the contract, and as such, the plaintiff was bound to the contract despite his failure to read it and understand the contract’s limitation of liability clause: at paras. 31-33.

[106] However, the non est factum defence exists to protect those who (not carelessly) sign a contract without understanding its nature and character, as a result of a misrepresentation. There is no issue of misrepresentation in Fraser Jewellers. Otherwise, RBC’s position would result in the elimination of the non est factum defence simply because a person signs an agreement without coercion or pressure, even when based on a misrepresentation. That result is not contemplated by Fraser Jewellers. The non est factum defence remains available to those defendants who sign a contract without understanding its nature and character (without being careless).

[107] Consequently, in the present case, there is a genuine issue requiring trial for the non est factum defence. The trial judge will need to determine, based on the credibility of the witnesses and the documentary evidence at trial, whether (i) Balalaey did not understand that he was signing the Impugned Guarantee because of Fini’s alleged misrepresentation; and (ii) Balalaey was not careless in signing the Impugned Guarantee.

2. The fraud defence

[108] For the same reasons as I set out above, I find that there is a genuine issue requiring trial that Fini fraudulently inserted the Impugned Guarantee into the group of documents signed by Balalaey on October 27, 2014.

[109] In particular, without any evidence from Fini (or even with such evidence which would require an assessment of Fini’s credibility), a court could find that, on the balance of probabilities, Fini knew that the Impugned Guarantee of $200,000 was included in the documents to be signed when he had represented that the only guarantees were the SBFL and VISA Guarantees limited to $102,500. In such a case, a court could find fraud, if required to do so in addition to the non est factum defence.

[110] Neither party requested a “mini-trial” and I would not order one in the circumstances of this case. The only issues in the action are the non est factum and fraud defences raised by Balalaey (subject to a minor issue on mitigation), so a mini-trial could not effectively carve out an issue while leaving any remaining substantive issue for trial.

(ii) Partial summary judgment on the SBFL and VISA Guarantees

[111] At the hearing, RBC submitted, in the alternative, that if the court was not prepared to order summary judgment on the Impugned Guarantee, it still should order partial summary judgment on the SBFL and VISA Guarantees, since Balalaey acknowledged signing and understanding those guarantees (subject to the mitigation issues as I discuss below).

[112] I do not agree.

[113] The issue at trial will be the enforcement of the guarantees. It is the same issue as proposed for partial summary judgment, and, as such, it cannot be “readily bifurcated”, as required under the case law.

[114] Further, partial summary judgment is not appropriate given the court’s gatekeeper role established under Mason and Butera. RBC asks the court to allow partial summary judgment on the SBFL and VISA Guarantees, and then have a trial to determine whether the Impugned Guarantee should be enforced. However, that approach does not provide an expeditious or cost effective resolution of the issues in the present case.

[115] Regardless of the validity of the SBFL and VISA Guarantees, Balalaey will lead the same evidence at trial as to the circumstances surrounding the signing of all guarantees. The court will need to consider which guarantees are to be enforced, mitigation issues (as I discuss below), and then determine the amounts owing. A partial summary judgment in the present case would provide no savings in time, costs, or resources of a trial at which the judge will have to consider all of the relevant evidence.

[116] RBC is attempting to “carve out” certain guarantees from a claim (totaling $102,500) in which the enforceability of the $200,000 Impugned Guarantee (twice the amount of the other guarantees combined) is a contested issue. There is no “advancement achieved in terms of the action as a whole by rendering partial summary judgment in this case”: Mason, at para. 39.

[117] For the above reasons, I dismiss RBC’s request for partial summary judgment on the SBFL and VISA Guarantees.

A note on the issue of RBC’s alleged failure to properly mitigate its losses

[118] Balalaey submitted that there was a genuine issue requiring trial that RBC failed to properly mitigate its losses based on RBC’s decision not to realize on Tandis’ assets. Both parties relied on evidence as to (i) the value of those assets, (ii) the cost of realizing upon them, and (iii) the issue of whether Tandis’ landlord was seeking to distrain the assets.

[119] I do not address that issue in these reasons. Given that I have decided that a trial is required to address whether the Impugned Guarantee can be enforced, deciding the mitigation issue would, at best, only result in some credit to be given to Balalaey at trial, regardless of whether Balalaey is found liable under only the SBFL and VISA Guarantees, or also under the Impugned Guarantee. The mitigation defence cannot be a full answer to either result, and particularly to a claim under the Impugned Guarantee, which constitutes two-thirds of the debt claimed.

[120] Further, deciding the mitigation issue without deciding the guarantee issue would also be contrary to principles restricting partial summary judgment as discussed above. The mitigation issue cannot be “readily bifurcated from those in the main action”: Mason, at para. 22; Butera, at para. 34. Further, there would be no “advancement achieved in terms of the action as a whole by rendering partial summary judgment in this case”, if the court addressed only RBC’s alleged failure to mitigate its losses: Mason, at para. 39.

[121] Consequently, I do not decide whether the mitigation issue raises a genuine question for trial. It is at best a partial issue in this matter, and should be determined at trial since partial summary judgment would not be appropriate.

Order and costs

[122] For the above reasons, I dismiss the motion for summary judgment against Balalaey. I grant the motion for summary judgment against Tandis.

[123] The parties asked to provide written costs submissions, in order to address issues relating to settlement offers and costs thrown away. If the parties cannot agree on costs, Balalaey shall provide written costs submissions of no more than three pages (not including a bill of costs) by October 23, 2020. RBC shall provide responding written costs submissions of no more than three pages (not including a bill of costs) by November 7, 2020. Balalaey may deliver reply written costs submissions of no more than one page by November 14, 2020. All costs submissions shall be delivered electronically to my assistant, Roxanne Johnson, at roxanne.johnson@ontario.ca.

GLUSTEIN J.

Date: 20201009

[^1]: The amount of principal and interest is $362,130.06 plus legal fees to enforce payment of $36,260.08. [^2]: Counsel for RBC advised the court that Tandis had paid its VISA debt, but owed the outstanding balance on the SBFL Agreement and the Tandis Equipment Lease. [^3]: 189 is also owned by Balalaey. [^4]: Leung states that the business operated at 10454 Yonge Street while Balalaey states that it operated at both 10454 and 10456 Yonge Street but the factual issue is irrelevant to these Reasons. [^5]: The capitalization of “VISA” is inconsistent in Balalaey’s affidavit. I make no changes to his verbatim affidavit evidence. [^6]: The lack of a reference to a guarantee in the Tandis Equipment Lease does not preclude liability for Balalaey under the SBFL and VISA Guarantees, which apply to all Tandis debt to RBC. [^7]: As I note at paragraph 58 above, the CSBF Regulations were amended as of April 1, 2014 to remove the restriction that guarantees given for such loans could not exceed 25% of the principal. At trial, this evidence may support Balalaey’s position on the alleged Fini representation (if the court finds that Fini or Balalaey agreed or understood that the (i) prior regulation applied to both the Tandis and 189 guarantees or (ii) Tandis and 189 SBFL guarantees would be consistent with the prior regulation), or it could support RBC’s position (if the court finds that the change in the maximum guarantee was communicated to or understood by Balalaey). This issue will depend on the credibility of the witnesses at trial, and as such militates against granting summary judgment. [^8]: (also executed concurrently with the Tandis documents shortly after the amendments to the Canada Small Business Financing Regulations) [^9]: See footnote 5 above.