Tire Discounter Group Inc. v. MacGibbon, 2021 ONSC 5199

COURT FILE NO.: 145/15

DATE: 20210726

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

TIRE DISCOUNTER GROUP INC.

Plaintiff

– and –

MacGIBBON ENTERPRISES INC. carrying on business as RON’S TIRE DISCOUNTER and DARREN MacGIBBON

Defendant

R. Brown, for the Plaintiff

E. Upenieks and J. Malik, for the Defendant

HEARD: April 15 & 21, 2021

REASONS FOR JUDGMENT

MILLER J.

1The Plaintiff Tire Discounter Group Inc. (TDGI) sues the Defendant Darren MacGibbon to recover funds owed for goods it provided to MacGibbon Enterprises Inc. carrying on business as Ron’s Tire Discounter (Ron’s Tire). The action has been stayed against the corporate Defendant due to bankruptcy of the corporate Defendant, but TDGI pleads that Darren MacGibbon is bound by a personal guarantee of the funds owed.

2Darren MacGibbon was the sole proprietor of Ron’s Tire. He admits that his company owed funds to TDGI. However, he denies knowingly giving a personal guarantee to secure the funds owed to TDGI by his company. He also disputes the amount claimed by TDGI.

3For reasons set out below, I am satisfied that the amount claimed by TDGI, $659,908.87 as of the commencement of the trial, is the amount owed, but I am not satisfied that Darren MacGibbon is bound by a personal guarantee for these funds.

Evidence

4Viva voce evidence was given for the Plaintiff by Frank Brundle, Daniel Edge and Bruce Lush. Mr. Brundle and Mr. Lush each adopted the contents of affidavits and the transcript of their respective cross-examinations. Mr. Edge had been discovered and certain “read-ins” from his discovery formed part of the evidence.

5At the time of trial Darren MacGibbon was represented by a litigation guardian. He was incapable of participating in the litigation against him as a result of a head injury suffered after the litigation commenced. The parties agreed that Mr. MacGibbon’s testimony could be given, pursuant to Rule 53.02 of the Rules of Civil Procedure, by affidavit together with a transcript of Mr. MacGibbon’s cross-examination, both created before Mr. MacGibbon became incapable. The Court granted leave pursuant to Rule 53.02 and received Darren MacGibbon’s evidence in that fashion.

6At the conclusion of the viva voce testimony at trial, it was agreed between the parties that further questions, related to the viva voce testimony heard, were to be put to Darren MacGibbon in writing and his responses would be admitted in affidavit form. The Court received an affidavit of Darren McGibbon dated May 27, 2021. The Plaintiff chose not to pose further questions despite the opportunity to do so. Written submissions were subsequently provided by both parties.

7A summary of the evidence follows.

8TDGI is a wholesale distributor of tires. Ron’s Tire was a tire wholesaler. The two have had a business relationship of approximately 20 years.

9TDGI is one of the largest suppliers of tires and associated products within Ontario. ln 2014 and 2015 Ron's Tire was one of TDGI’s largest customers. Ron's Tire was a "branded" store, which meant it was authorized to carry the Tire Discounter name to market itself as a dealer for the Tire Discounter brand of products.

10Darren MacGibbon was the sole officer, director shareholder and "operating mind" of MacGibbon Enterprises Inc., carrying on business as Ron's Tire Discounter since 2004.

11Frank Brundle is the president of TDGI.

12Product (primarily tires) was provided to Ron’s Tire (and to other clients) by TDGI on a credit system. Payment for product was due within 30 days, but sometimes went unpaid for 60 or 90 days. Each account had a credit limit. If any account was over 90 days unpaid, or was at or over its credit limit, then there was a “hold” on further orders for product. The “hold” could be overridden by the credit manager, a business development manager, some branch managers and some customer service representatives, or by Frank Brundle.

13The credit limit for Ron’s Tire at the time the funds owing went unpaid was $180,000. The credit manager was, at all material times, Pat Firth. Pat Firth did not give evidence in these proceedings.

14The client account summary for Ron's Tire for the period July 2012 to November 2015, showing the month end running balances, was filed as Tab 5 of the Joint Document Brief. A review of those records illustrates that, until the winter of 2015, whenever the outstanding balance did exceed the internal credit limit of $180,000.00, Mr. McGibbon would then take steps to bring the balance to an amount within that credit limit.

15The records also show that on one occasion, in August 2012, the Ron’s Tire account went over 90 days. In the months following until November 2013, Ron's Tire maintained significant balances owing for a period of more than 60 days. By October 2014 Ron's Tire had reduced its balance owing to within the terms of "over 30", or under “60” but the outstanding balance remained $241,987.00.

16All parties have testified in these proceedings that the fall of 2014 was a "crazy year” in the sale of tires, primarily due to exceptional winter weather creating an unprecedented demand for tires. The records show that Ron's Tire received $317,804.00 in product from TDGI in November 2014, and a further $201,393.00 in product in December 2014. The cumulative value of these orders was significantly more than Ron's Tire had historically ordered.

17The records show that by the end of December 2014, the outstanding balance owed by Ron's Tire totalled $520,765.00 and by November 2015, that running balance had only been reduced to the amount of the claim when the action was commenced, being $397,535.00.

18Mr. MacGibbon does not dispute that Ron’s Tire owed money to TDGI. He disputes the amount owing. He produced a chart showing his calculations which suggest Ron’s Tire owed $233,829.76 to TDGI.

19Bruce Lush, the Chief Financial Officer of TDGI, gave evidence in support of the amount claimed by the Plaintiff. He reviewed Darren MacGibbon’s calculations and compared them to the TDGI records. In his affidavit of October 27,2016 Mr. Lush prepared a spreadsheet showing what he described as errors in Mr. MacGibbon’s calculations. He was not challenged on this evidence.

20The Plaintiff, in support of its position that Darren MacGibbon is personally liable for the debt owed by Ron’s Tire, relies on a document dated August 13, 2013, entitled “Credit Application and Security Agreement”. The document is a copy. The original was not produced. The latter portion of the copy of that document is reproduced below:

21Darren MacGibbon’s evidence is that he does not recall the document being sent to him. He admits that he signed the Security Agreement. He does not accept that he signed the Guarantee. He denies that he would ever have signed a personal guarantee as he would never have exposed his family to such liability. He gave evidence that he was not told at any time that the Credit Application involved any personal guarantee.

22The evidence about the document and how it came to be signed varies amongst the witnesses.

23Frank Brundle testified that he was concerned about the unpaid debt accumulating for Ron’s Tire. In Mr. Brundle’s affidavit of October 27, 2016 he stated that around July 2013 Darren MacGibbon approached him “on behalf of RTD [Ron’s Tire] asking for an increase in RTD's credit limit. At that time MacGibbon was told that the only way for that to happen would be if he provided a personal guarantee on this debt. MacGibbon agreed to do so. MacGibbon stated he had equity in his home and he had a large amount of personal investments to support that guarantee.”

24Frank Brundle’s viva voce testimony on this issue was much more equivocal. Mr. Brundle testified before me that he “had an understanding of Darren MacGibbon’s net worth” and that he did not believe that he had any direct communication with Mr. MacGibbon on this issue although he spoke to Daniel Edge about getting a personal guarantee from Mr. MacGibbon. Mr. Brundle testified that he did not believe that he had any discussion with Darren MacGibbon about a personal guarantee although he did show Mr. MacGibbon - on some unspecified date – a copy of the credit application containing the guarantee section and suggested that Mr. MacGibbon use such a form to secure debts owed to Ron’s Tire from its own customers.

25Darren MacGibbon’s evidence is that he never requested an increase to his credit limit and that it was always $180,000.

26Daniel Edge testified that he began working for TDGI in May 2013 and became a business development manager after a few months of training. He managed about 100 customers. Ron’s Tire was his number one account.

27He testified that in 2013 TDGI had re-drafted the security agreement and they wanted updated paperwork for each account. He believes that the Credit Application and Security Agreement was presented to Mr. MacGibbon in this context. He did not recall being present for the signing or writing of Mr. MacGibbon’s document. He testified that the document could be sent as a PDF attachment to an email, faxed or delivered by the business development manager. He could not say when he knew that Mr. MacGibbon’s document had been completed.

28Mr. Edge testified that he never had any discussions with Darren MacGibbon about a personal guarantee. To his knowledge Mr. MacGibbon never asked for a credit increase. Mr. Edge testified he did not recall any discussions with TDGI about a personal guarantee from Mr. MacGibbon.

29Mr. Edge testified that TDGI sent out tires to its customers as soon as they received a purchase order unless there was a “pop-up”. If there was a pop-up indicating the customer had exceeded 90 days in making payment or had exceeded their credit limit, an override was required. Mr. Edge testified that if a pop-up came to his attention he would contact the dealer and depending on the urgency of the order or, if it was a top client like Ron’s Tire, he would override the pop-up, in his words, “push that order through”. Mr. Edge testified that “Consistency of service for Ron’s Tire was the guiding principle – I wanted to make sure there were no interruptions for his service – I wanted him to get product right away.”

The Amount Owing

30The Plaintiff claims the sum of $397,535.77, the balance alleged to be outstanding when the claim was issued. That balance accrues interest at 1 per cent a month which calculates as $3,975.35 per month. As 66 months have passed since the issuance of the claim, that debt, if proven, has accrued interest charges of $262,373.10 resulting in a total outstanding amount owing at the commencement of trial of $659,908.87.

31Mr. MacGibbon does not dispute that a debt was owed by Ron’s Tire to TDGI. He disputes the amount owing. He produced a chart showing his calculations showing that the amount owing to TDGI by Ron’s Tire was $233,829.76.

32Darren MacGibbon’s evidence was that a significant reason his business failed was due his accountant not recording accurately what monies were coming in and going out of the business. Mr. McGibbon described these errors as in the hundreds of thousands of dollars. He described the accounting program used to record the incomings and outgoings of his business as a “disaster”.

33In response to this litigation Darren MacGibbon attempted to recreate what he believes he actually owed to the Plaintiff on paper. He produced a ledger in which he calculated the amount owing and outlining where he believed errors had been made by TDGI in their calculations.

34This was reviewed by Mr. Lush, who addressed in his testimony at trial the calculations Mr. MacGibbon had identified as errors. In this process Mr. Lush identified and rectified in his calculations an error relating to five credit notes totalling $10,242.47. This correction is taken into account in the total now claimed by TDGI as set out above.

35Having reviewed the evidence as a whole, I am satisfied on a balance of probabilities that the calculations done by Mr. Lush are accurate and prove the amount owing, as of the commencement of the trial, is $659,908.87.

36The issue remaining, and indeed the principal issue on the trial, is whether it has been proven that Darren MacGibbon personally guaranteed that amount.

The Personal Guarantee

The Law

37Both parties rely on the law as set out by the Supreme Court of Canada in the leading case of Sattva Capital v. Creston Moly 2014 SCC 53, [2014] 2 S.C.R. 633. At paragraphs 47-48 the Court states:

…the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27, per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 64-65, per Cromwell J.). To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning: No contracts are made in a vacuum: there is always a setting in which they have to be placed. . . . In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating. (Reardon Smith Line, at p. 574, per Lord Wilberforce)

The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement (see Moore Realty Inc. v. Manitoba Motor League, 2003 MBCA 71, 173 Man. R. (2d) 300, at para. 15, per Hamilton J.A.; see also Hall, at p. 22; and McCamus, at pp. 749-50). As stated by Lord Hoffmann in Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.):

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. [p. 115]

38Further, at paragraphs 57-58:

While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 30-32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement (Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), 1997 CanLII 4085 (BC CA), 101 B.C.A.C. 62).

The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract (King, at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. Subject to these requirements and the parol evidence rule discussed below, this includes, in the words of Lord Hoffmann, “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man” (Investors Compensation Scheme, at p. 114). Whether something was or reasonably ought to have been within the common knowledge of the parties at the time of execution of the contract is a question of fact.

39The Court explained the application of the parol evidence rule in this context at paragraphs 59-60:

…The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing (King, at para. 35; and Hall, at p. 53). To this end, the rule precludes, among other things, evidence of the subjective intentions of the parties (Hall, at pp. 64-65; and Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129, at paras. 54-59, per Iacobucci J.). The purpose of the parol evidence rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a party’s ability to use fabricated or unreliable evidence to attack a written contract (United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., 1993 CanLII 88 (SCC), [1993] 2 S.C.R. 316, at pp. 341-42, per Sopinka J.).

The parol evidence rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.

40Newbould J. referenced Saatva in Callidus Capital Corporation v. McFarlane, 2016 ONSC 3451 in respect of a guarantee, which he found was “a commercial agreement and should be construed accordingly”.

41In Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection Co. et al. 1997 CanLII 4452 (ON CA), [1997] O.J. No. 2359 (C.A.) the Ontario Court of Appeal held that:

As a general proposition, in the absence of fraud or misrepresentation, a person is bound by an agreement to which he has put his signature whether he has read its contents or has chosen to leave them unread. Failure to read a contract before signing it is not a legally acceptable basis for refusing to abide by it.

42In that case, the Court found that it was “not a case in which the clause limiting liability was so obscured as to make it probable that it would escape attention. The language was clear and unambiguous. There was no special relationship between the parties that imposed any obligation on the defendant to bring the clause to the specific attention of the plaintiff.”

43In Coast Wholesale Appliances Ltd. v. Armitstead 1993 CanLII 401 (BC CA), 22 BCAC 84, the British Columbia Court of Appeal upheld a trial judge’s finding that although the corporate defendant was liable for a debt to the plaintiff, the personal defendant was not liable as guarantor of the corporate defendant’s indebtedness to the plaintiff. The Court upheld the trial judge’s finding that there had been a misrepresentation, to the personal defendant, to the effect that the document he was being asked to sign was simply a “credit application”. The personal defendant’s sworn testimony was that had he been told that the credit application contained a personal guarantee, he would not have signed it.

Analysis

44I am not persuaded, on the evidence before me, that Darren MacGibbon did not sign the guarantee. I am satisfied on balance of probabilities that he did sign the guarantee. In coming to this conclusion I have considered that there is no original document in evidence. I have also considered Darren MacGibbon’s evidence that he does not recall the document being sent to him and that he doubts that the signature on the guarantee is his, simply because he has never, and is certain that he would not have, signed a personal guarantee.

45I accept the evidence given on behalf of the Plaintiff that in 2013 all clients were presented with the “updated” credit applications and that these documents contained the guarantee as set out in the document in evidence before me. While there is no expert handwriting evidence before me, the signature in the Guarantee section appears identical to the signature on the portion Mr. MacGibbon admits signing. I am satisfied on a balance of probabilities that he did sign in the area under the subtitle Guarantee.

46I start, therefore, from the proposition, as set out in Fraser, that, in the absence of fraud or misrepresentation, Mr. MacGibbon is bound by the guarantee he signed. I accept, as set out in the plain language of the Guarantee that the amount guaranteed would be the total amount owed by the corporate Defendant. The onus is on Mr. McGibbon to establish fraud or misrepresentation.

47In considering the other elements identified in Fraser I am satisfied that the plain words of the guarantee identify it as such. I am satisfied that the language is clear and unambiguous.

48In considering whether the clause “was so obscured as to make it probable that it would escape attention”, I look to Coast for comparison. There are some similarities and some differences.

49In Coast the guarantee set out within a document entitled “Application for Account” is described as follows:

…in small printing unhighlighted, and in a form that does not draw the attention of the signatory in particular appear the following words:

"I/we, the undersigned, hereby authorize Coast Wholesale Appliances Ltd. or its appointed representative to obtain any information required related to this application from any source to which Coast Wholesale Appliance Ltd. or its representative may apply and each source is hereby authorized to provide such information upon request. Should credit be granted, the undersigned hereby guarantees and indemnifies payment of all amounts owed to Coast Wholesale Appliances Ltd."

…those words contained in the guarantee are in very small print and are not the subject of even a separate paragraph.

50In this case the document is entitled “Credit Application and Security Agreement”. As captured above in paragraph 20, the guarantee is set out within a box with the title “Security Agreement and Release of Information”. The guarantee is set out in a separate paragraph and under the subtitle “Guarantee” and contains the words “I, ___________, hereby personally and unconditionally guarantee and agree to pay to Tire Discounter Group Inc., any and all amounts owed by Buyer, including interest, attorney’s fee and collection costs incurred from enforcing the collections of the monies owed.”

51In both cases the location and size of printing of the guarantee do not make that portion of the document stand out.

52I also look to the surrounding circumstances, including the special relationship between the parties that I find, imposed a positive obligation on the Plaintiff to bring the clause to the specific attention of Mr. MacGibbon.

53I reject the evidence given by affidavit by Frank Brundle that Darren MacGibbon had asked for a credit increase. First, Mr. Brundle contradicted himself on this point in his own viva voce testimony. Darren MacGibbon denies that he asked for a credit increase and denies that there was one. The Plaintiff has produced no record showing that there was an increase in the credit limit for Ron’s Tire at any point, let alone in the period following August 2013.

54Further, the records do show, as both Mr. Brundle and Mr. Edge testified, that Ron’s Tire had a special relationship with TDGI such that any pop-up requiring a hold on product for Ron’s Tire when it was over its credit limit was easily and often overridden so that Ron’s Tire product was “pushed through”. Therefore, the evidence supports a finding that there was never any need for Mr. MacGibbon to seek an increase in his credit limit.

55Finally, in his viva voce testimony, Frank Brundle resiled from his affidavit evidence that Darren MacGibbon had assured Mr. Brundle of his personal net worth when discussing a credit limit increase. Rather, Mr. Brundle’s perception of Darren MacGibbon’s personal net worth came from casual, golf course conversation, not from any conversation about a personal guarantee of any money owed to TDGI by Ron’s Tire. It may be that this perception led to Mr. Brundle wanting to obtain from Mr. MacGibbon a personal guarantee. However, I find that if TDGI was seeking a personal guarantee from Mr. MacGibbon, that fact was not shared with Mr. MacGibbon prior to his signing of that document.

56I further find, based on the testimony of Daniel Edge, that if Frank Brundle was seeking to obtain a personal guarantee from Darren MacGibbon, Mr. Brundle did not share that with Mr. Edge. Mr. Edge testified that he understood the credit application was being presented to all customers to update their information. I accept that evidence, and find that because Mr. Edge did not understand that the document contained a personal guarantee, he could not have imparted that information to Mr. MacGibbon. Mr. Edge testified that he has no recollection of discussing a personal guarantee with Mr. MacGibbon. and I accept Darren MacGibbon’s evidence that the document was presented to him as an update form and nothing else.

57The casual manner in which TDGI treated the document is confirmatory of this. It appears no one took care to preserve an original of the signed document. Further, as noted by counsel for Mr. MacGibbon, within approximately 75 pages of emails between Darren MacGibbon and TDGI, from May 20, 2015 to August 24, 2015 wherein payment arrangements were being discussed between the parties, there is no mention of the Credit Application nor do they reveal any intention of TDGI to rely on or to invoke the guarantee as a basis for collection.

58Darren MacGibbon and TDGI had an established business relationship spanning many years. It was a relationship of trust wherein Darren MacGibbon could count on TDGI providing him with needed product, and TDGI could count on Darren MacGibbon to pay for that product. The relationship was such that pop-up holds on product exceeding the credit limit for Ron’s Tire were meaningless as they were inevitably overridden in order to ensure that Ron’s Tire got the product ordered. A personal guarantee of funds owed by Ron’s Tire would have been a significant change in this well established business relationship – one involving a substantial re-allocation of risk.

59In these circumstances it was not sufficient for TDGI to present to Darren MacGibbon the document entitled “Credit Application and Security Agreement” in a casual way as merely an “update”, without bringing to his attention the personal guarantee contained within the document. The casual way in which TDGI treated the document once it was signed reinforced Mr. MacGibbon’s impression that the document was not important. I find that there existed between these parties a special relationship that imposed a positive obligation on TDGI to bring the guarantee clause to the specific attention of Darren MacGibbon. I am satisfied they did not do so, and therefore misrepresented the contents of the document.

60I find that TDGI obtained Mr. MacGibbon’s signature on the guarantee by misrepresentation. I find that TDGI thereby acted in an unfair and unreasonable way toward Mr. MacGibbon. I find that the guarantee is not enforceable.

61It is therefore unnecessary for me to consider the alternative defences. The action is dismissed as against Darren MacGibbon.

Costs

62The parties are encouraged to agree on costs. In the event they are unable to do so, they may exchange and file written submissions on costs, each not to exceed three pages exclusive of a Bill of Costs and any Offers to Settle, no later than August 26, 2021.