Project Doors & Mouldings Ltd. v. Lepur Date:, 2015 BCPC 67

Citation: Project Doors & Mouldings Ltd. v. Lepur Date: 20150327 2015 BCPC 0067 File No: 21500 Registry: Abbotsford IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: PROJECT DOORS AND MOULDINGS LTD. CLAIMANT AND: JOSO LEPUR DEFENDANT REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE K. D. SKILNICK Appearing for the Claimant: R. Pooni Appearing for the Defendant: R. Lepur Place of Hearing: Abbotsford , B.C. Date of Hearing: March 24, 2015 Date of Judgment: March 27, 2015

Summary of Evidence 1. Alleged Contract [ 1 ] The Claimant Project Doors & Mouldings Ltd. is a corporation incorporated under the laws of the Province of British Columbia and operating in Abbotsford, BC. In the Notice of Claim, the Claimant erroneously left the letter “s” off of the words “Mouldings” in its name and the Defendant’s representative thought that this might somehow nullify the Claim.

At the trial I made an order under Rule 8 of the Small Claims Rules correcting this error. [ 2 ] The Claimant brings this claim for judgement against the Defendant for the sum of $11,341.29, plus interest, for doors and associated products supplied to a company operated by the Defendant. The Claimant is suing the Defendant because it is alleged that the Defendant personally guaranteed payment to the Claimant of all amounts owing by the company. [ 3 ] In response, the Defendant filed a Reply to the Claim, which states “the Claimant is suing the wrong party.

The amount claimed is in excess of anything that could be owing.” [ 4 ] The Defendant resides in White Rock BC and on the project that is the subject matter of this claim, he was acting as general contractor for the construction of what I understand was a number of condominium units. The Defendant had purchased doors and other related products from the Claimant in the past, and he decided to conduct business with the Claimant on this construction project. The product was supplied to the Defendant’s company, TMC Developments Inc. [ 5 ] The Claimant’s salesman met with the Defendant to discuss the project.

The Defendant made the project’s architectural drawings available to the salesman, who was then able to put together a written quotation listing all of the doors and other products that the Claimant could supply, as required by the drawings. Three versions of this quotation have surfaced. The problem is that there is no clear evidence as to which of these was the final quotation. The Claimant’s salesman is no longer with the company and was not available to testify. The Defendant’s first language is Croatian.

He is unable to read or write in English and therefore he cannot identify which one he ultimately agreed to proceed on, although he recollects a total price of $60,800, not including G.S.T. [ 6 ] There was some discussion about whether or not any version of the quotation amounted to a contract or not. In some of its invoicing, the Claimant used the word “contract” in reference to the quotation. But the quotation was not a contract as that term is defined at law for a number of reasons. A contract requires a meeting of the minds, in other words, both of the parties must agree to the terms of the contract.

In this case the Claimant’s principal officer, Mr. Pooni, testified that the Claimant did not agree to any fixed price for the materials. He testified that his company provides product, it does not enter into fixed price contracts for entire jobs. While there is some possibility that the salesman may have tried to bind the company without permission, there is no evidence to support this, and in fact the evidence shows that on other occasions when the salesman was asked to make an agreement with the Defendant on behalf of the Claimant, he sought the authority of Mr. Pooni.

Finally, it is also clear that the parties did not follow what was on the quotation. In some cases fewer items were shipped that what was contained in the quotation. In other cases, more and different items were provided. The Defendant ultimately ended up paying for over $85,000 worth of product, markedly different from anything that was ever contemplated in any version of the quotation. [ 7 ] At the end of the day, at best one of the parties may have believed that there was agreement based on the quotation, while the other believed that the agreement was to pay for product at cost, as it was being supplied.

This does not constitute a meeting of the minds on the terms of a contract. The evidence makes it clear that what happened here was that the parties had an arrangement for the Claimant to supply product to the Defendant as the Claimant states. It is likely that throughout his dealings with the Claimant, the Defendant may have believed that he had a fixed price contract with the Claimant. But in the absence of some clear agreement to this arrangement on the part of the Claimant, no contract was ever made. Having provided the product, the Claimant is entitled to be paid for it.

This underscores the wisdom of having parties put the terms of their understanding of agreements in writing. [ 8 ] The Claimant meticulously recorded what product it supplied, what product was supplied in different quantities or specifications from what was set out in the quotation, and what payments were received from Defendant. The Defendant testified that he relied on the Claimant’s salesman to tell him what he owed.

The Claimant has provided each invoice and even went so far as to keep copies of the cheques it received from the Defendant. [ 9 ] The Defendant’s son went through a critical review of some of the invoices, including many of which were paid by his father’s company. Although the Defendant was critical of some of the Claimant’s records, none of the Defendant’s records were produced showing what was shipped, paid for or owing and the Defendant did not offer any sort of accounting for its dealings with the Claimant on this project.

In the final analysis I am satisfied that the Claimant kept and produced honest and accurate records of what it supplied, what it has been paid for and what is still outstanding. The Claimant has identified which of its invoices are still owing in respect of this project, showing a balance owing of $11,341.29, not including any interest owing on this amount. [ 10 ] In July of 2010, following discussions between the Defendant and the Claimant’s salesman, the Defendant tendered a cheque in the sum of $2,492.49.

The cheque was sent to the Claimant with a cover letter which alleged that this was the balance owing to the Claimant by the Defendant for Phase 1 of the project. The letter required the Claimant to sign an acknowledgement that the cheque represented full payment of any outstanding balance owing to the Claimant by the Defendant for phase 1 of the project. The Claimant’s records showed that there was $5,889.53 owing on phase 1, not including any interest, and it refused to accept the cheque on the condition that it was tendered.

The Claimant’s records show a balance unpaid on phase 2 in the amount of $7,874.72, not including any interest. The Defendant testified that he can’t remember anything about what was owing on phase 2, but testified that he believes that all of the product purchased from the Defendant for this phase has been paid for.

2. The Defendant’s Personal Guarantee [ 11 ] Throughout these dealings, the Claimant was supplying product to and invoicing the Defendant’s company, TMC Developments Inc. The invoices that were paid were paid with cheques drawn on the bank account of TMC Developments Inc. The Claimant has not sued this company however.

The Claimant was concerned that if it did so, the company might discontinue business, so it elected to proceed instead against the Defendant, in his capacity as guarantor of TMC Developments. [ 12 ] On November 18, 2008, the Defendant signed a credit application with the Claimant on behalf of TMC Developments Inc. In the document, the Defendant agreed to “personally guarantee all debts of the Applicant [TMC]” owing to the Claimant and to “identify (sic) and save harmless” the Claimant against loss.

The credit application provided that all accounts were due and payable within 30 days of their invoice date and that interest would be charged on all outstanding balances thereafter at the rate of “2% per month (26.8% per annum).” The monthly rate and the annual rate are not necessarily the same, depending on how the interest is compounded. [ 13 ] The Defendant and his son disagree about the effect of the guarantee.

The Defendant’s son feels that the guarantee should be rendered ineffective because when it was completed, the company was shown on the document under the name “TMC Development (sic) Inc.”, because of the missing “s” in the company name, because the interest rate is not clear, because the person who witnessed his father’s signature is not present and because the word “identify” is used instead of the word “indemnify”. The Defendant himself takes a more principled approach. He understands that regardless of any technical problems, his word is his bond.

He readily admits that he signed the personal guarantee, and is responsible to honour that guarantee. It is simply the balance owing that he disputes. From the perspective of someone intending to practice business in the construction community, where which one’s reputation for integrity is a valuable commodity, the Defendant’s approach is likely wiser in the long run. [ 14 ] Where the intention of the parties is clear from a written contract, technical errors in the contract on collateral matters do not invalidate the agreement.

Notwithstanding the missing “s” in the name of TMC Developments Inc., the Claimant and Defendant both understand and agreed which company’s obligations it was that the Defendant was guaranteeing. The misuse of the word “identify” in place of “indemnify” does not serve to erase that portion of the document in which the Defendant agreed to “personally guarantee all debts” that TMC Developments Inc. incurred with the Claimant. The absence of the witness to the document might be relevant if the Defendant’s testimony was that he did not sign the guarantee.

However he is an honest man who admits that he gave the guarantee and is willing to stand behind it. In the same way that it would be wrong for one of the Defendant’s customers to refuse to pay him for valuable work because of a spelling mistake, I believe that the Defendant understand that it would also be wrong for him to refuse to honour his contracts on this basis. [ 15 ] The Defendant’s son raises two other objections that need to be addressed. He says that because the Claimant has not sued the company, it cannot sue on the guarantee. This is in fact not the law.

The law requires that before a guarantor may sue on the guarantee, there must be default on the part of the principal debtor. In this case that default occurred when TLC Developments Inc. refused to pay the entire balance that was owing to the Claimant and tendered a lesser sum, which is said was payment in full.

Its refusal to pay the balance owing and its continuous refusal to do so amounts to a default on the part of the principal debtor, entitling the Claimant to sue on the guarantee. [ 16 ] In The Law of Guarantee, Second Edition, 1996, Carswell, the law is summarized at paragraph 6.39 at page 341 as follows: [T]he surety’s liability arises from the default of the principal in the performance of the guaranteed obligations. Even so, the law imposes only the mildest obligations on the creditor to attempt to compel performance by the principal.

In many respects, this low burden is not surprising: the primary motivation of the creditor in obtaining the guarantee will often be to reduce his costs of performance. If the creditor was obliged to exhaust all recourse against the principal before being entitled to claim against the surety, the practical utility of guarantees as a performance securing mechanism would be undermined. [ 17 ] It would be impractical if the law insisted that a creditor be required to sue the principal before suing the guarantor.

There may be times when this would not make sense, such as where a company may be insolvent, where there is a risk of it discontinuing business, where it does not have significant assets, or where, as in this case, the company is in essence a one person enterprise and it is that person who gives the guarantee. There is no rule of law that requires the Claimant to sue the principal debtor before commencing an action on the guarantee against the guarantor. 3.

The Limitations Act [ 18 ] The Defendant’s son also questions whether or not the Claimant can pursue this claim given that almost three years elapsed between the time that the subject matter of the claim arose and the day when legal action was commenced. TMC Developments Inc. defaulted on its obligation with the Claimant on July 29, 2010 when it informed the Claimant that it would only pay $2,492.49 of a total debt of $11,341.29. The Defendant filed its Notice of Claim on June 12, 2013. [ 19 ] On June 1, 2013, the Limitation Act of British Columbia came into force and

section 6 of that Act set out the general rule, subject to a number of exceptions, that “a court proceeding in respect of a claim must not be commenced more than 2 years after the day on which the claim is discovered.” However

section 30 of the Limitation Act stated that for claims arising prior to the coming into force of the new Act, the previous limitation period applied. That means that the Claimant in this case had until July 29, 2016 to commence this claim. Accordingly, the Claim may not be dismissed on this ground. 4. The Claim for Interest [ 20 ] Finally, there is the issue of what rate of interest the Claimant is entitled to on its guarantee. In the guarantee, the Defendant agreed that he would be responsible to pay interest on any outstanding amount owing under the guarantee “calculated at 2% per month

(26.8% per annum)”. The Defendant’s son correctly points out that these amounts may not necessarily be the same thing, depending on how interest is compounded. [ 21 ] Where a term of a contract is ambiguous, one of two approaches may be taken. If the term is so ambiguous that the parties are not of one mind on the essence of the term, that term may be void because there is no meeting of the mind between the parties on that term.

But if, as in this case, the parties are in agreement about the substance of a term, but there is some ambiguity about a detail, then the term can be construed applying what is called the “contra proferentem rule”. This means that the term is interpreted against the person who drafted the contract (in this case the Claimant) and the other party is given the benefit of the most favourable

interpretation of that term. [ 22 ] In this case, the Defendant clearly understood that he was responsible for interest overdue balances owing to the Defendant, but the precise rate was unclear, though it would be in the range of 2% per month. This could result in an annual rate of anything from 24% to something much larger, depending on how frequently interest was compounded. In this case the Defendant will have the most favourable

interpretation of the term and interest will be capped at 24% per annum. Order [ 23 ] For the foregoing reasons, the Claimant will have judgement against the Defendant for the sum of $ 24,025.38 calculated as follows: Principal amount owing: $11,341.29 Interest at 24% per annum from July 29, 2010 to March 27, 2015 (24% x $11,341.29 x 4 years and 241 days (or 4.66 years) =$12,684.09 Total: $24,025.38 [ 24 ] The Claimant is also entitled to its costs in the sum of $176.00. Dated at the City of Abbotsford, in the Province of British Columbia, this 27 th day of March, 2015. _________________________________ (The Honourable Judge K. D. Skilnick)