Kenroc Building Materials Co. Ltd. - v. -, 2013 SKPC 214

IN THE PROVINCIAL COURT OF SASKATCHEWAN CIVIL DIVISION Citation: 2013 SKPC 214 Date: December 23, 2013 File: File # 213/13 Location: Regina, Saskatchewan Between: Kenroc Building Materials Co. Ltd. - and - Gypsum Drywall Residential (Regina) Limited Wayne Klock Damien Klock And Les Brown Jack Sinclair and Anita Greter For the Plaintiff Wayne Klock, Damien Klock and Les Brown For the Defendant

JUDGMENT P. DEMONG, J INTRODUCTION [ 1 ] The Plaintiff “Kenroc” is a Saskatchewan company which sells building products.

It brings this claim against a residential contracting company referred to in this judgment as “Gypsum” for recovery of $20,000.00 which is the balance due and owing to Kenroc for the price of goods sold and delivered to Gypsum. [ 2 ] Kenroc also seeks payment of interest accruing on that sum since August 24, of 2009 in accordance with the rate set forth under the terms of sale entered into between these parties and which runs at the annual rate of 16.07 percent compounded monthly. [ 3 ] Kenroc is also suing each of Wayne Klock , Damien Klock and Les Brown.

It alleges that each of them personally guaranteed the debts of Gypsum in order to secure a line of credit for that company.

Kenroc says that each of them are jointly and severally liable for the debt referred to above. [ 4 ] At the commencement of trial all parties narrowed the issues before the court and all agreed that Gypsum is in fact indebted to Kenroc in the principal amount and at the stated rate of interest set forth above. [ 5 ] All of the parties have further agreed that the guarantees entered into by Damien Klock and Les Brown are operative in accordance with the written terms of their respective guarantees such that these two individuals are jointly and severally liable for that debt.

ISSUE [ 6 ] The only remaining issue for this court to decide is whether or not the personal guarantee executed by Wayne Klock on the 3 rd day of November,2004 is binding on him and enforceable in accordance with its terms, such that he, too, is jointly and severally liable for Gypsum’s debt. THE EVIDENCE [ 7 ] On the 3 rd day of November, 2004 Wayne Klock and Damien Klock met with Jack Sinclair, a business manager for Kenroc, and sought to enter into a credit arrangement for the provision of building materials for Gypsum.

Jack Sinclair had known Wayne for about 15 years and indicated at trial that he felt that Wayne had a reputable credit history. Jack was prepared to allow Kenroc to extend credit to Gypsum if Wayne personally guaranteed the payment of Gypsum’s debts. [ 8 ] Jack was less inclined to obtain the same guarantee from each of Damien Klock and Les Brown because, in his view, neither of them had established a credit history. [ 9 ] At that meeting Wayne Klock signed a double sided single page document entitled APPLICATION FOR CREDIT.

That document was introduced into evidence at trial as P-1. [ 10 ] The APPLICATION FOR CREDIT identified the name or person applying for credit as “Wayne Klock operating as Gypsum Drywall Residential Regina Ltd.” It listed the applicant’s address as 1615 Fleet St. Regina, which was Wayne Klock’s address. It identified the principal owners and shareholders of Gypsum, in order, as Wayne Klock, Damien Klock and Les Brown. It identified Wayne Klock as the person to contact regarding payment of the account.

[ 11 ] Under the heading TERMS OF SALE, payment was due on or before the last business day of the month next following the month of purchase. Interest on the principal debt was payable at the rate of 16.07 percent per annum compounded monthly. The document identifies an approved credit limit of $100,000.00. Wayne’s signature appears directly above the credit limit amount. [ 12 ] The last portion of this two sided document is entitled GUARANTEE, and it is reproduced below in its entirety: GUARANTEE TO: KENROC BUILDING MATERIALS CO. LTD.

In consideration of your supplying goods from time to time to: Name: Wayne Klock Address: 1615 Fleet Street City: Regina Province: Saskatchewan (hereinafter called the “Debtor”), on such terms of credit as shall be agreed upon between you and the Debtor, I, THE UNDERSIGNED DO HEREBY GUARANTEE to you the due payment of all monies which are now or which shall at any time hereafter be due to you from the Debtor for such goods and interest, and also due payment of all commercial paper which may at any time hereafter be due to you from the Debtor or held by you in respect of any such goods, upon which the Debtor shall or may be liable.

You shall have the right at any time to refuse further credit to the Debtor; to take and release all collateral or other securities; to extend the time for payment to the Debtor or to any person liable upon any collateral or other security which you may at any time hold, and to comprise or compound with the Debtor or any other person without notice to me and without discharging or affecting my liability hereunder. You shall not be bound to exhaust your recourses against the Debtor or other persons, or the securities you may hold, before being entitled to payment from me of the amount hereby guaranteed.

Notice of the acceptance of this guarantee, of extension of credit hereunder, of default in payment, of change in form or indebtedness, the renewal of extension of said indebtedness or any part thereof, or of any matter with respect thereto, is hereby expressly waived.

This guarantee shall be a continuing guarantee, shall extend to and ensure to the benefit of our respective executors, administrators, successors and assigns and shall cover all liabilities which the said Debtor may incur before I shall have given you written notice to make no further advance on the security of this guarantee.” [ 13 ] The document is dated at Regina on the 3 rd day of November, 2004. It is signed by Wayne Klock and witnessed by Jack Sinclair. [ 14 ] There are two interesting matters of note in this document.

The first is that at the top right hand corner of the Application, hand written in black ink, are the words “Acct #1760 Class 3, CRL- $40,000.00". The defendant maintains that this note is confirmation that the line of credit was to be for $40,000.00 and not the $100,000.00 referred to in the TERMS OF SALE portion of the Application. I will come back to this matter at the end of this judgment.

[ 15 ] The second point is that the guarantee given by Wayne purports to guarantee payment for the supply of goods to himself. This is most unusual, but when Wayne took the stand, he confirmed that he understood that he was in fact guaranteeing the debts of Gypsum. The only note I take of this, therefore, is that when Jack Sinclair discussed the credit arrangement with Wayne he was entirely focussed on Wayne Klock. As indicated, Jack Sinclair either knew him or knew of him for 15 years. Wayne was identified as the person operating the company. Wayne was identified as the first principal owner of Gypsum.

Wayne was identified as Gypsum’s contact person for payment of the account. Wayne executed the TERMS OF SALE, and, of course, he signed the Guarantee. [ 16 ] Mr. Sinclair’s single-minded focus on Wayne is understandable and was confirmed at trial. As Kenroc’s business manager, he says that he was prepared to extend credit to Gypsum only if he was secure in the knowledge that he had a reputable guarantor in place to satisfy this corporation’s indebtedness.

That person was Wayne, and neither Damien Klock nor Les Brown, in his opinion, had that reputation. [ 17 ] Notwithstanding the clear wording of the guarantee - that it was a continuing guarantee - that it guaranteed credit up to $100,000.00 - that it would cover all liabilities existing until such time as Wayne gave written notice to make no further advance on the security of the guarantee, Wayne steadfastly maintains that the guarantee was intended to cover only a $40,000.00 line of credit, and then only for a period of one year from the date of execution. [ 18 ] Wayne says that this was not only discussed with Mr.

Sinclair at the November 2004 meeting, but agreed to by Mr. Sinclair. His son Damien says that he was at the meeting and confirms both the discussion and the agreement. Mr. Sinclair denies that he had entered into a secondary oral guarantee that in any way invalidated, replaced or diminished the written guarantee. [ 19 ] Wayne stated that for a period of time the Guarantee slipped his mind, but because Gypsum was doing well, he had a short conversation with Jack Sinclair and said something to the effect that he hoped Mr. Sinclair had torn up the guarantee.

Wayne says he did this in accordance with Jack Sinclair’s earlier promise that the guarantee would only run for one year. Wayne cannot pinpoint the precise date of this meeting but feels it was in 2006 because it was in that year, he says, that he ceased to be a director and officer of Gypsum. He did not advise the court as to whether or not Jack Sinclair agreed to tear up the Guarantee. [ 20 ] Jack Sinclair confirmed that at some point in time Wayne had contacted him, and, after mentioning that Gypsum was doing okay, asked to be removed from the guarantee.

He also suggested that instead, each of Damien Klock and Les Brown should grant guarantees to Kenroc. Mr. Sinclair maintains, however, that this occurred in or about April of 2009 when the outstanding indebtedness of Gypsum stood at approximately $77,000.00. [ 21 ] I should point out that the evidence of Mr. Sinclair was to the effect that Wayne Klock asked to be removed from the guarantee; he did not tell Mr. Sinclair that he would no longer honour the guarantee, nor did he provide written notice of his intention not to be bound to any future credit advances to Gypsum. [ 22 ] Mr.

Sinclair further stated that he was prepared to cancel the guarantee, but that he would not agree to the cancellation of the guarantee until the account was paid up in full, and even then Kenroc would not likely extend a further line of credit unless Wayne remained on the guarantee. [ 23 ] The court was not provided with any further evidence as to what transpired at the time of that meeting but in May of 2009 Damien Klock and Les Brown each signed an APPLICATION FOR CREDIT with an attached personal guarantee each evidencing a monthly credit request of $100,000.00+. [ 24 ] After carefully reviewing the evidence I am satisfied that the meeting referred to by Wayne Klock did not occur in 2006, as he suggests, but rather, in April of 2009 as Jack Sinclair has suggested. [ 25 ] Wayne Klock says he remembered that the meeting took place in 2006 because that was the year that he ceased to be a director of Gypsum.

On cross examination however, Wayne Klock was presented with Gypsum’s Corporate Registry Profile Report. That report identifies that Wayne Klock ceased to be a director on December 1 of 2008, a scant 5 months prior to the April 2009, meeting. Mr. Klock’s limited explanation was that the variation in dates (2006 versus the end of 2008) was the result of a backlog of paperwork. [ 26 ] The April, 2009 meeting date appears the more reasonable because, having had notice of Wayne Klock’s desire to withdraw

from the Guarantee, Mr. Sinclair obtained personal guarantees from each of Damien Klock and Les Brown within one month. While notexplicitly stated by Mr. Sinclair, I draw the reasonable inference that Mr. Sinclair wanted to ensure that he had personal guarantees fromall of the directors because of the ballooning arrears on Gypsum’s account. [27] Soon after Damien Klock and Les Brown signed the guarantees, Gypsum’s account fell into arrears to the extent of $170,000.00and the business relationship between the Plaintiff and the Defendants broke down.

Demand letters were exchanged and lawyers wereretained by all parties. [28] Agreements for repayment were entered into and fell apart, but this notwithstanding, Gypsum, Damien Klock and Les Brown appear to have paid down a significant portion of that debt, leaving only a balance of $25,500.00 owing by the time Kenroc commencedthis Action. Like many parties coming to this court, Kenroc abandoned a portion of their principal claim to come within thejurisdictional limits of this court and for that reason their claim is for the principal amount of $20,000.00 rather than the full $25,500.00due and owing.

ANALYSIS [29] I am not satisfied that Mr. Sinclair ever agreed with Wayne Klock that Wayne Klock would somehow be removed from theguarantee after one year, regardless of the status of Gypsum’s indebtedness.

Certainly Wayne Klock did not seek to enforce hisunderstanding of that presumed agreement at the one year anniversary, and it seems counter intuitive to presume that Jack Sinclair, asfocussed as he was on Wayne’s credit worthiness, would, for some inexplicable reason, allow him to be removed from the guarantee onthe terms suggested by Wayne Klock without having other guarantors in place. [30] I have no doubt that the one year time frame is something that Wayne Klock hoped for, and, I believe that there would have beensome passing discussion between the parties to that effect.

I say this because I believe Damien Klock, when he says that he was at theNovember 3, 2004 meeting and specifically remembers that his father wanted to be removed after one year and that Jack Sinclair saidthat as long as everything was okay it would not be a problem. [31] This is in accord with Wayne Klock’s evidence to the effect that he was, in a manner of speaking, trying to get his family (sonDamien Klock, and son-in-law Les Brown) up and running in the contracting business, and his subsequent desire to rid himself of certaincorporate obligations at some time into the future. [32] The defendants urge this court to conclude that the net effect of this passing discussion on November 3, 2004 constitutes afundamental oral variation of the written guarantee, and that I should interpret it as granting to Wayne Klock the unilateral right, at anytime after the expiry of one year, to have himself removed as a guarantor, regardless of the credit status of Gypsum. [33] With the greatest of respect to the defendants, I am not prepared to come to that conclusion and I decline to do so for two reasons. [34] First, Wayne Klock and Damien Klock have offered up evidence of what they suggest is an oral variation of a central conditionof the Written Guarantee, which, they say, was made at or about the same time that the guarantee was executed.

In my view, thisevidence is inadmissible for that purpose. It is in violation of the parole evidence rule, a rule of substantive law which was recentlysummarized by Cameron J. A. in Prairie Pulse Inc. V. Lacasse, 2005 SKCA : 3. Generally speaking the rule is that parole evidence is not admissible to vary or modify the express terms of a written contract. If theparties have reduced the terms of their contract to writing in a clear and unambiguous manner, the express terms define the mutualobligations of the parties.

Oral evidence in contradiction of the terms is inadmissible..... [35] In my respectful view the oral evidence that the defendants seek to have me accept does, in fact, attempt to vary and modify theexpress terms of a written guarantee that I find to be both clear and unambiguous. [36] If I am wrong, and the parole evidence rule does not apply, I am not satisfied that there was any distinct oral agreement at all.There was certainly an expressed desire by Wayne Klock to be removed from the guarantee, and, as I indicated, there was an

acknowledgment on behalf of Jack Sinclair to allow him to be removed.....but only on certain conditions. In my view those conditions are either indefinite and subject to further negotiation, or alternatively, they are comfortably in harmony with the written guarantee itself. [ 37 ] If I hold these future contingent terms to be indefinite then there is no oral contract to consider. What

interpretation can the court put on the phrase “so long as everything is okay it should not be a problem”? What does “everything” mean? How do I interpret “okay”? Who decides when “everything is okay”? In the absence of any evidence whatsoever on these points the presumed agreement would be so indefinite as to lack any substantial meaning. [ 38 ] The only plausible

interpretation that I can place on these discussions is one which, in my view, is in complete harmony with the written guarantee. Mr. Sinclair struck this court as an experienced business manager who recognized the importance of protecting his company’s financial interests. He sought a guarantee from a man whom he knew and trusted. He sought two more guarantees when the credit extension became untenable. [ 39 ] I have no doubt that Mr. Sinclair was familiar with the terms of this written guarantee and would be well aware that Mr.

Klock was at liberty at any time to withdraw the guarantee, if done in writing, and then, with the express understanding that upon revocation, Wayne Klock would not be responsible for any future advances on the security of the guarantee but would be responsible for the liabilities which had accrued up until the date of written notice.

These terms form part and parcel of the guarantee he signed. [ 40 ] With this in mind, I have no doubt that if Gypsum had paid all outstanding indebtedness, then there would be nothing owing and Wayne Klock would then be able to step away from the guarantee, because at that point in time, “Everything would then be okay.”.

This is, in effect, precisely what was explained to Wayne Klock at the April, 2009 meeting with Jack Sinclair. [ 41 ] When viewed in this context, Jack Sinclair was doing nothing more than confirming a potential scenario which was open to Wayne Klock to follow in accordance with the guarantee Wayne Klock signed. This is a far cry from the defendants’ assumption that these words constituted a fundamental variation of the clear and unambiguous wording of the guarantee.

CONCLUSION [ 42 ] For the foregoing reasons I find that the written guarantee signed by Wayne Klock on November 3, 2004 is binding on him in accordance with its terms, such that he, too, is jointly and severally liable for Gypsum’s debt. [ 43 ] I do not see it as necessary to determine whether or not the Guarantee that Wayne Klock signed was limited to $40,000.00 as suggested by Wayne Klock, or to $100.000.00 as set forth in the TERMS OF SALE.

I say this because the amount sought by the plaintiff is for $20,000.00 together with interest and costs, which sum, in total and as noted below, is less than either of these amounts. [ 44 ] I find therefore that each of the defendants are jointly and severally indebted to the Plaintiff in the principal sum of $20,000.00. [ 45 ] I award interest on that amount from August 24, 2009 at the rate of 16.07 percent per annum compounded monthly. The plaintiff has not provided this court with its calculations as to the quantum of this accrued interest, which the court calculates to be $19,943.95.

If either party takes exception to this calculation they may, on notice to the court, apply to vary this amount. If no application is made on or before January 15, 2014, this amount shall stand. [ 46 ] The court grants costs to the plaintiff in the sum of $200.00 which reflects both the cost to issue this summons, and the plaintiff’s lost time and inconvenience incurred in prosecuting a claim for monies to which they were in any event entitled. Paul Demong, J