2011 NBCA 72, 2011 NBCA 72

COURT OF APPEAL OF NEW BRUNSWICK 43-10-CA YVON ROY (Defendant) APPELLANT YVON ROY (Défendeur) APPELANT - and - - et - ACADIA DRYWALL SUPPLIES LTD. (Plaintiff) RESPONDENT ACADIA DRYWALL SUPPLIES LTD. (Demanderesse) INTIMÉE Roy v. Acadia Drywall Supplies Ltd., 2011 NBCA 72 Roy c.

Acadia Drywall Supplies Ltd., 2011 NBCA 72 CORAM: The Honourable Justice Robertson The Honourable Justice Bell The Honourable Justice Green CORAM : L’honorable juge Robertson L’honorable juge Bell L’honorable juge Green Appeal from a decision of the Court of Queen's Bench: February 23, 2010 Appel d’une décision de la Cour du Banc de la Reine : Le 23 février 2010 History of Case: Historique de la cause : Decision under appeal: 2010 NBQB 62 Décision frappée d’appel : 2010 NBBR 62 Preliminary or incidental proceedings: Court of Appeal: [2010] N.B.J.

No. 181 Procédures préliminaires ou accessoires : Cour d’appel : [2010] A.N.-B. n o 181 Appeal heard: April 27, 2011 Appel entendu : Le 27 avril 2011 Judgment rendered: August 18, 2011 Jugement rendu : Le 18 août 2011

Reasons for judgment by: The Honourable Justice Robertson Motifs de jugement : L’honorable juge Robertson Concurred in by: The Honourable Justice Green Souscrit aux motifs : L’honorable juge Green Dissenting reasons by: The Honourable Justice Bell Motifs de dissidence : L’honorable juge Bell Counsel at hearing: For the appellant: Ronald J. LeBlanc, Q.C. For the respondent: Robert M. Dysart and Melanie L. Cassidy Avocats à l’audience : Pour l’appelant : Ronald J. LeBlanc, c.r. Pour l’intimée : Robert M. Dysart et Melanie L. Cassidy THE COURT The appeal is allowed with costs.

Bell J.A., dissenting, would have dismissed the appeal with costs. LA COUR Accueille l’appel avec dépens. Le juge Bell, dissident, était d’avis de rejeter l’appel avec dépens. The judgment of Robertson and Green, JJ.A. was delivered by ROBERTSON, J.A. [ 1 ] The issue raised on this appeal is whether the trial judge erred in concluding the appellant, Yvon Roy, had given the respondent, Acadia Drywall Supplies Ltd., a continuing guarantee with respect to debts incurred by Mr. Roy’s corporation, Accor Drywall Inc.

The appellant maintains that the 2004 contract of guarantee contains a clause providing for automatic termination of continuing liability, unless the parties agree to an extension. Mr. Roy did agree to an extension in 2005, which expired on April 30, 2006. However, no further extensions were sought or granted. As of April 30, 2006, Accor owed Acadia Drywall $94,463. By the time the credit facility was closed, Accor owed $300,000. This state of affairs led Acadia Drywall to sue both Accor and Mr. Roy for the full amount. Accor eventually consented to judgment. Mr. Roy went to trial and lost.

He submits the trial judge erred in failing to give effect to the termination clause and, correlatively, in not fixing the amount of his personal liability by reference to the $50,000 monthly credit limit or, alternatively, by reference to the amount owing as of April 30, 2006 ($94,463). In my respectful view, the appeal is well- founded. Applying the principles of offer and acceptance, it is clear the 2004 contract of guarantee and the 2005 extension agreement contained a clause which provided for automatic termination of Mr. Roy’s continuing liability, unless the parties renegotiated a further extension.

This they did not do. [ 2 ] The underlying trial decision is reported as 2010 NBQB 62, 355 N.B.R. (2d) 366 . The essential facts of this

case are as follows. Marcel Girouard is the President of Acadia Drywall. Mr. Roy is the President, sole shareholder and director of Accor. In early 2004, the two men met to discuss the possibility of Accor purchasing supplies on credit from Acadia Drywall. At that time, Mr. Girouard made it clear that Acadia would not sell products to Accor unless Mr. Roy signed a personal guarantee and gave other security. Eventually, Mr. Roy was provided with a two-page standard form document entitled “Credit Application” which set out the terms upon which goods would be sold to Accor.

Those terms covered matters related to terms of payment ( e.g., net 30 days from date of invoice/purchase) and to the payment of interest on overdue amounts (2% per month/24% per annum). As would be expected, the application authorized Acadia Drywall to obtain credit information. The applicant was required to fill in the monthly amount for which credit was being sought. Mr. Roy wrote in $50,000. However, he crossed out the terms of the contract requiring payment in 30 days and payment of interest at 2% per month on overdue amounts. Specifically, Mr.

Roy crossed out three clauses of the standard form credit application. He then signed the application in his capacity as President of Accor. However, at the very end of the two-page credit application is found another clause which provides for a personal guarantee for the payment of “debts and interest charges” and a space for a signature. Mr. Roy signed the guarantee in his personal capacity. The amended credit application was dated March 16, 2004, and sent to Acadia Drywall. [ 3 ] Upon receipt of the amended credit application, Mr.

Girouard instructed the controller of Acadia Drywall to prepare a letter which is dated March 26, 2004 (the letter of March 26, 2004). The letter is addressed to both Mr. Roy and Accor. It begins with an acknowledgment of receipt of the credit application and goes on to provide that the letter is intended to confirm the “special terms to be agreed on” in order to open the account.

The first term of the letter departs from the original application by stating that invoices will be payable on the 15 th of the second month following the date of the invoice and that interest of 1% per month would be charged on overdue accounts, not 2% as set out in the credit application. The next term relates to the personal guarantee and reads as follows: YOU HAVE AGREED BY SIGNING THE PERSONAL GUARANTEE ON THE CREDIT APPLICATION THAT IF FOR ANY REASON ACCOR DRYWALL INC.

DOES NOT HONOUR THE TERMS OF THIS AGREEMENT, YOU PERSONALLY WILL PAY ALL OUTSTANDING AMOUNTS TO ACADIA DRYWALL SUPPLIES LTD. [ 4 ] The next term in the letter of March 26, 2004, relates to a matter not dealt with in the credit application. That term states that Mr. Roy (Accor) is not permitted to undertake or provide quotes on any jobs south of Truro. The letter goes on to confirm that the credit limit is $50,000 monthly. Near the end of the letter is a request that it be signed and faxed back to Acadia Drywall “showing your understanding and acceptance of our terms”.

The letter further states that upon receipt of the signed copy, Acadia Drywall will fax a letter confirming the opening of the account. The letter of March 26, 2004, ends with the following sentence: BY SIGNING HEREUNDER, I AM CONFIRMING MY UNDERSTANDING AND ACCEPTANCE OF ACADIA DRYWALL SUPPLIES LTD.’S TERMS AS EXPLAINED ABOVE. [ 5 ] Following receipt of the letter of March 26, 2004, Mr. Roy went to his lawyer, Mr. Tom Thompson, who advised Mr. Roy against signing the personal guarantee. Subsequently, Mr. Thompson spoke with Mr. Girouard about the personal guarantee. On March 29, 2004, Mr.

Thompson faxed the March 26, 2004, letter back to Acadia Drywall, but with one significant modification. The following sentence was added to the end of the one page letter: PROVIDED THAT AT ALL TIMES IT SHALL BE UNDERSTOOD AND AGREED THAT THE CREDIT APPLICATION AND THIS LETTER SHALL TERMINATE ON MARCH 31, 2005 AT WHICH TIME ALL TERMS AND CONDITIONS SHALL BE RENEGOTIATED AND MUTUALLY AGREED UPON BY THE PARTIES FOR ANOTHER TERM. [ 6 ] Acadia Drywall received the faxed letter and the controller placed a notation next to the above quoted sentence indicating the sentence had been added by Mr. Roy.

In short, at no time has it been suggested that the additional sentence was added without the knowledge of Acadia Drywall. In response to the faxed letter and in accordance with its terms, Acadia Drywall sent a letter, dated March 29, 2004, to Accor welcoming them as a new customer with approved credit of $50,000. [ 7 ] On May 2, 2005, Mr. Roy signed a letter agreeing to an extension of the credit facility on the same terms, as set out in the letter of March 26, 2004, save one.

The last sentence of the letter of May 2, 2005, indicates that the credit application and the letter would terminate on April 30, 2006, at which time all terms and conditions were to be renegotiated. In fact, the parties did not negotiate a further renewal. Mr. Girouard testified his controller had simply forgotten to seek a letter of extension signed by Mr. Roy. Nonetheless, Acadia Drywall continued to supply Accor with goods on credit. Eventually Acadia Drywall sued Accor and Mr. Roy for the unpaid balance.

While the Statement of Claim fixes the amount owing at $680,572.22, by the time of trial the parties had agreed that the amount in issue was $300,000. The amount owing by Accor, as of April 30, 2006, was $94,463.

[ 8 ] The trial judge held the wording of the guarantee was “clear and unambiguous” and that it was “unlimited as to time or amount”. While the trial judge goes on to acknowledge the presence of the termination clause found in the letters of March 26, 2004, and May 2, 2005, he simply notes that Mr. Roy never asked to be relieved of his personal liability under the guarantee, nor did Mr. Roy advise Mr. Girouard or Acadia Drywall that he (Mr. Roy) considered his personal guarantee to have been terminated. The fact that Mr.

Roy was an experienced business person, who knew what he was signing, had benefited from the continuing relationship and there were no material changes in the business relationship were held to be sufficient reasons for displacing Mr. Roy’s reliance on the termination clause. Here is the trial judge’s reasoning on this particular point: I am satisfied the evidence establishes that Mr. Roy, an experienced business person, knew what he was signing. There were no material changes to the business relationship during the time the credit was granted except for the failure to re-negotiate the terms and conditions.

However, the parties continued to do business and there was no evidence that the continuing relationship was not beneficial to Accor or Mr. Roy. I am satisfied that Mr. Roy was aware of everything going on between Acadia and Accor because he was the only person, officer, shareholder who was dealing with Acadia. Therefore, there were no material changes in the business relationship which Mr. Roy did not know and implicitly accepted or actually requested. [para. 36] [ 9 ] At the outset, let me state what this case is not about. It is not about whether Acadia Drywall is entitled to be paid for the goods supplied.

Notwithstanding the failure to negotiate a third extension agreement, the obligation on Accor to pay rested on the basis of terms which are implied at law. The implied terms arise as a matter of practical necessity and avoid the need to rely on the principles of unjust enrichment as a basis for recovery. In short, judgment in favour of Acadia Drywall as against Accor for the $300,000 has never been in issue. Moreover, this case is not about whether it is fair and just that Mr. Roy should be able to avoid liability on a personal guarantee because of the creditor’s failure or oversight to ensure that Mr.

Roy signed a further extension agreement. Finally, this case is not about an unconscionable transaction based on an inequality of bargaining power. This is a case in which the court is being asked to decide whether Mr. Roy gave a fixed term or continuing personal guarantee with respect to debts incurred by a company of which he was the sole director, shareholder, and chief executive officer.

To answer that question, we must isolate the terms of the contractual guarantee. [ 10 ] While the trial judge held the wording of the guarantee was “clear and unambiguous” and “unlimited as to time or amount”, it is not entirely clear whether the trial judge was referring to the guarantee originally set out in the credit application or the one referenced in the letter of March 26, 2004. In my view, the trial judge had to be referring to the letter of March 26. At paragraph 31 of his reasons, the trial judge states that if the only document in play were the credit application, he had no doubt as to Mr.

Roy’s liability for the payment of the amount claimed. This acknowledgment makes it clear that the trial judge was alive to the presence of the termination clause found in both the letter of March 26, 2004 and May 2, 2005. As well, I am cognizant of the fact that there is an ambiguity in the credit application with respect to whether the guarantee is unlimited in amount. The relevant provision simply states that Mr. Roy guarantees the payment of “debts and interest charges”. This leaves open the question of whether the guarantee extends to all indebtedness or just the $50,000 monthly credit limit.

By contrast, the letters of March 26, 2004, and May 2, 2005, provide that Mr. Roy will pay “all outstanding amounts” to Acadia Drywall. The word “all’ is not found in the personal guarantee set out in the credit application. It is the word “all” found in the letters of March 26, 2004 and May 2, 2005 that, in my view, avoids any ambiguity as to whether the personal guarantee was for an unlimited amount. [ 11 ] In my view, the contract of guarantee is the one found in the letters of March 26, 2004 and May 2, 2005. This is true even though both documents refer to the guarantee set out in the credit application.

Let me explain. Instead of accepting the contractual terms, as set in the modified credit application submitted by Accor and Mr. Roy as guarantor, Acadia Drywall effectively drafted a counteroffer. It is a counteroffer because the terms are materially different than those set out in the credit application as unilaterally amended by Mr. Roy. Not only did the counteroffer alter the terms on which credit would be extended, it also clarified one aspect of the personal guarantee. As mentioned earlier, it now applied to “all outstanding amounts”. Unfortunately for Acadia Drywall, neither Mr.

Roy nor Accor accepted Acadia Drywall’s counteroffer because of the intervention of Mr. Roy’s lawyer. Instead, Mr. Roy and Accor submitted a counteroffer to the counteroffer by adding the termination clause at the end of the letter of March 26, 2004. The counteroffer to the counteroffer was formally accepted once the comptroller for Acadia Drywall sent a letter to Accor confirming the opening of the credit facility. [ 12 ] Once it is recognized that the underlying contract between Acadia Drywall and Accor, and the personal guarantee given by Mr.

Roy to Acadia Drywall, is contained within the letter of March 26, 2004, as renewed in the letter of May 2, 2005, the question at hand is simplified: Did Mr. Roy provide Acadia Drywall with a fixed term guarantee? Harkening back to paragraph 8 of these reasons and paragraph 36 of the trial judge’s decision, the trial judge effectively ignored the termination clause for three reasons: (1) because the parties continued to do business; (2) the continuation was beneficial to the parties; and (3) there was no “material change” in the business relationship which Mr. Roy did not know of and implicitly accept.

As is apparent, the trial judge is couching his justification for refusing to apply the termination clause by invoking concepts applicable in cases where a guarantor defends against liability based on a material change to the underlying contract between the debtor and creditor effected without the consent of the guarantor. Generally stated, a guarantor will be released of liability in circumstances where the principal debtor and creditor agree to a material change in the underlying contract without first obtaining the consent of the guarantor (the rule in Holme v. Brunskill (1860), 3

Q.B.D. 495 (C.A.) as applied in Bank of Montreal v. Wilder, (SCC), [1986] 2 S.C.R. 551, [1986] S.C.J. No. 67 (QL)). Ineffect, the trial judge was analogizing with the facts of the present case in the sense that Mr. Roy was fully aware of the dealingsbetween Accor (the principal debtor) and Acadia Drywall (the creditor) and, therefore, Mr. Roy was not prejudiced by the failure ofAcadia Drywall to secure an extension of the credit facility and guarantee. However, the analogy is misguided.

This is a case where theguarantor insists, that on the advice of his lawyer, he negotiated for a contract of guarantee with a fixed termination date, unless theguarantor and creditor agreed to an extension.

Either the termination clauses, appended to the letters of March 26, 2004 and May 2, 2005,were effective or they were not. [13] Counsel for Acadia Drywall attempted to avoid the effect of the termination clause found in the letters ofMarch 26, 2004, and May 2, 2005, by arguing that the governing contract of guarantee is the one found in the credit application and thatthe guarantee is to be looked at independently of the terms of the credit application. I have already explained why the personal guaranteecontained in the credit application was of no binding effect.

It is true that the letters of March 26, 2004 and May 2, 2005, make referenceto the guarantee found at the end of the credit application which Mr. Roy did sign in his personal capacity. For this reason I am preparedto address one further argument advanced by Acadia Drywall. [14] In the dying moments of the appeal hearing, Acadia Drywall alluded to the argument that, as a matter ofcontractual

interpretation, the termination clause found in the letter of March 26, 2004, and the renewal letter of May 2, 2005, appliesonly to the credit facility granted to Accor and not to the contract of guarantee found in the credit application. The argument wasreinforced by a further argument. As the termination clause was drafted by Mr. Roy’s lawyer, the clause should be interpreted againstMr. Roy according to the contra proferentem principle of contract construction.

The essence of the interpretative argument is that, as thetermination clause does not expressly refer to the obligation to renegotiate the terms of the guarantee, the clause should be read asterminating the credit facility only. [15] I have two problems with the argument advanced above. First, in each instance, the letters are addressed to bothMr. Roy and Accor and in both cases Mr. Roy affixed his signature without signifying that he was signing on behalf of Accor only. Inthe circumstances, it is reasonable to draw the inference that Acadia Drywall wanted to ensure that Mr.

Roy signed in his personalcapacity, which he did. Second, the wording of the termination clause is not ambiguous. The clause found in both letters states that boththe credit application and the letter in question terminate on a fixed date, at which time “all terms and conditions shall be renegotiatedand mutually agreed upon by the parties for another term”. Now recall, that in each letter there is a provision that states that by signingthe personal guarantee on the credit application, Mr. Roy agrees that if Accor does not pay Acadia Drywall, Mr. Roy will.

As thisobligation is a term of each letter and as the termination clause states all terms and conditions shall be renegotiated, I am at a loss tounderstand how it can be asserted that the termination clause applied only to the credit facility. In any event, why would the parties agreeto negotiate the terms of the credit facility but not the terms of the guarantee having regard to the concerns of Mr. Roy’s lawyer and hisdrafting of the termination clause? [16] There is little doubt that the trial judge thought it simply unfair that Mr.

Roy could avoid full liability on hiscontract of guarantee in circumstances where he knew that Mr. Girouard was not prepared to extend credit to Accor unless Mr. Royprovided a personal guarantee and that, in fact, Acadia Drywall continued to extend credit without receiving the continuing assurance thatMr. Roy would stand behind and answer for the debt incurred by Accor. In response, I would point out that at any time after April 30,2006, Acadia Drywall could have elected to terminate the credit facility on reasonable notice because of the failure to renegotiate onterms acceptable to all. It did not.

Instead, it allowed the credit facility, before payments on account are factored in, to grow from$206,000 as of April 30, 2006, to a high of $680,000 as of February 28, 2007, the date on which the credit arrangement with Accorappears to have ended. [17] The only issue left to be decided is whether the amount owing under the guarantee, as of the termination date,April 30, 2006, is $94,463 or $50,000. Mr. Roy argues that as the credit facility extended to Accor was expressed as “$50,000 monthly”his personal liability is limited to $50,000. As discussed earlier, the guarantee applied to “all outstanding amounts”.

Having regard to thetermination date, the outstanding amount was $94,463 and, therefore, that is the amount for which judgment must be entered against Mr.Roy. [18] I would allow the appeal and vary the judgment below from $300,000 to $94,463. Pursuant to Rule 59.09(1)(a)I would award the respondent costs, at trial, based on an amount of $95,000 using Scale 3 of Tariff “A”. The appellant is entitled to costsof $2,500 on the appeal. [19] No costs on the motion.

____________________________________ J.T. ROBERTSON, J.A. I CONCUR: ___________________________________ BRADLEY V. GREEN, J.A. The following are the reasons delivered by BELL J.A. I. Introduction [ 20 ] I have read the reasons of my colleague, Justice Robertson. For the reasons set out below, I respectfully disagree with his analysis and result. [ 21 ] In every situation in which one party guarantees the debts or obligations of another, there are at least two contracts: the contract between the principal (debtor) and the creditor and the contract between the guarantor and the creditor. [ 22 ] In this case, which is solely about the

interpretation of the guarantee made by the appellant in favour of the respondent, the trial judge concluded the “wording of the guarantee is clear and unambiguous. It is unlimited as to time or amount and relates to all purchases by Accor [the debtor]”. The trial judge’s finding of fact in this regard is only reviewable by this Court in the event it is tainted by palpable and overriding error ( see Housen v. Nikolaisen, 2002 SCC 33 , [2002] 2 S.C.R. 235 ). I am of the view the finding by the trial judge admits of no error, let alone one that is palpable and overriding.

For the reasons set out below, I would dismiss the appeal. II. Facts [ 23 ] In 1998 the appellant was the principal in a drywall installation business known as Atlantic Drywall. The respondent, a drywall supply business, sold goods and material to Atlantic Drywall. During their relationship, Atlantic Drywall became delinquent in making payment to the respondent. As a result, Mr. Marcel Girouard, the respondent’s principal, threatened, through the appellant, to sue Atlantic.

In 1999, once paid in full by Atlantic, the respondent ceased supplying goods and materials to Atlantic or any other company owned by the appellant. Sometime between 2002 and 2004, the appellant, now the principal in Accor Drywall Inc., approached Mr. Girouard about the possibility of Accor purchasing supplies and material from the respondent. Mr. Girouard eventually agreed to meet Mr. Roy at a local Tim Hortons restaurant at which time he made it clear the respondent would not do business with Accor unless the appellant provided his personal guarantee. The trial judge’s

summary of the genesis of the relationship between Accor and the respondent is as follows: Mr. Girouard confirmed that he initially met Mr. Roy in a local coffee shop and Mr. Roy wanted Acadia to sell Accor drywall products. Mr. Girouard stated, and Mr. Roy did not disagree, that he would only permit Acadia to sell to Accor if Mr. Roy gave a personal

guarantee of any indebtedness. This, Mr. Roy agreed to do. As is Acadia’s practice, a credit application is sent to the customer to be completed. The Credit Application is actually two pages on a single piece of paper. The first page of Item 1 of Exhibit #2 merely has details of the customer as well as credit references. With respect to Item I, page 1, Mr. Roy testified that a Robert Gallant from his company completed the Application and he signed it. Both Mr. Roy and Mr. Girouard testified there were additional terms and conditions discussed at their meeting at the coffee shop.

As a result, portions of Item 1 were marked out, as shown in paragraphs 5 and 6 of these reasons. As a result, Item 3 of Exhibit 2 (paragraph 7 of these reasons) was prepared and sent to Accor. The last paragraph of Item 3 was added by Accor’s lawyer following a discussion he had with Mr. Girouard. Mr. Roy testified that his lawyer told him not to sign a personal guarantee. Mr. Girouard advised the Court that when he spoke to Mr. Roy’s lawyer, he told him that he would not sell Accor anything unless he obtained the personal guarantee. [Emphasis added.] [paras. 10, 11 and 12] […] Mr.

Roy acknowledged that he personally was never a customer of Acadia. Only Accor was a customer. In addition, he is the sole shareholder, officer, and director of Accor. Finally, Accor is a dormant company but it still exists. [para. 20] [ 24 ] The form of guarantee signed by the appellant is set out below: THE UNDERSIGNED PERSONALLY GUARANTEE(

S) PAYMENT OF DEBTS AND INTEREST CHARGES THERIN (SIC) OF ACCOR DRYWALL INC LTD. (COMPANY NAME) TO ACADIA DRYWALL SUPPLIES LTD. IN RESPECT OF ANY AND ALL PURCHASES HEREAFTER MADE. ___ 3/16/04____ (signature) ___Yvon Roy__________ DATE GUARANTOR [ 25 ] In conjunction with the signing of the personal guarantee, the appellant also signed a Credit Application on behalf of Accor. The credit application is specific to Accor. It makes no reference to the guarantee and there is no requirement on the credit application that the appellant submit personally to a credit check.

The credit application by Accor and the guarantee signed by the appellant are two separate and distinct offers respectively made by two distinct legal entities, one corporate and the other personal. [ 26 ] As set out in the excerpt from the trial decision, the respondent rejected the credit application and made a counter offer by way of a letter dated March 26, 2004 (Exhibit 2) which, among other things, reflected matters discussed between it and Accor regarding interest, monthly credit limits and geographic limitations on where the company could perform work.

The respondent did not reject or make a counter offer to the form of guarantee signed by the appellant. Following discussions between the respondent and Accor as well as Accor’s legal counsel, the appellant signed the March 26 letter. That document, which was addressed to both Accor and the appellant contained the following paragraph: YOU HAVE AGREED BY SIGNING THE PERSONAL GUARANTEE ON THE CREDIT APPLICATION THAT IF FOR ANY REASON ACCOR DRYWALL INC DOES NOT HONOR THE TERMS OF THIS AGREEMENT, YOU PERSONALLY WILL PAY ALL OUTSTANDING AMOUNTS TO ACADIA DRYWALL SUPPLIES LTD.

[ 27 ] I would note that the above excerpt is the only clause that is addressed directly to the appellant. Since Accor had not signed any guarantee, it is clear that clause could not be directed to it. Furthermore, that is the only clause in the letter which employs the past tense. All other clauses are framed in the present tense; for example, “we thank you for”, “invoices are payable”, “under this agreement, you agree”, “we ask that you”, and “by signing hereunder”. The March 26, 2004, letter also contained the following addendum drafted by, and incorporated into the document, by counsel for Mr.

Roy: PROVIDED THAT AT ALL TIMES IT SHALL BE UNDERSTOOD AND AGREED THAT THE CREDIT APPLICATION AND THIS LETTER SHALL TERMINATE ON MARCH 31, 2005 AT WHICH TIME ALL TERMS AND CONDITIONS SHALL BE RENEGOTIATED AND MUTUALLY AGREED UPON BY THE PARTIES FOR ANOTHER TERM. [ 28 ] All parties agree those words were drafted by the appellant’s lawyer, inserted into the document by him and were agreed to by the respondent. The parties also agree that the contemplated extension was signed in 2005, expired on April 30, 2006 and, through the inadvertence of the respondent’s credit manager, no further extension was executed.

However, the respondent continued to extend credit with the full knowledge of the appellant. The appellant never proposed an expiry date for the guarantee. III. Issue [ 29 ] The only issue that was before the trial judge and now this Court is whether the guarantee was a continuing guarantee or one limited in time and amount. The appellant says the guarantee offer of March 16, 2004 was amended by the terms inserted by his lawyer in the March 26 letter. At trial the appellant contended there was “only one contract which contains all the terms and conditions including the personal guarantee of Mr. Roy”.

He asserted this “one contract” was subject to yearly renewal according to the provision added by his legal counsel. The respondent, however, contended two contracts exist, one with Accor dealing with the credit account and one between it and the appellant pertaining to the guarantee. As a result of their differing positions on the number of contracts in play, their views differ on the maximum liability of the appellant. The appellant says his maximum liability is $ 94,463.00, the indebtedness of Accor as at the termination of the last renewal of the “letter” (April 30, 2006).

The respondent says the language of the guarantee is clear. It contends the guarantee is of a continuing nature and guarantees all indebtedness of Accor to it, namely $300,000.00. A. Analysis [ 30 ] Early in his analysis the trial judge explains that the parties differ on whether there was one contract or two. In my view he resolves this issue in favour of the two contract approach (which in my view is the only option available at law) when he concludes the appellant signed the credit application on behalf of Accor and the guarantee in his personal capacity.

He then separately considers the wording of the guarantee and the credit application [paras. 30, 31]. While it is clear that the terms of credit to Accor were to be negotiated each year, no changes to the language of the guarantee were ever proposed by either the appellant or his counsel. This is understandable given that Mr. Girouard told the appellant and his counsel that without the personal guarantee the respondent would not extend any credit. The question then becomes whether the offer of a continuing guarantee made on March 16, 2004 was amended by the terms inserted in the letter of March 26. B.

Continuing or fixed term guarantee [ 31 ] In Rowlatt on Principal and Surety (5 th ed.) the authors state: A guarantee for a future debt may either be restricted to a debt of that amount to be incurred once and for all, or it may be continuing.

The construction will turn upon the wording of the individual contract, the principle being that the guarantee is continuing unless either it appears that only dealings to the extent of the limit, which are then to cease, are contemplated, or the guarantor distinctly limits his undertaking to a definite transaction or to the first items of the credit amounting to the total named. [p. 52] […] A continuing guarantee may either be subject to a limit of time within which the liabilities which are to be covered by it must be

contracted, and at the end of which it will expire ipso facto without any express revocation; or it may be unlimited in that respect, inwhich case it will cover all liabilities falling within its scope, until put an end to, where that is possible, by revocation. [p. 57] [32] The language of the guarantee is key to any analysis. The guarantee executed by the appellant contains nolimits on time, monies secured or the appellant’s right to revoke. As earlier indicated, neither party proposed any modifications to thelanguage of the guarantee and none was made. Based upon his discussions with Mr.

Girouard, the appellant had to know that if he tookany steps to revoke or amend the guarantee, which he had a right to do at any time, credit would not be extended. [33] Consideration for the guarantee, being the acceptance by the respondent of the offer made by the appellant,only occurred when goods were acquired by Accor (Rowlatt, page 61). Against that backdrop consider the following: 1. The guarantee is clear and unequivocal; 2. The appellant expressed concern about a personal guarantee but took no steps to revoke it; 3.

The appellant’s lawyer crafted language to amend the credit application but made no reference to the personal guarantee. Also, theamended language was crafted after Mr. Girouard had informed him (the lawyer) the guarantee was required; 4. The letter countering the credit offer tangentially referred to the guarantee that had already been “agreed” to and contains no otherform of guarantee; and 5. If the appellant wanted to alter the terms of his guarantee, he had ample opportunity to do so before it came into effect (the momentthe first goods were acquired by Accor). [34] In

summary, I am of the view the trial judge correctly concluded two distinct contracts were at play in thiscase. One between Accor and the respondent which was subject to extensive negotiation. The second between the appellant and therespondent which was accepted in the form of the offer made. [35] With respect to the

interpretation of the contracts, both parties rely upon the contra proferentem rule. Theappellant takes the position that if there is any ambiguity in the letter of March 26, it should be resolved in his favour. Given my viewthat the wording of the guarantee is clear and unambiguous, the only subject matter to which the contra proferentem rule could beapplied is the addendum inserted by the appellant’s counsel. That addendum is ambiguous at best. As already mentioned, it makes noreference to the guarantee. It refers specifically to the termination of the credit application and “this letter”.

Since the credit applicationwas executed only by Accor, that part of the addendum has no impact upon the potential liability of the appellant on the guarantee. Thereference to “this letter” is certainly not a reference to the guarantee. It is trite law that even if the “credit application” terminated onApril 30, 2006, Accor had a continuing obligation to pay for goods and materials supplied. If the appellant’s counsel intended that thetermination of the ‘letter’ somehow operated to terminate or limit the guarantee, it would have been very simple to replace the word“letter” with “guarantee”.

I am of the view the trial judge was correct when he concluded there was no intention to terminate or limit theguarantee in any respect. In the event there was such an intention, the addendum is clearly ambiguous, and, having been drafted by theappellant’s counsel, must be interpreted contrary to his interests. (see, Manulife Bank of Canada v. Conlin, (SCC),[1996] 3 S.C.R. 415, [1996] S.C.J.

No. 101 at para. 8 (QL)) [36] Presuming I am incorrect when I conclude the guarantee was of a continuing nature and was clear andunambiguous, I would, in any event, dismiss the appeal based upon the following findings of fact made by the trial judge. First, theappellant was the sole shareholder, officer and director of Accor. Second, the extension of credit beyond the limits set out in the March26 letter was beneficial to both Accor and the appellant in his personal capacity. Third, the appellant was aware of “everything going onbetween the respondent and Accor”.

Fourth, there were “no material changes in the business relationship which [the appellant] did notknow and implicitly accepted or actually requested”. [para. 36]

[ 37 ] Absent those findings of fact, there might be merit to the appellant’s position that he can avoid liability because of a material alteration in the terms of the contract of debt (the contract between Accor and the respondent) without his consent.

The jurisprudence in this regard is summarized in Manulife Bank of Canada wherein Cory J. on behalf of the majority observed: It has long been clear that a guarantor will be released from liability on the guarantee in circumstances where the creditor and the principal debtor agree to a material alteration of the terms of the contract of debt without the consent of the guarantor. The principle was enunciated by Cotton L.J. in Holme v.

Brunskill (1878), 3 Q.B.D. 495 (C.A.), at pp. 505-6 , in this way: The true rule in my opinion is, that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and that if he has not consented to the alteration, although in cases where it is without inquiry evident that the alteration is unsubstantial, or that it cannot be otherwise that beneficial to the surety, the surety may not be discharged; ………if he has not so consented he will be discharged.” [para. 2] [ 38 ] The notion that the principal and creditor are not permitted to alter the terms of the surety is designed to prevent mischief between them at the expense of the guarantor.

Professor K.P. McGuinness in his text The Law of Guarantee , 2 nd ed. (Scarborough, Ont.: Carswell, 1996) explained the rationale as follows: Where the risk to which the surety is exposed is changed, the rationale for the complete release of the surety is easily explained. To change the principal contract is to change the basis upon which the surety agreed to become liable.

A surety’s liability extends only to the contract which he has agreed to guarantee. […]To require a surety to maintain a guarantee in such a situation would be to allow the creditor and the principal to impose a guarantee upon the surety in respect of a new transaction. Such a power in the hands of the principal and creditor would amount to a radical departure from the principles of consensus and voluntary assumption of duty that form the basis of the law of contract. [p. 541] [ 39 ] In Manulife Bank of Canada (at para. 7 ) the majority sets out the factors that drive the need for strict

interpretation of guarantees made without compensation. Cory J. notes that in most cases of guarantees a contract of “adhesion is involved”. In the present case, the contract proposed by the supplier (the invitation to treat) and the contract eventually signed by the parties bear little resemblance to one another. It is clear that Accor and the respondent were involved in negotiations on the terms of a potential contract from their first meeting at a Tim Hortons restaurant. It cannot be said theirs was a contract of adhesion.

Cory J. goes on to note that “often the guarantors are family members with limited commercial experience. […] Many guarantors are unsophisticated and vulnerable. Yet the guarantee extended as a favour may result in a financial tragedy for the guarantor”. In the present case, not only was the guarantor not a family member, he possessed intimate knowledge of the debt contract between Accor and the respondent and had extensive commercial experience. He had much to gain personally from the furnishing of the guarantee. It cannot truly be said the appellant was a guarantor without compensation.

He knew the nature of the guarantee he signed on March 16 and took no steps to change the clear language of his offer or unilaterally withdraw it. Finally, Cory J. provides the most telling reason for strict

interpretation of guarantees in which no benefit flows to the guarantor. He says, “The guarantor is without any control over the situation. […] Guarantors, once they become aware of the extent of their liability, will inevitably drop out of the picture with the result that many simple and straightforward loans will not proceed since they could not be secured by guarantors”. Clearly, in the present case the appellant guarantor was not without any control over the situation. Quite the reverse, it was the guarantor who was in control.

It was the guarantor who requested indulgences on the part of the respondent and the guarantor who requested changes to the debt contract. With the appellant’s complete knowledge, participation and encouragement, the respondent permitted changes to the debt contract guaranteed by the appellant. [ 40 ] In conclusion, even if I were convinced by the appellant’s one contract theory, which I clearly am not, I would dismiss the appeal with costs. ______________________________ B. RICHARD BELL, J.A.