Supreme Court

Cite as: Royal Bank of Canada v. Ayoub, 1990 NSSC 11 1989 S.H. No. 70515 IN THE SUPREME COURT OF NOVA SCOTIA TRIAL DIVISION BETWEEN: THE ROYAL BANK OF CANADA Plaintiff - and ­ ISSAM AYOUB and SALAH AYOUB Defendants HEARD: At Halifax, Nova Scotia, before the Honourable Mr. Justice David W. Gruchy, on December 3, 1990. DECISION: December 19, 1990 COUNSEL: Jean McKenna, Solicitor for the Plaintiff John A. Black, Solicitor for the Defendants

1989 IN THE SUPREME COURT TRIAL DIVISION BETWEEN: THE ROYAL BANK OF CANADA - and ­ ISSAM AYOUB and SALAH AYOUB GRUCHY, J. Thia is an action by The Royal Bank of Canada against Issam Ayoub and Salah Ayoub postponement of claim ("the guarantee"). by the defendants on September a standard form used by the plaintiff' and one of the witnesses as Royal arising under the guarantee was limited to the sum of $10,000.00 together with interest from the To that extent, it guarantees Ayoub. At a pre-trial conference counsel me that the defendants proposed to introduce parol evidence with respect to the guarantee and document. At the ope n i ng of S.H. No. 70515 OF NOVA SCOTIA Plaintiff Defendants to realize upon a guarantee and The guarantee was signed 16, 1987. It is apparently in was referred to by Bank Form 812. The liability date of demand for payment. the repayment .o f a loan by Riad made it known to the transaction involving that tr i al couns el for the plai nt iff

- asked for directions on this point. hear parol evidence. Whi Le it appeared that save one particular, was clear and was in my view necessary to det~rmine the complete contractual arrangement defendants. (See Sopinka and in Civil Cases, p.269; Fleet Express Lines Ltd. Can Co. of Canada Ltd. (1969), al v , Butterley, Nunweiler and Allstate Grain al (1984), 53 B.C.L.R. 38) In of the British Columbia Court of parol evidence rule closely. He said, (at page 49): "ls evidence of the oral representation admissible? The parol evidence rule is not only admissibility of evidence. of substantive law. But it is well as a body of principles if the evidence of the oral representation in this case ~as improperly admitted, the appeal should be allowed .. The rule of evidence may be stated in this way: Subject to certain exceptions, when the parties to an agreement have apparently set down all its extrinsic evidence is not admissible to add to, subtract from, vary or contradict those terms. So the rule does not extend to cases where the document may not embody all the terms of the agreement. in cases where the document seems to embody all the terms of the agreement, there is the rule. I will set out an oral statement is relevant and where its effect may be to or contradict the document: 2 ­ I indica ted that I would the form of the guarantee, unambiguous on its face, it whether it constituted between the plaintiff and Lederman, The Law of Evidence v , Continental 4 D.L.R. (3d) 466; Gallen et Company Ltd. et the latter case Lambert, J .A. , Appeal examined the so-called a rule about the It reaches into questions a rule of evidence, as of su~stantive law, and terms in a document, And even a myriad of exceptions to some of them. Evidence of may be admi tted, even add to, subtract from, vary

- (a) to show that the contract of fraud, misrepresentation, of consideration, or lack of contracting intention; (b) to dispel ambiguities, to establish a term implied by custom, or to demonstrate the factual matrix of the agreement; (c) in support of a claim for rectification; (d) to establish a condition agreement; (e) to establish a collateral agreement; (f) in support of an allegation itself was not intended by the whole agreement; (g) in support of a claim such as specific performance or rescission, on any ground that supports such a claim misrepresentation of any kind, fraudulent; (h) in support of a claim statement was in breach of a duty of care. I do not consider that I am list. I am only showing in the pleadings will require admitted. So if it is said that was made before the contract document was signed, contains a war r a n t y giving rise to a can be given of the representation, representation adds to, contradicts the document, appropri~te, and if the party on whose behalf the evidence is tendered asserts that from be shown that the document agreement. The oral representation single agreement, other parts document (the one contract document may record a complete agreement, be a separate collateral agreement, with different terms, one of which is the oral representation (the two contract theory) . 3 ­ was invalid because mistake, incapacity, lack precedent to the that the document the parties to constitute for an equitable remedy, in equity, including innocent, negligent or in tort that the oral setting out an exhaustive that appropriate allegations that the evidence be an oral representation, that claim for damages, e v i de nce " even if the subtracts from, varies or if the pleadings are the factual matrix it can does not contain the whole may be part of a of which appear in the theory). Ai ternatively, the but there may

- 4 I should add that I can practicality in the parol evidence evidence, in cases tried by a For purposes of this decision, I respectfully adopt the reasoning of Lambert, J.A. Three brothers were transaction: Riad, Issam and Salah that he wanted to buy a small grocery store in Elmsdale, Scotia. The then current owner of the store was is a brother-inlaw of Salah. with the store. The store was The record of the store, according a manager of the Dartmouth Shopping plaintiff, who gave evidence, was prospered under Mr. Jebeli. It a previous owner and the Bank felt that it had some potential. The three brothers had dealt with. Mr. capaci ty as bank manager. They Blatch apparently loaned them money gave them banking advice. Riad and run the store. He had been unemployed for he approached Mr. Blatch about the financing of such a purchase, Mr. Blatch indicated that he would require security from Riad IS family. Both Salah and Riad gave of them remarked that they are ­ see very little residual rule, as a rule of judge alone." directly involved in this Ayoub. Riad had decided Nova one Jebeli who Accordingly, Salah was familiar also known to the plaintiff. to Mr. Francis Alan Bla tch, Centre Branch of the that it had not particularly had, however, done we 11 under Blatch in his knew him and trusted him. Mr. from time to time and he needed funds in· order to buy some time. When evidence before me and each a f ami ly and that they support

- one another. A strong familial relationship undoubtedly existed among the brothers. A number of discussions Mr. Blatch. Mr. Blatch said frequently to see him and Salah came in somewhat less frequently. They discussed the possibility of Riad buying the store. On September 16, 1987, Mr. Blatch' s office and the guarantee by them. The father" of the then owner of the store, the senior Mr. Jebeli, Salah's father-in-law, that he had been asked to come was going on. Salah and Issam Each of them had owned various properties and businesses in Nova Scotia and had participated in different ventures, required loans and guarantees. them requested counsel. Neither Mr. Blatch says that they knew what they were signing and that he qav e them sufficient explanation. however, Mr. Blatch's personal knowledge appeared to be deficient and I will speak further about this below. There was a discussion term. The form of the guarantee itself is not limited in time, except that by virtue of paragraph have requested the determination of his liabili ty in accordance with that paragraph. The discussion was to the effect that the guarantee 5 ­ occurred between Riad and that Riad came into the bank Issam and Salah attended at was signed on that day also attended. Salah says along to the bank to see what were experienced businessmen. some of which During the meeting neither of of them read the document. In one particular respect, somewhat about the guarantee and its 4 any of the guarantors may

- 6 was limited to a loan for $19,000.00 by the plaintiff to Riad in connection with the purchase of the store. That loan was, in fact, On that date Riad and Issam signed $19,000.00 repayable in two years from its date and on the terms and conditions set forth in it. wi th how and when Issam and Salah guarantee. Salah and Ri ad say that the guarantee was for one year only .. Mr. said that the guarantee could be date of the loan provided the business sound by means of an audited statement . . Salah and Riad further say that Mr. that the guarantee was for $5,000.00 $10,000.00. On cross-examination it was suggested to Mr. that it was possible that the figure of $5,000.00 was mentioned and Ylr. Bla tch agreed that it w a s In fact, at the time of the trial, bank manager, Mr. F.E. Wood, thought that the joint and several guarantee in the amount of $10,000.00 guarantors were liable for the full of $20,000.00. I found it surprising knowledgeable bank managers would be uninformed in this respect. ­ which was to be advanced made on September 28, 1907. a term promissory note for The discuss ion further dealt could be released from the Mr. Blatch told them that Blatch says that he reviewed in one year from the was demonstrated to be Blatch told them each, for a total of Blatch poss ible, but not probable. both Mr. s La t.cr, and another meant that both of the sum guaranteed, for a total that two apparently

- Riad, with the aid of the wi th a property loan from the plaintiff as store and went into business. Riad was not able to make payments fearing the consequences of a failure, for him. During the first year of operation, or for that matter thereafter, no financial statements of the business were prepared and submitted to the bank. On September 25, 1989, three brothers. Issam had, in addition to the guarantee, as co-maker the promissory note 28, 1987. The letter of demand to him was as now set forth: "Nr. Issam Ayoub 18 Old Sambro Road, Apt. 3 Halifax, Nova Scotia B3P 122 Dear Mr. Ayoub: Please find enclosed a copy of the of a f i.xe d r a te persona 1 note cos igned by brother, Riad Ayoub, to The Royal note was dishonored when presented for balance of the monies secured and owing and unpaid. Fixed Rate Personal Loan Principal Balance Owing Interest & Insurance To Date Subtotal Per Diem Interest S6.23 We also hereby demand immediate you of: $10, 000 Fixed Rate of Riad Ayoub, guaranteed of an agreement of Guarantee dated September 16, 1987, to a limit of $10,000. 7 ­ $19,000.00 loan, together well, purchased the When the business did ~ot prosper, regularly. The brothers, arranged to make payments the bank made demand on the signed for S19,000.00 dated September demand for payments you for your Bank of Canada. This payment and the by the note remain due S17,498.38 1,594.02 S19,092.40 S19,092.40 payment in full from Personal Loans in the name by you under the provisions and Postponement of Claim

- We also demand payment of interest on the above accrued and unpaid to the date of per annum. On the same date the bank made promissory note and to certain to the bank. Also, on the same date the bank Salah, pursuant to the guarantee. paid. On the above described following findings: 1. With respect to Issam, the restricted to a guarantee of the promissory note in the amount of $19,000.00 and, accordingly, that guarantee is restricted to the a~ount due under and not in addition to it. set out above is, accordingly, during the course of these proceedings, it was disclosed that the plaintiff had prior to this action taken another against Issam pursuant to the note and had reduced that action to judgment. The bank is not entitled to the same amount of money. Accordingly, this action, as against Issam Ayoub, is dismissed. 8 ­ payment at the rate of 13% Yours truly, F.E. Wood (Mr.) Manager" demand upon Riad pursuant to the other securities given by Riad made demand upon The plaintiff has not been circumstances, I make the guarantee was intended to be any liability arising under the note The letter addressed to I ssam somewhat misleading. Further, a c t i ori two judgments for However, as no extra costs were

incurred by Issam relative that the thrust of the defence Salah, such dismissal is without costs to either party. 2. During the course of the trial, as to the plaintiff's witnesses, it appeared that the guarantee and postponement of claim I set forth that portion of the guarantee incorrectly completed including the marginal note: "(*Insert rate over ... the liability of the undersigned Prime or for fixed hereunder rate, delete 'the of Ten Bank's Prime Inter­ with est Rate plus' and demand for insert rate appli ­ the cable) plus * While the words of the inclusion of the marginal notes discloses that the not properly complete. The the interest rate at 13 percent. parol evidence glven by Mr. rate on the promissory note was 13 percent per annum. 3 • During the course of the he had been asked to come of September 16, 1987, to see what was going on. difficult to accept. The rno r n i nq was undoubtedly for the guarantee. - 9 ­ to this action, it being clear was put forward on behalf of a result of questions put had been incorrectly completed. being limited to the sum Thousand Dollars together interest from the date of payment at the rate of Bank's Prime Interest Rate 13 per cent per annum;" guarantee itself are clear, the form was guaranteed promissory note fixes Based upon that and the ~'Jood , I find that the interest trial, Salah's evidence was that along to the bank on the morning I find that meeting with Mr. Blatch on that the express purpose of signing

- 4. I find that Mr. Blatch, on the morning of September 16, 1987, explained to the defendants what they needed to know. is an experienced businessman. and he appreciated the effect to be noted that the plea of While Salah did say that he nonetheless knew and appreciated several guarantee and that if his brother failed to pay the debt, he, Salah, could be guarantee. 5. The defendants say that the guarantee was limited to $5,000.00 each on the basis of what they say Mr. September 16, 1987. As noted the impression that the joint amount of $10,000.00 meant that both of the guarantors liable for the full sum guaranteed for a total of $20,000.00. The effect of that error militates in that· I, consequent ly, am limited the liability of each of the guarantors to $5,000.00. That proposition strains credulity. of probabilities that Mr. Blatch did not limit the guarantee to the sum of $5,000.00 each, has set forth in his evidence; could be reviewed in one demonstrably sound. The guarantee by Mr. Blatch to the $19,000.00 appear in the guarantee itself. 10 ­ Salah He knew what he was signing of a guarantee. It is also non est factum was not raised. had not read the document, he that it was a joint and called upon pursuant to the Blatch told them on above, Mr. Blatch was under and several guarantee in the were against the defendants asked to be 1ieve that Mr. Bla tch I find on the balance but rather, limited it as he that is, that the guarantee year, provided the business was was further restricted loan although that does not

- 6. I, find that the supplying of demonstrating that the business pre-condi tion to a review of pre-condi tion of the potential release of never met. 7. I find that subject only to the explanation concerning interest rate, the guarantee question is clear and unambiguous collateral agreements were the bank, as set forth above. I have referred above J.A., in Gallen et al v. Butterley et al. have quo"ted, the learned Justice then proceeded to make on the parol evidence rule and in his second comment on that rule, remarked on the principle stated by Markland, J., for the Supreme Court of Canada in Carman Construction Limited v. Canadian Pacific Railway Company and CP Rail, [1982] he said, " ... a collateral agreement it is inconsistent wi th or contradicts In examining that principle, Lambert, J.A., gave a factual example of where he considered the principle would not apply. lS remarkable in that it is factually similar to the case at hand. He said: "The second (comment) is that the' principle cannot aLJsolute one. Let us suppose that 11 ­ an audited financial statement was sound was an essential the guarantee. That essential the guarantee was the and postponement of claim in on its face. Certain made between the defendants and to the decision of Lambert, Having stated as I comments 1 S.C.R. 958 at p.969 when cannot be established where the wr it ten agreement". The example be an a bank manager, acting