KPMG Inc. v. Canadian Imperial Bank of Commerce

KPMG Inc. v. Canadian Imperial Bank of Commerce Collection Decisions of the Court of Appeal Date 1998-11-16 Docket numbers C28036 Judges Osborne, Coulter Arthur Anthony; Charron, Louise Vivianne; Moldaver, Michael James Subject Civil Decision Content DATE: 19981116 DOCKET: C28036 COURT OF APPEAL FOR ONTARIO RE: KPMG INC. (Moving Party/Respondent) v. CANADIAN IMPERIAL BANK OF COMMERCE (Respondent/Appellant) BEFORE: OSBORNE, CHARRON and MOLDAVER JJ.A. COUNSEL: Michael A. Fredericks For the appellant Richard Howell For the respondent HEARD: October 27, 1998 ENDORSEMENT [1] By order dated August 19, 1997, Farley J. declared that the Canadian Imperial Bank of Commerce (the “Bank”) had no valid charge as a secured creditor against the sum $66,704.59, together with interest, presently being held by the Bank’s solicitors, in trust, and that the said funds were to be paid to the respondent KPMG Inc. as trustee of the estate of Ralph Ferracuti and Sons, Builders, Limited, the bankrupt (“Ferracuti and Sons”). The Bank appeals from that decision. [2] The issue before the learned motions judge was whether the Bank could look to a guarantee provided by Ferracuti and Sons as security for the $150,000 advanced to Deluth Investments Limited (“Deluth”) pursuant to a loan transaction that was separate and distinct from the initial two loan transactions for which the guarantee had been requested and provided. The resolution of this issue turned on the proper construction of the guarantee agreement. [3] The motions judge analyzed the guarantee agreement and he concluded that it did not extend to the $150,000 Deluth loan transaction. In coming to this conclusion, he looked beyond the four corners of the agreement and relied upon the April 22, 1991 “terms” letter from the Bank to show that the Ferracuti and Sons’ guarantee was only intended to secure the initial two loans. The motions judge further found that the Bank had, by virtue of the “terms” letter, innocently misrepresented the nature of the guarantee being sought from Ferracuti and Sons. [4] With respect, we are of the view that the motions judged erred in relying upon the “terms” letter to discover the true intention of the parties to the guarantee agreement. [5] The cardinal interpretive rule of contracts, including guarantee contracts, is that the court should give effect to the intention of the parties as expressed in their written agreement. Where that intention is plainly expressed in the language of the agreement, the court should not stray beyond the four corners of the agreement. [6] The language used in the instant guarantee agreement was plain and straightforward. It suffered from no ambiguity and the respondent did not suggest otherwise. Subject to a right of termination, the guarantee was a continuing one, under which Ferracuti and Sons assumed responsibility for all present and future debts and liabilities incurred by Deluth, “including without limitation those in respect of business transactions between the customer [Deluth] and the Bank as well as any other transactions by which the customer may become liable to the Bank in any manner whatever (the “customer’s liabilities”).” [7] In his reasons for judgment, the motions judge characterized the wording of the agreement as being both “broad” and “general.” While we agree that the wording was broad, it was by no means general. To the contrary, it was very specific and it clearly spelled out the intention of the parties. [8] We note as well that the agreement contained an “entire agreement” clause. While the motions judge reproduced that clause in his reasons, he failed to address its significance in determining the use, if any, that he could make of the “terms” letter in determining the intention of the parties to the agreement. [9] Given that the intention of the parties was clearly spelled out in the guarantee agreement, the motions judge erred in using the “terms” letter to contradict the plain language of the agreement. [10] The remaining question is whether the motions judge was correct in finding that the Bank had, by virtue of the “terms” letter, innocently misrepresented the nature of the guarantee required. With respect, we do not believe that the evidence bears out this finding. [11] The letter in question was addressed to the principal debtors, not the guarantor, and it is not at all clear that the guarantor was even aware of the letter when it executed the guarantee agreement. Thus, there is no clear evidence of reliance by the guarantor on the term letter. [12] Apart from this, there is nothing in the letter to suggest that the guarantee being sought was to be limited to the initial two loan transactions. Nor did the letter contain any representation that was untrue in fact. Under these circumstances, there is simply no basis for concluding that the letter created a misimpression in the mind of the guarantor as to the nature of the guarantee being sought and the motions judge erred in holding otherwise. [13] For these reasons, we are of the view that the appeal must be allowed. Accordingly, the order under review is set aside and in its place an order will go, in accordance with the relief sought in the appellant’s factum, dismissing the trustee’s application. [14] The Bank is entitled to its costs of the motion and the appeal.