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Banque Toronto-Dominion c. Labrecque

2013 QCCS 1375

SUPERIOR COURT

 

CANADA

PROVINCE OF QUEBEC

DISTRICT OF

MONTREAL

 

 

 

No:

500-17-051633-090

 

 

 

DATE:

APRIL 3, 2013

______________________________________________________________________

 

BY:     THE HONOURABLE DAVID R. COLLIER, J.S.C.

______________________________________________________________________

 

 

BANQUE TORONTO-DOMINION

Plaintiff/Cross-defendant

v.

PIERRE LABRECQUE

and

THÉRÈSE GUERTIN

Defendants/Cross-plaintiffs

and

RIOCAN HOLDINGS (QUÉBEC) INC.

            Defendant in warranty

 

______________________________________________________________________

 

JUDGMENT

______________________________________________________________________

 

Introduction

[1]           The Toronto Dominion Bank is suing Pierre Labrecque and Thérèse Guertin to recover $100,000 that the Bank paid to RioCan Holdings (Québec) Inc. under a letter of credit.  The letter of credit was issued by the Bank upon the instructions of its client, 9197-6613 Québec Inc. (“9197”).  The Bank alleges that Pierre Labrecque and Thérèse Guertin guaranteed the debts of 9197 and must therefore reimburse the amount paid to RioCan.

[2]           Pierre Labrecque and Thérèse Guertin argue that they owe nothing to the Bank.  They raise a number of defences.  First, they claim that the Bank paid RioCan in error, after the letter of credit had expired.  Second, they contend that 9197 was not indebted to RioCan, who therefore had no right to claim payment from the Bank.  Third, the defendants argue that their personal guarantees are invalid, because the Bank failed to inform them that the guarantees covered amounts paid under the letter of credit.  Finally, Mr. Labrecque alleges that his signature on 9197’s indemnity agreement with the Bank is a forgery.

[3]           Mr. Labrecque and Ms. Guertin have filed a counter-claim against the Bank, alleging that its action is abusive.  They claim damages of $24,770.22 for losses and expenses, $30,000 for their stress and inconvenience, and $670,000 in punitive damages.  

[4]           The Bank has called RioCan into warranty, arguing that RioCan must hold the Bank harmless for any damages it is ordered to pay the defendants.  The Bank has also sued RioCan for the $100,000 paid under the letter of credit, on the grounds that RioCan had no right to claim it.

Facts

[5]           In May 2008, Pierre Labrecque, on behalf of a company to be incorporated, signed an offer to lease with RioCan, the lessor of retail space in a Quebec City suburban shopping mall.  Mr. Labrecque’s intention was to renovate the rented premises and open a flea market.

[6]           9197 was incorporated by Mr. Labrecque on May 28, 2008.  Shortly thereafter, the company opened an account at the Bank’s Repentigny branch and obtained a $50,000 line of credit.

[7]           In July 2008, Mr. Labrecque and Ms. Guertin personally guaranteed the repayment of 9197’s indebtedness to the Bank.  Their contracts of suretyship (R-5) did not limit the amount of their guarantees.

[8]           RioCan’s offer to lease (DG-1) required 9197 to provide a letter of credit to RioCan guaranteeing the performance of the tenant’s obligations for a period of 180 days, calculated from the lease’s starting date (Date de Commencement).

[9]           Accordingly, in August 2008, Pierre Labrecque asked the Bank to issue a letter of credit to RioCan.  Mr. Labrecque gave a copy of the accepted offer to lease to the Bank and explained that 9197 needed a letter of credit for 180 days.  In order to guarantee the Bank’s obligations under the letter of credit, Mr. Labrecque deposited the sum of $100,000 with the Bank that he had borrowed from a third party.  The money was placed in a guaranteed investment certificate (GIC) pledged to the Bank.

[10]        The movable hypothec (R-7) pledging the GIC was signed on behalf of 9197 by Pierre Labrecque, at the Repentigny branch, on August 7, 2008.

[11]        On the same date, an indemnity agreement (Convention d’indemnisation) was also signed on behalf of 9197 (R-1).  Under this agreement, 9197 authorized the Bank to issue a letter of credit to RioCan and it undertook to indemnify the Bank for any resulting losses, damages and costs.  The agreement stipulated that the Bank could extend or renew the letter of credit, unless 9197 instructed the Bank otherwise.

[12]        At trial, Mr. Labrecque testified that the signature on the Convention d’indemnisation (R-1) was not his and had been forged.

[13]        On August 11, 2008, the Bank issued a letter of credit to RioCan (R-2).  Instead of being valid for a period of 180 days as requested by Mr. Labrecque, the letter of credit stated that it was valid for one year.  The Bank did not send a copy of the letter of credit to Mr. Labrecque.

[14]        In early February 2009, Mr. Labrecque returned to the Bank.  He stated that the 180 day period was about to expire and asked the Bank to return his $100,000 security deposit to him, because he had to repay his lender.  At this point, the Bank realised there had been an error.  The letter of credit issued by the Bank to RioCan was still valid for another six months, until August 11, 2009.

[15]        Mr. Labrecque was upset when informed of the error and threatened to publicly denounce the Bank.  He showed the Bank’s representative a copy of a letter he had received from RioCan, dated February 11, 2009 (D-14), stating that once RioCan had cashed two rental cheques from 9197 it would return the letter of credit to the Bank.  Mr. Labrecque had the two rental cheques with him and allowed the Bank’s representative to make photocopies.

[16]        After a brief internal discussion, the Bank decided to return Mr. Labrecque’s $100,000 security deposit to him.

[17]        For reasons that are unclear, Mr. Labrecque and RioCan did not reach an agreement respecting the rent and the two cheques were never delivered to RioCan.

[18]        On March 6, 2009, RioCan wrote to the Bank calling upon it to pay under the terms of the letter of credit.  On March 13, the Bank paid RioCan $100,000.

[19]        Several days later, on March 17, Mr. Labrecque received a letter from the Bank’s Toronto office informing him that 9197 was in default, given the payment to RioCan.  Mr. Labrecque was advised that 9197’s credit line was suspended, and he was invited to communicate with the Bank in order to discuss repayment.

[20]        The Bank sent a demand letter to Pierre Labrecque and Thérèse Guertin on May 8, 2009, calling upon them to pay the sum of $100,000 under the terms of their personal guarantees (R-5).  The Bank instituted the present action on July 10, 2009.

[21]        9197 and RioCan never agreed to the terms of a lease.  Mr. Labrecque testified that the premises in the shopping mall were unsanitary, while RioCan testified that 9197 was in default to pay the rent under the accepted offer to lease.  9197 vacated the premises sometime after March 2009 and filed for bankruptcy protection.

[22]        In October 2009, the defendants paid the amounts owed by 9197 to the Bank under the $50,000 line of credit.

Questions in issue

[23]        The first question raised by this case is whether the Bank is entitled to claim $100,000 from 9197 following the payment to RioCan under the letter of credit.  If so, it then becomes necessary to consider the defendants’ argument that they did not agree to guarantee 9197’s indebtedness under the letter of credit.

[24]        A second question is whether the Bank’s action is abusive and gives rise to a claim by the defendants for compensatory, moral and punitive damages.

[25]        The third question for determination is whether the Bank is entitled to be repaid $100,000 by RioCan, and to be indemnified by RioCan in the event the Bank has to pay damages to the defendants.

Analysis

i)       Is the Bank entitled to claim $100,000 from 9197 as a result of the payment to RioCan under the letter of credit?

[26]        The Bank does not deny that in August 2008 Pierre Labrecque asked the Bank to issue a letter of credit for 180 days.  The Bank’s representative, Ms. Claudette Giroux, admitted that the Bank erred in issuing a letter of credit to RioCan for a period of one year.

[27]        The Bank’s defence is that under the terms of the accepted offer to lease (DG-1), a copy of which was given by Mr. Labrecque to the Bank, 9197 was required to provide a letter of credit to RioCan for a period of 180 days, calculated from the starting date of the lease, which was September 23, 2008.  Since RioCan’s demand for payment was made on March 6, 2009, it fell within the period of 180 days.

[28]        The Bank is correct to state that the starting date of the lease was September 23, 2008.  According to exhibit DG-3, RioCan turned the leased premises over to 9197 on June 23, 2008.  Mr. Labrecque testified that 9197 opened the premises to the public on August 14, before completing renovations.  According to section 13 of the accepted offer to lease, the lease’s start date falls 90 days after the delivery of the premises to the tenant, if the tenant opens the premises to the public before completing renovations.  Thus, in the present case, the start date was 90 days after June 23, 2008.

[29]        The difficulty with the Bank’s position is that it was unaware of the lease’s start date when it issued the letter of credit to RioCan.  When the Bank issued the instrument, it did not know that 9197 had taken possession of the premises on June 23, or that 9197 would open the flea market to the public on August 14, before completing renovations.  Consequently, it cannot have been the Bank’s intention, or the parties’ agreement, to provide a letter of credit to RioCan for a period of 180 days starting on September 23.

[30]        When he was examined out-of-court, Mr. Labrecque was confused about the lease’s starting date: he thought it fell on August 14 when the premises opened.[1]  Moreover, the Bank issued the letter of credit on August 11, well before September 23.  These facts lead to the conclusion that the parties’ intention was for the letter of credit to be valid for a period of 180 days from the date of its issuance on August 11.

[31]        The Bank’s behaviour in February 2009 also confirms this understanding.  When Mr. Labrecque came to the Bank in early February, Ms. Giroux recognized the Bank had made an error in issuing a letter of credit for more than 180 days.  She testified that Mr. Labrecque asked her to cancel the letter of credit and return his $100,000 security deposit to him, which she did.

[32]        When Ms. Giroux returned the deposit to Mr. Labrecque, she did not inform him that the letter of credit remained in effect, thereby engaging the liability of 9197, Mr. Labrecque and Ms. Guertin in the event a payment was made to RioCan.

[33]        It follows that when the Bank returned the security deposit, Mr. Labrecque was entitled to assume that the letter of credit expired on the 180 days after August 11, 2008, i.e. in mid- February 2009.

[34]        This conclusion does not change, moreover, in light of RioCan’s undertaking on February 11, 2009 (D-14) to return the letter of credit to the Bank once it had cashed 9197’s two rental cheques.  RioCan’s undertaking in no way altered Mr. Labrecque’s agreement with the Bank, reached six months earlier.  That agreement and the Bank’s obligations to RioCan were entirely separate.

[35]        In addition, there is no evidence to conclude that Mr. Labrecque and the Bank agreed, when the security deposit was returned, that the letter of credit would be extended until such time as RioCan deposited 9197’s two rental cheques.  Neither the Bank’s witnesses nor Mr. Labrecque testified to this effect.

[36]        Finally, the Bank cannot rely on the Convention d’indemnisation (R-1) to argue that it was entitled to renew the letter of credit beyond the month of February.  That agreement only allowed the Bank to renew the letter of credit in the absence of contrary instructions from 9197.  It is clear that those contrary instructions were given in February when Pierre Labrecque asked the Bank to cancel the letter of credit.

[37]        The parties devoted considerable attention at trial to the Convention d’indemnisation (R-1) and the question of whether Pierre Labrecque had signed it.  The defendants called a handwriting expert, who opined that the signature on the document was not Pierre Labrecque’s.  In light of the findings above, it is not necessary to decide if the document is genuine, since it does not affect the conclusion that the letter of credit expired in February and was not renewed thereafter.

[38]        The Court finds that under the terms of the agreement between 9197 and the Bank, the letter of credit had expired on March 6, 2009 when payment was made to RioCan.  Consequently, the Bank has no recourse against 9197, or the defendants as guarantors, to recover the payment.

ii)      Is the Bank’s action abusive, giving rise to a claim for compensatory, moral and punitive damages by the defendants?

[39]        The defendants allege that the Bank’s action is abusive because it seeks to render the defendants responsible for the Bank’s error.  They claim the Bank’s action is based on a forged document (R-1), indicating the Bank’s bad faith.  The defendants argue that they were misled, or ill-advised by the Bank, when they signed their personal guarantees (R-5).  In addition, they contend that they were forced to sell their home in order to reimburse 9197’s $50,000 line of credit, that they needlessly paid legal fees to defend the Bank’s action, and that they have suffered stress and inconvenience.

[40]        According to the defendants, the Court should award a substantial amount of punitive damages ($670,000) in order to dissuade the Bank from acting in a similar manner in the future.

[41]        The defendants’ claims have to be examined in light of the facts.  In order to conclude that the Bank’s action is abusive, the Court requires evidence that the Bank brought the present proceedings in bad faith, or with intent to cause harm to the defendants.  If the Bank clearly had no basis for its claim, but proceeded nonetheless, the Court could conclude that it acted in bad faith. 

[42]        Alternatively, evidence would have to show that the Bank acted abusively during the course of the legal proceedings (abus d’ester en justice).

[43]        In the present case, there is no proof that the Bank acted in bad faith or abusively, either prior to or during these proceedings.  Although the Bank’s action against the defendants is unfounded, it does not follow that the action is abusive.  In this regard, the Bank is not subject to a higher standard than other litigants whose actions are dismissed by the courts.

[44]        It is important to note that the Bank’s witnesses readily admitted their error in drawing up the letter of credit.  From the beginning, they did not attempt to mislead the Court or the defendants on this question.

[45]        In addition, there is no evidence that the Bank knowingly based its action on a false document.  Whatever the opinion of the handwriting expert, the Bank had reason to believe that the indemnity agreement (R-1) was signed by Pierre Labrecque on August 7, since according to the evidence, he signed a movable hypothec (R-7) at the Bank the same day.

[46]        Furthermore, the Bank’s action cannot be considered frivolous.  Although the Court disagrees with the Bank’s position that it was entitled to be reimbursed by the defendants because it paid RioCan within 180 days of the start date under the accepted offer to lease, the Bank was not unreasonable in advancing this position.

[47]        There is no support for the defendants’ claim that they were forced to sell their home in order to repay 9197’s line of credit.  According to the evidence, Ms. Guertin opted to sell her house to her sister (and to continue living there), rather than seeking mortgage financing elsewhere.

[48]        While the Court is sensitive to the stress and anxiety suffered by parties who must defend themselves in court, the defendants cannot claim damages for their stress and inconvenience in light of the Court’s conclusion that the Bank committed no fault in bringing the present action.

[49]        For the reasons above, there is also no basis to award punitive damages.  In all events, the Court is of the view that the amount of damages claimed by the defendants is grossly exaggerated.

iii)     Is the Bank entitled to be repaid $100,000 by RioCan?

[50]        Under the terms of the letter of credit, the Bank undertook to pay RioCan upon presentation of a written demand confirming that amounts were owed under a lease agreement dated July 25, 2008.  RioCan sent a written demand in these terms to the Bank on March 6, 2009.

[51]        It is settled law that a letter of credit is an autonomous contract binding the issuer and the beneficiary.  If the beneficiary makes a demand for payment that is in apparent conformity with the terms of the instrument, the Bank must pay.  The Bank cannot refuse to honour the draft because of a dispute between the parties to the underlying contract, except in cases of fraud.[2]

[52]        It is not clear why in this case the letter of credit referred to a lease dated July 25, 2008, since no such agreement was ever signed by 9197 and RioCan.  It appears, however, that the parties intended to replace the offer to lease (DG-1) with a final lease bearing the July date (DG-5).  Had this occurred, 9197’s rental obligations under DG-1 would have continued under the lease.

[53]        According to the evidence, 9197 owed rent to RioCan in March 2009.  Therefore, it cannot be concluded that RioCan’s demand for payment was fraudulent, even if the letter of credit and RioCan’s demand for payment referred to an unsigned lease agreement.

[54]        It follows that the Bank had no grounds to refuse payment in March 2009, and that the Bank’s claim for recovery from RioCan cannot succeed.

            FOR THESE REASONS, THE COURT:

[55]        DISMISSES the plaintiff’s action against the defendants, with costs, including the expert costs of Ms. Henriette Fournier in the amount of $2,947.40;

[56]        DISMISSES the defendants’ cross-claim, with costs;

[57]        DISMISSES the plaintiff’s action against RioCan Holdings (Québec) Inc. with costs.

 

__________________________________

DAVID R. COLLIER, J.S.C.

 

Mtre. Martin Robitaille

Holmested & Associés

Attorneys of plaintiff/cross-defendant

 

Mtre. David Quimper

David Quimper, Avocat

Attorneys of defendants/cross-plaintiffs

 

Mtre. Alexandre Béchard

Gascon & Associés

Attorneys of defendant in warranty

 

Dates of hearing:

March 19, 20 and 21, 2013

 

 

Taken under advisement:      March 21, 2013



[1]     Examination on discovery of Pierre Labrecque, June 3, 2010, p. 44.

[2]     Bank of Nova Scotia v. Angelica-Whitewear, [1987] 1 S.C.R. 59 at pp. 70, 81.

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