[1]                The plaintiff seeks joint and several payment with interest of a loan debt from the defendants.  It also seeks costs on a solicitor-client basis.

[2]                Defendant 4136306 Canada Inc. (hereafter "Canada Inc.") does not contest.

[3]                The other two defendants argue that they did not guarantee the debt.

I-THE FACTS

[4]                Alain Assouline is the president of the plaintiff, an investment company. 

[5]                In 2005-2006, defendant Cadieux asked Mr. Assouline to assist in the restructuring and reorganization of Broadsign International Inc. (hereafter "Broadsign"), a start-up company that he operated.

[6]                Broadsign was experiencing cash-flow problems.  Mr. Cadieux asked Mr. Assouline to lend him money to cover Broadsign's salaries and to draw the cheques to the order of Canada Inc., a company that, as far as Mr. Assouline was aware, Mr. Cadieux also controlled. 

[7]                According to Mr. Assouline's testimony, Mr. Cadieux verbally undertook to personally guarantee reimbursement of the loan to the plaintiff.  Given their friendship and Broadsign's apparently good prospects, Mr. Assouline took his word.

[8]                The plaintiff accordingly loaned $500,000.00 by cheques drawn to the order of Canada Inc.: $300,000.00 on May 1, 2006 and $200,000.00 on July 18, 2006.

[9]                The loan was to be fully repaid on June 30, 2008 and bore interest at a rate of 20 % per annum.

[10]            In addition to his personal guarantee, Mr. Cadieux caused defendant First Mercantile (hereafter "Mercantile"), which he owned, to acknowledge owing plaintiff $500,000.00, with interest at 20 % per annum, payable no later than June 30, 2008 (Exhibit P-3).  In the event of default, Mercantile undertook to deliver to plaintiff a share certificate of Broadsign for the equivalent of the sum due:

Genève, le 1er octobre 2007

Concerne : Prêt de CAN 500.000. - à 413.6306 Canada Inc.

                 (…)

Messieurs,

Nous soussignés, First Mercantile Invst. Corp., reconnaissons devoir à votre société les montants cites en exergue, augmentés d'un taux d'intérêt de 20 % p.a.

             Ces sommes vous seront intégralement remboursées au plus tard le  :

30 JUIN 2008

Dans le cas où, à la date sus-indiquée, le remboursement en capital et intérêts ne serait pas exécuté, nous nous engageons de manière irrévocable à vous délivrer un certificat d'actions BROADSIGN INTERNATIONAL INC. de l'équivalent de la somme due.

(…)

                                                                          FIRST MERCANTILE INVST CORP

                                                                          Olivier J. NERFIN, Administrateur

[11]            The plaintiff signed a copy of P-3 to confirm its acceptance.

[12]            The loan was not repaid at maturity.

[13]            On September 29, 2008, the plaintiff sent a demand letter to the defendants for payment of the loan with interest. 

[14]            Except for counsel, no representative of the defendants attended the trial.

[15]            The defendants did not call a witness.

II- THE ISSUES

[16]            This case raises five issues:

1-     Is Canada Inc. obligated to pay the loan?

2-     Is testimonial evidence admissible of a verbal undertaking by Mr. Cadieux to personally guarantee the reimbursement of the loan?

3-     Is Mercantile obligated to pay the loan?

4-     From what date should interest and the additional indemnity be awarded?

5-     Is the plaintiff entitled to costs on a solicitor-client basis?

III- DISCUSSION

1- Is Canada Inc. obligated to pay the loan?

[17]            On the evidence, Canada Inc. did not borrow the money.  It only received the money lent to Broadsign.

[18]            There is no evidence that Canada Inc. undertook to pay the loan.

[19]            There is therefore no legal basis for a judgment against Canada Inc.

2- Is testimonial evidence admissible of a verbal undertaking by Mr. Cadieux to personally guarantee the reimbursement of the loan?

[20]            During proof, Mr. Cadieux's counsel objected that Mr. Assouline's testimony regarding a verbal loan agreement was hearsay.  The objection was immediately dismissed.

[21]            In argument, Mr. Cadieux's counsel raised another ground of objection, i.e. that pursuant to the first paragraph of art. 2862 C.C.Q., testimonial evidence is inadmissible to prove that his client personally guaranteed the loan:

2862. Proof of a juridical act may not be made, between the parties, by testimony where the value in dispute exceeds $1,500.

However, failing proof in writing and regardless of the value in dispute, proof may be made by testimony of any juridical act where there is a commencement of proof; proof may also be made by testimony, against a person, of a juridical act carried out by him in the ordinary course of business of an enterprise.

[22]            The plaintiff did not protest the lateness of this objection or ask for a reopening of its proof.  Apparently, it did not consider that it was prejudiced by the presentation of the objection after proof had been closed.

[23]            Testimonial evidence of an undertaking to reimburse with interest a loan of $500,000.00 is prohibited subject, however, to the exceptions mentioned in the second paragraph of art. 2862 C.C.Q.

[24]            The plaintiff answers that Mr. Cadieux's personal guarantee was a "juridical act carried out by him in the ordinary course of business of an enterprise."

[25]            Pursuant to art. 2803 C.C.Q., the burden of proof lies with the person invoking such an exception.

[26]            Plaintiff refers to the case of Almex Textiles Inc. v. Les Tissus Hartex Inc. and Stanley Harris[1] which was decided on the basis of the Civil Code of Lower Canada and where judge Gomery, in obiter, noted (at par. 4) that "proof of suretyship may be made by testimony where the principal obligation is a commercial matter, and the person alleged to have guaranteed it had an interest in the furtherance of the commercial enterprise in question."

[27]            According to author Léo Ducharme[2], the expression "a juridical act carried out by him in the ordinary course of business of an enterprise" only applies to acts that correspond to the very object of a business or that are accessory to such acts.  He adds, in substance, that testimonial evidence is inadmissible under the present Code regarding the acts of a person "in the interest of a business":

En vertu du droit antérieur, par application de la théorie de l'accessoire, on considérait que certains actes poses par des non commerçants devaient être réputés des actes commerciaux, tels (…) le cautionnement d'un (sic) dette commerciale (références omises) (…).  Or, en vertu du nouveau Code, comme ce sont seulement les actes posés par une entreprise qui bénéficient d'un régime d'exception, il va de soi que ce régime ne peut s'appliquer à un acte qu'une personne pose dans l'intérêt d'une entreprise.

                                                                                                  [Emphasis added.]

[28]            Similarly, author Jean-Claude Royer[3] distinguishes between, on the one hand, the juridical act carried out by a person in the ordinary course of business of an enterprise, which is signaled by its repetitive character as well as by the systematic and ordered character of relevant inscriptions and, on the other hand, a juridical act merely carried out "for the service" or "operation" of an enterprise:

(…) Les règles dérogatoires, qui ont pour but de faciliter la preuve des actes juridiques posés dans le cours des activités d'une entreprise, s'expliquent tant par le caractère répétitif des activités exercées que par le caractère systématique et ordonné des inscriptions faites (reference omitted.).  Ainsi, il est normal de limiter ces exceptions aux actes posés dans le cours des activités d'une entreprise et d'exclure les contrats qui sont conclus occasionnellement pour favoriser la formation, l'établissement ou le développement de l'entreprise.  À notre avis, les termes utilisés ne permettent plus d'invoquer la théorie de l'accessoire pour rendre admissible la preuve testimoniale d'un acte juridique qui n'est pas dans le cours des activités d'une entreprise, même s'il est conclu pour le service ou l'exploitation d'une entreprise (references omitted.).  (…)

                                                                                                  [Emphasis added.]

[29]            In the recent case of 9108-4913 Québec inc. v. Capitale Alliance Commercial inc.[4], the Court of Appeal overturned the trial judge who had recognized the existence of a verbal real estate brokerage contract on the basis of testimonial proof.  The appellant was not a real estate promoter, but an enterprise that generally purchased land to build and operate various businesses.  Hence, the alleged verbal contract was unrelated to the appellant's ordinary course of business.

[30]            The same is true here: borrowing money was not proven to be a normal event for Mr. Cadieux.

[31]            A businessman, Mr. Cadieux apparently controlled Broadsign and two other corporate concerns.  No evidence whatsoever was offered, however, that he habitually provided personal guarantees for the benefit of Broadsign or that providing such guarantees was normal conduct for businesspeople in his position.[5]

[32]            Moreover, Mr. Cadieux's apparent personal interest in guaranteeing payment of the debt was that he "operated" and "controlled" Broadsign, the company that was to utilize the loan. 

[33]            There is no evidence that Mr. Cadieux was Broadsign's only director or shareholder or even its principal director or shareholder or that he obviously stood to profit personally from the transaction. 

[34]            The plaintiff has therefore failed to show the admissibility of testimonial evidence of Mr. Cadieux's personal guarantee of the loan. 

3- Is Mercantile obligated to pay the loan?

[35]            In this regard, the plaintiff relies solely on Exhibit P-3.

[36]            Mercantile argues that P-3 does not evidence its own obligation to pay the loan, but merely provides a general assurance of payment by an unspecified person no later than the term ("Ces sommes vous seront intégralement remboursées au plus tard …") as well as its undertaking, accepted by the lender, to transfer to the latter a share certificate of Broadsign in the event of default.

[37]            Mercantile did not offer any evidence to interpret P-3.

[38]            By personally acknowledging its indebtedness, Mercantile implicitly acknowledged its own obligation to pay the loan.

[39]            Excluding this implicit obligation would have required clear language indicating that in case of default, Mercantile undertook only to provide the lender with the transfer of the promised share certificate in lieu of payment.

[40]            There is no such language in P-3.

4- From what date should interest and the additional indemnity be awarded?

[41]            The plaintiff asks for interest and the additional indemnity "retroactive to the date of default". 

[42]            P-3 provides an undertaking to pay the loan no later than June 30, 2008. 

[43]            The demand letter, however, is dated September 29, 2008.

[44]            Pursuant to art. 1594, 1595, 1597 a contrario, 1617 and 1619 C.C.Q., interest and the additional indemnity shall begin to run from September 29, 2008.

5- Is the plaintiff entitled to costs on a solicitor-client basis?

[45]            The plaintiff does not provide any grounds for such an award nor are any apparent on the face of the file.

FOR THESE REASONS, THE COURT:

CONDEMNS First Mercantile to pay Plaintiff the sum of $500,000.00 with interest at 20 % per annum and the additional indemnity provided for by Article 1619 C.C.Q. from September 29, 2008.

With costs.