Executive Summary: Key Legal and Evidentiary Issues

• Iraj Mehrnia appealed a judgment finding him jointly and severally liable as guarantor of a revolving demand loan issued by TD Bank to Readymix Foods Corporation.
• On appeal, the sole issue argued was whether there was valid consideration for the personal guarantee signed by Mr. Mehrnia.
• Credit was not advanced until September 27, 2007 — after the guarantee was signed — establishing that the guarantee preceded any financial benefit to Mr. Mehrnia.
• Additional loan advances were made over subsequent years in reliance on the guarantee, further supporting the finding of consideration.
• Mr. Mehrnia's own evidence acknowledged he was told he was signing a loan guarantee and that it was required for Readymix to access any credit facility with TD Bank.
• Distinguishing the appellant's reliance on Villeneuve v. Turner, the court noted that unlike in that case, no funds had been advanced before the guarantee was requested and Mr. Mehrnia was clearly told what he was signing.

Facts of the case

Readymix Foods Corporation ("Readymix") obtained a revolving demand loan from Toronto-Dominion Bank ("TD Bank"). Iraj Mehrnia, the president and sole shareholder of Readymix, personally guaranteed the loan. The loan went into default, and TD Bank sought judgment against both Readymix and Mr. Mehrnia. Readymix consented to judgment; Mr. Mehrnia did not.

At summary trial, Mr. Mehrnia raised three defences: (1) no consideration was given by TD Bank for his guarantee; (2) he did not understand what he was agreeing to; and (3) he did not receive independent legal advice before signing. The trial judge rejected all three arguments, and judgment was entered against Mr. Mehrnia in his personal capacity. He appealed, but by the time of oral submissions, his counsel confirmed that the only argument being advanced on appeal was the failure of consideration.

Contractual clauses at issue

The guarantee section of the loan agreement signed on September 11, 2007 was left blank at the time of signing. Mr. Mehrnia completed the guarantee section on September 14, 2007. The signature line on that form read "Signature of Guarantor," with the heading "Personal Guarantee" appearing directly above it. The loan agreement also contained a clause permitting TD Bank to amend the agreement at any time at its discretion — a provision central to the court's analysis on consideration.

Court's reasoning and analysis

The Court of Appeal agreed with the trial judge that consideration existed for the guarantee. The court accepted the evidence of TD Bank representative Mr. Santeramo, who testified that it was his practice to provide borrowers with a copy of the guarantee at the first meeting and to inform them that a guarantee was a standard requirement of TD Bank loans. Critically, Mr. Mehrnia's own evidence stated that at the September 14, 2007 meeting, Mr. Santeramo told him the guarantee must be signed if Readymix wished to have any credit facility with TD. The court treated this as an admission that Mr. Mehrnia understood what he was signing and why.

The court also relied on the loan agreement's amendment clause. Because TD Bank retained the right to change the terms of the lending arrangement at any time — including requiring a guarantee — even if no guarantee had been contemplated on September 11, 2007, the bank was entitled to require one thereafter. Alternatively, the bank could simply have cancelled the credit facility on September 14 before any funds were advanced and required Mr. Mehrnia to re-apply with a guarantee attached. Importantly, credit was not advanced until September 27, 2007, after the guarantee had been signed and the account had gone into overdraft. Further advances were made in subsequent years through to 2022 in reliance on Mr. Mehrnia's guarantee. The court therefore found consideration to be clearly established.

The appellant relied on Villeneuve v. Turner, [1990] O.J. No. 385 (Dist. Ct.), for the proposition that no consideration exists when a guarantee is given after the lender has already committed to a loan. The court distinguished that case on two grounds: in Villeneuve, funds had already been advanced under the lending facility before the guarantee was requested, and the guarantor had not been told he was signing a guarantee — only that he was signing a corporate document. Neither circumstance applied here.

Ruling and overall outcome

The appeal was dismissed. TD Bank, as the successful respondent, was awarded solicitor-and-client costs in the amount of $27,543.48, as agreed by the parties.