In a recent decision in the Ontario Court of Appeal (Royal Bank of Canada v. Samson Management), the Court upheld guarantee language that was clearly designed to take away common-law protection for guarantors. Under the common law, the guarantor might avoid his obligations where changes are made between the lender and borrower which affect the risk and exposure of the guarantor.
In the case, the spouse signed a continuing guarantee for the debts of the family business. Over the years, the bank increased the credit limit of the business but was inconsistent in getting the consent of the spouse guarantor to such credit limit increases. In the end, the credit limit was increased by more than 100% without the spouse being asked to consent to the last few credit limit increases.
The Court concluded that the contractual language in the guarantee, which contemplated that it would secure all accounts and all future advances, would govern and thus the guarantor was found liable.
Alf Kempf is the Chair of Pushor Mitchell’s Employment Law Group. He can be reached by phone at (250) 869-1215, or by email at [email protected].
