Alberta is the only jurisdiction in Canada (and in most, if not
all, other common law jurisdictions) to have a guarantees
acknowledgment act. Although its purpose is laudable, its
application has created headaches for practitioners, uncertainty
for clients and injustices for many.
The Guarantees Acknowledgment Act (Alberta) was first
enacted in 1939 and remains largely intact today. The Act was
implemented to protect ordinary individuals from unwittingly
subjecting themselves to onerous liabilities. The Act provides that
a guarantee provided by an individual has no effect unless the
guarantor acknowledges the execution of the guarantee before a
notary public who certifies that he has satisfied himself by
examination that the guarantor is aware of the contents of the
guarantee and understands it (all of this for a prescribed maximum
fee of $5). The Act supplements the Statute of Frauds
(1677) which requires that guarantees be in writing.
The courts have generally applied the Act strictly - no notarial
certificate, no enforcement. This has resulted in some guarantors
evading, on technical grounds, the obligations they undertook with
full knowledge. In some multijurisdictional disputes however,
courts have jumped through hoops to apply the laws of other
jurisdictions - by all appearances to give effect to guarantees
that would otherwise have failed under Alberta law.
In Bharwani v. Chengkalath, the plaintiff sold his
accounting practice to the defendant. The plaintiff agreed to
finance a portion of the purchase price in exchange for a personal
guarantee and collateral mortgage. The plaintiff's solicitor
prepared the necessary documents, complete with a notarial
certificate in prescribed form. The defendant's wife (in whose
name title to the residence was registered), who is a lawyer and
was acting for her husband on the sale, refused to sign the
guarantee as she did not want to be personally responsible for the
debts of her husband apart from the equity in their home.
Accordingly, in place of the guarantee and collateral mortgage, she
drafted an acknowledgment of indebtedness whereby "the
undersigned grants to..., without any personal liability,
as security for the repayment of ..., a charge on lands legally
described as...", which the plaintiff's solicitor
The transaction soured and the plaintiff sought to enforce the
charge on land. The defendant's wife claimed that the
acknowledgment of indebtedness (yes, the one she drafted on the
basis that she was not prepared to sign a personal guarantee) was
in fact a personal guarantee and was unenforceable since it failed
to comply with the Act. Remarkably, both the Master and the
chambers judge on appeal agreed. On its face, the acknowledgment
merely granted a charge on land and did not create a personal
obligation to answer for a default of another. Assuming it did
create such an obligation, it was arguably given on the sale of an
interest in goods or chattels (an exception from the definition of
"guarantee" under the Act).
Regrettably, no appeal was taken from the order of the chambers
judge. The Court of Queen's Bench of Alberta and the Alberta
Court of Appeal therefore only dealt with the issue of whether the
principle of estoppel precluded the defendant from raising the
defence of non-compliance with the Act (which both courts held did
not). In her reasons for judgment, Madam Justice B.E. Romaine of
the Court of Queen's Bench of Alberta acknowledged "There
is no doubt that the equities of the situation make this an
unattractive conclusion." In its judgment, the Alberta Court
of Appeal emphasized "We are obliged, for purposes of this
judgment, to accept the finding of the chambers judge that the
Acknowledgment of Indebtedness prepared and executed by the
respondent is a guarantee within the meaning of the Act. We
reiterate that this determination was not appealed."
The Act has been examined twice by the Institute of Law Research
and Reform (Alberta). The first report (tabled in 1970) recommended
that the Act be retained but reformed to inter alia permit
a court to grant relief in those cases where it is obvious that the
spirit of the Act has been complied with. In its second report
tabled in 1985, the Institute's board was divided as to whether
the Act should be repealed and recommend similar reforms assuming
the Act was retained. To date, none of the recommended reforms in
either report have been adopted.
With or without reform, the Act has outlived its useful life and
should be repealed. This Alberta anomaly should be eliminated and
Alberta brought in-step with other common law jurisdictions.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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