In the recent case of Kalsi v. Achary,1 the British
Columbia Supreme Court held that a mortgagee cannot recover payment
from a party signing the mortgage as a guarantor when the terms of
the guarantee were omitted from the mortgage, even though there was
intent to give a guarantee.
The plaintiff was a private lender who lent money to the
mortgagors (the "Mortgagors"), secured by a mortgage on
the Mortgagors' home. The defendants were relatives of the
Mortgagors, and they agreed to guarantee repayment of the mortgage
money in the event of a default by the Mortgagors under the
The mortgage was prepared by the plaintiff's lawyer. It was
signed by the Mortgagors, and also by the defendants who were
described as "guarantors." The terms attached to the
mortgage (the "Prescribed Standard Terms") were those as
prescribed under the Land Title (Transfer Forms)
Regulation.2 They contained a definition of the term
"covenantor" and provisions for the obligations of a
covenantor, but none for a guarantor. The intended schedule of
guarantee terms simply never got attached.
The court considered the facts of the case and reviewed the
Prescribed Standard Terms for a covenantor. The judge rejected the
plaintiff's argument that by signing as "guarantors"
the defendants had signed as covenantors. He noted the fundamental
difference between the obligation of a covenantor and a guarantor:
a covenantor's liability is primary like that of a co-borrower
and a guarantor's liability is secondary to that of the
principal debtor. He emphasized that because section 226 of the
Land Title Act allows the Prescribed Standard Terms to
"be modified by making additions, amendments or
deletions," provisions relating to a guarantor could have been
added to the Prescribed Standard Terms.
On this basis the court dismissed the plaintiff's case with
costs, as there was insufficient evidence to identify the terms of
any guarantee given by the defendants. The court also rejected the
notion that the defendants' signatures on the form were
sufficient to constitute a basic or "bare" guarantee.
The lesson from Kalsi is that the Prescribed Standard Terms
should only be used as a template. Lenders preparing their own
documents should ensure that conditions not specified in whatever
standard mortgage terms they use are attached in a schedule to
those terms. This is especially important as courts will not
"fix" the mortgage terms or related schedules to reflect
the actual intention of the parties. Similarly, financial
institutions who have filed standard mortgage terms with the land
title office should review and update their filed terms on a
regular basis. This would help ensure that their filed terms are
kept current, and include definitions and clauses for common
mortgage transactions. In addition, as in Kalsi, to be effective
the mortgages based on a lender's own filed standard mortgage
terms must be amended as appropriate to reflect any terms of the
loan and security which are not dealt with expressly in the filed
1 2012 BCSC 361 ["Kalsi"]
2 Those prescribed standard mortgage terms have now been
replaced by Schedule B of the Land Title Act (Board of Directors)
Regulation, B.C. Reg. 332/2010
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