The Officer's Certificate and the Directors Resolution are
often viewed as formalities in corporate loan transactions that
attract very little time or attention. However, a recent
Ontario case confirms the importance for lenders to routinely
obtain these corporate authority
In Wallerstein1, Business Development
Bank of Canada ("BDC") was able to rely
upon these documents when the validity of a loan transaction was
contested by a minority shareholder for non-compliance with a
unanimous shareholders agreement (the
The plaintiff in Wallerstein was a minority shareholder
of 2161375 Ontario Inc. ("216"), to
which BDC had extended loans and taken a general security agreement
to secure the repayment of those loans. She sought a
declaration setting aside any loan liability of 216 to BDC on the
basis that she had not authorized the transaction, and a further
declaration that the other shareholders were wholly responsible for
any liability to BDC on the loan.2 BDC then moved
for a order dismissing the action against it, and the Ontario Court
of Justice granted that order.
216 had been incorporated to own a commercial building, and the
USA had been entered into between its four
shareholders.3 The specific terms of the USA were
not disclosed in the judgment, but it appears that there was some
form of non-compliance with its express terms. However, the
evidence showed that the existence of the USA had not been
disclosed to BDC.4 Moreover, BDC had actually
received both an executed directors resolution and an officer's
certificate from the president of 216 confirming that 216 had all
necessary corporate power to obtain the loan and to grant the
security, and that there was no provision in any USA which had the
effect of restricting the powers of the directors with respect to
borrowing and granting security.
Applying the indoor management rule, the Court held that BDC was
justified in relying upon the officer's certificate and
directors resolution in believing that the president was authorized
to sign the loan agreement and the general security agreement on
behalf of 216.5 In reviewing the evidence, the Court
concluded that BDC had no indication of any improper conduct on the
part of the president, and thus no basis existed for setting aside
216's liability for the BDC loans.6
This litigation might have been avoided if a legal opinion as to
the borrower's corporate authority had been obtained from
borrower's counsel at the time the loan was
established. The law firm providing the opinion would have
undertaken some due diligence enquiries, which would in all
likelihood have uncovered the existence of the USA, and then that
firm would have ensured that the terms of the USA were complied
with. However, in those cases where a legal opinion has not been
obtained for any reason, it is good to see a recent confirmation of
a lender's ability to rely upon the indoor management rule in
appropriate circumstances where the lender has no indication of any
improper conduct on the part of the borrower.
1 Wallerstein v. 2161375 Ontario Inc., 2013 ONSC 976
2 The plaintiff made her application approximately
three years after the loan was made. The Court did not
comment on the reason for the delay in challenging its validity,
nor did it draw any inference from the delay.
4 The Court indicated that the plaintiff filed no
evidence to contest BDC's evidence on this point.
6 The Court also held that the plaintiff technically
had no standing to assert a claim against BDC as she had not sought
or obtained leave to commence a derivative action on behalf of 216.
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guide to the subject matter. Specialist advice should be sought
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