It is well established that having a personal guarantor obtain
independent legal advice before signing a guarantee is not an
essential element to the enforceability of a guarantee by a
lender. However, a recent decision of the Ontario Superior
Court of Justice serves as a helpful reminder of some of the
benefits of obtaining independent legal advice to support a
In 2240094 Ontario1, a motion for summary judgment was
brought by the bank against the loan guarantors. The loan
guarantors had previously signed a guarantee under which they
agreed to be jointly and severally liable for a corporation's
indebtedness. When the corporation defaulted on its loan from
the bank, the guarantors did not make payment.
In reaching his decision, Justice Perell revisited earlier case
law2 confirming that (i) a bank is under no obligation
to ensure that a guarantor obtains independent legal advice, and
(ii) a bank has no obligation to advise the guarantor of the legal
risks associated with the particular transaction.3
Justice Perell specifically referred to the Featherstone
case,4 where the court stated that the primary purpose
for a bank requesting a certificate of independent legal advice is
to avoid, if possible, the guarantor later raising defences such as
non est factum, unconscionability, fraud, misrepresentation or
undue influence. Further, as the burden of proving each of
these defences rests on the guarantor, requiring independent legal
advice can serve to significantly restrict the availability of
Upon a review of the evidentiary record, Justice Perell
determined that the guarantors in 2240094 Ontario would not be able
to establish non est factum, however, there was enough evidence to
require a trial for misrepresentation. The bank's motion
for summary judgment was dismissed, however, this was not a
dismissal of the bank's claim against the guarantors.
What is interesting about this case is that the guarantors were
both very young (19 and 21 years old) and guaranteed a small loan
of $29,325. Additionally, the guarantors were the sons of the
principal owner of the borrower. While they apparently
appreciated the liability that they were taking on, there is
question as to whether they understood the full extent of that
liability and the nature of the legal risk that they were
assuming. In assuming this liability, the guarantors solely
relied upon the information that they had received from the
Justice Perell stated that, in his opinion, had the guarantors
received independent legal advice, it is arguable that they would
have been advised to refuse to sign the guarantee and this case
would not have been before him.6 In his
view, a competent lawyer would have warned them about the
danger of relying on any advice or assurances from the bank
alone. Based on his comments, it appears that Justice Perell
was motivated to help the guarantors because of their young age and
lack of sophistication. The fact that the guarantors were in
a potentially vulnerable family position (signing guarantees for a
loan to their father's business) may have also played a
Although the final outcome of this case is currently unknown (as
it awaits trial), what is apparent is that, while not mandatory,
independent legal advice is a useful litigation avoidance
tool. There will of course be cases where the dollar value of
the loans guaranteed does not justify the costs involved in having
a guarantor obtain independent legal advice. However, where
loan values warrant it or the guarantor appears to be a vulnerable
relationship with the borrower or its principals, requiring that a
guarantor receive independent legal advice is recommended.
1. Royal Bank of Canada v. 2240094 Ontario Inc., 2013
ONSC 2947. [2240094 Ontario]
2. Bank of Montreal v. Featherstone (1989), 68 OR (2d) 541 (Ont
CA); Royal Bank v. Poisson (1977), 26 OR (2d) 717 (Ont HC); Bertolo
v. Bank of Montreal (1986), 57 OR (2d) 577 (Ont CA); Royal Bank v.
Hussain (1997), 37 OR (3d) 85 (Ont Gen Div); Royal Bank v. 966566
Ontario Inc.,  OJ No 606 (Ont SCJ).
3. 2240094 Ontario at para. 15.
4. Bank of Montreal v. Featherstone (1989), 68 OR (2d) 541 (Ont
5. 2240094 Ontario at para. 16.
6. 2240094 Ontario at para. 25.
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