In the recent case of Royal Bank of Canada v Samson Management &
Solutions Ltd., 2013 ONCA 313, the Ontario Court of
Appeal overturned a trial-level decision which held that a
continuing guarantee was unenforceable where the guarantor had not
consented to material changes to the underlying loan agreement. Now
that the Supreme Court of Canada has dismissed a motion for leave
to appeal, lenders can take some comfort that the clear language of
a standard form guarantee will continue to be enforceable in
accordance with its terms.
In 2005, Royal Bank of Canada made a small business loan of
$150,000 to Samson Management and Solutions Ltd. The loan was
supported by a general security agreement from Samson and personal
guarantees from its principal and his spouse, Cheryl Cusack. It was
Cusack's spousal guarantee that was the subject of the
The initial 2005 guarantee from Cusack was for $150,000, and in
respect of all present and future liabilities of Samson. The
guarantee was not tied to any specific loan, and Cusack received
independent legal advice. In 2006 when the loan was
increased to $250,000, a new loan was signed by Samson, and Cusack
provided a new continuing guarantee in favour of RBC in respect of
the Samson debt. Once again, the 2006 guarantee was not tied
to any specific loan and Cusack received independent legal
In 2008, the loan was increased to $500,000 and other new terms
and conditions were documented in a new loan agreement. A new
guarantee from Cusack was not requested by RBC and instead the bank
continued to rely on the 2006 guarantee. In 2009, the loan amount
was further increased to $750,000 and again, RBC continued to rely
on the 2006 guarantee. Each loan agreement cancelled and superseded
the previous agreement. At the time of each of these changes
to the underlying loan agreements, RBC did not have any contact
with Cusack, nor did she ever receive a copy of any of the loan
The court at first instance held on summary judgment that the
2006 guarantee was unenforceable, as:
there were material changes to the underlying loan agreements
following the granting of the 2006 guarantee to which Cusack never
there was an obligation on RBC to apprise Cusack of changes to
Samson's loan liability, so that she would be aware of change
to her risk.
In overturning that decision, the Court of Appeal noted that the
motions judge did not analyze the specific language of the 2006
guarantee, which it found to be very broad and clearly stated.
Although the Court agreed that the changes to the underlying loan
arrangements were material, it ruled that the 2006 guarantee was
enforceable as Cusack had contracted out of the ordinary
protections provided by the common law, and specifically the right
to be notified of those changes.
The first paragraph of the 2006 guarantee provided that the
guarantor was to pay on demand to RBC "all debts and
liabilities, present or future, direct or indirect, absolute or
contingent, mature or not at any time owing by [Samson to RBC] or
remaining unpaid by the customer to the Bank, heretofore or
hereafter incurred or arising and... incurred by or arising from
agreement or dealings between the Bank and [Samson]...".
This clause made it clear that RBC could increase the amount of its
loan to Samson and Cusack would remain liable under the guarantee.
Additionally, the continuing obligation of Cusack was also clearly
expressed in Section 2 of the guarantee which provided: "This
guarantee shall be a continuing guarantee and shall cover all the
The Court noted that one purpose of a "continuing all
accounts" guarantee like that signed by Cusack is to allow the
customer and the lender to alter their business arrangements
without having to involve the guarantor. The Court also stressed
that Cusack had received independent legal advice and it determined
that she knew and accepted that Samson's indebtedness to RBC
could increase in the future even though her guarantee was
In summarizing its conclusions, the Court of Appeal stated that
while the increased loan advances made by RBC to Samson were
material alterations to the principal loan contract, they were
contemplated by the parties, permitted by the clear language of the
2006 guarantee, and inherent in a continuing all accounts guarantee
that contemplates increases in the size of the underlying
indebtedness. These findings, effectively upheld by the
Supreme Court's denial of leave, are a welcome confirmation
that lenders may still rely on the clear terms of guarantees.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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