Canada: Closely Connected Guarantor Fails In Bid To Imply Terms Into A Guarantee

Last Updated: July 7 2016
Article by Kelby Carter and Olivia Lifman

Most Read Contributor in Canada, October 2018

In a recent decision of the Ontario Superior Court of Justice, the Court rejected the efforts of a guarantor closely connected to the principal borrower to: (1) import or imply additional obligations on a creditor, which contradicted the clear and unambiguous language of a guarantee, and (2) suggest that the conduct of a creditor was not in good faith and caused a principal debtor to default under its credit facilities.

In Konga1, Toronto-Dominion Bank (the "Creditor") brought a motion for summary judgment pursuant to Rule 20 of the Rules of Civil Procedure against Raymond Kuate Konga (the "Guarantor"). The Guarantor had guaranteed all present and future obligations owed by Vertamin Inc. (the "Principal Debtor") to the Creditor (the "Credit Facilities") under an unlimited and continuing guarantee. The Creditor claimed that the Principal Debtor had breached the terms of the Credit Facilities, and simultaneously demanded repayment from the Principal Debtor and the Guarantor.

Although the Guarantor opposed the motion, he admitted to providing the guarantee as security for the Credit Facilities established for the Principal Debtor. The Guarantor also admitted to receiving a demand for payment under the guarantee from the Creditor, that payment had not been made, and that, at the time of the demand, the Principal Debtor owed the Creditor $1,098,646.22.2

The Court granted the motion for summary judgment in favour of the Creditor and dismissed the various defences raised by the Guarantor. The Court's determination that there was no genuine issue for trial in this case turned on two findings of fact: (1) the right to payment from the Guarantor had crystallized, and (2) the Creditor's conduct did not entitle the Guarantor to a discharge of its obligations under the guarantee.

Regarding the crystallization of the guarantee, the Court noted that a creditor is not required to provide notice of a principal debtor's default to the guarantor, absent a contractual provision to the contrary. To require notice in this case made little sense: as the 91% shareholder, chief executive officer and controlling mind of the Principal Debtor, the Guarantor was well aware of the Principal Debtor's breach under the Credit Facilities.3

Further strengthening the Creditor's position on the crystallization issue were express provisions in the guarantee, which stated that the Guarantor was bound not only to pay all debts and liabilities, present and future, of the Principal Debtor, but also to repay the Creditor on demand. The Court found that section 11 of the guarantee explicitly enabled the Creditor to make a demand under the guarantee even if the Creditor had not yet exhausted its recourse either against the Principal Borrower or under any other security held by the Creditor in respect of the Principal Debtor's indebtedness. The Court, therefore, held that the Guarantor's argument—that the Creditor was required to provide notice of default to the Guarantor and a reasonable (yet undefined) time for repayment—contradicted the clear and unambiguous language of the guarantee.4

The evidentiary record also assisted the Creditor's case. It showed that the Creditor notified the Principal Debtor, through the Guarantor, of its defaults on numerous occasions. The record additionally confirmed that the Creditor repeatedly warned the Guarantor that it would be demanding repayment should the Principal Debtor continue to be in default under the Credit Facilities. Despite these good faith attempts by the Creditor to resolve the Principal Debtor's default, the Principal Debtor continued to be overdrawn on the line of credit, was in breach of the tangible net worth requirement, and refused to provide its accounts receivable listings.5 The Court held that all of these defaults crystallized the Creditor's right to demand payment.6

As set out above, the Creditor's good faith conduct in its dealings with both the Principal Debtor and the Guarantor improved its position when seeking to enforce the guarantee. The Court rejected the assertion that the Guarantor should be discharged of its obligations under the guarantee due to the Creditor's conduct.7 Although the Creditor may be required under common law principles to provide a reasonable period of time for the Principal Debtor to arrange for alternative funding to repay the indebtedness, it was not required to do so prior to making a demand for payment from the Guarantor as well. The principle of good faith implied in contractual dealings could not overcome the express wording of the guarantee.8 The Court also held that the principle of implied good faith could not impose a duty of loyalty or of disclosure on the Creditor, oblige the Creditor to give up its advantages under the guarantee, or require the Creditor to subordinate any of its interests.9

Konga is an important decision because it essentially reconfirms the common practice of creditors of making demand simultaneously upon both a principal debtor and a guarantor is acceptable, absent a contractual provision to the contrary, and does not offend the common law notion of reasonable demand. The case also illustrates that well-documented actions of a creditor done in good faith will always serve a creditor well in defending allegations and challenges by a guarantor under a guarantee.


1 Toronto-Dominion Bank v Konga, 2016 ONSC 1628, 2016 CarswellOnt 3744 ["Konga"]. At the time of publication, this case had not been judicially considered.

2 Konga at para 62.

3 Konga at para 70.

4 Konga at para 71.

5 Konga at para 66.

6 Konga at para 66.

7 Konga at para 75.

8 Konga at para 76.

9 Konga at para 76.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions