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GUARANTEES AND INDEMNITIES - Liability of guarantor

Thursday, February 28, 2019 @ 8:37 AM  


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Appeal by the defendants from summary judgment enforcing guarantees of indebtedness. The defendants were the officers, directors, shareholders and directing minds of the borrower, Green Patch Environmental Consulting, and its holding company, GPEC Holdings. In August 2015, the borrower entered a loan agreement with the plaintiffs providing for advances at specified monthly rates of interest. The agreement was guaranteed by the defendants. The agreement stipulated that the plaintiffs would deliver monthly loan statements deemed conclusive of indebtedness unless disputed in writing by the borrower. Loan statements showed interest calculated at 30 per cent per annum prior to maturity, and 35 per cent thereafter. The borrower never disputed the loan statements. The borrower defaulted under the loan agreement. In March 2016, following demands under the loan agreement and the guarantees, the parties entered into a two-month forbearance agreement. The forbearance agreement stated an amount owing that accorded with the previously stated interest rates, and included covenants stating that there were no defences available to the defendants. Repayment did not occur, and litigation ensued. The plaintiffs sought summary judgment on amounts owed after proceeds from receivership failed to satisfy the whole of the debt. The motion judge rejected the defendants' contention that the loan agreement's failure to expressly state an annual interest rate required a reduction in interest. The motion judge found that the combined effect of the loan and forbearance agreements foreclosed any such argument and granted summary judgment. The defendants appealed.

HELD: Appeal dismissed. As the motion judge found, it was unnecessary to determine whether the loan agreement violated the Interest Act. Any Interest Act dispute was consensually resolved when the borrower agreed to forego and not raise any argument, defence or dispute regarding, among other things, accrued or accruing interest. The defendants' contention that they were not affected by that agreement was without merit, as they were the directing minds of the borrower and were represented by the same counsel. At the time of the forbearance agreement, the defendants knew of the potential Interest Act issue and must be taken to have consented to the waiver by the borrower of any defence or dispute based on it, thereby confirming the borrower’s obligations which they had guaranteed.

TFS RT Inc. v. Dyck, [2019] O.J. No. 203, Ontario Court of Appeal, P.S. Rouleau, K.M. van Rensburg and B. Zarnett JJ.A., January 17, 2019. Digest No. TLD-February252019008